Category: business advice

Rethinking startup rules

Much of the current mindset around investing and supporting startups creates barriers to founding new businesses. What can we do better?

What are some of the barriers to increasing diversity in the startup community’s monoculture? Yesterday we had an insight into some of the changes needed at the Women in VC forum held in Sydney.

Samantha Wong, partner at early stage startup accelerator Startmate and Head of operations at Blackbird Ventures, described how Startmate identified some of those barriers among the 51 companies that went through the program and the steps to overcome them.

What Samantha and her team found illustrate how the Silicon Valley model of founding and funding businesses inadvertently creates obstacles for women, older workers, disadvantaged groups and poorer people.

Insisting on Solo Founders

“Previously we had a rule that you couldn’t be a solo-founder. It’s too much work to do it by yourself,” she explained.

There’s good reason for that belief as building any business on your own is hard, regardless of whether it’s a tech startup or a dog walking franchise.

It’s understandable that investors are reluctant to get involved with a ‘one person show’, although a lack of capital is going to make life extraordinarily harder for a sole founder or proprietor.

The myth of the tech co-founder

“You had to have at least one technical co-founder in the team.” Samantha explained, “the reasons for this rule were historical.”

This belief goes back to the origins of the Silicon Valley business model where companies like Apple, Hewlett-Packard, Microsoft and even Google were founded by ‘two men in a shed’ where one was the marketing or sales whiz and the other delivered the product.

Interestingly many of the recent successes like Facebook, Uber and AirBnB haven’t had that dynamic, probably because the technology industries have matured to a point where developer and product managers are established trades or professions are easily available as well as cloud based tools making technology itself more accessible.

So a ‘tech co-founder’ will almost certainly be useful but isn’t essential to get a business off the ground in today’s tech environment.

Being in attendance

“We had a blanket rule of requiring participants to be in Sydney for the full duration of the program,” says Samantha. “The reason for this we know from experience that ninety percent of the program’s value comes from that sharing which happens between founders, the support and the friendly competitive pressure you get from them. It brings the best out of you.”

Startmate changed its policy so only one of the co-founders needs to be in Sydney. While it doesn’t solve the problem of solo founders with family obligations that don’t want to move, it does make it easier for those with dependents to participate.

Dropping the blanket rules

Over the six years Startmate has been running, they’ve seen a change in the nature of startups joining the program. “When the program started in 2011 we gave a small amount of money to a couple of people to build a product and start attracting customers,” Samantha said.

“By 2016 we were attracting much later companies that already had revenue and the program’s focus became growth and fund raising.”

“So instead of blanket rules we started to ask ‘what does this company need to grow in the next three to six months?’ Do they enough resources right now? Is the product good enough to sell? If you can get good answers to those then it’s worth considering them joining.”

The lessons from Startmate in increasing diversity among their intake are instructive and it indicates the limits of the Silicon Valley model that favours young, middle class men over other groups.

For the tech industry, that focus on one group is a great weakness and means investors are missing a world of opportunities. Ditching existing biases and established wisdom could be a very profitable move from everyone.

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Meeting the future head on

What lies ahead for business is the topic we’ll be looking at the Meeting the Future Head-On panel

What can businesses do to prepare for an exciting but challenging future?

As part of the New South Wales Government’s Back to Business Week, I’ll be on the Meet the Future Head-On panel looking at the future of business and work.

Facilitated by Jo Kelly, Director of People, Place and Partnership, the seminar will look at local and global business changes and what they mean for small to medium companies.

The keynote speakers are Terry Rawnsley – Principal & Partner of SGS Economics and Planning – who’ll discuss his company’s analysis of the economy in the year 2026, and Karen Borg – the Chief Executive Officer of Jobs for NSW – with an overview of the state’s Jobs for the Future report.

Joining me on the panel will be Paul Fairhead, the Managing Director of Huddle; Jost Stollmann, the Executive Director of Tyro Payments and Marianne McGee, the owner of Allis Technology.

