Defining Our Ecosystem

How can we build an ecosystem of innovative technology startups in New Zealand?

Something we talk about a lot is:

Building an ecosystem of innovative technology startups in New Zealand.

But what are we actually talking about specifically?

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

And, what’s more: in our rush to understand how quickly we can create this ecosystem we overlook an even more interesting question: what do we want from it 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: 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 described as the search for, development and validation of a “scalable economic model”. So, perhaps it would be more useful if we break it 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:

Marc Andressen famously defined this stage as the search for “product-market fit” (although that concept was actually first developed and named by Andy Rachleff).

There are now many different philosophies for how to navigate this stage of a venture.

High growth

Assuming the answer to all of those questions is hell yeah! then in my experience the problem quickly shifts to how we cope with a rapid increase in multiple dimensions at once:

And there are also other possible startup states than just those two. For example, there are lots of new options emerging for founders who have gotten through the early stage but prefer a slower and lower risk growth trajectory after that (for good reasons).3

It’s not helpful to group all of these different types of businesses under the single “startup” umbrella. We can be more specific.

The more interesting question is: how does having more startups help us?

Made in New Zealand 4

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

I reckon that most people who regularly use this label have never stopped to think what it actually means and definitely without questioning why a grouping of NZ companies would use a US naming convention.

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

But, what does it mean to be based in New Zealand?

It’s actually 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:

Perhaps if the answer to all of those questions is “New Zealand” then we can say clearly the company is a New Zealand company.5 But as soon as one or more of the answers is something other than “New Zealand” then 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 a 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. And, 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 they do all of those things: re-incorporate as a US company, now have most of their team based elsewhere and are no longer majority owned by New Zealanders (because of how much capital they have raised to fuel their growth)?

It gets even weirder when we start to consider provenance. Was the company started here? Or, was one of the founders Kiwi? I think it’s a stretch, but we do love to claim ownership of any big success.6

Who cares? Why does this even matter?

It comes back to why we talk about building this ecosystem in the first place. It’s because we believe there will be significant collective benefits, if we’re successful. But, because of that, there are also some costs we choose to share (for example, through public funding). And that opens up 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? If our answer is: retaining 100% ownership by New Zealanders then I think we’re going to be underwhelmed by the results.

Unless we actually understand what the benefits are and how we realise them, then how do we know how to share the costs appropriately?

Again, the question is: what are the shared benefits we want?

The tech sector

Technology is anything that was invented after you were born, everything else is just stuff
— Alan Kay

Technology is everything that doesn’t work yet
— Danny Hillis

One of the things we like to say, when we talk about technology companies in NZ, is that the tech sector is the third largest exporter, behind dairy and tourism.

Actually we say that over and over and over.

This has been repeated by so many people (even the Prime Minister) and for so long that it’s now accepted and believed, mostly without any reference to any source.

I think the original source is Technology Investment Network (TIN), which is a “quantitative study of New Zealand’s leading technology export businesses” published each year since 2005 by a private company, and sponsored by a range of public sector and private sector organisations.

I have a long list of problems with TIN, which I have screamed into the void about on Twitter for many years with little to no impact (surprisingly!) Those who are sadistically inclined can read the footnotes7, but for our purposes here let’s just focus on one: their definition of “tech sector”.

Will the real tech sector please stand up?

When we look for it using official Stats NZ data we discover that “tech” is not actually an industry sector at all. Instead they group companies using the Australian and New Zealand Standard Industrial Classification (ANZSIC), where the nineteen top level categories cover Accomodation & 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).

So, to get to the “third largest” headline numbers TIN combines companies from across these industry groups, including IT services and support, software development, high-tech manufacturing (we’ll talk more about high and low tech in a minute) and biotechnology.

We can argue about what should and shouldn’t be included, and different organisations producing reports will choose different combinations.8 But, either way, the point is that it’s all somewhat arbitrary. Unfortunately it turns out saying the tech sector is the third largest is not that different from saying that NZ is “100% Pure”.

It gets even more complicated when we consider that the sector celebrates together each year at the Hi-Tech Awards. We may sensibly ask, how high does tech need to be in order to be high? And is a product that is fundamentally a multi-tenanted database with a web front-end really very high at all? Those are good questions!

Maybe a better way to approach this question is to consider the business model or what is the product or service being offered, how and to whom?

Let’s look at some examples…

Consider a team of engineers and designers etc who develop a software platform that is sold on a subscription basis. This is what we call a software company these days, and most of us would consider this to be a tech 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 tech 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 tech company or still a retailer. And what of the third-party team that’s contracted to build those tools? Are they a tech company or a services business?

