The Weakest Link, Good Bye!

I was quoted in this article, about the new Master of Advanced Technology Enterprise course being offered by Victoria University:

Vic teaches mastery of a dragons den

For completeness, some other stuff I told the reporter, which didn’t make the article…

You don’t qualify your start-up by winning a business plan 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.

The best and arguably only way to learn about a start-up is to be part of a start-up. The good news is that’s very easy to do. There are no pre-requisites.

Actually, I’ve changed my mind on this since I was first asked. One of the things investors look for in founders is evidence of good judgement. On reflection this is an excellent negative tell.

I wonder if this reality TV approach frustrates people working in other areas? What do people who work in the music industry, or home renovators or chefs think of their reality TV equivalents? Maybe the distinction has been blurred in all of these industries too?

To understand the folly, take the text of the press release and replace all instances of “technology entrepreneur” with “poet”:

“Towards completion of the course, each team will present their poems to an expert panel, with attracting funding being an integral part of the qualification.”

Sounds excellent. I’d attend.

But, anyway, I’m done with this debate.

I hereby announce my resignation from the position of the guy who speaks out about this sort of stuff – incubators, business plan competitions, endless awards, and the whole reality TV approach to start-ups. Somebody else can comment on our emperors impressive new wardrobe from here on in.

When we work with founders we advise them to try and not get sucked into the noise and distractions that swirl around the start-up eco-system, and to just focus on building a great product and business. For whatever reason I haven’t followed that advice myself recently.

Maybe a MAdvTechEnt is the missing piece to your start-up jigsaw. Perhaps the safe environment of an incubator will help you get going. The Dragons Den could even be the ideal place for you to find an investor for your venture.

My mileage differs quite a lot. But, I’m not going to waste any more time or energy trying to convince you otherwise…

Good luck!

Call Me, Maybe? (Part II)

This is the second-part of a special guest post series by Sacha Judd (aka @szechuan).

Sacha is a partner at Buddle Findlay, based in Auckland. She works with a number of early-stage technology companies including Vend, Pocketsmith, Litmos, My Tours, GoVocab and others, helping founders with everything from setup and shareholder arrangements to capital raising. She is a not-evil lawyer who makes the scary legal stuff much less scary.

In this two-part series I’ve asked her to describe some of the common problems she deals with so you can hopefully avoid repeating those mistakes in your ventures.

You can read the first part here: Call Me, Maybe?

Over to Sacha…

PART II

In the previous post we talked about the things you should do in advance of starting work on your venture – making sure you have incorporated your company correctly, agreed on a equitable ownership split and agreed amongst all of the founders about the basics of how the company will be run.

In this second part we turn our attention to how you make sure that company is well-placed for growth, attracting investment, and any eventual exit.

If you want it then you should have put a ring on it

Intellectual property is confusing, particularly in the technology sector. Daunting terminology around trade marks and patents, coupled with overseas examples of accusations of infringement, “patent trolling”, and aggressive cease and desists, have made the whole area seem difficult and scary for new entrepreneurs.

You can either just bury your head in the sand, or alternatively there are a number of practical steps you can take to lay a good foundation for protecting your intellectual property right from the start.

First, think seriously about the name of your company, product or service. The spate of dropped vowels that characterised Web 2.0 businesses like Flickr and Tumblr served a valuable purpose in this context as an invented word is the easiest to protect. If a word doesn’t exist yet, you reduce the risk that you’re infringing on someone else’s rights, and you’re less likely to run into difficulties with trade mark registrations on the basis that your name is too “descriptive”.

Even if you choose not to get creative with the English language, at a minimum you should search as extensively as you can online to see if your name is already in use either here or overseas, or if other companies in your industry are already using similar names or logos.

Over and above what you can find for yourself on Google, lawyers who specialise in this area can undertake more comprehensive searches for you using trade mark databases. The advantage of paying someone to help you with this is that they know what to look for and where to look. They can also then give you an indication of the risk of you moving forward with your chosen name, even if there is someone else out there using it or something similar.

Next, register your trade marks. Even though you get some unregistered rights just by starting to use your shiny new name and brand, a trade mark registration is easier to enforce, at least in the country where it is registered. Prior use only exists in the geographical area where your brand has a reputation, which in the beginning will probably be a very small, local area. So, if you’re planning to trade internationally, think about registering in other countries too.

