“SkyTV you’re the new Telecom. We tolerate your complicated pricing plans and mildly put-out customer service lacking a credible alternative.”
– @rowansimpson, on Twitter.

On 19th May:

“Is Sky TV the new Telecom? It is big and it is dominant. And now it faces a regulatory threat which may hinder its efforts to carry its dominance into a new technological era.”
– Liam Dann, in NZ Herald.

This week regulators, and then investors, and then the media, finally realised that Sky have been failing the Don’t be a Dick test for a while now. It will be interesting to see if they manage to hold on as long as Telecom did, before facing this reality themselves. As Rachel Hunter taught us, it won’t happen over night, but it will happen.

What is the most important thing in the world?

According to the Maori proverb the answer is: He Tangata, He Tangata, He Tangata. It is the people, the people, the people.

That’s certainly true for start-up companies. As Paul Graham, one of the co-founders of Y Combinator says: “People are to start-ups what location is to real estate”.

And yet, when we all think about what we can do to support start-ups, we seldom start with people.

We focus on buildings – ideally well located funky shared working space in architected buildings or “innovation hubs”. But, when you look at those start-ups that went on to become successful companies they nearly always did their hard yards in a skanky flat or dingy office, rather than emerging from the safety and comfort of a business park. If you think that finding a nice desk is the hardest part about starting a company, just wait until you try and find your first customer!

Or, we focus on funding – mostly in New Zealand we complain about the lack of it. But, every serious investor I know would like more introductions to investible companies. There are two reasons why you can’t raise investment: 1) people don’t know what you’re worth; or 2) you’re not worth as much as you think you are. In my experience, most commonly the later. But, both problems are solvable. And, in either case, having too much money too soon makes you lazy because you’re not forced to learn how to spend it efficiently.

Or, we focus on speed – what we can do to accelerate ventures towards success even faster, because we’re all very impatient and anxious to find the next big thing. Do you remember the Mainland ads, with the two old guys watching bemused as younger cheese-makers try to rush? Good companies take a long time to build. That’s actually a good thing, because you learn as you go. Too much attention too soon can ruin a new venture just as badly as no attention at all.

Maybe buildings and funding and speed are not actually the constraints that people working on new ventures have?

At the moment there are a lot of us thinking about what we can do to develop an innovative eco-system in New Zealand. For me the answer is simple. We need more people. People who choose to roll up their sleeves and actually work on ventures.

So, if you want to know what you can to do help the start-up eco-system in this city, and in this country, this is my advice: remember the most important thing in the world.

Don’t feel like you need to spread your own limited resources across ten ventures, or a hundred ventures – these are start-ups we’re talking about, the odds of success are massively stacked against you either way.

Choose one person to work with. Maybe you can be a co-founder or an early employee. Maybe you can be an advisor or a director. Maybe you can be a seed investor. Those are all vital contributions to early-stage companies.

So, listen to these people that will present tonight. They are all individuals working on a venture. Think about how you can help them, or others like them. Ironically, if more of us did this, then the eco-system problem that get so much of our attention might just solve itself.

I’m recently returned from a couple of weeks in Singapore, where I was a mentor at the new JFDI Bootcamp.

It was a busy time in a busy place, but I enjoyed every minute. It’s not my first time in Singapore, by any stretch, but was the first time I’d spent more than 48 hours there, and it was great to get to know it much better and experience it more as a quasi-local than as a fleeting tourist, albeit a very spoilt quasi-local who was well looked after by my hosts and lots of other locals and ex-pats who I had the opportunity to meet. Highlights included the food at the many great hawker stalls and restaurants around Little India and Arab Street, mountain biking on Palau Ubin and the view from the top of the Marina Bay Sands at sunset (I was there just for an hour, sadly, not as a guest … maybe next time).

Part of the TechStars network, JFDI was started by Hugh Mason and Meng Weng Wong (who is surely the best dressed man in technology?), with 12 new technology companies based at the SingTel Innov8 facility in Singapore for 100 days, a flange of experienced mentors (is that the correct collective noun?), some seed funding, more advice than you can shake a stick at and all culminating in an opportunity to present their ventures in front of an invited audience of potential investors in May.

They have done a great job of attracting companies from all around the region for this first in-take – including Philippines, Indonesia, Thailand, India – and some from further afield – Netherlands, Canada, France and USA. I was especially excited to see two Kiwis take up my challenge and get themselves over there to progress their venture.

There was no mucking around – on the first day all of the companies were thrown straight into the deep end and required to pitch to a room of us. The feedback was frank but constructive, and that set the tone. I especially enjoyed spending some time with other mentors whose time there overlapped with mine, and who are taking a similar “sleeves rolled up” approach to working with start-ups – Ravi, Boris, Vinnie, Melissa, Ari, and others. It was interesting to see the sort of things they picked up on –  some focussed on the idea, some on the business model, some on the team and skill sets, but I tended to fall back on what I’m increasingly seeing as the most important question for start-ups to answer: how will you overcome your obscurity?

From there it was into the hard work of shaping their concepts, building the first version of their products and trying to find some early customers who are prepared to give them a try. It was fun to be part of that process, although obviously without the stress of having to follow-up on all of the advice that I flung around. I think I have a better understanding of what it is to be a grand-parent now – all the excitement of being involved and enjoying seeing the progress, but with none of the responsibility of changing nappies or being woken in the middle of the night. It will be interesting to see which of the companies go on to get funding and have the chance to continue to develop their businesses.

Here is a video interview with Hugh on my last day, where we discuss some of the advantages and challenges of being involved in an incubator/accelerator program:

I think it’s very cool to see options like this open up for companies in this region.

If you’re a NZ company don’t limit yourself to thinking about yourself as just a NZ company.

One of the repeated mistakes I see is founders thinking that they need to qualify to get on a plane. If you’re offering a product or service for sale online then by definition you are a global company, and an exporter, from the beginning, as long as you set yourself up to allow customers from anywhere to pay you money. So, do that.

If you think that you’d benefit from being part of a program like Y Combinator or TechStars in the US, or something like JFDI in Asia, then apply.

If you’re further ahead than that and need some help getting established in an overseas market, there are lots of resources for you to tap into. I took the opportunity while in Singapore to go and talk with the people at NZTE (including The Original Koz!) who are keen to help, as well as some Kiwis based over there working on their own businesses who also have lots of advice based on their experiences. From what I understand there are no shortages of companies that would like assistance with raising capital (sigh!) but what I’d love to see more is companies asking for help getting customers – that’s where local knowledge like they have can really make a difference.

Special thanks to Hugh, Meng, Erin, Chiah Li, Janice, Nicole and Alvin for arranging to get me to Singapore and looking after me while I was there. Good luck with the rest of the program – I’ll be watching with interest from a distance!

1. On
2. Off
3. Alarm

When it’s “on” it makes noise. When it’s “off” it makes no noise. And, when it’s in “alarm” mode it will make some noise at some predetermined time in the future, which can be set, but will otherwise make no noise until then.

The Apple iPhone, on the other hand, has just two modes, set using a hardware switch:

1. [blank]
2. [orange]

When the phone is in “[blank]” mode it makes noises. When it’s in “[orange]” mode, it will vibrate rather than ring, and will make some noise at some predetermined time in the future, but will otherwise make no noises until then.

I mention all of this mostly because an old guy in NY has been in the news this week after he interrupted an orchestra performance with an alarm, when he thought his phone was in “silent” mode.

This has kicked off a big debate about the design of the mute switch.

John Gruber thinks it works just the way it should, or at least, says that if it didn’t work that way it would cause even more problems – which is correct, I think.

Andy Ihnatko thinks that mute should mean mute (i.e. [orange] = “off” rather than [orange] = “alarm”)

Marco Arment argues…

The user told the iPhone to make noise by either scheduling an alarm or initiating an obviously noise-playing feature in an app. The user also told the iPhone to be silent with the switch on the side. The user has issued conflicting commands, and the iPhone can’t obey both.

Actually, that’s not correct. By selecting [orange] mode the user has put their phone in alarm mode, not silent mode, which, doesn’t actually exist, unless you turn the phone off completely. So, the phone is doing exactly what it was told to do.

I think that Apple could do a better job of describing the two modes that are set using this hardware switch.

The first thing they need to do is replace the icon.

Currently, when you switch into [orange] mode (i.e. “alarm” mode) , the following icon is displayed temporarily on the screen:

That’s confusing!

This is all a new user has to help them discover what this switch does.

Having said that, it’s not obvious what the correct icon would be – it’s actually pretty complex mode to describe in one small picture: “vibrate rather than ring, but otherwise make noises I’ve asked you to make”.

How would you solve this problem? Can you think of a better icon? Or is there a hardware solution?

I said that 2010 was about “laying foundations (literally and figuratively)”.

In 2011 we got busy with walls etc!

The literal foundations were a new place to live now under construction near Nelson. This has already been a long project – nearly four years, and counting. It’s a bit unusual for me to stay focussed on something for this long. It’s been very satisfying seeing the development progress from the original idea, through lines on a page, to something now physically taking shape.

We’re looking forward to re-locating in March/April. It’s going to be a big change.

The figurative foundations were Southgate Labs. I’ve throughly enjoyed working with Amnon and Koz. Towards the end of the year we were excited to add Nick and Amanda to the team.

Our first investment, Vend, has had an amazing year. Once a start-up has momentum like this is when it really gets to be fun. The business has scaled quickly and added hundreds of customers around the world. Vaughan has grown into his role as CEO – he’s hired a great team in Auckland and San Francisco and it’s exciting to be a part of that. It’s my first experience as Chairman and as such has my full attention. Stand by…

On top of this we made two new investments during the year: Go Vocab and The Rugby Site (one more thing that Richie McCaw and Ruby On Rails have in common!) We have high hopes for both as they continue to refine their product and business model over the coming year.

In August we completed a new iPhone App for StarNow, and just this week released v2.0 of the RadioNZ iPhone app, with live streaming and a bunch of other improvements.

And, after some false starts, we also have a couple of product ideas of our own which are under development. Hopefully at least one of these will surface in 2012.

It would be misrepresenting things to say we know exactly what it is going to be yet, but some of the blanks have been filled in, and in any case we haven’t let that stop us getting on with trying a few things.

All of that makes it sound like a lot of fun. In reality, I spent a large portion of the year just drowning in email. I received 14,363 messages (not counting spam and junk mail), or 40/day on average. This is a 50% increase since 2010 and nearly three times as many as in 2009. I sent 6,765 messages, or 25% more than in 2010, despite consciously trying to reduce this. It doesn’t seem particularly sustainable to continue to work this way.

I took a lot of coffee meetings too (but I still don’t drink coffee). In the process I met some excellent people who are working on some exciting new ventures and a bunch of others who are probably going to struggle. I tried to give honest and practical advice to both.

I didn’t blog as much as in previous years, with just 51 new posts, although 2,449 tweets made up for some of the difference. I’m especially proud of two series of posts – The Mythical Startup (which was also published in Idealog), and Founder Centric Startups.

I was featured in a business profile in the Dominion Post. Thankfully it was a very friendly article – so the only uncomfortable bit was posing for the photos (lesson: don’t do this in front of a whole open plan office full of amused onlookers!)

It does feel a bit odd to still be talking about Trade Me in these sort of situations, given it’s now years since I worked there. It was very cool to watch from a distance as they completed their IPO, and achieved a market capitalisation of over $1billion, although amusing to see media pundits say that we original shareholders obviously sold too cheaply, when at the time the same people thought David Kirk had gone slightly mad.

In between all of that there wasn’t much time or space for anything else, to be honest.

However, I did try to keep moving…

In March I completed the Contact Triathlon race in Wellington in 2:41:35, (doing the final 10km run leg in 47:25). In case that sounds impressive it was more than 20 minutes outside of qualifying time for the World Champs.

In August I completed the National Duathlon Champs in Taupo, in the wind and sleet (the weekend it snowed everywhere!) I ran a fast opening 10km in 44:36 (as fast as I’ve ever run over that distance) but died on the bike leg and struggled home in 2:36:10, 13th in my age group and again well outside of the qualifying times.

As part of my training I did the Wellington Half-Marathon in June, also in pretty cold and windy conditions. This was the first time I had raced over that distance without a long swim and bike immediately beforehand, so I was more-or-less assured of a personal best time. Nonetheless I was stoked to get home in 1:44:11, a good 45 seconds ahead of a fast closing Koz!

I enjoyed some cycling in Wellington with PayPal founder Max Levchin, when Wellington had her best Autumn coat on, and a brisk/refreshing ride up Signal Hill in Dunedin with Julian Cox. Perhaps 2012 is finally the year for me to get into mountain biking?

I started the year at 73.7kg and finished at 75.3kg. The difference is explained by just 53 calories per day – or the equivalent of two small chocolates. You can tell from the graph when I got really busy with work.

I really did keep moving…

According to TripIt I was away from home 113 days during the year.

I especially enjoyed two trips to San Francisco and Silicon Valley with Vaughan from Vend – including meetings on Sand Hill Road, and a guided tour of the Twitter HQ (thanks to Doug!) We even managed to squeeze in a ball game at AT&T Park.

But, of course, the big sporting event of the year was the Rugby World Cup. Highlights for me included watching Wales vs South Africa with my dad (the best crowd noise I’ve experienced at the Cake Tin since the Lions test in ’05), All Blacks vs Canada with my oldest son (his first live test match, also the first time the ABs have played during the day since he was born), Tonga vs France with my new brother-in-law (a former Tongan player, both of us proudly wearing some official team kit he had been given) and the two quarter finals in Auckland. I watched the semi-finals and final from the comfort of my couch (from the very edge of said couch in the later case!)

In May I grew a beard, under doctors orders! After getting that prescription I had some nervousness about the strict definition of “in sickness and in health” but luckily Emily was understanding – even if it did overlap with our 10th wedding anniversary.

We made up for it with two great trips: to Mount Cook, and to Auckland to see the Foo Fighters, in the rain, at Western Springs. Maybe in 2012 we’ll finally get around to a honeymoon?

There was a stark mix of happy and sad family times during the year.

We started the year in Perth, Western Australia, where extended family had gathered for a scorching Christmas and my sister’s wedding, which was excellent. And, we ended it in Nelson, to celebrate some milestone birthdays with Emily’s family.

In between times we welcomed a new nephew (my brother’s first) and niece, but sadly farewelled my grandmother, the matriarch of our family and my last surviving grandparent, who died suddenly in April.

And so to 2012…

At this stage my rough plan is to keep running hard until Easter and then collapse into a comfortable chair and hibernate. We’ll see how that goes!

How about you?

Previous Annual Reports:

• 2008: Quantifying Nothing
• 2009: So this is Christmas, and what have you done?
• 2010: Head First, Then Foot, Then Heart

I’ve been really encouraged by the response to these interviews. Thanks to everybody who has taken the time to follow-up via email or with a comment. If there is demand I will look to post some more next year, and perhaps follow-up with a few of these to see how they are progressing.