What about if the third-party doesn’t actually 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 in the TIN index is Datacom and this is a simplified description of their business).

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 core of their product offering - e.g. a business that sells photo and video packages so those who are brave enough to bungee off a bridge can relive the moment and brag about it to their friends. Are they a tech 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 tech company or a horticulture business? If we purchase these robots pre-designed from overseas and then assemble and sell them here are we a tech company or an importer/distributer?

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

Start with the customer and work backwards to the technology 9

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

I think the correct answer is to use a much broader definition: every company is a tech company. Or, at least, every company could and probably should be a tech company.

Having engineers on our payroll is nothing to celebrate, in and of itself. Although maybe not having any should raise an eyebrow.

If we run with that logic, there is no technology sector. There are just companies (and charities, social enterprises etc) all applying technology to real sectors.

Once we can accept that it’s mostly nonsense to try and define what is and isn’t a tech company, then we can stop putting our energy into trying to draw 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 is it is about those companies that we currently call tech companies that we actually like?

This brings us back again to the same question: how does technology make things better?

Innovation vs. Execution

Ideas are not something you have, ideas are something you do

Being creative is not something you do for a living. What you do for a living is ship.

Time to innovate…

One of the things that nearly everybody thinking about this question seems to agree on is that we 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?

In simple terms, innovation means: “Fresh thinking, applied to create value”. But when we reach for anything more specific than that it is elusive.10

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

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

But here is the thing about inventions and inventing:

Often the people who invent something and the people who work out what that thing is for are different people.
— Kevin Kelly

Given the choice, is it better to invent something new or to work out who might want it, how to package it in a way that is attractive to them, convince them to buy it, and support it once it’s sold?

An innovative idea is like a computer program that has never been run on an actual machine. What actually matters is how well it executes.

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.

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 unrecognised, (until companies that execute consistently are 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 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.11 Execution insists that we find the right size - 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 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?

When we look at the most successful companies we see that pattern repeated again and again:

Etc etc.

The thing all of those companies do have in common though is that they were massively successful in convincing people to use and buy the products and services they make and sell.

All of them now 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 and/or revenue model. For example, Xero took the existing and familiar (and, let’s be honest, pretty low-tech) software 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 they proved there was still a lot of value to be captured in that exisiting category.

So, is product innovation actually a distraction? No, not at all. There are plenty of startups that have invented something and then 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 the ticket to the game. It’s a sometimes ingredient, not a leading indicator or pre-requisite. To quote Reid Hoffman: “A great product is important, but great product distribution is more important”.

This means it’s not enough to say that a company is innovative. Or that it isn’t.12

When we’re screening for individual companies that have potential to become successful in the future 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? We should have called the government agency we named after him Callaghan Execution! 🤔

So, 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 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…

When we talk about the natural world, an ecosystem is the word used to describe the combination of living things (the biotic) and the environment they live in (the abiotic).

An ecosystem is 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.

So, is it weird to talk about an ecosystem of startups?

Maybe not. Many of these concepts do translate.

When we talk about the startup world, an ecosystem is the combination of the founders, the ventures they start and grow, and the people working directly on those (the biotic) and what I’ve called startup derivatives (the abiotic) - i.e. the things that exist to support, encourage, protect and grow these ventures: incubators (a.k.a. innovation hubs + 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 largesome 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.

As Semisonic memorably taught us all in the 90s: every new beginning comes from some other beginning’s end.

And, again mirroring the natural world, diversity within the 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 ecosystem as a single entity, in and of itself. And, even, the thing of primary importance over and above any of the individual components.

But, think about the specific things that actually cause the 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. But 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 org chart.

This is a chicken-and-egg problem. Species struggle without an environment to live in, but equally just creating an environment and hoping that biodiversity follows is idealistic.

The examples of startup derivatives I listed above and more could all have an important role to play in the startup ecosystem, but only if they actually work and contribute what they promise.

We’re quick to celebrate success as an ecosystem - there have been a lot of opportunities to do that recently. But we’ve done a terrible job of connecting the dots between the various initiatives we’ve used to try and encourage success and the things we celebrate - e.g. Movac was both the fuel and the exhaust of Trade Me. 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. And, 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, just 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. But, let’s start to listen to the constraints that founders have, rather than the constraints that derivatives have - e.g. for many years the whole shape of the ecosystem in New Zealand has been distorted by the incorrect idea 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.

What do we want?

Do you notice the pattern yet?

The question that keeps coming up when we think about how we grow our ecosystem is: why?

