Five start-up lessons from the Young Rich List
This year’s BRW Young Rich List may be striking due to the dip in overall wealth of the top 100, including a $700 million plummet by mining mogul Nathan Tinker, but there are encouraging signs for start-ups.
While most budding entrepreneurs won’t match the list-topping $480 million fortune amassed by Atlassian duo Mike Cannon-Brookes and Scott Farquhar, the trends appear to be moving in the favour of nimble, tech-savvy innovators rather than resources and property tycoons.
This year’s list throws up a number of key lessons for new entrepreneurs. Here are the five most important:
1. The tech sector is making its move
The usurping of Nathan Tinkler by Atlassian duo Mike Cannon-Brookes and Scott Farquhar at the top of the list is symbolic of the way Australia’s economy is moving.
With all due respect to Tinkler, it is refreshing to see an innovative tech company such as Atlassian, which has taken the US by storm, overtaking a mining magnate. Australia always has been more than a quarry but now the figures are starting to show it.
Tech entrepreneurs make up 24 of the 100-strong Rich List – by far the best represented industry. Catch of the Day co-founder Hezi Leibovich is in the top 10, as is outspoken online retailer Ruslan Kogan.
There are also debut appearances by the founders of eCommerce platform BigCommerce, which has found an admirer in an early Twitter investor, and games maker Halfbrick Studios.
The trend is clear – the world is twigging onto Australian tech innovation and the brains behind the businesses are starting to reap the rewards. Long may it continue and, indeed, accelerate.
As Cannon-Brookes put it to BRW: “We can only go pulling stuff out of the ground at super-inflated prices for so long.”
2. Starting lean can lead to huge rewards
The term ‘lean start-up’ has recently entered Australian business vernacular, but it appears from the Rich List that many enterprises were using the method before it was even coined.
Starting lean, as popularised by a book by US entrepreneur Eric Ries, is all about ‘validated learning.’ You test as many assumptions about your business or product as possible, at minimum cost, before moving on to an improved model.
The five main strands of the concept can be summed up here.
The lean method has paid off for several of the Rich Listers, including the founders of BigCommerce and Atlassian. The latter was founded in an apartment and has become a $1 billion business without any sales team whatsoever.
The falling cost of technology and flexible working should allow you to work lean, too. Get yourself a minimum viable product and expose the market to it. Get feedback, improve and repeat if necessary.
3. Start-up growth from Australia remains a challenge
If the Rich List were open to Americans, Google founders Sergey Brin and Larry Page (both aged 39) would be in another galaxy with their $20.3 billion fortune.
By comparison, the BRW top 100 is worth a collective $5.1 billion. Of course, the vastly different US and Australian markets can’t be compared as if they are equals, but the disparity is symptomatic of the problems that many Australian start-ups have in growing, especially if they don’t scale quickly overseas.
Cannon-Brookes told StartupSmart last year: “In the US, the attitude is that things need to be done yesterday. They want to move quickly on everything, while we are a bit more conservative here.”
“I don’t think we have a very good angel community here, or series A venture capitalists. Then again, I don’t think there’s the deal flow either, so it is an open question really.”
“The question is, do all start-ups need to go to the US to get a $2-3 million funding round, or do they wither and die? Can we find twenty $2 million start-ups in the next year? I don’t think so.”
“It’s easy to blame the government. I think their VC programs are generally pretty good. The problem is that super funds don’t see venture capital as having good returns.”
“We just don’t have the entrepreneurs for them to invest in. Start-ups can blame everyone else, but you need to either get on with it or accept it.”
4. Simple ideas win out
It has become a cliché, but the simple ideas really are the best ones, judging by the Rich List.
Ruslan Kogan gets low-cost whitegoods from China to sell online, netting him a $145 million fortune. Mitchell Harper and Eddie Machaalani met in an internet chat room in 2003 and built backend software for eCommerce sites, netting them $110 million.
Shainiel Deo and Daniel Vogt are $65 million richer because their games company, Halfbrick Studios, developed a game called Fruit Ninja that is based entirely around slicing pieces of fruit in half.
Mark Harbottle has a $60 million fortune from simply applying the crowdsourcing method to logo designs. Paul Fischmann is worth $39 million because he converted a Sydney boarding house into a backpacker hostel before going upmarket with a series of boutique hotels.
These examples show that it’s not always desirable to tie yourself in knots trying to find a niche that no one has ever seen or heard of before.
Keep your business concept simple, focus on your target consumer and outperform the competition. Surely this is far preferable than having to spend half your time educating the market about what your business actually does?
5. Don’t act as if you know it all
So, you’re young, you’re a multimillionaire and you’re looking ahead at decades of business creativity and booming profits.
If you’re lucky enough to be in this scenario, don’t ever make out that you know it all. All entrepreneurs, especially young ones, need to surround themselves with old, wise heads that will provide the sage advice and knowledge you lack.
As Michael McGoogan, the 25-year-old founder of $9.6 million turnover business UberGlobal, tells BRW: “When you realise you don’t have all the skills and don’t have all the knowledge, you must be prepared to bring people in.”
“I need to find the smartest guys I can to plug the company’s weaknesses. Everyone who works here is older than me, but they bring something unique to the business and make it work.”