Tickets for the 6pm event on March 1 at the Sydney International Convention Centre are free and can be booked through Eventbrite.

Come along and have your say. Look forward to seeing you there.

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Australia’s changing startup landscape

The 2016 Startup Muster report tells us a lot about the state of Australian business.

Last week, the annual Startup Muster report on the Australian startup sector was released, giving investors, founders and policy makers a valuable snapshot of a vibrant sector of the economy.

The 2016 report had 2711 responses to the online survey which the researchers whittled down to 685 startup founders, 239 potential founders and 474 startup supporters.

Compared to the previous years, the replies are an increase from the 602 in the 2015 survey and 385 the year before. It shows how the Australian scene is growing and evolving.

Still a boys club

A key finding from the 2016 Startup Muster report is the changing gender composition of a group that, quite rightly, has been criticised for being too much of a ‘boys club’. This year’s survey found 24.6% of founder respondents were female, up from 17.4 and 16.1 in the previous two years.

One area where Australia’s startup community does boast diversity is in its industry composition with 17% of the country’s startups in 2016 being focused on the most popular category of Fintech. Notably that sector came in at seventh in 2015.

2015 2016
Marketing Fintech
Content/Media Retail
Retail Content/Media
Big Data Internet of Things
Health Education
Education Marketing
Fintech Social media

Also notable in that list was the disconnect between startups and investors. While 17% of Australian startup founders were focused on Fintech, 42% of investors were. The area most of interest to investors was medical technology (47%) with the Internet of Things second (43%).

Over the next few years it will be interesting to see how investment fashions change, in the UK the bottom seems to have fallen out of the fintech boom while global investments seem to have increased. It’s likely Australia will follow a similar pattern to the wider global trends.

Sydney’s decline

Another interesting shift is the balance between cities and states with New South Wales and Sydney remaining dominant but its position slowly falling,

2015 2016
outside capital cities n/a 23.1
NSW 44 40.9
Vic 17 18.8
Qld 16.5 19.3
WA 8.9 7.3
SA 2.9 6.3
Tas 0.6 2.3
ACT 6.4 6.2

The fall in Western Australia is probably due to the state’s economic collapse in the face of the dying mining boom – many of WA’s skilled and affluent workers are moving out rather than struggling with a declining economy.

Efforts by the Victorian and Queensland governments to promote their startup sectors seem to have had some success although the real winner is South Australia, something underscored by US incubator TechStars’ recent launch in Adelaide.

The big question though is how attractive Australia is as a location for startups and investment capital.

Funding woes

In the 2016 Compass Global Startup Ecosystem Ranking report, Sydney fell four points from the 2012 survey to 16th while Melbourne fell out of the top twenty city rankings.

Due to its position as the second lowest on the Growth Index within the top 20, and its comparably weak statistics around Performance, Funding, and Market, Sydney now ranks #16 (down from #12 in 2012).

Compass’ findings show a critical problem for the Australian sector, regardless of its location, industry or founders’ gender – the lack of later stage investment funds.

That lack of funding means Australian startup founders are particularly sensitive to money issues with Startup Muster finding the most common hindrance to people launching startups is life circumstances requiring a stable income. In a high cost society, the need for a regular salary isn’t surprising.

Startup Muster’s 2016 report is a very useful snapshot of the state of Australia’s tech startup community. It serves as a good guide to what business founders, investors and policy makers should be considering.

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When does a digital strategy matter?

Some businesses are obsessing too much about their digital strategy, a UK based business professor believes.

Should a business spend a lot of time on its digital strategy? A recent article in the Harvard Business Review suggests many businesses, and consultants, are focusing too much on the technology.

Freek Vermeulen, an Associate Professor of Strategy and Entrepreneurship at the London Business School, describes how strategists may be making a mistake in responding to digital disruption. He argues many industries are learning the wrong lessons from disruptors like Amazon, Uber and Google.

