Building An Ecosystem

Sir Paul Callaghan’s suggestion that more successful startup businesses are the key to lifting our prosperity moved the goalposts.

Creating great companies one at a time was no longer good enough.

The narrative shifted and instead we settled on a new objective:

Building an ecosystem of innovative technology startups in New Zealand.

But what exactly do we mean by that?

Unfortunately, as we’ll see, most of those words that get repeated over and over are like a dust cloud: our hands go right through when we try to grab them.

What’s more, in our rush to build this ecosystem faster we overlook the more fundamental and interesting question: why do we want an ecosystem in the first place?

Let’s start at the very beginning ¹ …

What is a startup?

A startup is any company where the founders can’t leave.

Most startups exist only because the founders turn up every day, lean in and prop them up. If and when they stop doing that, often the whole thing flops over like a deflated bouncy castle.

That’s flippant. But attempting a more accurate definition than that is harder than it seems on the surface.

The obvious answer is that a startup is any newly established venture. But there are many (most?) small businesses that more-or-less immediately take on their final form. When do they stop being a startup? That suggests there is an element of ambition involved - a startup is a new thing that is small now but aspires to be bigger. Or a transition - a startup is a temporary state between nothingness and an eventual steady state. Or uncertainty - a startup is something that might not work, and as a result we’re perhaps less surprised when they don’t.

The startup phase is sometimes described as the search for, development and validation of a “scalable economic model”.² We can break this down into two stages:

Early stage

This is the genuine start, when we have a lot to prove to ourselves and others (even if we only outwardly acknowledge the latter) and only a limited time to prove it, typically constrained by how much funding we have available.

The questions at this stage are:

• Can we make the thing we have in mind?
• Does anybody want the thing we make?
• Will enough people pay directly for the thing (or is there some other indirect way to sustainably finance it)?
• When we add up all the costs involved in product development, maraketing, sales and support is there anything left over?

There are now many different philosophies for how to navigate this stage of a venture, but the thing they all have in common is what we might call “the search for product-market fit”.³

If we’re not sure whether a specific startup has achieved product-market fit yet, the answer is “no”!

High growth

Assuming the answer to all those questions is emphatically yes, the problem quickly shifts to how we cope with a rapid increase in multiple dimensions at once:

• More customers - including many who are not a great fit for our product or service as it is, and others who require more hand holding and convincing as we push beyond early adopters
• More team members (a.k.a. more payroll!) - as we need to hire people to manage the people and more people to hire and administer the people who manage the people etc, soon after that we won’t know everybody’s name
• More locations - it’s unlikely these will all be in the same timezone so the team will spend a growing portion of their time travelling
• More product complexity - often a consequence of having more customers, each of whom will likely have a small tweak they’d like us to make that needs to be prioritised
• More legacy - as every single shortcut we took in the early stages is a debt that comes due in this stage
• More competitors - it’s common to feel we’re sandwiched between larger, more established competitors and the smaller, nimbler early stage companies that pop up in our wake as we grow
• More visibility - both a blessing and a curse
• More investors - deciding how to finance all these things is often the most important question at this stage, and we also have to think about the smaller investors who helped us get going in the beginning as they turn their attention to getting a return on their investment, which while understandable can be a big distraction.

Startups are not all created equal. Only a small percentage of early-stage startups ever create escape velocity and survive to become high-growth companies.

It’s not especially helpful to group these very different types of businesses under the single “startup” umbrella. We should be more specific about what we want. Just creating as many early-stage startups as possible isn’t the goal.

The more interesting question is:

How does having more startups help us?

Made in New Zealand

When we talk about New Zealand companies working together we often refer to ourselves as NZ Inc.⁴

We don’t stop to think what it actually means or question why a grouping of Kiwi companies would adopt the US business naming convention.

What is a New Zealand company?

Again, there is a seemingly obvious answer: a company based in New Zealand. Duh!

What does it mean to be based in New Zealand?

