Glenn Gillen

The Australian Startup Scene

Agile. Innovation. Disruption. If you closed your eyes it'd be easy to think Australian politicians were nothing more than a bunch of post-adolescent CS-grads pitching to their first VC. If you can wade through the buzzword soup though there's the occasional piece of substance. The idea that maybe, this time, they might actually "get it".

I was recently asked what the local ecosystem is like for trying to start a company. Usually when someone asks "what's the startup scene like in X?" what they really mean is "how does it compare to The Valley?" (or the Bay Area in a more recent, broader definition). It's different. In mostly good ways.

This is a tale in three parts.

Act 1 - Our protagonist leaves the Bay Area

After several years in the UK the eternally grey skies of London had worn me down. As had the endless search for "the next client" that any consultant/freelancer knows too well. We weren't ready to come home, nor did we have a new destination in mind.

Instead I decided to let my career guide me.

I wrote a list of 3 companies. They were the companies whose products most excited me at the time. By co-incidence they were all based in San Francisco. So I guess that's where we need to move to then! As someone who'd been writing software for as long as he could remember it seemed like a right of passage I had to take at some point.

I picked one of the companies and sent an email. A day or so later I got a reply from the CTO to schedule a call. Several calls and a flight to SF later and I had my offer letter. I never emailed either of the other companies. In January 2011 I started working at Heroku.

Solving important problems

OH: SF tech culture is focused on solving one problem: What is my mother no longer doing for me? Aziz Shamim

There's a lot of talk of disrupting old industries. Of new unicorn startups, that will inevitably change the landscape forever. Except there's also too much truth in that glib tweet above. If my mother stops taking care of me, how will I get to soccer practice? Who'll wash my clothes? Who will cook me dinner? Clean the house? Choose my clothes for me? Pack my suitcase? Do whatever I need because I can't function as an adult?

They say necessity is the mother of all invention. Want to know a little secret about why SF has become the epicenter of this hot disruption? It's not because of the abundance of VC investment. It's not because of the congregation of our best and brightest minds.

It's because so much basic infrastructure is broken compared to other major developed cities that it needed to be created by private companies. And also because mommy wouldn't do it any more 😉

No Londoner in their right mind was sitting there thinking "I need an app on my phone to procure a private limousine". Outside of that time of the year when offices have their Christmas parties, grabbing a black cab is usually a case of waving your arm or standing on the side of the road for 2 minutes. Plus for all their complaining the tube and bus networks are actually really good. Or if the weather is nice you can grab a bike (for free) and ride it for 30mins to where you need to be. I suspect New Yorkers had a similar experience. Anybody who experienced taxis in SF pre-Uber has no doubt as to why it was created.

Stay healthy

Many Americans, especially their politicians, are strangely satisfied with their healthcare system. This is despite it being the most expensive in the world (2.5x the OECD average, and over 17% of GDP) and by some measures being one of the worst.

I've heard first-hand the tales of people who were almost bankrupted from giving birth to a child. Out of pocket thousands from a "routine checkup" after a minor fall from their bike on the way to work. Having to decide which pre-natal blood tests they could actually afford because their insurer wouldn't cover them and they couldn't afford $700 per draw for all of them (that $700 was just for the 30secs it took to draw blood. The actual testing cost extra!).

Why does any of this matter?

One of the rare opportunities I had running the Heroku Add-ons Ecosystem was helping over 100 startups launch and sell their product. I've witnessed first hand the change in attitude that happens to a person, to their company, once all the bills are paid. When there's enough money coming in to know you've got everything covered everything is easier. People stop being reactive. They make smarter decisions.

Starting a company is fraught with risk. What happens when your own health is coupled to that risk? How do you pay for healthcare if your company fails? What happens if you suffer a major illness in the early stages and your company fails because you're unable to work? No company, and no healthcare… who pays those exorbitant bills now?

This is a massive unconscious distraction. Some will argue it makes people hungry. It promotes a "failure is not an option attitude". The latter is probably true. But when I've seen that play out at a corporate level "failure is not an option" equals "we'll take the safe and middle of the road option". People become even more risk adverse. The lack of a true safety net here for people is the complete antithesis of promoting genuine risk-taking innovation.

