John-Daniel Trask, Mindscape [Guest Post]

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

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

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

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

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

I have always wanted to run my own business.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What are the mistakes you’ve made?

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

1) Getting comfortable.

I’ve blogged about this.

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

2) Outsourcing marketing

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

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

1) Marketing costs

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

2) Staff costs

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

3) Having a founder leave

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

4) Not charging enough

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

Any specific advice for other founders?

1) Be friends with lawyers

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

2) Hire the absolute best you can

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

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

3) Have a co-founder

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

Other guest posts in this series:

Richard Humphries, Trade Tested [Guest Post]

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

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

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

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

What’s the purpose of your company?

To deliver great deals from manufacturer to consumer.

What does your company do?

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

What is the business model?

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

How do potential customers learn about you?

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

Who are the people working with you on this?

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

How did the business get started?

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

How have you funded your growth so far?

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

What are the mistakes you’ve made?

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

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

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

What’s your ambition for the company?

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

Be trusted.

Hit sales targets.

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

What advice do you have for other founders?

Always keep trying new things.

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

Other guest posts in this series:

Andrew Mayfield, Optimal Workshop [Guest Post]

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

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

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

Let’s put some questions to Andrew…

What’s the purpose of Optimal Workshop?

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

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

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

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

What is the product you’re selling?

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

What is the business model?

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

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

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

How do potential customers learn about you?

A lot of it is word of mouth.

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

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

How did the business get started?

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

Who are the people working with you on this?

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

How have you funded your growth so far?

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

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

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

What advice do you have for other founders?

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

Other guest posts in this series:

Vaughan Rowsell, Vend [Guest Post]

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

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

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

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

Enjoy…

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

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

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

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

http://www.vendhq.com/retail

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

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

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

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

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

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

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

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

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

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

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

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

Since it’s Friday…

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

Other guest posts in this series:

Nik Wakelin, MinuteDock [Guest Post]

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

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

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

Over to Nik…

What’s the purpose of Minute Dock?

Death to Copy + Paste :)

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

What does your company do?

We do super-quick & easy time tracking.

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

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

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

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

What is the business model?

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

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

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

How do potential customers learn about you?

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

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

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

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

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

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

How many customers do you have?

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

Who are the people working with you on this?

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

How did the business get started?

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

How have you funded your growth so far?

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

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

What are the mistakes you’ve made?

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

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

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

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

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

What’s your ambition for the company?

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

What advice do you have for other founders?

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

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

1) Take some time to congratulate yourselves.

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

2) Focus.

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

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

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

Other guest posts in this series:

Marie-Claire Andrews, SmartShow [Guest Post]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other guest posts in this series:

Dave ten Have, Ponoko [Guest Post]

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

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

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

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

Over to him to tell us more…


What’s the purpose of your company?

To enable people to make things.

What does your company do?

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

What is the business model?

The business model has two components:

1) we make money by manufacturing parts for our users

2) we license our platform in a SaaS model

How do potential customers learn about you?

Mostly… online.

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

Who are the people working with you on this?

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

How did the business get started?

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

How have you funded your growth so far?

We’ve funded our business via several methods:

Derek and I invested the proceeds of our first businesses.

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

We’ve also more recently taken investment from Movac.

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

What are the mistakes you’ve made?

Being too cautious.

Buying into the WIRED/Silicon Valley story.

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

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

Finding growth capital.

Being a little too early to market.

Finding staff in Wellington.

What’s your ambition for the company?

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

What advice do you have for other founders?

Trust your gut.

Get good pragmatic advice.

Don’t be afraid of looking dumb.

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

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

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

Karma is real ;-)

Other guest posts in this series:

Dr. Sam Hazledine, MedRecruit [Guest Post]

Today is the start a new series of guest posts by founders talking about their ventures.

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

Over to Sam…

Sam Hazeldine

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other guest posts in this series:

Being Founder-Centric

Before we get stuck into this topic, I recommend you read two earlier posts which give important background on what I want to discuss here:

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

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

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

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

Three strikes and you’re out, I thought.

What a hopeless cynic I’ve become! Why?

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

So, is it working?

