Australia's Nobel Laureates III State of Our Innovation Nation 2021 and Beyond

PREPARE FOR HELL

Dr Adir Schiffman is brutally honest about what’s involved in growing a startup: endless problems, endless disasters, endless catastrophes. But, if you are able to solve most of them effectively, you end up with a high-quality company.

Innovating is, mostly, not fun. Except in the most financially reckless of times, the idea of the startup as a resource-rich juggernaut is entirely fictional. In reality, embarking on a disruptive, innovative endeavour means creating something previously untried that will likely fail, or trying again where others have failed. The best word association for “startup” is not “fun” but “failure”.

Consequently, founders and early-stage startup employees experience a tremendous amount of stress. Work life is a rollercoaster of emotions where victories feel small and transient, while defeats are frequent and often feel terminal, particularly in the early stages.

This daily dose of relentless anxiety severely degrades happiness, damages health and strains relationships inside and outside work. My consistent advice to potential founders is to run a mile from startups if they can find happiness in any other field of endeavour. Startups should be the exclusive domain of those helplessly addicted to innovating and creating.

That said, the preparedness of these innovators to embrace the risk of failure is vital for any country seeking to sustain a prosperous and happy society. In the current information age, technology companies simply deliver more – more jobs growth, better quality jobs and higher value exports – than any other industry. Given that almost every successful technology company began as a fragile startup, it is vital that government supports these early-stage businesses to give founders the best shot of beating the odds and succeeding.

The corollary, of course, is that founders must also help themselves by developing a high degree of resilience and perspective. Over

the past 20 years I’ve founded a dozen companies and many have made pleasing exits. Some have even grown beyond $100m of revenue and listed on public markets. In the process I’ve learned that a key determinant of startup success is how well founders learn to make critical decisions in a high-stress environment.

The first lesson for founders is how to face reality. Founders are, by nature, optimists – no one realistic about probabilities would launch a startup – and thus acknowledging problems can be difficult for them. Indeed, this was my biggest mistake during the 2009 Global Financial Crisis. On the eve of the crisis our company had grown for seven straight years, had never fired anyone except for performance reasons, and continually moved to larger and nicer offices. We were not emotionally primed to accept anything but growth, and my personal sense of self-worth was inextricably tied to this success.

Founders are often counselled to surround themselves with experienced advisors, but my wrong choices during this time were not for a lack of good advice. I had a very experienced and wise board of directors, several of whom had early warning of the impending disaster via their own businesses. Rich, smart and successful, they repeatedly implored me to cut costs and fire staff well before the worst set in.

Yet I thought they were all pessimists who didn’t understand our business. The result of this self-delusion was terrible. Many people suffered huge stress and turmoil that would have been lessened significantly had I listened to my board and acted early. No doubt this same scenario will play out many times over during the COVID-19 crisis.

Accepting reality early is the foundation upon which good decisions are based. The difference between an optimist and a pessimist should lie not in their acceptance of problems, but rather in their perspective on possibility. The Failed Pessimist imagines endless storms and so never leaves harbour. As 19th century Presbyterian theologian William Shedd said: “A ship is safe in harbour, but that’s not what ships are for.” This is no personality for a founder.

But nor do all optimists make good founders. The Failed Optimist is equally ill-suited to innovation and acknowledges the storm only after the ship is smashed upon the rocks. In contrast, the Successful Optimist will acknowledge the storm on the horizon, and then set sail regardless. They have assembled a strong crew and have confidence that together they can make sound decisions and adapt quickly

to ensure safe passage. This perspective lies at the heart of the best founders, and often it is the presence of just such an unexpected storm that challenges a capable founder and crew to innovate in even better ways.

Helping founders see reality while maintaining the confidence to press on is fundamental to supporting an innovation ecosystem. The science author Steven Johnson once noted that “if you look at history, innovation doesn’t come just from giving people incentives; it comes from creating environments where their ideas can connect”. A case in point is the recent Australian approach of aggregating founders into clusters, which has proved valuable not simply in aiding collaborative development of ideas but also in assisting founders with perspective. All founders face similar problems, and the opportunity to engage serendipitously

and honestly with other founders in close proximity is hugely valuable. Founders can provide one another with an external perspective that helps them accept reality, while reinforcing the optimism and positivity that are inherent in the founder character.

Another pitfall faced by most founders is their lack of financial acumen. Financial literacy is the windscreen wiper of business. As companies race to reach their objectives all manner of mud is thrown upon the vehicle and obscures the windscreen. Without a strong grasp of finance, founders will simply not have a clear view of their current position and will not notice the cliff towards which they are headed (and there is always a cliff nearby!).

Most founders consider finance a boring, administrative “cost centre” in their quest to complete code and make sales before running out of cash. In 2009, as my businesses rapidly lost clients and burned through the balance sheet, I realised that my grasp of financial statements was inadequate to allow me to participate constructively in planning discussions. So, one long weekend I went away with my young family and, between relaxing in the spa with them and trying to de-stress, I read Accounting For Dummies from cover-tocover and made notes.

A founder who cannot stand before a board and comprehensively explain the numbers, without a finance person for a crutch, is a dangerous CEO. Successful innovation is not simply about writing great code, funding developers

or translating research. It also demands that leaders are given the tools and expertise to succeed, and finance is king among these.

Finally, great founders accept that sometimes things will fail. In his ground-breaking book The Innovator’s Dilemma, the late Clay Christensen observed that about 95 per cent of new products fail. Sometimes, though, the failure of an entire startup becomes inevitable.

Even though we all constantly fall short in life, for the longest time Australian culture considered any type of failure as a permanent personal blemish. This was particularly damaging for innovation and startups, as the more one pushes boundaries, the more one fails – and no organisation tries to defy convention more than the startup.

Thankfully, several developments have begun reshaping the Australian perspective towards failure within an innovation context. The rise of venture capital has been a force for good, not simply from a funding perspective but also in the virtue of their very model. This model accepts that while most startups will ultimately fail, a small number of huge wins will drive big overall returns. It therefore views the failed founder not as a loser, but rather as having undertaken tuition on someone else’s dime (namely their last investor), and sees the failed founder as less likely to make rookie mistakes than the first-time one. Israel has always celebrated this "try, try again" model and Australia’s newfound admiration for the “Israeli Startup Nation” has also boosted our innovation culture.

Like all developed economies, Australia is reliant on the technology industry to drive jobs growth, particularly via small innovative tech companies. Other countries, including France, Canada, the UK, US and Singapore, are well ahead of us and have active programs to nurture startups and founders.

Innovative founders represent our best chance of driving technology to become our leading export over the next decade. It is the most reliable approach to creating a happy and prosperous life for future generations, and to ensuring our Australian way of life continues well into the future.

Dr. Adir Schiffman has been a board member for multiple successful startups, including sportstech company Catapult and online mattress retailer Sleeping Duck.