It’s surprisingly difficult, when we think about it, to nail down the aspects of a business that might make it distinctly “New Zealand”.

Some of the things that we might consider:

• Where is the company registered?
• Where do the shareholders live?
• Where is the team located? (i.e. where do we have offices or premises?)
• Where does the company pay tax? (it’s tempting, but simplistic, to assume this is just the same as “where do we have customers?”)

If the answer to all of those questions is “New Zealand” we can say clearly it is a New Zealand company. But as soon as one or more of the answers is something other than “New Zealand” it gets complicated.

Maybe once upon a time there was a cleaner distinction between businesses that were local (those that were entirely based in one country - owners, staff, customers etc) and those that were, so called, multi-national. But now it’s not at all unusual for a very small company to be spread far and wide from the beginning.

This is especially true of any successful high-growth startup. As they expand they will likely hire people based offshore, to better serve an international customer base, at which point they will be paying tax in multiple places. When they raise capital they will find investors all around the world who will be interested in becoming part owners.

Are they still a New Zealand company then?

What about if a startup does all of those things: re-incorporates as a US company, has most of their team and a majority of their shareholders elsewhere (because of how much capital they have raised to fuel their growth)?

It gets even weirder when we consider provenance. Was the company started here? Or, was one of the founders born or raised here? It’s always a stretch, but we do love to collectively claim ownership of any big success.

In 2011 I watched Wales play Samoa at the Rugby World Cup. The teams included a Welshman called Taulupe Falatau and a Samoan called Paul Williams. Globalisation has made previously simple things more complex!

Who cares? Why does this even matter?

It comes back to why we want to build this ecosystem in the first place. We believe there will be significant collective benefits for all of us in New Zealand, if we’re successful in creating more of these companies. Because of that, there are also some costs we choose to share (for example, through public funding). And that begs the question of who gets this support, how much they get and when they get it.

Consider the debate that gets crystallised whenever a company that we consider to be a New Zealand company is sold outright to a buyer overseas. Is it a good thing? Or a bad thing? How do we compare the current value of the company to all of us versus the long-term value of the capital the sellers receive, re-invested in as-yet unimagined things in the future? What are we optimising for? As we’ll see, if our answer is “retaining 100% ownership by New Zealanders” I think we’re going to be underwhelmed by the results.

Unless we understand what the shared benefits are and how we realise them, how do we share the costs appropriately?

Again, the question is:

What are the shared benefits we want from startups in New Zealand?

The tech sector

When we talk about technology companies in New Zealand, one of the things we like to say is: the technology sector is the third largest exporter, behind dairy and tourism.

We say that over and over and over. It’s diligently reported each year in the media, is amplified by politicians and becomes an accepted part of our story, mostly without reference to any source.⁵

I believe the original source is the TIN Report.

This is published each year by a private business, funded by a range of public sector sponsors. Companies featured are asked to contribute their own data for free, so it can be compiled into a report that is sold back to them (at $400/copy, more if you prefer a printed version). Ironically TIN does not disclose their own revenue, but given that business model it’s presumably pretty lucrative.⁶

Because data is supplied on trust it’s impossible to verify. I know of multiple examples where very round numbers have been supplied and printed, and other examples where no numbers have been provided at all, so TIN have just guessed. Greg Shanahan, the founder and managing director of TIN, admits that the report describes exports only in the “colloquial sense” because they include revenue that is earned and spent offshore and never touches New Zealand.⁷ While the intention is to count New Zealand companies, as we’ve seen that is difficult to define, and as a result the report includes some companies with significant international ownership and excludes others that have a large New Zealand presence.

And then there is their definition of the “technology sector”…

Will the real tech sector please stand up?

