During the Australian gold rushes of the 1850s, significant numbers of workers from across the globe relocated to areas such as Ballarat, Victoria, in which gold had been discovered. With them came an army of vendors selling tools to get the job done; shovels, pickaxes, hammers, chisels, and pans.

Modern Day Gold Rushes

While mining for natural resources is still a lucrative business today, ‘gold rush’ has become synonymous with any rapid movement of people to a newly discovered economic opportunity. It shows up in myriad domains, from cryptocurrency to military defense contracts to digital transformation which organizations globally are expected to spend US$2 trillion on by 2022.

The thing about shovels and spades though is that they are physical, tangible products. Even a five-year-old can make the obvious connection between the input and the output, which is why many a playground features one of these bad boys (incidentally, one of my childhood favorites).

But when the object of our desire is more ambiguous than digging stuff out of the ground, it becomes difficult to ascertain exactly what tools will help us to dig, and what exactly we should be digging for, to begin with. This ambiguity is none more pronounced than in the world of corporate innovation.

For decades, large organizations could somewhat reliably predict what the next five years would look like, but the last decade has seen exponentially improving technology change the rules of the game. This is manifest by the decrease in the average company lifespan and the changing of the guard on the S&P500. Unfortunately for such companies, innovating in the corporate landscape is like riding your bicycle across a minefield; to do it successfully requires the effective coalescence and alignment of company culture, policies, processes, systems, resources, capability, executive buy-in, timing, incentives, shareholder support and a healthy dose of luck… just to have a shot of getting it right.

Snake Oil: Cure What Ails You

And wherever there is ambiguity and confusion, there are snake-oil salesmen promising to make sense of it all for you. Before the advent of modern medicine, not long after bloodletting was used to ‘cure’ disease, oil made from the fat extracts of the Chinese water snake was sold to desperate buyers who were told it would heal their joint pain. Of course, it did nothing of the sort, but that didn’t stop armies of charlatans from selling the stuff.

Snake oil salesman show up in various forms in the corporate innovation domain. Sometimes they sell what they purport to be silver bullet solutions, such as design thinking, or a startup accelerator program, or an innovation lab, but the reality is that creating meaningful change and value requires more than just isolated initiatives like these, but a cohesive approach that accounts for culture, capability and more. Standalone initiatives can be an awesome part of a corporate innovation arsenal, so long as they remain part of it and not the whole thing. Ping-pong and arcade tables are a fun addition to any office but they alone won't help you generate new revenue streams.

For example, training people in the lean startup is all well and good, but if the underlying policies and processes don’t support rapid experimentation, and prototype investment decisions are often deferred to steering committee meetings, then that training is all for naught. But I’m not talking about dubious corporate innovation consultants who read Innovation and Entrepreneurship once and now think they are Peter Drucker reincarnate.

“We Need An App!”

No, what I’m talking about is digital agencies posing as corporate innovation experts, and taking advantage of the flawed “we need an app!” mentality that pervades many a corporate boardroom. There are 2.1 million apps in the Apple App Store with about 6,00 new apps released each day; how many have you downloaded? You probably don’t need an app.

This is especially worrying when you consider the nature of many digital agencies, best exemplified by the recent high profile bankruptcies of two of Australia’s leading app development agencies, Appster and Buzinga.

But first, what is this ‘nature of many digital agencies’ that I speak of?

‘Shitty Agencies’

Murat Mutlu, designer and co-founder of Marvel App, penned a post called Why Talented Creatives Are Leaving Your Shitty Agency, in which he surmised that conversations with his agency friends always end up in a flurry of grievances such as:

“I want to work on a product people will actually use”

“We only care about hitting targets”; and most potently

“We never push back and tell the client their ideas are shit”.

This makes sense given that the typical digital agency business model is characterized by billable hours, which in any industry poses a conflict of interest insofar as efficiently delivering quality outcomes is concerned.

The Rise and Fall of Appster

Appster was a poster child of the Australian startup scene, founded by youngsters Josiah Humphrey and Mark McDonald in 2011 when they were just 19. By 2015, the pair found themselves on AFR Young Rich List with a combined value of AU$58M. In December of 2018 however, Appster went into sudden liquidation thanks to inexperienced management, operational flaws, and mismatched revenue figures.

SmartCompany’s Dominic Powell wrote that Appster set high client expectations that were dashed months later when the app development was finished. Agencies like Appster have inexplicably high margins because they ship most of the actual development work offshore to India. They might have someone locally overseeing the offshore development team, but the majority of work was off-shored — which would be fine if that quality didn’t suffer.

But the most concerning things about Powell’s revelations is that one of Appster’s clients had spent $500,000 on an app that was near-unusable. Let’s forget about the fact that it has been a good eight years since Eric Ries’ book, The Lean Startup, came out (advocating a philosophy that has permeated the startup world and urges early stage entrepreneurs to test their idea quickly, cheaply and effectively through minimum viable products) and people have no excuse for dropping that kind of money on untested ideas (as it turns out, a $30 investment in Ries’ book would have been a better use of funds).

Whatever personal failings and oversights the client made in this case, the fact that Appster didn’t push back on what was essentially a massive bet on an unproven and untested idea, to step in and say “actually, are you sure you want to invest that much money…why not start with a $10,000 to $20,000 prototype to test your key assumptions before we go any further?”, or, “sure, but let’s take an agile approach and release it in monthly sprints so that we can iterate based on user feedback to ensure you get value for money and we don’t waste your money”.

While this may have cost Appster revenue in the short term, this approach actually makes good business sense.

Taking the aforementioned approach:

1. Positions agencies as a trusted advisor
2. Creates more capital and space to work towards something people will actually use if the initial market validation shoots blanks
3. Your reputation wins and you win more referrals for it
4. Your customer retention increases and therefore your margins, because you spend less time selling to new clients and more servicing existing ones

Here’s a crazy thought:

If you want to make a quick buck at the expense of sustainable gains, cheat.

If you want to build a sustainable business, do what’s right by your customers.

But no, rather than play the role of advisor, Appster did what Mutlu suggests most digital agencies do by singlemindedly chasing targets and agreeing to build stuff people probably wouldn’t use.

Sure, agencies might be all about billable hours and not innovation, but as Mutlu put it, “innovation and hacker-like creativity is what agencies sell to clients, and that’s the problem”.

Pervasive Malpractice

Unfortunately, the Appster story isn’t an isolated case. In my own experiences at Collective Campus, where my team has dealt with almost 100 startups that have collectively raised US$25M over the past five years, whether through our accelerator programs or coworking space, I’ve heard horror stories from entrepreneurs who have spent big dollars on a so-called ‘prototype’ developed by various digital agencies (‘prototypes’ because they didn’t serve to test the concept’s underlying assumptions so they were in many ways redundant). And by big dollars, I mean $50,000 to $100,000 for an unusable prototype! Not only that, but the code was often dirty, the user interface often ugly, and the user experience left one frustrated. And when you look closely, you often find references to previous clients in the code, suggesting a lot of cut, paste, and bolt-on activity going on.

But moving on from agencies working for startups.

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