All Xero In episodes
Hosted by Jeanne-Vida Douglas and Rob Stone
Being a sole operator or a budding entrepreneur can be a lonely, if exciting, life. So where do you turn when you need a social fix, someone to brainstorm with, or a bit of peer advice?
According to Christopher Kirk, hub manager at Stone & Chalk, a co-working space could be for you. He talks to hosts JV Douglas and Rob Stone about the differences between co-working, accelerators, hubs and incubators, and how each can help small business.
“We have a bell that people ring, not just when they succeed, but when they fail too,” he says of their Sydney shared space. “It's a roller-coaster, but the big benefit of working in a co-working space is everyone's on the ride.”
Describing it as “working in a share-house with 180 entrepreneurs”, Christopher goes into detail about how co-working spaces can facilitate access to investors, help with staffing and leverage the power of the small business community.
Small business resources:
How to pitch a business idea – Xero Small Business Guide
The case for collaborative consumption – TEDTalk
Hosts: Jeanne-Vida Douglas [JVD] and Rob Stone [RS]
Guest: Chris Kirk [CK]
JVD: Welcome to Xero In, I'm JV Douglas and I'm here with Rob Stone.
RS: Hi JV, how you going?
JVD: Not too bad at all. Not too bad at all. I'm super excited about our interviewee today, because he works in a space that I've been following for a long time as a business journalist. We're talking to Chris Kirk, and he's the hub manager at Stone and Chalk, which is a new financial services, or Fintch Hub, that's opened up in Sydney.
RS: Arguably one of the newest, and the calibre of candidates that have not only approached but the ones that have been accepted and let in, it's really exciting, and it's all solely focused on Fintech.
JVD: What I really can't wait to find out is what that difference is. What it is that they're providing, and why focus in on just the Fintech crowd? There are other hubs where it invites basically startups from all different sectors, but these guys have really narrowed their focus.
RS: I agree. For me I think it's just a space that's ripe for disruption, more than anything else. Big barriers to entry, and just the innovation that's coming around there. You only have to look at the invention of Bitcoin, for instance, which I find fascinating.
JVD: Absolutely. Let's hear from Chris.
RS: Can't wait.
RS: I'm delighted that we've got Chris Kirk as the hub manager for Stone and Chalk joining us today. Hello Chris.
CK: Hi guys, how are you?
RS: Very well, thanks.
JVD: Not too bad at all. Thanks for coming on the show, Chris.
CK: Not a problem at all. Delighted to be here.
JVD: So Chris, maybe you can tell us, what is a hub? Where does the idea come from?
CK: The concept of a hub or an accelerator or an incubator or even a co-working space is really new around the world. People going back throughout history are constantly evolving the way that they work together, and this idea that I guess there was strength in everyone coming together and working in a shared work environment really only took off around 2008, so really post-GFC when a lot of very talented individuals started to realise some opportunities to basically work by themselves, and there was a massive movement. It really kicked off in the States, and there were a few very early co-working spaces like Indy Hall and a few others, where basically local community groups who were constantly meeting at cafes or at meetups or at bars, basically groups that self-employed, really passionate individuals, would get together and eventually talking about things like how do you share office expenses and how do we collaborate. Came up with an idea of, well why don't we all just chip in and buy a building and share rent, and the rest is history.
In Australia the market is very new, so we've in the last two years seen probably close to 15 co-working spaces open up just in Sydney alone, and Stone and Chalk, the co-working space that I run here in Circular, now looks after about 190 individuals. It's just been absolutely explosive growth.
RS: Incubator, accelerator, co-working space, could you explain those concepts?
JVD: How do they all fit together?
CK: Demystifying the buzz-words, I like it. Very good. A hub is essentially a name for a place where you have a co-working space, you might have an incubator, an accelerator, and they all come together.
To lay it out for you, the way it works is basically in any new businesses lifecycle, the business will go through a number of stages, right? They'll be a concept or a seed stage where you might think I've got this brilliant idea for a app to teach kids about money, or something like that. At that early concept stage you face a whole number of options. Do I build this myself for awhile? Do I hold down my current job? Do I try and validate that this idea might take off? At that very early stage quickly you're quickly faced with a number of challenges around how do I get feedback: that this is right? How do I get the right licensing? How do I get the right mentoring to take my idea forward? And typically an incubator plays in that very early seed stage idea.