No doubt some of the stories will not have happy endings – such is life for founders. But, hopefully they have highlighted that there are many ways to skin a start-up cat. As I said in the post that kicked off this series ”You don’t qualify your start-up by winning a competition or getting a sucker to invest or being accepted into an incubator program. You qualify by building something customers want and win by selling it repeatedly to them at a price that is greater than your costs.”

But, for now, I wanted to finish the series with a bang. So, I’m stoked that Rich from Litmos, one of the big NZ start-up success stories of recent time, has agreed to answer some questions I put to him about the choices they made in taking their venture from launch to exit over the last few years…

What’s the purpose of your company?

To make people smarter

What does your company do?

Litmos enables companies of all shapes and sizes to easily create web based training courses, deliver them to people all over the world and then track the results.

What is the business model?

Litmos is a pure play SaaS business with monthly and annual subscription plans. Our pricing is essentially based on the number of people that are actively taking online courses each month and is also skewed by certain features like API access or custom branding.

How do potential customers learn about you?

We had limited funds in the early days so we designed and successfully executed an effective blog and social media strategy to generate traffic to our website and brand awareness in the industry. Today this is still the largest contributor to our sales funnel but we also augment it with various pay-per-click campaigns. We’re also now getting involved in enterprise deals but selling those is a whole different ball game so we’re leveraging our parent company’s enterprise sales team for that.

How many customers do you have?

More than 250 customers and more than 100,000 learners. In about 20 countries but mostly in USA, Australia, UK, Canada & New Zealand.

Who are the people working with you on this?

It’s funny that when you read about success stories it always comes back to the people and for Litmos that was certainly the case.

With fewer than 20 customers, no money but big dreams, I was fortunate enough to convince Dan Allen (Developer) and Nicole Fougere (Marketing) to join me on a sweat equity basis. I picked Dan because I’d worked with him before so I knew he was super skilled, dedicated to the mission and would be on call 24/7 to support this project getting on it’s feet. After a few months and many iterations of Litmos we had started to pick up a few more customers but we needed a voice, someone with awesome written and verbal communication skills and that same gritty passion that it takes to get the job done. Nicole was the obvious choice and once we had her on board our trial and acquisition rates rapidly increased. Last but not least I had my dad John Chetwynd keeping an eye on the accounts and also leveraged his financial expertise to create our financial models.

How did the business get started?

Litmos was born from the needs of an Auckland-based contact center to rapidly create online training courses on a daily basis. Most of the tools on the market were either too complicated or tailored for the enterprise, and way too expensive to train their 200ish employees.

How did you fund your growth in the beginning?

It’s possibly not the fastest way to grow but we bootstrapped Litmos for 4 years from start to acquisition. All subscriptions were pumped back into marketing and for the first year we didn’t pay salaries.

In the early days cashflow was super important so we did a few elearning consulting contracts to pump up the revenue but we dropped that pretty quickly as it distracts from the main goal of building a strong subscription base. The other thing we did was to offer a discount for annual subscriptions which proved to be pretty popular and gave us some breathing space.

What are the mistakes you’ve made?

Sounds kind of strange to say this now but the biggest mistake we made was to start building a business in an industry that we had no idea about. Prior to starting Litmos I had never worked in the elearning industry and I didn’t know anyone else that had either. The upshot of this is that for the first year or two we made a lot of uneducated guesses as to what we should be doing on the product development and marketing front. It literally took a couple of years of reading and studying the industry to work out exactly what we needed to do to make a killer product and how to communicate that message effectively to our target market. If we had of started out with more domain expertise, I’m sure we would have cracked it a lot faster.

Another mistake at the beginning was pricing too low. We thought that more people would buy if the price was low but really all this is saying to the market is that we don’t value this product and neither should you.

What are the biggest challenges you’ve faced so far?

Building authority, respect and being known as innovators in our field.

You looked beyond New Zealand early on in the development of the business. What prompted that?

Once we had our pilot customer in NZ up and running we immediately looked to the US as the size of the market was far bigger and elearning was common place. NZ was a challenge as we often found ourselves educating people on the merits of moving to elearning which increased the sales cycle and drew out all sorts of random feature requests. In contrast the US sales cycle was considerably shorter as people knew what to expect in elearning software and when they saw Litmos they could instantly see the benefits over other systems.

Was being a New Zealand company an advantage or disadvantage when you landed overseas?

An advantage. Being the new kiwis on the block at various industry events opened doors to hang out with many of the well known and well connected people on the elearning circuit.

Tell us your acquisition story! :-)

This is what it’s all about right? Build up a company with a great business model that adds value to a industry and then exit.. I’ve wanted to do that since I was a kid, so in a nutshell the acquisition was a blast and a great learning experience to boot!

I spoke with our team early in 2011 and said we’re going to exit within the next 2 years; we’re in a bubble and we’re growing fast so the timing is right. By April 2011 we were starting to feel the strain of growing too quickly and not having enough resource to cope. I was concerned that we would start to throttle the growth and while we could afford to hire a couple more people we really needed to go bigger than that by seeking outside investment.

We used to get regular calls from US based VC firms just trying to scope out our growth numbers etc and our default response was always we’re not interested, we don’t need your money, goodbye. In May 2011 we received another one of these calls but this time around I was open to the idea so entertained the conversation. As it turned out it wasn’t a VC this time but in fact the M&A guy from Callidus (now Litmos’ new owner) and he wanted to get me up to San Francisco for a chat about Litmos. At this point I’m thinking cool experience, free trip and a chance to make a few new contacts. See you in three days.

I was in a great position because I really didn’t have any intention to sell Litmos, things were going great and we were going fast so why would I? On the flip side I was about to head off and start talking about something that I had no experience in so I reached out to a couple of really helpful and knowledgable guys (Lance Wiggs & Andy Hamilton) for a few tips. Lance gave me some great advice on different ways to structure a deal and Andy suggested a great book called Early Exits by Basil Peters that I read on the plane over.

Without going too far into our exit strategy, while in San Francisco I got a good feel for Callidus and where they’re heading, saw a great opportunity and two months later we had signed the deal. The only painful part was the due diligence, which in our case was fairly easy as we run a pretty tight ship…but it still sucked.

Since the acquisition some people have asked if we exited too early or made comments about keeping it kiwi owned. Personally I think this decision comes down to what the deal looks like, what the founders want and how the future looks. For us the deal looked great, it was a really high multiple and we were all really excited about the massive opportunities to leverage the Callidus sales machine and take Litmos to the next level. We were also very exited about moving to San Francisco, increasing our networks and learning more about doing business in the US.

In terms of keeping it kiwi owned, I’m not so sure that this really matters as New Zealand now has three more people with an exit under their belt who are super keen to share their experiences, make investments and ultimately come back and do it all over again. For example, all of our trips to the US over the years really helped us understand the US market and what we have to do to sell to these people. So shortly after our exit we set up an opportunity for 2 people to take their business to San Francisco for a month. I truly believe that in our case we can do more to help the NZ entrepreneurial scene by taking the early exit rather than just growing the business and hiring a bunch of employees.

What’s your ambition for the company?

To grow past 1 million learners and shake up the big dogs in the elearning industry.

What advice do you have for other founders?

Don’t give up. Always be strategic in everything you do. Measure measure measure then tweak things accordingly.

Will you do it again?

Hell yeah! The thrill of building a business, getting customers and exiting is way too addictive. Stay tuned :-)

Awesome! Congrats to you, your co-founders and the rest of the team. A fantastic success story and a great way to end the series. Thanks.

—

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Tarik Mallett is the co-founder and CEO of Third Screen Interactive, the company behind Mobi2Go which powers the online and mobile ordering platforms for companies such as Hell Pizza, Habitual Fix and The Pita Pit.

Over to Tarik to tell you more about the company…

Third Screen Interactive was started by myself and my brother, with the dream of bringing the Dodgeball (precursor to Foursquare) experience to Kiwis. Several ‘pivots’ later, and a strong dose of reality, we have focused over the past 18 months on developing, and bringing to market, the Mobi2Go Platform.

The creation of Mobi2Go came about from talking to customers in the hospitality sector and identifying a core problem – they wanted to provide online ordering to customers but the options available were too expensive and too complicated (or, more often than not, simply lacked adequate functionality). Mobi2Go was created to take the pain, effort and related cost out of offering branded online and mobile ordering to businesses. While its application is universal, Mobi2Go is currently focussed on dominating the hospitality sector. The Mobi2Go platform is a Software as a Service offering, ensuring that our customers always have access to the latest developments and functionality. They can focus on their business rather than technology – it removes the considerable (and often prohibitive) upfront capital cost of developing their own bespoke solution which then necessarily requires ongoing investment each and every time a new feature or change is required. Our vision for Mobi2Go is simple – to be the Shopify of hospitality.

We’ve spent considerable time and effort over the past twelve months identifying the most appropriate revenue model, one which is equally attractive to single location businesses and multi-store franchises. Pricing is determined by reference to the combination of Mobi2Go modules utilized by a customer and, at a high-level, consists of an activation and monthly license fee. We experimented with a per transaction fee, but, after consultation with customers identified this was creating a barrier to entry and that they preferred a fixed monthly fee (which also assists us with cash flow certainty).

Customers learn about Mobi2Go currently from two key areas:

1. Word of mouth
2. Our partner network

When determining the appropriate sales strategy for Mobi2Go, one of the key considerations was how could we create a partner network that would help drive sales without the need for us to employ a large sales staff. This requirement was driven from experience with a previous Third Screen product where we did employ a team of sales people and consequently wasted a significant amount of financial and human resource for little to no return. We were determined not to make the same mistake twice. We’ve really only just started driving the creation of our partner network over the past three months through actively developing relationships with POS providers, resellers and creative agencies. Partners are incentivised financially, but, more often than not the value to them comes from being able to offer an innovative, added-value service to their existing offerings – this has become a powerful driver for our early adopters. Given the rapidly developing opportunities in Australia, we have also just taken on our first relationship manager in Australia to work with and support our network partners in that country. We are excited to see if we’ve cracked the model this time around. It’s early days but the indications so far are very promising.

Mobi2Go was developed with the global market in mind from the outset and we have customers across the globe (including in New Zealand, Australia, Canada, the UK and China). We have recently signed an interconnection agreement with a global provider of technology solutions to the hospitality and retail industries headquartered in America, and are encouraged by the number of international enquiries we now receive on a weekly basis.

One area of further development is providing the true Software as a Service experience whereby customers can sign-up directly online through the Mobi2Go website thereby minimizing the touch-points from us. This will be a key area of focus for Mobi2Go in 2012 as we further grow our development team.

To date, Third Screen has been funded privately by the founders and through positive cash flow. While  there has been no shortage of offers of capital, we have been keen to stay lean until such time as we had a proven, well developed product. However, as we now look to to grow our development team from 6 to 12 in order to support our international growth opportunities and to take Mobi2Go from flying under the radar to full throttle we are in the process of implementing our first capital raising round.

One of the tough decisions we’ve had to make over the last 18 months has been drawing a line in the sand and saying no to services work. Although a great source of cash-flow for many small businesses whilst developing a product, we discovered that it was taking time and energy away from our core focus.

The key advice I have for those looking to get into business is just do it. Focus on your goals, talk to (and understand) your customers, ignore the nay-sayers and don’t get caught-up in the Silicon Valley / Welly hype of “I’m an entrepreneur”. Attending lots of events and talking a lot does not of itself make you an entrepreneur. Get stuck-in and execute a successful business then you can do all the talking you like – that’s the plan for Third Screen anyway.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Jon Thompson is the co-founder of Productspec. They first crossed my path in 2008 when they were the winners of the inaugural Cable Car Challenge (a business plan competition), although at that point they were already beyond business planning and well into the execution of their plan.

Like all good Irishman he’s never short of a word, and is no doubt keen to tell you more about what they are up to, so let me not stand in his way…

What’s the purpose of your company?

We produce information technology designed to make the building industry more productive.

What does your company do?

Our business is split into two areas:

Productspec – The National Building Product Database – 60,000+ architecture, design, and building products online (launched Oct 2006)

Smartspec – Specification Writing Made Simple – Software as a Service (SaaS) tool used by Architects and Designers to easily create Project Specifications (launched Oct 2011)

What is the business model?

Product Manufacturers pay an annual subscription to list in Productspec and Smartspec.

Productspec is free for the public to access, although predominantly used by architects and designers.

Smartspec is a ‘freemium’ model – the free plan is suitable for 2/3rds of the industry (sole practitioners), the paid component offers access to New Zealand Standards and additional functionality, multi-user accounts, etc.

How do potential customers learn about you?

To promote Smartspec we’re leveraging Productspec’s extensive user database (direct marketing). Additionally, one of our shareholders, Construction Marketing Services (CMS) is actively promoting Productspec/Smartspec to their national specifier network via their 1:1 specifier meetings.

We’re also running regional ‘Smartspec Workshops’ (10-20 users/prospects per session) to share knowledge and engage directly with our user-base.

How many customers do you have?

280 Product Manufacturers, 60,000+ site visitors per month to Productspec, 100 new specifiers per month joining Smartspec.

Who are the people working with you on this?

My (now) wife, Este, and I founded Productspec and initially contracted a dev shop to build the site. We quickly realised that we needed in-house permanent technical staff so soon after launch we asked Chad (the guy that built the site) to join our team (after all, he knew the infrastructure better that anyone else). Five years down the line he’s still with us and is complemented by our all-important Auckland-based Sales Team, plus technical, financial, design, and support staff in the Wellington office.

How did the business get started?

Este was working in Architectural practice, I was teaching Architecture at Vic Uni. We both wanted to work on a project that lasted longer than a few weeks or months so the world of business where we could grow, steer, and govern our ideas and energy was highly attractive. The business concept came from recognising the existing (and highly manual) traditional industry practices and understanding that there should be a better way.

How have you funded your growth so far?

Family and savings funded our initial growth and we’re proud that we were in a position to repay family within 3 years of launch.

Our primary growth strategy has always been to rely on our customers’ investment (i.e. sales!) so we’ve always had a huge focus on clear value proposition and effective selling.

What are the mistakes you’ve made?

We’ve gone off on a few ‘related’ tangents which were not financially astute though seemed good ideas at the time. With hindsight we can attribute any failures to a lack of market validation.

What are the biggest challenges you’ve faced so far?

As founders, learning to recognise our skills has been fun. Both Este and I are ‘from the industry’ and whilst this is a great base, it’s not necessarily best for business – i.e., we’re not accountants, sales people, or overly IT literate. Interestingly, Este naturally took on all the back-end responsibility (accounting, project management, analytics, etc.) and I happily took on the front-end activity (client liaison, sales, marketing, business development, etc).

What’s your ambition for the company?

For our system to work harder than us..!

What advice do you have for other founders?

Build a well-rounded team (and/or Advisory Board) with complementary skills.

Understand your client: If someone’s not paying then they’re the product, not the customer.

It’s not the big that eat the small, it’s the fast that eat the slow – so rapidly build products/systems, get market validation, then tweak, tweak, tweak till perfect. And if you’re going to make mistakes, make them quickly!

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

This is the next post in the Founder Centric Startups series.

The next big thing is most likely to emerge from a few smart young guys with laptops working together in a skanky flat (if you don’t believe this, just look at where so many of the current big things came from!)

