29th August, 2021

Week 35/52

Source: @TheMuppets on Twitter

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🐷🐔 Commit

The Chicken & The Pig

According to the fable, when we consider a bacon and egg sandwich: the chicken is involved but the pig is committed.

So, think about the various things you work on:

Are you a chicken or a pig?

You can be a chicken on lots of projects at once, but you can probably only be a pig on one.¹

Who is the pig?

If you can't identify anybody who is all-in on a project you’re interested in then that's nearly always a big problem!

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😛 Crowdsource

Many years ago we were driving on the Desert Road between Turangi and Waiouru and noticed something fall off the roof of the car in front. We stopped and discovered it was a digital camera.²

When I got home I shared one of the photos from the camera on my blog, and asked if anybody could help me locate the owners. Remarkably, it only took 26 minutes to find them. The camera was returned a few days later. I got a bottle of 42 Below from the grateful owner and a write up in the local newspaper.³

So, with fond memories of that experiment in mind, let me try something different...

In 1987 a team from New Zealand challenged for the America’s Cup for the first time. I was 11 years old and I got hooked. There was a street parade in Wellington to welcome the team home.⁴ They handed out cardboard flags for everybody to wave. On the back was a stylised wheku design - one of the logos used by the team (I think this was our response to the boxing kangaroo design used the Australian team).

More recently I re-discovered my now slightly-yellow flag, while cleaning out some old boxes. I took a hi-resolution scan, turned it into a digital file and from there into some art we have hanging in our house:

Over the years various people have suggested I make more of these things, and offered to buy them.

This has got me thinking more about the origins of the design, and some related interesting questions around copyright, usage and attribution. Unfortunately, all these years later, it’s not easy to find details.

The original trademark applications from the 1980s are available on the IPONZ site. These were registered by Cup Challenge Limited⁵ but are now all showing as cancelled.

So, I'm unsure what that means now in terms of the legal status of this design. And, that aside, I’d like to understand the best practice now in terms of using traditional Māori designs such as this - without doubt, this has shifted significantly since this trademark was issued in 1985.

If anybody is able to help me unpick those questions, it would be appreciated.

But, even more than that, I'd really love to find the original designer and learn the background story of the design and how it came to be used as it was. If they were interested, I'd be keen to include them in some of the things I'd like to do with this. Without that connection and permission I'm reluctant to do anything more (I don't want to step on any toes and I'd hate to discover they don't approve). But, unfortunately there is no information at all about this in any of those public records so I'm a bit lost.

Perhaps somebody reading this is able to make that connection or point me in the right direction? That would be awesome (just reply to this email, if you’re a subscriber, or use the comment link below if you’re reading on the web).

I’ll provide the 42 Below this time.

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🎭 Amuse

Rowan Simpson @rowansimpson

Startup Busking v. Repeatedly pitching to angel investors, in an effort to raise immaterial amounts of capital.

I have, over many years, been critical of what I’ve called start-up theatre.

Demo days, innovation showcases, start-up weekends, hack-a-thons. Basically anything where the purpose, once we scratch at the surface, is to entertain people for a short period of time.

One of the common defensive responses I always get whenever I say these things out loud is:

What’s the harm?
It’s just fun!
People enjoy these things!
Why do you hate fun, Rowan?

It's true, people do enjoy these events. They feel like a great way for people interested in start-ups to meet each other and learn useful skills. They seem like the obvious place to connect with potential investors and advisers.

Are they, though?

If theatre sports are your idea of fun, definitely don’t let anybody yuck your yum. But let’s not pretend it’s more than that.

Earlier in the year I proposed four simple questions to help us cut through a lot of this kind of debate about what works and what doesn't:

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?

I don't think many people who organise and promote these events have considered these questions. They are just trying to entertain people who want to be entertained.

Does it really matter if these things don't actually address a useful constraint, if they feel good, and seem fun?

Let’s consider that rhetorical question I get asked: How does it hurt?