You only get one shot, one opportunity…

I was blessed to join a company that actually cared about people. Many of the friends I met in SF weren't as fortunate. "Just one more release, and then the big launch", but the launch came and went without the fanfare and user adoption required to justify all of the funding. And so the hamster wheel kept spinning. As did the 18 hour days. "We're only doing these crazy hours while starting. Once we really launch we can take a break". It never happens. The people. The company. The handful of users. The VCs. Eventually something flames out, and then everything else does too.

Which is how the game works. The most likely outcome is that the company you're working for won't make it. It took me a while to realise lots of people not just understand that they play the game to help stack the odds in their favour. You need to diversify your risk. Spread your bets. And that means waiting for that first vesting cliff, taking your handful of equity, and then promptly moving on. Equity becomes this toxic factor that encourages anybody who understands the mechanics of the game to move on as quickly as they can. What's more to fully maximise your return you need to forward exercise all of it upfront. The entire game is stacked in favour of the fortunate few who have the luxury of changing jobs every 12 months, accepting a below market rate in return for equity, but with enough liquidity to purchase all that equity the day they start each job.

WTF?! 😲

Failure. Success. It's all the same.

I've heard one of the differentiating virtues of "The Valley" is the celebration of failure. And no doubt, there are things applauded there as success that I think by most other measures people would have a hard time being called a "success". The acqui-hire of a team that spent 2 years building a product that is now being immediately shutdown. The acquisition of an overnight success by an out-of-touch media organisation struggling to remain relevant. The IPO of a company still struggling to find a business model so that the "smart money" can cash out while offloading the debt onto the general public.

There are positive aspects to this though. I know in many places that being at the helm of a sinking ship means nobody will let you be captain again. Sometimes there are market forces, timing, or any other number of legitimate reasons why you weren't successful. The statistics say that failure is the most likely outcome. So it seems unfair that individuals be punished indefinitely for achieving the median result.

Fit the mould

White? Male? Decidedly middle to upper class? You'll do fine. Many of the best colleagues I worked with were called Matt.

I realise the irony and hypocrisy of someone fitting that description complaining about the challenges of day-to-day life in SF. It was upsetting walking to work each day. Past the make-shift shanty towns of homeless people under the I-80. The guy out the front of El Farolito who always seemed high on something, abusing anyone who walked past. Until he saw me and then he was always sober and happy because he knew I was good for whatever change I had on me. His ranting and aggression suddenly seemed like an act. Why was this his way of dealing with the world around him? Where would those people under the I-80 go when the cops eventually told them to move on?

It didn't matter. We're all too busy helping people to book private chauffeurs or rent out an inflatable bed in their living room for $1,000/night while Google IO is on.

For all of the money flying about. For all of the disruption. The innovation. The making the world a better place. It's all helping the same people over and over again. There's only so much spare change I could hand out each day. It wasn't making enough of a difference. And the problem felt too big to even to know how or where to try and tackle it.

It ate away at me. The happiness from knowing that my (hefty) rent was providing a good income to my lovely Nicaraguan landlords was offset by the fact people like me priced their children out of living near their family. 3 generations growing up in our house, but now unable to live in it because I was willing to pay far more than they earned.

And that's possibly the shittiest part of all of this. They grew up in this city. Their parents grew up in this city. And their grandparents immigrated all those years ago to provide a life for them in a romantic town that is always undergoing a gold rush of some sort. Except this time they're not invited. The party is happening and their name isn't on the list. In part because they're not called Matt. And now some punk from the other side of the world has kicked them out of the family home.

Act 2 - Destined for familiar lands

Australia is often called "the lucky country". We've had it ridiculously good (excluding Indigenous Australians 😞, I'll come to that too). When white settlement established us as a British penal colony they didn't just set us up for a wealth of original jokes from foreigners. They gifted us a democratic system of government. We've never had to suffer the trials and tribulations of most young countries. The civil wars. The instability.

To this day most of Australia remains immune to most of the real problems the rest of the world faces.

