Fear of failure hampering Kiwi business

16:00, Jan 04 2013

Californian business coach Mark Moses has a video on his website of himself riding an elephant into the annual meeting of his mortgage banking firm, Platinum Capital.

He was aiming to send his employees a message - "If you think big and act big, you will be big."

Moses started Platinum in 1993 with two staff, and by the time he sold it in 2006 it had 550 staff and US$1.6 billion in annual volume. But when he pulled the elephant stunt he was still smarting from a setback that would have floored many. The guy who was best man at his wedding had left Platinum to start a rival mortgage business two blocks down the road, taking 85 per cent of Moses' people with him.

Failure is part of the fabric of entrepreneurism, Moses shrugs down the line from Orange County, where he now runs a company coaching CEOs across the United States.

Americans are used to enduring life-sized adversity, like the Wall Street crash, September 11, and the global financial crisis, he says. "You just live to fight another day, you shake it off, you figure out, ‘What do I need to do to get this right-sided'.

"People feel probably sad for you, but you don't have a bad stigma with it. It's more like, ‘Man what a shame, great person, they'll come back'."


Down here at the other end of the Pacific we do not have a culture of failure. "Failure" is still a dirty word, say those in local entrepreneurial circles. An air of suspicion hangs over anyone with a less than successful venture on their CV, while fledgling business owners tend to plug away at a flagging idea with classic Kiwi perseverance rather than cutting their losses.

"We think failure is utter failure, that's the New Zealand psyche," says Dorenda Britten, managing director of Christchurch commercialisation consultancy designinindustry.

Compare that with the US where past failed enterprises are worn almost as a badge of honour, and are seen as an essential part of the learning curve. Says John Holt, a director of Kiwi startup performance management software company Sonar6: "That's the biggest piece about failure that the New Zealand culture needs to get up to speed with."

Sonar6 was sold to US software firm Cornerstone OnDemand in March for a reputed $17 million. Holt now puts a lot of his energies into The Landing Pad, a not-for-profit technology hub in San Francisco's South of Market (SoMa) district aimed at helping Kiwi companies launch into the US market.

In SoMa and nearby Silicon Valley "failures, the lessons from them . . . is something that's just being talked about and built upon every minute of every day", Holt says.

Nobody really likes to fail but it depends how you define it, says Will Charles, general manager of technology development at Auckland University's commercialisation arm UniServices. Where New Zealand entrepreneurs are often found wanting is in getting a product or service to market as fast as possible to see if it works, and if it doesn't to kill it off or change direction. "You don't necessarily want serial failures. But what you do want is people who've killed projects."

The preferred word these days is "pivot" - " ‘I thought it was a good idea but I went to market and it didn't validate so I stopped. I pivoted and changed'," Charles says. Investors want to know you've got the judgment to know when to pivot.

In New Zealand there remains a dearth of accelerator funds which provide proof of concept funding at the earliest stage of a venture's lifecycle, and either confirm an executable path to market or send the entrepreneurs back to the drawing board, he says.

These funds also offer associated expertise. The idea is only 20 per cent of it, Charles says: "Turning that idea into a disciplined product that makes money in a planned way requires a specialist group of skills which not many people have."

Sonar6 certainly did its share of pivoting, Holt says. It started with a vision of selling $1m software licences to a small number of large clients, and ended up at the other end of the market with an average sale price per customer of $15,000.

It got Trade Me founder Sam Morgan on board as an investor at the early stages, and he delivered the founders some home truths.

"What he brought was a grounded view to test three very ambitious people on the reality of what they were saying. It's very hard to hear," Holt concedes.

New Zealanders' fear of failure is not just cultural, the commentators remark - there are also very real environmental reasons underpinning it.

In the US there is a great depth of people, markets and opportunities, and many more doors to knock on if at first you don't succeed.

But the stakes are high for a Kiwi business launching itself abroad. Huge resources go into things as simple as setting up distribution networks and getting product to market.

In addition many are bootstrapping - that is, funding themselves - and failure can literally mean losing the house.

Conversely this is also the reason Kiwi companies are able to live on rice and beans for years, and keep doggedly chipping away at a dream which would have long since died or morphed into something else if it was backed by an early stage investor looking for results.

Kiwis are fantastic at ideas and innovation, says Gower Smith, a San Francisco-based serial entrepreneur and son of a Dannevirke sheep farmer. But the Americans are better at commercialisation.

New Zealanders focus on building the intellectual property, but "the Americans focus on ‘go find and prove the market, are the dogs eating the dog food'."

While in the US there is a highly organised and efficient seed funding, angel investment and venture capital industry, in this country the venture capital sector is barely a decade old.

However, more mature mechanisms are starting to emerge. Early stage investor Sparkbox Ventures and the New Zealand Venture Investment Fund launched the $4.6m Global From Day One (GD1) fund in September, aimed at providing proof of concept funding to budding businesses at the earliest stage.

Chairman Andrew Duff says it plans to focus on 25 to 30 Kiwi entrepreneurs and ventures over the next few years.

"Often we are investing in the entrepreneur and team as much as the initial idea. Sometimes the entrepreneur even has a better idea while going through our process. It is this cycle of continuous innovation that needs to replace any fear of failure.

"We have no problem investing in an entrepreneur whose last start-up didn't make it, as long as they can explain to us why and what they would do differently next time."


The story of automated retail shop pioneer ZoomSystems is possibly an example of how not to do it, its Kiwi founder Gower Smith says.

ZoomSystems is Smith's fifth business. These days he is San Francisco-based, but Zoom was started in Australia where he backed it with his own capital.

When it initially expanded to the United States in the early 2000s Smith was not at the helm because of differences over strategy between himself and the board.

Then September 11 happened.

"The board meeting the next day didn't go so well.

"It was a different world and the company was running out of cash, so we basically told the CEO ‘Go find a buyer'."

When no decent offer emerged Smith bought the company back and restarted it. "It was a pivoting time."

Today ZoomSystems has over 1000 automated ZoomShops in the US, Europe and Japan, selling the products of names such as Best Buy, Apple and Macy's. If it had fallen in 2001 someone else would have picked up the idea and probably got funding. But he did it "the long, persistent hard way".

"I didn't want a failure at that time, and had put so much of my own cash in and hard labour, it probably was sort of the Kiwi persistence that I wasn't going to let it go.

"But if I hadn't had the resources it would have been the end of the business and we would have moved on."