By that measure Go Vocab is a prime candidate for success – they tick all of the boxes: smart, young (at least relative to aged old gentlemen of technology like myself) and holed up in a nondescript central Wellington apartment working hard on creating a successful business.

Michael Dowse is one of the co-founders, and somebody that we’re excited to be investing in and working with.

I’ll leave it to Michael to tell you more about this venture, how they got to where they are today and where they are going next…

About 45 years ago Joan Ganz Cooney and Lloyd Morrisett asked the question “can television teach kids their ABCs in the same way it was introducing advertising jingles for cereal?” and Sesame Street was born.

Now a similar transformation is underway as education start-ups everywhere are working to translate the success of social games into educational tools.

Sesame Street’s goal was to “master the addictive qualities of television and do something good with them”, and replacing TV with the Internet, our ambition is the same.

Go Vocab helps students learn languages. It’s a foreign language learning tool for students and teachers delivered via our website and our mobile applications.

For students Go Vocab is a fun way to master the traditionally boring parts of learning a language such as vocabulary and verb conjugations. Students are also given some control over the direction of their learning and can progress through the content at their own pace.

For teachers Go Vocab is a tool to teach languages and supervise their students progress. By giving teachers complete control over what they teach Go Vocab is able to match individual teachers teaching styles.

Our users are mostly high school students learning another language at school (e.g. French, Japanese, Maori). We sell annual subscriptions to the service for $30 per student. It’s free for teachers. We sell both to teachers and schools and also to students individually.

We’re working to create exposure for ourselves within the school language learning community. We achieve this by attending and participating in teacher training events, through word of mouth promotion, and by being active members of the NZ language learning scene. We also have been featured in news media and are building our presence in the social media.

We have over 7000 students and 400 teachers using Go Vocab across 100 Schools, split between paid and trial accounts. So far almost all our customers are in Australia and New Zealand. In 2012 we will be tackling Asia and the Northern Hemisphere.

The concept came from vocabulary revision iPad app I pitched for an Apple Student Developer scholarship. I didn’t win, but the experience inspired me to expand the vocabulary learning tool to a website that would assist teachers and students in and out of the classroom.

After spending the end of 2010 working on the site in my spare time, I quit my job as a developer to work full-time on Go Vocab. My co-founder Jeremy also quit his job and came on board at the same time.

Initially we saved up so that when we quit our jobs we had enough savings to last 6 months. We also worked on the product and signing up customers so that by the time we started working on it full-tme we had a working product and some local schools had agreed to trial it. A few months later once the trial period finished for the first schools to sign up we started bringing in revenue.

In May this year we decided to try raising a seed round and made a short list of potential investors who we thought would be a good fit and we had connections to. Southgate Labs were on the list because I had previously worked with Michael Koziarski. It took about a month to complete the fund raising process.

Our pitch was fairly compelling as we were both technical, had a solid product, and most importantly we had paying customers. We were also young, with limited business experience, no ‘deck’ and no business plan. Fortunately this matches the pattern of many successful startups!

There are currently three of us working full time on Go Vocab, along with some contractors when needed. Jeremy and I are co-founders, and in August we hired our first employee, Tim, to work on Sales, Marketing and Customer Support.

We’ve made a lot of mistakes along the way. A lot of what we’re doing is very new to us and it’s probably unrealistic to expect that we’ll get everything right first time.

As you would expect with two technical founders we’ve always been very product focused. We signed up a few schools early on, but then got distracted by how they were using the application and stopped selling for a few months. Also, where teachers did sign up we weren’t quick enough to follow-up with them.

The biggest challenge is knowing how to balance your priorities. An obvious example is developing the product from your vision while integrating what your users ask for. Often these go hand and hand, but like it or not you’re eventually going to run into a situation where what you want for the product clashes with what people are asking for.

While we’re focused on languages at the moment, we see ourselves as an education company and there’s lots of potential for future expansion.

My advice to founders is of course to follow your passion but also be aware that passion can bias your decisions. Building a company involves a huge variety of work and you have to make sure you’re always doing the most important task. In my case I care a lot about the product, so I have to fight the urge to spend time working on the product when there are other tasks to do that would be more efficient in moving the company forward.

If you want investment then traction is all that really matters, and once you have it follow Evan Reas’ two stage process:

http://startuphoodlum.com/2011/07/05/the-two-phases-to-successful-seed-fundraising

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Scott Ryburn is the co-founder of Sharesight, an online tool to help share market investors manage their portfolio.

Many great ventures get started when a founder scratches their own itch. This is a good example.

I asked Scott to tell us a little more …

What’s the purpose of your company?

Sharesight’s purpose is to make managing a portfolio an efficient, enjoyable, insightful and rewarding experience for self directed share market investors.

What does your company do?

Sharesight provides portfolio management software for share market investors. Sharesight’s provides a range of tools and reports to give investors insight into the true performance of their portfolios and take the cost and hassle out of tax and compliance reporting. Sharesight automates most of the routine data entry required to maintain a portfolio. For example as well as updating share prices, dividends, bonus issues and share splits are recorded automatically. Sharesight can automatically import trading data from a variety of online brokers. Online portfolio sharing functionality and a connection to Xero enables a more efficient and meaningful relationship between individuals and their accountant or tax advisers.

What is the business model?

Sharesight is a subscription based software as a service product. Our ‘Investor’ package is the most popular subscription and is priced at $19/month for the NZ version or $25/month for the Australian version. Our top tier ‘Expert’ subscription is $39/month. We have just (as of this week!) moved to a freemium strategy by replacing our low end $5/month ‘Starter’ subscription with a free plan. Our previous Starter plan was our least popular plan with feedback indicating that customers thought it was too expensive and too restrictive (we receive virtually no complaints about the pricing of our other subscriptions). The new free version offers substantially improved functionality over the previous Starter plan. We believe that with the introduction of the new free plan, Sharesight will be accessible to all levels of investors. We do not derive revenue from any other sources, for example there is no advertising on Sharesight.

How do potential customers learn about you?

Initially we focused purely on marketing the service directly to individual investors. Customers learn about us through search, online advertising (primarily Google adwords), or via articles written in the media (an early feature article in the Dompost Business Day being one of the most successful). Google adwords has been the most consistent and reliable form of advertising we have done to date. We did all our own PR initially with moderate success. More recently we have engaged an Australian PR firm to assist with PR Activity in Australia. We have also been reviewed and promoted (free of charge) by a couple of subscription newsletters which offer advice and recommendations to share investors.

More recently we have additionally been exploring partnership opportunities with related organisations, in particular online brokers (who are keen to enhance and differentiate their service by partnering to provide better online software to their clients) and accountants (who traditionally struggle to get accurate client portfolio data in a useful format).

Who are the people working with you on this?

There are now eight people involved in the business. My father Tony and I founded the business along with local software developers Nigel Ramsay and Marcus Baguley. We also have an additional full time developer as well as Marketing and board level input from Terry Allen who represents our NZ investors, and two staff in our Sydney office (investor and Executive Director Andrew Bird, and a business development manager). We also have a summer of tech design intern working with us over summer.

How did the business get started?

The idea came from my father, as keen share market investor he couldn’t find any decent software to help him manage his portfolio and comply with NZ tax reporting requirements. I also began searching for a solution for him but couldn’t find anything. This left him doing what everyone else we knew seemed to be doing – recording everything manually in a spreadsheet.

Eventually we decided there must be a better way and set out to investigate building a commercially viable solution. Step one was to approach someone in the industry for advice, in our case this was Rod Drury who was generous enough to invite us to his house one evening after work for a crash course in founding a software business. On Rod’s recommendation, step two was to approach local designer Hayden Vink who collaborated with us to design a series of wireframes and screen mockups. We considered engaging in some more formal market research but were not convinced that we could get meaningful results without spending a lot of money so we opted instead to build a lean mean prototype, get it out there and see what happened. We approached a number of developers (both independent contractors and small firms) but recognised that ideally we needed developers to be co-fouders in the business rather than contractors. Hayden introduced us to Michael Koziarski, who introduced us to Nigel and Marcus. They were keen to develop v1 of Sharesight on a sweat equity basis, so with a modest amount of start-up funding from my father we spent six months or so building Sharesight to a point where we could begin acquiring our first customers.

How have you funded your growth so far?

We were self funded initially but quickly realised that we were going to need more cash to accelerate the business to reach it’s full potential. We also recognised that a significant opportunity was present in the Australian market but Sharesight required more development to capitalise on this. We approached a number of investors and eventually received seed funding through Sparkbox and NZVIF.

The funding allowed us to build out the Australian version of Sharesight and brought Sharesight to the attention of Australian investor (and ex-Morningstart CEO) Andrew Bird. We completed a second investment round through Andrew and his business partner at the start of this year.

How did you solve the problem of starting a venture and having a job?

For me this was a combination of living off savings, delaying ambitions to buy first house and financial support from family. I’d already bitten the bullet and given up my day job to work on another venture that ultimately didn’t take off.

What are the mistakes you’ve made?

I think generally we managed to make the right decisions when it counted. Although it worked out well for us in the end, I think we should have planned further in advance around getting our first round of investment, which was a more lengthy and distracting process than we imagined.

What are the biggest challenges you’ve faced so far?

Marketing the product has definitely been the biggest challenge. We found it very hard to get traction in Australia until this year when we were able to get staff on the ground over there. As a small, newly established company we’ve also had to work hard at building credibility our in the market.

What’s your ambition for the company?

We want to change the industry so that investors have a real, credible, and dramatically cheaper alternative to costly managed services such as wrap platforms. Our focus is in Australasia at present, but ultimately we think the same sorts of opportunities exist further afield.

What advice do you have for other founders?

Make sure your company addresses a problem or need that really exists.

Build a team that believes in the what you are doing and is prepared to take on some risk in order to share in the rewards (at least in the early stages).

Be prepared to be in it for the long haul and stick it out during tough times. Very few companies are overnight successes, they take hard work and dedication.

Know your weaknesses and try to build a team with a range of relevant skills

Put some hard work on the line to build a product and demonstrate potential before seeking funding.

Don’t waste too much time or make too many sacrifices chasing business grants etc, focus on your core business first and foremost.

Take advice from others, but ultimately do what you feel is right. There is no secret formula and every business is different, what works for someone may not work for you. You know your business better than anyone, so back yourself to make the right decisions.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

For the end of the week, here is a special TGIF/YWSN edition, featuring … a start-up brewery!

Jos Ruffell is one of the co-founders of Garage Project, who have their global HQ in Aro Valley in Wellington.

In his previous life he was Head of Business Development at Sidhe Interactive, where amongst many other things he helped setup Pik Pok, their hugely successful iPhone games division (you may have spotted their Flick Kick app amongst those featured in the latest Apple TV commercial).

Earlier this year he left all of that behind to pursue a couple of other exciting opportunities.

Over to Jos to tell you more about his fast growing beer empire …

What’s the purpose of your company?

Garage Project’s mission is to be recognised globally as one of the world’s finest craft breweries. We achieve this by bringing a relentlessly experimental, artisanal approach to brewing.

What does your company do?

We are a craft brewery, and produce exciting and memorable beers targeted primarily at discerning beer drinkers.

What is the business model?

Our business model is quite traditional. We sell our product wholesale to bars and they retail to the public. By brewing special and unique beers we are able to command premium pricing. We will eventually offer direct ‘cellar door’ sales within our urban Wellington brewery, as well as online sales of select products.

How do potential customers learn about you?

We are very selective of the outlets that stock our products. We focus on specialist beer bars and work closely with them to promote and display our products. The company you keep speaks volumes about your brand, and we are conscious to only have Garage Project be available in like minded venues and outlets.

We are also very transparent and open through blog posts and social media to engage with our core customers. Fortunately, craft beer aficionados are very wired, and like to chat about the beers they are enjoying through Twitter, so we can engage directly with our fans.

How many customers do you have?

It’s hard to say exactly how many direct customers we have at the moment. We view Garage Project like a movement that has a core group of fans at the heart, and is expanding out from there. Each week when we release a new beer, we have a dedicated following who line up to ensure they get a pint. A constant thought in the back of our minds is the adage of ‘crossing the chasm’ – how can we move from one bar to many (scale) while remaining true to the spirit and qualities that have proven successful already.

Who are the people working with you on this?

The core team of Garage Project is me and Pete Gillespie, my partner and brewer in the business. On top of this we have a network of supports who work directly and indirectly in the business, helping with our planning, strategy, design and brand work.

We’ve found the business to be very magnetic, and have been fortunate to drawn in some very talented people around the table. Despite being a small business we have a strong team helping push it forward outside of just the cores strengths of Pete and myself. Having beer as an end product certainly helps with this, but it’s been a good litmus test along the way that our approach was unique and interesting enough to garner support around it.

How did the business get started?

I’d known Pete all my life as a family friend, and knew that he attempting to launch his own brewery in Australia, but was facing tough regulatory issues. In my previous career in the Videogames Industry, I had travelled fairly extensively through North America and Europe, and developed a taste for Craft Beer. It was clear that the general drinking trends were changing, and when I returned to New Zealand, despite there being generally good craft beer available, there was nothing like the beers I had grown accustomed to in my travels. At the same time, Wellington was developing a strong craft beer bar scene, yet had no brewery operating in the City. Pete was excited by the prospect of returning to New Zealand with his family, and it seemed like a real opportunity to develop a great brewery within Wellington.

We worked for many months remotely outside of our existing jobs. We used this time to consider different approaches, and really for myself, to be learn the brewing industry and become familiar with the production process, international and local markets.

When Lion Nathan pulled the Mac’s brewery out of the Wellington Waterfront, we saw this is a catalyst for action. It seemed crazy to us that there was no longer any functional brewery in Wellington, yet demand for local craft beer was clearly growing rapidly.

How have you funded your growth so far?

We have bootstrapped the growth of the business so far. We spent time carefully considering the possible roll out of the business, and decided that a bootstrapped approach would suit us best. Brewing is a very capital intensive exercise, requiring significant fixed asset investment.

Although we were confident we could raise the money to start a ‘big brewery’ from day one, we felt that it would limit our ability to create unique and interesting beers, and that there would be a pressure to launch with a more safe range of beers, and use traditional marketing to convince people to try our products. Our gut reaction to that approach would be that we could launch eventually after months or even years or working to write business plans and raise capital, and potential debut with beers that nobody would care about. It wasn’t a unique or different approach and the beer would ultimately suffer if we didn’t allow ourselves time to get stuck in and rapidly iterate and prototype beers.

The alternative to this was to start with an impractically small brew kit that we could fund ourselves, and launch with incredibly small brews that would be unique, risky and open to consumer feedback. The rapid develop and release model software model applied to brewing. We did this 50L at a time and launched under a programme called 24/24 – making and releasing 24 different beer styles in 24 weeks. We’re currently up to #21.

This was the only approach in our minds that would give us the freedom to develop and test beers that could potentially be truly great, or sometimes, complete failures. In any case, it would be exciting and memorable for our core target customers, and way to develop the brand in a genuine way.

