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Idealog—in the ideas business

Lessons from Instagram’s success

What can Kiwi entrepreneurs learn from the Instagram story?

Richard LiewThe purchase of Instagram for US$1 billion by Facebook is undoubtedly the big entrepreneur story of the moment.

While these sorts of stories can and should be useful sources of inspiration for aspiring entrepreneurs, it’s easy to read the headlines, become transfixed and distracted by all the heady numbers ($1 billion, 18 moths, 30 million users) and then go back to our day-to-day lives without learning anything that might actually be useful in our own pursuit for entrepreneurial success.

So, here’s four lessons off the top of my head that I think us Kiwi entrepreneurs can take from the Instagram story.

There has never been a better time

First and foremost, this story should serve as a reminder to all of us that we live in a world and time of unprecedented opportunity to create wealth and prosperity through entrepreneurship. Not only that, we all have the opportunity to create vast wealth, from nothing but an idea, far faster than ever. If you have a computer, a phone, your health, and the ability to help others you’re already far luckier than most. So no excuses, no complaints - get to it!

Success leaves tracks

“$0 To $1 billion In 18 months” might make for glamorous headlines but mainstream media does us no favours by glossing over the many years of learning, hard work and failure that go into these “overnight success” stories. The reality is that Instagram founders Kevin Systrom and Mike Krieger spent years paying their dues and building their knowledge, skills, experience and contacts in the startup/tech space, working for a number of different internet giants including Google, Microsoft and Odeo (which later became Twitter). Not only that, but they both had previous startups which failed along the way, enabling them to learn valuable lessons before they broke through with Instagram. Luck is where preparation meets opportunity. There are no shortcuts for preparing yourself!

Age (and a whole bunch of other irrelevant stuff) is no barrier

Still holding yourself back because you’re too young/old to be a success? Get over it! It’s taken a few thousand years but thankfully we now live in a world where your credibility in business is increasingly being based on what it should be (the value you are bringing to the table, your vision, your actions, your integrity) as opposed to a load of superficial BS that has nothing to do with your ability as an entrepreneur (your age, your gender, your race, your school, your “class” or “socio-economic status”).

Solve a problem, that you are passionate about, for many people

Yes there are a whole raft of things you will need to get right in order to build a successful business. But no matter how complicated or chaotic things get, if you simply focus on these three fundamental factors you will greatly increase your chances of success. Kevin Systrom and Mike Krieger looked for a way to share the things they loved about Polaroid pictures with millions of smart phone owners. What’s your mission?

Richard Liew is founder at Espire Media. Read more on his blog here.


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Comments

Only problem is NZ Entrepreneurs would have difficulty following this route in New Zealand. Going to New Zealand VCs and asking for $7.5m USD in funding when you have Zero revenue would ensure you wouldn't even get a response or you'd get laughed out of the building.

Unfortunately the lack of funding available in our small population works against NZ companies. I have seen many NZ start-ups fail to get backing and then a year later watch a US based company with the same idea get well over $1m in funding and get into a good market because they are able to use the money to employ extra people and accelerate their growth substantially.

Meanwhile the NZ start-up has lost considerable ground, novelty of their idea and still has the founders only able to devote nights and weekends to the idea. They get overtaken very quickly.

Yes you can achieve great success but you have to fight harder for it in New Zealand because people will simply not throw money at you. I feel NZ has a more sustainable view on investment but I do feel if Instagram was based in New Zealand, they would not have received much early funding at all and the story would be very different.

I agree Nick! NZ entrepreneurs certainly do have to work that much harder, for a number of the reasons including those you've mentioned. And yes more money would always be helpful, but I don't believe it's the be all and end all. Afterall, an entrepreneurs job is to achieve their objectives in spite of their lack of resources.

Your comments regarding having to fight harder are dead on but we've got some great Kiwi companies proving that NZ Inc is just as capable of producing the next Instagram (not that that should necessarily be the goal) despite all the additional hurdles we have to overcome.

In any case, we need to deal with situation as it currently stands - no we may not have the same access to capital that entrepreneurs from other countries do. But we can't let that be an excuse for not trying!

