Some Start Up Lessons

The account (Wrestling a Python) of our start up adventure is coming together. Helping me along are these notes I jotted in my diary shortly after we listed. Also helping me along is the memory of Jonathan here, first in to join the co founding team. Sadly he was also the first out. RIP.

1. We started with a meeting in New Jersey where we engaged the owners of a unique and revolutionary algorithm. Our brief was direct, and focused on what we could not do, and how few resources we had. I then briefed, in far less time, on what we thought we could do. The President appreciated the candour and recommended to his Board we have access to their IP. They would sell us a license with an 80% discount. The under-promise, over-deliver message is a strong one. If you can’t demonstrate a capability make sure you are clear about what you can do, and very clear about what is aspirational.
2. After committing to the license model offered by the owners, a couple of years later the IP owners changed their business model without telling us. We had a number of investors committed to the license model. It was tempting to walk away in the face of an insurmountable obstacle. I lay awake all night in a New Jersey Radisson wondering how I was going to convey this bad news back to the team at home. Fortunately I was able to negotiate a new position with the CEO of the IP company. Perseverance in a start-up is an essential quality but it cannot be blind.
3. Statistics will tell you that you will not make it past the first 12 months, and the numbers condemn you to not make five years. We started in the tech bust in that boom/bust cycle and the company still exists. That’s another comment on perseverance.
4. We started in the tech boom period but struggled to sell the technology as we attempted to build a new market at the same time (see below) as introduce this technology. Other companies in our sector were making a lot of press and we were tempted to follow their models as they seemed to be selling. None of those companies now exist. One, a company called Blue Planet, always got great business news coverage and they seemed to be doing so well. When they folded it was revealed they had sold only $25,000 of product. Their mining company owners had fuelled all that noise. If you are confident about your plan don’t have your head turned by what others appear to be doing.
5. Never try and build a new market with a new technology. Go to an established market with a new technology. Or use an established technology to create a new market. But in the interests of the quality of your sleep, try and avoid the new technology/new market scenario.
6. Start your relationships from a position of trust. Assume trustworthiness from the first day in order to progress the relationship. With backgrounds in the security and intelligence community we took a while to learn that lesson and wasted a lot of time and energy trying to determine motives of those with whom we were dealing. Start from the other end – it’s more productive. If someone demonstrates they are not trustworthy you can deal with them then.
7. Start from a position of trust – but protect your IP. We created a competitor by foolishly sharing some IP with folk we thought we could trust. Trust everyone, believe no one.
8. Anything that smacks of innovation will attract the ‘nutters’. We had all sorts of science and engineer wannabes appear at our front door who ultimately proved to be the worst kind of tyre kickers. Actually, the worst kind were those that had the appearance of science dressed up as credible business. They will sap your energy and resources. Be brutal (but kind) winnowing the tyre kickers.
9. Marketing can cost you nothing. Really good marketing that is. I was blessed by a co-founder who was (still is) really really good at engaging with the press. It cost us nothing. Create your own material and tell a good story well. One product launch was attended by the then Senator Vanstone who ‘cut the ribbon’ – the product related to the security of firearms and she produced a ‘super soaker’ much to the surprise of the gathered press. It cost us nothing, but the exposure was very effective. Get creative with marketing and resist spending money on PR firms – at least in the early days.
10. Don’t be tempted to spend on expensive premises. We made that mistake to our great cost. A lick of paint, the right location, some well placed (hired) pot plants, good parking and easy access are all factors that can impact the message you convey about your company without an expensive fitout or high rent.
11. Stick to the plan. Especially if that plan has been extensively stress tested, externally modelled and independently validated. After our IPO we abandoned some of our plan and, instead of organic growth we purchased businesses. I understand the market pressure to do that. But the original plan would have eventually yielded the same, if not better result. (The challenge with purchasing the businesses was that we could not control inputs in the same way we might have managed the inputs of organic growth).
12. When raising capital know how much you need. And don’t blink when you state the number – but be ready and able to back it up. I was not ready when an angel investor pulled out his cheque book in front of me  and asked how much we needed. I blurted out a number that sounded large but which was 20% of what he eventually placed with the company. You need to be ready with a number the moment you step into the fund raising pond.
13. People invest in people. From the initial group of friends who believed in each other, through the colleague who walked in unannounced and placed $100k (then went home and told his wife) through to the angel investor, the pre IPO investors and the those who supported the company IPO, the message was the same: great technology, love the company, but who are you? People invest in people – a truism that is unshakeable.
14. When doing the IPO maths work out what you need and stick to the number. We allowed advisors to talk us down $5million from what we knew we needed. In the end we had to return to the market for that $5million. It was a tough sell, and of course more expensive money than it would have been at the IPO.
15. If you receive oversubscriptions, take them. Ironically enough we were oversubscribed by about $5million. It’s unlikely you will get cheaper money (other than your own revenue of course). Have a clear oversubscription policy reflected in your prospectus.
