![Stone & Chalk's Andrew Purchas says technology needs to be demand-driven.](/content/dam/images/g/v/7/9/j/o/image.related.afrArticleLead.620x350.gv78lo.png/1490688288438.jpg)
All the businesses of tomorrow start with an idea – solving a problem, meeting a potential customer need. Then they need capital, to develop their idea and get it to the market. Then they need support through the "valley of death," before they begin generating revenues. Then, when they're in the market, they need to scale-up rapidly to capture market opportunity – which can effectively be a return to the "valley of death".
Until recently, a start-up's funding possibilities ranged from bank lending to government grants to the FFF (family, friends and fools) model. Progressively, in Australia, we have added crowdfunding (both equity and debt), social lending, seed capital, angel investing and venture capital (VC) to the mix. But what about all the non-financial aspects of developing ideas through to sustainable businesses?
Fortunately, it's been well-recognised that the country's businesses of the future need nurturing and fostering beyond purely the investment requirement.
Andrew Purchas, head of innovation and collaboration at Sydney fintech hub Stone & Chalk, is at the forefront of this revolution: Stone & Chalk is a collaborative effort between fintech entrepreneurs, VC firms, companies, academia and government, to incubate and nurture financial services-focused tech start-ups in ways not seen in Australia before.
"Our start-ups are typically later-stage, they're beyond a concept, they've got a product. What they need in order to survive and flourish, and what Stone and Chalk looks to provide, is basically four things," says Purchas. "One's capital, one's customers, one's mentorship and the other is the right type of talent around them – the development, sales and marketing skill sets that the people with the idea might not have themselves.
"A lot of start-ups won't have the capital to buy in those skills. Working in a hub, collaborating – formally or informally – with other businesses at the same stage, can be a great help," Purchas says.
Customer insight key
Contrary to what many people might think, Purchas says the biggest need of the start-ups with which he works is not capital – it's understanding of, and insight into, customers. "There's actually a lot more capital flowing in to the likes of these companies now. But a major part of the role we play is really working with them and trying to identify, are you actually solving something that the customer wants?"
Too many start-ups "develop a product and then go looking for a problem to solve," he says. "But it needs to be demand-driven developed technology. We help them to identify whether what they have is something that is needed, that the customer wants. How do you do that? You get out there and ask customers to test it and trial it."
With this kind of support, he says, start-ups can get into a mentality of "try, test, fail, identify success, fast".
"That's what we strive to indicate to them. You don't spend all that money to build it out completely to begin with, and then look for customers – if you can identify whether the idea is actually conceptually sound, and has a customer, then you can do the iterative development, of testing it consistently.
"As you do that, you scale," says Purchas. "And success is all about scaling, both locally and internationally." It is this fundamental difference in thinking that is the main benefit emerging from the start-up hubs, he says.
It comes back to the "business ecosystem," says David Lindberg, chief executive of the Business Bank at Westpac. "You have big businesses that want to solve a customer problem, but want somebody more nimble to create it for them. You have this partnership model in Australia, and the untold growth story of the Australian economy right now is small businesses creating capability, goods and services, and then selling them to large businesses."