Nick you are right, and to be honest my advise to someone with game changing technology is to very seriously look at heading offshore. Not just for the money but also the networks.

Too often what appears to be new / novel in NZ may be just one of 10 - 50 companies in the US doing the same thing. Better to know what is happening and to be able to modify / adjust your own value proposition than to have no idea what is happening.

I think there are some positive developments for NZ businesses worth considering, the Kiwi Launch Pad in San Fran may be a low cost entry point if you want to test the waters. Also the likes of the Peter Thiel fund might provide the value offered by US VCs.

Richard I would be interested in your views on who in NZ looks like doing a Instagram, we have some great technology businesses but nought to $1 billion in 18 months not seen too many of those.

I'm off to the 2012 Kick-off meeting of Lean Startup Wellington at 1:00pm today, so this post and comments are very timely - I'm taking along a printout of the blog as an aide memoir!

Sorry Ralph - certainly not in a position to predict which NZ startup is likely to do an Instagram!

My point is simply that stories like Instagram don't necessarily serve NZ entrepreneurs because often all they do is elicit a whole bunch of “what-ifs” and “if-onlys” and reasons why it couldn't happen to a NZ company - things that do nothing to help us actually get on with it.

Hence my attempt to try and extract some lessons that might actually serve to encourage NZ entrepreneurs rather than discourage them!

Certainly agree with you re Peter Thiel and NZVIF tho - very positive for the NZ entrepreneur community!

Getting funded from NZ has never looked better. There is now US money in NZ looking for good ideas.

Very few people get big funding with no revenue. But people with a track record can get funded earlier.

So, logically, build your track record. Start small, take some angel money and start building a company. You may have to start with a service company where you are selling hours but you are building IP and business experience. While you are doing that you can be progressing product ideas.

If you have a great product idea get a working prototype working that can demonstrate it. You should be able to do that without too much cash and that demonstrates you can execute and build a team - even if it's sweat equity.

Instagram shows the consumer internet is going nuts and that is where money is being spent on right now by the big boys. If you want to skate to where the puck is going to be I'd be looking a business apps that use consumer technology or are mobile.

We are seeing lots of companies being formed around the Xero API http://developer.xero.com You already have 70k + customers to sell to so that's a good place to start.

Corporate iPad apps are another hot area that can be mainly product dev and not require much marketing spend.

Future has never looked brighter for NZ entrepreneurs. It's only us that care we're from New Zealand.

Go, go go!

Rod

Rod I might disagree about the state of the funding market but I agree that there are business opportunities that do not require large amounts of funding to at least get the ball rolling.

Also while it is nice to dream of the $1 billion exit it is more realistic that a successful venture might eixt at around $20m or less in NZ, and there are good exmaples of this happening in NZ - but to get a $20m exit you probably need to be aiming for much higher in the first instance.

We should note that the UK has asked why they have not created a Facebook etc, so it is not just an NZ problem.

This discussion is important to anyone in NZ inspired by the success of Silicon Valley startups.

Yes there's never been a better time. To make the most of it, it's important to understand our local environment and plan accordingly.

If you're an entrepreneur/ team with no spectacular track record (yet), you will need to be able to survive without investor funding for longer than you think, and certainly a lot longer than the “longer than you think” they talk about in all the Silicon Valley startup advice blogs.

The up-side of this is forcing a focus on longer term value propositions like great business apps.

After a few of those have come off then we might just have the investors and networks to move at pace of an 18-month billion-dollar startup.

@Ralph exactly. A tens of millions exit in the enterprise space is quite a proven path for NZ software companies (Ghost, Marshall, AfterMail, Aptimize) That provides funding for the next step. The more recent deals for companies occurred from 2-3 years of startup.

Before that many of those founders did services businesses.

So entrepreneurship is best thought of as a series of steps, rather than a smack it out of the park on your first deal.

The instagram guy had done a few things prior too I believe.

This encourages us all to keep on building,innovating and testing with brands and consumers.There are no barriers here in NZ.

Maybe Mark may call one day because He was aware of your software from a film,TV or webisode series seen.

