Slaying the unicorn myth – why CodeBase’s new Techscaler programme is focused on picks and shovels over a billion-dollar ‘gold rush’
Like the Scottish tech sector as a whole, CodeBase has been on something of a journey since its launch in 2014. Playing its part in supporting the development of a ‘scene’, the tech incubator in Edinburgh hit a sweet spot when it conceived of the idea of cheap, flexible accommodation for budding tech entrepreneurs and founders inspired by the success of local firms done good, Skyscanner and Fanduel.
That model took off and still remains very much in place; almost a decade on and you get pretty much the same experience of a vibrant tech space from visiting its headquarters at the end of Castle Terrace in the city, albeit one reshaped by the Covid blurring of work-home life existence. It occupies the same former government building that previously housed the Department for Work and Pensions, with a brutalist, cave-like entrance giving way to a calming co-working and hangout space whose distinctly tech aura is occasionally punctuated by the sound of coffee beans being mechanically ground. Naturally.
In a side room, there is applause at the conclusion of a meeting with attendees busily filtering out for a break, some dressed down in the expected IT crowd way, others in suits. Where tech meets the world of lawyers and accountants.
Stephen Coleman, with his chinstrap beard, is the unmistakable face of CodeBase, as CEO. Steven Drost is chief strategy officer and wise counsel. The pair are relaxed, informal and welcoming. There are thankfully few airs and graces about any of the folk who inhabit this peculiarly Soviet-like architectural offering deposited in the middle of a World Heritage site.
Coleman and Drost are keen to talk about the next ‘phase’ of CodeBase’s evolution, and how it will support Scottish tech companies not just with their accommodation needs, and ‘filling floors’, but the all-important desire to ‘scale’, a task it has officially been assigned by the Scottish government.
For background, one of the observations in Mark Logan’s Scottish Technology Ecosystem Review – published in August 2020 – was that Scotland needed a ‘national backbone’ of ‘tech scalers’, ‘whose capabilities build upon and extend beyond traditional incubation programmes’; the former Skyscanner executive observed that what Scottish startups needed was access to a Silicon Valley-style playbook and founders’ education programme that could help them go ‘beyond the levels of success’ they currently enjoyed.
Following an intensive procurement period, Techscaler – led by CodeBase – has been appointed to be the physical (and virtual, as much of the course content is online) manifestation of one of Logan’s key recommendations to government. Located in seven hubs across Scotland – Glasgow, Edinburgh, Stirling, Dundee, Aberdeen, Dumfries, and Inverness – the scheme also allows for ‘country-wide participation’.
More widely, and this is a problem for Scotland as a whole, rather than a feature of the tech economy, but Scotland suffers from poor productivity performance compared to other European countries. According to a report from the chief economist’s office in 2020, the percentage of innovation-active businesses in Scotland is the lowest among UK nations, which has serious systemic implications for the country as a whole.
The report – Investigating the factors driving Scotland’s productivity gap with international countries – highlighted how ‘innovation is fundamental to boosting productivity growth and also important for the realisation of knowledge spillovers to other firms, industries and countries’. Creating more tech companies therefore is not just a nice-to-have. If Techscaler succeeds, the programme will also likely lead to more intellectual property, patents and research and development funding that could contribute to a much-needed rise in productivity and, ultimately, living standards, where Scotland has also fallen behind.
Not to put too much pressure on Coleman and Drost, but the success of the £42m invested by the Scottish government in Techscaler – part of which will bring in world-class mentorship and education content from San Francisco-based Reforge – is critical not only to the tech sector, but the wider economy as a whole.
But the question which looms large when anyone discusses the tech sector in Scotland – whether it’s the right one or not – tends to be focused on where the next unicorn company, defined as a privately held startup company with a valuation of US$1 billion, is coming from. So I put it to Coleman and Drost.
“We’re optimistic, we have to be. We have to be ambitious,” says Drost. “With the macro, it’s difficult; there’s a bunch of unicorns, which are questionable unicorns, right. And that’s a global phenomenon. Let’s not forget with unicorn companies, it’s a valuation, and so they become this proxy measurement tool, but it’s a difficult measurement.
“I’m not trying to avoid your question, as I think we’re confident that we can genuinely help the ecosystem level up. Everyone who works at CodeBase is an operator or has had a startup, or worked at a startup, and we’re very much focused on that human capital, to try and help. And you know, we’re not the startup police, I always like to say, and we’re really trying to just enable other people to hang out with our people and just build a better ecosystem. I’m super hopeful that we’ll have a couple of unicorns by the end of this, for sure.”