It’s actually a much better question than those who ask it defensively realise…

Seeking escape velocity

Recall, there are two types of ventures that get grouped together under the start-up umbrella: early-stage and high-growth.

When we consider the outcomes from start-ups, in aggregate, we need to separate these out. The ventures we should be most interested in are the small group that survive beyond the early-stages and become high-growth, because those are the companies that ultimately contribute more value to the economy than they capture.

It doesn't benefit us, collectively, to just have more and more early-stage start-ups pining for the fjords.

In order to make the leap to becoming a founder or investor in a single early-stage venture, we have to be irrationally optimistic. The average start-up is too small and doesn't grow fast enough to ever achieve escape velocity.⁶

We need to believe we will be the exception to that rule.

But I think there is danger in reducing this to probabilities. Averages are not useful. The dynamic is not: play enough times and we will win eventually. It’s not a pure game of chance.

We need to dig beyond the surface layer and understand the reasons why some ventures are successful and others are not. And, often, this leads us directly back to the hard grind that start-up theatre works so hard to avoid.

It’s tempting to pretend that we can get from zero to a multi-million dollar valuation in 12 weeks. Or to believe that the skills required can be learned by anybody in some fun weekend workshops. Or even that if you can just nail one great pitch in front of the right audience then investment will follow and success is inevitable.

However, when we consider the ventures that have actually been successful and achieved escape velocity so far, none of them have their origins in this sort of activity.

Perhaps yours will be the first?

I think there's a simple reason for this. The patterns promoted at these events are barely applicable to the reality of early-stage start-ups and the things they need to do in order to move into high-growth mode. It’s like watching Survivor and thinking we’ve learned the techniques required to survive in the actual wilderness (it’s all about alliances and winning the immunity idols, right?) There is very little of the hard grind of building an actual start-up. Because, these events are designed to be quick fun. And, most of the time, the grind is neither quick nor fun.

In my experience, very few of those people who are in the process of trying to navigate that slow hard grind have much time spare to hang out at these sort of events. So, who is really connecting with whom?

Who does this help?

I think it’s worth asking: Who benefits from this theatre?

It’s definitely not founders!

In recent years we've stood up a large and growing industrial complex of organisations providing products and services that target early-stage founders as “customers”. Anybody who has spent any time in the “tech ecosystem” will recognise it.

In previous posts I’ve described these collectively as derivatives.⁷

Incubators, accelerators, shared working spaces, angel groups, regional economic development agencies, government funds-of-funds, tech clusters and innovation hubs etc.

It's a long list!

These all thrive by encouraging more people to work on start-ups, and to continue to work on start-ups, mostly without too much consideration of the likelihood of success. They increase activity, but often go to great lengths to take attention off the tangible results of all of that work. They obfuscate the difficult bits and focus instead on what makes being a founder and working on a start-up seem exciting from the outside.

By doing that they unintentionally actually make it less likely that the start-ups operating within these structures survive and achieve that important escape velocity - because it's much harder for those start-ups to learn the important lessons that only come from feedback loops.

In other words, they feel helpful, but they're actually making things worse.

This is not widely acknowledged or even understood by those who work on and promote these things to prospective founders (or to the politicians who often fund them).

There is even academic work that supports this conclusion. Rasmus Koss Hartmann (Copenhagen Business School), André Spicer (City University, London) and Anders Krabbe (Stanford) have researched this effect in depth and published an amazing paper in 2019:

Towards an Untrepreneurial Economy? The Entrepreneurship Industry and the Rise of the Veblenian Entrepreneur.

In my opinion this should be compulsory pre-requisite reading for anybody working in the ecosystem.

They describe the founders that operate within this type of ecosystem as “Veblenian Entrepreneurs” (after Thorstein Veblen, the economist who coined the expression “conspicuous consumption”).

And they make it pretty obvious how they feel about this:

[Veblenian Entrepreneurship] masquerades as being innovation-driven and growth-oriented but is substantively oriented towards supporting the entrepreneur’s conspicuous identity work.