Woven does this. We can scene place, product place and brand integrate your apps & software in entertainment for all to see. Here, Hollywood and beyond.

All the very best.
Michael Daysh

This brings to mind the old adage - “whether you think you can or think you can't, you're right”.

Generally if you're going in with (or later start to develop) a negative attitude about NZ being too small/lack of funding/lack of investors/can't compete with bigger markets, then you're doomed to fail.

It's bloody hard in the entrepreneurial space sometimes to keep on going in the face of smaller-than-expected returns, unseen issues, etc. and to constantly believe in your dream and your vision, but I have to agree with Richard:

“…an entrepreneurs job is to achieve their objectives in spite of their lack of resources.”

Thanks for all the comments and posts here, great discussion.

It's been interesting reading all these comments and I have to say that there is way more to the problems facing a startup here in NZ than just the money.

My experience has been that if you don't have a solid management team in place before you start looking for funds then forget it. You try putting together a meaningful management team - especially one with expertise and knowledge of overseas markets - in place here in this country with just an idea. That is a challenge in itself.

Then there is converting the idea into a working model. Try putting together a team that will work on equity so you can take the project from idea to a working model that you can see, touch and taste - extremely difficult especially with the current financial climate. Go to the incubators and they will give you lots of advice and feedback - but seldom anything hands-on.

You mention Peter Thiel and the NZVIF. Go to Thiel's website and you have a telephone number in San Francisco and not even an email address or an email contact form. No, he's not on LinkedIn! So we read about him in the newspapers but the true accessibility of people like that is a whole different ballgame. So he put some money into the NZVIF. But they do not appear to invest directly - they operate through intermediaries which on their website take up to 6 months to get approved. So you look at those approved intermediaries - then you are told it can take up to 6 months to apply for a couple of hundred thousand Dollars which are not even US Dollars, simply the lesser valued NZ Dollar. Six months in the online world is a lifetime. What do you do for the six months. And remember you have by then already completed your Business plan, marketing plan, research - what do you do - take a holiday?

Last year the Government said they were going to offer more support - to the tune of $129,000 ….great! But over a four year period. Some lucky startup receives just $32,000 a year ….so now you can hire half a mediocre developer!

Then you have a significant difference between the valuations placed on startups here in NZ compared to overseas, which inevitably means that a much larger slice of the equity pie gets carved up - arguably much earlier than should be really necessary - especially when subsequent funds are required.

And then after all that, while preparing this message - because I wanted to make sure I had my facts straight - I have just seen a startup that was successful getting a very small amount from the NZVIF - though one of the incubators, now having to try and raise money through a finance broker!!! What's does that say? Their idea was obviously good enough to get the original angel funding, but not good enough to do a second round of fundraising??? And that was just for NZ$1m.??????

And Rod, I have been watching the progress with Xero. I think it's a wonderful project and take my hat off to you. But would love to sit down with you over a coffeee one day and find out just how tough you have really found it? I have my suspicions that your task might have been somewhat easier if you had been based in Singapore, Austin or even Mumbai?

Anyway that's my two cents worth. If I am incorrect about any of these points I would love to hear about it.

Nicholas, good points but most of the challenges you mention are not financial ones. You can build a team and get a working model on a shoestring but eventually when you grow you will need financial investment in order to go to the next level. The problem arises that offshore companies get more money earlier in their development, which allows them to grow rapidly and these days $200k will only get you a few hires for a year and a small marketing budget. So the question is how do you compete with offshore companies who can grow a lot quicker than you can?

I give you…..
“New Zealand's Leading Technology Venture Capital Fund”

http://www.no8ventures.co.nz/home/home_default.aspx

Now this website is almost a metaphor for New Zealand's investment scene that it is part of. Old, outdated and lacking in so many ways. VC's need to up their game if they want NZ to grow its start-up scene.

Countless times I have filled out a flash app form for a NZ investment introduction which took about an hour of my time, only for it to crash on submission and lose it all. It's just not good enough. If Instagram was a Kiwi start-up it would never have raised $500k seed, $7m Series A and $50m series B with no revenue model, they would not have even received a response in my view. No revenue model would be a sin in NZ.