Drost adds there’s also a lot to be said for creating a larger number of £100m-rated companies, or more companies with 30 to 40 employees that helps the ecosystem to become more resilient. In Logan’s report, that resilience will be helped by reaching what he calls the ‘tipping point’, when you have enough companies in the ecosystem for it to become self-sustaining, and not in need of intervention.
Coleman believes the Techscaler model will help deliver on that aim.
“It’d be awesome if we do have some unicorn successes,” he says. “But really, it’s about that baseline of people that are building businesses from that zero to one stage, filtering through to the scale up as people go through the platform. But our focus is really to to get more people, more businesses to start in Scotland, more startups in Scotland, that’s the core thing, and the KPIs [key performance indicators], you can imagine, they’re all kind of based around that, but there’s nothing crazy in there.”
Part of that process, as counterintuitive as it sounds, is to ensure that there are enough companies which are also seen to fail. Investor Sean Wise – the ‘Canadian mentor capitalist’ – has characterised tech startups as ‘dogs’, ‘stars’ and ‘zombies’. Unsurprisingly the zombies are companies that are neither dead or alive and just soak up cash without going anywhere; the ‘dogs’ run fast and look good, but eventually out-run themselves and the ‘stars’, self-evidently, are the ‘home-run’ investments that make huge returns.
Interestingly, failing is not always failing, either. Some companies fail, but then rise like the proverbial phoenixes from the ashes. Tech companies that have ‘pivoted’ their business models, and gone on to eventual success, have included the likes of PayPal, Groupon and Shopify. Even Apple – which risked bankruptcy in the 90s – was saved by the return of Steve Jobs and introduction of the iMac and Netflix, whose failing DVD rental business was turned around by online streaming, have difficult pasts.
Coleman says: “It’s super, super-important [to fail]. One way of viewing Techscaler is as infrastructure that can support an ecosystem to accept and to celebrate that failure moment. Yes, an individual startup is risky, they have to be. But a startup ecosystem should be anti-fragile; because when one startup fails, the people from that have learned the lessons, they immediately go into the next thing, whether that’s starting a new thing, or joining something else that’s growing and being successful. That’s something we’ve seen through the history of CodeBase.”
Drost believes we should also be longtermist. “Sometimes, some of the best companies just take a while to work things out,” he says. “There’s one really great Scottish startup at the moment that has raised a ton of money from some of the best VCs [venture capitalists] in the world, and they were doing stuff for, like, five years.
“But you know, it’s sometimes more a VC culture than a startup culture: it’s all kind of created by people who want to ‘spray and pray’, and spraying and praying necessitates that you have 100 people start the race and, you know, 95 won’t make it. That’s just the nature of capital allocation. But you still need to have founders who do stuff and take those crazy risks of building things, and want to be temporarily embarrassed millionaires and all that kind of stuff.”
It helps that many of the staff at CodeBase have direct experience of working for big tech, and will be there to provide the ‘resilience loop’ – or safety netting – for other aspirant entrepreneurs and founders who, if they fail, can be recycled back into the system or learn the lessons needed to succeed in future. Not only are they able to offer a valuable inside track on what worked in a recognised business, and what didn’t, they also have personal stories of working in fast-paced, dynamic environments.
Jim Newbery, VP Education at CodeBase, and Shona Marsh, Head of Education Programmes, worked at FanDuel and Airbnb respectively. In Jim’s case, he rose rapidly to the role of director of engineering, without necessarily having the experience of managing a large multi-disciplinary team. When he checked out the course content for Reforge, he immediately realised its value, and how it could have helped him though a time that was professionally difficult to navigate.
“I wish I’d had access to that kind of content at the time,” he explains. “If I’d had access to Reforge, it would have given me a framework and kind of signposting for understanding that I wasn’t alone in that predicament. So as we grew quickly, I got first put in charge of a small team, and then in charge of a number of teams who are delivering across a suite of things.
“Those are effectively three completely different careers, not just three different jobs, but very different careers in terms of pathway, and I maybe didn’t appreciate that at the time; that you make those transitions first into being a team lead, and then a director of engineering across a company. That’s something that happens in every startup that I’ve seen where you know people who start as an engineer and then they’re getting into leadership positions. And it’s very difficult to find guidance for that.”