When we look for it using official Stats NZ data we discover that “technology” is not actually an industry sector at all. Instead companies are grouped using the Australian and New Zealand Standard Industrial Classification (ANZSIC), where the nineteen top level categories span Accommodation & Food Services to Wholesale Trade. The closest we get to technology is Information Media & Telecommunications. To really geek out, scan the full list of level four categorisations, which covers everything from Hydro-Electricity Generation to Whiteware Appliance Manufacturing, and ask which of these now use (or should use) technology as an important part of their businesses (spoiler: it’s nearly all of them).⁸

To get to the “third largest” headline numbers TIN combines companies from across these industry groups, including IT services and support, software development, biotechnology, and high-tech manufacturing.

We can argue about what should and shouldn’t be included, and different organisations producing reports will choose different combinations.⁹ Either way, it’s all arbitrary. Saying the technology sector is the third largest is just like describing New Zealand as “100% Pure”.

It gets even more complicated when we consider that the sector celebrates together each year at the Hi-Tech Awards.¹⁰ We may sensibly ask, how high does technology need to be in order to be high? For example, is a software-as-a-service product, like Xero or Vend or Timely, that is fundamentally a multi-tenanted database with a web front-end really very high at all?

Those are uncomfortable questions for anybody who understands the actual technology involved!

Maybe a better way to approach this question of who is or isn’t a technology company is to look at the business model: What is the product or service being offered, how and to whom?

Some examples…

Consider a team of engineers and designers who develop a software platform that is sold on a subscription basis. This is what we call a software company these days, and clearly a technology company. The raw materials are software, the product that is sold is software and even the method of delivery is software. Easy.

Now consider the same team but rather than building a platform that’s sold to customers, they develop in-house tools to run an online store and behind-the-scenes retail warehousing system. Are they still a technology company or are they now a retailer?

What about the same company but without their own team building the tools. If they use third party software but run their business entirely online are they still a technology company or still a retailer? And what of the third-party team that’s contracted to build those tools? Are they a technology company or a services business?

What about if the third party doesn’t build tools at all but instead provides technology services - e.g. processing payroll, running data centres or providing customer support (note: one of the biggest companies featured in TIN every year is Datacom and this is a simplified description of their core business).¹¹

It gets even more blurry when we consider companies that don’t employ any engineers or designers at all, but who use technology at the heart of their product offering. For example, a business that sells online photo and video packages so tourists who are brave enough to bungee off a bridge can relive the moment and brag about it to their family and friends. Are they a technology company or a tourism business?

Those are just software examples. We can go down the same slippery slope with manufacturing and biotechnology. If we develop robots to grade and sort fruit, are we a technology company or a horticulture business? If we purchase these robots pre-designed from overseas and then assemble and sell them here, are we a technology company or an importer/distributor?

Describing most of these examples as “technology companies” makes about as much sense as saying that our local café is an electricity company, because that’s how they power their coffee machines.

Start with the customer experience and work backwards to the technology

At this point it’s tempting to push for a narrow and pure definition of a technology company (e.g. only those companies that develop software and/or hardware and sell it themselves?) But what use is that?

I propose a much broader definition:

Every company is a technology company.

Or, at least, every company could and probably should be a technology company.

There isn’t a separate technology sector.

A business in any sector that isn’t using technology in its operations is an investment opportunity. Applying technology to it will likely have a big positive impact.

Having engineers and designers on our payroll is nothing to celebrate, in and of itself. Although if we have none that should raise an eyebrow. We need to think harder about what sector our customers are in and how we fit into that sector, rather than simply defining ourselves as technology companies and thinking that is enough.

If we run with that logic, we arrive back at the exact same list of sectors we already use in official statistics.

Once we can accept that it’s mostly nonsense to define what is and isn’t a technology company, we can stop putting our energy into drawing a line around “the sector” and reaching for participation trophies and instead focus on how technology can be applied to make every organisation better.

A much more interesting exercise is to consider what we mean by “better” - i.e what do we like about those companies that we currently call technology companies and want more of?

This brings us back once again to the same underlying question:

How does technology make things better for everybody?

