Startups. We’re doing it wrong.

From the outset I wish to put my hand up to “failed, so bitter”. If my company had been funded, grown, picked up by XYZ corp and left me a few million dollars better off I wouldn’t be complaining about anything. Indeed, because this is startup culture and we only ever listen to the people who succeeded, we don’t hear any complaints and we don’t look at what’s going wrong and ask ourselves what we can do to … fail less, for example. So if I don’t get a voice because of it then that’s fine. Cmd+W closes the tab.

But we’re doing it wrong. And in the process we are losing the giant opportunity we have to take to grow our local technology industry. Let me explain…

This is how you make a startup.

Someone into tech and someone into business and tech meet, and decide to make a business together. Ideally they’re students, or recently graduated, and can subsist on zero money for some reason or another. They might pick up $10k or so from friends and family so they at least have some float to play with, and will rent in a coworking space or some little office somewhere. We don’t do business plans any more but they’ll thrash out an MVP and then the more business’y one gets serious pressing the flesh, making a social media presence, presenting at conferences, staying within the law, making sure the numbers work, doing support, and hunting down people with chequebooks. They get some business, it makes nowhere near enough money and within a year they have to “grow or go”.

At this point a lot of people knock it on the head and go work in an office.

Otherwise the founders make a deck, spend a lot of time in San Francisco, invest at least six months and probably more like a year presenting to dozens of VC’s and hearing the word “no” being sugar coated. Eventually they get a million dollars on one point five pre, and go out on the piss because they’re millionaires. In theory. The company grows, it needs to start hiring adults, revenue continues to climb, etc. etc. happily ever after.

Obviously, this is not what usually happens.

Let’s list the miracles that need to occur so that we can create a technology company:

• The founders need to meet. There is this prevailing theory that if two potential founders meet each other then they magically stick together like two bits of velcro. Kinda like how you’d sail round the world with someone you met once, in the pub, and otherwise didn’t know from a bar of soap. The founders need to do something together so they can learn to trust, respect etc. and at the moment they’re doing it at uni, work, or sport. Not that this is a problem in itself, but it does limit their pool of potential cofounders and, importantly, excludes people they haven’t actually met.
• They need to be really, top tier in both fields. We all know of giant corporate teams that take months or years to ship a not-very-good application — startups don’t have that kind of time or money and need to be able to ship good code fast. Oh, and they each need to believe the other is top tier as well or we’re off to a non-starter. Even better if they’re right.
• Product/market fit has to happen. Almost never does the first crack at ‘our idea’ actually work and feedback from the market needs to guide iterations until it does. This can take anything from a few weeks to years and often ends in “nobody wants this”.
• Ironically, the company needs to not succeed too much. If it takes off, virality does its thing, and the founders find themselves on a nice little (or big) earner then there’s a lot to be said for just sitting back and creaming off it for a few years. Good for them, bad for the technology industry.
• They have to not give up, and this is the hard one. A year without money (and unable to claim benefits) is going to break most people. The allure of being paid, halving your work hours, and working in a vastly less stressful environment cannot be understated. Particularly if the founders may have reached the point where product/market fit is beginning to look impossible, the opportunity cost of the endeavour starts to skyrocket just as belief in its eventual payoff starts to crumble.
• They have to successfully raise capital. At a guess I’d say 90% of the companies trying to raise a series A fail. Bear in mind this failure comes at a phenomenal cost in terms of flights, hotels etc at a time when the founders are already hugely exposed in terms of personal finances. Throwing another 6–12 months and the sharp end of 50k on a ‘probably not’ is not something that appeals if you have maxed out credit cards.
• None of the other things that can go wrong, go wrong. Google don’t make a good one and give it away. Your nearest competitors don’t raise twice as much VC. It isn’t made illegal. An API doesn’t get removed. Neither founder suffers from stress related illness. Etc etc.

Falling all the way through the funnel, it increasingly becomes incredible that it happens at all. But it does, and the key to it working is in sheer volume —maybe one in a hundred goes right, which is maybe about one a year.

What’s wrong with this?

From a perspective of building a local technology industry, we’re a small country in a big fight. As usual. We don’t have much raw material to work with, be it capital or people or whatever, so getting ahead is going to be about using this raw material more efficiently. Right now we throw stuff away left, right and centre…

• All the pairings of founders where only one of them is ‘good’.
• The functional pairings that went after the wrong opportunity.
• The right opportunity chased by the wrong people.
• Businesses that are headed in the right direction but won’t get there because funding runs out, or isn’t there in the first place.
• Funding that goes into businesses with indefensible positions.

