Stories about start-ups usually feature the same things; young, enthusiastic – if exhausted – people, shiny offices with beer fridges and ping pong or foosball tables. After writing a few lines of code, they sell out to Google, and spend the next 10 years partying on a yacht.
The reality of digital start ups in New Zealand is somewhat different. Small and medium-sized enterprises make up about 97 per cent of all New Zealand businesses, and they account for almost a third of the country’s GDP, according to the Ministry of Business, Innovation and Employment.
Statistics New Zealand says over the past four years, more enterprises have failed than been established. But the number that is most often used in the technology sector is that only 1 in 10 will succeed. So how do you make your fortune from a start up? It depends on how you define “fortune”.
“It was a ‘make this thing see what happens’ sort of start-up, that turned into a ‘shit this is working, what do we do next’ sort of start up.” - Anna Guenther Photo: Diego Opatowski
Two years after going live and more than $2 million raised for almost 600 projects, the crowdfunding site PledgeMe probably looks like one that has crossed over from start-up to “stay-up”. But its co-founder, Anna Guenther says it still feels like it’s just getting off the ground.
PledgeMe grew out of her Master’s thesis, and previous work in grant funding. “It was a ‘make this thing, see what happens’ sort of start-up, that turned into a ‘shit this is working, what do we do next’ sort of start-up.”
She’s only been working on it fulltime for a year, and just did a funding round which has taken the pressure off a little. But there’s still a constant debate about what makes a start-up.
“A lot of late nights, a lot of pizza, a lot of beer. A lot of people working parttime on it. I think just the way that we operate as well - it’s pretty lean, pretty bootstrapped.” The recent funding has made them a little less lean, but she thinks a team of people focusing solely on certain areas of the business is the next step beyond being a start-up.
The late nights, pizza and beer is evident at Lightning Lab – a business accelerator based in Wellington. In an office littered with bicycles, sleeping bags and unwashed coffee cups, its project manager, Sam Bonney, explains the programme that requires an $18,000 seed investment, so that at least three people can work fulltime on an idea for about three months.
“When it’s just the four of you trying to make this thing work, and it’s early enough that you can point to it and say “we did that”, it’s very different than being a middle manager at Telecom.” – Sam Bonney Photo: Lena Hesselgrave
The goal is to take digital start-ups, put them in a room with everything they need, get them mentorship, and then introduce them to investors and venture capitalists to get them funded.
“The average company that raised money last year raised about $500k – enough to keep working on that for 12-18 months”, Sam says. “The dream is that a company would come through the lab and have enough revenue from customers that it didn’t need investment, but that is very hard to achieve.” Of the nine enterprises from last year’s programme, four raised money and continue to run.
He says with software people can get a long way with not a lot of money. If you can code, you can start a company with some spare time and a $500 laptop. “But the thing is that there’s 1000 people out there in the world probably doing the same thing as you. So where traditionally ... just starting was enough to get you ahead of the pack, these days it’s very competitive.”
Lightning Lab alumni Andrew Preston has gone on to co-found Publons, a tool to quantify academic peer review in a bid to “speed up science”. Coming into the Lightning Lab, he had to fight the stereotype of a wonky academic – in the same way that others are termed “brogrammers”. There’s something that can be done with software to improve any industry, he says. “Software is eating the world.”
“I think it’s always a challenge, but there’s definitely an opportunity for a lot of new business models out there. That’s one thing the internet has enabled.”
when we started getting feedback, saying ‘hey we love this’, for us, that felt like we’d achieved something. It’s not a billion dollar exit, but it’s enough to keep us motivated.
Sam Bonney says start-ups operate very differently to big companies. “Most of what you learn in accounting, marketing, management is all geared to corporations,” he says. You go and learn how to do HR for a Fortune 500 company. That’s the model you see at university, rather than working with small teams.”
He says start-ups are looking for a business model that’s scaleable and repeatable – which is different to a how a denture repair shop might operate.
Andrew Preston says a start-up is a group of people who are on a mission – and it’s a success when they achieve that mission, not necessarily when they’ve made a fortune. “You have to look at your values, as an individual as a company,” he says.
“My values are to learn as much as possible, to make a difference in the world, and then to capture some of the value I am creating.”
One of this year’s Lightning Lab class, George Smith, co-founded Glass Jar – a site for people to track flat expenses. He says people get fixated on the money as the ultimate measure of success.
“When we got the site live, that was mean. When we got into Lightning Lab, that was awesome. When we started getting customers’ feedback, saying ‘hey we love this’, for us, that felt like we’d achieved something. It’s not a billion dollar exit, but it’s enough to keep us motivated.”
If the $1 billion sale is one kind for fortune, and social good is another, there’s a third kind, which is building something that people use and value – and making enough money to keep it sustainable.
