1st July, 2024

🍕 Meet, 📢 Lobby, 💕 Engage

Jul 01, 2024

Back in May I wrote about industrial policy, and as part of that mentioned KiwiSaaS. At the time those involved were concerned that they might lose their generous government funding. In the subsequent budget that funding was cut completely.

Nick Houldsworth, who was a very early employee at Vend, subsequently General Manager of Ecosystem at Xero, and now co-founder of a new venture called Prosaic (I’m an investor), wrote an excellent response to this decision on LinkedIn:

… in amongst all the existing support infrastructure, and at a time where everyone is doing it tough financially, is one more government funded industry body right now a must-have, or a nice-to-have feature?

Duncan Grieve picked up on that in an article on The Spinoff last week:

What might Judith Collins’ abrupt shutdown of one small agency mean for NZ business?

I noted that while Nick and I were both quoted, none of the people speaking in support of KiwiSaas were named. However, when I reposted that on LinkedIn it attracted a lot of comments, both positive and negative.

So, let’s go around this block one more time, for old times sake…

🍕 Meet

Jon Foote, the CEO/Founder at Flock and Reportabl was one who commented. He was sad to see this decision from the government:

As someone who has benefitted from KiwiSaaS, I can honestly say that due to the community based sharing and learning opportunities I experienced, my SaaS business is, and will be, much more successful. I have gained so much and met more people in the industry through kiwisaas than any other member organisation or the like, than ever before.
It's a shame to see it go as I personally could see the impact it was having on creating a better SaaS ecosystem in and for NZ.

Here’s a crazy idea for Jon and others who might feel the same:

Get together with others who see this value and keep it going. You don’t have to rely on the government to fund it. Keep it small to start with. I guarantee you can run these events on a significantly smaller budget - without the mission statement and advisory board.

Find some sponsors. You could start with the organisations who previously sponsored KiwiSaaS events. Or sponsor it yourself. I’ll be honest I’ve never heard of Reportabl, so what a great opportunity to raise your profile, especially if you’re trying to recruit and/or attract the interest of investors.

Or, ask people who attend to pay what they can. This is a useful way to test if there is actually value for everybody who participates.

This is exactly what happened prior to KiwiSaas, and is the main reason for the tight networks amongst the earlier generation of founders (who Duncan kindly referred to as the “old hands” in his write-up).

To list just a few, off the top of my head:

Natasha Lampard & Mike Brown organised Webstock
Ludwig Wendzich organised Gather
Ben Gracewood organised Codemania
John Ballinger, with help from Karl von Randow and Matt Buchanan, organised the Auckland Web Meet-up (John has published a great history of that event)
Sian Simpson and John Holt organised KLP Jams
Ruth McDavitt and John Clegg organised the Summer of Tech lectures
Adela May organised Startup Grind
Sacha Judd and I organised Flounders Retreats

I’m foolish to even attempt this list, because no doubt there were many others involved than those I’ve named, and I’m sure I’m forgetting many others. But, nobody should forget possibly the most influential of all:

Nat Torkington and Jenine Abarbanel organised Kiwi Foo Camps

I’m immensely grateful to all of them for the work they did to run these events, create connections between people working on similar things, or just folks who could benefit from knowing each other, and in the process build the community. It had, and continues to have, a huge impact.

Anybody wanting to organise something along these lines today doesn’t need to start from scratch. You can learn from what came before. You’re standing on the shoulders of giants! Most of those folks I listed are still involved in the ecosystem to some extent - many of them are still actively working on startups, in some cases their second or third. You could ask them for tips and pitfalls to avoid. They might even offer to speak, if you ask them.

Interestingly none of those events are still running. Perhaps they got crowded out, when the government funded startup industrial complex took over. I mostly stopped attending startup events then, because the signal-to-noise ratio got very low. The things that took their place in the calendar no longer felt like events organised by people actually working in startups or even with any genuine experience of working in startups. They became forums for repeating mantras (“fail fast”, “make it rain”, “be global from day one”). They became startup theatre.

But now, with some clear air, we could revert. It would be easy.

