When is a failure not a failure at all?
For Nikki McLay, seeing a startup she’d given years to, and put her sweat equity into, fold and cease to operate hasn’t been a lesson in failing.
It has been a lesson in learning what works, and what doesn’t.
A graphic designer by day, McLay became co-founder of a startup called IVOW AI in 2018, which wanted to use artificial intelligence to general culturally-aware content.
For a loose hypothetical example, say you have a company with a chatbot.
That company potentially could have eventually worked with IVOW to make sure it had something to say – that was accurate – about women in history, if it was asked.
We know data is being sucked up and collected to help power artificial intelligence tools and systems. IVOW AI’s mission was to ensure that cultural stories and history weren’t forgotten in the rush to this digital transformation.
Despite having a “really solid 2019”, when IVOWs team were able to travel, give talks about the startup's research and wider aims, and despite pitch after pitch after pitch, earlier this year the US-based founder Davar Ardalan decided it was time to wind IVOW up.
McLay says Covid-19 was difficult for the former company. The team could no longer present at conferences, could no longer get in front of the decision makers, and when they could get in front of the right people, they would get knocked back – sometimes with cutting rejection comments.
McLay says at the end of one particular pitch, a potential investor told them they loved what they were doing, but the quota for female-founded companies was already full for the year.
The firm wasn’t looking for much cash, McLay says. At the beginning they had a one-page pitch and were seeking $50,000.
The team self-funded their work. They all had day jobs, McLay says.
IVOW had interest from the business community, and certainly had buzz; its research reports which investigated bias in artificial intelligence were covered in the news, on podcasts, and in blogs.
But it couldn’t get past that first big hurdle; get investors, get money, get over the hump and to the next stage.
It was emotional, and full of highs and lows, McLay says.
She says she’d have to build herself up for each whirl at the money-holders. And then each rejection would be a crash back down to earth.
“I definitely learned how to manage stress, that’s for sure.”
Starting up, shutting down
There’s a sort-of accepted statistic about startups in the US, that most of them fail. And plenty of baby businesses in New Zealand don’t make it.
Data from Statistics NZ shows that in 2020 (from the most recent and rigorous data set available) of more than 60,000 new enterprises started, 9780 of them disappeared before a year had passed.
Other Stats NZ data shows that of the businesses started in 2015, 67% survived until 2017 while 39% of them made it to 2021.
Many businesses fail early.
But there is plenty of optimism about New Zealand startups.
A report from consultancy PwC and the Angel Association New Zealand found record growth in the number of deals and the amount of capital invested in startups in the first half of 2021.
The report, released in October 2021, found $60 million was invested by early stage investors which was a 60% increase in deal volume and an 80% increase in dollars invested on the same period in 2020.
New Zealand-based venture capitalists also put $200m into those deals, bringing the total invested to just under $260m.
“These record levels of activity mirror what is being seen in other venture investment markets around the world,” the report said.
Early stage investment firm Icehouse Ventures’ partner Jack McQuire says a successful startup is a culmination of a million individual decisions and actions, and luck.
“That’s the thing. Not only do you have to work incredibly hard, you also have to get lucky … Even if it doesn’t work out and you have done every single thing right, you can still be unlucky. People can beat themselves up or feel like they’ve failed. But that’s something that is a nature of a startup; it’s out of your control.”
McQuire, who works with startups and invests in them, says he likes the advice offered by US startup coach Justin Milano, who says ‘you are not your startup’.
“Because your startup has failed it doesn’t mean you have failed. People blur the identities, the startup becomes the founder and visa versa. It’s really healthy to remember that. They are separate things."
And will a startup miss mean investors will look at the next pitch with critical eyes? McQuire says Icehouse will invest in founders who have experience with a failed startup. But only if they have acted with transparency and honesty "throughout".
"I would never hesitate to back someone, again, simply because they failed. If anything, [failure] is more effective, because they've learned all these lessons and have grown from the experience."
He says New Zealand's startup economy is getting compounding returns from founders, or early-stage employees, who then try again.
Marian Johnson, chief executive of Christchurch-based startup advisor Ministry of Awesome, says there's another often-trotted out statistic about startups, but this one is about success. She says it's rare that a founder gets a win, let alone a big win, on their first go around. The "wunderkind" is often one of a kind.
Instead, Johnson says, its the third of fourth startup that's more likely to succeed, and the average age of a successful founder is 45, not a 20-something.
So you want to be a founder
McQuire says he has two pieces of advice for wannabe startup founders.
Don't do it because you think it's glamourous. It isn't. He says entrepreneurship is seen as being glamourous but the reality is every founder goes through tough times.
He says, for example, often people just look at where Rocket Lab founder Peter Beck is now, but he got to where he is today on the back of decades of hard graft and dark days.
"It is really challenging work. And that's what makes founders so amazing. They do it anyway."
