Raw thoughts from Alex Dong

What's wrong with TechNZ's evaluation process

I’m on the advisory board of the dental software company Software Surgery.  We have had such a frustrating experience applying for a TechNZ funding that I believe New Zealand needs a government grant/funding option designed specifically for software startups.  The current system is probably well designed for manufacturing products but they are just unsuitable for software projects who can use helps from the government.

To evaluate a software startup’s worth, I’d look at three things: idea, founders and the market.

The idea is simple: dentists are still referring patients to each other using paper based forms. Every year, there would be patients who “fall through the crack” and, as a consequence, their treatments were delayed. Bad things happened. The dentists get severe penalty. Yet dentists are among the most busiest people in all professions. They are constantly under time pressure and unhappy patients.  Stacy’s software makes it really easy for dentists to track and follow through a case to make sure the referrals have been taken care of.  Clear problem. Well designed solution.

Solid team. Stacy, the CEO and founder of the company has sold his previous company in 2003; He is building the product using his own money from selling the previous one.  Before taught himself design and programming, Stacy spent more than 15 years as a dentist.  I haven’t seen anyone who have so much in-depth knowledge in programming, design and dental industry.  Talking about domain knowledge and startup experience, I wouldn’t expect anyone better than Stacy to take on a dental software.  Besides We also have John Hamilton, who sits on the Dental Council of New Zealand as another advisor.  John has to write reports for different medical cases due to “referral accidents”. He has personally made sure that the software is usable and provide the tools and workflow dentists would use. And no more.

The market: there are more than 2000 dentists in New Zealand. More in Australia, UK and around the world. Most dental clinics have computers but no one so far can track referrals, check updates, provide great tools to attach X-ray pictures. Mature market. Ready for the product.

Yet, as we went through the TechNZ process, we have to answer questions that are just utterly unfit for software projects which moves really fast and the margin to replicate is near to zero.  My favorite one is a table to fill in a year-to-year “revenue project for 7 years”.  7 freaking years!  I believe the people working in government’s Economic Development Unit have the best intention to make sure that tax money are not wasted.  But with the wrong framework and process, they are wasting time and money.  Even worse, they are not solving the problem but they have become part of the many obstacles that an entrepreneur needs to overcome.

The following is the email Stacy sent to withdraw his application, which gives an excellent view on the different between a software project and a typical ‘industrial’ project.

I’d like to withdraw the grant application, because now that I’ve seen more of the process involved in the grant it’s become apparent that our project isn’t a good fit for it.

In the environment that we operate in, key attributes are agility and responsiveness. Once users get their hands on our product, we’ll need to be able to rapidly and probably quite dramatically adapt our plan and processes to what we discover. Very small details which can’t be predicted can alter how we need to proceed. For example, it may be that users see value in some aspect of our solution that we hadn’t anticipated and we need to change our sales model to give away for free what we had intended to charge for in order to leverage that value. I could give you a list of imagined cases with a risk assessment and mitigation plan for each, but it would be truly pointless; what I can tell you for sure is that whatever we try to predict, the reality will be different.

I agree that there’s a need for diligence in administering grants – it’s just a question of degree, or the level of detail that is useful. At one extreme is a guy who has a concept but no clue how to build it or market it; at the other is a guy who spends 10 years planning out every minute detail and never builds anything (I’m referring to “paralysis by analysis” here). Real startup projects sit at various places on that spectrum, and the art is knowing how much planning is helpful and how much is a hindrance.

I’m an investor in this project, and I wouldn’t have spent a cent on it until I got a team together that I was confident would be able to adapt and solve problems across the full range – business strategy, sales, design, development and administration. The key difference is that I believe the greatest risk mitigation strategy in this environment is the team iteself; predicting the details of what the team is going to encounter may create the illusion of certainty at the outset but it quickly becomes irrelevant.

The other issue that I’m encountering is that the process is too slow for our project, and the time that I need to invest in creating the illusion of certainty is a risk to the project in itself. We’ve already started spending on it and because only expenses after the approval date are eligible, the value of the grant to the project has already changed significantly. In other words, the project needs to move rapidly and the grant process can’t move rapidy – so again it doesn’t seem like a good fit.

I hope that this makes some sense. It’s a complex decision and I can’t give you a rich understanding of where I’m coming from in a short Email unfortunately; but perhaps it will be sufficient.

Thanks to you both for the effort and time that you’ve put in, and no doubt there will be news about how things are going from time to time. I’m not arrogant enough to assume that it’s a sure-fire thing and my approach is the only one – but from what I’ve seen and experienced it’s the approach that I want to bet on.

Kind Regards