Alongside this, it would allow us to identify and attract partners and investors that believe in what we are doing, and help take us to the next stage with the purchase of a larger brew kit. We have achieved this now, and have a core group of investors behind Garage Project. We worked hard to attract people that would bring much more than just money to the table and each investor has a clear area of expertise that they bring to the table beyond just money. I think they are attracted to the investment by a combination of the existing momentum behind the business, the passion and energy that has gone into it to date, and the opportunities that the craft beer market present at the moment.

We found these investors by working personal networks and being very open about what we were planning with the brewery. By talking to as many people about the business early on, it really forced action and put us on a critical path to keep going. We were determined not to be another guy in the bar who talked about ‘maybe starting a brewery one day’, and would rather get stuck in and make it happen.

We knew that the launch phase would not be economically sustainable other than covering direct overheads. Both Pete and I worked for as long as we could before taking the plunge and leaving our safety net behind. It really has been all or nothing to develop the business – the chicken or the pig so to speak and in our minds there was no way around this.

What are the mistakes you’ve made?

We’ve made many mistakes along the way, but by launching early, and at a small scale we’ve been able to mitigate them and take key lessons without jeopardising the whole venture. We have made classic mistakes like underestimating the cost of certain parts of the start-up, and the time things will take.

What are the biggest challenges you’ve faced so far?

Maintaining the aggressive brewing and release schedule of a new beer a week has been challenging. Each release has typically been brewed for the very first time, which makes for an exciting and nervous moment as it goes on tap that week, but it condenses down our learning and discovery curve enormously, and has been worth the risk.

We’ve also found it challenging to continue to develop and build our brand when our product is only available for a couple hours each week. One week we sold out within 70 minutes of going on tap!

What’s your ambition for the company?

Our ambition is to be recognised globally as one of the world’s finest craft breweries. We have started with a very experimental and challenging mentality, and we want to continue developing and releasing new beers made with passion and an artisanal approach.

We want Garage Project to be served on tap in the world’s greatest beer bars and be seen as part of the vanguard in the movement of craft beer.

What advice do you have for other founders?

Share your idea early with people that you respect. It’s the quickest and fastest way to see if there is something unique and worthwhile to pursue. For someone like me who is susceptible to procrastination, it’s a great way to build momentum and put you on a critical path of action. Do your homework but know when it’s time to act. Build and release early. Identify and focus on your core customers and look for early sales. Paying customers is the best validation for your business.

Thanks Jos!

I should also mention, it’s our last 24/24 beer next Tuesday 20th at Hashigo Zake at 5pm. We have three new beers going on, and should be a fun night!

Excellent, cheers! :-)

Here are some of the fantastic posters the guys have put together to promote some of the different brews released so far (click to view full size):

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Dan Lee (@youdodan) is the founder and CEO of YouDo, a software services business based in Wellington. They are the development company behind many successful websites, including Powershop and NZ On Screen.

But, today I’ve asked him to tell us a bit more about their spin-off start-up, called Beetil…

What’s the purpose of your company?

Our purpose is to build the world’s easiest service management system, to help small to medium IT companies manage their technology more effectively.

What does your company do?

Beetil is a software-as-a-service based service management tool that helps small to medium (and the odd large) IT organisation manage the services they provide to their customers more effectively.

What is the business model?

Nice and simple. We charge on a per user per month basis. The service management tool market is very large, and pretty crowded, but our relentless focus on “making things easier” for the user means we have carved out a nice little niche.

How do potential customers learn about you?

We rely on word of mouth, some good Google juice, and a healthy sprinkling of Adwords. I’ll be honest though, we’ve done bugger all marketing really. But that’s changing.

How many customers do you have?

We have over 80 companies around the world using our product. Approximately a third are based in North America, a third in the EU, and the other third in NZ and Australia.

Who are the people working with you on this?

Beetil keeps three people employed full time, but often draws upon the skills and expertise from YouDo, which is our specialist Ruby on Rails development shop.

How did the business get started?

It all started with the frustration of not being able to find a service management tool that was suited to small to medium companies. Having been a CIO and IT manager in my previous lives, I’d never come across any service management tool that I thought suited an SME. The cheap ones were just too simple and amateurish. The expensive ones did everything including making you a cup of tea, but came with hefty price tags. All of them were ugly, unusable, and made peoples’ lives a misery. Sensing an opportunity, we researched the market a little more and confirmed our suspicions.  There were lots of other SMEs who agreed with us, and none could offer up a solution that suited them. YouDo was going great guns at the time, and we always wanted to move into product. And so Beetil was born.

How have you funded your growth so far?

We’re the classic bootstrappers. We’ve funded the development of Beetil through the profits we’ve made from YouDo. Not a single drop of investment from outside. It’s worked well but, particularly in the early days, it was pretty hard juggling the priorities of product development vs services you had to deliver to bring in the dollars. Now that we have a good customer base and some good steady income it’s far less of an issue. That said, as CEO of YouDo and CEO of Beetil, I know that one day soon I won’t be able to do both justice.

What are the mistakes you’ve made?

We’ve made plenty of them, that’s for sure. When you’re building product, it’s easy to get carried away with all of the sexy stuff, and take your eyes away from the more (seemingly) mundane tasks such as finance and planning. Set yourself up as a company from the outset, and even if you’re bootstrapping the business, run it like you’re running a proper company and treat the bootstrapped cash as “funding”. It sounds so obvious, but we didn’t do this, and there’s no doubt we wasted a good chunk of money as a result. Whilst product development is fun, you’re dealing with (often your own) money, so you need to be disciplined.

What are the biggest challenges you’ve faced so far?

Selling. We initially took the approach that if build a good enough product then the product would sell itself. There’s no doubt that this still makes a lot of sense, but you still have to get the right people coming to your front door, and you still need to help a lot of them “over the line”. It’s really important to know who your target market actually is. Beetil has been live for over two years now and it’s only in the last few months that we have really confirmed exactly who our target market is. We always had a “sense”, but it was still too wide – and we probably wasted a lot of cash going to the wrong conferences, or sales pitches to the “wrong customers”.

What’s your ambition for the company?

We’d love to see Beetil become one of the “de-facto” IT service management tools. Much like when you think of cloud based project management tools you think of Basecamp, we’d like people to think Beetil when talking cloud based service management tools. We’ve got a good steady growth rate and are already turning a small profit so have a stable base to build a profitable business in it’s own right. If we keep on going at the rate we are we’ll be doing very well thank you sir.

What advice do you have for other founders?

It’s all common sense really. Common. Sense. Everyone’s read the books, people will offer you plenty of (the same) advice, but it boils down to the fact that you are building a business here, not just a product. If you’re a geek like me, you’ll find that hard. We’ve found that having an independent voice we can trust has been a massive help. And it stops us from sticking heads too far up our own backsides.

I think the other piece of advice I’d have is to stick it out when the times get tough. You’ll experience a roller coaster of emotions with your new baby, but when the times get tough you need to get tough yourself and stick it out. It’s really sad to see the number of potentially promising ventures just pack up and go home at the first sign of trouble. A good dose of common sense and good bit of planning (see first point of advice!) should see you through. I subscribe to the “fail early, fail often” mantra – I’m just saying that life ain’t always a bed of roses. So harden up.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Layton Duncan is the co-founder of Polar Bear Farm, based in Christchurch. 

Through good timing and amazing foresight he managed to position himself in front of a massive emerging wave, as the developer of the very first paid native iPhone app, even before Apple officially allowed apps like this to be developed.

However it hasn’t been all smooth sailing.

A successful company with a single founder is rare, so usually the advice for founders is to find other like minded people to work with you on your venture. However, this doesn’t always work out the way that you’d hope, and unless it’s managed carefully the relationship between founders can end up tearing a company apart.

This is something that Layton has had to deal with, and I appreciate his honesty in describing the effect this has had on the venture. 

I’ll let him take up the story right from the beginning…

What’s the purpose of your company?

To create mobile software to help people to get their job done efficiently.

What does your company do?

We create productivity software for the iPhone, iPad, and iPod Touch, enabling business to exploit the massive productivity benefits brought by the mobile revolution. Our core product is a rapid application development platform called Air Forms. It allows business to create native looking and feeling iPad and iPhone interfaces into their existing database systems, without having to worry about custom app development, or coding. Interfaces are created and wired to databases through a GUI based builder tool, and can be distributed across a large number of iOS devices, all without writing a line of code.

What is the business model?

Primarily licenses from software sales, with a minor recurring subscription fees on some services which require hosted backend services.

How do potential customers learn about you?

Primarily through the iTunes App Store, although some products via Business Managers at Apple Retail Stores, external consultancy companies who create and sell solutions based on our platform, and finally cross promotion of products through existing customer contact, and occasional online advertising.

How many customers do you have?

Several million combined across free and paid versions of our products.

Who are the people working with you on this?

I founded the company, and got a long time friend on as co-founder shortly after, but parted ways around a year in. The company has been up and down over the past four years up to five employees now down to two, constrained mainly by the ability to find quality employees.

How did the business get started?

From the announcement of the first iPhone at the beginning of 2007, it seemed immediately obvious to me that there would be huge potential for 3rd party software for the iPhone. It was so radically different, the interface so rich, the device so powerful that it seemed inevitable. Apple wasn’t at all interested in real 3rd party apps initially. Their ‘sweet solution’ for developers, announced just before the device was to ship, was a ‘nice’ but ultimately limiting web application solution. As soon as the iPhone was released in the US, I got one shipped over, unlocked it and got it running on a cell network here. Around that time, there were a handful of people working on creating the tool-chains (cross compiler, and associated tools) so that they could start coding and building native applications for this device, given Apple were not providing any official native development tools. Pretty soon the app which Apple’s App Store was later to be modelled off, called “Installer”, was released. This offered a central repository for all the unofficial native iPhone apps that were starting to pop up, there were no payment mechanisms and it was primarily filled with experimental apps from hackers, trying to reverse engineer the frameworks.

Frustrated with the total lack of search functionality on the original iPhone, over the space of a weekend I wrote a utility called ‘Search’ which let users search contacts, calendar events, emails, SMS etc, and posted it on a forum, with a $10 license fee. Within hours the money started rolling in. It was the very first paid native iPhone app in the world, and it took off fast! We decided to fly to San Francisco to exhibit what I was building at Macworld Expo.

It was almost a year after we started that Apple open the iTunes App Store, opening up the iPhone for official 3rd party development. Looking back, it seemed kind of crazy starting a company creating software for a device that pundits said was far too expensive and would be a flop, which you couldn’t even officially build software for, then selling that software to people who couldn’t officially install it on their iPhones, and had to jump through ridiculous hoops to then pay for it.

How have you funded your growth so far?

Totally bootstrapped. The company was profitable virtually immediately after a weekends worth of development. I had a software consultancy business through university, and Polar Bear Farm was founded a year after I had graduated.

What are the mistakes you’ve made?

The most significant mistake was very early on, before the company was incorporated.

Shortly after releasing our first app, and seeing the immediate and accelerating success, I had asked a friend to come on board to help try and build a real company. I had been through school with him since the age of 7, and he was one of those people with the gift of the gab, a person who’d be great in sales and promotion. Being an engineer, but with a business bent, I was interested in branding and promotion to some extent, but I was far more interesting in building products. However, I failed to be rational in valuing what I was bringing to the newly formed company, (an existing product with real cash flow, unique development knowledge etc) vs what he was bringing in skills. So the company was formed with 50:50 shareholding.

Less than a year down the track, after some pretty frank discussions on the reason I brought him on board in the first place, and the direction of the company, he decided he wanted to do other things. We had a shareholders agreement from the outset, which made clear what was to happen in this situation. That made things easier in that everyone knew how it was to work. But it was then that I realised I’d really made a serious mistake initially in valuing contributions as 50:50. I think I justified it to myself at the time as ‘in the scheme of things, the future potential is so huge that the extra value I was bringing initially would be insignificant in the long run’. That was totally wrong, it’s the here and now that matters, not speculation on what might be.

When the split happened, it almost destroyed the company.

What are the biggest challenges you’ve faced so far?

First dealing with the aftermath of the split. Financially it basically reset the company to square one, which was tough. It also destroyed a long standing friendship - I don’t think we’ve spoken since the day I handed him the bank cheque to buy him out three years ago.

Then of course mother nature has smacked us all around here in Christchurch. It’s still hard to believe it even happened, still living with the realities of unsettled insurance claims, a make shift office, and the city that I had built a working environment that I loved, totally destroyed, and most tragically of all, a long time business friend killed in the CTV building collapse. It all tends to put other things on hold, or at least into slow motion.

Right now, the biggest challenge is finding quality employees who don’t necessarily have direct experience in iOS development, but who have ‘Apple DNA’ (for lack of a better description). Then, once I find them, convincing them Christchurch is the place to be!

What’s your ambition for the company?

To create products of significant value to people that are the highest quality and totally ubiquitous in their class world over.

What advice do you have for other founders?

If you’re considering bringing co-founder(s) on board, read this:
http://www.64notes.com/dear-co-founder-open-letter-to-your-co-founder/

If you don’t feel exactly that way about those people you’re considering, don’t do it. Got even the slightest hesitation? Don’t go there.

If you don’t have the right people in the team that can cripple your company. As painful as it may be, as soon as you realise it’s not working you need to cut them out and move on as fast as possible.

Intuition is important, don’t suppress it. If you feel something’s not right, tackle it head on. If you feel something is right, pursue it. I think intuition is the brain’s subconscious pattern matcher at play, pulling on all your past experience to trying to answer questions your conscious struggles with. Well that’s my theory anyway. Just roll with it, if it turns out you’re wrong, then you’ll learn something, which just improves your intuition.

Like all work, make sure you enjoy the ride. The final destination in start-up life is an ever moving target, the highs are high, the lows can be low, just try to create more highs than lows.

Hunt out diversity. Great engineers are creative, and have diverse interests.

Always be honest, both to yourself, and others.

Play nice. Karma’s a bitch.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

John-Daniel (JD) is one of the co-founders at Mindscape.

They have taken a classic bootstrap approach to building this business, and I’ve enjoyed following their progress. I remember their original office, and it wasn’t salubrious, but given where they have gotten to now this only makes the story better!

If you’d like to know more, you can follow JD on Twitter (@traskjd) or on his personal blog.

In the meantime I’ll leave it to him to tell you the story so far, and share some of the mistakes they have made and lessons learned…

I have always wanted to run my own business.

I had run a PC repair business and set up an online technology retailing business while at university, and even sold software at high school to help my friends hide their internet ‘adventures’. So business was always in my blood.

Out of university I only applied for one job, at Intergen, on the premise that if they hired me I would learn what a ‘real company’ was like and, if they didn’t, I would just go full time on my own ventures. Thankfully they did hire me and it was an amazing place to work – I tried very hard to appreciate how the business operated and enjoyed the brief moments talking about the business specifics with the company directors. I might have been the only person other than the directors that thought the financial reporting at the Friday drinks was the best part!

I met some great people at Intergen and never made any secret of my desire to one day leave and do my own thing. After three years, aged 23, two colleagues at Intergen, Jeremy Boyd and Andrew Peters, joined me in starting Mindscape. We split the company evenly and rented one of the cheapest office spaces in Wellington, above a drug and alcohol rehab clinic and got to work. It is probably bad taste, but I always joked that if we failed in the software game we could always start selling glue outside the clinic. Thankfully it never came to that.

