Tuesday, August 13, 2013

An open letter to the Australian startup industry

Dear members of the Australian startup industry,

A couple of days ago, my cofounder and I watched the six graduating teams from the Angelcube program at the Lean Startup Melbourne meetup. We were impressed with the strong pitches and composure of all teams during the Q&A and we at innerloop sincerely wish them all the best as they go fundraising in the US. For the record: My favourite on the night was Coinjar, Sam’s was Tablo. I think I win because of some recent news which if positive could make bitcoin more legit.

It did get me thinking about the startup landscape in Australia though and I wanted to share my thoughts with you.

Right now, Australia is a shit place to do an ambitious startup. You either are nodding your head and eager to read more or are yelling at your computer, perhaps politely suggesting that I should investigate sexual relations with myself and that you’ve heard it all before. While we have arguably become better than the English at whinging, this post is actually positive in nature so bear with me.

There is actually no one reason Australia is a terrible place to do a startup. In fact we have produced some amazing quality startups already. The reason why I think we haven’t come close to producing our first billion-dollar startup though is that there are so many reasons and that these all conspire together to create a system that steers us toward failure and underachievement or worse still, letting our first billion dollar company become another American success story.

I think we have a good idea about what some of the barriers are and for me these can be all broken down into social, historical, economic, cultural, political, geographic and demographic elements which all sit independently of each other just enough such that correcting one or two of these elements won’t actually improve the system. It’s something that needs to be addressed on all fronts simultaneously.

"It's like kickstarter meets airbnb but also kinda also like 99designs for gardeners with three legged dogs"

Small niche, iterative products that would even give the Sawmer brothers a good name seem to be all the rage in Australia, but why? Why don't we have companies that think bigger? The barriers as I see them are (in no particular order):
  1. Lack of media interest.  Maybe it’s the lax media ownership laws and the opiate for masses News corp. journalism that seems to be everywhere in Australia but we need more than just seeing the odd feel good ‘Aussie makes it big in the States’ type coverage. 
  2. A history of never having to look beyond our patch of the world. A friend of mine told me that the closest language to Old Norse is actually found in Iceland. Back then, Iceland was far away enough that it’s language and culture remained fairly similar to it’s Viking heritage. It made me think that until the television and most recently, the Internet, Australia too was a little like Iceland. In a lot of ways I think Australia is still living in 19th or early 20th century England on lots of topics. The other byproduct of our history is that we haven’t had to be that ambitious in our past. Solving a problem in Australia is still considered good enough. 
  3. The never-ending VC story. Keeping a company Australian is pretty impossible. Most of you probably know you will need to flip up your company to be a US C corp at some stage in order to take American accredited investor money. This immediately means that the legal HQ of the company must be in the US which in turn forces you to reconsider where your physical HQ needs to be. It is just easier being in the US. In a future post I will write about why I think it's bad for most Aussie startups to make their physical HQ in the US during the early days but the only way you can hold out early US expansion or migration is to provide more competitive access to seed money in Australia. 
  4. Ultra conservative values and a cultural aversion to trying, let alone failing. I feel this is one of the biggest inhibitors to the startup scene. The big thing that is repeatedly drummed into the startup culture in SF is acceptance of failure, so much so that it can already be parodied. In Australia, trying overly ambitious goals in your teens or early twenties is kind of acceptable. After that, a cultural stigma develops against those that dare to dream. Sure, we love an underdog but that really is only if we don't know them personally. Furthermore trying is not generally acceptable in Australian cultural norms. In school did you try hard? Of course you did. Did you tell your friends how hard you tried? No. When I tell this story to Americans they just don't get it. Funnily enough now, neither do I. Anyone that does dream generally leaves for Europe or the US anyway. This isn't to say those who stay behind aren't talented. They are just locked up in a corporate vice. You’ve seen them; creative ambitious types. Wanting to change their organisation, perhaps the world, only to get beaten down and beaten down until the drive is taken out of them and they join a creative agency or accept that that is where they belong. We have become the neoconservative dream of owning your own home, a car and getting to 2.4 kids and it's at this point it's very hard to bring people back. I think we are far more likely than people in other countries to do work is mostly drab. I think this has made us feel less passionate about what work we do and as long as we get paid, we can go enjoy the "real" part of our lives from Friday night to Monday morning. I think this is in stark contrast to the American model which is very much sink or swim and allows one to dream and take on the world. 
  5. The government does not like your ambition. All industries in Australia have well-established oligopolies, which seemingly have protection from the government and the ACCC. If a startup so much as threatened to disrupt say, the food industry you can bet your sweet ass that Wesfarmers, Woolworths and a whole bunch of commissioned lobby groups will spring up and step to you. While there is talk about making it possible in Australia to actually support the startup scene, the pace of the legislative process is ridiculously slow. This will be further complicated if the incumbent government isn't re-elected. 
  6. Geographic impact. Let’s face it we are really isolated. It’s not like Europe where you get into one country's market and then expand into surrounding territories. Opportunities to expand are hard for a startup here.

