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A picture of Kalke Panoho and Jonathan Maxim, with TikTok logos across the top
image: Tina Tiller / supplied

BusinessApril 29, 2023

How a small Dunedin startup helped break TikTok into the US

A picture of Kalke Panoho and Jonathan Maxim, with TikTok logos across the top
image: Tina Tiller / supplied

In 2016 Kale Panoho started a gym in Cromwell, which somehow led to him being part of the early growth campaign of the biggest new app in the world. He tells Duncan Greive his story.

It was 2018, and Kale Panoho was on a sales call with a prospective client. It was a social platform being built out of the ashes of a promising startup named Musical.ly that had been acquired by a Chinese technology giant. Panoho (Ngāpuhi) and his business partner Jonathan Maxim hadn’t heard of the company, but were curious enough to jump on a Zoom, even though it was midnight for Panoho and 3am for LA-based Maxim. They started out by explaining to the client how they liked to work.

“One of the things we try and recommend with apps is just changing the UX,” Panoho says. “So that may be a part of the consideration before we deep dive, but we need to get a hold of that.” Across the ocean, the client patiently heard them out, but wasn’t interested in their opinions about product and design. “That may be a consideration that we’ll look at,” she said. “But at the moment, we just need users.”

Panoho, now 32, laughs now when telling the story – at their naivety in giving feedback on user experience to this client in particular. Because the company that had bought Musical.ly was named ByteDance. And the app that just needed users? It was TikTok.

The app was barely a murmur outside of China (a version there is called Douyin, and is much more tightly restricted) in 2018, but went on an enormous growth curve in 2019 and 2020, becoming the most-downloaded app in the world in both years, and surpassed a billion monthly active users (MAUs) in 2021 – its CEO recently claimed 150 million in the US alone. Its revenues have increased from US$150m to US$9.4bn in 2022, according to the Business of Apps.

At the time of that sales call, though, it was just another ambitious social app, trying to build out a user base in a sector that seemed essentially closed off. Snapchat had been the last major social platform to launch, in 2011. Since then it appeared that the suite of apps built or bought by Facebook – including Instagram, WhatsApp and Messenger – owned the most lucrative parts of the social media universe. Snapchat and Twitter were stuck in a netherworld, too small to take on the giants. Facebook CEO Mark Zuckerberg would either buy or clone anyone daring to try and challenge his dominance. 

So while businesses looked at Meta’s profit margins and saw huge opportunity, venture capitalists were loath to fund challengers, operating under the assumption that the network effects of Facebook and Instagram in particular were too powerful to be defeated. Perhaps that’s why it took an audacious Chinese technology company to properly attack Facebook (whose parent company would soon be renamed Meta) – and might explain why they were comfortable pulling every lever they could to try and build an audience. Including asking a relatively obscure agency, headquartered at the bottom of the South Island, how they would approach that goal.

‘Media is under threat. Help save The Spinoff with an ongoing commitment to support our work.’
Duncan Greive
— Founder

Enter growth hacking

Panoho had always been curious about different ways to approach building a business. He’d worked as a personal trainer, and studied biochemistry at university, but fell into the tech world through a role at the successful startup Education Perfect in Dunedin. Not long after, in 2016, he, his cousin Jonny and Jonny’s partner Alex opened a gym in Cromwell, in Central Otago. They deployed a variety of sharp marketing ideas, using the cheap distribution of social media in that era, and over two weeks essentially pre-funded the setup of the gym by convincing people in a small South Island town to sign up for what was, at the time, just an idea.

He wrote about the experience as a case study for a publication named Influencive in the US, under a very clicky headline: “How we turned $200 into $202,000 of annual revenue in 14 days”. The piece became very widely shared in the hustle culture era, when the idea took hold that working long hours and dedicating your whole life to work was the only way to get ahead. In the aftermath Panoho found his inbox flooded with questions and requests to consult for people keen to replicate that jaw-dropping return on investment. Not long after, he co-founded K&J Growth with Maxim (K&J being the initials of their first names), to formalise the work they were doing into an agency model. Panoho would run the New Zealand office, while Maxim set up shop in Los Angeles.