Lillian Grace is trying to straddle two of those. She cares about making her fortune, but she founded the data-sharing site Wiki New Zealand without that in mind.
Photo: Wiki New Zealand
She registered the site as a charity and to be independent of the people funding it – its board can even kick her off the job if it chooses to. “I specifically set up Wiki New Zealand to not make my fortune because I think the reason it doesn’t exist anywhere else in the world is because who would be dumb enough to do it, and who would do it and not try to monetise the whole thing?”
Wiki New Zealand was born out of her realisation that there is information available to people, but they were having trouble finding it and, more importantly, understanding it.
“So when I saw the difference between available data and accessible data was huge, I was like “oh right, this is what I could do…The idea came almost in its entirety as it is today, in about 10 minutes, just sitting down and going ‘what should I do with my life, what’s the most important thing I can direct my effort towards?”
“I care about making money, and I like making money, so to start a charity I immediately felt a little bit weird and embarrassed like it was the poor cousin to business,” she says. “Right now I am choosing to spend more money on my team than myself, but that’s not a long-term thing.”
“Don't forget, [the social network-type success] happens overnight,” quips Sacha Judd, a lawyer for Buddle Finlay who specialises in businesses in “high growth areas in the technology sector”. (She hesitates to use the term start-up, “just because I think it’s getting this connotation of three guys in hoodies sitting around in a front room coding on their laptops. So I tend to talk now about ‘early stage’ and ‘high growth’.”)
“It’s pretty rare for someone to spring out of nowhere with no experience and hit the big time.” - Sacha Judd Photo: Supplied
The Silicon Valley/Social Network cliché isn’t the reality, at all, Sacha says. “These stories take time. Facebook took time, Twitter took time.” Sacha says even when companies do experience more rapid success, they’re usually on their second or third or fourth go round. “It’s pretty rare for someone to spring out of nowhere with no experience and hit the big time.”
Sacha developed Back of a Napkin, a tool for start-ups to avoid some of the common pitfalls she was seeing – people not having tough conversations early on about who owns what and who is going to do all the work. She says she’s constantly on a soapbox, trying to get people to just write things down.
She says most people think engaging a lawyer is a “grown-up” thing to do when they have a mature company, but the majority of the problems she sees are connected with decisions that are made really early on. “That’s why I am trying to get people to have a bit of a business head right from the outset, just so they haven’t hamstrung themselves from day one.”
Anna Guenther says there’s no education about those kinds of business skills. And the technology sector can be a hard sell. “I swear my granddad still doesn’t know what I do. There’s definitely a generation you’re aiming to with technology. “
“I was thinking about this as I walked past a denture repair shop,” she says. “How much easier would this be if I was doing something like repairing dentures?
Anna says – despite the industry’s often poor reputation – there’s also room to make social change. PledgeMe is about to launch equity crown funding – where people invest in a business in exchange for shares.
“I was thinking about this as I walked past a denture repair shop,” she says. “How much easier would this be if I was doing something like repairing dentures?
Overseas a lot more women founders are getting funded and that could lead to more women investors, and more women on boards, she says.
“I know that I’m often the only woman in the room, or one of the only women in the tech space. And that’s not always been a bad thing, but I think anything to increase the diversity that we’re seeing coming through.”
“One thing about being a start-up that is exciting is that everyone wants to help,” she says. “I mean, you go out, and for a coffee you can get everything….That’s sort of the role of an entrepreneur – to get that network, and figure out how to include people in your journey, so they’ll want to help you.”
Lillian Grace agrees, saying building relationships is key to doing her job. “It’s highly unlikely that a first iteration of a great idea is the ideal iteration of it, she says. “So to find people that care about it, and get their expertise and guidance … is entirely essential.”
Sacha Judd says most of the successful start ups are people who have already found success elsewhere. “I think what we’re seeing now is a real maturing of that industry in New Zealand. We are seeing people have a second or third go at it. So you’re seeing people that have come through Trade Me and Xero and who have made a bit of money are now branching out to do their own things.”
It’s easy to get hung up on the internet success stories. Business are cheaper than ever to start – and for an economy at the bottom of the world that has traditionally relied on primary exports, that’s hugely attractive. Sacha points to success stories like Vend, which recently raised US$20 million in a funding round. New Zealand's economic focus “can’t just continue to be sheep and milk,” she says.
But it’s also easy to fall into the trap of believing that that one killer idea is going to change the world, and that somehow the technology sector doesn’t function like every other business.
Lillian Grace says, to be successful, a clever idea has to be transformed that into something people want to use – and therefore value. “I’d say it’s almost impossible that anyone cares about what you’re doing as much as you do,” she says.
“They’re not going to be looking at it and seeing it as amazing as this whole thing that you’ve created. They’re going to be going ‘how is this going to be useful to me in my life right now and how can I use it?’ If the answer is ‘nothing’ they’re not going to come back.”