Will Governments Ever Get Startups?

Posted on September 6, 2011. Filed under: Advice, Companies, Funding, Government, Startup | Tags: , , , |

In two words: Not likely. I could end the post there but this is a blog, not Twitter.

Now there two reasons for this post right now:

  • Flickr image courtsey of johnsnape

    My employment on a government entrepreneurship programme finished on August 31, so only now can I blog about my experience: My contract of employment effectively disabled me from blogging about it in depth and honestly. I could have taken the risk of “mouthing off” but that would have helped neither me, my colleagues or more importantly clients. So I copped out of saying what I think online although I did take the risk of using Twitter where the only civil servant types you will find engaging on there are similar mavericks and forward thinkers.

  • Steve Blank, an extremely influential entrepreneurial thinker and teacher, made this post on September 1st: Why Governments Don’t Get Startups.
Steve has made some interesting points, detailed below, but I think he has missed some other crucial ones, as follows:
  • Government programmes are policy driven and furthermore policies change every five years, or more often
  • Few civil servants, or people in quangos running government programmes, have ever run a business, let alone a scalable startup
  • Governments think locally, regionally and nationally. A scalable startup has too think globally and at some stage connect sell globally.
  • Governments make little effort to speak with businesses about their real challenges: Sure, politicians visit businesses in their local area but that’s almost invariably a PR exercise for both parties. So there is a disconnect between policy makers and those who deliver the interpreted policies and interact directly with businesses
  • Government bodies and programmes tend to attract individuals and organisations that fit several of the following characteristics:
    1. They are risk averse
    2. They are very keen on procedures
    3. They have political aspirations
    4. They like talking more than doing
    5. They are experts in doing funding bids and spending money on overheads
Why should I have an opinion on this? Well for the last 4 years I have been working in three different government funded business growth and startup roles:
  • As a business development manager in a University (mentoring, pre-seed funding programmes, commercialisation, spin-outs). A large part of this role was working with ten other universities
  • As a Portfolio Manager in a scalable startup programme funded by a UK regional development agency
  • As a Portfolio Director in a business innovation and growth programme funded by the same UK regional development agency (for the South East of England)
Before that I sold a software company, in wihich I was a co-founder, to a NASDAQ listed company.  This was very much a scalable (albeit bootstrapped) startup. More details are, of course, on my LinkedIn profile.

So in total I’ve spent 22 years in business (small and large) and 4 years in the public sector or a private contractor that was publicly funded. Also as of 1st September 2011, I’m focussed on my new startup, StackBlaze whilst continuing to help a few other select startups.

So what about Steve Blank’s post? He concludes that:

Unless the people who actually make policy understand the difference between the types of startups and the ecosystem necessary to support their growth, the chance that any government policies will have a substantive effect on innovation, jobs or the gross domestic product is low.

Flickr image courtsey of northdevonfarmerHowever my experience is that the people making policy did understand something of the difference between different types of businesses and even startups. The primary problem is actually in the execution of their programmes. Indeed it seems to me there has been to much government money spent on analysis and policy making, which is all well and good for consultants, but little use to the rest of us.

But I do agree that there is a lack of understanding of how to develop an ecosystem. I’m talking here about the UK, of course. Don’t get me started on Europe! It’s no joke that the vast millions spent on cross-country innovation networking got coined as “Euro-jollies”.

Steve talks about the (only) success of the Israeli incubator programme and there is an emerging trend for incubators here and elsewhere. A UK government funded incubator may well come about. But I shudder to think about how much hands will be tied for the managers of that through inappropriate reporting requirements, audits, changes in policy and any other top down suffocation.

Steve states six lessons that need to be learnt:
  1. Each of these six very different startups requires very different ecosystems, unique educational tools, economic incentives (tax breaks, paperwork/regulation reduction, incentives), incubators and risk capital.
  2. Regions building a cluster around scalable startups fail to understand that a government agency simply giving money to entrepreneurs who want it is an exercise in failure. It is not a “jobs program” for the local populace. Any attempt to make it so dooms it to failure.
  3. A scalable startup ecosystem is the ultimate capitalist exercise. It is not an exercise in “fairness” or patronage. While it’s a meritocracy, it takes equal parts of risk, greed, vision and obscene financial returns. And those can only thrive in a regional or national culture that supports an equal mix of all those.
  4. Building a scalable startup innovation cluster requires an ecosystem of private not government-run incubators and venture capital firms, outward-facing universities, and a rigorous startup selection process.
  5. Any government that starts publicly financing entrepreneurship better have a plan to get out of it by building a private VC industry. If they’re still publicly funding startups after five to ten years they’ve failed.

Im my view the regional  programmes, that I have worked with recently, had taken on the lessons of 1, 2, 3 above but not 4 and 5. Will the UK learn these two lessons next time? I doubt it. In fact the signs are that lessons 1, 2 and 3 will end up having to be relearned. This might be funny, if it were not so serious.

Having said all this I don’t think the main problem with government is them knowing and learning these lessons: The main element in success lies in the execution of any programmes that are set-up. Sadly, I’m not optimistic.

When a start-up executes badly it goes to the deadpool. Those startups that execute well flourish. When the government executes badly we get another one in five years. When the civil service, and many others dependent upon them execute badly, too many just hang around for the next programme to work on or a nice pension plan. I am sorry of you feel this is rather insensitive at this time of cutbacks and please don’t think that the majority of these folks don’t have good intentions.

Plus don’t get me wrong, I loved my recent jobs:  When I was working with the entrepreneurs, that is. It’s been a honour, a privilege and great experience working with so many fantastic entrepreneurs. But you can see why I’m happy to be back, properly, in start-up land!

What is your experience of government business startup support? Do you think these programmes spend money effectively? Should government leave it to the private sector? And, if not, what types and stages of companies should they support?
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    I help entrepreneurs and small high growth potential companies in Sussex, Surrey, London & sometimes further afield. Flexible to your needs but typically help in raising investment finance and mentoring. Previously I was co-founder, CTO then CEO of a software company which we sold to a NASDAQ listed company

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