And:

It is a form of entrepreneurship that seeks to appear outwardly as innovation-driven and growth-oriented in order for the founder to gain the social recognition afforded to this category of activity. However, Veblenian Entrepreneurship is substantively different in its triggers and the motivations underlying entrepreneurial activities, and in how the entrepreneur makes use of entrepreneurial resources. Veblenian Entrepreneurship is not triggered by entrepreneurial opportunities. Veblenian Entrepreneurship is triggered by the desire to be an entrepreneur, to build the identity of being an entrepreneur and to ostentatiously project that identity to an audience witnessing and appraising the entrepreneur.

Yikes! And people sometimes call me a hater!

First, do no harm

The baseline should be: At least don’t make things worse.

So, let’s consider three specific ways that start-up theatre hurts…

1. It amplifies the wrong patterns;

2. It takes up all of the oxygen in the room; and

3. It's a poor use of public funding.

We now have buildings all over the country full of people copying a reality television inspired playbook for start-ups that doesn’t correlate at all with the things that our successful start-ups have done.⁸

We dangerously promote the idea that failure is to be encouraged. This actually creates a perverse feedback loop: all of the negatives associated with a failed venture tend to get downplayed - in part because those involved have tied their identity to being a successful founders, so when something doesn’t work out they tend to only talk about the soft positives (e.g. networking connections made) rather than the hard negatives (e.g. financial impact, opportunity costs) and so are less likely to absorb the useful lessons

We continue to hand the microphone to these people running derivatives and the founders they want to promote. Often they are just emulating successful founders, without having done the work that creates the success they are trying to mimic.

As I've said previously, those founders who get coverage fundamentally shape what we all consider a founder to be. Only telling stories that make start-ups seem like a fun game of chance placed by want-reprenures distorts expectations and reduces the likelihood more people will consider it a serious career path.

The irony here is that actually successful founders are much harder to identify from a distance, partly because they are not so stressed about having to appear successful on the outside. It's actually incredible (and depressing to me at least) how often the honest stories of successful start-ups are never told.

We have massively increased the number of founders working on early-stage start-ups without significantly increasing the quality. And the derivatives in the ecosystem themselves employ many hundreds of people. At the same time, high-growth ventures are desperately short of skilled staff. Most of the folks who languish working on flailing start-ups would contribute much more by taking a job in a larger start-up that has momentum where they would be able to specialise and be most productive.

Meanwhile, significant local and central government funding continues to flow to all of these derivatives, hoping that will support more successful start-ups. Most of these have long been proven to be failed experiments, if we were honest about where our successes have come from. But rather than think harder about this we continue to double down hoping for a change in fortunes.

Imagine how good things would be by now if that worked!

So, what can you do?

This is my advice for founders, wondering how to operate within this environment:

Firstly, always consider the business model that you’re working within.

If you are taking investment from a venture fund, think about their business model. If you are applying to an accelerator program, think about their business model. If you have a “cheap” desk in a shared working space, think about their business model. If you are working with advisers or consultants (especially those who are inclined to peddle the idea that failure is a glorious and exciting step on the path to success), think about their business model. If you’re pitching to a room full of investors, think about who is getting paid in that moment (i.e. who sold the tickets), what they promised you and what their business model is.

There are two famous rules of thumb which most likely apply:

1. If you are not paying for the product, you probably are the product; and

2. If you look around the table and you don’t know who the sucker is, then it’s probably you!

Secondly, pay attention to how you spend your time and who you spend it with.

If your days are full of ecosystem events with other founders or you spend all of your time pitching to potential investors, then realise that you are not spending that time speaking with potential customers.

It’s great to get support from others who are in the same position as you, and of course you need to make sure that you have enough money to fund your plans, but the warning sign is when that’s all you do.

Finally, have your own definition of success.

Try and always think clearly about where you want to go next and what constraint you have at each point in the development of your venture. Carefully pick people to work with who can help you remove those.