So, what are you waiting for Jon? Take the initiative!

📢 Lobby

Brett Roberts, who spent a number of years working at Callaghan Innovation and was Community Director at KiwiSaaS, made a number of comments defending the work they did. I asked him why he thought they were defunded. He had a number of theories:

Zero understanding of the SaaS model and its potential across the entirety of the government and public sector. Outside of the kiwiSaaS team and Callaghan I'd be surprised if there were more than a few people in positions of policy and funding influence who understand even the basics.
Skepticism by folks in government agencies of a business model that exports bits rather than atoms (especially milk and tourism atoms) which is partly due to...
Its invisibility in the data used by Stats NZ and therefore across government. The archaic ANZSIC code system means that data from SaaS companies gets mixed in with pretty much everything else 'tech' (including the little place on the corner that repair iPhone screens) making it very difficult to separate out and therefore measure.
The fact the SaaS sector hasn't, until recently, seen itself as a separate and unique 'sector' within the broader tech realm. To use an example, a few years ago I spoke with people from very different SaaS companies who didn't see they had anything in common with each other e.g. 'what do I, a Xero employee, have in common with somebody from EasyVet ?' (example made up but you get the point)
The challenge of getting in Ministerial ears and eyes. I have seen amazing stories of tech sector successes and challenges being reduced to a single sentence or two in regular ministerial reporting (and often removed completely).
The massive friction between the most risk averse organisation in the country (government) and one of the highest risk businesses (tech startups). Much safer to fund the Onion Growers' Association to the tune of $500K per year 🙂
No ministry to champion the cause. Agriculture has MPI etc
'Labour started it so we should kill it' mindset
Some Machiavellian behind the scenes wankery by people who I once had a much higher opinion of but who shall remain nameless.

Yikes! There is enough content in there to fuel several months worth of Top Three. But, to start with, let’s focus on how poorly the “sector” has engaged with government.

I agree with him on that point.

Consider the perennial pissing competition for which sector is the largest exporter, between agriculture and tourism and “tech”. Via the Ministry for Primary Industries and Tourism New Zealand, you’d have to say those other two sectors have much better direct links into government decision makers.

This got me thinking … What would an effective “tech” lobby look like?

It wouldn’t take much to form a group to represent the sector - everybody already knows each other. It could include hi-tech, deep-tech and SaaS (dare I say: low-tech) and so be a broad church covering the full depth spectrum of technology.

Large companies within the ecosystem could contribute a lot, and smaller companies could contribute a little. Genuine startups, of which there are many, could contribute what they can (aka not much). There could even be room for individual memberships for those watching from the sidelines and still aspiring to work on a startup.

But what would this group, together, actually want from the government?

Please tell me it’s not just funding?

Those who promote the technology ecosystem talk a big game about how they are the key to lifting the future prosperity of New Zealand. But that only happens, in practice, if the combined contributions from the sector are greater than what is extracted. So starting with a hand out for subsidies is the exact opposite of that.

In my earlier post I compared this to the way that professional footballers end up soaking up all of the profits from football clubs. There are lots of equivalent examples in industrial policy - the new government subsidies for game developers is a recent example. If that sub-sector is “successful” they will end up taking slightly more than they give, and so contribute nothing (actually they will expect other sectors to subsidise them in the meantime).

Please tell me it’s not just paying less tax?

This is a subset of the same idea. The belief that changing the tax system to make it more attractive for startups to reward employees with stock options is one that seems to have near universal approval within the ecosystem. Even Minister Collins seems keen on this idea. But we seem to be wilfully ignoring the mechanisms that can be used under the existing tax system to achieve this exact same outcome. Unless the objective is actually to pay less tax overall.

Maybe it’s immigration settings?

Frustratingly, the focus still seems to be on convincing already wealthy people at the end of their career to retire here, and maybe to make a few angel investments, rather than attracting people still hungry to build their wealth and career here.

Maybe it’s education settings?

The number of local engineering graduates every year is still woefully low.

Both of those are things that government directly control, which have a big influence.

Or, perhaps there are actually radical ideas?

