Ingredients to a Successful Startup Ecosystem

A 39 degree day saw over 300 people congregate in Richmond for the first Lean Startup Melbourne of 2014.  An interesting topic first up with Susan Wu, Brendan Lewis and Leni Mayo on a panel providing insights into the startup ecosystems of San Francisco, London and Melbourne.   

As endemic for the set-up and the timeframe, the insights were limited to giving novices a broad overview of the landscape and provided some guidance as to how it can be improved locally.  Importantly though, it made much of audience consider their environment, their position in it and how they could be best capitalize on the available structures. 

Personally, it provoked thought on the startup environments in general and what would be the best components to facilitate a startup culture in Melbourne.   Broadly, my thoughts took in three areas:

  • Defining the parameters of the ecosystem to best identify who the participants are and how we recognize success.
  • The general ingredients that may constitute a successful startup ecosystem
  • The assets particular to Melbourne that can make it standout globally

Defining the Parameters of the Ecosystem

Who are the participants?

My view of the Melbourne startup scene is that much of its focus on building consumer applications.  This is capitalizing on the obvious market opportunity created by the emergence of mobile, shift to cloud computing, and move from enterprise to SaaS based business models.  However, this creates a situation where to be defined as successful you will need to be bought by a narrow selection of companies – typically consumer technology (Google, Microsoft, Facebook, Yahoo! or similar), or media (News Limited, Fairfax) companies.  Most of visible acquisitions of the last 3 years have occured here and shouldn’t be ignored. 

By casting the net wider though and recognizing hardware companies, big data, high technologies, advanced materials, biotech, medical devices, and a whole host of other categories, as well as industry specific opportunities, this opens up the potential for many notable acquisitions from other companies in other industries.  This creates the opportunities for more wins to occur, and be recognized under the startup ecosystem.

Defining wins and winners

By widening the lens and seeing more types of companies and categories we create more opportunities of startup success.  But what is success? 

In my view, the majority of stories that have defined success in Australia have been exits.  Companies that have been acquired and made money (hopefully).  The issue I have with this is that it creates (rightly or wrongly) a star system where there is a perception (and reality) of very few winners.   All other participants are then considered average so group attributes such as kudos, power, respected opinion and many more, become concentrated to a few. 

I’d argue that winning should have a broader definition.  As a company why sell out if you grow to a point you become a buyer.  Your company become the acquirer.  In my experience, startups celebrate the seller but not the buyer.  Why not?  Other definitions of wins could be reaching a $1M or $10M in revenue.  Getting 1,000 or 10,000 clients (excuse my rampant decimalization).  Wins can include grants and tenders won. 

By increasing the opportunity for wins we create more winners.  This is turn creates more participants in the ecosystem with real success stories that they can impart of the ecosystem, or to their new startup.   

There seems to be a bashful approach where failure is recognized and used as a product for learning.  That too has merit but it shouldn’t necessarily be more important than reporting how success was attained.

The Ingredients of a Successful Startup Ecosystem

Advocacy/PR:   With participants and winners defined an advocacy group or association such as Startup Victoria can have the responsibility of promoting this success.  It should contain a steady stream of success stories and as it is a third party should be recognized by the online and mainstream media as carrying more weight.   In addition, if a single organization does the promoting it can be seen as indicative of the strength of the scene.  When looking at other successful ecosystem’s PR is crucial.  This can be funded by a small subscription as most associations are.  (Did he just infer a type of unionization?  He certainly did).

Infrastructure:  We are kidding ourselves if we think we can create world class technologies without world class infrastructure.  Any tech hub must emerge from an NBN-enabled site or next gen fibre location that can support development at scale.  This would also include investment into local infrastructure such as co-working spaces, openlabs, modular servers and so on. 

Aggregated Learning:   Startups are short of cash and time so they don’t want to spend lots of either getting up to speed on the basics.  There is merit is creating a wiki (under a shared or creative commons license) where all key information can be found.  At the moment there are single websites that do this but there should be a dynamic version that can be updateable by anyone in the ecosystem so they can share learning, tips, documentation and more. 

Connectivity:  As an extension of the above, there needs to be a conversation between participants at all levels in order to succeed.  This can only be done by creating channels that foster dialogue.  At moment we have a hub and spoke approach where 300+ people come to a startup event, where you may or may not participate, a meetup forum where you participate or lurk.  Either way it is a freestyle approach with a loose structured.  It is the best we have at the moment, but creating formal channels to facilitate connectivity are essential.  Maybe a form of Crunchbase specific to Melbourne.

InvestmentI’ve put investment last as I believe it is a means to an end.   I had a fascinating discussion at #lsmelb about this with a chap named Michael where we discussed bootstrapping as essential to other industries.  With film you make the best film you can with the funds you have.  JK Rowling wrote Harry Potter as an unemployed mum in cafes over many months.  I’m not advocating the breadline business approach but investment is the aspect most out of a founder’s control.  That all said the UK has a great approach with 100% tax write off for failures and CGT tax holidays on success.  Australia will probably not adopt this as it trialled a 150% tax offset with film in the 80’s and saw the system rorted, shafted and decimated.  The current ESVCLP structure in Australia is OK but is dependent on investors grouping funds with a manager.  There should be tax effective opportunities for direct angel investors.

Particulars for the Melbourne Ecosystem

There was much discussion at #lsmelb about recognising the strengths of Melbourne to enhance its startup ecosystem.  This could be an exhaustive list but I have limited it to the top three (in my opinion).

Agility:  Every startup has the ability to rapidly respond to trends but my focus is on agility from potential customers.  Australia is well known as an early adopter of technologies and new products – the quick yes!  This may be down to factors such as higher disposable income but countries such as Korea (South obviously) and Japan are similar. In my experience, the US and UK are not like this.  On the whole they are very conservative buying markets.   This approach can be used to identify international trends in advance so a company can be prepared when they become popularised.

Global focus:  As mentioned by Leni in the panel, our isolation from the rest of world provides an immediate demand for a global focus.  This should be factored in from day one in terms of infrastructure, IP, personnel and so on.  By sharing the approach through the ecosystem, each company will be armed for the future correctly (and hopefully inexpensively).   

Leisure:  As is well known companies such as Google devote resources to creating an ideal work environment to retain key personnel.  Start-ups don’t have the cash to emulate this but fortunately we live in one of the most liveable cities on earth (as mentioned by each member of the panel).  Access to live music, sport, the countryside and other aspects promotes creativity and the ability to view things outside the square.  These are underutilised assets in any business.

Ultimately, the above is a work-in-progress and any thoughts from the binary ether known as the internet would be gratefully welcomed.

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