Innovation vs. Execution

Time to innovate…

One of the things that nearly everybody thinking about the question of building an ecosystem seems to agree on is the need to be innovative. The reason that this sentiment is so common is because each of us means entirely different things when we say it.

What is innovation? What is an innovative company?

Innovation means: “fresh thinking, applied to create value”. But, again, when we reach for any definition more specific than that it is elusive.

The OECD uses the Oslo Manual, which has a particular definition of innovation used to ensure consistency of Government data collection between countries in the group.¹² One of their criteria for being an innovative company is having more than 5 FTEs. The reasons why are not explained, but perhaps it’s a reflection of a steady-state mindset (i.e. small companies are likely to stay small). Either way, that’s bad news for nearly every early-stage company who likes to consider themselves “innovative”. You’re not counted!

Often we get stuck on the “fresh thinking” part of the definition and never get to the “creating value” part.

That is to say we nearly always conflate innovation and invention.

Remember, often the person who invents something and the person who works out what that thing is for are different people. An inventor has an idea. A company executes an idea.

There are four stages to the development of a market for a product:¹³

In the beginning the most important thing is technology. We’re trying to discover what it is possible to make, and what is the best way to make it. However, as soon as there is competition, the most important thing is features. It becomes less about what the technology does and much more about what the customer wants or needs to use the technology to do.

That continues to be true for as long as customers still care about missing functionality. Once the various competing products and services in a market have feature parity, the differentiator becomes experience or how it makes customers feel. This is often more about subjective things like brand and design.

Finally, once customers can no longer tell the difference between different options, the product or service has become a commodity and the only differentiator is price. The most successful products at this point will be those that can be produced efficiently at scale.

So,

1. Technology (until there is competition)
2. Features (while customers still care about missing functionality)
3. Experience (for as long as customers can tell the difference between different options)
4. Price (once it’s a commodity)

Each of those stages require different skills and likely different people.

Is it better to invent something new, or to work out what that thing is for, how to make the experience of using it delightful and remarkable, how to convince people to buy it, and how to make it and support it at scale?

An innovative idea is like an algorithm that has never been run on an actual computer. What matters is how well it executes.¹⁴

The likelihood that any non-trivial software works first time as intended is infinitesimally small. That is the art of software development. And, if we extend the metaphor, the challenge of creating a successful business. We need to get beyond ideas.

Execution is one of those business jargon words we use, often without thinking about what it really means.

Ideas require getting one new thing right. Execution requires getting thousands of little things right, and repeating them over and over.

Ideas appear in the “a-ha” moment of inspiration, when the lightbulb goes on. Execution is perspiration - putting our head down and doing the mahi.

Ideas are new and shiny and exciting and recognised with awards. Execution is exhausting and mostly far away from the spotlight, (until a company that has executed consistently is sold and then everybody scratches their head and wonders how a business that didn’t seem very innovative managed to become so valuable).

Ideas are the denominator. Execution is the numerator.

Ideas are R&D (usually more R than D) and so are often eligible for generous government support. Execution is operating expenses, and so needs to be funded entirely by investors or customers.

Ideas are smiling people in stock photos wearing white lab coats. Execution is rent and payroll, distribution, logistics and sales.

Ideas require us to dream big.¹⁵ Execution insists that we find the right size - meaning, the scale of the business that can be maintained.

Ideas ask “can we make it?” Execution asks “should we?”

Ideas are about being the first. Execution is about being the best.

Which do we want to be?

To be a successful startup, do we need to be innovative or great at execution? Or both?

The noise about innovation is mostly focussed on “new and different”, but what about those companies that do “familiar but better” - i.e. take an existing idea and deliver it in a way that means many more people will be enticed to buy it?

Look at the most successful companies. We see that pattern repeated again and again:

• Apple was not the first to produce any of the products they are most famous for (they didn’t invent desktop or laptop computers, they didn’t invent portable music players, they didn’t invent smart phones … etc)
• Google was not the first search engine.
• Facebook was not the first social network.
• Amazon was not the first online store.
• Netflix was not the first streaming video service (in fact, in the beginning Netflix wasn’t even itself a streaming video service, but that’s another story).
• Zoom was not the first video conferencing tool, by a long way

The list is long.