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

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

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

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

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

The questions we should be asking in each case are:

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

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

Incubators/Hubs

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

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

There are three problems for incubators/hubs:

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

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

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

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

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

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

Accelerators

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

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

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

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

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

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

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

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

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

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

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

Business Plan Competitions

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

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

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

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

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

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

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

Angel Networks

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

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

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

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

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

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

Government Funding

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

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

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

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

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

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

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

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

Is it working?

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

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

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

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

Or perhaps we are happy just raising awareness?

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

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

Is there another way?

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

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

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

But don’t just take my word for it…

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

Enjoy!

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

From Idea To Impact

“Your mission statement should be nine words or less: verb, target, outcome.”
This is a great talk by Kevin Starr from The Mulago Foundation.

If you’re working on a venture – either non-profit or for-profit – I strongly recommend you invest 25 minutes of your time and watch this.

Kevin is an amazing guy. I was lucky enough to travel with him and his team in Africa last year, and it was great to spend a bit of time with them and learn a bit from some of the ventures and people they are funding there (my post about that trip: Muzungu). I’m looking forward to future adventures with them.

As he describes it, Mulago is an “investor in impact” – meaning, unlike many donors, he’s not investing money in order to just feel good, he’s looking for the change that results from the money they put in.

This is his list of the full chain needed to get from an initial idea or invention to real impact:

  • Idea
  • Need
  • Real Demand
  • Design Process
  • Product
  • Manufacture
  • Distribution
  • Marketing
  • Behaviour
  • Impact

This logic applies just as much to for-profit ventures. If you omit any of the links in that chain then your idea is not going to have the impact that you intend. If you’re not making something that people really want; if you can’t take your concept and turn it into a real product that you can build; if you don’t have any way to get your product to customers and make them want it; if you can’t convince enough of them to actually use it (and pay for it) … then your idea is just not going to work, simple as that.

Technical people often jump straight from “interesting idea” to “can I build it?” without any regard for whether it meets a need or how it can be distributed. Non-technical people seem to start with the product and how they will generate demand, overlooking the challenge of finding a technical co-founder  to work with who can actually make it a reality.

So, think about your venture.

Which of these steps are you skipping or doing poorly? Start there.

As Kevin says, “have at it”.

More on this soon…

San Francisco: Good News & Bad News

Here are some quick observations from an exciting and busy trip to San Francisco with Vaughan from Vend, specifically for other kiwis who are also working on a new technology venture and aspire to do the same…

First, the good news: It’s not nearly as hard as you might imagine to get to San Francisco or Silicon Valley and meet with people that can help with your venture. I don’t mean physically (it’s a single flight – about 12 hours – and you’re there).  I mean mentally.  We have all convinced ourselves that we need to qualify before we belong in the US. Ideally starting somewhere safer and easier, like New Zealand. Locals there don’t think that.

However, there is also bad news:  Being a kiwi start-up doesn’t make you special. Nobody will care that you had to fly a long way to get there, or that you talk funny (we met people originally from India, Australia, Israel, Eastern Europe and Florida – everybody talks funny!)  You will have to do the hard yards and earn it just like everybody else there does.

In Palo Alto we met with Elizabeth and Dan from ScienceExchange.com, the day before they presented to potential investors at the Y Combinator Demo Day.  I told them that many people back home think we need a Kiwi version of Y Combinator. Their response to this helped to put into words something I’ve been struggling to articulate for a while:  There is already a Y Combinator for New Zealanders … it’s Y Combinator … you just need to apply, and if you’re good enough you’ll get in. And if not, why should an equivalent program in NZ be interested in you when they are not?

Later in the day, down the road at Stanford we got to see Vend in use at the Student Store and spoke to some happy customers there. They found us on Google, signed-up for a trial and implemented it without ever talking to us in person. They think Vend is great POS software. We’re excited to have them as a customer which has opened other doors for us. Everybody is happy.

So, good news and bad news – it’s much easier and much harder than you think.

To get a foot in the door you just need to be worth meeting with!

So what are you waiting for?

Vend: The end of the beginning

now-vendor_950x700--upscale

(Image: Idealog)

When we started putting Southgate Labs together, about 18 months ago, one of the first people we spoke to was Vaughan from Vend.

He had first floated the idea for a web based point-of-sale with me somewhere over the Akatarawa Ranges en route to Otaki, as he cycled the length of New Zealand. By the time I heard from him again he’d built the first version and already had a couple of paying customers. Now that’s what impresses potential investors!

In fact they weren’t just customers, they were raving fans. They wondered if the decimal point was in the wrong place in their monthly subscription price, compared to the painful expensive support contracts they were used to, and they found the software itself was beautiful and easy to use.

Finally POS means “point of sale” again.

It was great to have a chance to invest early and allow him to work on the venture full time. We convinced Sam to invest too. I’ve been privileged to piggy-back with Sam on a number of the early-stage investments he’s done over recent years, so it was nice to be able to return the favour.

But, more than that, it was great to have the chance to get involved.

We’ve enjoyed helping him push it along over the last year, working on the product design and user experience, branding and marketing site, making introductions where that has been useful, a number of long planning sessions as we all tried to wrap our heads around the opportunity, and basically whatever was required (as is the nature of a venture like this). It’s been fun to see the product getting better and better and the number of customers increasing.

So, it’s exciting this week to announce the end of the beginning and the beginning of the next phase in the development of the company. From the very early days we’ve been in touch with Christoph Janz from Point Nine Capital based in Berlin, Germany.  They have been involved in a number of successful start-ups, including Zendesk, Free Agent and Geckoboard, and it’s excellent to welcome them into the team as investors and advisors, along with some kiwi angels.

The money will allow Vaughan to grow his development team based in Auckland and, even more importantly, grow his sales and marketing team both here and in the US (we’ll be in San Francisco to setup our office there in the next couple of weeks, if you’re in the area let us know!)

If you’re a designer, developer or business development person looking to be part of an exciting start-up then get in touch now.

It’s great to be part of something like this.

Onwards and upwards from here, hopefully!

Vend: http://www.vendhq.com

A Shamelessly Gushing Review of Anything You Want

A couple of months ago I was given the opportunity to proof read a new book by Derek Sivers, called “Anything You Want”.

He has a knack of taking an idea and making it seem so obvious that you’re embarrassed to admit that you didn’t already think of the world in those terms. However, when that happens ten or fifteen times in the course of one book you have to accept that you didn’t already think those things, but will from here on in.

He is also one of those rare people who is able to write in his own voice – so when you read you can totally hear him saying the words.

Here is a taste (in this case it actually is him saying the words):

On top of it all he’s humble, given what he has achieved.  In fact, many of the stories are examples of the things he messed up through the process of building CD Baby, and the lessons that came from that. I especially enjoyed the honesty in the section where he describes selling the company:

“After a successful re-launch and Christmas rush, I was looking at my plans for 2008 and beyond. All my plans needed a huge effort for little reward, but were required for future growth. I had broken the plans into about twenty projects of two to twelve weeks each, and I wasn’t excited about any of them. I’d taken CD Baby far beyond my goals, and realized I had no big vision for its being much else.”

The book is full of advice, but it doesn’t feel like he’s telling you what to do so much as providing an inventory of stories and anecdotes that you can use to convince yourself or others why something is a good or not so good idea – e.g. next time you find yourself banging heads with an MBA you can explain why taxi drivers in Las Vegas miss the mob.

So, yeah, it’s excellent and you should all buy at least one copy.

Related:

Derek’s TED Talks:

Derek’s Blog

That’s where you lot come in…

… you come up with the science.

“I’ve got the brains.
You’ve got the looks.
Let’s make lots of money”
— Pet Shop Boys

Most of the people who contact me with an idea for a new technology business do not have the skills needed to actually make their product.

In fact, typically that’s why they are contacting me – they presumably think I will want to build it, or else introduce them to one of my technical friends who can.

They don’t seem to realise that their idea by itself is just like the hover board in this Ali G sketch:

On the other side of the equation, there are a lot of developers and designers out there who think that the only piece of the puzzle they are missing is an idea worth executing, as if you just need to build it and they will come (and as if the majority of ideas worth executing are obviously worth executing in advance).

Most of the successful ventures that I’m involved with who have technical co-founders are soon desperate for good quality sales and business development people to help them grow – e.g. Vend has a great opportunity for the right person now, for those of you based in Auckland.

This is silly. The farmer and the cowman should be friends.

Imagine a matchmaking service – where people with a business idea could connect with developers looking for something worth building, and where technical founders could connect with those who are not afraid of talking to people and selling and doing deals.

Imagine … if only I could find somebody to build it ;-)