The dream

I propose to you that we as a community and as a country, set ourselves a goal. The goal that I propose is to produce a US$1B valued company in the next 6 years. To reach this goal many things need to happen:

Remove disambiguation around startups.

Creating an online retail store. Usually, not a startup. Very often called one. We need a vernacular that distinguishes between a startup business like say creating a digital consultancy or an online retail store and a tech startup which is seeking to create new business model designed for aggressive exponential like growth. I think Paul Graham sums this up best.

Stop what you are thinking and think bigger.

Startups are not small businesses. Stop thinking about Australia like it’s your primary market. It’s not. We are the cultural bastard child of the UK and the USA. Australia is a great market to try your ideas out but you should take on the world as it is much much smaller than you think. Be brave to prove models in Australia and then move on. Think bigger than you have thought before.  Be more ambitious. Keep chipping away and let your overseas expansion drive your domestic growth.

Create incentives for early stage tech investment.

Even the UK has tech investment tax breaks that creates a much better risk reward incentive for investors of all sizes from VC through to angels and crowdfunding investors or friends and family. Government help in getting this set up would be a great step in helping startups get off the ground.

Take the low hanging fruit

We will never be Silicon Valley. That took 80 years to happen and it will always be a beacon for the highly ambitious in the tech space. Accept that we are in Australia. Right now the government needs to do more; faster. Improve the laws around tax transfer pricing for startups. Encourage excursions to San Francisco. Encourage industry leading mentors to come out to Australia. Encourage successful Australian tech entrepreneurs based in or out of Australia to talk about the things they have had to overcome and learn from their experiences; encourage market disruption of established industry oligarchies; offer grants, workshops, guidance on how to streamline the creation a startup. Finally fix bankruptcy laws for tech startups to prevent blacklisting; let people learn from their mistakes. If these guys can promote and be proud of their startups, so can our government.

Merchant banking without all the bullshit.

I don't think I have to talk much about this one. We need to make it easier to charge USD and pay in to AUD without the BS.

Rescue your friends before they die on the inside.

In my opinion the optimal age to do a startup is somewhere between 26 and 32. I think there is something to be said about experience and skill and drive between these ages that just makes sense. In fact find a friend who is 28 and has a lot of experience in the idea you want to do. Look for friends who have passion in what they talk about. Talk to people who have ideas on how to make the world a better place and are capable of getting shit done. Corporates, digital agencies all are brimming with people that want to follow or help lead an idea that will change the world.

Politely correct people who hate on startups leaving Australia.

Your startup is like a baby. If you get news that your baby has a better future in another country, most people would try their hardest to make that happen (don't worry I won't bring up any Australian asylum seeker parallels). If those guys are lucky enough to get over there and expand, that is fucking amazing and in my opinion they should have a ticker tape parade every time they come back home to spread the word. Not only will they will come back with richer experiences they will continue to grow the Australian community.

Capitalise on expat arrivals

You don't quite need to hold up a 'Need a cofounder' sign at the airport for flights arriving from San Francisco (hmm.. that isn't a bad idea though) but take advantage of the reverse in Australia's brain drain. The 17th century painter Rubens came back from high 7 year jaunt in renaissance Italy with a new perspective on things; opportunities he saw to make the world better. He was part of a movement that would go on to change the way art was done across the world. Given our recent about face in our talent drain we stand on a precipice of inviting potential Rubens like expats to lead the way in our big thinking changes.

Your idea is like Schrödingers cat

It's dead and alive at the same time. The more you hold on and don't test your idea the more likely it is to be dead. If you are thinking about doing a startup share your idea with other people. I promise you no one is going to steal it because nearly everyone will tell you a startup is more about execution than an idea and the big overriding thing is most of them probably don't give a shit about your idea. That said you probably don't want to talk to 18 year old software developers looking for something to do with their spare time! ;)

Above all:

Be strong and have heart.

Australia is not the perfect place for a startup. It may get better or it may not. Take this though, no matter where you are in the world, you will get glances from people thinking you are crazy for doing what you're doing. You will be told not to expect too much and that you are someone who isn't the type to change the world. It is important to know that in psychology a lot of these things that people will say to you are just their defence mechanisms acting up and lots of projection. Take the hate on the chin because it's you that has taken the steps to dream big.

We owe it to ourselves to dream big . Nothing remarkable has ever come out of anything less.

If you feel like helping us change the world of how people work, feel free to talk to us. We are still looking for another founder and you can find more about what we are looking for in our next post!