The thing all those companies have in common though is that they were each massively successful in convincing people to use and buy the products and services they make and sell. They were often the first to really work out what these things were for, and as a result how a wider audience could be made to desire those things. And that underpins their financial success.

Now they all spend millions of dollars each year on R&D, but that’s not necessarily what got them there.

Sometimes the innovative thing isn’t the product at all, but the distribution channel or revenue model. For example, Xero took the existing and familiar (and, let’s be honest, pretty low-tech) category of accounting software and built a massive company by providing free tools (and a lot of love!) to accountants; using them to reach a large potential market of small business customers; and charging a small monthly subscription rather than an up-front fee. In the process proving there was still a lot of value to be captured in that existing category.

Is product innovation just a distraction? No, not at all. There are startups that have invented something and executed well, and in the process created a big success. In other words, occasionally the people who invent things and the people who work out what they are for are the same people.

But the invention isn’t the multiplier in that equation, it’s table stakes. It’s a sometimes ingredient, not a leading indicator or prerequisite. A great product is important, but great product distribution is much more important.

This means it’s not enough to say that a company is innovative. Or that it isn’t. It doesn’t tell us much.

One of the reasons why innovation is given so much prominence is that it’s easier to measure. It’s simple to calculate the amount spent on R&D. It’s much more difficult to determine the Return on Investment (ROI). Plus, the amount invested is immediately obvious whereas we often have to wait a long time to understand the potential returns, and the milestones along the way can be subtle if we don’t know what we’re looking for.

Inventors are a distraction. When we’re screening for individual companies that are potential future winners, what we’re really looking for is something much less common, much more difficult and unfortunately much more boring: who can execute well, and do it repeatedly? Maybe when we named a government agency after Sir Paul we should have called it Callaghan Execution!

We need to decide: what are we optimising for? Do we want one of the inputs (the people who do research), or all of the output (the teams that turn research into businesses)?

It’s a familiar question once again:

What collective value do we get from innovation?

Build vs. Grow

Next, let’s lift up a level from thinking about individual companies to focus on the “ecosystem” of companies…

An ecosystem in the natural world is the combination of living things (the biotic) and the environment they live in (the abiotic). It’s constantly changing in response to external and internal forces - things outside the ecosystem that cause the environment to shift, or natural lifecycles that occur within the ecosystem. Diversity within the ecosystem determines how healthy it is, how well it can cope with external shocks and whether it lasts to span multiple generations.

Is it weird to talk about an ecosystem of startups?

Maybe not. Many of these concepts do translate.

A startup ecosystem is the combination of the founders, the ventures they start and grow, and the people working directly on those (the biotic) and startup derivatives (the abiotic) - i.e. the things that exist to support, encourage, protect and grow these ventures: incubators (a.k.a. innovation hubs + technology clusters), accelerators, shared working spaces, venture funds, angel groups, government economic development agencies, etc.

This startup ecosystem is also constantly changing in response to external and internal forces - new ventures are started and funded (through investment or grants or both), some quickly die, some grow large, some are acquired which creates a feedback loop, releasing capital and people with relevant experience back into the system to the benefit of the companies that follow them. Every new beginning comes from some other beginning’s end.¹⁶

Again mirroring the natural world, diversity within a startup ecosystem determines how healthy it is, how well it can cope with external shocks and whether it lasts to span multiple generations.

How do we build a startup ecosystem?

We don’t, obviously! We grow one. We are growing one!

It’s tempting to think of the startup ecosystem as a single entity. And even the thing of primary importance over and above any of the individual components.

But think about the specific individual actions that actually cause this ecosystem to grow: a startup hires a new team member or wins a new customer or attracts new capital investment. These things all occur one company at a time, from the bottom up, not by design or diktat from the top down.