Our ambition was to build a globally recognised developer tools company from New Zealand. We were all pretty sick and tired of the poor quality tools we were used to working with and felt we could do better. Developers were losing a lot of time to unproductive tools that always needed workarounds or hacks to make them work and we wanted to change that.

Building a smart team was critical and although Andrew left the company shortly after it started, we bought him out of his part of the business and started getting employees onboard. I work on the approach of surrounding yourself with people smarter than yourself, and we have been very fortunate to find some all star developers to join our product team.

In terms of investment, Mindscape is entirely self funded. When we started the company we each chipped in $10k and have never needed to put in additional capital. We backed ourselves that we could make some money so while it was scary stepping out we had enough confidence that it did not cause too many sleepless nights. We seemed to be practicing the Lean Startup mentality before it became popular. I’m personally of the belief that until somebody has a few business wins under their belt that starting with a lot of money is a hindrance to creating a profitable business – not having a lot of money makes you hungry.

We kept costs super low when we started as you can probably tell from the initial office location (we now have a nice quiet space at the top of a building on The Terrace in Wellington :-). We put together the most pessimistic financial projections for the first 12 months and when we were comfortable we could all survive with that we knew we would be alright.

Our focus was on cracking the product market rather than services market so we planned to undertake ad-hoc services work as we developed and then grew the product side of the business. Thankfully, due to the reputations of the founders, and in particular Jeremy Boyd, we obtained lucrative services opportunities without ever needing to actively shop our service capability. This provided much needed cashflow, particularly in the early days.

We also have had amazing assistance from our own networks – far too many to name, but it’s one of the major benefits to the ‘New Zealand is a village’ aspect to doing business here.

Since then we have focused hard on growing the product part of the business while tapering off the services side as it becomes less core to the business. While it has felt like a mountain at times we have seen incredibly strong growth for our products, particularly as the effects of the organic growth for obtaining new customers have really kicked in.

These days Mindscape primarily delivers tools and frameworks for .NET developers. The products range from frameworks that assist in efficiently working with data, UI controls for applications, to editing tools for cutting edge web development. The ultimate aim of every product is to save the customer a lot of time while delivering more robust solutions.

Our products are priced per developer with a 12 month subscription for new releases. Because we offer new releases of the software every night and provide support which exceeds everyone’s expectations this means our customers get a connection to the software unlike they get from any of our competitors. The products range in price from $29 USD to $1199 USD per developer and are sold directly to customers through our website.

Today we have thousands of customers. A customer could be a lone wolf developer or it could be the Los Angeles County Health Department (who are a customer of ours!). The variance is significant in how much revenue a customer generates for our business.

People are often surprised about our customers though — we have some profile in New Zealand but nearly all our customers are overseas. We have been exporting since the second sale of our first product and are super proud of the fact that we’re just quietly kicking ass on behalf of New Zealand. Some of the organisations that rely on our software include Microsoft, Intel, Electronic Arts, Xero, The US Strategic Defence Agency, NATO, Dell and thousands more. It gives a real buzz knowing these organisations chose our products.

We invest in marketing but the biggest way we get new customers is by word of mouth. There’s a very organic process that works well with our target audience – software developers get religious about tools and they also seem to like switching jobs or they are highly mobile because they are work contract for their customers. Once we have a customer loving a Mindscape product, they get a whole team of people working with it. After a while folks on that team start to move off to other companies and they in turn introduce these wonderful Mindscape products to other developers and then that organisation becomes a new customer. It’s a very nice cycle.

Today the ambition for Mindscape is to be a globally recognised name in quality software development tools. We’re doing well with that as our products and delivery model frequently are head and shoulders above many of our competitors.

Longer term, for myself personally, I want to help in building a stable of strong global businesses based in New Zealand. Mindscape is the first and I hope to have it provide returns in the future that help me personally deliver on my vision for making New Zealand known for an amazing technology sector. The internet kills the tyranny of distance and we need to take advantage of that.

What are the mistakes you’ve made?

Where do I start! I’ve always liked the saying that making mistakes is fine as long as they’re not fatal.

1) Getting comfortable.

I’ve blogged about this.

Year three of Mindscape could have been better – we had managed to break through to being quite comfortable as we were making good money, life seemed good and in turn I felt I personally took my foot off the pedal after two years of trying to outrun failure. I think it’s normal to take a breather, and I probably needed it, but retrospect it was a mistake – we could be futher ahead now than we are if we’d stayed pedal to the metal.

2) Outsourcing marketing

We tried using an agency in the US assist us with online advertising and marketing. They cost us a significant sum of money and did such a poor job that it was costing us more time just chasing them and fixing their mistakes than doing it ourselves. While costly both in terms of time and money, it was a well learned lesson and we’re doing better keeping that focus internal to the business.

What are the biggest challenges you’ve faced so far?

1) Marketing costs

I remember thinking how clever it is to sell on the internet – you can reach the WHOLE WORLD! You know what costs an absolute fortune? Marketing to the whole freakin’ world! You have to pick your battles, know which tiny niche to start focusing on and be really clever at how to build your audience. We are not marketers, and we have spent significant money experimenting and learning what works well for us.

2) Staff costs

Every business typically has staff costs as their largest expense – I’m not complaining. Unlike in a services company where you want a diverse spread of pay rates to ensure you can maximise returns on the cheaper staff, we have no such benefit in a product company. We need to deliver amazing products, we need to ensure the quality is sky high and that means paying for top notch development capability and that’s not cheap.

3) Having a founder leave

It cut both Jeremy and I deeply when Andrew announced his intention to leave. It really put us in a spin for a while. Looking back, it was the best thing for us. I’m thankful he left so soon after forming rather than years later when the company was 1. worth a lot more 2. more established and his leaving could have done more damage to company morale.

4) Not charging enough

New Zealanders have such a small view of the world that we always price things based on our appreciation of value. We were charging $200 for products that competitors were charging over $1000 for. The business version of ‘judging a book by its cover’ is ‘judging quality by price’ — we had far superior products but customers were not buying because they would assume that if a competitor priced at 5X the price, they must be 5X better. If you’re an NZ based technology exporter I would place money on the fact you’re charging too little. We increased prices substantially and volume rose.

Any specific advice for other founders?

1) Be friends with lawyers

We started off working with two law firms relatively early on. This more recently has increased to working with four. Sounds expensive but it’s not — we have saved ourselves from being ripped off and had expert legal advice that has also saved us precious time. Do not skimp on legal.

2) Hire the absolute best you can

We always get asked ‘how many people are in your company?’. For some reason, the conventional thinking is stuck in the industrial age where bigger is better. Bigger is worse in my opinion when it comes to software product focused companies. We have a lean team, but also an insanely great team.

I recently discovered that a competitor of ours has over 500 staff members! My jaw was on the floor. Theirs was also on the floor when they discovered how small we were in terms of staff despite our product lines being very comparable.

3) Have a co-founder

If I had a billion dollars I would still get a co-founder. I feel so sorry for folks that do not have a co-founder. Jeremy has been an amazing person to work with — he and I are very complementary. He sees things I do not, and vice versa. Every founder should be so lucky as to have a co-founder as good as Jeremy has been for me.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Richard Humphries is the founder of Trade Tested, an online retailer selling the sort of things that many people probably assume are not ideally suited to selling online – generators, garden sheds, and the like.

I was lucky to work with Richard at Trade Me – his job in those days was to try and sift through the mountain of metrics and numbers and identify possible improvements or optimisations. He has a great analytical mind as well as a nose for a business opportunity – before we hired him he was a big seller on the site and it’s great to see him attempting to take this to the next level with his new business.

Over to Richard to tell you more about what he’s working on…

What’s the purpose of your company?

To deliver great deals from manufacturer to consumer.

What does your company do?

We sell a range of quality own-brand utility goods in home, outdoor/garden and semi-industrial/farming.

What is the business model?

It’s a modern mail-order business. So we run a highly efficient sales, marketing and logistics operation to get the best everyday prices to consumers.

How do potential customers learn about you?

We market online and in print. We’re also the 2nd biggest seller on Trade Me.

Who are the people working with you on this?

There are currently three of us. I worked at Trade Me as an analyst and on marketplace improvements from 2004 to 2011 with a break in the middle when I spent time in roles at Yahoo! and Fatso. Terry Metcalfe (also ex Trade Me) runs sales, operations and Zoe looks after our customer service. Terry was my account manager at Trade Me so had a pretty good head start when he came on board six months ago.

How did the business get started?

Very humbly. I’ve been selling on Trade Me for many years on the side for pocket money. In the early days I sold mobile phones and last season watches and later I switched to selling returned Dell laptops.

How have you funded your growth so far?

It’s entirely self funded. I started in April 2010 and kept my full time job at Trade Me until August 2011. The balance was hard and soaked up all my time outside work. I was lucky to have an extremely supportive employer.

What are the mistakes you’ve made?

In my determination to run this as lean as possible I didn’t commit realistic resource in the first year, especially with customer support. I ended up pissing some customers off which just ends up in more work and no chance of repeat business. I may have a fairly wide skill set, but I’m a disaster when it comes to customer support so I should have handed that to someone else early on.

What are the biggest challenges you’ve faced so far?

Trying to run a low overhead retail business is fine when you sell easy products like books and CDs, but we’re dealing with some pretty support heavy products. Things go wrong and we need to be there to help people out. It’s a balance of keeping the model efficient while satisfying customers.

What’s your ambition for the company?

Make customers happy and continue to build repeat and word of mouth business.

Be trusted.

Hit sales targets.

We’re looking forward to launching Shed Master garden sheds in Australia in January.

What advice do you have for other founders?

Always keep trying new things.

Do more of what works and stop doing what doesn’t.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Andrew Mayfield is the CEO of Optimal Workshop, a new venture that has spun out of Optimal Usability, which is itself a successful Wellington usability consulting business. They provide online usability testing software and sell it to professionals working in this field around the world.

Many consulting businesses aspire to make the transition to selling a product rather than just selling hours, but it’s not easy. It’s great to see a successful local example.

Let’s put some questions to Andrew…

What’s the purpose of Optimal Workshop?

We created Optimal Workshop to help make the world an easier place to be.

As I’m sure you can see, this is a quite a broad issue so we’re focussing our efforts on findability.

The specific problem we are here to solve is this: “Quantitative analysis to assess the effectiveness of an Information Architecture (IA) is hard work.” So naturally we spend our days designing new analysis techniques to bring a quantitative and statistical focus to decision making, supplementing qualitative research for user experience designers and information architects.

Optimal Workshop was born as the “tools workshop” for Optimal Usability, a user experience design agency, and was created to extend our reach beyond what we could do in person by making our own information architecture research tools available to the world.

What is the product you’re selling?

Optimal Workshop’s suite of tools help to define and refine an information architecture using three established user experience design techniques: online card sorting with OptimalSort, tree testing with Treejack and first click testing with Chalkmark.

What is the business model?

We run a software as a service (SaaS) business model.

This means people subscribe to use the Optimal Workshop tools for the time they need them. With this model we have a recurring revenue stream and our customers can enjoy our “hop on, hop off” approach to SaaS whereby you always have access to the data you’ve collected and to the Optimal Workshop analysis tools even after a subscription has ended.

So far we’ve found people really appreciate this attitude and choose to stay subscribed and make usability testing an integral part of their ongoing design decision making process and content evolution strategy.

How do potential customers learn about you?

A lot of it is word of mouth.

Honestly, we have a lot of passionate customers who love their industry and get excited about tools that make it easier for them to make things easier for their customers and users. I love attending industry events (from the Information Architecture and User Experience community, our clients’ industry, rather than the SaaS and software dev communities) and it’s always great to hear people talking about our tools and how they’ve influenced decisions in their organisations.

We’ve also been discussed in a number of industry leading, or even industry defining books over the last few years, the impact of which is difficult to measure but I’m quite sure it has been a contributor to our growth.

How did the business get started?

The business was founded to build tools that our consultants wished for in their day to day work as Usability Testers/Researchers and Information Architects. It seemed only natural to make them available to the growing army of people just like us around the world.

Who are the people working with you on this?

The company was founded by Sam Ng in 2007. I joined the team in 2009 as CTO on a short term contract to sort out some technical issues and help move the company forward. Shortly thereafter we were making good progress so Sam left to found the Mekong Club and work on other “social good” projects in south east Asia. Specifically he is interested in reducing child slavery. A noble cause! I was asked to step up to CEO and run Optimal Workshop myself. I’m very happy to say that with the strong foundation Sam put in place (some working MVPs and a solid brand reputation from shaking hands around the world) and our devoted development team we have gone from strength to strength ever since.

How have you funded your growth so far?

The business was funded for the first 2 years by channeling some cash-flow from Optimal Usability (our consulting agency) into Optimal Workshop to fund development. I’m happy to report this reliance stopped 3 months after I took over as CEO and we’ve been profitable ever since.

What are the biggest challenges you’ve faced so far?

With our near constant growth we have had our share of technical scaling issues. I guess we asked for it by focussing on “quantitative analysis”!

What advice do you have for other founders?

Make the hard decisions. If it is too hard then get the data you need and if that is too hard, just make a decision anyway and test the result.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Vend was the first new venture that we invested in after we setup Southgate Labs last year, and naturally we’re very excited about how it’s gone so far.

I wrote my version of the Vend story a couple of months ago, and have subsequently posted about one of our trips to San Francisco. I’m excited to be back in Silicon Valley with him again this week.

But, I also wanted to give Vaughan a chance to be part of this series and describe in his own words the route he’s taken to get to this point. I especially love the advice for other founders at the end.

Enjoy…

Vend helps clever retailers run their business. It is tough being a retailer at the best of times, but especially so in tight economic times. What adds insult to injury is that retailers have really shit software to run their stores, from the front counter checkout or point of sale (POS), to the product management systems, reporting, e-commerce integration… the list goes on for quite a while. If you have ever stuck your head over the counter in a store and took a look at the software, you would probably see something out of the 90′s that looks like it was written by the owners 16 year old cousin in FoxPro. Chances are it probably was.

We have a simple cloud-based software product that any retailer can use to run their store. It is all browser-based and works with any gear they have, like scanners, receipt printers so to upgrade from their existing crap system, all they need to do is fire open a browser and sign up to Vend, and they have upgraded their shit POS to something awesome. Unless they have a 1980s Casio till, which in that case their first step is to walk down the road and buy an iPad, or any tablet of their choosing, then see above.

We are a pure SaaS business, so we charge retailers a monthly fee to use our product. We offer a free trial period so they can get a good handle on how the software works, and then they can convert from the demo product to the paid version when they are ready. Our subscriptions range from $29 per month up to a few hundred depending on the size of the retailer and how many stores they have.

