The mining and construction boom which has powered Australia’s economic growth over recent decades is waning. The digital revolution and innovation will be crucial to our future, but what does the narrative connecting our old economy and new economy sound like?
Being based in Perth and heavily involved in the local tech community, I have long drawn a parallel between mining companies and tech startup companies.
A junior explorer company begins with a hunch – there is something of great value hidden below the surface. A tech startup begins with a hunch – there is an underlying problem that needs solving.
A junior explorer pegs out their tenement, collects core samples and, with the help of a bit of science, develops its hypotheses about exactly what is hiding below the surface and how much of it there might be. A tech startup pegs out its stomping ground, begins customer validation and, with the help of a bit of science, develops its hypotheses about exactly what that problem is and how big a pain-point it might be.
As we get to know more about the area we are working in, we learn whether or not it is worth persisting. If not, we can identify a new challenge, peg out more ground and begin the cycle again.
But if we are confident enough that there is something of real value – a big problem worth solving – then we invest more time and money to the project… In mining-land they do this with feasibility studies. In startup-land we call this problem-solution fit.
At this stage we don’t need to have built a fully functional plant. Ultimately, though, we need to work out if we can come up with a way to tap those resources – to solve that problem – which we might be able to turn into a real business.
There are milestones along the way. While outsiders looking in might think we have taken an incredible risky path, deep down we know our job is not so much the taking of risks, as is it to systemically de-risk our project over time.
I don’t know the exact figures, but I would guess that early-stage mining companies and explorers – of which there are hundreds based in Perth – collectively raised billions of dollars over the last investment cycle to pursue this journey from explorer to (fingers crossed!) producer. There are winners and losers (many more of the latter than the former!) and fortunes are made and lost along the way.
We now see startups going through the same cycle. But there are a few key differences:
- A digital product is orders of magnitude cheaper and faster to develop the a mine site. Capital and human resource requirements are significantly less — this is a real advantage to digital innovators.
- A digital product doesn’t necessarily have a terminal value of zero. By definition mines seek to extract the finite resources in their location, whereas a brilliant SaaS product can theoretically keep generating revenue in perpetuity — again, this is a real opportunity.
- While it is easier than ever to launch a digital product, it is as hard as ever to sign up customers. The nature of commodities is that small producers must take the market price, but at least their distribution process is largely established.
We have a lot going for us. We can bridge the gap from the old economy to a new, more sustainable economy.
If you want to succeed and move from “startup” to “scaleup” then attracting and retaining customers is the key. This is the real challenge we all need to overcome as digital producers and creators.
Images courtesy of Edward Luke and Spelio