They focused on performance marketing, which is geared toward achieving a specific and tangible business outcome, as opposed to fuzzier areas like brand or awareness. Most specifically, they set up camp in the approach known as growth hacking. The term was only defined in 2010, by a marketer named Shaun Ellis, and wrapped around the then-voguish idea that for certain technology companies, the only metric that counted was user growth, and that marketing efforts should stay tightly bound to techniques which impacted that at the expense of all else. 

The term has since become the subject of considerable critiques, which see it as connected to the “move fast and break things” culture of firms like Facebook, which seemed indifferent to the impact of their hyperscaling on society or culture more broadly. Yet in 2016, when Panoho published his Cromwell gym case study, the tech world was still in a more innocent era. 

Panoho became known as a consultant in the growth hacking area, and in 2018 went viral again, this time with a video for LinkedIn that described his growth hacking an audience on the platform. He says it was at the time the most-commented-on video in LinkedIn’s history, with just shy of 15,000, and it caught the attention of an investor with connections to TikTok, the still largely unknown app. Panoho and Maxim took the call, then got to work.

grey blue background, a hand with medium tone skin holding up a phone lit up with the tik tok icon
Photo: Getty Images

Start with 100,000 users, just as a test

Panoho says the brief was pretty staggering for a small New Zealand business, one that was turning over just $500,000 per annum at the time. TikTok was deploying multiple agencies around the world with a single-minded focus on user acquisition for the US – the most important market in the world. It was currently costing them around US$10 for each new account, says Panoho. Could they run a test to acquire 100,000 new users, with anything less than US$10 being considered a win? It was essentially an opportunity to more than triple the size of their business with a single client – and simply a test, with the promise of more to come. 

Their initial techniques were not promising. It was a more open era for communications, and they initially tried airdropping spammy links at conferences, achieving a pitiful four downloads as a result. But not long after they hit upon a technique which would prove affordable and scalable. Panoho and his team gathered a group of Instagram micro-influencers – people with devoted followings, but not particularly large ones. They were paid to bulk message up to 150 of their followers a day. The technique they hit upon was to DM a small piece of content, with a tease about what came next. The catch was that the second half of the video actually sat on TikTok.

It had the double impact of not only bringing new users across, but also porting a content creator and their audience from a Zuckerberg-owned platform to ByteDance’s new challenger. Panoho says K&J created a piece of software to automate the messaging, and found it was cost-effective. 

TikTok was thrilled, with its then-client lead Roxy Tang (now at its music streaming service SoundOn) saying of the initial period, “K&J helped us gain over 18,500 downloads in less than 30 days of working together”. Panoho and Maxim found themselves regularly on calls with its most senior leadership, flying to LA to meet executives, and being introduced to the incredible intensity of Chinese 9/9/6 work culture, which still operated wherever in the world its employees happened to be. 

TikTok became by far their biggest and most important client, during a period in which it scaled to 5,000 employees and beyond. Panoho marvelled at the way even at that scale, it still behaved like a startup, with company-wide pivots from focusing on user growth to trust and safety, in the aftermath of disturbing stories about child predators’ use of the platform. 

What has TikTok become?

Within a couple of years TikTok’s need for paid user acquisition melted away, as it became the most popular site on the internet in short order. Over time, its initial reputation as a place for cute dance crazes gave way into something more complex, with problems that seem inevitable with large-scale social media products. Just this week former NZ Herald journalist Olivia Carville wrote a BusinessWeek cover story on a tragic rise in TikTok-linked suicides. It has also become the centre of major geopolitical tension between China and the US, amid concerns over its links to the Chinese government, and the potential for abuse of its content mix.

As someone who played a small early role in that growth, Panoho remains highly impressed with the way the company operates. “As a tool for distributing content, the company’s growth is world-class. We implement growth for our clients at K&J from a mixture of our IP and our time working with them. The way they experiment, iterate and take products to market is exemplary and something we’re far from achieving in Aotearoa.”

