Why New Zealand Needs a Coordinated And More Inclusive National Entrepreneurship Plan
Establishing a strategic framework towards action on EDG #2
Recently, I launched a vision and action plan for a more innovative and entrepreneurial economy in New Zealand, collated across 15 years of insights growing the local startup community and peer-reviewed by key ecosystem leaders prior to publishing.
That plan laid out 8 key ecosystem development goals, which I believe, if thoughtfully implemented, will create a more a vibrant entrepreneurial economy in New Zealand.
Last month I looked at EDG#1 and entrepreneurial density in more detail.
This article looks at EDG#2 — the need for a coordinated national entrepreneurship plan. It also discusses why knowledge-led- or market-insight-driven startups are a key missing piece of current ‘startup’ policy, and looks to establish a strategic framework for Government towards action on a more coordinated and inclusive plan.
EDG #2’s High-Level Policy Recommendations
There’s only a single policy recommendation in EDG#2, and that’s to create a cross-sector national government ‘startup’ agency:
Where Does Entrepreneurship Fit into Government’s Current Plan?
Entrepreneurship is a broad and encompassing term depending upon who you talk to — for some, anyone starting a business is an entrepreneur, to others, entrepreneurship consists of a significant element of innovation and novelty (i.e. doing something than no-one has ever done before).
If entrepreneurship can be so broad, then so is its close cousin the ‘startup’. To some, startup means a new business, to others a small business, and to others more in my sphere of thinking, it describes a particular developmental stage of a high-growth, and often venture-capital led, company.
What is a startup?
A startup is a young, high-growth potential company that is using technology and innovation to tackle a large, and most-likely, global market. They look for efficiencies of scale, so they can create repeatable, and scalable, long-term engines of growth and impact. They often have a big vision to positively impact the lives of millions of people or advance our understanding of the world in new ways.
Whilst the above definition, taken from my previous article, is the most commonly used by those in the ‘startup sector’, the lack of an agreed definition of what a startup is, especially from those outside of the sector, is a challenge in putting the right plan around how to support such companies.
With a company-building lens, entrepreneurship sits clearly within the Ministry of Business, Innovation, and Employment (under the Minister of Economic Development), but where does entrepreneurship fall when you’re looking through the lens of building entrepreneurial culture, or mindset, or investing in people and capability?
Who Should Own Entrepreneurship In Government?
This conflation and lack of agreed definition is a huge problem towards reaching a coordinated plan.
Who’s responsibility is it to ensure our young people are coming out of school with the right entrepreneurial mindset and skills to work in the future? The Ministry of Education? The Ministry of Youth Development?
Who’s role is it to ensure we’re moving our primary industries to more innovative and sustainable solutions? The Ministry of Primary Industries?
Who’s role is it to ensure Māori innovation capability is developed and the holistic Māori world view is integrated into the wider innovation community? Te Puni Kōkiri (The Ministry of Māori Development)?
Who’s role is it to ensure our future students, scientists, and companies are solving our largest social, economic, and environmental problems? The Ministry of Education? The Ministry for the Environment? The Ministry of Social Development? The Ministry of Business, Innovation, and Employment (MBIE)?
And who should own a plan that cuts across all of them to ensure we are building the right skills and companies to thrive in the future? MBIE again? Maybe The Department of the Prime Minister & Cabinet?
Or is it all of the above?
What I’ve learned living and breathing startups and innovation over the last 25 years is that when something is everyone’s responsibility, it usually ends up as the responsibility of no-one.
This challenge was clear to me when I first published the Start NZ Up plan, the Department of the Prime Minister and Cabinet pushed it down to the Minister of Science and Innovation, who’s team saw the word ‘startup’ and said this is economic development not innovation, and pushed it to the Minister of Economic Development. But these issues cut across all government agencies in some way, and that’s part of the problem…
Trying to align all of these groups, interests, and priorities is a challenge at the best of times — they all have their place in the economic cycle, but each agency has it’s own area of specific focusses — Callaghan Innovation for example are mostly about science and research, which makes sense given their roots; NZTE are all about building export capability; MBIE who do have an overview over the innovation and economic development parts have led this space previously, but they write policy, not deliver on that policy which means they’re a little removed from the implementation part to see where the gaps are still, relying more on the tighter lenses of their execution agency partners.
Is There A Startup Gap In The Current Plan?
Government does have a Research, Science and Innovation Strategy, and it even mentions startups, but when you dig deeper, you realise that the current plan is almost exclusively focussed on scientific-research-led innovation and misses market-led innovation entirely.
Why is that important?