The startup scene that never was

When we decided to move home to raise our family I'd resigned myself to the fact I'd disappear into tech and product obscurity. I'd probably have to take a 9-5 job at some big bank where I'd while away the hours writing scripts to correct the broken escaping in CSV exports. I certainly wouldn't be working for or on a "startup". But such is the price you pay for dependable healthcare, good coffee, and life by the beach.

Imagine my surprise when I got back and dragged my sorry arse to the local Startup Victoria meetup. Over 400 people all chatting away about the startups they were working on or dreaming about. There to listen to some of the country's brightest minds from the CSIRO talk about how they're printing solar cells from stock-standard inkjet printers. How they're one of the first to be able to 3D print using titanium. Their Nano Fab facility the general public can just drop in and use. And then the next month it was a similar crowd to hear Steve Blank & Jerry Engel talk. And Dave McClure was the following month. Hundreds of people, month after month, excited about this stuff. I've seen conferences struggle to get this kind of patronage. And this was just a local meetup.

I talked to people. I pinged random founders at interesting companies via whatever social network I could find them on. I asked if I could talk to them about what they're doing, what I've been doing, what I'm thinking of doing. Every single one of them said yes and spared me time for a coffee. Every one. Everybody has been so ridiculously generous with their time and genuinely helpful.

There was a common thread with most of these "startups" though. Most of them wouldn't fit a Steve Blank-esque definition of a startup. They had repeatable and scalable business models. They were making money. Most of them were profitable, handsomely so in some cases. And most of them had achieved it early. Not after 10 years and 5 rounds of financing. Not after 5 years. Most were break-even profitable within 12-18 months. Some were bootstrapped and profitable almost immediately, either spinning out of existing companies or consultancy work.

If anything Australia's primary failure here is in not celebrating it's successes more. Realestate.com.au, Seek.com.au, and CarSales are all publicly traded tech companies. All of them with >$1B public market valuations. Atlassian recently IPO'd with a $6B market cap. Campaign Monitor is rumored to have raised back in 2014 at around a $1B valuation. Companies like Aconex are doing great but aren't selling their software in an interesting enough sector to get regular press (current public market cap of ~$800M).

There's so-called unicorns everywhere here. The difference is they're actually earning their valuation, by making actual money. I don't know if it's the lack of a frothy VC sector or cultural differences, maybe it's both. But making money is in the DNA of companies here. They don't need to keep raising to stay alive. They're not living round to round wondering if they're going to be able to keep the lights on.

The result is companies like Campaign Monitor, 99Designs, and Canva. That prove out legitimate businesses and then take on money to repeat that success at an epic scale. As an approach that makes far more sense to me. More sense than throwing millions at a phone app and worrying about how it will make money later.

Redeploying capital

We've historically been a pretty simple country from an economic perspective. Commercially we dig things up and send them overseas or we run banks. Personally we buy houses. These are all well understood businesses with either low risk or risks we understand and can mostly manage. They've also been incredibly prosperous for us all over the past 30 years.

When would-be-founders start talking about the lack of local capital I can't help but shake my head. We're actually the wealthiest individuals in the world (look at that debt tho 😨). It's just most of us have better things to invest our money in than your risky startup. Like a property market that's been returning double-digit percentage return year on year for ages now, plus the rental income. Or our big banks that were immune to the financial crisis that gripped the rest of the world, kept growing, and kept paying out hefty dividends. It's pretty hard to put a compelling case forward for most startups that they're likely to beat long-term successful businesses.

Sorry, you want how much of my money for this napkin sketch that's not yet even a company?

It's not that there is no money. It's just that it's being invested elsewhere. Bear in mind that the Australian superannuation system (British readers think pension fund. US readers it's our 401K) means that all working Australians have a government mandated minimum of 9.5% of their gross salary invested somewhere.

Think about that for a moment. Every working Australian. Of all ages. Has 9.5% of their gross salary each and every week that they have to invest somewhere. That works out to be $2 trillion of assets under management. And it's not from investors in a fund that expect a return within 5-10 years. These investors are basically forbidden from touching that money until they're 65 years of age. They've an investment horizon that spans multiple decades.

