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Bill Reichert's New Zealand innovation report, part 1: impressive effort, but must try harder

A fine example of New Zealand innovation. Flag design: James Gray

Garage Technology Ventures' managing director Bill Reichert recently spent four weeks in New Zealand as entrepreneur in residence at AUT University and travelled the country meeting some of our most promising and passionate startups, innovators, educators and regulators. In the first of a two-part feature, he gives his educated view on the state of our country's innovation ecosystem and what we need to do to develop it – and next up he tells us about the New Zealand companies that impressed him most. 

From early May to the beginning of June this year, I had the extraordinary privilege and opportunity to be invited to immerse myself in the New Zealand innovation ecosystem as Entrepreneur in Residence at Auckland University of Technology. Thanks to AUT, with the additional support of Callaghan Innovation and NZTE, I participated in this year’s TechWeek, I attended the Hi Tech Awards, and I spent time in Wellington, Hamilton, Christchurch and Auckland. 

It was a delightful, if somewhat exhausting, four weeks. I met with many smart, energised, committed entrepreneurs, students, educators, investors and other supporters. And my head is now spinning.  

Based on my travels in New Zealand, I know there are plenty of entrepreneurs in New Zealand who think big, and plenty who are eager to take the risk of failure and rise above the crowd. 

Along with a great deal of positive energy, there was also a constant theme of uncertainty and insecurity.  Several times I heard the refrain, “New Zealand is just too small, and Kiwi entrepreneurs do not think big enough.” Sometimes this was prompted by a frustration that there have not been very many Kiwi startups that have made it big. And sometimes it reflected the trope that Kiwis only are as ambitious as they need to be to achieve the Three Bs: Boat, Bach, Beemer. At the same time, Kiwis complain that the New Zealand culture is unduly harsh on entrepreneurs who fail, and those who succeed need to cope with the 'Tall Poppy Syndrome'.  If you succeed and pop your head above the crowd, it will be chopped off. 

I hear this chorus in startup ecosystems all over the world. In the Nordics. In Korea. In Singapore. Even in the US, in places like Chicago and Phoenix. This is a symptom and an excuse; it is not a constraint. It is a symptom of an ecosystem that has tried and is not yet succeeding, and it is an excuse for those who have tried and failed. Based on my travels in New Zealand, I know there are plenty of entrepreneurs in New Zealand who think big, and plenty who are eager to take the risk of failure and rise above the crowd. 

On the other hand, there is no question that New Zealand does face very real constraints on building a robust venture ecosystem.  Many of these constraints have already been clearly identified:

  • Experience: Few people in the ecosystem who have done it before and can jump back in or share their knowledge and experience.
  • Customers: Small base of larger businesses in New Zealand that can or are willing to try and buy new technologies.
  • Inspiration: Few highly celebrated success stories that provide example and inspiration to entrepreneurs.
  • Acceptance: Entrepreneurship is only just beginning to be accepted as a smart career path for high achievers. 
  • Connection: The networks for entrepreneurs to connect with others, and for others to find entrepreneurs, are underdeveloped.
  • Capital: Beyond some government support and a developing angel capital network, there is not a broad, deep pool of investment capital.

One traditional constraint that now seems to be fixed, however, is the early-stage support of talent along with good sources of technology that can be developed into a successful venture ecosystem. New Zealand has a historically solid base of science and engineering activity and talent, and in recent years both government and other supporters have collaborated to develop a very robust incubator and accelerator infrastructure. 

Meanwhile, universities seem to have enlightened policies regarding startups spinning out from their classrooms and labs.  The knowledge base around how to start a startup is available in New Zealand. It seems, however, that the supply of qualified entrepreneurs and startups that can take advantage of these programmes has not yet risen to the level hoped. That may be because the Inspiration and Acceptance constraints above are holding back the development of a robust pipeline of driven entrepreneurs.   

Another traditional constraint that does not seem to be a problem in New Zealand is the regulatory regime and related government policies. In many countries, compliance with licensing, taxing and labour laws is a severe constraint on the venture ecosystem, but that does not appear to be the case in New Zealand. Good news! Indeed, New Zealand might consider a more active outreach programme to the world to come to New Zealand to develop and test your advanced technology. Unlike California, New Zealand knows how to fast-track the certifications needed to test many complicated technologies (or it may just be that enforcement is more lax, hence Peter Beck firing off test rocket engines in the basement of a building in Parnell).

So what can New Zealand do to accelerate the development of its innovation ecosystem and move New Zealand’s economy toward less dependence on primary industry and greater diversification into advanced technology industries? Here are some recommendations:

  1. Engage the corporate community: No innovation ecosystem can thrive without the active development of the corporate community. New Zealand has done an okay job of getting companies (mainly banks and accounting firms) to sponsor events and programmes, but the broader corporate community seems to be absent.  Companies in New Zealand, whether they are local or multinational, should be actively involved in trying out and buying products and services from startups. Companies should be investing in emerging technologies that may leverage or disrupt their businesses. KEA should be supported in identifying Kiwi executives around the world inside companies that could be customers for Kiwi startups. And Kiwi executives should be tapped as mentors and advisors to startups. While their corporate experience might not match exactly the needs of startup entrepreneurs, nevertheless their business experience and networks should be very valuable to these entrepreneurs. 
  2. Celebrate innovation heroes: The general awareness of the startup ecosystem in New Zealand is limited and seems to be overwhelmed by the larger cultural and media obsessions of New Zealand, including sports and other celebrities. This is true in almost every other culture outside Silicon Valley.  With the exception of magazines like Idealog, and a couple of very good awards events, the buzz in New Zealand is not hot startups.  I was surprised by the number of people I met who had not even heard of some of the companies in New Zealand who are offering world-beating new technologies (like Soul Machines). The media needs to be more engaged in spotlighting stories, people and companies that reflect the 21st century version of the Kiwi problem-solver and number 8 wire. To the extent that entrepreneurship is more visibly celebrated, young high-achievers will be more likely to see entrepreneurship as a high-prestige career path, rather than a risky alternative to getting a “real” job. 
  3. Increase support for sales training:  Too much of the emphasis in accelerator programmes is on pitch training and investor acquisition, and not enough emphasis is on sales training.  Too many programmes that send Kiwi entrepreneurs abroad focus on connecting with investors rather than connecting with customers.  Before any Kiwi entrepreneur talks with a Silicon Valley investor, he or she had better connect with several local customers and be able to prove they have a valid US customer acquisition model. Kiwis are not generally comfortable with selling; the culture emphasises the virtues of self-reliance, not the art of persuasion. Good entrepreneurs are good salespeople. Most are driven to sell by necessity and passion. But it helps to learn the skills of selling, and to get practice in selling, before you talk to investors. 
  4. Create an open professional network of startup companies: New Zealand has done a good job of providing basic training in starting up startups by supporting entrepreneur education and developing a strong base of incubator and accelerator programmes. But there is no public database of emerging technology companies that serves as a networking tool for entrepreneurs to reach out for employees, interns, advisors, partners, investors and customers. Nor is there a robust census of emerging technology companies for someone looking to participate in the startup scene to identify companies that he or she might be interested in joining, or writing about, or funding.  Initiatives like the TIN100 and the Deloitte Fast 50 are a really good start, but they are not useful in building an interactive ecosystem around startup companies. In the US, the CrunchBase website run by the TechCrunch digital magazine represents one part of this solution, but even CrunchBase does not offer a platform for startups to reach out for talent or build out collaborative initiatives.     
  5. Support scale-ups, not just startups: A lot of public and private money has been dedicated to helping startups start up, but once startups “graduate” from the incubation phase, they emerge into a vacuum where there is no oxygen – no support.  This is the Valley of Death, or the Series A gap, that everyone talks about. Those who fund the startup process, such as Callaghan, NZVIF and NZTE, should carve out some fraction of resources – maybe 10 percent? – and allocate those resources to making sure that those companies that have emerged from the startup phase with valid business models and solid traction get the attention and support they deserve to make it to the next level. This support should be delivered in a public/private partnership model, not as a bailout.  These companies should be clearly differentiated from less developed startups in the same way that the Lazaridis ScaleUp program in Canada distinguishes “Scale-up” stage companies from “Start-up” stage companies.
  6. Focus on innovation, not “commercialisation”: Like many countries around the world, New Zealand has a disproportionate emphasis on commercialising university and research lab intellectual property as a core component of the country’s innovation agenda. Many countries pursue the false hope that basic science, commercialisation and economic development follow in a direct sequence. Contrary to popular belief, successful new enterprises are seldom built directly on the commercialisation of patents and other scientific research. Basic research and scientific discovery are certainly very important, but most successful companies are built on innovations that are one or two steps removed from the original invention. Those companies that have been built on fundamental research and invention, such as Intel and Cisco, developed those inventions as a result of the need to solve a specific business problem, not in pursuit of scientific understanding. Basic research provides the ecosystem with an extremely valuable foundation of knowledge and talent, but economic development comes from the application of that knowledge and talent in the creation of innovations that frequently pull from multiple pools of knowledge and talent, not from licensing a patent. New Zealand should make sure that its researchers are up-to-date on cutting edge scientific developments around the world, and enable the local innovation ecosystem to tap those researchers for ideas on how new discoveries might be applied to solve business problems.
  7. Make New Zealand attractive to global innovators: New Zealand has an opportunity to exploit its advantages to attract the best and the brightest from elsewhere in the world to come to New Zealand to start their high tech companies. New Zealand already has a strong incubator/accelerator infrastructure, and by their own admission accelerators are struggling to find enough top quality startups to fill their cohorts. Other countries, like Chile and Singapore, and even the UK, have invested substantially in attracting immigrant innovators to build their startup ecosystems. Programmes like LevelTwo in Parnell and AstroLab in Auckland have shown that they can help develop world class companies. Plus, New Zealand has a proven reputation for being one of the easiest countries in the world for doing business, and it is already world-class in areas like animation/graphics, AR/VR, and medical technology. New Zealand should hold itself out as a friendly testbed for deep technology startups.  

Each one of these recommendations requires further investigation and brainstorming. I certainly do not know all the relevant initiatives that are already going on in New Zealand, but these are my observations and recommendations based on what I have gleaned from my recent visits and many conversations.  

  • Next up, Reichert shares his top ten (and a bit) list of New Zealand startups.