JVD: This is from back of envelope to here's something that I can actually sell and get consumers: for?
CK: Yeah, exactly. Use a wire frame and something that brings it to life.
CK: That's sort of the role of a traditional incubator. An accelerator is quite similar, often with early stage ideas. The difference there is that often with an accelerator program, they'll be an alignment with a group that might be able to provide the idea scale quickly. A typical program like that might involve bringing together a whole group of corporates, for example – like we do at Stone and Chalk – and saying if we're going to quickly test this idea in the market to see if it's got legs. Let's bring together a whole group of companies and accelerate this idea really quickly through to proving if it's worth us putting more money in and sending it off. Both of those models play in the bringing an idea to a minimum viable prototype sort of stage.
Traditionally in an incubator and an accelerator program equity will be taken. A common model, for example, is we'll take 10 percent of your equity, in exchange we'll fund your expenses for the six month accelerator program and inject a little bit of capital into your business. Depending on what you're doing and what industry you're in it might be slightly different terms, but it's something like that. Typically in a co-working space you will pay on a per-desk or a utilization basis, so you'll pay a cheap fee. Our fee's $600 a month for a desk in a co-working space, and then you'll have access to potentially some funds, some investments funds, that are set up within that co-working space and private investoRS: who are quite interested in investing in your business.
Co-working is just the term for a place where lots of people come together, form a community, and work in a shared environment. If you look at, certainly in Australia there's probably close to 100 co-working spaces. They're popping all around regional towns. There's last time I checked about 20 in Sydney, certainly some great ones in Brisbane and in Melbourne, and co-working spaces are a mixed bag. There's co-working spaces that cater for that very early stage idea right through to super advanced and exporting amazingly technical innovation around the world, but there's also co-working spaces for, like ours at Stone and Chalk, that will pick a little bit of a niche.
JVD: What are they key ingredients? What do you absolutely need to have to make a co-working space successful?
CK: You need a few things. The first one, a really strong sense of community. If you talk to any of the residents or the members that are in our co-working space, or really any of the co-working spaces, the first real insight they'll give you is that being an entrepreneur or small business owner can be really damn lonely sometimes, and there's massive power in being around a group of like-minded individuals, and what we've found at Stone and Chalk is putting a big group of individuals who are working on vaguely overlapping stuff together is really powerful.
The second is a cheap place to get started. The building that we're in here is due to get demolished in three years, which is great for us because we get prime CBD real estate and the startups can all paint their own walls and go for it.
JVD: Be creative.
CK: Yeah, exactly, and unleash their creativity.
RS: Besides the opportunity to collaborate, sharing costs such as the rent, what other services do you think need to be provided to have a successful co-operative working space?
CK: There's a whole heap of models. Really based on what individual entrepreneurs are looking for. The model that is really getting a lot of traction, and to give you a few examples what we do at Stone and Chalk, we take residents that are exclusively working in Fintech, so financial technology, very early stage, quite high-risk startups, and we basically try and give the entrepreneurs all the things that they would need in a space to be successful. Everything from when you're looking to hire a new person to bring onboard, how do you find the right talent? We run speed dating programs with the universities. We run networking nights to meet your technical co-founder. I think today we've run three events already, in terms of lunch-and-learns on how to develop your website, or best practice on social media. All of those little pieces of the bite-sized bits of knowledge, and it's basically recognising the fact that being a small business owner is just really hard sometimes and it's impossible to be an expert across a whole range of topics. Basically the idea is putting all the things around you that's it's going to take to be successful.
JVD: It's a bit like a business share-house, where you have to set the rules and set what's okay and not okay to do when people come in?
CK: Yeah, that's exactly right. If you look at the way that most co-working spaces, certainly in Australia, are run, there is a not-for-profits like Stone and Chalk, or they're run on a member pay basis. Basically the tenants, or the members, are essentially equal shareholders in the space. That's why it's so important if you're looking for co-working spaces that you really test out the premises and the people and make sure you're culturally very aligned to what they stand for, because at the end of the day you're essentially working in a share-house with 180 entrepreneurs.
