Amongst the more interesting parts of Minister Ian Walker’s otherwise unremarkable Startup Summit — the less said about “Big Hairy Audacious Goals” in relation to startup communities, the better — were the presentations given by Bill Bartee, Managing Director of Blackbird VC, founding partner of Southern Cross Venture Partners and Startmate mentor, and Peter Davidson, founder of Fishburners. During his talk, Davidson noted the importance of unicorns, those rare billion dollar startups, to sustaining a startup ecosystem. Unicorns are the subject of this post.
There is some angst in Queensland’s tech community about the state government’s “four pillar economy” policy, and the absence of tech and knowledge-intensive industries from it. Many friends and colleagues, including some who write or edit for TSJ, grumble that the four pillars — construction, resources, tourism and agriculture — cannot possibly be the future of our economy, and that we need to shift to “more modern” knowledge-intensive industries. A fifth pillar. That’s probably true; however, that view overlooks the fact that those four industries are really just tech industries in waiting.
In the not too distant future, software companies, or tech companies in general, will eat these multi-billion dollar industries, and in doing so, become tomorrow’s unicorns. When this happens, these “old” industries, seemingly far removed from the world of bits and bytes, will have been transformed by technology and the companies that create it. In fact, it’s already happening.
The question is, will these unicorns emerge from Queensland or elsewhere? Right now the smart bet is “elsewhere”, and a very specific “elsewhere” at that. But our state’s future prosperity is at least partially predicated on Queensland being able to produce some of these industry-eating businesses.
How does this tech conversion happen? First, it might help to say how it doesn’t happen. While many programs and initiatives, well-intentioned, are aimed at lifting small businesses into the so-called “digital economy” by expounding the virtues of “IT” and having an online presence and so forth, these efforts are not designed to be transformational. They’re about helping the laggards do what everyone else has been doing for the past couple of decades. You’re not going to uncover huge reserves of latent productivity potential or disruptive innovation there.
Rather, transformation usually happens when a few young high-growth companies enter and redefine each industry. On rare occasions, large incumbents are smart enough, nimble enough, or desperate enough to confront the innovator’s dilemma and disrupt the industries they originally helped to establish. Typically, however, it takes an upstart company, led by people who care deeply, maybe more deeply than anyone else, about particular problems, to truly transform an industry. These days, those upstarts are tech startups or “projects” that turn into tech startups (nobody who has the potential to create a billion dollar business sets out consciously to create one; they just work on something they really care about), and, often, the ones that really shake up existing industries or create new ones are the ones that turn out to be unicorns.
That’s because unicorns, though they are tech companies, don’t typically seek to build software tools that they sell to the major players in a particular industry. That approach would leave them competing with the other product vendors that serve the major industry players, and would limit the impact they can have on the industry as a whole. Instead, they end up becoming one of the major industry players themselves by building software and other tech that changes the rules of the industry in question (or defines the rules of a new industry), leaving the other big players wondering what just happened.
The Amazon story is an archetype, but it’s a scenario that is playing out in many industries and will eventually play out in every industry. Uber (current valuation approximately $3.5 billion) could have created software for taxi companies; instead it is redefining the entire door-to-door urban transportation industry segment. Tesla Motors (current market cap: $18.44 billion) isn’t content with parts manufacture or creating inventory management systems for other automobile companies; instead it’s reinventing the automobile industry (the Tesla Model S is arguably more like a MacBook than a Ford Model T; in fact, Tesla recently hired Apple’s VP of Mac Hardware Engineering to lead the development of new vehicles). Airbnb (current valuation somewhere around $2.5 billion) is redefining hospitality. Planetary Resources, which is by no means a unicorn yet, isn’t making mining robots for other resources companies; it’s building tech that completely shifts the goalposts for that industry and changes what’s possible.
In light of this, it’s no longer satisfactory to think of technology as merely “an enabler”. Yes, it’s an enabler if you’re talking about the use and deployment of “IT” within an organisation and managing its business information assets (the world of CIOs). But that’s the low order bit in terms of growing the economy and has little bearing on industry disruption. The higher order bits are in the creation of technology that has the potential to disrupt entire industries when coupled with a decent business model (the world of CTOs and hackers). In the Twenteens and beyond, tech is not just an enabler of the thing, tech is the thing.
Thus, there is every reason to believe that the next billion dollar startups will be tech companies re-imagining industries like construction, resources, agriculture and tourism. The boundaries between the physical and the virtual are where massive productivity gains will be made in the coming years. Every industry may be usurped by the tech industry. This view could so easily be written off as “tech boosterism” if it weren’t for the fact that it is so obviously already happening.
If you want to build globally competitive construction, resources, agriculture and tourism industries in today’s world, the best way to do that is to make sure you have a first-rate tech sector, with everything that entails. What does it entail? Getting the foundations and the plumbing sorted so that the right people are attracted, and letting startups emerge out of that. It’s an indirect play, as so many good things are: focus on the universities and the character of a place. Initially, this should be a very small place; we’re talking a couple of adjacent postcodes at most, not an entire state or even an entire city.
Of course, unicorns don’t come for free. For every big success, there are many, many failures. The startup landscape looks very much like the brilliant Cathy de Monchaux sculpture, Sweetly the Air Flew Overhead: Battle With Unicorns: a few unicorns against a backdrop of utter carnage. This isn’t a bad thing; it’s a sign of a healthy tech ecosystem.