Unfortunately, when we talk about our startup ecosystem in New Zealand, it often feels like startups themselves are quickly forgotten, while we struggle to get beyond debating the merits of various derivatives. Describing the ecosystem by listing the public and private sector programs that support startups is like describing our national parks by showing the Department of Conservation organisation chart.

This is a chicken-and-egg problem. In any ecosystem, species struggle without an environment to live in, but equally just creating an environment and hoping that biodiversity creates itself is idealistic and likely to fail.

As we’ll see, startup derivatives could all play an important role in growing the startup ecosystem, but only if they contribute what they promise.

We’re quick to celebrate success as an ecosystem - as we should whenever startups are sold for large amounts. But we’ve done a terrible job of connecting the dots between the various initiatives we’ve used to encourage success and the outcomes we celebrate. The reality is that there are very few successes that have emerged from incubators or accelerators or angel groups or the various government programs intended to bootstrap the ecosystem. Meanwhile, there is a growing list of founders who have mostly ignored this noise and created successful companies.

Yes, we need to be patient. Because growing an ecosystem is going to take time. Generations, in fact! But continuing to do the same things without any clear milestones or indicators of progress or attribution is going to continue to disappoint. It’s well past the time when many of these things we’ve been doing for the last decade or more should have had more scrutiny.

We also need to make sure that we identify and remove systemic constraints - the things that make it difficult for ventures to start and scale and which cannot be solved by any individual company in the ecosystem alone. When we ask founders of high-growth startups what’s holding them back they nearly all point to the challenges of finding and keeping great people in their team.

Most importantly, we need to listen to the constraints that founders have, rather than the constraints that derivatives have. For many years the whole shape of the startup ecosystem in New Zealand has been distorted by the misconception that capital was the constraint, while at the same time many great founders were out there raising millions of dollars to fund their growing ventures, including all of the founders of and early investors in the successful companies we celebrate.

The silver bullet

Have you noticed the pattern yet?

The question that keeps coming up is:

Why?

Why do we actually want an ecosystem of innovative technology startups? What outcomes or outputs are we hoping for?

I think that knowing the “Who?” is the key that unlocks the “Why?”

There are many benefits that flow, if we get this right and our startup ecosystem continues to grow. But we can’t just assume they will trickle down to everybody.¹⁷ If we think that “a rising tide will lift all boats”, first we need to confirm that everybody we hope will benefit can float.

We need to be more specific about which of these benefits are individual and which are collective, because this gives us a better basis to assess the things we do, individually and collectively, to contribute to this growth.

There is a long list of potential answers…

Is it more early-stage companies? We love to count the raw number of startups. But usually without too much consideration for the current health or future prospects of these companies.

Is it more high-growth companies? We celebrate companies with high revenue growth. Sometimes that growth is eye-watering. Is bigger always better? Or should we instead prefer companies that grow a little slower but are far less volatile as a result?

Is it more established companies based here? For a time in the 1990s we fetishised the idea of creating our own Nokia in New Zealand. This is not a specific ambition we hear so much anymore.¹⁸ Interestingly we have one now in Xero, which is a large and globally successful technology company still headquartered in Wellington. Did we get what we wanted from that?

Is it attracting international capital? One guaranteed way to get attention in the ecosystem is to attract a high-profile international investor. This seems like something we want to encourage. For example, NZTE has a whole team of people working on in-bound investment - helping to connect local companies with international investors who can help them grow. On the other hand…

Is it retaining local ownership? When Minister David Parker re-booted the NZ Venture Investment Fund (VIF) as NZ Growth Capital Partners in 2019 his stated aim was to “help keep more startups in New Zealand for longer”.¹⁹ We only worry about “losing” companies overseas when they are acquired completely. This actually happens whenever we raise money from new investors.