His second tip, McQuire says, might "seem counterintuitive". It is to put your team first, then your customers, then your investors.
"First and foremost, you have to have an exceptional team. And then to be sustainable and to succeed, you have to have great customers. And if you do those two things, well, everything else will work itself out."
Johnson says founders have to be brave, but also have compassion for themselves as people, and be able to keep the startup clear of how they feel about themselves.
"If you're going to do something that's never been done before, then obviously your chance of failure is pretty high. And so therefore, you've really got to have commitment to your vision and a great deal of confidence and a huge amount of ambition, that to some extent, against everything that tests it every day, every obstacle, you can't flag."
Johnson says founders need to go into it with their eyes open.
"If you want an easy life, this isn't for you."
For McLay, her first foray in a startup is not a personal lesson in failure.
McLay says she would "100%" be involved with another startup – she just needs to think of what her next one will be – and was recently searching for startup inspiration at Blackbird Ventures Sunrise startup conference.
“If I fail to get a million dollars, it’s not a failure. You just didn’t get the funding," she says. "It’s like anything, if it doesn’t work it just didn’t work. It’s not that it failed. You didn’t see it out to the point that you hoped you would, and that image in your head didn’t pan out.”
Instead of something going wrong, McLay says the process of a startup is "amazing".
"I think it’s equivalent to doing a couple of [university] degrees. The personal development, understanding business, learning about machine learning. I wouldn’t have known any of this stuff.”
21 Comments
It is definitely tough starting out. You have your core product or service to develop, and at the same time try to get some sales, maybe learn how financing and tax works, employee costs and complications, so on and so forth.
I'd say it definitely helps if someone gets experience working through ranks and running a business somewhere else first.
Persistence is definitely a bare minimum.
!0 or so years ago I recall a National Radio interview of an chap who had just won an award (Entrepreneur of the Year?) and he was asked by the host if he was concerned about being defined by his success? His response said it all; Don't forget i had 38 failed attempts to start a business before he got this success. Persistence pays, but his advice still rings true. He said he never declared bankruptcy and he made sure all his creditors were always paid back. So most were always prepared to do business with him.
The problem with the word "startup" is that people tend to associate it with a couple of fresh graduates tinkering away in their parents basement for a while, before suddenly getting catapaulted into a world of funding rounds and IPOs where everyone becomes multi-millionaires overnight. When this doesn't happen to them, they get disappointed and wonder what they must have been doing wrong.
Not every new business needs to come up with "the next big thing" all the time. Keep it simple, sustainable, and grow from the bottom up.
There is also a tendency to think that a successful startup has only just sprung into existence when the first information seeps out into the public domain.
More often than not there are years of work that preceeds the launch of a company that is subsequently recognised as a startup success.
Look at Rocketlabs, some might think it started when the first rocket was launched off great mercury island but Peter had been working on rockets for 10 year before that.
I was invited to join a startup on 2019 and turned the opportunity down because I wasn't confident in the viability of the business. Business has been very successful, mainly because Covid lockdowns made the solution more attractive. Fast forward to 2022 and target revenue for the year is USD2 mio on about 60% cost of sales.
Unless there is a specific need for what you offer in NZ, start-ups need to be scalable to make financial sense so if you can target regional or global mkts, then you're in the right place. I see start-ups from NZ all want to focus on the U.S. or U.K. mkts. That's fine but it's also limiting. Asia and Africa are two ripe areas for finding large addressable mkts depending on what it is you are doing.
The US or UK seem an easier path to attack first.
And there's the issue -- Kiwi's think it's "easy" to focus on what is similar. While that makes some sense, it's important to remember that those mkts are also more competitive. Compare that to say Central Asia (Kazakhstan, etc) where the competition is much less. Ultimately it depends on what you do and if you need to physically be in the market, familiarity can be important.
Well yeah, business is more fluid when you aren't dealing with language and cultural barriers.
In another life I spent quite a bit of time dealing with Taiwanese and Japanese corporates. Theyre arguably less alien to NZ than the likes of Kazakhstan, and even those relationships involved a lot more finessing than dealing with other Anglo countries.
Money to be had targeting more niche markets for sure, although for good reason.
Sounded difficult to monetise, but good on her. Quoting Nassim Taleb:
In order to progress, modern society should be treating ruined entrepreneurs in the same way we honor dead soldiers, perhaps not with as much honor, but using exactly the same logic (the entrepreneur is still alive, though perhaps morally broken and socially stigmatized, particularly if he lives in Japan). For there is no such thing as a failed soldier, dead or alive (unless he acted in a cowardly manner)—likewise, there is no such thing as a failed entrepreneur or failed scientific researcher, any more than there is a successful babbler, philosophaster, commentator, consultant, lobbyist, or business school professor who does not take personal risks. (Sorry.)
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