We have a multi-channel approach. Firstly we have key product partnerships with other great applications like Xero and Shopify. By making Vend seamlessly integrate into these other products, we instantly attract retailers who are fans of these products too. We can also co-promote and attract a much wider audience combined, like we have done here:

http://www.vendhq.com/retail

Next we have focussed on the traditional channels. So existing POS vendors can resell Vend, usually bundling it up with hardware, consultancy and support. Payments vendors who sell payment solutions to retailers can bundle up Vend with their services. Then there are the new channels such as through web developers or business advisors and bookkeepers. Anyone who knows or advises retailers, they love reselling Vend as in most cases it makes their lives much easier too. The web developer can integrate Vend into the shopping cart on the website so online orders pop-up in the POS auto-magically.  Bookkeepers can get all the financial data they need out of Vend from anywhere, making their job a breeze. What we wanted to do is enable anyone to be a Vend reseller or promoter.

The last channel, and so far most effective, is direct. Any retailer can self serve and sign up and get running in minutes. We have a bit of fun with our brand too: www.welovepos.com. Retailers know all too well how crap POS software and hardware can be.

The Vend Idea all came about a couple of years ago when I had too much time on my hands (always dangerous). The credit crunch was hurting everyone everywhere, and I was living in Kerikeri trying to eek out an existence as a contractor writing software. In between paid work when I had idle time (which was often in Kerikeri), I wanted to build a software product. I spent a few months looking at which industries were being badly served by software and were primed for a move to the cloud. Xero was my inspiration, they have every SME as a potential customer and so I picked retail as a market that was almost as big. The software was terrible, and closed and offline. I could see that things were going to get exciting in retail in the years ahead with mobile commerce, e-commerce, deals, coupons, loyalty… once you have a retail platform in the cloud all this becomes really interesting.

I bootstrapped the company till the beta launch, exhausting savings, favours and my wife’s patience. I signed up a couple of customers then went out to find some investment.

At that time Vend was a finalist in the Cloud Connect Launch Pad which I thought must be great validation: a kiwi startup being selected as a finalist in a Silicon Valley competition, that’s got to be good. I had a lot of meetings with investors, with my slide deck and grand vision. Meeting after meeting after meeting. Coffee after coffee. I spent 4 months of my life I will never get back. I don’t know if it was me, the credit crunch, or my crap green logo but it was soul destroying. Going through the “formal” New Zealand investment channels was pointless. A lot of them never returned emails or phone calls. Some had flash application forms on their website, that let you submit your proposal for funding, which would take 30 mins to fill out and then their form would crash with a 500 error at the end. It was both appalling and deflating. How did anyone raise any money? I felt like a complete failure.

However, I happened to know a couple of guys (you might know them), who knew a thing or two about building an online app and who had gotten to know me over the last few years through a joint project we did together, and through my insane shenanigans on a bike but more importantly by me keeping them abreast of my progress as I went. I didn’t turn up out of the blue asking them for money, instead I shared with them my idea, and showed them some real measurable progress over a few months. Sam graciously offered me a free desk within one of his other portfolio companies, and Rowan indulged me for hours on end with a white board and my grand ideas. We put together a very complicated spreadsheet, which developed into a sound financial model for the next 12 months. Then they both put in some cash that let me ditch my consultancy and go full time in the business. We all agreed the numbers in my spreadsheet were all probably made up, but the most important thing to do was for Vend to start getting customers.

So that’s what I did. We launched the product publicly one month later and in the space of just over 12 months we already have signed up 5,000 retailers in 80+ countries and we are still growing fast. And so as you can imagine we have had to grow the team pretty quick. We have also gone from me on a borrowed desk, to two of us on two borrowed desks, then to 5, now 15 with offices in Auckland and San Francisco. Pretty quick growth, and strangely that spreadsheet was almost spot on, which makes me wonder how well we would have done without it. We didn’t have a complex business plan, just the spreadsheet that told us we needed x customers each month and we had y dollars left in the tank.  That was all that mattered for us.

We raised our second round of around $1M a few months ago, involving some great German investors who had been keeping their eye on Vend since we launched, and some other talented people involved in the NZ startup scene. That let us build the team faster to help Vend grow globally.

With such a short history we have had to make some quick decisions, which for a young startup are the best kind just as long as there is a decision. When you are so early on in the piece, it is just important to make a decision. It didn’t matter if it was right or wrong, as you could back out of anything that looked disastrous pretty easily. We underestimated the demand from the market, and overestimated the time to get some features to market. Not too uncommon. But our biggest challenge to date has been to stop thinking like a kiwi company based from some tiny island at the bottom of the Pacific. We have some fantastic talent and can build great software as well as anybody anywhere. For us it is about exporting a weightless product to every corner of the world, and doing it cheaper, faster and smarter than our competitors. And with a bit of attitude.

We want Vend to be the first name recommended to retailers who are wanting to setup a new store, or wanting to upgrade the way they run their business. We think we are well on the way there but there is still a lot to do. But we are on our way and they is the most important part.

Up until now my advice to founders is to just start. Don’t naval gaze, just do it. I would give this advice as I always thought starting was the hardest bit… but really the hardest bit is not stopping. If you are thinking about a start-up then you have started, but don’t stop at just thinking about founding a start-up, keep going and take the first steps. If you are right at the beginning and are a technical founder then you have no excuse not to be building your product right now. If you are not a technical founder, and your startup is a software company then you have a harder row to hoe, but you should be actively looking for that technical co-founder. If you have an almost complete product, you should be getting some beta customers who will insist that you complete it. Don’t wait for anyone, just keep going. There is always a next step. If you can think of an excuse as to why you should be slowing down or pausing then come up with a way to eliminate that excuse. Don’t give up and don’t stop.

Your job as a startup founder is now to ensure your start-up keeps starting-up.

—

Since it’s Friday…

Steve, the potty mouthed, bigoted and small minded, crappy old 1980s cash register, who has been hanging out for the last few months at the Vend office (in Silicon Parnelly) in Auckland has finally been taken out. Seriously! :-)

—

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

When I first met Nik Wakelin he was the summer intern at one of the first ventures I invested in after Trade Me. Sadly that didn’t work out so well for either of us. But he’s a smart guy, so it’s no surprise that he’s landed on his feet and is now part of a successful software development team and also co-founder of several new ventures, including 200 Square, an online Real Estate Agency; Flatmin, a shared-living management tool; and (our primary focus for today) MinuteDock, which was their first venture and is one of the core tools that we use at Southgate Labs everyday to track our time and generate invoices.

I’m especially interested in how they are balancing paid development work and still making time to progress these ventures, which is a challenge that many technical people who aspire to work on start-ups have to deal with.

Over to Nik…

What’s the purpose of Minute Dock?

Death to Copy + Paste :)

Basically, with the explosive growth in Software as a Service (SaaS) tools for Small Businesses, there’s really no reason for these tools not to be talking to one another, and there are emergent benefits of integration – the whole is considerably greater than the sum of its parts.

What does your company do?

We do super-quick & easy time tracking.

We use a “natural language” or twitter-style log bar rather than an army of dropdowns – the idea is to get your time down and worry about categorising and slicing and dicing it later. So you just type “@client #project Design Meeting 1 hour” and it’s logged like magic.

We also send your invoices to your accounting system (or a PDF, if you really want).

We think your time tracking system should be good at time tracking and your accounting system good at, well, accounting.

The standard reporting features are there too, along with “Goals” (which I think are really cool) that let you track your progress live against budgets and targets – we use these features ourselves every day, and I love the sense of achievement when the little animation fills it up!

What is the business model?

We’re a simple SaaS product – it definitely feels like our target market “gets” this model.

We don’t make ridiculous amounts per customer, as it’s a competitive market and that drives our prices down somewhat, but we definitely make up for that in longevity.

People either love MinuteDock, and become loyal customers, or else they feel that their time tracking system really needs to track start and end times, have a workflow process and require three different approvals from four separate managers. We can point the latter group elsewhere ;)

How do potential customers learn about you?

Via integration partners, word of mouth, and also some advertising etc.

Our business was essentially founded on the shoulders of giants – so at least initially, a lot of customers came through promotion from Xero, which we are very grateful for. As they grow, so do we, so it’s a symbiotic relationship in that respect.

We’ve recently explored integration with other partners and are testing the waters there.

We also built MinuteDock for us, and as we tend to surround ourselves with people like us, it was fairly easy to strongarm our friends, colleagues and Twitter followers into becoming customers.

We’ve tried advertising and we’re still experimenting with it. We’re in quite a crowded market so the Google Adwords prices for any of the basic keywords you might try are astronomical, meaning we have to be a little clever.

We’ve also tried networks that are targeted to designers or developers, like Yoggrt or Fusion Ads, with mixed results so far.

How many customers do you have?

Not as many as we’d like, but we are growing 7-15% month-on-month, so that’s nice.

Who are the people working with you on this?

The team naturally evolved out of friends and people who were working on similar stuff around each other. It’s a pretty technical team – we have myself and Jared Armstrong (@armstrjare) working on the Rails code, and James Nisbet (@bandit) doing the design and most of the UX work. It tends to be pretty cross-disciplinary though – James isn’t afraid to get his feet wet with some Ruby and is an accomplished programmer in his own right, and we’ll all generally gather around a whiteboard to throw wireframes etc together.

How did the business get started?

James and I talked about writing a small script to send our entries from Harvest (the system we were using at the time) into Xero. We spoke to Koz at Southgate Labs and he also wanted it. Over a few beers it grew in scope, then shrunk back as we spent the next few weekends cranking out an initial version. We build everything these days based on user requests with a healthy dash of whatever we think might be fun to code and useful for us (you’ve gotta keep the spark going after all).

How have you funded your growth so far?

MinuteDock has stood up on its own two feet for a while now.

We built the initial version in the gaps between consulting work, and we continue to try to fit that in. We have a very bad habit of starting more projects than we can possibly hope to complete, so it currently shares our focus with two other projects and consulting for Wildfire over in the US.

What are the mistakes you’ve made?

Initially, we tended to artificially limit the universe of “potential customers” – for instance by only allowing you to sign up for MinuteDock if you had a Xero account. We quickly fixed that.

We also made our pricing way too cheap from the get-go, and lost a lot of potential revenue  - in fact we had people asking how to pay more! Pricing feels like a pretty hard thing to get right.

On other projects we’ve definitely focused too much on building the “perfect system” rather than getting something that kinda-sorta-works out where people can start to use it and give feedback. I think this is a natural tendency for developers – or just my obsessive compulsive side showing. Thankfully we mostly managed to avoid this with MinuteDock.

What are the biggest challenges you’ve faced so far?

At the moment the biggest challenge we have is in trying to find a way to really grow the company. We’ve talked about and tried a few things, from the radical to the pretty standard, but we still haven’t found a solution yet that we feel we can hit guns-blazing.

What’s your ambition for the company?

We’d like MinuteDock to grow to the point where it sustains the three of us effectively indefinitely (i.e it pays our somewhat modest salaries!)

What advice do you have for other founders?

I’m not sure I’m qualified to give “advice” as such
[ed: you're way more qualified than you realise!]

Here are a few things I’ve learned, from both MinuteDock and other businesses I’ve been involved in.

1) Take some time to congratulate yourselves.

Maybe this is one you don’t need if you have a really outgoing partner in your business (your resident “shiny shoes”) but it’s definitely something that we tended to forget – we’d get very depressed about a slow month, or pin all our hopes on a single mailout or advertising campaign that could never even hope to provide the return we were relying on it for. One of the best things we did is set up a live dashboard and notification system on our iPhones. The dashboard makes a noise whenever something good happens and it’s also relayed onto our phones. It’s a small thing, but it’s great when you’re lying on the couch on a Saturday morning feeling hungover and drained – sometimes that one new customer can give you the energy to open up the laptop and bang out another feature, or try a new set of ads…

2) Focus.

I think anyone who likes to build products will always have ideas for 2-3 floating around in the back of their brain. It takes some real discipline to set them aside and make sure that you’re giving the current thing all of your energy and the best chance to succeed. This is definitely advice we’ve heard many times from other people, and we haven’t always followed it.

3) If you’re out get out, if you’re in get in.

I’ve definitely found myself umming and aaaahing about what to do, and sometimes that thinking takes months, when most of the time it would have been much better to make a decision and run with it. I think if you’re not 100% committed to a new start-up then making a it “fly” is a very hard ask. On the flipside, letting something “limp” along for a few months (or years) is a waste of everyone’s time. Better to kill it properly than to have it taking up your valuable energy. Saying that, it’s still an extremely hard decision – and one we constantly struggle with.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Marie-Claire Andrews is co-founder and CEO of SmartShow, the company behind the ShowGizmo mobile application platform for event organisers.

As I’ve mentioned previously, most of the people who contact me about a start-up idea do not have the skills themselves to actually make their product a reality, and so are looking for an introduction to developers who they can work with to develop their idea.

The founders of SmartShow are not software developers, so this is one of the challenges that they have had to overcome – initially starting with pure outsourced development and eventually ending up with somebody inside the tent to take responsibility for this aspect of the business (and at a fraction of the cost!)

Over to Marie-Claire to tell you more about how this is going…

SmartShow was created to provide event organisers with an easy way to make their events more successful, using smartphone apps. We knew it had to be easy because event organisers aren’t generally particularly tech savvy, it had to be great value because they’re watching every dollar they spend; and that it had to deliver benefits to all their stakeholders because a live event is a delicate balance of happy punters, happy exhibitors and happy sponsors.

So we built ShowGizmo, a reusable content management system the event organisers use to populate native mobile apps for their events.  The apps enable participants to exchange information and brochures, connect/make meetings, plan their time, receive news, alerts and Twitter feeds, collect leads, measure ROI, view reports, rate speakers, download presentations…before, during and after events. Our ShowGizmo apps are always in the stores, a little naked template populated with data the event organisers load. Our solution lets organisers demonstrate how 2012 they are by having an app – without having to pay $$$ and put in time they don’t have to build a specific app for their specific event.

We make money by selling annual licences for ShowGizmo to event organisers. The price depends on the anticipated size of their events during the year, and sometimes they’ll pay for us to enter data, or be at their event, or to provide a helpdesk. Our clients might on-sell access to ShowGizmo to the brands they are organising events for – making money from our service – or they can seek a sponsor for the apps in the same way they get delegate lanyards or the satchel sponsored.  We also whitelabel the system completely – smaller venues in particular like this as they can have their own apps, and on-sell access to the system to all the events they host.

We started selling ShowGizmo before the product was finished. Lots of sizzle and barely any steak to be seen. In fact we started selling ShowGizmo using brochures and the website and sheer belief and enthusiasm for what it could be. We powered the biggest international event for event people, in the UK, after only two other small events. I’m glad we did that – we staked a claim in a fast moving market and got our brand out there. As a result we’ve been building relationships with potential exit partners and alliances for long enough to build excellent trust. And as our sales cycle is long (event organisers invest in annual if not two-year cycles) we’re now reaping the rewards of all that prospecting in the form of 40 clients, 60 events and $450k of proposals under consideration.

The risk of doing it that though was not being able to deliver a great product. And we came very close to doing exactly that. A bad choice of development partner meant we wasted almost six months and I’ll leave to you guess how much money, on a product which had to be rebuilt. Twice. A process which left the founders exhausted, broke, despondent and with our reputations on the line. Credit cards and loans and dogged belief in what our service and product could be, rescue in the form of a fantastic developer and a commitment from a new CTO squeaked us through.