Finally, make sure the company owns everything that you think it does. Often in the early stages the founders will be doing a lot of the development work themselves, but you might also pay other people to assist, get friends to help out, or even promise “sweat equity” to others who might join the team in the future. Without oversimplfying matters, unless the company is paying someone to do the work and/or you have a clear agreement, the intellectual property in the work will ordinarily belong to the person creating it. Things can get more complicated if members of your team are working on this project after hours while they are in full-time employment. Often the starting point of an employment agreement is that anything you create belongs to your employer, even if you’re only working on it in the evenings or on the weekends. The last thing you want is to have the ownership of your code, or your product, become unclear.

You can minimise this risk by making sure everyone who is working on the idea has an employment contract or contract for services with the company, clearly setting out what they will be doing, and stating that all the intellectual property and improvements created belong to the company.

Where software is involved, make sure you have licenses for all of your source code. This is particularly true where you use open source code.

The golden rule should always be to make sure that what’s built for the company is owned by the company, and that this ownership is clear and uncontested. This might not seem important on day one, but next we’ll look at what it means to be “investment ready”, and why this matters whether or not outside investment is on your horizon.

It’s business time

Start-ups fall into a couple of different camps. For some, the main priority is finding their first customers, keeping them happy, and then finding some more. For others, the highest priority is finding outside investment to help realise their idea.

Regardless of your planned trajectory, whether you want to chase venture capital off the back of your idea, or only plan to look for money when you need to expand, it’s still sensible to run your company as if you might look for outside investment in the future. This essentially comes down to good “housekeeping”.

First and foremost, keep a copy of everything you ever sign relating to the business. Everything. That means every cellphone contract, computer lease, bank overdraft application, domain hosting service or end user license agreement. (Yes, really. Even if you just click “accept”, save a copy or print it first.) Make sure everything is signed by both parties, and has a date on it. Services like Dropbox make this sort of record-keeping easy.

Make sure you sign things in the right name. Your accountant will give you the same advice – things that relate to the business need to be in the name of the company, not your personal name.

Always think about what you’re signing, how it might restrict you in the future, and for how long. There are a number of advisory services that will help with developing business plans or raising capital, but require the companies involved to sign contracts giving them exclusive rights for a period. Similarly, a simple confidentiality agreement signed early on with a company you later decide not to continue working with may prevent you from disclosing information to investors without their consent, even where your relationship with that company has come to an end.

Don’t let things continue indefinitely “on a handshake”, and don’t let key agreements expire and just keep going “as is”. If you have a key customer or supplier arrangement, it’s much better if there is a contract that documents it.

The Companies Act contains some specific obligations around record keeping. Any change of directors needs to be filed promptly. If you issue new shares or transfer shares to others, prepare and sign resolutions and certificates recording the change. Always keep your share register up to date (not just the Companies Office website – contrary to popular opinion, that is not your share register). You also need to hold an annual meeting of shareholders, or alternatively the shareholders need to sign a resolution in lieu of this. This needs to be done before you complete your annual return online.

Keep meticulous records around your intellectual property. You should be able to demonstrate that everyone who worked on your code or product did so under a contract, and have signed copies of those contracts. You should also have licenses for all your code, including open source licenses.

Any potential investor will want to carry out some form of due diligence on your company. Depending on the stage and scope of the investment, this might be as simple as looking at your financial statements, and spending some time with you as founders. However, beyond the seed stage, investors will most likely want a much more comprehensive range of information. More than that, their investment is likely going to depend on the company providing a range of representations and warranties that the information you’ve provided is complete and accurate, which are essentially promises that, if they turn out not to be true, will result in you paying the investor to reimburse them for their loss.

During due diligence a potential investor will usually provide you with a standard set of requests for copies of the kind of information outlined above, but also ask a range of questions. Are you in breach of any of these agreements? Are there any disputes with customers or suppliers about your products or services? Have you paid all your taxes? Are you aware of anyone who might be infringing your intellectual property?