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

Here the “we” is important. There are many benefits that flow, if we get this right and our ecosystem continues to grow. It’s important that we are more specific about which of those are individual and which are collective, because this gives us a basis to better assess the things we do, individually and collectively, to contribute to this growth.

Looking around, there is a long list of potential answers…

Is it more early-stage companiesWe love to count the raw number of startups. But usually without too much consideration for the current health or future prospects of these companies. Perhaps if we all just start enough companies some of them must go on to be successful. Isn’t that how the maths works? Throw enough spaghetti at the wall and some of it will stick! 🤨

Is it more high-growth companiesWe celebrate companies with high revenue growth. Sometimes that growth is eye-watering. Bigger is better and getting bigger faster is even better than that, right? Or, to paraphrase Thoreau (see the quote), should we 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 (as I noted, this is not a specific ambition we hear so much anymore!) 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 an excellent 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 NZVIF as NZGCP in 2019 his stated aim was to “help keep more startups in New Zealand for longer“ as they expanded beyond their startup phase. We only seem to worry about “losing” companies overseas when they are acquired completely, when actually this happens whenever we raise money from (and consequently sell shares to) new investors.

Is it better paying jobs? This seems obvious. We have a significant productivity challenge: we work longer and harder (34.2 hours per week compared to OECD average of 31.9 hours per week), but produce less ($68 output per hour compared to OECD average of $85 per hour). 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.

Is it attracting talented and qualified people from overseas? Paul Callaghan famously suggested we need to “be the place where talent wants to live”. But, there are two aspects to this: 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 actually contribute more cash to the local economy than they take, right? 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 who have raised and spent a lot of capital often have significant accumulated tax losses to offset against future profits) so when we talk about the tax they contribute it’s really going to be mostly GST and PAYE we’re looking for.

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 involved putting bulky physical things on a ship or plane,13 many new companies are selling things that are weightless. Plus they tend to be able to generate export revenue much earlier in their lifecycle. Currently a “high” NZ dollar is called a “strong” NZ 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. Indeed there is one school of thought that says the actual product of a startup is the company itself. But we get very confused when an acquisition happens. Consider how this gets reported in the media. Either we are celebrating the successful end to a long effort to grow the company and create something of value and looking forward to the next phase (both for the business and for the investors who now have more capital to re-invest). Or, alternatively we are disappointed to see another promising local company being sold. Often both!

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 so clear (at least to me) how that translates into collective benefits. We don’t still believe in trickle-down, do we? But, we’re still seemingly 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? This might seem silly, but we do love to claim success by association, even where that link is tenuous.6

Is it successful local venture capital funds? That seems like a weird one, but given the amount of money and attention that has been invested in this objective over the last decade, it would appear to be something we’re still anxious to solve.

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 tech companies. Consider Trade Me, for example. Where would NZ rank in the priorities of a global provider like eBay, if they had “won” the local market? To pick another example, 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? Perhaps 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?14 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 are obvious:

Many of these things are contradictory. Depending on which we choose to optimise for, the choices we need to 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?

Perhaps it would help if we were more specific about who we’re doing all of this for.

Designers working in software teams sometimes use fictional personas to describe the groups of people they are designing and building products for.

So, in that vein, meet Hugh…

He lives in Timaru. He works for an importer, as a forklift driver in the warehouse and distribution center. 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 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 angel investors should get tax incentives (as they do in many countries including Australia and the United Kingdom). This despite the fact that we already have arguably the most favourable tax environment for venture investors in the world due to our 0% capital gains tax rate.

These initiatives are 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 it’s own.

I think the answer goes back to the things that Paul Callaghan was talking about years ago:

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 medicines, 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 show 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!

How to play a part

Here is my simple advice…

Pay attention to those who talk about a startup they are working on. Think about what you can do to help them with that specific venture - this could span from very high-fidelity things such as working with them directly as an employee or adviser or investing cash right through to lower-touch but sometimes still impactful things like giving them your perspective on a problem they currently have, based on your experience.

But, if somebody wants to talk to you about the ecosystem as a whole … run! 

Try to create one great company. That’s hard enough in my experience! If enough of us do that, then the meta problem of the ecosystem mostly solves itself.

If you’re a founder, try not to be distracted by the ecosystem. Apply your own mask first, and then you’ll be in a much better position to help others. Don’t worry that there are not yet enough startups in your city or in your country.

Be aware that everybody who participates in the startup ecosystem has a business model. Just as your own venture has a business model. It’s okay to stop and ask if others’ business models make sense for you and your venture. Often they won’t. You should not feel obliged to engage with anybody else, just because you are both part of the same ecosystem.