In that sense, the Reforge programme is extremely valuable as it brings together the typical Silicon Valley experience – drawing on huge volumes of people going through a very large geographical cluster of tech companies – all of which is distilled into a ‘playbook’ that others can learn from, and hopefully avoid the same common mistakes.
Techscaler only launched in November but already it has attracted a lot of interest. There are around 246 people who have signed up to become ‘members’ and they can dip into what is essentially a very flexible, open-ended content programme designed to reflect where founders or tech company ‘operators’ are in their own particular circumstances.
Startup Basics, Startup First Steps, and Startup Next Steps, is mostly online content structured around 10-week courses and three-hour workshops; the purpose is to take founders through the early, exploratory stages of setting up a startup to the more advanced point of ‘product market fit’ (PMF), which is essentially making sure that there is a market for what you’re selling.
As unlikely as it sounds, quite a lot of companies do actually fail at that first hurdle. Once you get past that stage, you are then, broadly speaking, ready for the Reforge input, which is designed to help the companies who have reached PMF to start scaling up. In Logan’s STER report there’s a section on how companies scale to the point where they have a lot of employees but then stop growing on a positive trajectory “due to fundamental errors in managing subsequent organisational growth”. It is through leaning on the skills and expertise of the strategic experts in the Reforge programme that Techscaler hopes to help Scottish tech companies avoid these so-called “micro-implosions”.
But the content is not all for founders. Marlou Siemerink, Senior Product Manager at Cyacomb, a software company which supports law enforcement agencies to scan digital content at scale, finding and flagging harmful content, hopes to develop her knowledge of product strategy as the company goes through an expansion phase. She has signed up to a shorter course of around six weeks.
“I figured that’d be a really good way to kind of help me build the strategy for the product,” she says. “And so the kickoff was last week, it’s a cohort of like, 300 people globally, which I was very surprised by. And lots of people, all sorts of countries. I’ve gone through the material of week one, which is feature strategy, and it seems to be really cohesive; it’s providing you with a lot of information without being overly complicated, and also very applicable to your role right then and there. So, I’m excited about that.”
In addition to the four main programmes, there are also mentors whose experiences founders can draw upon. There are currently around 35 to 40 mentors across the Techscaler, a number that is also growing fairly rapidly. Andy Robinson is one. He used to be head of Deliveroo in Edinburgh, having previously worked as chief commercial officer at Cultivate, which was acquired by the online food delivery company in 2019.
For Robinson, mentorship offers founders a great opportunity to learn from someone who has been through the process. “One of the big things for me is focus,” he says. “Asking yourself what are you really needing to achieve. Because when you have too much to do, and you’re under pressure, you need to be able to pick those one, two, three major things.
“For a lot of entrepreneurs it’s quite overwhelming at the beginning when you’re hit with all of this information, all of this advice, all of these courses and learning. I’ve gone through a lot of that and seen and read a lot of texts, a lot of academic work and best practice. But there’s a difference between all that and really being in it, and doing it. And one thing that is great about a lot of the mentors is that they’ve done it. Being able to be that much more in-depth and in the trenches with the people you’re helping to mentor, I think is really helpful.”
History is always a guide – as well as a handy metaphor – for the present. Drost reflects on the ‘gold rush’ period in the United States, and the common misapprehension that it was the prospectors panning for gold who made it rich. It was, in fact, the people who made the picks and shovels that sustained the rush, and who made the big bucks.
Drost’s metaphor is actually a borrowed one, from the founder of Stanford University, but the point he stresses is less about chasing the money, and more about nailing the infrastructure to support its acquisition. By his estimation, there are perhaps only a few hundred companies in Scotland annually – of the total 30,000 created, according to Scottish Enterprise figures – that are in the tech sector. By nature, he says, Scotland is a “very safe, very careful, very prudent nation”, where it is far more likely that someone will leave university and go and work for the state, or academia, or a large corporation than founding a tech startup.
He hopes the Techscaler programme will make a tangible difference in that regard.
“Building your own thing is non-native, it’s just not that popular an undertaking,” he says. “So, we’re having to tell people, “Look, there’s a gold rush, and this is why gold’s good, etcetera. And so there’s an inspirational piece we have to do here. It’s not just a case that Techscaler is good. We have to inspire people to want to do it.
“And if we get a few hundred people a year expressing a strong desire to build something that they can then plug into this piece of infrastructure, that essentially shortens the distance between having a thought about building something and the actuality of here’s how you do it.”