RS: What do you see during economic cycle for this space? Is it one that weathers it quite well? Any predictions?
CK: As I said, co-working generally really kicked off around 2007. We've been open four months, so we only opened in August. The older co-working spaces in Sydney are only about three years old, so it's a very new model, but it's been interesting. If you track the cycle of co-working and shared work spaces, it's completely on the up and up. There's plenty of statistics around the future of workforce. The government's released quite few reports on it. They're basically saying that in the ballpark of 40 percent of the workforce is going to be in some form of freelancing, temping, independent contract, entrepreneurship sort of capability by 2020. Those people need to work somewhere and the explosion of this idea that just because you're working by yourself doesn't mean you really need to work by yourself, and the power of the community has really come to light.
RS: Do you think over time or currently that co-working spaces and hubs will end up being the gatekeepers for capital in terms of being able to provide access to VC's, angel investors, high net worth individuals, or is the control not as tight as that?
CK: By no means do I think co-working spaces will be gate-keepers. I think they'll be brilliant facilitators, and I think it's really important to look at the motivations of some of these places, so to look at how are they structured. Are they a non-profit? Are they taking equity in some of the startups? What's the strength of their investment community and how does that align to what I'm doing?
Certainly what we're seeing is capital raising for early stage ideas, no matter what you're doing, is very difficult. Often there's systemic things in that industry that just make it hard to raise money, other times it's just the small business owner or the entrepreneur might not have the right practice in pitching or structuring an investment deck, so there's things that we do around the place like Stone and Chalk that materially help entrepreneurs to access the investment community.
If you can tick all of those boxes you'll basically quickly find, like the residents here at Stone and Chalk find, that for a financial services company it's an absolutely brilliant place to be, because all of the investors: know that we come to Stone and Chalk and we can find high quality investment ideas. Certainly it's very powerful. I don't think it takes away from any other opportunities, but a large part of what places like us do is educate the investment community about what some of the opportunities might be out there.
RS: Do you then have a litmus test for people coming into your hub? So that you do maintain that high quality of companies that investors can go and reach out and go yeah, we'll work through Stone and Chalk and we know we're going to find quality there?
JVD: To make it worth your while if you're actually coming in as an entrepreneur to know that who's going to be next door to you is going to be worth sitting beside and worth sharing ideas with.
CK: That's 100% right. A massive part of the value that we do is one, making sure we're getting the right entrepreneurs into the space, and two, providing some really constructive feedback and opportunities for those that might not yet be ready or don't fit the profile of our particular co-working space, because as I mentioned there's lots of coworking spaces all for different stages of company, and for different niches. To give you an example, all of the startups that come into Stone and Chalk go through a quite rigorous interview process with a panel that we set up. We look at quite standard things in a startup community, like what's the strength of the founder and the team, how attractive is the idea that they're working on in terms of potential to take this global, basically run through a whole spectrum of philosophy, and also look at community fit.
It's really important that the person coming in is going to be an equal and a valuable member of the community, and you'll find that most co-working spaces or incubators or accelerators have a model like that.
RS: What's the split currently of the 190 between incubator, accelerator, and general co-working space?
CK: At the moment all of our 190 residents are full-time residents. They're all in the general co-working community. We launch our accelerator program with H2 Ventures in February. It's all very new.
RS: That's very exciting.
CK: We didn't expect such phenomenal growth so quickly. We initially had found a lease on a premises for only about 100 desks, and we're just absolutely overwhelmed by the tidal wave of young entrepreneurs.
RS: You think it's just an overriding demand and you had the supply, or is it something... A differentiation that you had?
CK: A little bit of both. Our offering is in financial technology, and it's just a really hot market at the moment, so there's a massive wave of very talented repeat entrepreneurs that are looking at the profitability of the banking system, and saying this is a massive opportunity, let's be part of this. Likewise there's a lot of very intelligent people working usually in the financial services sector who see a problem, have seen the problem for so many yeaRS:, and say now's the time with the injection of capital, the support from the government, places like Stone and Chalk, for me to back myself and try this out. We've seen this unprecedented number of new startups form in the last six months. It's been phenomenal.