16. Never burn a bridge. That is easier said than done, but Sydney is a small town and word gets around. Even when in Silicon Valley our visits there were preceded by word about who we were. Flattering of course. But potentially dangerous too.
17. There is wisdom in spending some money getting “investor ready” if you are not in that state already. That is about learning the lingo, jargon, tactics and those things that potential investors are looking for. We used the advisory services of a boutique bank. I initially resented their fee but even while still being coached by them came to realise it was money well spent. As we moved from there into the VC world it quickly became clear we were well equipped to deal with the VCs. Besides, being investor ready helps you retain as much of the company as you possibly can – you are giving VCs less reason to come in and make you investment (IPO/liquidity event) ready, for which they will claw from you some additional percentage of ownership.
18.  “Know your enemy”. Perhaps enemy is too strong a description. But as part of our strategy of securing venture capital we spent a week at the same resort the VC community were having their annual convention. We were not able to attend the convention but it was a great way to meet some key people in that community during their meal breaks, at the bar and around the pool. The convention became a common point of conversation in later meetings and broadcast our serious intent.
19. Don’t blink. One venture capitalist behaved very erratically in our first meeting with him standing on, and parading up and down his board room table while pontificating on what constituted a successful investment, and in the second meeting by shouting “What is it that you *&^% want?” We shouted back “Your money”. He laughed and proceeded into his due diligence as a more rational person. We never did learn how many were deterred by his theatrics.
20. Avoid grossly tuning your pitch to every VC but tell the story of your company. If you fit you fit. If you don’t you don’t. Each VC prefers, and targets specific types of investment. If you tune your pitch for every different type of VC you only waste energy and time. If there is any fine tuning needed, fine tune your operations.
21. Venture capitalists are risk averse. Mitigate your risk. And the only way to mitigate risk is to be selling product. That has the added bonus of reducing the amount of the company you are forced to sell, while concomitantly lifting the value of the enterprise.
22. Try and avoid starting with no product and no market. Have at least one of these well established. I think we said that to each other thousands of times as we came to realise how tough that road can be. 
23. Get the best advice that you can. And by that I don’t mean the corner store solicitor, nice as he might be. We were able to secure the services of a top of town law firm whose partners were able to hold their fees until we had secured our funding. The name of the firm was out of all proportion to the size of our start up (they boasted billion dollar companies on their client list) but there were countless occasions when the threat of involving them deterred the unscrupulous.
24. Speaking of which, there will always be the unscrupulous who will attempt to secure a piece of your business. Some are very subtle. Others are as crass as people sending invoices to us after the IPO, invoices for work they never performed. Perhaps they hoped we would simply pay in the days after the company was suddenly flush with working capital.
25. Be lateral and never accept ‘that’s not the way it’s done’ as a reason for not trying something. We started the company with very little capital and had a tough road through the tech crash trying to convince the venture capital market we were worth a look. So we became a public unlisted company and engaged a broker who was able to sell our story and our stock. By the time of the IPO we had about 250 investors in the company.
26. Investors own a piece of your company. Maybe even a majority of it. Get over it. If you want to grow this business you need to accept the likely need to share the wealth around. We were blessed by not having a single abusive investor, or one who thought they should have a direct role to play in the company. Rather, many investors were active champions of the business, demonstrating that by introducing us to prospective customers. And the moral support of investors is not to be underestimated. One of the founders had an aunt who invested a small amount of money. To this day her investment is remembered mostly for the significant boost of encouragement it gave the original team.
27. Many venture capitalists and sophisticated investors were surprised that we did not have a golden share hidden somewhere. That helped assure them we were playing straight. Keep the register clean and simple and open.
28. People are for seasons. Even for me, one of the founders. That can be tough medicine to take. But the skill set and temperament for one stage of the company may not be suitable for another stage.
29. Your people give you credibility – acknowledge the role they play. The Head of Mathematics at Cambridge University once quipped that in his view there were few on the planet who had a good grasp of fourier wavelets but that our resident mathematician was one of them. Even though we were a small start up we had international credibility based on our team’s qualifications.
30. Believe in yourself. It’s a cliché. But the self belief is a currency that buys support and loyalty, in and out of the company. And it’s the impetus that has you take on projects beyond the scale of your enterprise. When small and stuck on the other side of the world, it’s tempting to cringe. Never cringe but go after the global opportunities. You will be surprised at what you can win.
31. In that vein always think internationally/globally. From the conceptual days of our business, through to its registration and early self promotion the founding team always had an eye on the global stage. It mattered not that we were not ready for it, we just got onto it. Having that attitude and vision immediately expands your opportunities, broadens horizons, creates sales opportunities, invests and builds in relationships and opens your mind to new ideas.
32. Refuse to be bullied. Ever. Keep even tempered in the face of bullying. If you think and behave internationally even though you are a minnow, you will attract the bullies.
