How hustle culture is harming startup ecosystem

Long office hours, increased risk of company collapse and significant cultural differences are some of the pressing concerns across Victoria’s startup ecosystem, according to a recent report published by The Tech Council of Australia and LaunchVic.

Titled Ensuring Victorian startups have skills to scale, the report highlights how a combination of these factors is diminishing the attraction of the startup ecosystem for many potential applicants.

While it is not the case for all businesses, this trend is a source of frustration for Diony McPherson, who founded software company Paperform in 2016 with her husband Dean. The couple’s startup quickly caught people’s attention, attracting more than 4,000 users in the space of five months following its launch.

Today it boasts 10,000 users, with about 50 per cent based in the US, followed by Europe (30 per cent), Australia (10 per cent), and the rest of the world (10 per cent). Paperform is also generating about $4.6 million in annual recurring revenue (ARR).

Speaking with Business News Australia, Diony McPherson, a former project manager at Google, shared her views on hustle culture in Australia’s startup scene and how it can harm the people who are looking to build great solutions.

“I think there are some people that really thrive off of it, but for most people, there’s things in life that matter more than work. Hustle culture is really centred around the idea that that work is the most important thing,” she said.

“There are a lot of software companies like ourselves who we grew a lot…there’s a moment we sit down and go: Okay, great. My revenue is increasing but I’m literally sitting down and not seeing anyone that I love or care about and that is hugely problematic. We’re humans, we’re social creatures, and our communities and our families should be the most important thing.

“In the past, I think that’s been seen as a soft thing, a weakness, and it’s just not. I think they’re the things that drive most people who are successful that I admire.”

Based in Sydney, Paperform offers users a simple solution to create a form builder, which allows web designers to create customised forms for their sites. Since its initial launch, the company also branched out to features like payments, booking, events, and onboarding.

For Diony, building a company alongside her husband was seen as an opportunity to better her work-life balance instead of becoming the next Canva.

“To me, hustle culture is really associated with dollar amount, getting a massive volume valuation and being a unicorn company. From day one, Dean and I never wanted to do that. We sat down and said: ‘Well, what does success look like for us?’ And yeah, we’re building a software company…at the time we called it a lifestyle business because there was nothing in between – it was you’re either funded and doing it for real, or you’re a lifestyle business and a side hustle. I think that’s really unhealthy.

“It took me a couple of years to look back and go: ‘Hold on. We were always a growth business; we were always a genuine business. We operate off our own revenue, we’re still bootstrapped to this day.’ But because of the tropes and trends at the time, it was really hard to define ourselves in the industry. Now have a lot more confidence to look back and say that we’re legitimate. We might not be a unicorn that grows to like a number really quickly, but we’re steady.

“In your first business, there’s a huge amount of learning. That’s what I would say is really missed in hustle culture – the room to learn as a founder, the room to be able to make mistakes and you’re not freaking out because you have to tell someone else about it.”

Even seven years later, Diony and Dean collectively own 95 per cent of Paperform, which the former says has been beneficial for her own professional development.

“It means we have control, but there’s a responsibility with that. I think I’ve developed and gained confidence and learned as a founder in ways that I never would have if I would have taken funding.”

To address these kinds of concerns, the Tech Council of Australia and VicLaunch recommended a number of programs in their report, including the Blackbird Founder Academy, Startmate fellowships, Earlywork Australia and accessing the resources available on managerial skills accelerator program The Mintable.

To raise or not to raise via venture capital?

While it is a popular avenue for many founders looking to accelerate their growth, Diony takes the view that venture capital (VC) funding is more often than not the right way to scale your business.

“You come up with an idea, whether it’s a goods or service-based industry, and in that particular industry, if VC backing is the way to go, that’s what you do. But there’s not been a really a stock on the floor until now to say: What actually are the benefits of this?” she said.

“They’re not looking for a multiple that’s always good for you. They’re looking for a multiple that’s extreme and they’re going to push for that. That will shape the way that you experience business development. There are some out there that are fantastic – I’m not against funding full stop.

“I think the majority of the way that the industry operates is incredibly unhealthy and toxic and is now starting to finally catch up and change. VC culture and hustle culture are intrinsically connected and there’s a massive amount of [it] that’s really unhealthy.”

According to Folklore Ventures and Cut Through Venture’s State of Australian Startup Funding report, a total of $7.4 billion was raised across 712 deals in 2022, down from the $10.6 billion secured a year prior.

But even with the drop off, a record 428 early-stage deals totalling $530 million were made last year – a welcome 13 per cent boost in disclosed agreements compared to 2021.

Having gone through the journey herself, Diony previously shortlisted 10 VCs that she was interested in pursuing a business relationship with, but quickly saw her options dwindled down to five due to the economic climate.

“It was much harder to get them over the line in the economic climate that we have. We actually ended up withdrawing at that point, because Dean and I were spending so much time convincing other people what we should be doing when we know our strategy and we’re already seeing the results,” she explained.

“Then at the same time, we increased our pricing…We haven’t done that in five years and it was overdue. We didn’t do it because of COVID – We didn’t want to slap people in the face but we couldn’t avoid it anymore. That actually closed the gap in the revenue that we needed. We operated a little bit slower on the strategic plan.”

“If I had to point to some traditional firms that are doing things really well, I’d say Blackbird is wonderful – I think a world of them and their approach. But there are new kinds of funding becoming available that is really exciting to us.”