Responding to these requests can take time, and the better the records you keep along the way, the easier it will be to move through this process. When, or if, you decide to embark on the process of raising capital, or selling your company outright, is obviously a difficult and critical decision. Next we’ll look at how you can set your company up with the right governance and advice to help you make those kinds of decisions.

I get by with a little help from my friends

Starting a business is hard work, and you’ll want to get as much solid advice at the beginning as you can. We’re lucky in New Zealand that there is a real culture of paying it forward, and many very successful business people are more than happy to meet for a coffee and give you feedback on your idea or your progress. Beyond this informal network you start to get into the key issue of governance. Who is running your company, and how are they doing it?

The traditional legal company structure is designed to separate ownership from management. The owners (shareholders) are not typically the people running the show (directors). In start-up companies, however, founders tend to fill both roles. It’s important for those of you who are directors to understand what that means legally.

As a director of a company you have a number of duties that you must comply with under the Companies Act. I won’t cover all of the obligations on a director here, but the following are some of the key considerations that you should bear in mind when you agree to be a director.

Most importantly you must act in good faith and in what you believe to be the company’s best interest. This is particularly important where a director is also a shareholder.  As a director, your decisions need to put the company and not your own investment first.

You must “exercise your powers for a proper purpose”. An example of an improper purpose might be issuing shares for the purpose of diluting another shareholder’s investment.

You must not allow the company to “trade recklessly” – meaning letting the company’s business be carried out in a manner that is likely to create substantial risk of serious loss to the company’s creditors. For start-up companies, where cash flow will always be tight, it is very important for the directors to focus on the financial statements regularly, and to think carefully about the obligations that the company is entering into. Directors must be confident the company will be able to meet its obligations.

All directors have a duty to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances. This means that it’s not okay to rely on your fellow directors to monitor and run the company. If you’re not familiar with financial statements, you should get some good advice at the outset. Spend time with the company’s accountant, and ask a lot of questions if you don’t understand something. The Institute of Directors runs a number of excellent courses for people who are starting out covering governance, strategy and finance essentials.

If all of the founders are relatively inexperienced, you should think seriously about finding an independent director to join your board. Alternatively, you might decide to create an “advisory board” of people experienced in your industry or sector, who are happy to provide advice and oversight on a regular basis.

But, how do you pay advisors in this situation?

It is very unusual for small companies to pay directors’ fees, other than perhaps a nominal amount for an independent director’s time and expenses. When it comes to advisors, some may have a standard hourly rate, and some may be more interested in a small amount of equity (both because they see upside in your company, and also because it is more interesting to them to have some skin in the game). The challenge for founders is to “value” the advice and input that these mentors might provide, without creating an onerous, long term commitment that is difficult to untangle if the relationship doesn’t work out.

In the United States, where these relationships are more common, the Founder Institute has done some good work in developing a standard framework and simple agreement for providing equity to advisors. While this is US-specific (I’ve worked on a slightly streamlined version of a similar agreement for use in NZ) what is really valuable about this guidance is the schedule which sets out the stage the company is at, and the level of engagement from the advisor. For example, will they connect you with their network (and what does that even mean)? Actively promote you within their network? Or actively seek out funding for you? Do you expect them to meet with you quarterly? Monthly? Is their role just to test your assumptions by asking you lots of questions, or are you hoping they will give you proactive, strategic advice? All of these factors will contribute to how much you might pay them, or how much equity you might want to offer.

Ultimately it’s critical for founders to be honest about their strengths and weaknesses, and to identify people who can bring real skills to help the business grow. Don’t be afraid to interview potential directors and advisors extensively to make sure the chemistry and fit is right for your business, and as you would with any employee, trial the working relationship for a few months before you agree to make them shareholders.

I fought the law, and the law won

In the beginning, start-up companies rightly focus on doing all they can to get the business up and running. There is often a reluctance to spend money on anything that doesn’t “make the boat go faster”.

Tech start-up founders often view lawyers with suspicion, and sometimes for good reason. I’ve written these posts because it frustrates me to hear, time and again, that founders have delayed or avoided taking care of their legal situation because they don’t think it’s necessary, or the problem seems too daunting, or they think they can’t afford to get help. I hope that as people start to educate themselves about the basics, they’ll plan better for the future.

