December 11, 2011
This is the next post in the Founder Centric Startups series.
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.
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.
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?
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.
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.
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.
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?
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.
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.
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: