Late last week I sat on a conference call arranged by Adeo Ressi of The Founder Institute with ~ twenty members of the Sydney startup community.
The theme behind the meeting was to help get the Australian startup community mobilised to identify and address the most pressing issues facing us.
The key issues that emerged were:
- Brain Drain of entrepreneurs, inventors and newly educated Australian & foreign students (great data here)
- Government support including options and crowdfunding
- Lack of willingness by corporate guys to leave big jobs and launch or work for startups
- Lack of Series A funding and the number and size of funds.
- Lack of Investable deals
Are you solving a real problem?
The call got me thinking that our big issue was more a problem with a lack of great ideas and problems to solve as they were structural eco system issues.
The more I thought about this, the thing that struck me of the 50 or so companies I looked at over the last 12 months was the lack of investable deals and entrepreneurs solving real solid problems.
Most of the problems I saw being solved were frankly non problems.
The Scuba Gear for Dog invention makes us laugh because its a bit silly, but someone thought it was a good enough idea to put $10-20,000 into patenting and you can guarantee that they probably built a prototype as well.
Everyday I see startups building Scuba Gear for Dogs.
Last year I saw Bill Bartee of Southern Cross Ventures and Blackbird VC talk at UNSW Startup Games which was organised by Bart Jellema and New South Innovations.
Bill made a great comment which I like to repeat a lot because it illustrates the difference between a ho hum idea and one that really makes a difference to the world. His comment paraphrased was
If you are building a startup you want to be the guy who’s solving a problem that is as important to users as a Doctor treating appendicitis, you want to be solving a problem that is real and urgent that has serious consequences for the user if you don’t solve it.
Phil Lubin CEO of Evernote urges entrepreneurs to ensure that they are spending the next few years of their life working on a project which is sufficiently epic.
Guy Kawasaki has a great meme about Making Mantra or Meaning, I recommend these videos
or the long version
Guy talks about great startups doing one of three things
- Improving the Quality of Life for someone or some group
- Righting a wrong
- Prevent the end of something good
Have you found a problem worth solving?
When entrepreneurs and researchers ask me to look at something they are working on, the first thing I look at is the problem.
Everyone has a hypothesis about the problem their widget solves (actually thats not strictly true, I have seen many ideas where no one could really tell me who’s problem they were solving but I digress).
Most are often delusional about the user with the problem and how their solution actually solves the imaginary problem.
Many entrepreneurs are so focused on their new solution that they forget about the problem.
Steve Blank of Lean Startup fame suggests that entrepreneurs should stay focused on solving the problem and be flexible and willing to change the solution.
The key for me is finding out who has a burning issue that they want fixed, I call this the “who gives a f..k” question.
If no one really cares about your problem then you can build all you like but no one will use it or buy it.
The biggest problem in developing a new business is actually finding a real problem to solve.
Venture Funding & Entrepreneurs
Interestingly the more I talk to VCs and investors, the more I realise my former perspective as an entrepreneur was wrong. I once believed there was no money here in Australia.
I regularly hear entrepreneurs bemoaning the fact that a VC didn't get their business, that no one wants to take any risk.
In most cases the entrepreneur is wrong, the VC really does understand their business and wants no part of it because its rubbish and they will lose their money.
They don't tell you this because it would take too long and too much emotional investment to explain it to you and you would argue with them for a few hours about it. No one would be happy.
Granted we have some issues with the historical performance of Australian Venture Capital (check this article by Ian Maxwell Australian Venture Capital, Can we escape from Past Failure) and the resulting lack of appetite for investment in VC as an asset class from Australian Super Funds and other institutional investors. Largely this has meant a lack of new VC funds being raised and certainly a lack of large funds.
However I would argue funding is absolutely available for the right businesses from both local sources and overseas VCs. The US VCs have their scouts here, the Angel scene seems to be very active, incubators are popping up regularly, some of the key Universities are making big steps forward to encourage and fund new startups in particular the Incubate.org.au team that started at University of Sydney and have now secured backing from Google to roll the program out nationally to other Universities, to me it feels like there is a lot more capital here than there was five years ago.
I would argue we have had more Venture Funds announced both corporate and institutional money in the last 6 months than we had in the previous 5 years.
What most of the entrepreneurs don’t realise is that the problem is not lack of money its lack of great fundable businesses.
Over the last year I met with numerous would be entrepreneurs, scientists or academics, I mentored student teams at both UNSW and Sydney University.
The thing that struck me was the lack of investable deals, whilst I admire them having a go and gladly will help in any way I can, it struck me that only a select few had ideas that potentially would change the world or even get off the ground.
I see so many local entrepreneurs trying to copy their US counterparts solving Silicon Valley hipster 1st world problems that either don’t really exist outside of the valley or don’t really matter. Everyone is making an app for this and an app for that.
I would argue that if your main pitch is around an App you are probably not really changing the world.
Rick Baker at Blackbird Ventures was on the call and he indicated they had made 9 investments last year (which is pretty good going) but to do this they had to review ~450 companies.
Often startups may not fit a VCs expertise or investment profile, time frame or ability to provide follow on funding or they may not be interested in a particular space.
But its a pretty good bet that a large % of 450 of the startups just were not suitable for investment due to lack of a real and compelling problem and lack of a team who looked like they had a good shot at solving the problem.
In my opinion Start-ups should be having a good long look in the mirror and ask themselves if the problem they are about to spend 3-20 years of your life on is a real burning problem for anyone or is it just another me too 1st world problem or worse not even a problem.
My final word is that if you looked at the image of the Scuba Diving Dog and laughed, thats great, but have a harder look and ask yourself,
Is your startup building Scuba Gear for Dogs?
This original version of this article was published on Startup88.com
Follow the author on Twitter @Mikenicholls88