We were still at risk though – with our shareholder funds depleted we were relying on revenues to provide income to pay our developers, in order to keep the product relevant and useful, and revenues were slow in the first part of this year. This is where the foundations for what will make us a success were really built though – great relationships. People liked us enough to enter into revenue share agreements, sweat equity agreements, free advice, introductions and frankly moral support (which was often the most critical thing to just keep us going!) Without those great relationships we would have sunk without a trace.

And it was through those relationships we raised our capital, as we faced the typical start up conundrum; founders needed full time/founders needing to eat, more resource needed to develop sales pipeline/no resource available that’s not already working 18 hours on the company and four on consulting work. I believe that our investors are definitely investing in our experience, abilities, determination, reputation and track record in business – I don’t think that any of them are truly lit up by smartphone apps for events in all honesty. But their capital – and our lead investor from the UK – has helped us hire a team, finish the apps to meet the vision we had 12 months ago, secure a strategic partner in Australia and market the heck out of our offer.

We decided to raise money because we had a window of opportunity to nail the deals in our pipeline, because a number of competitors were emerging and because the winner in our game is the one with the relationships and we couldn’t allow anyone else to sneak in and take those from us – but they need constant nurturing which means time and getting on planes. A lot. We also raised money to free the founders from juggling other jobs along with building the company. We did that for a year and stayed just about sane because of supportive family, partners and celebrating each little success as much as we could. Eyes on the prize approach. But we came close (within days) to closing – although looking back, I can’t see how it could have been different.  We had to get a track record to convince investors, and that took time.  And the positive was that the hiatus on development allowed us to built up the killer spreadsheet of what our clients actually wanted us to build. So when the cash came in, we could fulfil their every desire, and not waste money on features they would never buy, but that we fancied adding.

As a business, one of the best things we’ve done is sell from the start. Even though it was risky. I never understand why advisors tell software companies to focus on Wellington, and then expand to Auckland and then maybe Australia! If your product sells, then sell it. To anyone. Anywhere. The more you sell the more you learn. How will you know your profit margin and the accuracy of your pricing structure and the resources you’ll need to grow if you haven’t deployed, if you haven’t supported? We have agents in the UK, Bahrain, Dubai, Australia and South Africa. We sell more offshore than in NZ – three times more. A trial in New Zealand wouldn’t have taught us what we need to know about selling in the Middle East, so what would have been the point? Do it, learn, do it better. International clients also don’t find NZ case studies compelling, so they’re not hugely valuable for that even, sadly.

The future for SmartShow is exciting (as all entrepreneurs say, right?!) Since raising funding, we’ve hired a development team, a marketing exec, a production manager and added agents in the US, Kenya and Thailand. We’ve knocked off most of the killer features on the spreadsheet and are actively courting the company we hope may provide our exit. I’ve travelled to the UK, Australia and Middle East and there’s more to come next year – which I love. I want us to maintain our reputation as the nice guys on the block, with the great product that people actually use again and again. Most of all though, I want to work with an awesome team, put into practice all the things about starting a business I’ve advised on, read about and heard presentations on, make a million and do it all again.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

I’ve written about Ponoko on this blog before, as an excited customer. See: Ponoko Moko.

They have been going a bit longer than most of the ventures that are included in this series, and as a result have a few more war stories to share. As far as I know, they are also (I think?) the only one that has a laser cutter on their balance sheet!

Dave ten Have (@davetenhave) is the co-founder, reporting in live today from his second base in the San Francisco Bay Area.

Over to him to tell us more…

What’s the purpose of your company?

To enable people to make things.

What does your company do?

We provide an online manufacturing service that is distributed around the globe. People upload designs to our service and we fabricate the parts for them. We also offer our software to other companies.

What is the business model?

The business model has two components:

1) we make money by manufacturing parts for our users

2) we license our platform in a SaaS model

How do potential customers learn about you?

Mostly… online.

Larger corporate clients learn about us via press and our business development efforts.

Who are the people working with you on this?

The company was found by me and Derek Elley. We have grown our team organically over the last 5 years. We have our product/platform team based out of Wellington and our production and marketing team in the US. We have customer service spread between NZ and the US.

How did the business get started?

After Derek and I sold out of our first businesses we started to work with a lot of climate change ideas. We were exposed to ideas that would change how products were being made and distributed. We decided that manufacturing wasn’t a solved problem and set about build a new way of making products on a global basis.

How have you funded your growth so far?

We’ve funded our business via several methods:

Derek and I invested the proceeds of our first businesses.

We’ve taken money from local angels. They have invested in us because of our reputations (in our prior careers we were lucky to get to know people who could help us out) and because of the nature of the idea.

We’ve also more recently taken investment from Movac.

But, most importantly, we made sure we were selling something people wanted to buy and concentrated on doing that :-)

What are the mistakes you’ve made?

Being too cautious.

Buying into the WIRED/Silicon Valley story.

Not telling our big story from the start. This cost us a huge amount of time and a lot of wasted money as we found that VCs weren’t really open to it and as a result really weren’t worth courting.

What are the biggest challenges you’ve faced so far?

Finding growth capital.

Being a little too early to market.

Finding staff in Wellington.

What’s your ambition for the company?

To be an iconic New Zealand technology brand with a global presence.

What advice do you have for other founders?

Trust your gut.

Get good pragmatic advice.

Don’t be afraid of looking dumb.

Enjoy the small wins! Learn to laugh at yourself. Be honest and given that this is a tough, sometimes horrid, experience find people you work well with and enjoy being around.

Realize that this is as much about luck as any other factor. Treat the success stories with a healthy level of skepticism. Like all of history they are told by the victors and often miss the really useful parts.

Remember: what you are doing now, you’re not going to be doing in 90 or 180 days.

Karma is real ;-)

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

First up is a guest post by Dr. Sam Hazledine, the founder and managing director of locum doctor agency MedRecruit, which is Australasia’s premiere agency for doctors creating a lifestyle and career in medicine.

Over to Sam…

At MedRecruit our vision is to GO FURTHER – we go further for our clients so they can go further in their lives.

Our purpose is to fulfill dreams for doctors and to create certainty and confidence for hospitals. We do this by finding placements for doctors throughout Australasia that meet and exceed their lifestyle, career and financial goals.

The business model is simple. The medical recruitment market is a supply constrained market in that there is a massive shortage of doctors. So, our business model focuses on adding massive value to the doctors by not only getting them the right placement but also taking care of many other things they need like continuing medical education, accounting and relocation assistance. We do all this and we don’t charge a fee to the doctors. Doctors choose to work through MedRecruit because they get so much more than through any other agency, and this means our pool of doctors is of value to the hospitals. The hospitals need doctors so the hospitals pay our fees because we have loyal doctors.

The doctors hear about us through referrals and word of mouth, direct marketing, Internet advertising and through medical events. The hospitals hear about us through referrals, PR and through direct business development. Currently we are placing about 100 doctors per month throughout Australia and New Zealand.

I started MedRecruit in 2006 because I saw the need for a truly ‘doctor centric’ agency that wasn’t just focused on making commission, but was really focused on improving the lives of doctors. Initially I had two IT partners, Chris Auld and Simon Gardiner, who focused on building the IT platform to run the company. This was good at the start when we were bootstrapping the operation, and I now have full ownership of MedRecruit because those IT needs have changed.

A key part of the success of MedRecruit is the people who are involved. We have a strong culture that attracts people to it and empowers people in both their personal and professional lives. I have pulled together a very talented management team who handle each part of the business, and the frontline staff are phenomenal. A strong team is key to our success because while we are in medical recruitment we see ourselves as a service business that just happens to be in that industry.

We’ve grown very fast. In 2008 we were named the fastest growing Business Services Business in the Deloitte Fast 50, and the second fastest growing business overall in New Zealand. We have remained on the Fast 50 for the past three years. Incidentally, the only other business to enter this high and to stay in the Fast 50 this long was Trade Me. I’m expecting Fairfax to make an offer to me soon… I have no investors in MedRecruit so with our rapid growth it’s been important to maintain a great relationship with ANZ. An understanding bank manager is pretty important when you’re calling them asking for an extra $250,000 on the overdraft tomorrow to pay the doctors (which happened more than I liked in the past few years).

Because I didn’t bring on any investors I had to work at the same time as I started the company. My girlfriend (now wife) Claire quite her job in PR to help get MedRecruit off the ground. I worked four shifts per week in Hutt Hospital ED and spent almost every other waking hour working on MedRecruit. I averaged between 90 and 100 hours work per week.

The key was that I was totally clear on my vision for my life and for my company. And not only was I clear on my vision, but I was also 100% clear on why it was non-negotiable for me to achieve it. Because of this the massive hours weren’t ever an issue. I believe that it’s your reason ‘why’ that’s the most important thing to your success. When you have a strong enough ‘why’ the ‘how’ will always reveal itself. Most people have goals but if they don’t know why the goal is really important to them it’s pretty easy to find excuses as to why you can’t achieve them.

I’ve spent a lot of time and money investing in not only the business, but also in educating myself and creating a bulletproof psychology. As an entrepreneur you can expect to fail. But I don’t believe whether you fail or not is important. What is important is what you do with that failure; do you quit or do you get up again ready to do battle? And it’s not even whether you get up or not, it’s whether you’re prepared to get up as often as it takes until you get there. Success might be around the next bend in the road and there’s no way of knowing if it’s the next bend or a hundred more bends. If you quit you’ll never know how close you were.

It comes down to making your goals non-negotiable and being totally accountable for your own life and success.

My ambition for MedRecruit is to improve the lives of all doctors in Australasia; to do that we need to become the number one medical recruitment agency in Australasia. I’m also looking at other geographies like North America, Europe, Asia and the Middle East, to see what markets we could add value in. I’d like MedRecruit to be a global company because I think then we can have the biggest impact not only in those markets but also for our clients here in New Zealand.

My advice to anyone looking to start a company, anyone who has just started a company, or anyone who has a company that’s not doing as well as you want is to firstly get clear about what you want to create, get clear about why you want to create it, then take relentless action until you get there. Surround yourself with the best team you can, find people better than you are, and help them to achieve what they want in life and they’ll help you achieve what you want.

Pig Headed Determination is what’s required so take action and persist until you succeed.

Other guest posts in this series:

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

1. From Idea to Impact, about the full chain needed to generate a measurable impact from an idea.
2. Flailing, about the difference between activity and progress.

I should note that this post is full of my own prejudices. I assume that by reading this blog you’re interested in hearing about those. I don’t claim to offer fair and balanced reporting. I apologise in advance to those with ugly babies – it’s not personal.

I recently read the following summary of a new venture in the newspaper. I’ve removed the specific details as they don’t matter.

“The company has received [government funding] after winning [business plan competition], and has now joined [incubator program]“

Three strikes and you’re out, I thought.

What a hopeless cynic I’ve become! Why?

At the moment there seem to be a lot of people focused on creating start-up infrastructure: incubators, accelerators, shared working spaces and innovation hubs around the country; networks of angel investors pooling their resources and investing in a portfolio of ventures; countless competitions designed to flush out promising new business ideas; various initiatives to commercialise research done at universities; and, last but not least, millions of dollars of government funding – direct grants to companies, subsidised professional services and co-investment. This is all to try and create more high-growth companies.

So, is it working?

As far as I can tell, there is very little impact. Intentions are good, but the results don’t seem to be there. Why not? Let me give you a possible reason…

When the start-ups we work with think about their product, we quote Steve Jobs and tell them to start with the consumer and work backwards to the technology. In my opinion, those who want to help start-ups need to do the same. That is, begin with the founders of these ventures and work backwards from there to the constraints that early-stage companies actually have.

Unfortunately just about all of this “infrastructure” I listed above has been designed from the top-down, often to solve problems that those putting it in place have – e.g. we’re a bunch of rich dudes and we want an easy way to invest in some sexy start-ups, or we’re a big corporate and we want to look like we’re helping small businesses, or we’re from the government and the minister would like a ribbon to cut.

What’s missing in all of that? Motorways are not much use in the absence of cars!

Sadly, no matter how much you might want it, you can’t will an innovative eco-system that generates new companies into existence, you have to let one grow. As Dave ten Have said recently, entrepreneurial activity doesn’t come from central planning. So, while it seems like a lot is being done, in my opinion at least, it is mostly splashing and thrashing and not much forward momentum for the people that all of this is supposed to be helping.

The questions we should be asking in each case are:

• Is it needed?
• Does it work?
• Will it get to those who need it?
• Will they use it correctly when they get it?

Let’s consider each of these initiatives in the context of this idea-product-impact chain…

Incubators/Hubs

In a hospital an incubator is a safe place to put a sick baby – somewhere they can recover without worrying about the stresses of the outside world. Our youngest son was born with jaundice and spent the first week of his life in an incubator. It was horrible, and we were so pleased when he got out.

In a similar way, business incubators try to create a protected and supportive environment for young companies – typically offering a working space shared with other early-stage companies with access to advisors and mentors. Perhaps because of the negative connotations I described above, most incubators now prefer to describe themselves as innovation hubs. However, as far as I can tell the service they provide haven’t changed, so for our purposes we’ll treat them as the same thing.

There are three problems for incubators/hubs:

Firstly, and most importantly, the problems they solve are not usually big constraints for smart founders, so the benefits are limited. It is good to be surrounded by supportive and like-minded people, and to be able to bounce ideas off them when you need some advice. But if this is what you need it is very easy to achieve, especially in a place like NZ where the business community is small and well connected and people are generally happy to help if you ask them to.

Secondly, they cost money to run, meaning there is a price attached to the help they offer. There are four possible business models that an incubator/hub can use to cover these costs, none of which are founder-centric:

• Renting desks. This effectively makes the incubator a real-estate venture, and normally means start-ups end up paying a lot more rent than they should (paying 3x market rates for a desk and access to a fancy coffee machine isn’t a good deal!);
• Taking a shareholding. This doesn’t seem to work for either side: founders need to give up a percentage of their company in return for no cash in and the limited benefits I described above – in the short term equity costs nothing to give away, but in the long run a “free” place in an incubator can end up being hugely expensive if things go well; on the other side of the equation the incubator/hub taking an equity position quickly ends up with a too-large portfolio of companies in which they own too small a stake for it to be material to them, and in which they are usually reluctant to play an on-going role by continuing to invest time and money as the venture develops. Because of this, few incubators/hubs contribute more value as shareholders than they extract.
• Corporate sponsorship. If it seems too good to be true then it probably is! Large companies are normally pretty keen to be associated with helping young companies, especially those that aspire to be suppliers to start-ups. It always helps to be aware of the strings, if any, that come attached to this sort of help.
• Government subsidies. I’ll cover these specifically below, so will save fire till then. Given that all of the local incubators use all three of the methods described above, it’s slightly depressing that government funding is required at all. On the other hand, if the incubators themselves had to raise capital to fund their business, how many of them would get it? If you took the amount “invested” so far in creating incubators and applied it directly as seed capital it could have funded a large number of start-ups.

