Starting a startup can be an exciting and rewarding experience, but it can also be risky and extremally challenging for most founders. The failure to success ratio is heavily stacked against the founder with most sources reporting that 90% of startups fail but the risk to reward ratio is often worth it. Successful startups become thriving successful businesses that hire staff and pay taxes and an elite few reach “unicorn” status where the company reaches a valuation above $1b without being listed on the stock market. Australia has 8 unicorns to be proud of with Canva leading the charge but unfortunately little old New Zealand has zero.
There is no doubt we have a few great success stories of companies that have a $1b plus valuation listed on markets around the world like A2 milk, Allbirds, Rocket Labs, Trade Me & Xero but we could have so many more. Startups seem to be a numbers game, even early investors understand this and they expect to loose the majority of their investments with the expectation that one of the gambles pays off in for all the losses and more. So how can we improve the numbers game and help NZ startups achieve success faster?
First lets have a quick look into why startups tend to fail.
This information wasn’t from the largest data set but startups were able to list multiple reasons why they failed because not all startups fail due to one reason. As you will see one of the largest failures is due to “no market need” also referred to as “product market fit”. Product market fit happens when you build the right product to solve customer needs and they are willing to adopt it and pay for it.
I believe there are two simple approaches to helping startups and both are good but if you can combine both approaches you would be onto a real winner.
The first approach is to give startups exactly what they need, get them into an incubator program and/or a startup accelerator program. Give them all the teachings and connections a startup needs for success. Hand things to them on a platter and hold there hand throughout the process. The problem with this process is often they don’t get the true harsh feedback they need to fail fast or pivot on an idea. Many incubators and accelerators know it is a numbers game to get people out the other end, if they take on 30 people at least 3 are going to succeed so often the intakes are large groups and can’t always dedicate as much time to any single startup.
The second approach is tough love, stress test the idea, stress test the founding team, find out early why if customers want to pay for this new idea before spending your next 6–36 month on a project that was doomed to fail from day one. The journey through startups is tough and there is no point sugar coating it or glorifying it because it is long late nights slaving away with an extremely high failure rate. It’s clear that some people are destined for greatness but it’s not always their first idea that lands so the sooner you get a failure behind you and learn from it the sooner you can move onto your next idea and make it a success. Before founding Microsoft Bill Gates & Paul Allen had a failed startup called Trad-O-Data that “read the raw data from roadway traffic counters to create reports for traffic engineers.” But Paul Allen said “Even though Traf-O-Data wasn’t a roaring success, it was seminal in preparing us to make Microsoft’s first product a couple years later.”
I think if you can combine these two approaches it could breed a select few of resilient founders ready to take on the harsh reality of startup life. Make it a bit more like the tv show Shark Tank or Dragons Den where you expect to be ripped apart if you are not ready but do it in a way to guide you to your next steps in the journey. Too often founders think they need to build a product or raise capital but sometimes the first thing they need to do is as simple as talk to the customer and see if their solution is something they would be willing to pay for.
So is it about improving the odds or increasing the numbers, I say do both but in a non dilutive way. Most startup founders don’t have the money to invest into expect advice or have the capital needed to get started and unfortunately some programs take advantage of founders by taking a cut of the pie before the idea is fully baked. If you have a billion dollar idea why should someone take a percentage for a small return of their time and maybe a little amount of cash in the bank. Founders need to get the right unbias advice before giving away ownership of their company.
Lets prep startups for reality from day one but still set them up for success. I’d far rather invest in a founder that has gone through the wringer with a few war stories behind them than someone right out the gates. So if New Zealand wants to have some unicorns of it’s own we are going to have to help the startup ecosystem with a bit of tough love and some direction.
