High risk: high reward

I really wanted Supie to succeed. We have our supermarket duopoly, it sucks, and we need challengers to it, for the good of Aotearoa and its people. The existing government proved spineless on the issue, and the new government won’t be any better. It’ll require entrepreneurial activity to solve, and we need as much of it as we can get.

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Plenty has been written already about Sarah Balle, the founder brave enough to take on those Goliaths.

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When founders fail, the media hold them accountable. And often in ways that err on the side of salaciousness and away from thoughtful evaluation, or reporting that’s genuinely in the public interest.

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I was interviewed this week by a high-flyer in the media world. He asked me why startups shouldn’t be subject to the same scrutiny and accountability as mature companies. The short answer is that they should be. The wiser and more nuanced answer is that startups are materially different to mature businesses in a number of ways, and those differences should be understood so that startups are held accountable to the right things.

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Firstly, any startup is inventing a whole new type of product or business model. There’s no playbook or ‘best practice’ to follow. For traditional businesses in mature categories, best practice is plentiful, and if those companies aren’t following it, that should be identified and they should be pulled up on it. For innovators, their job is to experiment and find their way to what best practice looks like for a novel company like theirs. Therefore, concluding or suggesting that they haven’t done a good job in terms of running their company misunderstands how startups work.

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Secondly, risk in startups is a known quantity. It’s 100 percent of the money you’ve invested. Investors in traditional or listed businesses are justified in expecting those companies to be run per best practice, deliver a return, and not lose the investor much, if any, of their money. And they should be held accountable when that doesn’t happen. 

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Investors in startups have completely different expectations. They know that they’re likely to lose all of their money. This is the implicit contract they make. Therefore, when it happens, there’s nothing to be held to account for. The company has tried their best to achieve success, but in not doing so they have simply provided an investor outcome that was completely likely. There’s nothing illegal, unethical or otherwise wrong about a startup failing.

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Thirdly, mature companies tend to be run by very experienced CEOs, executive teams and boards, who almost always share the heat when the media critiques them. And, it’s rarely their first rodeo. They’ve developed thicker skin over the years and mechanisms for not taking public criticism personally. 

Again, startups are very different. They’re often run by very young people who don’t have that same media experience. It’s always the founder who the blame gets hung on – their name, their picture. Often when a startup fails, it’s the first time the founder has been in the public media in such a big way. They rarely have adequate coping mechanisms for what can be an extremely traumatising experience. Should the media care? I think if they consider themselves intelligent, wise people, they should.

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Lastly, one of journalism’s roles is to ‘hold the powerful to account’. CEOs and boards of large companies are indeed powerful. They typically earn a lot of money, and have a lot of influence over a lot of less powerful people, in a lot of different ways. 

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Founders of early-stage startups rarely have any power at all. They are often paying themselves only what they absolutely need to survive. They are permanently at the behest of people and things far more powerful than them: VCs and other investors, large customers, macroeconomic events that are far more turbulent for small companies. They really can’t be considered ‘powerful’ and holding the ‘unpowerful’ to account should be approached much more thoughtfully by journalists. 

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For those reasons, media scrutiny and accountability should indeed be applied – but in a way that recognises the realities of startups and the people running them. 

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‍The governance

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Supie had 60,000 customers and $10 million in annualised revenue. And the margins weren’t terrible. That’s a genuinely good performance for a young company. To me, it looked like a good business with a chance.

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But companies at Supie’s stage are almost always delicate, dependent not only on customers and margin, but also on the vagaries of managing investment rounds and cashflows. I’ve been involved with many fast-growing companies for whom the winds have changed, meaning lower growth, lower valuations and investors becoming more cautious. And at the same time as they’ve faced costs rising – rises that couldn’t have been predicted. Often that means a company that was objectively very successful and well run suddenly becomes precarious.

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Which is what happened in Supie’s case. That wasn’t because the company had been run poorly; it was because of that sudden precariousness.

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The outcome? Supie didn’t make it. Sarah Balle is the name in the media stories. She’s the one taking all the blame and all the pain.

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Yes, her employees are also in pain and out of pocket – and that shouldn’t be diminished. But it’s a question for the board, not Sarah alone. A board’s role is governance, and solvency is something that needs to be carefully governed.

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She was joined on the board in November 2022 by professional director Ben Kepes and SwipedOn founder Hadleigh Ford, both of whom resigned on 27 October ahead of the voluntary administration. 

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At this time, we should all be rallying around Sarah.

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We’re quick to talk about the need for innovation, the need for risk taking, the need for people who are willing to put it all on the line to disrupt institutions and find a way to a better, fairer world, the need to accept failure as a stepping-stone to success.

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And then, when things turn, we rush to perve at the pornography of failure: the jobs lost (jobs that wouldn’t have been created in the first place) and the investors who lost money (on an investment that was high risk and very well understood to be high risk).

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Those losses make for clickable headlines. But they’re the relatively tiny price we pay for progress – progress that’s threatened when those clickable headlines discourage future founders from trying, lest they are strung up for not making it.

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There’s a huge silver lining, however. We have a founder who has braved a massive challenge, learned a phenomenal amount, made important steps toward understanding how we might, in future, break the duopoly and make things fairer for New Zealanders.

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That insight is enormously valuable. When Sarah makes her way through the hell that is public scrutiny and criticism, she will be enormously valuable.

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If you see her, put your arms around her. She’s not a failure. She hasn’t let us down. She’s carried us forward. She’s personally sacrificed so much for the benefit of our community and our country. She deserves our thanks, our respect – and for us to back her to do amazing things for us in years to come.

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