Is it better paying jobs? This seems obvious. As Callaghan highlighted, we have a significant productivity challenge - working longer and harder than others but producing less. Given that technology jobs typically pay so much more than average and technology companies are more productive than average, that would suggest that more people working on these sort of companies could be a big part of the solution.²⁰

This begs the question: how many more of these jobs have we created in the process of growing the ecosystem? And, if we don’t know, isn’t that also a problem, given how much we’ve invested in that objective?

Is it attracting talented and qualified people from overseas? We need to retain the talented and qualified people who are born and educated here and we need to attract the best people from all over the world to come not just for a holiday or to hide in their bolthole, but to live and work and be part of the solution.

Is it tax revenue? Ultimately we need these companies to contribute more cash to the local economy than they take. The easiest way to measure this would be to look at the tax paid. It’s useful to note that very few startup companies are profitable (indeed those that have raised and spent a lot of capital often have significant accumulated tax losses to offset against future profits) so when we look for the tax they contribute it’s going to be mostly GST and PAYE.

Is it export revenue? When goods or services are sold overseas this brings money into the country. So another way to measure what these companies add would be to look at the amount they earn from exports. Unlike our more traditional export categories, which involve putting bulky physical things on a ship or plane, many new companies are selling things that are weightless.²¹ Plus they can generate export revenue much earlier in their lifecycle. Currently a “high” New Zealand dollar is called a “strong” dollar. Perhaps that will change when we really start to focus on exports?

Is it selling more companies, and recycling the capital? As well as selling goods and services overseas, startups sometimes sell themselves to foreign buyers. The actual product of many startups is the company itself. But when this happens we’re often torn between celebrating a successful exit and feeling dissapointed to “lose” a local company.

Is it wealth? Clearly when startups go well they can generate significant capital gains for the founders, their teams (assuming they have some ownership) and investors. However, it’s not clear how that translates into collective benefits. Despite that we seem happy to provide direct grants, subsidised funding and significant support to companies owned by already wealthy investors (myself included!)

Is it being the place where great companies are started, or even more esoterically the country where founders of great companies were born? It’s silly, but we do love to claim success by association, even where that link is tenuous. For example, I’m a huge fan of the company Tim Brown and his team have built at All Birds, but I did have to laugh when I heard a former MP describe them at an NZTE event in San Francisco as a “company of New Zealand provenance”. Likewise, many are determined to see Rocketlab as a local success story, but at the same time reluctant to use their correct full name: Rocketlab USA LLC.

Is it successful local venture capital funds? Given the amount of money and attention that we’ve invested in this objective over many years, and continue to invest, it would appear to be something we’re anxious to solve. Ironically local venture funds are promoted to wealthy immigrants from around the world who want to purchase a visa.

Is it better local services? When companies are homegrown, it guarantees provision of quality products and services to local people. By comparison our local market is often a rounding error to global technology companies. Consider Trade Me, for example. Where would New Zealand rank in the priorities of a global provider like eBay, if they had “won” the local market? Likewise, do we care that most of our banks are regional branches of Australian companies? Does that help or hurt local businesses that depend on their services?

Last but not least…

Is it better use of our scarce natural resources? As well as the various measures above that focus on dollars we should also give more consideration to where Greta Thunberg’s Emissions Curve fits in.²² We can continue to moan about the impact that sectors like agriculture or tourism have on the environment. Or we can both put more capital and technology to work on creating new businesses that don’t require us to ship raw materials out or fly tourists in, and on improving those that do.

Hopefully the problems with this long list of potential objectives are immediately obvious:

Many of these things are contradictory. Depending on which we choose to optimise for, the choices we make would be different. Until we’re clear about our why, we’re going to struggle to prioritise the what.

In the meantime, we don’t know what we want, but we seem determined to get it!

Who is it for?

Product teams sometimes use personas to describe their customers.²³

In that vein, meet Hugh…

He lives in Timaru. He works for an importer, as a forklift driver in the warehouse and distribution centre. He lives with his partner and has two adult children who have left home. He enjoys a beer with his friends on a Friday after work, and normally needs little excuse to relive his glory days as captain of the Boys’ High School 1st XV.

