Category: entrepreneurs

Finding the smart money

Can events like Sydney’s AngelEd and London’s City Meets Tech help those cities become global startup centres?

Around the world startup communities are working to connect with local investors, in Sydney and London two groups are showing how it is done.

“We’re looking at turning idle money into start money,” is the aim of Sydney AngelEd says one of its founders, Ian Gardner.

Fitting startup companies’ capital needs into the established criteria of investment managers is an ongoing problem that AngelEd’s founders want to resolve. “We see startups becoming an asset class,” says Gardiner.

AngelEd, to be held on November 7, aims to educate high wealth investors and asset managers on understand the risk, benefits and hype around angel investment, particularly in tech companies.

The global search for funds

Startups around the world are struggling to engage with investors – in London, the local tech community has set up City Meets Tech to introduce British investors to high growth companies.

London should have an advantage in this field given its leading role in the global finance industry, however the challenge for the tech community is to find financiers who are prepared to accept higher levels of risk than mainstream investments.

“The City is generally risk adverse and doesn’t understand tech and tech start-ups,” says the City Meets Tech website, “though really it’s about understanding the business and managing risk though unfortunately innovation requires at least some risk.”

Australia’s trillion dollar superannuation system should similarly give Sydney an opportunity that to become a global centre however it suffers from a similar, if not worse, conservative investment culture to London’s.

Turning Sydney into a global finance centre has been an objective successive state and Federal governments for twenty years but the sleepy, comfortable and risk averse culture of Australian fund managers offers little to attract foreign investors or companies.

Much of Australia’s is problem is the insular nature of local fund managers with all but a tiny part of the nation’s retirement savings being put into the top local stocks, listed property funds or domestic infrastructure projects that are notable for their lousy returns and extortionate management fees.

Breaking that mentality is going to be the key to both AngelEd and the Sydney’s success as a financial centre.’

Competing with the world

While London and Sydney are struggling with the challenges of encouraging investors into the high growth sectors, cities like Singapore and New York are developing investor communities that are attracting entrepreneurs to their cities.

Many governments dream of being the next Silicon Valley and while it isn’t likely anyone can recreate the circumstances that led to Northern California becoming the computer industry’s world centre , a vibrant and accessible capital market will be necessary for any place hoping to be a global cnetre.

For Sydney and London, the success of initiatives like AngelEd and City Meets Tech may be critical for both centres’ future in the global digital economy.

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Venture capital investors as mentors

Early investors bring more than money to a young business

LinkedIn founder Reid Hoffman has a wonderful post on his blog detailing what he wished he knew when he first pitched his business to investors.

His seven myths of pitching are well worth reading whether you’re seeking capital from Silicon Valley venture capital firms, a sceptical bank manager or your mum and dad.

The first point is the most pertinent — a successful financing process results in a partnership that delivers benefits beyond just money.

Raising investor funds is only a step in the journey of creating a successful business, it is by no means the end point.

Hoffman’s point is something every business founder needs to keep in mind, those early investors are important mentors and their advice could prove to be more valuable than the money they bring to a venture.

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Keeping sane in business

How can business owners and startup founders reduce stress and depression?

Last night some of Australia’s best small and medium businesses were celebrated at the 2013 Telstra Business Awards. There were lots of happy winners, particularly Tasmania’s Bruny Island Cheese Company who won the overall prize.

Speaking at the business awards, previous winner Jason Wyatt of Sydney’s Bike Exchange mentioned some the “stumbles on the way” and keynote speaker Mark Bouris described some of those ups and downs.

“Accept the downside and dream of the rewards on the upside” advised Bouris.

Sometimes though those upsides are hard to find, behind the glamour and glitz of having a successful enterprise the toll on proprietors’ mental health can be tough and this month’s Inc magazine looked at the psychological downside of running your own business.

Running your own business – whether it’s a plumbing service, cheese company or a tech start up – is hard work and risky with not everybody suited to the often demanding lifestyle.

If you aren’t suited to running a business, or you’re unprepared, then those mental health costs can be high.

My own experience is instructive, in fact it’s a case study of what not do as a business founder covering everything from being undercapitalised to choosing bad business partners.

 

Find good business partners

Running a business alone is a mistake, partly because few have the full range of skills required to successful run an enterprise and mainly for the fact being a sole trader or boss is a lonely, isolated experience.

A business partnership though is like a marriage and it’s just as important to choose those co-founders as carefully as you would a spouse.

Good business partners have the skills that complement yours – if you’re good at sales or the technical side of the business then you’ll probably need someone good at the administrative or accounts side. Business is a team effort.

What’s very important is that all the partners in the business respect each others’ strengths and understand their own weaknesses. This makes a powerful team.

Probably the most therapeutic thing about having trusted business partners is that you have a sympathetic sounding board. At the very least you kick back on a Friday afternoon and have a bitch about your customers, staff and the government. That in itself is very important in keeping sane.

Watch the money

One of the biggest problems in business, and one I’ve encountered many times, is that many people don’t understand the difference between cash flow and profit. They see the money in the bank and they spend it.

If your business partner has blown the company’s working capital on a flash car and an overseas ski trip for the family, you can bet the clients, staff and creditors won’t be expecting them to clean up the financial mess.

Should you find yourself in that situation with your partners, get out of the business early before it wrecks your relationships and sanity.

Have sufficient capital

Stories abound of the successful business that was founded in a garage by a couple of penniless college grads and bootstrapped from nothing but they are the exception, not the rule.

While it is possible to bootstrap a successful business – I did it with PC Rescue – it’s a tough, hard road and having insufficient capital exponentially increases the chance of failure. Get some money from family, friends or fools.

Don’t hold out though for the million dollar capital raising though, the Silicon Valley investment model is only suitable for a tiny subset of business and it is possible to be over capitalised as we saw in the dot com boom of the early 2000s.

Stressing about money is one of the greatest problems for business owners and founders, having a little bit of capital makes commercial life a lot more enjoyable.

Watch your business plan

It’s fashionable to say business plans are useless – that is bunk. A business plan gives you some idea of how you expect to spend your money and where the revenue will come from. It’s a good reality check.

However, the 19th Century German general Helmuth von Moltke said “no battle plan survives first contact with the enemy” and it’s true that even the best business plan won’t survive first contact with the customer.

That’s fine because tweaking your business plan in the early days will give you more understanding and control over your business. More control means less stress.

Pivot when necessary

Some of the world’s most successful businesses were started as something completely different, Microsoft being one of the best examples. When it turns out the market doesn’t like your original idea but there’s a similar but different opportunity, grab it.

Executing a business pivot can be time consuming and stressful, but it’s far better for your finances and mental health than riding a failed business plan into oblivion. If you’re the type that enjoys building businesses, then you’ll probably find a business pivot is fun.

Take a holiday

I cannot emphasise this enough. In PC Rescue I went ten years without a holiday. It was a stupid mistake and both my family and my own health suffered for this.

Create limits

Micheal McQueen points out that Baby Boomers are poor at creating limits to their worklives, for many it’s a matter of pride in working punishing long hours.  In small or startup businesses there’s no shortage of opportunities to work twenty-two hour days.

The difference with working 90 hour weeks for the law firm or bank is that managers have a nice salary, sick leave and workers compensation. As a proprietor you don’t and in doing so you’re putting undue on yourself, your business partners and your family by working too hard.

Delegate

One key to success is finding good employees – this is something I totally suck at. While I’ve had the privilege of hiring a few good people, I’m spectacular at finding duds.

Being able to delegate is one of the key skills to business survival, it allows you leave work at a decent hour, take that holiday and – most importantly – get time to think strategically. If the owners, founders or managers can’t delegate then the business potential is limited and the risk of burn out is far higher.

Sack the troublemakers

Something that always bemuses me is how small business owners constantly moan about staff. While it’s true one dud staff member can cause untold damage to a business, bad customers are far, far worse.

Pareto’s law – otherwise known as the 80/20 rule – comes into play here. 80% of your troubles will come from 20% of your customers and rarely will the slow playing, demanding troublemakers be your most profitable clients.

If you’re in business long enough you’ll eventually encounter the psychopaths who actually enjoy stringing out invoices or creating commercial disputes. It’s your duty to your own sanity to get these people out of your life as quickly as possible.

So sack them, write off their debts and get them out of your business. Your time on this earth is too short to be dealing with bad payers, the crazies or the one percenters who get their kicks from screwing other people around.

Watch the warning signs

“Five years in tech support will turn you into an axe murdered, I did twelve” is a joke I often make.

There’s a strong element of truth in that line though as IT support in particular is a stressful, thankless trade and running a business in that sector exposes you to a lot of negativity.

While I genuinely enjoy customer service, tech support and running a business I hadn’t realised just how that negativity and stress was affecting me.

It was only when I noticed the signs of stress in a couple of my good contractors that I started researching depression in the IT industry and did the Beyond Blue K-10 anxiety and depression checklist. The results weren’t pretty.

The exit from PC Rescue and IT support in general started shortly afterwards.

In retrospect I’d stopped enjoying the business and dealing with customers about five years earlier and that should have been the warning sign to get out.

“Love what you’re doing” was Jason Wyatt’s advice at the Telstra Business Awards and he’s absolutely right – the moment you stop loving your business is when it’s time to start looking for something else.

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Understanding the social media whispers

The evolution of Roamz into Local Measure tells us a lot about how businesses can use social media and online local services.

What do you do when paying customers tell you they would rather your product be different to what you were offering? This is the predicament that faced Jonathan Barouch when he discovered the real market for his Roamz service was in social media business intelligence.

How Jonathan dealt with this was the classic business pivot, where the original idea of Roamz evolved into Local Measure.

Originally Roamz was set up to consolidate social services like Twitter, Foursquare and Facebook. If you wanted to find a restaurant, bar or hotel in your neighbourhood, Roamz would pick the most relevant reviews from the various services to show you what was in your neighbourhood.

The idea for Roamz came from when Jonathan was looking for places to take his new baby, jugging several different location services to find local cafes, shops or playground is hard work when you have a little one to deal with.

A notable feature of Roamz was the use of geotags to determine relevance. Even if the social media user doesn’t mention the business, Roamz would use the attached location information to determine what outlet was being discussed.

Enter Local Measure

While Roamz was doing well it wasn’t making money and, in Jonathan’s words, it was a “slower burn, longer term play”. On the other hand businesses were telling him and his sales team that they would pay immediately to use the service to monitor what people were saying about them on social media.

“People said, ‘hey this is cool, we want to pay for this.” Jonathan said of the decision to pivot Roamz into Local Measure.

“I want to say it was a really difficult decision but it wasn’t because we had people saying ‘we want to pay you if you continue with this product.’”

Local Measure is built on the Roamz platform but instead of helping consumers find local venues, the service now gives businesses a tool to monitor what people are saying about them on social media services.

The difference with the larger social media monitoring tools like Radian6 is Local Measure gives an intimate view of individual posts and users. The idea being a business can directly monitor what people are saying are saying about a store or a product.

For dispersed companies, particularly franchise chains and service businesses, it gives local managers and franchisees the ability to know what’s happening with their outlet rather than having to rely on a social media team at head office.

The most immediate benefit of Local Measure is in identifying loyal users and influencers. Managers can see who is tweeting, checking in or updating their status in their store.

Armed with that intelligence, the local store owner, franchisee or manager can engage with the shop’s most enthusiastic customers.

Customer service is one of the big undervalued areas of social media and Jonathan believes Local Measure can help businesses improve how they help customers.

“It makes invisible customers visibile to management,” says Jonathan.

An example Jonathan gives is of a cinema where the concession’s frozen drink machine wasn’t set currently. While the staff were oblivious to the issue, customers were complaining on various social media channels. Once the theatre manager saw the feedback he was able to quickly fix the problem.

Employee behaviour online is also an important concern for modern managers, if employees are posting inappropriate material on social media then the risks to a business are substantial.

“From an operational point perspective we’ve picked up really weird and wonderful things that the business doesn’t know,” says Jonathon. “Staff putting things in the public domain that is really damaging to brands.”

“We’ve had two or three cases of behaviour that you shudder at. I’ve been presenting and it has popped up and the clients have said ‘delete that, we don’t want that up’ and I say ‘that’s the whole point – it’s out there.’”

That’s a lesson that Domino’s Pizza learned in the US when staff posted YouTube videos of each other putting toppings up their noses. Once unruly employees post these things, it’s hard work undoing the brand damage and for smaller businesses or franchise outlets the bad publicity could be fatal.

Local Measure is a good example of a business pivot, it’s also shows how concepts like Big Data, social media and geolocation come together to help businesses.

Being able to listen to customers also shows how marketing and customer service are merging in an age where the punters are no longer happy to be seen and not heard.

It’s the business who grab tools like Local Measure who are going to be the success stories of the next decade, the older businesses who ignore the changes in customer service, marketing and communications are going to be a memory.

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Airtasker and the future of work

Micro task service Airtasker looks to reinvent employment in a partnership with the CareerOne job site.

Tim Fung, the co-founder of Airtasker, has been previously been interviewed on this blog about micro tasking service’s mission to change the workplace.

With the news that that Airtasker had gone into a partnership with employment site CareerOne it seemed Tim might be a good guest to kick off the first video for the Decoding the New Economy YouTube channel.

During the interview Tim describes the motivations behind starting Airtasker, how he sees the relationship with CareerOne evolving and the benefits of operating out of a co-working space.

The Tank Stream Labs working space is an interesting setup – based at the bottom of Pitt Street in the heart of Sydney’s financial centre, it’s not in the more edgy areas on the city fringes where the rest of the town’s workspace are located.

Being away from the hipsters and grunge doesn’t seem to have hurt Tank Stream Labs as the space has now expanded to a second floor of the ten storey office block. The roll call of tenants is quite impressive too.

For Tim being in the workspace has been a great benefit for Airtasker.

There’s always the thing about sharing knowledge and more obviously there’s a lot of great contacts that everyone shares.

Airtasker’s relationship with employment site CareerOne is an interesting development that sees the joint venture between News Limited and Monster move into the crowdsourcing field. It also gives job hunters an opportunity to find short term work while looking for a more permanent role.

People are looking for more hours of work but equally businesses were coming to CareerOne and saying ‘hey, all you do is full time work’ and that’s only one piece of the employment puzzle.’

For CareerOne it really allows them to build up the full spectrum – all the way from tasks to part time to full time and be a one stop shop for employment.

How that works for CareerOne remains to be seen, but for Airtasker and Tim it validates their business model along with exposing their service to a wider audience.

With the workforce evolving and the trend to informal, casualised employment; services like Airtasker and the US Task Rabbit will take a more prominent role in workers’ careers. While it’s debatable on how desirable or stable such employment is, it’s the reality of a process that started in the 1970s.

Tim takes a more sanguine view of the challenges facing workers in an informal employment market.

What I’m sharing on Airtasker is my free time. Currently we have this pool of literally tens of thousands of hours of people sitting around saying ‘I’d love to have a job’ and that’s an underutilised resource.

Airtasker in many ways is one of the new breed of middlemen creating markets where one didn’t exist before. The service is an example of how new ways to communicate create opportunities to connect buyers and sellers.

Services like Airtasker are part of the future that’s very different to the world we or our parents grew up. It’s going to be interesting to see how society and governments evolve around the realities of today’s workplace.

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When Venture Capital meets its own disruption

Falling barriers to entry are disrupting Venture Capital investors as much as incumbent managers.

Tech industry veteran Paul Graham always offers challenging thoughts about the Silicon Valley business environment on his Y Combinator blog.

Last month’s post looks at investment trends and how the venture capital industry itself is being disrupted as startups become cheaper to fund. He also touches on a profound change in the modern business environment.

Graham’s point is Venture Capital firms are finding their equity stakes eroding as it becomes easier and cheaper for founders to fund their business, as a result VC terms are steadily becoming less demanding.

An interesting observation from Graham is how the attitude of graduates towards starting up businesses has changed.

When I graduated from college in 1986, there were essentially two options: get a job or go to grad school. Now there’s a third: start your own company. That’s a big change. In principle it was possible to start your own company in 1986 too, but it didn’t seem like a real possibility. It seemed possible to start a consulting company, or a niche product company, but it didn’t seem possible to start a company that would become big.

That isn’t true – people like Michael Dell, Bill Gates and Steve Jobs were creating companies that were already successes by 1986 – the difference was that startup companies in the 1980s were founded by college dropouts, not graduates of Cornell or Harvard.