I think those are the broad categories, feel welcome to suggest others. I’d like to add one further category because to most of us it’s invisible:

• A massive need that a large business has that it then either (a) scraped together internally, costing more than it should and being less good than we might’ve hoped or (b) given to a (probably multinational) consulting firm to scrape together costing even more.
• And the Government are worse.

This, this here, is the key. Because it doesn’t matter how many startup blogs you read, how much flesh you press, how much money you raise or anything else — this whole thing is built from the opportunity up. We need, need.

So do what, then?

And this is the hard part. The longer I look at this, the more I realise that what I’m describing is intrapreneurship. Larger organisations have all three basic ingredients — needs, people and funds. Does a startup CEO need to be financially exposed in order to put in the absurd level of graft necessary to grow a company? Does a startup CTO need huge potential upside in order to do their best work? I’d argue the answer is no, in both cases. Finance people need huge potential upside, because that’s how this works. But most of the people I’ve met during my (considerable) time around young companies would happily exchange a few million in ten years time for being able to pay their rent now; and most old companies would happily exchange paying your rent now for being on top of whatever kills their industry in ten years time.

Unless they’re Kodak.

You’ve got to be kidding me.

I really do think the true future of the bleeding edge should come from our oldest, stodgiest, and famously conservative companies and organisations. We’ve already seen (for example) F&P Healthcare being spun out of F&P; Optimal Workshop from Optimal Usability; and MetraWeather coming from the Met Service. I think in many cases the successes remain invisible, becoming new business units of the parent company and there’s not necessarily anything wrong with that, either.

In a similar vein: Kiwibank, Vodafone and MBIE have all sponsored three month accelerators to investigate opportunities in their respective markets with at least one of their alumni companies (sharesies) apparently streaking off into the distance. Bravo!

I run a stodgy organisation and I want in!

Right. You’re going to enter into a process of refinement. You need to refine the right smaller is better team to address and refine an opportunity that your organisation is in some way well placed to exploit. You’ve got to do two things and they will seem deeply counter-intuitive:

• Use the best people. Not the most expensive people, or the ones that have been with the company the longest, or the ones that agree with their bosses the most but the ones who are best. This means you’re going to have to both establish what “good” actually means in fields other than sales; test or otherwise actually measure individual performances; and compare them to their peers. This will lead to some surprises.
• Have no emotional investment. If the (effective) CEO is no good, sling ’em — likewise everyone else who simply isn’t performing. It’s not a big deal, they can go back to whatever they were doing in the company anyway and someone else can be given a chance to shine. If you’re chasing the wrong opportunity, don’t chase it any more. The opposite is also true: if a great business development lead has emerged, don’t can them if the opportunity is bad.

Corollary to the above: hunt outside of your organisation but bring them in on contract. Not necessarily on contract rates, although clearly you’re going to need a long term strategy to retain someone who performs well, but engineered as such that both sides understand that you are in a process of continual refinement and being refined out is a very real possibility.

Remember that you’re rewarding with autonomy, respect and support.

Eventually you will have the best people; doing their best work; chasing the best opportunity; supported by your existing hr, pr, it, finance, facilities and legal departments; and you won’t have had to fund a dozen failed startups on the way. It may, of course, still go wrong. Such is life.

Investors?

Honestly, I think that technology investment is a really big ask right now, made only even vaguely possible by the sheer quantity of potential deals. A big enough investor could creating a ‘melting pot’ organisation dedicated to the collation and support of the best people — but will need to bring a lot to the table to be on a fair playing field against a company that’s already well established in an industry. Not that I’m saying it can’t be done.

So do it.

Hey, I’m out. I already put, as a wise man once said, “twenty dollars into a ten dollar turkey raffle”. I completed my mvp, chased the few opportunities that had the necessary short term potential, and took the necessary adult step of admitting defeat. I can’t promote, market, network or get involved in politics so it’s probably best for all involved that I stick to what I’m good at. The waste has been about 30 months, some very important relationships, health, and enough opportunity cost to make yacht racing look cheap.

Currently I’m chasing a position in an organisation I want to work for. I’ve worked for them before and found myself with challenging work and the autonomy to do it well. Most everything else just worked and for that, I have become grateful and envious of my past self. Wish me luck!

The startup world has got to change. We waste far too much, cause too much stress, and in the bigger picture are very much in danger of missing the boat.

And we can’t. We really can’t.