Last, but not least, the advice that start-ups get from incubators/hubs is often terrible. We recently met with a promising start-up who had a good enough product and a handful of paying customers. Our advice was that they needed to get in their car and sell what they had. There was a possibility they could get to a break-even position with their current product and ~100 paying customers. Instead, having joined an incubator program, they were wasting their time working on writing an investment statement and market positioning document (whatever that is). We could only shake our heads and wish them luck.

There is no start-up methodology, sadly, so it’s not always obvious if the advice your getting is smart, or something that might make sense for a larger company but is misguided for a start-up.

You don’t need a special desk in a special room and a qualified grown-up in a nice suit to hold your hand in order to start your company.

Accelerators

Accelerators are the exact opposite of incubators. They are all about speed!

The idea is to take a promising idea, throw together a team and attempt to fast-track the venture to a funding event – ideally in just a few weeks or months.

There are many accelerator programs stating up all over the world, all with slight variations on the theme. But, by far the highest profile accelerator is Y Combinator, based in Silicon Valley. It runs two intakes per year – one in the summer, one in the winter. It gets over 1000 applications and from that picks about 30-40 start-ups to join the program. This runs for 10 weeks, during which time the chosen ones get access to an amazing array of mentors and alumni founders as well as regular office hours with the insiders, such as Paul Graham, Paul Bucheit, Jessica Livingstone, etc. Y Combinator typically invests ~$20k in each company (anecdotally, enough to pay the living costs of three founders for the time they are in the program) and in return expect 6% or 7% of each of the companies. The end goal is “demo day”, which is a chance for the start-ups to pitch themselves to the Who’s Who of Silicon Valley investors.

If you want to understand more about the approach and philosophy behind accelerators like Y Combinator, I recommend this interview with founder Paul Graham. Note, of the start-ups that have come out of Y Combinator so far, one of the most successful to date is Y Combinator itself.

Here is the problem with accelerators, in a New Zealand context: it is a volume game.

Accelerator programs attempt to mass assemble start-ups in the same way as manufacturing companies in China mass assemble electronics. To make it work you need a lot of capable people interested in start-ups (see: http://www.paulgraham.com/hubs.html) to put into the top of the funnel and a lot of investors willing to pick them up and fund them once they graduate. In New Zealand our competitive advantage is not in mass assembly – we just don’t have the population to support it.

Of course, there is also nothing to stop kiwi start-ups from applying to join these higher profile overseas accelerators. Some smart founders already are and I definitely encourage more to do so. As Elizabeth Iorns, a Y Combinator alumnus originally from here, told me, “There is already a Y Combinator for New Zealanders … it’s Y Combinator!” (Science Exchange, Elizabeth’s start-up, recently announced they have received US$1.5m of investment).

In early 2012 I’m going to be in Singapore as a mentor at JFDI Bootcamp (part of the TechStars Network). It would be great to see a few kiwi companies take the opportunity to apply and get over there and be part of this. If you have a business that would benefit from launching in Asia then I recommend you consider it seriously (applications close 16th December: apply now).

Unfortunately for local programs, as more smart founders realise they can do this it just accentuates the problem by further lowering the volume and quality that they have to select from. It’s not clear yet if accelerators are viable anywhere, even at scale. But, the model definitely doesn’t add up with only a small number of people – you are relying on a much higher success rate, which is a crap shoot. If we’re going to be successful at this sort of thing here we need to play to our strengths, rather than just copying the models that are working in Silicon Valley. Perhaps we should consider the philosophy of “Designed in California. Assembled in China.” that is printed on the back of every Apple iPhone?

As a potential investor, the rush to make early-stage companies investment-ready also feels a bit icky to me. To create something good takes time and/or money. I’m not convinced that it helps founders to try and compress the development of a start-up into an arbitrary period for the sake of investors. Many of the start-ups I’ve seen coming out of local programs chasing investment remind me of the young kids who are pushed into competing in under-age beauty pageants.

There is a famous mantra in technology: “Good, Fast, Cheap – Choose Two”.

Business Plan Competitions

There are now so many competitions for people with a business idea that we almost need a business plan competition of the year competition to help founders identify the good competitions.

Again, the intentions are all good, and they are possibly really useful to those people who need extrinsic motivation and artificial deadlines in order to get started. (see, for example, my triathlon posts)

But, the goal is the business, not the plan. As Steve Blank, one of the pioneers of the Lean Startup movement, says: “customers don’t ask to see your business plan.” Ideas are worthless in the absence of execution. The problem with competitions is that they reduce the start-up process to entertainment, just like Pop Idol or Master Chef. This ends up giving would-be founders quite a distorted picture of what it takes to create a successful business venture.

The latest fad in this area are start-up weekends, which combine a business plan competition and an accelerator into one 54-hour period (indeed startup weekends are often run by those looking to recruit people to be part of their accelerator). I haven’t been part of one of these weekends myself yet, but as far as I can tell they are heaps of fun and a good chance to meet some like-minded people. If they help connect two people who want to work on an actual start-up together … great. But the competitions themselves have as much in common with working on a real start-up as being a contestant in Survivor has with living unassisted in the Amazon for three weeks.

What’s worse, the value to founders, even if you win, is normally tiny. The prizes are typically a non-material amount of cash, and some free services from the sponsors (normally incubators, lawyers, accountants, marketing agencies or web development companies). You may get to have your picture in the paper or in a magazine. Or, you may get to meet someone famous and tell them about your idea!

So, you have to ask: whose problem are these business plan competitions solving? They are good for investors, who can use it for deal flow, and good for the sponsors, who get publicity for being involved. But do they help founders?

<aside>
If you do want to win a business plan competition this is my advice: approach it as you would a popularity contest. Really get to know the judges and understand what appeals to them. Forget about what would attract customers or even be realistically able to be built. The people who pick the winner are the only ones you need to impress. You just need to make sure your idea gets the loudest cheer and the most votes.
</aside>

Angel Networks

An angel network is an easy way for a bunch of high-net worth people to invest in a selection of start-ups. There are a number of problems with these from a founder’s perspective, in my opinion, but here are just three:

Firstly, group think is unfortunately common. In these groups everybody tends to assume somebody else is doing the work to validate the opportunities, meaning often nobody is. Typically there are just one or two key individuals in the group, whom everybody else looks to and follows. It sucks to be them.

Secondly, because New Zealand is small and the credible investors are all well known and easily accessed, the better founders just approach them directly. So, an investment group ends up self-selecting for the worst opportunities from those that remain otherwise unfunded. It is incorrect, in my experience, for a new investor to assume that there are a lot of impressive but unfunded start-ups out there, who just don’t know how to connect with potential angels. All of the hot guys are either taken or gay – you have to work hard to be an investor of choice for smart founders.

Lastly, but perhaps most importantly for founders, there are very few people who seem interested in investing a material amount in any one venture. The model that just about all of these groups adopt is a portfolio approach – i.e. they aspire to invest in a number of start-ups in the assumption that most of them will fail, and a couple of others will break even, but that there will be a small number of  big winners that return the overall investment. This might work if you’re prepared to invest a seriously large amount (of money and time), but when the amount you’re starting with is already small, spreading this even more thinly across a lot of ventures means you end up with a minuscule amount invested in each one – far too little to make it material to you either way, or to justify spending too much time on it – so you end up watching from the sidelines and learning very little from the process.

I’m also not sure the odds stack-up in their favour the way that many angels assume when they start. Perhaps this portfolio approach works if your portfolio is big enough (e.g. hundreds or thousands of companies) but if you’re spreading across just 5 or 10 local companies then there is every chance that all of them will bomb. You can’t just randomly date strangers and expect to find your soul mate!

Unfortunately the standard angel experience is to make a few small investments that struggle, find out that it’s much harder than it looks, become reluctant to continue to invest the time and money required to support the ventures on-going and then bail on the whole thing having made very little positive difference to any founders at all.

Government Funding

In terms of access to government funding, it’s a great time to be a start-up founder!

I have no issue with pouring fuel on existing fires. Unfortunately, most of the time, it’s the exact opposite.

In addition to funding all three of the things I’ve described above, there are also a growing list of national and local government organisations who provide direct funding grants to new ventures. In fact, so many that it’s become a confusing and complicated maze for founders to navigate. There are even consultants who will help guide early-stage start-ups through the application progress (for a fee, of course) … that points to a problem!

As a result of this, in our experience, the best founders often don’t bother to apply because the benefit doesn’t justify the time spent. Funding programs create distortions on both sides of the fence. We’ve seen lots of examples of founders adapting their plans ridiculously in order to fit into the funding criteria – a classic example of confusing the engine and the tender. And, in order to justify their existence those administering the funding need to make sure that they are picking winners – and, of course, the easiest way to do that is to pick those that are already winners, rather than directing money to where it could make the biggest impact. Also, just like any investor, administrators are often loathe to write off obvious losers so continue to throw good money after bad. The majority of this money is provided as indirect funding of infrastructure or as grants with no material strings attached.

In my opinion, if the government funds your start-up then it should be a shareholder or, in the least, a creditor. Not to do this is to privatise profits and capital gains but socialise the up-front risk. Funding isn’t an entitlement. As Selwyn Pellett points out, this would also force founders to think a lot more carefully about how they spend grants as it would put a cost on the capital provided. Note, some funding is provided as co-investment - where the government tops-up an investment round by matching the amount put in by investors, on the same terms. This is a pretty spectacular deal for investors, who get to reduce the amount they have at risk, or spread their bets across more companies, while still having the option of most of the upside if things go well. I’m not personally an accredited investor, but some of the companies I’m involved with have received co-investment via other investors. I’m sure the high net-worth people who are part of this program appreciate the government’s help.

To summarise, the most promising ventures don’t really need it, it doesn’t often get to those who could use it, and those who get it instead end up applying it inefficiently. Welfare for early-stage ventures struggles to meet any of the criteria we started with above!

It is widely believed that there is a lack of capital for growth companies in New Zealand, which is part of the justification for government funding in the first place. I struggle with this, because just about all all of the ventures that I see which really deserve to be funded manage to access the money they need, as do lots of outrageously stupid ventures that should never have been touched by investors.

The people who complain most loudly about the lack of capital are typically those whose ventures are unattractive to investors, either because their valuation is too high, or their likelihood of decent return is too low or non-existent. In my opinion, neither of those gaps should be filled by the taxpayer.

Is it working?

To know if an intervention is working you need to measure for impact. This means measuring outputs, not inputs. And, it means comparing the group who have received support with a control group who have not, to properly understand if the input your considering contributed to the output you’re interested in.

Is there any evidence that any of these things done to support start-up companies have an impact, when compared to other companies that just got on with the job? I accept that this is very difficult to measure because “success” is hard to define, but just because it’s hard doesn’t absolve those who promote the things I’ve described above from trying. Indeed, it forces you to think more about what you’re actually trying to achieve.

It’s tempting to quote the number of companies created, or the number of jobs created. However, these are still inputs.

A better idea would be to measure the impact on the economy. In that case, a good measure would be something like total export revenue earned or total tax paid. (e.g. In their recent press release NZTE “celebrated” that over the last 10 years they have funded 250 companies via incubators, of which 177 are still operating, and who have collectively paid $45m in PAYE and GST over that time. They didn’t say how much funding has been provided to achieve that result).

Or perhaps we are happy just raising awareness?

I’d love to see some full analysis of all of these different initiatives, and better understand what the desired outputs are and how well they are achieved. Perhaps my opinion is wrong. I’m certainly open to that possibility.

Show me the feedback loops! Or are we too scared to look at the results in case that forces us to admit that it’s not really making much difference?

Is there another way?

This is not school! You don’t qualify your start-up by winning a competition or getting a sucker to invest or being accepted into an incubator program. You qualify by building something customers want and win by selling it repeatedly to them at a price that is greater than your costs. There is already a well established way to keep score in business: profit and loss. If you think you need $100k to pursue your idea, rather than hoping for a prize or chasing investment, why not build something you can sell to 1000 people for $100?

If you are somebody who wants to support start-ups: be founder-centric and understand that most start-up infrastructure doesn’t help founders much at all. Rather than trying to solve meta-problems, like how to create an eco-system, why not get your hands dirty and help directly? This is exactly what we’re trying to do at Southgate Labs.

If you are a founder, or aspire to be, I have some good news: all of the things I’ve described are opt-in. The choice is yours.

But don’t just take my word for it…

Over the next few weeks I’m going to hand over this blog to a series of guest posts by founders who are doing just that. Some of them are higher profile than others. Some you have probably never heard of. All of them are heads down working on building a successful business, with a product, paying customers and a team in place. I’ve tried to pick those who have not over indulged in the various distractions I’ve described above, but there are amongst their number those who have dabbled, and hopefully their first hand experience is useful in understanding how that has helped, or not. I’m interested in the different business models, the different approach they are taking to getting in front of customers and making sales, how they put their team together, how they got started and how they funded their growth. I want to thank them in advance for taking the time to tell their stories. I hope you find this interesting as you think about how to approach your own ventures.

• Dr Sam Hazledine, MedRecruit, 5th December
• Dave ten Have, Ponoko, 6th December
• Marie-Claire Andrews, SmartShow, 7th December
• Nik Wakelin, MinuteDock, 8th December
• Vaughan Rowsell, Vend, 9th December
• Andrew Mayfield, Optimal Workshop, 10th December
• Richard Humphries, Trade Tested, 11th December
• John-Daniel Trask, Mindscape, 12th December
• Layton Duncan, Polar Bear Farm, 13th December
• Dan Lee, Beetil, 15th December
• Jos Ruffell, Garage Project, 16th December
• Scott Ryburn, Sharesight, 18th December
• Michael Dowse, Go Vocab, 19th December
• Jon Thompson, Productspec, 20th December
• Tarik Mallett, Third Screen Interactive, 21st December
• Rich Chetwynd, Litmos, 23rd December

Enjoy!

PS thanks to all of the people who were kind enough to read a draft of this post and help me to make it better – I won’t name you in case you get tarred with my cynical reputation, but your contributions are much appreciated!

“A million dollars isn’t cool. You know what’s cool? A billion dollars.”
– Sean Parker *

Trade Me has announced details of their IPO, valuing the company at over $1 billion.

That’s cool!

To those who may say this means the original shareholders sold too soon …

I was very fortunate to have a small role to play in this story. Relative to my contribution, I arguably ended up with far more than my fair share, so I try not to feel too sorry for myself.

* This quote was attributed to Parker in The Social Network movie, but according to a recent interview with FT, he doesn’t actually believe it – his words: “[A billion dollars is] not cool. I think being a wealthy member of the establishment is the antithesis of cool. Being a countercultural revolutionary is cool. So to the extent that you’ve made a billion dollars, you’ve probably become uncool.”

I strongly recommend you go, for a few years at least, but good luck finding somewhere that is better than this. Remember when a British Pound was worth 3 NZ Dollars – not anymore.

You’ll find that there are too many old people just about everywhere (apart from in the third-world)!

I don’t have an easy answer to this, sadly. But, let’s agree to stop moaning, and get on with trying to find a solution.

Regards,

Generation X, Y & Z

Here is the problem in very plain language: there are too many of you and not enough of us.

Please sort your own shit out.

Regards,

Generation X, Y & Z