In the current dot com mania, it’s now acceptable for graduates of mainstream universities to look at starting up business. For this we can probably thank Sergey Brin and Larry Page for showing how graduates can create a massive success with Google.

One wonders though how long this will last, for many of the twenty and early thirty somethings taking a punt on some start ups the option of going back to work for a consulting firm is always there. Get in your late 30s or early 40s and suddenly options start running out if you haven’t hit that big home run and found a greater fool.

There’s also the risk that the current startup mania will run out of steam, right now it’s sexy but stories like 25 million dollar investments in businesses that are barely past their concept phase do indicate the current dot com boom is approaching its peak, if it isn’t there already.

Where Graham is spot on though is that the 19th and 20th Century methods of industrial organisation are evolving into something else as technology breaks down silos and conglomerates. This is something that current executives, and those at university hoping to be the next generation of managers, should keep in mind.

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Australia’s startup challenge

Creating a startup culture in Australia is tough when the nation is addicted to property speculation.

While I’ve been using CNet’s story on Kansas City’s startup community to compare Google’s Fiber project with the Australian National Broadband Network, the US article touches on something far more fundamental about Australia’s ability to build new businesses and industries.

The fundamental problem is property prices.

In Kansas City, local entrepreneurs wanting to set up a startup house can afford to take a chance.

The house is the pet project of Web designer and Kansas City local Ben Barreth, who did the insane last fall and cashed in his savings and liquidated his retirement account to put a down payment on a $48,000 house in the city’s Startup Village. Why? Barreth, a husband and father of two small children, wanted to be among the first to buy a house in a Google Fiber neighborhood.

$48,000 for a house is unthinkable in Australia. Even if we disregard Sydney and Melbourne, regional centres are vastly more expensive than their US counterparts. Geelong in Victoria for instance has an average house value of $390,000 while in Wagga Wagga in the New South Wales Riverina district houses sell for a median of over $300,000.

This pattern is true across almost all of populated Australia – it is very, very difficult to find a property under $250,000 and there are few, if any, regions in the country where a house can be bought for less than five times the average local income.

Expensive property comes at a price, it discourages people from starting businesses as the risk of being left out of the property market is so high. Leith van Onselen, co-founder of the Macrobusiness blog, made a very good point about this effect on his decision to set up a business.

Indeed, the main reason why I took the risk of leaving Goldman Sachs to concentrate on MacroBusiness full-time (a start-up business) is that I had all but paid-off my house and was in the fortunate position not to be saddled with onerous mortgage repayments. Had I a large mortgage, like many Australians, there is no way that I would have left a high paying, relatively steady job, to work on a business where pay is much lower and irregular, and where the outcome is unknown.

Leith was commenting on an article in the Sydney Morning Herald reporting the risks to Australian business should property prices fall.  In this respect, Australia has managed to paint itself into an economic corner.

The Sydney Morning Herald article illustrates Australia’s predicament – Michael Pascoe (the ‘Pascometer’) reported how Reserve Bank bureaucrat Chris Aylmer had warned of the dangers of falling property prices.

With most Australian businesses dependent on bank finance guaranteed by their proprietor’s home equity, falling property prices would see a nasty economic spiral as lines of credit were called in, forcing companies to slash expenses, including wages, which in turn would drive further real estate falls.

Property also makes up the bulk of Australians’ retirement savings, so a fall in property prices would smash consumer confidence.

It’s no surprise that in the face of a recession or economic shock the first thing Australian governments do is prop up the property market.

Another damaging effect of high property prices is that it turns the country conservative. This graph from Business Spectator’s Philip Soos does much to explain why Australians turned insular in the late 1990s.

Soos-graph-australian-property-prices

Having a population locked into paying their mortgages guarantees a conservative, risk adverse culture and that’s exactly what Australia has achieved over the last fifteen years – much of the opening up from the 1970s through to 1990s has been undone as the country looks inward at protecting its housing prices and bank repayments.

That safe, insular society has its attractions. However if you want to build an entrepreneurial culture, it’s safe to say you can’t get there from here.

While it’s not impossible to build a startup nation in a society addicted to property speculation,  it won’t be easy either.

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