JVD: What are your expectations? Way back in, ancient history it is now, I used to spend a lot of time talking to VC's and to Angel InvestoRS: and they all basically say one in ten businesses will be outrageously successful that they're investing in, two or three might go okay for a little while, but most of the business would ultimately fail to become a product, if you like. They would not succeed in that traditional sense. Out of those 190, what's your expectation in terms of what percentage of businesses are really going to go gangbusters:, and which are going to be the ones that end up being part of another business, or end up not being a business at all?
CK: It's a really interesting question. I would say that those that you speak generally would stand true if you looked across all industries in early stage ideas. I think if you look in certain industries, you need to raise a significant amount of capital, and you need to negotiate a lot of regulatory hurdles. By nature of the high barrier to entry, generally the ones that do make it through to minimum viable product or the stages that we were talking about before have a high success rate. To give you some practical examples, the last program that the H2 accelerator guys that are based in Stone and Chalk ran, I believe they had eight startups go through the program, so far six of them have been funded by VC's, three are looking at international expansion, the rest will probably follow hot on their heels. It is most definitely a risky investment for investors, but I like to think that as the maturity of our startup system grows we'll see those numbers tip a little bit more in the balance of the entrepreneur.
JVD: When you're first assessing a new business to come in, what are the key attributes that you're looking for when it comes to the principal, the lead entrepreneuRS:? Is it depth of knowledge, is it enthusiasm, is it their existing networks, is it their intelligence?
CK: It's tough because it is a subjective process at the end of the day. The ultimate tick is really, and it is tough for new entrants, have you proven that you can take an idea to fruition successfully before? That doesn't have to be a business, could be some charity work or a project, but certainly the repeat entrepreneuRS:, at least in the Australian market, given the risk-averse culture that we still have Australians, other ones that tend consistently ones, because it's believable that they can take something through and deliver. It's the old adage that the idea is less than 1% of the work. Then it's other things like how clear a founder is in terms of their purpose and the guiding mission behind the company. We often find for example in very early stage ideas that the company or the execution of what they're doing might pivot 10 or 15 times in six months. We've had companies here in three months that have changed their name four times and their logos I can't even remember how many times.
At the end of the day the quality founder has absolute conviction that there is a real consumer problem that they're solving. That has deep insight and expertise on that problem, and they back themselves so that you know that no matter what comes their way, whether it's regulation, whether it's can't get funding, they're believable that they're solving a real problem and they can take people on that journey, because it's really important.
JVD: It's that ability to build and maintain momentum, and that kind of self belief that it will succeed. That's really the core?
CK: Yeah, and you can judge that quite quickly, you'll be surprised, with an entrepreneur. The successful ones will get things done at all cost and it never ceases to amaze us, even only being open four months, the example of that playing out, and it's really important because at the end of the day, particularly most of our residents who join one or two man teams, so by nature of what you're doing you're doing everything, and it's tough sometimes. It's a roller-coaster for a lot of our members.
RS: Have you ever seen larger organisations create entrepreneurship and hire out desks in spaces in co-working hubs?
CK: Yes, we see that as a trend that's really starting to take off. If you look certainly in Australian market there's not many examples at the moment of corporates moving internal entrepreneurship teams into co-working spaces, but we can totally see that something next year, it's something that Stone and Chalk's actively looking at and we've had a lot of demand for from our corporate partners. In terms of the traditional corporate environment, it can often be really hard to get an idea off the ground. It could be culture, it could be space, it could be access to talent and ideas, but certainly I think that corporates are opening up not just to can I move some of my existing team into a co-working space and build something new, but also what are the collaboration opportunities that are around for actually working with startups to build something new together? That's where we get really excited because there's plenty of examples around the world in countries like the UK, US, where they're really good at basically running collaboration between industry and entrepreneurs with fantastic benefit.
JVD: Tell me about failure, because you mentioned before that Australians are very risk-averse, and serial entrepreneurs strike me as the sort of people that need to be able to fail and get up again and start again. As a hub, what's your take on working with people that have failed in the past and what do you expect people to present you with when it comes to their past history. Should they be glossing over it, or should they actually be making something of the fact that they've failed and that they're willing to try again?