For all that, he has much more complicated feelings about TikTok’s relationship with society. “When it comes to the impact of how much time is spent on the application by so many, I’m in dismay. I don’t have any social apps on my phone as I know I don’t have the willpower necessary not to use them, so I delete them altogether. TikTok can take hours from people without them realising, which makes it a double-edged sword – if you’re served content for education and action, great. If not, we’re letting hundreds of millions have their attention taken on a merry-go-round that can end in some dark places.

“The fact that I’m one of the people that helped hundreds of thousands of people go through this experience is something that my 32-year-old self would question compared to the naive 28-year-old who thought that growth at all costs was the smartest thing for every person involved… My job is to help turn attention into revenue, but I can’t help but ask the question of the cost of this on us as a society.”  

As of now, while he remains on good terms with people at TikTok, Panoho is more focused on a startup of his own. It’s a free newsletter called Hakune / The Method, targeting New Zealand startups, aiming to cover the sector and share insights and ideas in a weekly email product. Panoho and his collaborator Rhys Jeffery write punchy, passionate stories about innovative New Zealand companies, without any of the sleepless nights that came from hyperscaling for TikTok. He emails me later asking to put a link to the newsletter in – Panoho never stops thinking about growth. Only now it’s for his own startup, not one of the biggest and most confronting companies in the world.

Keep going!
hand holding money giving it to a outstretched hand
The government funds lots of accelerators, with the hope that it will create more successful businesses Illustration: Toby Morris

PoliticsApril 26, 2023

Shocking new IRD data reveals the average wage earner taxed at twice the rate of the wealthiest New Zealanders

hand holding money giving it to a outstretched hand
The government funds lots of accelerators, with the hope that it will create more successful businesses Illustration: Toby Morris

The survey covers over 300 families, with effective incomes averaging $8m per year, and has the potential to reset the tax fairness debate for the first time in decades.

The results of a landmark IRD study of a group of very wealthy New Zealanders have just been released, revealing a yawning gap between the group’s towering effective incomes, which have a median of around $8m per year, and the corresponding tax rate, which comes in at 9.4%, after benefits are subtracted and GST paid is added in. The equivalent rate for a median wage earner is 20.2% – more than double that paid by this group, comprising of some of the wealthiest New Zealanders.

The research covers the period from 2016-2021, and the IRD noted receiving “a high level of responsiveness” from 400 individuals and their immediate families, resulting in a final group of 311 whose incomes were considered for the report. The reason it emphasised “effective incomes” is that while most New Zealanders earn the majority of their income through wages, which are fully taxed, this group earns the largest part of its income through the increase in the value of assets they own – what’s known as “capital gains”. 

Parker has written a note to accompany the project which underlines this, saying it proves that “we tax those who earn all their income from salaries at a much higher rate than the very wealthy.” He also says that the report “breaks new ground”, because it is built on “actual data”. Parker concludes by saying the reports provide “a fundamental baseline for debate on the fairness of our tax system, allowing future tax policy to be based on better data and more solid evidence.”

What is the report and how was it constructed?

Beginning in October 2021, the IRD wrote to hundreds of individuals it believed to have a net worth of more than $20m, indicating it wanted to look into what they own, covering the six year period covering 1 April 2015 to March 31 2021. It was able to do this thanks to an amendment to the Tax Administration Act which allowed them to compel those selected to reveal the scale of their asset portfolios.

As the project notes, “economic income is a broader concept… it includes non-taxed forms of income, such as capital gains on shares and real property. It seeks to measure the increase in an individual’s economic resources during a period.” The study then attempted to take account for transfers, like working for families, and GST paid on what the group bought and sold. After all that, it settled on a variety of effective tax rates so as to illustrate how much the total wealth of these individuals and families increased during the period, and how much tax they paid on that increase.

What did it find?

The results revealed the group has enormous levels of household wealth, mostly well above the $20m floor identified at the study’s inception. “The mean [average] estimated net worth of the families in the Project population for 2021 is $276 million and the median is $106 million.” It also found considerable variation in how much total income the group cumulatively generated, from a low of $1bn in 2017, to a high of $14.6bn in 2021. 