For example, the sector could lobby for a capital gains tax. Contrary to popular opinion, I don’t think this would have much impact on startups. Investing in houses has no tax advantage over investing in startups. There are no capital gains taxes for investors in either case. The reason most people prefer to invest in property is because they believe it is lower risk and investments can be leveraged via mortgages. It would require significant incentives for venture investors or disincentives for property investors to shift this mindset.

So, rather than swinging at non-existent tax differences, those advocating for startups could focus on the downsides of high house prices:

Rampant house price inflation is not wealth creation, it is poverty creation as it makes homeownership less accessible to everyone1

Remember, that “everyone” in this case includes all of the people who we need to choose to live and work on startups (and pay tax) in New Zealand.

And, the sector could lobby for compulsory KiwiSaver contributions. Ideally we would have done this 10 years ago, and be realising the benefits already. But, if we start now, in time we might be able to match the current situation in Australia where large venture funds are backed by even larger superannuation funds. This would, in my opinion, be much more impactful in the long-run than yet another extension of the government’s own venture fund.

Maybe there are other ideas? We must be able to do better than this.

Here is a graph that was used to explain the potential of KiwiSaas:

Missing from this is any explanation about what it would actually take to shift the growth rate from 19% to 21%. Without it that graph is meaningless. It’s easy for anybody to extrapolate growth rates in a spreadsheet and say “if we increase the growth rate from 19% or 21% then over multiple years that makes $3B difference”. The detail is the how? What can we do that will have any impact on growth rates?

If nothing else, this hypothetical lobby group exercise would force everybody involved in the sector to think about what the government could actually do to shift the trajectory. Other than funding a group to … lobby itself.

💕 Engage

People who work on startups like to spend time with other people who are also working on startups. That makes sense. It’s often a lonely experience, and it can help to share that with others who empathise.

But it’s important to realise that these are easy conversations.

Working with the Timely team taught me a different approach. In the beginning we incorrectly considered ourselves a technology company targeting customers in the health and beauty sector. That seemed logical. We were software people and they were health and beauty people. But eventually we realised we were ourselves part of the health and beauty sector and that our product was technology services.

This might seem a subtle difference, but it resulted in a significant change in how we positioned ourselves, how we spent our time, and who we spent it with. Rather than talking mostly to other technology people, who were all working in very different sectors, we prioritised talking to our peers in the health and beauty sector. We quickly found we had a lot more to learn from them. Rather than describing our technology and listing the features we had built, we switched to focusing on the problems we were hoping to solve for our customers and talking about our solution using language and a style that was more familiar to them. Rather than spending all of our time with other startup founders who were the same age and stage as us, we tried to connect with those people who understood the most about the customers we were trying to reach. Some of them were self-employed. Some of them were working in much larger businesses. Some of them became customers themselves or referred others. Some of them would even later join our team.

As we discovered these are hard conversations.

That maybe explains why most founders prefer to stick to startup events. There are always opportunities to learn, and bouncing off others who are in a similar position and struggling with similar problems can help. However a good question to ask is: what do we disagree with? If we already believe everything that is being said at the events we attend then we’re probably not learning much. It’s important we don’t spend too much time preaching to the choir. We need to be exposed to different people who will challenge our thinking. That creates friction. It’s outside of our comfort zone. However, it helps us to understand our customers better.

When we categorise ourselves as a startup it’s easy to get sucked into celebrating the milestones that startups talk about endlessly - how fast we are growing, how much capital we’ve raised and from whom, how big our team is and who is on it etc. But customers don’t really care about any of those things. To create the feedback loops necessary to improve, we need to prioritise conversations that are uncomfortable and hard over conversations that are comfortable and easy. We need to think about what sector our customers are in, then lean into the hard work that will, over time, make us part of that sector.

These days I strongly advise all the founders I work with to spend less time at “ecosystem” events and more time focused on making their own venture one that counts. It turns out, that is by far the biggest contribution that any individual can make to actually growing an ecosystem.

The good, the bad, and the reality of falling house prices, by Miriam Bell, Stuff, 10 September 2022.

Top Three, by Rowan Simpson

Discussion about this post