If you’re an investor, try to contribute more value than you capture. Stay humble about how much difference you can make. Show you can do it once. Then again.15

If you’re working on a startup derivative, make sure you ask yourself these four important questions:

  1. Who does this help?
  2. What constraint do they have?
  3. How do you hope to reduce or remove that constraint for them?
  4. How will you show it’s working?

And ask yourself if you could actually work directly for one of these companies you’re advising. It always makes me sad to see smart people trying to “build a startup ecosystem” when existing successful startups can’t hire people they need.

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

But, I can say from experience, it works.

This is part two of a trilogy:

  1. Callaghan, Revisited
  2. Defining Our Ecosystem
  3. Ecosystem Myths

  1. A very good place to start. ↩︎

  2. This used to be hard because of the amount of travel required to make it work … it got 10x harder post-Covid. ↩︎

  3. See Tractor Ventures↩︎

  4. I’m writing this from New Zealand, with a local lens, but obviously this same thinking could equally be applied to any other world class country that punches above its weight (on a per capita basis). So if you’re reading this in Australia, Norway or Singapore just substitute as necessary. Equally, if your interest is less national and more regional the exact same logic applies to trying to encourage startups specifically in your place. ↩︎

  5. As Nat Torkington has noted↩︎

  6. 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 overseas as a “company of NZ 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. ↩︎

  7. The TIN report is compiled by a privately owned business, largely funded by public money, asking private companies to contribute their own data for free, so that it can be packaged up into a report that is sold back to them (at $400/copy, more if you prefer a printed version). Ironically TIN have refused to disclose their own revenue, but presumably given that business model it’s pretty lucrative.

    Because the 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 they’ve presumably relied on educated guesses.

    Greg Shanahan, who is the founder and managing director of TIN has admitted that the report describes exports only in the “colloquial sense” - i.e. includes revenues that are earned and spent offshore and never touch NZ - see Kate MacNamara’s excellent reporting on this for example.

    Even the decision making about which companies are included and highlighted (or not) is opaque - as discussed above, if we considered what is and isn’t a “New Zealand” company and apply that logic to some of the companies highlighted in the TIN index it is … interesting.

    Then, when it’s “launched” the price to attend is $55/head, but does include puy lentils.

    (╯°□°)╯︵ ┻━┻┻━┻

    What’s not to like? ↩︎

  8. For example, in the Digital Nation New Zealand Tech Sector Highlight 2016 report prepared by New Zealand Institute of Economic Research these are the ANZSIC codes used:

    The ICT Sector includes the following ANZSIC codes: J542, J580, J591, J592, F349, M700, C241, C2421, C2422 & C2429.The High-tech Manufacturing Sector includes the following ANZSIC codes: C243, C239, C184, C244, C181, C245, C246, C249, C231, C241, C2421, C2422 & C2429.The Tech Sector is the sum of the two groups above.

    Clear? 🤔

    Source: Figure NZ ↩︎

  9. Full quote:

    You’ve got to start with the customer experience and work backwards to the technology. You can’t start with the technology and try to figure out where you’re going to try and sell it…..we have tried to come up with a strategy and a vision for Apple, it started with “What incredible benefits can we give to the customer? Where can we take the customer?” Not starting with “Let’s sit down with the engineers and figure out what awesome technology we have and then how are we going to market that?” And I think that’s the right path to take.
    — Steve Jobs

  10. 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. One of their criteria for being an innovative company is having >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! ↩︎

  11. For example, Ali G on innovation: “That’s where you lot come in”.

  12. I think 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 ROI. Plus, the amount invested is immediately obvious where as 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. ↩︎

  13. As recently as 2019 the NZ Export Awards were sponsored by AirNZ Cargo. 🤔 ↩︎

  14. From Greta Thunberg’s 2019 speech to MPs in the UK House of Parliament:

    People always tell me and the other millions of school strikers that we should be proud of ourselves for what we have accomplished. But the only thing that we need to look at is the emission curve. And I’m sorry, but it’s still rising. That curve is the only thing we should look at. Every time we make a decision we should ask ourselves; how will this decision affect that curve? We should no longer measure our wealth and success in the graph that shows economic growth, but in the curve that shows the emissions of greenhouse gases. We should no longer only ask: “Have we got enough money to go through with this?” but also: “Have we got enough of the carbon budget to spare to go through with this?” That should and must become the centre of our new currency.

  15. Reference: The lessons I learned in Kibera↩︎