The amount of ecosystem noise can easily drown out the signal, but remember that it's all optional. There is no obligation for you to worry about anybody else's start-up or feel compelled to participate in others events. In fact, as I wrote last week, all of the successful founders I know have maintained a mild disinterest in things happening on the periphery, and remained very focussed on their own work. I would argue that is why they were successful.

The biggest contribution you can make to a thriving and growing ecosystem is to make your own company a success. Then pay it forward.

If you get this right then, as I’ve been fortunate to experience first-hand multiple times now, it starts to be a whole different category of fun.

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This is the penultimate part of a long-running series I’ve been writing this year about the start-up ecosystem. If you’re a recent subscriber, here are some links to the earlier parts, which may provide some useful background:

24th January, 2021
Define - Part 1: What is a start-up?

14th February, 2021
Define - Part 2: What is a New Zealand company?

21st February, 2021
Identify, Amplify: Who gets given the microphone?
Diversify: What do we learn from failed start-ups?

7th March, 2021
Define - Part 3: What is a technology company?

21st March, 2021
Define - Part 4: What is innovation?

4th April, 2021
Watch, Bust & Iterate: Revisiting Paul Callaghan’s “Mapping Our Future” talk from 2011

11th April, 2021
Grow: What does high-growth actually look like? Import: Why do we keep mindlessly copying solutions from overseas that don’t work here?

18th April, 2021
Fuel: Is capital really our biggest constraint? (aka The story of NZVIF)

2nd May, 2021
Scale: How do you get from early-stage to high-growth?
Impact: How do you know that something is working?

9th May, 2021
Incubate: What problem do business incubators solve?
Accelerate: What problem do start-up accelerators solve?
Bless: What problem do angel groups solve? (aka The story of NZSCIF)

16th May, 2021
Suck: How does Dragons Den distort start-ups?
Rhyme: How do we become the place where talented poets want to live? (an allegory)

7th June, 2021
Define - Part 5: What is an ecosystem?
Ask: How do you know that something is working? (part 2)

13th June, 2021
Define - Part 6: What do we want from our ecosystem of of technology start-ups in New Zealand?
Benefit: What can start-ups do for the government?

20th June, 2021
Trade: When a local start-up is sold, is that a good thing or a bad thing?

27th June, 2021
Cook: Can a small number of crazy founders create an ecosystem?
Return: How can the government objectively support start-ups? (aka the story of Callaghan Innovation)

4th July, 2021
Grow: Where does the capital for seed funding come from?

11th July, 2021
Recruit: What’s the real constraint? (Hint: it’s people)

1st August, 2021
Fly: What are the critical moments in a start-up (beyond raising capital and acquisition)?

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Top Three is a weekly collection of things I notice in 2021. I’m writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if it’s interesting to you.

1. See: Anything vs. Everything

2. For younger readers, a "digital camera" was a small piece of electronics that people in the late 1900s would sometimes carry for the sole purposes of taking photos. Think of it as a large phone that only ran a single app!

3. For younger readers, a "newspaper" was a news service popular in the late 1900s - similar to social media but rather than being available 24/7 online, stories were only printed and circulated once per day.

4. That there was a street parade is itself remarkable, since the team didn’t win the America’s Cup, or even qualify for the final, as Dennis Conner would be immortalised for reminding us: “You’re a loser, get off the stage!”

5. The details at the Companies Office show that company was registered in 1984 but liquidated and struck off in 1996. The directors were Michael Fay, David Richwhite and Bill Bernie.

6. Nightingale & Code memorably called these ventures “Muppets” in their 2013 paper:
Muppets and gazelles: political and methodological biases in entrepreneurship research

7. See: 2nd May, 2021 (Scale & Impact) and 9th May, 2021 (Incubate, Accelerate & Bless)

8. And these patterns are leaking out into other sectors too. For example, the Ministry of Culture & Heritage recently announced a $60m Innovation Fund , which is being delivered via multiple regional events. As explained in the Q&A on their website:

Why is the Innovation Fund being delivered through events?
Te Urungi is an adaption of event-based models that have been used successfully to generate innovation in different sectors including government, technology and science.

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