We can take really long bets.

The problem for people with money is that even if they are motivated to invest there can often be very real and significant tax implications in liquidating one asset to invest in another (i.e., you'll give up to half of it to the tax office). And so there's little incentive to do it.

Enter the tax incentives! 20% tax offsets for angels investing up to $200k, so you can reduce tax you'd have to pay on income elsewhere. Plus any gain you make on that investment is tax free so long as you hold the investment for 3 years. Suddenly moving some money out of property and resource markets that might be on the wane looks much more appealing.

Don't have the cash to invest, but you're actually thinking of starting your company here? Doing something new? Taking an approach of experimentation to find out what works? Chances are you'll qualify for the R&D Tax Incentive. Have 45% of your R&D costs (including staff wages) given back to you as a tax offset.

Now go forth and spend that money on growing your business. I think most companies in The Valley would scream at the chance of having almost half of their costs returned to them each year rather than having to raise more money. Unfortunately you need to be turning a profit for a tax offset to be of any value.

That sneaky tax office. Encouraging companies to be profitable.

Government that gets it

I'm pretty skeptical of government involvement in most things. They've a pretty mixed record here on their ability to actually implement large scale and long-term initiatives. And in the current media cycle it's easy to get lost in the same old platitudes about engaging stakeholders and broadening discussions to every day Australians. But this time it's different, right?

For a start the country is currently run by a former investment banker, who then went on to be chairman of one of the country's largest ISPs. Which was acquired by a US telco at the height of the first dotcom bubble. He's been to the coal face. He's cashed out in the highs and seen the lows. There's probably very few people in the country that have more experience of tech companies at that scale and success than him. It still feels weird admitting that of a Prime Minister.

Then he's sent out his "assistant minister for innovation", Wyatt Roy. Who then got a bunch of entrepreneurs to suggest policy ideas on a public forum where people could vote on them. I had low expectations, the comments on internet forums being what they are. But then a group of those entrepreneurs got together one day in Sydney and iterated on the best suggestions to see what they could come up with. It felt refreshing even though I wasn't there. Implied in all of this seemed to be an admission that "we're not going to give you piles of government cash to do these things, find different ways to make it happen". And as a result the day produced a bunch of actually actionable projects that primarily just require peoples time.

Single day, government-led working groups, that produced actionable outcomes. What a time to be alive.

There's still lots of policy decisions in other areas I'm pretty unhappy with. But in this particular small part of the world they're making some worthwhile decisions.

Most inspiring of all is the admission that we shouldn't be looking to copy models that were successful elsewhere, a view that seems surprisingly uncommon. We should play to our strengths. We've a strong financial sector and access to a considerable amount of capital. We're the one of the largest developed countries in the Asia-Pacific region, the largest English-speaking one. We're uniquely placed with access to easy access to large established markets and the 2 billion neighbours who are rapidly entering the middle classes. We've a wealth of talent. A lot of it being lured overseas, but much of it wanting to (like me) come home at some point. And we've a quality of life that is, rightfully, the envy of the world.

Actual balance

Ping pong tables, bringing your dog to work, open bars, and free lunches. It seems people are easily lured by perks and can confuse them with actual work/life balance. You can't replace that balance with the ability to actually live at work.

There's very few companies I've seen in California that get this right. They try to turn the company into one big family, and accidentally ostracise those who'd rather spend time with their actual family. Or promote "unlimited vacations" but don't mandate any minimums. Which means huge numbers of employees take zero vacation time until they're burnt out. It turns out not everyone has the confidence or job security to announce they're taking 3 weeks off.

There's a certain modest amount disrespect of authority figures in Australia. Within an organisation I've usually seen that translate to people having fewer hesitations in saying no to a boss. Or at least complaining to them loudly about it. No working on a weekend is not fine. No doing 3x 18 hour days back-to-back is not fine. No. No. No.

Also a lot of this stuff is enshrined in legislation to protect basic workers rights.

Genuine care

One of the most exciting aspects of engaging with the local scene was the effort being expended on genuine human causes. One of the first cafés I went to for a meeting was Kinfolk, where with each purchase you vote on which project their profits should be distributed to. The walls were lined with other companies doing other similar and amazing work.