In Vermeulan’s view, the world is not a globalised as we’d like to think and the network effects that work so well in internet based industries don’t necessarily translate to other sectors.

As a consequence, businesses that work on the assumption their industries will be affect the same way as, say, the taxi industry with Uber or newspapers by Google and Facebook may well be making their own strategic mistakes.

Digital is changing the nature of competitive advantage in many businesses – just like major technological developments have done before. However, the change will not be uniform across all industries. Digital technology is affecting and will affect different businesses in different ways. Miss these nuances and your strategic decisions could lead you seriously astray.

That’s certainly true and how technology or a rapidly changing economy affects each industry, or business, is far from uniform.

One of the case studies Vermeulan uses is that of a consulting firm that has largely eschewed digital platforms and focused on its human assets – primarily the skills and connections of its associates and staff.

While that’s undoubtedly true of all consulting businesses to some degree, the use of digital tools and marketing is changing that industry dramatically as well.

Vermeulan is right in that some industries may want to respond more slowly than others to digital or economic changes, however a business that disregards them or reacts too slowly may not know what hit it.

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GorillaStack – the weekend hacking exercise that grew into a business

As a business born out of a weekend hack Sydney based GorillaStack is almost a classic tech tale.

As a business born out of a weekend hack  Sydney based GorillaStack is almost a classic tech tale.

“I was involved in a startup previously,” says GorillaStack’s CTO, Elliott Spira, recalling how the company was his co-founder Oliver Berger at the AWS Re:Invent conference in Las Vegas last week.

“We noticed we had spikes in our AWS spend, there was a big attribution issue and one day we said ‘how about we do a weekend project and try to spin something up that listens to our Cloudwatch metrics and tells us how much we’re spending at any time of the month.”

As the challenge was accepted, the team went to work. “We hacked away all weekend as we like to do, being nerds, and by the time the weekend was over we had the basic cost dashboard that told us how much we were spending each month.”

Adding more features

“The next weekend we decided to add another feature and we decided to add cost alerting where we’d get an email when we passed a certain threshold. That was really cool as we could budget and know when we were spending too much.”

“On the following weekend we started working on periodic alerts on how much we were spending over a set set time and from there the idea started to prosper, we thought ‘oh wow, we have a bit of a product going here. Let’s show some friends who also use AWS.’ From that feedback we found people wanted to keep the dashboards up and keep track of what was being spent.”

Today GorillaStack offers a service that allows companies to manage their AWS usage, something that can easily get expensive for organisations not closely watching what they are using. “What we try to do is make a cultural change where people become conscious of what is actually theirs in the cloud.” Elliott says. “We’re actually seeing that change.”

Living the culture

“In terms of that culture, we try to live that culture as well. We have private Slack channels with each of our customers so there’s a constant line of communication,” says Oliver. “Those Slack channels have proved to be an effective customer support and product development tool. “we’ve fostered quite a good community.”

With the initial hack being successful the company was formally founded in June 2015 and to date is bootstrapped, having not taken any investor’s money. “We want to get to a stage where we’re comfortable with the product,”says Oliver.

Currently the user base includes paid customers like Citrix, Bauer Media, Health Direct and the Australian Football League. “We have quite a good spread in terms of geography and mix of customers,” observer Oliver. “Right now the breadth suits us.”

Applying the freemium business model

Following the freemium model, the company also offers a free tier offering a single switch. “If you want anything more you move onto our paid tiers,” says Elliott.

To the question whether the company is looking at catering to other services such as Microsoft Azure or the Google Cloud, the dominance of AWS comes into play. “Right now we’re definitely sticking with the giant, we’re really looking at growing our capability so we do more and offer more to our existing customers,” says Elliott. “I think it’s really important to focus on delivering value to them and our business’ future,” Elliot says.

Looking to the immediate future, their focus is on extending their current customer offering. “We’ve a fair bit on our roadmap, we have a bit focus on chatops with a more in depth integration with Slack and Hipchat integration with our existing product,” says Elliott.