Innovation doesn’t just come from scientific research.
I believe Government has the correct approach here — the right aspirations around making NZ a magnet for talent, connecting our R&D and innovation organisations, and scaling up our innovation efforts feel right, but the detail of the documents have a heavy bias towards IP-led innovation through scientific research and deep-tech only.
Even the section on startups and scale-ups talks about supporting the entrepreneurship sector through the singular lens of technology incubators which are designed to incubate research and IP-led startup ideas from crown research organisations, universities, and other sources of IP — not market-insight led ideas (which are only meagrely supported by comparison through incubators and accelerators).
Scientific-Research-Led Ideas vs. Market-Insight-Led Ideas
As a quick digression on the difference between research/IP-led ideas versus market-insight-led ideas (sometimes also called knowledge-led ideas), let’s consider the journey of an idea through to commercialisation for most ideas.
The entrepreneurial journey starts with some moment of inspiration in an individual. That could be a key insight derived from a piece of scientific research (e.g. there’s a way to create a more efficient battery), or driven by an insight over some gap or failure in the market (e.g. Xero’s insight that traditional accounting products are hard to use and don’t look nice), or maybe some combination of both (e.g. PowerByProxi’s insight that wireless charging was a huge market opportunity as well as a scientific research challenge).
As an aside, you could say that the success of scientific-research-led ideas, are ultimately dictated by market-insight too since if no-one will buy 5% better battery technology the idea will never get commercialised and sit on a shelf instead, making it effectively useless until it’s applied.
Whatever the source of the idea, the first step on the entrepreneurial staircase is that moment of realisation or awakening in an individual to allow an idea to crystallise — whether from research and development or from a market-led insight.
As the idea is developed, that person seeks further knowledge about the product, the market, the science, any pre-existing research, and finds other like minded people who can help them develop that idea further before deciding to do something with it.
This is often where the pathways of science-led ideas and market-insight-led ideas temporarily diverge. For the insight-led idea, the individual takes it and founds a company to commercialise the insight. For science-led companies, often the IP or insight that came from scientific research is handed off to tech transfer offices, licensed to entrepreneurs, or commercialised through entities like technology incubators who effectively build an entrepreneurial team around the idea like a founding team would.
But from that point on, the commercialisation pathway is generally the same for both type of innovations. The team tries to validate the idea, raise capital to help prove out the idea and find a market, build a team, and then scale-up that idea to either to turn it into a large company who can lead the market or to sell to a larger company whereby it can become a portfolio product of an existing market leader.
A Lack of Data For Market-Led Innovation
One of the challenges of investing more into market-led ideas is that there’s scant data available on the market-value of scientific-research led companies versus market-insight-led companies. What we do know is that many of our top leading companies, especially in the software sector didn’t come from scientific insight, they came from market-driven insight instead (take Xero, TradeMe, PushPay, Unleashed, or Vend as great examples )— and some of these are billion dollar companies in their own right!
Looking both locally and overseas, I’ve seen anecdotal evidence of founder-led ventures creating billions of dollars more value compared to the millions of dollars of value from IP-led ventures when you look at exit valuations, but I’ve yet to see anything conclusive. If we can prove this aspect of our innovation and investment ecosystem, and double down in supporting market-insight led ideas and supporting infrastructure as well as science-led ideas, it could significantly accelerate the Government’s stated goal of making NZ a world-class innovation hub by 2027.
And that’s exactly the sort of data that we should be collecting to inform the country’s innovation strategy by putting a focus on developing the capability across the system, and using something like the Start NZ Up ecosystem development goals as a roadmap of exactly how to achieve the aspirations outlined in the Government’s RSI strategy.
By 2027, New Zealand will be a global innovation hub, a world-class generator of new ideas for a productive, sustainable and inclusive future.
As you may have noticed, I often refer to the ‘startup sector’ when I talk about startups, since when you look at startups and high-growth venture-led companies, these types of companies often have similar needs at each stage of growth no matter which sector you are looking at (HealthTech, GovTech, Digital, AgriTech, FoodTech, BioTech, etc).
At idea stage the idea needs developing through scientific research or market insight as we discussed above. This requires expertise, some seed capital (provided by the founder, an investor, or an institution), and time and energy.
Once the idea has crystallised or the scientific discovery made, to prove there’s a market for the idea, it needs market validation and testing — this is no different for a piece of scientific research or a market led idea. Usually both will go through a qualitative pre-commercialisation step with potential customers before developing out a proof of concept or a prototype to test its feasibility and market potential. This might look different if the product is a physical product versus a software product, and such market validation might be called something different in a different sector (clinical trials vs market validation for new medicines for example), but ultimately the goals and needs of this ‘pre-market fit’ stage are so similar they can be considered mostly the same.
Differing amounts of capital are obviously needed along that journey of course for different sectors, but there’s still a similar capital strategy which focusses on an increasing amount of growth/venture capital as the perceived market risk decreases through market validation and demand.
Once that innovation has discovered a clear pathway to a scalable market and a viable business model, that’s when the team and operations are scaled up and the startup transitions to high-growth and starts to look like a more-traditional ‘company’. After which, the company has optionality over where it ends up as it grows—the public markets; continued growth and scale as it turns into a market leader; or acquisition into one of those enterprises to continue their growth.
Generally, these steps on the entrepreneur’s journey are the same whatever route the innovator has taken in whichever sector. The needs and activities of a company (or idea) at ideation stage, at market validation stage, at startup stage, and at growth stage are much the same, but with a different quanta of resources required in each.
Towards a ‘Startup Sector’ Based Approach
Government’s current approach to industry transformation is on a sector-by-sector basis which makes sense due to the specific domain knowledge and networks needed relevant to each sector — this means that each sector has an industry transformation plan (ITP) they are working to across the sector.
But we’ve already discussed that startups/venture-led ideas aren’t small versions of big companies and that they share the same needs and requirements at each developmental stage, meaning that each sector would need to implement similar strategies to have a credible startup and entrepreneurship policy track within each ITP.
Factoring in the lack of coherent definition of startup across agencies, and some agencies not realising it’s their role to even develop an entrepreneurship plan (or entrepreneurial capability development plan), we’re left with an approach by Government that is ultimately fragmented, lacking support for the full stack of entrepreneurial ideas, and weighted towards more traditional companies rather than high-value knowledge work.
Treating startups as a sector in their own right, therefore, would help centralise policy development, align the various stakeholder agencies, and bring a focal point and priority for transforming our economy into one that can lead us more effectively into the future. And this is the primary focus of ecosystem development goal #2 and why it recommends creation of a cross-sector national government agency to focus purely on high-growth knowledge-led people and companies.
Aligning The Various Stakeholders Towards A Coordinated National Plan
Whether we get to a ‘startup agency’ or a ‘Minister of Startups’ anytime soon remains to be seen, but aligning the right people to discuss a coordinated plan feels like a great starting point.
Throughout the recent pandemic, a small, but growing Startup Leadership Group (SLG) has formed around Government and has been meeting regularly to advise and inform Government on the startup ecosystem and related policy.
The primary makeup of this group is senior leaders from government agencies responsible for science, innovation, and economic development (MBIE, Callaghan Innovation, NZTE) and a number of other community stakeholders (including universities, incubators, investors, and a few entrepreneurs).
The group has already had a hand in ensuring pre-revenue startups were supported through the pandemic (through amending the wage subsidy policy to help pre-revenue firms receive the subsidy for example), and in accelerating a range of investor-led initiatives presented by Suse Reynolds of the Angel association.
The talent and experience in this group is fantastic, and feels like a huge opportunity to make a dent in realising the Start NZ Up ecosystem development goals:
“The themes in [Start NZ Up] are consistent with what we have been progressing, and are generally in line with many other influencers and commentators on the start up ecosystem in NZ.
It is high time we solidly complement this enormous “bottom up” effort with more compelling top down vision, strategy and drive to outcomes. This was why the Startup Leadership Group was established in the first place. Now more than ever, with the Covid implications, we need to accelerate NZ’s recovery through science, technology, innovation, entrepreneurism and start ups.
Important SLG projects such articulating a start up vision for NZ, and backing this up with data, need to be progressed. This is fundamental to realising transformational aspirations in sectors such as Agritech, Healthtech, Cleantech, …. All delivering Impact with social, environmental and economic benefits.”
— Marcel van den Assum (Startup Leadership Group Member)
As this shows, there’s certainly no shortage of aspiration by members of this leadership group, and looking ahead now we’ve moved from survival through Covid-19 to what lies ahead, the opportunities to align this group and drive some serious outcomes for the ‘startup sector’ seem manifold.
Whilst many organisations have released their visions for how to grow this part of our economy over recent months, it’s not a matter of taking one set of policy recommendations over another, the real job is to bring all of Government on the journey so they can reach those conclusions themselves, ensuring it represents and encompasses the views of the group and all members of their various communities.
With that in mind, I recently took the opportunity to design a strategic framework which I presented to the SLG (alongside Marian Johnson of the Ministry of Awesome), to do exactly this:
Note: This isn’t designed to be a strategy, more a framework to help the group develop a strategy and coordinated action plan. I’m a sucker for a good ‘plan on a page’ and I think this distills some of the key assumptions, underlying trends, and strategic lenses that are important for us to consider as we look to build a coordinated and inclusive national plan that incorporates more than just scientific-research-led innovation.
The individual elements of this framework are discussed in more detail below.
One way or another, I believe all of us are broadly aligned with the belief that building a more vibrant innovation and entrepreneurship sector in New Zealand is a key driver for future economic, financial, cultural, and personal success.
I’m not going to rehash the research again, but we all know that the majority of net job creation in an economy comes from new companies, especially those that scale into high-growth. The birth and success of these companies are a direct result of the quality and stage of maturity of the ecosystem they grow in, as the last Startup Genome report reminds us:
“As the number of startups in the ecosystem grows, the whole economic community related to the ecosystem — talent, universities, startup support organizations — produces more value. An ecosystem that is 3x larger creates about 5x more economic value”
4 Key Underlying Trends
Alongside the forced digital transformation the Covid-19 pandemic has brought upon us, there’s four additional underlying key trends and market forces that I see are pushing us on why we need a more coordinated action plan:
- The pace of technological progress is accelerating — it’s racing ahead furiously and affecting so many areas of our lives from businesses, to industries, to individual careers, to cities, to whole countries;
- The gulf between those embracing change and those falling behind is growing — digitisation has widened the gap between early adopters and others within sectors and among companies. Technologies like automation and mass adoption of artificial intelligence will bring occupational and skill shifts across our workforce — particularly across tourism and primary industries.
- The rise of the innovation economy — as we enter the 4th industrial revolution the speed of current breakthroughs has no historical precedent, blurring the lines between the physical, digital, and biological worlds. We need a different type of capability and organisation to prosper in this new economy and we need to plan ahead to keep up;
- The move towards a more inclusive and sustainable society — we’re seeing a shift to societies focussed on inclusivity and sustainability, where more people will benefit from future economic growth and more sustainable ways of doing business — in this case, retraining workers and our companies for the future is a must-have, not a nice-to-have.
4 Core Assumptions
Underlying this framework and much of the Start NZ Up paper is a set of core assumptions that I believe the group would need to align on before they could make meaningful progress (many of which we touched on above):
- Startup-as a-Sector — Startups are not small versions of big companies and often have similar needs at each stage across sectors. Thus treating startups as a sector on their own would help with policy development and ensure they are treated differently to ‘traditional’ companies.
- Funnel/Stage-Based Lens — Startups at similar stages have similar problems and support needs, (and conversely, startups at each stage have completely different sets of growth and support challenges). The quantum of these needs are different as discussed earlier, but the needs can broadly be aggregated by stage. Implied in this is if we don’t support startups at early stages of the funnel, they never make it to later stages of the funnel.
- Entrepreneurial Density — As the number of startups in the ecosystem grows, the whole economic community related to the ecosystem produces more value (particularly the density of smart people at prime entrepreneurship age (mid-career), plus a bunch of other stuff we can’t measure well like network and culture which produces a steady stream of high impact companies).
- Connections Matter — In a startup community, the quality and quantity of connections is most important in the network. Startup communities are non-linear and inherently complex, obeying power laws rather than scaling linearly, meaning that a small number of actors and institutions drive overall value in the system.
4 Startup Stages
Using the entrepreneur’s journey as a guide, I’ve broken these into 4 important entrepreneurial stages, since each stage has a different set of problems, solutions, and interventions required based on these assumptions:
- Inspiration & Learning — including education, capability building, scientific research, grassroots support, and other inspirational events;
- Startup / pre-market fit — for those who are not yet a company by traditional standards — distinguished by those companies still searching for the right business model;
- Scale up / post-market fit — for those executing a known business model — more of a traditional company by normal standards. Note this definition doesn’t imply a business of a certain size — more so that they know have a known business model and just need more customers and scale — by this definition a new company selling a known product/service into a known market also counts as a scale-up…
- Enterprise — For those large successful companies who have reached significant scale and profitability. Main policy focusses here tend towards encouraging increased R&D activity and getting them more engaged into the ‘startup sector’.
At this stage, certainly for the Startup Leadership Group, I believe the orientation should be focussed towards understanding which policy levers can create the greatest scalable impact on a more entrepreneurial economy.
Whilst some in the community have done much of this analysis for ourselves and our members, the Startup Leadership Group need to come to the same conclusion and verify this across different sectors to ensure it’s inclusive and to allow the plan to have the right ownership across the group.