Also I believe a company going for seed money in NZ would be at a stage where they could expect to see an A round in the USA. Seed money in NZ means “a prototype on the market with some users and a revenue model” in the USA seed would mean “an idea and rough idea of how things will work out”

There is not enough money to go round anyway here and very few investors invest at a seed level. You have a choice to either bootstrap and get your product to market before seeking capital or head offshore where there is a larger pool of investment money. I don't know what the answer is. More money is only one aspect of the solution. More money allocated to seed level start-ups would be a good start.

We're currently in the process of raising a convertible debt round and recently have been very fortunate to find a lead investor in New Zealand who has exhibited entrepreneur friendly terms and a global can-do attitude.

There were early offers from US based investors with valuations that suited us, but none of them would have allowed us to keep our headoffice here in New Zealand. Most US based investors had made it plain, loud and clear that their investment comes with a desk a few feet away from theirs. I can say very frankly that without a strong personal interest of staying in New Zealand ourselves, we would have given up raising funds here a long time ago.

I think this is a key point that New Zealand based investors should understand. Without giving the entrepreneur a proper valuation and terms that don't suffocate the founders, chances that an Instagram is born out of New Zealand are slim. Just to be clear: I don't expect Kiwi investors to be as competitive as for instance their US counterpart, but a factor of 5-10x is simply far too much off.

Another couple of aspects which I find make it hard in New Zealand to raise money are taxation issues around equity options for early employees and whom you're legally allowed to actually take money from:

1) To incentivise early employees or work with employee equity options when cash is rare, one has to really have switched on legal advise to circumvent the taxation traps around such incentivisation. That's a standard in the US for instance.

2) Not a New Zealand, but a global problem, is “who can you actually take money from?” In our case we had a brief mention in TV3's TechBytes early last month and I got calls and emails from private individuals who badly wanted to invest. They said, and I quote

“I really believe in you guys, this will succeed. It's badly needed and the timing is right. Is there any way I can invest? I am not an official investor but I'd love to support you with anything from 10-20k”.

Unfortunately, as per how the law stands now, we're unable to accept such offers. The US has realized this and made a lot of changes to their legislation in this regard, I just hope New Zealand will follow suit.

There have been many excellent comments - great discussion!

The discussion seems to be more engaging than the article. But the article is definitely a great enabler for it.

As one of the co-founders of TranscribeMe (http://transcribeme.com/) and being smack in the middle of raising our angel round, i would love to add my two cents.

In our experience:

Valuations in NZ are definitely depressed relative to sillicon valley.
Angel round in NZ is more like a seed round in US.
You definitely need to have a working prototype to get anyone interested.
You need to show that you are paying customers and at the price point you are charging.
TEAM is key!

Nicholas, I would really like to comment on your point of low accessibility of investors and their terrible online presence.

Well, you are right and you have definitely have good things to back it up. However, i would like to push back on you that if you are really think you are an entrepreneur and is going out there to change the world and build a great business, i would expect more from you than just filling an online form and wait for 6 months. Even if that's what they say on their website. In you are going out there to become a great entrepreneur, then you need to know people who can help you and connect you with other people. And this is the work you need to do as a foundation of becoming a successful entrepreneur.

The point is that while raising money at TranscribeMe, we were able to get in front of EVERY angel syndicate/VC group in NZ within a month start to finish. And we are currently doing the same thing in US. Whether it is in person or even skype calls. Reason — Because we laid the ground work before TranscribeMe came about, by being in the entrepreneurial circles and knowing people.

As entrepreneurs, we should not see any boundaries. there are no rules. We need to do whatever it takes to get the business off the ground, not by waiting for other people to respond via a contact form.

Although we were lucky to have existing connections in US, with concepts like kiwi landing pad, wharf and so money awesome people around ready to help out and connect us to the world of investors, there is ample opportunity for the entrepreneurial community to succeed even in NZ.

We just need to have the a bit more determination and the perseverance than our US counterparts.

I am no expert, just wanted to contribute from what i have learnt from personal experience.


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