The biggest driver of this was increases in the value of businesses owned by the group. It’s perhaps telling that the largest increase happened during the first year of the pandemic, when the government’s wage subsidy was in operation – a huge spending programme which flowed into businesses, criticised by some as a wealth transfer from future generations to business owners.

The study notes that 2016-2021 “was a period of relatively high asset price growth,” meaning that it might be somewhat atypical over a longer time period. However it noted that when tested against shares held in listed companies going back to 2004, “effective tax rates were still very low”. 

The low tax rates paid are achieved because this group earns just 7% of its income through wages, with a further 10% taxed at a similar rate through trust income. As a result, an enormous 83% of the group’s increases in wealth was earned through other means, such as increase in the value of property or businesses they own or control. 

“It shows the effective tax rate paid by middle income New Zealanders is at least double that paid by the wealthier New Zealanders in this Inland Revenue study,” Parker wrote in his note. “Our tradies, nurses, school teachers, hospitality workers, hairdressers, cleaners, engineers and small business owners all pay much higher effective tax rates than their wealthier fellow Kiwis.”

The counter-arguments

Last week, in what can be read as a pre-emptive strike against the fundamental basis of the report, Sapere released a report funded by tax consultants OliverShaw. “One of the questions asked is whether the very wealthy pay taxes at the same or higher rate than middle income earners,” says OliverShaw Principal, Robin Oliver. “This research [from Sapere] shows clearly that, whether you consider taxable income or other measures, such as economic income, the answer is: ‘Yes, they do’.”

The Sapere report had clearly been digested by the IRD report’s authors, who singled it out for a specific response. “The Sapere research shows scenarios assuming that most income is earned in a taxable form up until retirement. In contrast, the [IRD] Project population earn most of their income as returns on investment that are not directly taxable.” OliverShaw itself issued a statement about the IRD study, decrying it as “likely to paint a misleading picture of our tax system making it seem broken when it is not… It is based on officials’ assumptions about unrealised capital gains and a tax treatment of the family home that would not be acceptable to New Zealanders.”

‘Media is under threat. Help save The Spinoff with an ongoing commitment to support our work.’
Duncan Greive
— Founder

The Act party, long a proponent of a low rate flat tax system, approvingly cited the OliverShaw-commissioned report, while has decrying the IRD study as “a politically driven fishing expedition”. It goes on to explicitly reference a capital gains tax, saying “a CGT won’t address any of the issues in New Zealand’s society. It will make people less aspirational and less likely to invest in an economy that needs to grow.”

What happens next?

All eyes are on David Parker, whose speech today will expand on his remarks to accompany the reports. In the speech, an embargoed copy of which was distributed to media, he describes the IRD’s report as delineating a “fundamental unfairness in our tax system”.

PM Chris Hipkins has worked assiduously to develop a cautious and pragmatic reputation since taking over from Jacinda Ardern, but told Morning Report today that the government’s position on tax would be clear ahead of the election. Parker backed this up in his speech. “I want to be clear today that I am not announcing any new tax policy or tax switch. Labour’s tax policy will be announced before the election.” However, both statements leave an opening for a reversal of Jacinda Ardern’s ‘not on my watch’ position on a capital gains tax. Parker is also at pains to say that any such tax would be limited in its scope. “I have never favoured taxing the family home, either by way of capital gains or imputed rents. High rates of home ownership are a cornerstone of a fair society.”

Still, it’s clear from what Parker describes as a “truly groundbreaking” study, that it is intended to be a new baseline to understand the nature of tax in New Zealand. It all sets the stage for a debate which is more substantive and less vibes-based than any prior, with this report laying out in detail how much of the effective income of our richest is derived from the increase in the price of assets they hold – and thus the relatively small proportion of it which is in scope of our current tax system. During a cost of living crisis, it’s the foundation for a potential future tax switch which reduces the burden on wage earners in return for introducing, for the first time, a broad-based tax on other forms of income.

read more: All of a sudden, a capital gains tax is back on the political agenda

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