RS: Maybe highlight the contrast between that feeling inside Australia versus overseas in other hubs that you've seen.
CK: Sure. We are very closely connected with a lot of our counterparts in the Valley, for example, in the US, and there's venture capital funds there, for example, that will only invest in foundeRS: that have previously failed in a business.
JVD: Wow, that's interesting.
CK: That is remarkable by Australian standards, that they walk around, these founders, with it as a badge of honour, as I've learnt so much from this experience and I'm never making those fifty mistakes again. You contrast that to Australia where for a lot of investors, and certainly for the general Australian culture, we don't like to talk about failure, so it is miles apart, and it's a big thing that we're trying to change culturally. If we're going go through this ideas boom, we need to change the culture and embrace the fact that it is okay to fail. So I would massively support entrepreneurs being completely open and honest about, more importantly not just the fact they failed, but what did you learn from that? What would you do differently, because that shows a real maturity in person, and to give you really practical examples of what we do to encourage it, we run, don't think I should be swearing on podcast, but F Up Fridays, which is a very frequently and well attended event where founders get up and say what is their biggest mistake and what did they learn from it.
JVD: Excellent. What a fantastic idea.
CK: We have a bell that people ring, not just when they succeed, but when they fail too, and we have plenty of booze lying around here to help them with that failure. I think it's all part of it. It's a roller-coaster, but the big benefit of working in a co-working space is everyone's on the ride and you just got to have enough conviction that you can keep learning from your mistakes and keep moving.
JVD: What was it that the Prime Minister did last year that really changed the way investors are thinking about startups?
CK: There's been a few really material changes to government policy quite recently, which have meant that the needle has tipped in the favour of, in a lot of instances, in investing really early stage ideas. For example, there's been some tax incentives that have been announced for angel and seed money to be put into high-growth and high-potential early stage start-ups, and there's also been some investment funds created to basically help support Jobs New South Wales and other bodies, these ideas to come to fruition.
JVD: This was off the government's innovation statement last year?
CK: Yes, that's correct. It's not really about injecting capital into early stage businesses, because a billion dollars, frankly, is nowhere near enough, it's about changing the national mindset and making it... Tipping that money or those investors a little bit more in the favour of start-ups. We had an announcement which is pretty typical example of how this plays out, where a massive Australian wealth manager has committed a portion of their funds under management superannuation money to an accelerator program running under Stone and Chalk. That's a fantastic example of something that probably wouldn't have happened two or three years ago, and it's a reflection of yes, government incentives in terms of tax and other benefits for investment, but also some cultural message in that Australia as a nation needs to find new ways to grow and part of that is changing our mindset around the high-risk businesses.
RS: It's fascinating what you guys are doing. I love it and I'm going to come down and visit you guys. We're just up the road.
CK: Good, good. Open invite, I think I’m going to bring it to life much more.
JVD: I'm definitely stealing the mistake bell idea off you. I think that needs to be implemented in every single office, because we need to celebrate failures more, and I really hold dear that mistakes are marvellous because that's the only time you learn. Thank you so much for everything, but particularly for that idea.
JVD: Thanks very much for joining us, Chris.
CK: No problem at all.
RS: Thanks Chris.
RS: Well that was a really interesting interview with Chris. What's some of the key take-aways that you got out of it?
JVD: I guess that it's that notion that Australia is still fairly risk-averse and we're still not really hoping with failure the way other economies are, and the fact that we really need to. It's really refreshing to hear people re-iterate this point and reiterate the fact that you need to fail in order to succeed, you need to understand failure.
RS: Yeah, and the other point he mentioned was optimism, a change of just going out there and having a go, which I think something this whole podcast is trying to celebrate as well is just get up and have a go. We've all got great ideas and get them off paper, get them out of your brain, start talking about it with other people. Go and approach something like Stone and Chalk.
JVD: Yeah, go and see if you can actually take it to the next level with their support. That's a great idea. If you have any questions about what you hear on this show, you can tweet us using #xeroin. Rob? Thanks for being here.
RS: Thanks JV.