Finding a good lawyer to advise you on these things, who understands you, your business, and the sector you’re operating in, will be one of the best investments you can make.

Call Me, Maybe?

This is a special guest post series by Sacha Judd (aka @szechuan).

Sacha is a partner at Buddle Findlay, based in Auckland. She works with a number of early-stage technology companies including Vend, Pocketsmith, Litmos, My Tours, GoVocab and others, helping founders with everything from setup and shareholder arrangements to capital raising. She is a not-evil lawyer who makes the scary legal stuff much less scary.

In this two-part series I’ve asked her to describe some of the common problems she deals with so you can hopefully avoid repeating those mistakes in your ventures.

Over to Sacha…

PART I

Innovative New Zealand businesses are taking on the world, launching globally competitive products and services, raising capital from overseas investors, and getting acquired by large multi-national corporations.

Technology has made starting a business much easier. Open source development tools and cloud-based hosting services have made it much cheaper to get a new product or service built and launched. Modern accounting tools like Xero make it possible to keep your finances in order. Online banking means your bills get paid on time and you can keep on top of your cashflow. The Companies Office even has an automated and streamlined online incorporation process. As a consequence, entrepreneurs in the start-up phase feel very self-sufficient. The DIY attitude is part of what makes New Zealand companies so amazing to work with.

But, not so fast. There are some easily-avoided traps that I see entrepreneurs falling into over and over again. As a lawyer, it might seem like I have a vested interest in suggesting start-up founders get professional advice early. But, the alternative is that they often end up paying people like me a lot more to clean up the mess later on, assuming that’s even possible.

In this series, I’ll discuss some things you should think about to make sure you are laying the right foundation for your start-up. There are a few important choices that young companies can make early on that have significant consequences, particularly if you intend to raise money from external investors at some point in the future. If you follow this advice it should save you time and money, both by avoiding some obvious mistakes, and by giving you a good basic understanding to work from so that when you do decide to bring advisers on board you know what you need and what to ask for.

This is my advice about when to take advice.

Wanna be starting something?

The first thing to do is form a company so that your business has a separate legal personality. This is important to separate the legal liability for the business from your own personal assets, though in practice, if you are borrowing any money or opening a facility with a bank, you are likely to be asked to give a personal guarantee as well. Make sure you understand the effect of this, and get good advice before you sign. This advice applies whether you’re a solo-founder or working with others.

If you are working with co-founders, you need to discuss candidly at the outset whether each of you will take an ownership stake in the business (shareholders), a governance role in the business (directors), or work for the business for salary or wages (as employees or independent contractors).

This can be a very tricky discussion to have at the start of a project you’re all excited about, and one that is often deferred or avoided altogether. You need to talk honestly about each person’s contribution and what value you each attribute to it.  The tendency is often to just settle for an equal split of shares, because it seems “fair”, and avoids a hard conversation. However, that may not reflect the time and effort and expertise that each person is bringing to the table, and may lead to arguments down the road. More than that, academic research indicates that founder teams who avoid having these discussions up front, and agree to split their equity equally, tend to suffer (on average) a 10% discount to the pre-money valuation of their companies when it comes to their first financing rounds. Your company may actually be worth less if you don’t go through this process at the start.

One useful tool I’ve found helps founder teams with these discussions is Frank Demmler’s “Founders’ Pie Calculator”. This is a great starting point for working through what each of you brings to the table, how the rest of the team feel about the value of that contribution, and what your overall commitment to the business will be. It’s not a magic wand for settling the question of your equity split, but it does give you a good framework for trying to have the conversation in an objective, unemotional way.

Once you’ve settled on the percentage ownership, you can form the company. The Companies Office makes it easy to do this yourself, but in some ways this masks the compliance that sits in the background. Did you know you’re supposed to have a share register? An interests register? Opening minutes recording the issue of shares to each of the founders? You need to keep these and other records at the registered office of your company. It’s too easy to overlook this paperwork until you want to raise capital and the investor asks to see it, at which point it may be too late to put in place quickly and easily.

