Paul Wallbank – Brilliant Communications

Tag: startups

  • Startup economics

    Startup economics

    Business advisor Ivan Plenty’s in-depth study of the viability of failed photo sharing startup Everpix with some useful lessons for business owners in any industry.

    Everpix shut down last November having run out of money despite getting favourable reviews from the tech press and in an unusual move, the founders put the company’s financials up on GitHub.

    As Plenty points out in his analysis of Everpix’s finances, the company was unlikely to ever break even and it’s a lesson to every business owner on the importance of keeping an eye on cashflow and understanding where the venture’s break eve points are.

    One of the key take-aways from Plenty’s analysis was that the base costs of the business were too high and even in the best circumstances it was unlikely that venture would have succeeded.

    A good business plan would have helped the founders understand this problem and it illustrates why rigorously developed cashflow forecast is a great tool for a manager or proprietor.

    The Silicon Valley investment model

    The ultimate objectives of a company’s management are always important when considering the success or failure of a business; what objective is the business working towards?

    In Everpix’s case, it may well have been the Silicon Valley Greater Fool model was a likely end, with good software and a growing customer base the company could have been attractive to a buyer.

    Were that the objective of Everpix’s founders, the company was under-capitalised as management couldn’t afford either the burn out or the PR and marketing team essential for raising the venture’s profile with key investors.

    Under-capitalisation is one of the greatest problems for any new business and its clear that Everpix didn’t have the equity to scale the way it needed.

    Capital on its own though isn’t a panacea, from Ivan Plenty’s analysis the indications are that Everpix’s fate would have been the same, but more drawn out.

    Everpix’s failure and the numbers behind it are a good lesson for anybody thinking about starting a business — numbers matter and businesses live and die by them.

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  • What do startup founders really earn?

    What do startup founders really earn?

    One of the myths of the current cult of the entrepreneur is that everyone will be a winner as their startup gets bought out by Google for a billion dollars. The reality is life for a startup founder is a grind.

    Startup Compass looked at 11,000 startups across the world to discover what founders really earn and the results show the reality of life when you’re starting up a business is that the wages are pretty poor.

    In San Francisco, London and New York, the wages are piddling compared to the cost of living in those cities.

    Low pay and business success

    This is good news for investors though, as there’s a clear correlation between the success of a startup business and the salaries its key staff members draw – successful businesses are built on the back of founders ploughing everything into the venture.

    It’s also high risk as a failed business can leave the founder with nothing to show for several years of hard work, something that’s overlooked by the ‘liberate yourself from your cubicle’ gurus advocating everyone starts up their own venture.

    Australia’s high cost economy

    Notable in the stats is the high rates demanded by Australian founders, more than 25% higher than their Silicon Valley counterparts and a gob-smacking 60% more than London or Canadian equivalents.

    Australia’s high cost of doing business was emphasised last year where a comparison by Staff.com found Sydney was the second to Zurich as a place to base a tech startup. Worryingly, that survey didn’t consider owners’ drawings.

    Part of Australia’s high wage requirements are no doubt due to the country’s lousy tax treatment of options and share plans but a bigger problem is property ownership – an Australian who hasn’t bought a home by 35 is destined to be one of the nation’s underclass.

    So an Aussie entrepreneur has to earn enough to qualify for or service a mortgage, it also discourages Australians from starting even moderate risk ventures.

    The consequence of the need to draw a high salary is that the proportion of investor funds that goes into founders’ wages is almost three times higher in Australia than it is in Silicon Valley. That’s a big disincentive for foreign investors to put money into Aussie startups.

    If you wanted an example of how uncompetitive the Australian economy has become, this is a good start.

    Regardless of where a startup is based though, the message remains that the road to a billion dollar buyout from Google or Facebook is not paved with gold.

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  • Defaulting to transparency

    Defaulting to transparency

    Social media scheduling startup Buffer takes transparency seriously, will it help the business?

    Many fine words have been written about openness, sharing and collaboration in recent years but few organisations really practice what’s been preached. An exception to this is social media service Buffer that takes openness to extreme levels.

    Buffer keeps few secrets with the company sharing its monthly operating figures, internal emails and even its formula for calculating salaries.

    The company’s CEO Joel Gascoigne believes this helps build trust in his startup, saying in his blog:

    There are many reasons we default to transparency at Buffer, and perhaps the most important is that I genuinely believe it is the most effective way to build trust. This means trust amongst our team but also trust from users, customers, potential future customers and the wider public who encounter us in any way.

    Building trust is one of the most important tasks of any business owner or manager; whether it’s with customers, staff, suppliers or investors and startups have a bigger task than most. So Joel is onto something with this approach although one wonders how long the philosophy will last as the company grows.

    One thing that stands out in Buffer’s figures is how little Joel and his staff earn; while $158,000 is a good wage it isn’t the massive income that those who glamourize startups pretend founders earn.

    Joel’s experiment with Buffer is an interesting experiment and it will be fascinating to see how long the company continues the philosophy of extreme transparency and how many others follow the example.

    While it might not be necessary to be as open as Joel Gascoigne and Buffer, the idea of defaulting to transparency is one that many organisations – particularly governments – would benefit from adopting.

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  • Finding the mythical pot of gold at the end of the crowdfunding rainbow

    Finding the mythical pot of gold at the end of the crowdfunding rainbow

    Raising capital is tough, while the Silicon Valley legend of a smart group of geeks finding wealth through fairy godfathers – aka VCs – throwing money at them may be true for a small number of outliers it isn’t the reality for most businesses.

    For most businesses, even if they are lucky to find a VC or angel investor, raising that money is usually the start of the next phase of building a venture which can be even tougher.

    With the recent rise of crowdfunding sites like Kickstarter, Indiegogo and Pozible which are a lot easier to raise capital through than finding VC or angel investors, there’s been a lot more commentary on how these services are a pot of gold for artists and entrepreneurs.

    Mark Pesce discussed some the challenges of Kickstarter campaigns in an interview on the Decoding the New Economy YouTube channel about funding Moore’s Cloud.

    Backing Mark’s views is a post on Fast Company’s design blog discussing what happens after  a successful campaign.

    In Life after Kickstarter, Jon Fawcett describes what happened after raising over $200,000 for his project Une Bobine.

    Having more than met his targets, Fawcett found raising the money was only the start of the business challenges with logistics, taxes and fulfilment being hurdles his team had to overcome.

    Fawcett actually had an advantage in had tied manufacturers up before launching the funding campaign; for those who haven’t, the process would be even more fraught.

    As the Fast Company story concludes, the successful fund raising was only a small, albeit critical, part of getting the products to market.

    Fawcett’s story is a reminder that a product’s journey doesn’t end with funding. While Kickstarter has democratized and decentralized the process of raising capital, concerns of manufacturing, shipping, and storage still retain the unglamorous grit of the real world. There’s no flashy website for setting up your supply chain. Perhaps that’s the next part of this grand process prime for disruption.

    While raising capital is tough, it’s only part of the story of a successful business. Jon Fawcett story is a reminder of that.

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  • Passion and LinkedIn – how Connect2field went global

    Passion and LinkedIn – how Connect2field went global

    Passion is the key to building a successful startup business believes Connect2Field‘s Steve Oronstein.

    Running an IT support service is a tough game and it was the lessons Steve learned in running a PC service business during his teens gave him the passion to solve some of the industry’s problems and the idea to launch what’s become part of a global business.

    “My very first business when I was nineteen was an IT support business,” Steve says. “During that business I saw it was an absolute nightmare being able to manage all those field workers, managing job sheets and invoicing customers.

    “I did that for four or five years and then decided I didn’t want to do that all,” remembers Steve. “I started seeing some opportunities to do some work in job management. From the knowledge I had from the problems in the previous business, I could see there was an opportunity for a product.”

    Finding international investors

    Steve quickly realised there was an international market for that business and Connect To Field quickly caught the attention of global investors, “I would constantly receive emails from VCs about investing the business.”

    One day Steve received a LinkedIn connection and the path to being acquired by a larger company started.

    “At the time Fleetmatics came along there were two businesses that were looking to acquire the business. That happened through a LinkedIn connection.”

    “A request one morning from someone from Fleetmatics wanting to connect with me and wanting to talk about a partnership. That happened very quickly and we were acquired.”

    The importance of smart investors

    Steve thinks investors have been a critical part of the business’ growth and not just for the capital they bring in, but also for their expertise.

    “The key thing in the very beginning was to raise investment from people who could also be mentors,” says Steve.

    “I formed a board with five of people with skills in different parts of the business – legal, marketing, sales, technology”

    “When we went through the acquisition space it was invaluable having a board we could bounce ideas off and strategise with.”

    For Steve, his advice to other entrepreneurs is to be find a problem and be passionate about solving it.

    “I was very passionate about being able to provide a solution for my customers and I knew that what we were delivering would add real value to those business.”

    “Finding something that you’re passionate is the number one thing and the rest of it will follow,” says Steve.

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