In talking to the Gorilla Stack founders, it’s striking just how the startup follows the classic tech model of a bootstrapped company that started by a bunch of hackers solving their own problem. How the business evolves will be fascinating to watch.

Paul travelled to AWS Re:Invent in Las Vegas as a guest of Amazon Web Services

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Having a culture of yes

Key to fostering a company wide culture of innovation is management’s willingness to say ‘yes’ says AWS CEO Andy Jassy

One of the biggest impressions from the AWS Re:Invent conference is the company’s rapid innovation with the firm’s executives boasting how they have offered over a thousand features on their services this year.

That sort of rapid change requires a fairly tolerant attitude towards new ideas and risk, which was something AWS CEO Andy Jassy explained at the media briefing.

“In a lot of companies as they get bigger, the senior people walk into a room looking for ways to say ‘no’. Most large organisations are centrally organised as opposed to decentralised so it’s harder to do many things at once,” he observed.

“The senior people at Amazon are looking at ways to say ‘yes’. We don’t say ‘yes’ to every idea, we rigorously assess each on its merits, but we are problem solving and collaborating with the people proposing the idea so we say ‘yes’ a lot more often than others.”

“If you want to invent at a rapid rate and you want to push the envelope of innovation, you have to be unafraid to fail,” he continued. “We talk a lot inside the company that we’re working on several of our next big failures. Most of the things we do aren’t going to be failures but if you’re innovating enough there will be things that don’t work but that’s okay.”

While Amazon’s management should be lauded for that attitude, they are in a position of having tolerant investors who for the last twenty years haven’t been too fussed about the company’s profits. Leaders of companies with less indulgent shareholders probably can’t afford the same attitude towards risk.

There’s also the nature of the industry that AWS operates which is still in its early days, sectors that are far more mature or in declines – such as banking or media respectively – don’t have the luxury of saying ‘yes’ to as many ideas as possible.

Jassy’s view about encouraging ideas in the business is worth considering for all organisations though. With the world changing rapidly, having a workforce empowered to think about new ideas is critical for a business’ survival.

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Regulation and technology

It’s often easy to underestimate the effects of regulation on the development of industries and innovation.

It’s often easy to underestimate the effects of regulation on the development of industries and innovation.

Around the world jurisdictions are struggling with balancing regulation and innovation, last week in the UK Uber lost an employment tribunal case 0ver the employment status of its employees . While in Switzerland the country is struggling with rules over Blockchain as the nation tries to build a ‘Crypto Valley’.

Striking the right balance in regulation isn’t trivial. As the development of Silicon Valley’s finance models shows, government rules were critical to how the venture capital sector has evolved.

The US Small Business Investment Act of 1958 was the first step in the sector’s development with the creation of “Small Business Investment Companies” (SBICs) to fund and manage smaller enterprises in the United States. In 1978 the sector received a greater boost when pension funds were allowed to invest in the sector.

We’re now seeing a similar thing happening in the US where the Digital Millennium Copyright Act – a law passed to protect the Twentieth Century business models of record companies and movie studios – is being softened to allow end users to examine and maintain the software on the devices they own.

If the trial is allowed to become permanent, it will almost certainly see a far freer and innovative software environment which may even help overcome some of the security problems with the Internet of Things.

Often though that balance isn’t correctly struck and recently we’ve seen many poor decisions that have concentrated power, particularly in the financial and airline industries where governments have allowed huge conglomerates to dominate their markets which stifles innovation and growth.

Those innovation stifling regulations though don’t guarantee companies’ survival as the taxi industry discovered. Despite reams of laws and regulations protecting their licenses, Uber effectively blew up the business as they offered travellers a far better option to the often poor services provided by local cab companies.

Regulation is always going to be a balancing act between protecting the community’s interest and allowing business and society to evolve. It’s one reason why as citizens and taxpayers we need to be demanding our governments are open and transparent in their dealings and law making.

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