33. Be aware that you cannot protect everything. Our innovation was stolen. We knew that, decided to not waste money on legal action, but get on and outsell them. It did help that our technology was hard to replicate and thieving competitors had a difficult time copying what we had built.
34. Leadership in a start-up is the same as leadership anywhere else – lonely.
35. Get an independent, excellent Board of Directors just as soon as you can. Empower them. Don’t be a member of it except as an executive director. Resist being CEO and Chairman. In fact, if you have such, you may well transmit the message that the BoD is not independent. An independent board is a great asset, your best friend and a powerful antidote to investors who might want to use their money to establish themselves in the company and drive their own agenda. You may feel like you are too small for a board. I would argue the reverse – if you have global and/or public aspirations, get a board in place right now.
36. Set up systems that you can grow in to. Have all your employment contracts in place and signed even when there are only a couple of founders in the shop. Put your HR policies in place. Produce management accounts every month even when those entries are usually a zero. They are good disciplines to have, give comfort to investors, are a good way to be investor ready, and deter potential investors and advisors from insisting they can help by setting up these business basics for you – at a cost.
37. Everything takes twice as long as you planned. Allow more time in your timetable/cashflows for contracts to be signed and your invoices to be paid.
38. Winning government business can kill your business – state government payment timetables can be very slow.
39. Persist with international partners. They can take you places and give your small enterprise the gravitas it needs. Lunch with the Board of Matsushita (previously owned, and now called Panasonic), or dinner with the LG patriarch reflect foundational relationships which helped put us on the global stage.
40. Create an environment in which people want to come to work. Give them freedom of action and manage by objective. The right people will respond to this style of leadership. The wrong ones will abuse it and steal time and other resources from you – but they are quickly found out. There is some trial and error in this but a good start up test of mettle and commitment is to have no funds with which to pay salaries for 12 months or more.
41. One recruit took advantage of our long sales cycle and knew he could avoid selling for a long period of time even while taking a salary. He was open about the deceit when confronted with it and walked out. Be quick to move on unethical behaviour.
42. Despite the occasional bad egg (see above), trust your team. Flowing out of the above point there were tense clashes with deal makers/brokers/bankers when I insisted on briefing all staff on the progress of a deal. It is the only way to mitigate uncertainty and is a powerful way to broadcast your trust in the team. Not once did any staff betray that trust.
43. There has to be a prospect of reward for all staff. At any time of your company evolution there are better opportunities out there, with better pay and less risk for all your staff. There have to be good and tangible reasons to stick with your start up.
44. It’s an emotional exercise.
45. Be motivated by the long term, very strategic desire to build something. Not by the desire to become wealthy. If the latter is an outcome of the former, well done. Pursuit of wealth alone skews your decision making and transmits the wrong leadership message.
46. There are few resources in the Australian market to help you try and build something more than a sole trader business. It’s a very different story in the USA. You may need to look to other markets for ideas, moral support and income.
47. The business plan never survives the first day of trading. But it disciplines your thinking and orders your thoughts.
48. Never assume you have achieved a state of commercialisation
49. Cashflow is king. Not an original thought but seared into us all by hard experience. 
50. Gather a team around you that behave like founders, even if they are not. Such a team is your most powerful resource.
51. The customer is always right. Another cliché, but true. Surprisingly few other businesses we met treated their customers with respect.
52. Be wary of reacting to industry news. Over and over we heard news from large multinationals which, on face value would kill us. We stuck to the plan and the news became noise and always fizzled out.
53. The best product is not always what the client wants. Large clients will settle for less if an alternate offer comes with the comfort of teaming up with a large multinational rather than taking the best from a small local firm.
54. The market does not want technology. It wants an application. We were slow to learn that. The microwave oven was our best example of that principle. No one buys a microwave oven for the technology – they purchase it in order to gain the convenience of a hot meal in three minutes. Sell the convenience/benefit, not the technology. If you are a technology start up, learn that lesson or you will never get commercialised.
55. Apropos the previous point, while a technology company, few customers will come to you. You need to go to them and your capacity to do that is limited. In the tech boom/bust period of 1999/2000 the majority who came to us proved to be potential competitors.
56. I said it before but it’s worth repeating – we started out by thinking global, that we would be public and that we would create wealth for everyone. It’s an expansive, infectious world view that is critical for creating the vision for the company. It’s a worldview that all the founders had. Without such a view it would be impossible to convey our vision and passion to potential investors, or to others who would join us in a founding capacity.
57. Shamelessly use state government resources. They became a powerful and effective part of our no spend marketing strategy.
58. Use AUSTRADE – though they are not really geared to support start-ups.
59. If I had my time over again I would not file patents. Get to the market first. Your patents only ‘draw the crabs’. One competitor with vast resources set up a lab to recreate our core IP and dared us to challenge them. We didn’t have the resources to defend our IP so its merit became questionable.
60. Software is never finished. Ever.