4 Areas of Strategic Focus/Priority
The framework focusses around 4 main activities, as a roadmap as to what to focus on next in developing a coordinated plan:
- Establishing the problem set using a number of relevant strategic lenses, working with the wider community where necessary;
- Backing it up with the right data, both locally and globally;
- Reviewing our desired impact across three time horizons (short-term, mid-term, and longer-term);
- And finally, building a shared action plan that incorporates all of those viewpoints that we can all work towards (i.e. EDG #2).
Strategic Lenses To Align On Problem Sets
Finally, for establishing and aligning on the problem sets, there’s four categories of strategic lenses I recommend the group looks through to understand where the biggest problems and opportunities are:
- The ‘Seven Entrepreneurial Capitals’ that Brad Feld and Ian Hathaway, (Global thought-leaders in building startup communities) recommend — Cultural Capital, Human Capital, Intellectual Capital, Financial Capital, Physical Capital, Institutional Capital, and Network Capital — with that last one being so important as discussed in my last article;
- The 8 EDGs from Start NZ Up’s ecosystem development framework — to therefore incorporate education, regenerative impact, corporate participation, and scale in quantity and quality at the top of the funnel;
- The 4 entrepreneurial stages — inspiration and learning, startup, scale-up, and enterprise — to ensure we’re covering the needs and requirements of each stage of entrepreneurial growth and engagement;
- And finally the impact and wellbeing lens incorporating the UN’s sustainable development goals, and NZ’s living standards framework to ensure we’re working towards a future where we are solving our own and the planet’s- biggest problems.
Taken as a whole, this framework should help create alignment within the Startup Leadership Group, and then allow the group to determine which stages and lenses they have most affinity for to coordinate action. My recommendation is to then create working groups to undertake the areas of strategic focus and collect the required data we need towards the development of a coordinated and inclusive national plan.
Next Steps For EDG #2
Well that’s my grand plan anyway and I do believe it echoes the views of some of the members of the Startup Leadership Group too. Because we were short of time during the initial presentation and follow-up discussion, it was hard to read how this plan went down with the group.
Some members got lost down solutioning rabbit holes, whilst others discussed whether lessons from one part of the country reflect lessons that we can use for other parts of the country. Some also talked about a similar but different framework previously developed by MBIE — I’ve not yet seen this other framework, nor it’s underlying assumptions or drivers, but I did hear it aligns with some of the same lenses as this framework (albeit only 4C’s: culture, capability, capital, and connectivity).
This somewhat unfocussed response points to why an agreed framework and creating alignment in the group is the first step to getting any work done in my opinion. My recommendation and proposal was to merge these two frameworks to ensure it encompasses the wider view and align on the core assumptions underlying whatever framework the group decides to use.
But not being a formal member of this group, I’ve yet to hear proper feedback on the presented framework and what comes next. I know the Government part of this group (at MBIE) is redirected on Covid-19 vaccine development and are busy preparing for incoming minsters so it’s likely not a high priority on their agenda currently, but I’ll aim to keep pushing for updates.
My hope is that this work will give the group a useful framework to hang their contributions on going forward and a clear plan of what they’re working towards and how to engage the wider community in that discussion.
Whether there’s scope to contribute further to this group is unclear, they’ve been resistant for some time to add others into the group, so I hope at least this can influence their direction a little towards a more coordinated and inclusive approach.
I also hope it gives them pause to understand where entrepreneurship and market-insight-led startups fit, and how the inspiration and learning stage can play a stronger role in the current RSI policy through better supporting earlier-stage support programmes as outlined in the Start NZ Up ecosystem development goals.
Whether we’ll actually see a startup-focussed agency in New Zealand I feel less bullish on. But on the plus-side, the right players are in the room to make this happen (and I’ll take a coordinated national entrepreneurship plan as a win too!), but seizing the opportunity this group presents, and steering it to capitalise that opportunity, will only be told by time, having the right people involved, and a strong bias towards action.
I for one will be watching this space closely.
Thanks for reading.
If you’re working towards the same vision of a more entrepreneurial and innovative economy in New Zealand and towards similar startup ecosystem development goals, show your commitment by partnering with one or more of the goals so we can speak with a collective voice of impact.
This is article 2 in an 8 part series digging further into Start NZ Up’s 8 ecosystem development goals for New Zealand, read the others below:
- EDG#1 — Increasing New Zealand’s Entrepreneurial Density
- EDG#2 — Why New Zealand Needs a Coordinated National Entrepreneurship Plan ← (this article)