Which is where I learnt about STREAT, who provide a sustainable pathway for homeless youths to get off the streets and into a job so they can get back on their feet. I got them to cater a meetup we ran recently, and with the proceeds they'll be able to provide 12 hours of job training to someone so they can stop living on a bench or in a doorway somewhere. With all the meetups happening every night in SF, imagine the impact such an initiative there could make. And all it takes is for people to stop eating shitty pizza. Another friend has the Asylum Seeker Resource Centre cater his event. Helping people who have been displaced from their home country stay fed and find work here.

Then there's things like The Slow School of Business that's trying to encourage people to build genuine purpose driven companies. That it's not always about competition and winning at all costs. Or education initiatives like Code the Future that pair schools that need technical help up with technologists that have the time. As a result every Monday I spend the afternoon teaching grade 5 & 6 kids how to code in Scratch and build things with Arduinos.

And most impressively there's conferences like Above All Human. A wonderfully run event that challenges the 1,000 attendees to think of the ethical implications of what they're working on, reminds us just how insignificant our contributions really are on a cosmic scale, but that despite of all of that we're still able to have meaningful and positive impact on each others lives.

Tractable problems

Australia - no recession in almost 25 years, but five prime ministers in the past five. Multi-car pile-up in good driving conditions. Nick Bryant

That isn't to say things here are perfect. We have an incredibly shameful history of how we've displaced and treated our indigenous people. They continue to infant mortality rates double the rest of the population. Live a decade less. And are up to 5 times more likely to die of preventable causes. And there's long standing systemic reasons why much of this is the case. We're dealing with a significant rise in social problems associated with increased methamphetamine use.

But we also don't have majority-minorities being marginalised by institutionalised power structures. We have problems that feel like they're actually solvable in the medium-term.

Part of our problem in being "the lucky country" is that we've not really had to work for our good fortune. We've lucked into living on top of lots of valuable dirt. We were gifted with a functioning system of government. But we also have a history of actually coming together in a bi-partisan way to do what's necessary when we have to. We've sailed through a number of global recessions largely unscathed, thanks in part to the reforms put in place by the Hawke/Keating administration and continued later by Howard.

And so I'm genuinely excited to see initiatives like the IDX Hub and IDX Innovators Lab help broaden the access to these opportunities. AIME are helping close the gap on graduation rates. And I've already mentioned other efforts like Code The Future, STREAT, and ASRC. These aren't unique efforts. They're things I've become involved in just through my regular day-to-day life. By buying coffee. Having a meeting. Eating food. Doing my work.

Most of the problems we face only need time and energy to solve.

And because we're not working 18 hour days. Not staring at the end of a runway fast approaching. Trying to avoid a down-round with the next inevitable raise. We've actually got the time and energy to commit to these causes. To find a way to have meaning and purpose outside of our day jobs.

Apply some heat

At the most recent installment of Above All Human, Leni Mayo took the stage to open the event. He spoke nostalgically of having an audience with Alan Kay, who at the time spoke of how our fixation on construction and engineering analogies limits our thinking.

Leni challenged us to think of a dish of amino-acids, a primordial soup. The amino-acids bump into each other, and very occasionally create something amazing as the result. And that all we needed to do was to apply some more heat, to speed up the process, and watch the results.

Just imagine an ecosystem with access to $2 trillion in capital. With an additional 9.5% of gross earnings pouring in each week. With a corporate DNA that has always prioritised profitable and long-term sustainable businesses. With access to both massive English-speaking markets and its 2 billion neighbours. With a social welfare system that enables genuine risk-taking. With a healthier and happier work culture than most. In a location that is simply stunning.

I want to turn up the heat.

Act 3 - Where sustainable businesses win in the end

It's being written as we speak… check back in 10–15 years.

Glenn Gillen

I'm an advisor to, and investor in, early-stage tech startups. Beyond that I'm an incredibly fortunate husband and father. Working on a developer-facing tool or service? Thinking about starting one? Email me and let me know or come to one of our days to help make it a reality.