Tech Start-ups + Government Programs = Bad Mix

This summer I began to work on my start-up Integrate, a SaaS sales management application (more info here), and decided to see what options I had as a young entrepreneur. Getting free help and capital is always good.

I found a few that sounded useful, but one that stood out was the Ontario Summer Company program run by the Ministry of Small Business; mainly because the deadline for applying was coming up in a few weeks.

Summer Company Program
The program offers 15-29 year olds starting a company a $3000 grant and some basic business consulting.

I decided early on that this time I was going to take all the traditional and legitimate steps to creating a business, for example registering the name, getting a tax id etc. I saw this program as away to force me into doing all these things.

To get in you just have to submit an application, which includes a business and a financial plan. If you get past that stage you are invited to come in for a meeting to see if you’re the right “fit” for the program.

Side note: I really recommend making a business and a financial plan. This might seem like some overplayed advice but asking yourself the right questions is a necessity. I recommend this at Sequoia Capital.

The Meeting
I spent the weekend making up the plans and sent in my application.

Right out of the gate I saw it as a 50-50 chance of getting into the program. How much would they really know about starting a high-tech company thats targeted at large corporate companies?

I figured they would be used to having kids come in with low-end business ideas like selling swimming lessons or walking dogs.

About a week later I had a meeting with a lady who ran the local small business office at Town Hall. She started off by saying how she liked my business idea, ambition, and how she was surprised I could build a prototype in a few months (I had showed her an early version).

She went on to say that she wasn’t sure the people above her, who made the final decision, would be convinced for a few important reasons.

1. They want finished products: At the time of the meeting. It had about a month left of development. They prefer that it’s ready to be sold when the program starts. Which cuts out almost every software company that needs to develop and actual product or service.
2. There was no guarantee I’d make a sale before the summer ended. When the government looks at the program to see if it was a success they need to say we started x many companies which made x amount of dollars, not whether the company had any real value.

This is where I realized the reality of the program and most government entrepreneur programs. They foster companies with low-barriers to entry, requires little capital to create, and in bad industries.

But isn’t the real point not to create sustainable companies but to teach kids how to make a company?

That’s understandable, so after hearing that I asked her politely: what type of company is an ideal fit for this program? She smiled and spoke about how a few years ago a young guy had started a company selling t-shirts who eventually got in the news giving their program good publicity.

Everyone hears the statistic that 90% of businesses fail after around 7 years. But after reading The Illusions of Entrepreneurship by Scott A. Shane I’ve realized it’s mainly because people often chose bad opportunities and fail before they leave the gate.

Selling t-shirts is the definition of the type of company that is most likely to fail for a few key reasons.

1. Saturated market: Everyone thinks they know how to make t-shirts, and there’s no shortage of them trying.
2. Low barrier: It hardly costs anything to make a few t-shirts.
3. Feasability: the only way to make any real money is to get distribution in channels where big companies have had locked down for decades.

If your going to teach someone who to make a company the number one goal should be to help them identify what a good business opportunity is. I can go to the library or online to figure out what the different between a partnership and sole proprietorship is… the technical details are secondary.

The Result
My 50-50 bet came back as “we’re sorry, your have been declined for the program”, at least she still offered to help with the technical details (registering the company & name).

I did come out of the experience optimistic though; the more these programs grow and help maintain that 90% failure rate, the less competition I will have to deal with.