Hugh is not real, but is still somebody I like to keep in mind whenever I hear people in the startup ecosystem talk about different ways that the government can help them to grow their business. Often you’ll hear ideas like direct cash grants, subsidised facilities or services, or tax credits for research and development expenses.

Of course these are not just ideas. We currently do all of these things.

There are even some bold enough to suggest that investors should get tax incentives on top of this (as they do in many countries including Australia²⁴ and the United Kingdom²⁵). This despite the fact that we already have arguably the most favourable tax environment for venture investors in the world.

These initiatives are all ultimately funded by Hugh via taxes and rates. So what benefits do he and his whānau get for that investment? How can we make these more obvious, so he’s happy to provide that funding?

Asking the question this way forces us to separate the things on the list above that benefit us all collectively from the things that are mostly private - e.g. startups create the possibility to make individual founders and investors very wealthy, but that seems unlikely to impress Hugh on its own.

To answer that we need to go back to the things that Sir Paul Callaghan talked about:

One of the serious consequences of becoming poorer as a country, relatively, is that we increasingly struggle to afford things that could directly improve our collective quality of life - schools and hospitals and the skilled staff required to work in them, expensive drugs and medical treatments, infrastructure like communication and transport networks, and warm and healthy places to live. And it makes it harder to overlook options that generate wealth by exploiting our scarce natural resources.

That’s the why!

We need to demonstrate to people like Hugh how growing an ecosystem of companies that use technology to create high paying jobs based in New Zealand ultimately flows through to fixing some of those things for all of us.

To do that we’ll need to focus much less on what the government can do for startups and narrow in on what startups can do for the government, and by extension for everybody in New Zealand.

That will make a nice change!

The Paradox

Callaghan concluded his 2011 keynote by considering leadership.

He quoted Lao Tzu:

As for leaders,
The worst, the people hate,
The next best, the people fear,
The next best, the people honour and praise,
But for the best leaders, the people do not notice their existence,
When the best leaders work is done the people say:
“We did it ourselves”.

That resonates with me. While others were debating about how to build an ecosystem, those of us who just got on and did it realised the ²⁶…

The best way to grow an ecosystem is to create one great company.

Others set up derivatives intended to support startups and waited for somebody else to do the hard bits. They are mostly still waiting.

It’s ironic now to see who is most vocal in celebrating and taking credit for the ecosystem that has been created in the meantime.

The most frustrating part about this is just how long it’s been obvious, but ignored.

I appreciate this is an uncomfortable truth for those advocating for an ecosystem designed from the top down. They sometimes like to pretend that it is a single shared objective that we all need to work towards together.²⁷ They like to say “it takes a village”.

As we’ve seen, the potential outcomes from the ecosystem are multiple, complex and very unevenly distributed. Many of the benefits that have been realised are individual benefits, rather than shared or collective benefits. Anybody putting their hands out for support, especially, needs to do a much better job of differentiating these.

Different people will want different things from the ecosystem. That’s okay! It’s not a zero-sum game we’re playing. Everybody can make their own contribution. We all need to stop thinking that somebody else is selfish because they don’t contribute to our personal vision for the ecosystem, or seem motivated by the outcome that we think is most important. Actually the opposite: everybody focusing on making the specific things they are working on great is what will contribute the most to an overall healthy ecosystem.

The onus is on each of us to articulate clearly what we want, have a theory for how that outcome could be achieved, and measure our progress towards that outcome.

This is, I believe, the secret to building an ecosystem of innovative technology startups in New Zealand -

The one thing we need to do is stop believing in silver bullets.

Each of us should find one startup to work with. Ideally a team building something we want to exist in the world. Apply the skills we have. Try to make it great.

If enough of us do this, we’ll have an amazing ecosystem to enjoy together, with all the benefits this will bring.

I appreciate that many people will be underwhelmed by this advice.

But it works.

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