Startups need to buy from each other to help them develop the skills they need to be successful.
We have a lot of technology companies in Australia, but we don’t have a real Australian technology ecosystem. Whilst it’s great to see government funding and incentives for the technology sector, they aren’t all it takes to build a successful ecosystem.
Look at successful ecosystems like Silicon Valley or Israel. They’re not successful because of regulation or funding. It’s how their startups interact with each other that drives those communities forward.
Startups purchasing from startups increases the overall wealth of the community
A key differentiator between the Silicon Valleys of the world and the Australian startup scene is the willingness of early stage businesses to buy from each other. It’s just economics, if you’ve got a community that buys from each other, then the money moves around and the total wealth of that community increases.
Typically VCs also play a role in encouraging startups to purchase from each other. If a VC has invested in 100 portfolio companies and they all buy from each other, that money moves around like it’s in a washing machine.
One thing that limits this effect in Australia is that later stage VC funding often comes from offshore – so they’re told to purchase products from their VC’s portfolio in the US. We’ve experienced this firsthand recently, when an Australian startup pulled out of a deal because their VC told them to purchase a BI product from their portfolio.
Startups accelerate each other’s ability to learn
When startups purchase from each other we create a proving ground. This gives them the ability to learn from each other, identify what works and what doesn’t, and receive feedback about our products.
This is incredibly valuable as it allows startups to refine their product before it’s unleashed on larger clients. If we purchase from each other, we can accelerate our ability to learn, grow and build great technology together.
We’ve used this approach with some startups and it’s been really effective. Yellowfin uses a product called Teamphoria internally. It’s a US-based startup that focuses on performance management and team engagement (yes – we did look locally first).
We liked their tool but felt it could be improved, so we gave them detailed feedback about their product and essentially wrote a spec for them. We showed them how we wanted it to work, explained what to include and how the tool would interact. Because we were able to provide our feedback from the perspective of a software developer we helped them short-circuit their learning process. We knew what their challenges were and helped identify how to overcome them.
While government funding and incentives are great, they aren’t a substitute for actually selling to someone. When you’re selling to another startup you can refine your sales pitch and improve how you actually sell. Selling helps your business understand what’s really important to your end customer, what value you offer and what you need to deliver to succeed.
All startup CEOs need to take responsibility
At Yellowfin, we’ve designed a version of our product specifically for startups. It’s a small step in the right direction. Our startup package makes it easy for early stage businesses to use our product at very low or even no cost. They can get their business moving and we will help them build it.
There is a long-term payoff to this strategy. If a business starts using Yellowfin today, then we’re more likely to be a part of their long-term roadmap and success. It’s a two-way process, we support them and they support us.
While government grants are good, they’re not enough to grow a viable ecosystem. Startups buying from startups is the best way to build a real tech ecosystem in Australia. It’s time for startup CEOs to take responsibility and start supporting each other.
I’ve made a commitment at Yellowfin to actively support Australian startups that deliver for our business needs. It’s the only way we can grow a sustainable and profitable industry together.