It’s (not just) a matter of trust

At the outset of a new venture, everybody involved is excited about the project, positive about its future prospects, and in agreement on most things. It’s hard to imagine a time when you might not feel the same way. But things change. One of the founders gets a great job opportunity to move to another country, or wants to take time out to start a family. One of you wants to expand into Australia, but the others think it’s a terrible idea. You get approached by someone who wants to buy the business, but only some of you want to sell. If you haven’t agreed anything in advance, you may find yourself in an incredibly stressful situation, facing disagreement without any framework to help you deal with these issues.

To avoid getting into this situation, all of the founders should, at the very least, get together and dream up all the best and worst scenarios that might play out. Talk about what you would want for an outcome in these cases, writing down everything that you agree. Ideally, you should take the next step and put a binding agreement in place to record your intentions.

A good, simple shareholders’ agreement should do a few things.

  • It should reflect how decisions will be made. As a matter of company law, most decisions can be made by management. A few key decisions relating to the company require shareholder approval; sometimes 50% approval and other times 75%. Depending on your ownership structure, you might want to list out a series of key decisions that will require unanimous approval, or at the very least, a high enough threshold to give any smaller shareholders some comfort that the major founders won’t just do whatever they like. These decisions might include: entering into high-value or long-term contracts, raising capital, hiring senior employees, or major changes in business direction.
  • It should state how you will be able to sell your shares should you wish to. Do you have to offer them to the other shareholders first (pre-emptive rights)? If a large enough number of shareholders want to sell, can they force the others to sell too (drag-along rights)? If the major shareholders want to sell, do they have to secure a deal for the minor shareholders as well (tag-along rights)? Are you free to transfer your shares to a family trust or investment company?
  • It should deal with funding. If the company needs money, will you borrow from the bank? Do the shareholders have to guarantee this funding if that’s required? What about if you decide to issue new shares? Do the existing shareholders all have a right to maintain their existing percentages by putting in more money?
  • It should cover what else you are allowed to do. The start-up might not be the full-time focus for all of the founders at the outset. You may have some friends and family as initial investors. The agreement should cover restraints of trade, and whether shareholders are able to work or invest in other similar businesses.
  • It should set out what you want to have happen if things go wrong. If someone doesn’t hold up their end of the agreement, do they have to sell their shares? To the other shareholders, or to the company? At fair value or at a punitive discount?  If there are only two of you, and you have a fundamental disagreement, you may want to consider simple deadlock provisions rather than going through the time and expense of independent valuations of the business.

A good shareholders’ agreement is written in plain English, and is able to be understood by all of the founder shareholders. There will be the temptation to use a template agreement, but as you can see from the questions above, every shareholders’ agreement will be substantially different, depending on the number of investors and their respective levels of control (for example, a 50/50 company needs very different arrangements than one with a majority founder shareholder, and a number of smaller minority shareholders). There is really no substitute for getting some good advice on this, and getting everything documented and signed.

With your company correctly incorporated and a good shareholders’ agreement in place you can get on with the business of building something great.

In the next post we’ll look at how you can make sure the company owns what you think it does and be prepared in advance for investment or acquisition.

Continues in Call Me, Maybe (Part II)

Sky is the new Telecom

On 5th April:

“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.

He aha te mea nui o te ao?

This is the transcript of a short speech I gave last night at the Think Forward event in Auckland. Thanks to Sacha Judd from Buddle Findlay for inviting me along and allowing me to say a few words to kick things off. The other speakers were: Aloyna from Pingar, Mitch from Small Worlds, Rob from Koordinates, Vaughan from Vend, Matt from Letterboxd, Simon from SentiRate, and Ian from Williams Warn.

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.

Singapore, Ya Lah!

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!

Rich Chetwynd, Litmos [Guest Post]

This is the final post in the Founder Centric Startups series, for 2011 at least.

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:

Tarik Mallett, Third Screen Interactive [Guest Post]

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

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:

Jon Thompson, Productspec [Guest Post]

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

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:

Michael Dowse, Go Vocab [Guest Post]

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:

Scott Ryburn, Sharesight [Guest Post]

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

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:

Jos Ruffell, Garage Project [Guest Post]

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

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:

Dan Lee, Beetil [Guest Post]

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

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:

Layton Duncan, Polar Bear Farm [Guest Post]

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

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: