Loans, learning, universities and getting started

Funding, Government, Startup, Young Entrepreneurs No Responses »

Mar 202012

This article first appeared on PostDesk.

What do Steve Jobs, Bill Gates, Mark Zuckerburg and Richard Branson have in common? Quite a few things spring to mind but a notable fact is that none of them completed a university course.

So, not just for that reason, let’s hope the 2012 budget includes real backing for the proposed Youth Investment Fund. Not heard about that? Well the proposal is that the government should back young entrepreneurs with business loans just like students are provided with loans to pay for further education. Indeed the idea was, appropriately enough, proposed in a Virgin report “Control-Shift” and is being promoted by Branson himself. David Cameron has stated that it’s a brilliant idea and hinted that it might be coming.

If students can get a loan for University (of £9,000 for tuition for each year from 2012) why shouldn’t loans on similar terms be offered to young wannabe entrepreneurs, to launch and build a business?

The report makes the case in detail, including this extract:

”We offer potential students low interest loans that only need to be paid back when earnings reach a similar level, because we believe that our investment will be paid back to society over the course of their resulting careers. But what if we took the same risk on the potential of aspiring entrepreneurs?”

I think this is a great idea, as do 81% of voters in a poll of business people. Also having spoken to a few young people there seems to be similar support from them. Although I’ve also heard justifiable concern that young people may be sucked into debt naively: The point being that most people understand the risks of going to university but most have little exposure to, or education in, the risks of setting up a business. A recent graduate and entrepreneur Liam Gooding, makes a great case for it, pointing out that he would have taken up the option had it been available to him.

The Youth Investment Fund could be a great catalyst for increasing social mobility and giving a leg up to the disadvantaged in particular. I can’t help having noticed, over the last five years of helping startups, that there is a distinct advantage for some young entrepreneurs: Specifically those who have relatively wealthy parents or friends, who often help them through their early years. Not that I begrudge them of that.

Another point of note is that such a scheme would not necessarily decrease learning. I know from speaking with other entrepreneurs that many people learn much more in a startup than at university or in business school: Personally, having done all three, there is no doubt in my mind about this.

The only reasonable objection I can see to this proposal is the potential cost. That’s an understandable and legitimate concern. But does it have to be extra money? Cut something else, I say, and get something started.

Naturally the big challenge lies in the execution. Governments have a bad track record on execution, particularly when it comes to startups, for reasons that I have ranted about before.

There is a real danger that this Fund, if implemented, will be delivered with a surfeit of procedures. Naturally and understandably the banks will be asked to get involved. It is to be hoped that they don’t have a monopoly on approving these loans. When did a bank ever understand and take risks on a really ambitious startup led by a young person?

Also one would hope that the government acts as initiator that then gets out of the way. Even if the fund vetting, management and processes are handled by other, hopefully private led organisations, there is a real danger of too much:

Policy on the types of business ideas that will be supported and the sector they will operate in. Let’s have ideas from the young people seeking support rather than from the top down.
Constraint on what the money is spent on. Beyond the obvious constraints of illegitimate, illegal or inappropriate usage of the funds.
Structure about when the money is spent. There will be a natural inclination to have businesses spend specific proportions of the overall funding in each government tax year. That’s a recipe for unwise spending.

What other objections might there be? Here are a few concerns that have likely arisen and points I would counter with:

The funding would be spent unwisely
- Who says the universities spend similar money wisely?
The young person will collect the money and work part-time on the business, not taking it seriously whilst spending time on other things
- Now a student would never do that, would they?
Money would be taken by youngsters not really willing to take the risk of going into business and simply collecting the money
- Good point but measures can be taken such as validating that the would-be entrepreneur is willing to take risk. For instance, don’t distribute any substantial money until an initial six months has been spent working on the business.
£27,000 is not enough to start a serious business
- It’s a considerable amount and enough to start many businesses. Furthermore any money will likely go further with a young person than with an older wannabee entrepreneur who is more likely to have other major financial commitments.
Would be entrepreneurs are being favoured over those not interested in setting up a business
- One could also say that the academically inclined are being similarly favoured, in being supported to go to university
The administration of the scheme would be a large expense
- Yes, but that’s true of the student loan scheme.

As with all government policy it pays to look at what other countries have done. Canada have a scheme that has many of the elements of the proposed idea. I don’t know how successful that programme is but there must be plenty to learn from it.

Clearly I’m strongly in favour of this proposal but concerned about the implementation. What do you think about it? Let’s hear your views and thoughts. It would be particularly interesting to hear from young people.

StackBlaze is go for launch

Customers, Development, StackBlaze, Startup 2 Responses »

Mar 062012

After nine months of preparation we have just soft launched the product for our new startup StackBlaze. It’s an exciting time for us (James Cunningham and me) but not because we expect to set the word alight yet (pun intended!) but because we are eager to get feedback from initial users. No big launch or us, no TechCrunch post sought: We would rather have honest detailed feedback from users and others like yourself for the present. We’ve had around 10% of people, who had signed-up for information about StackBlaze in the past, actually register and try out out the service so we are off to a good start.

So what is StackBlaze? In short StackBlaze is all about web hosting without hassle. To be more specific StackBlaze let’s you host your web-site without worrying about the high traffic you aim to have, or hope for:

No worries about large bills: Our prices are very competitive and clear
No worries about your site grinding to a halt: Our service is truly elastic (scales automatically)
No worries if you have no system admin skills: Easy to set-up and use

One of the main challenges we now face is being able to clearly explain why StackBlaze is actually quite revolutionary: It is not obvious unless explained why it really is radically different to that from other web-hosting providers. We’ve made a start in this blog post on the StackBlaze web-site, a short extract of which is given here:

………StackBlaze is designed to incorporate the best elements of both shared and dedicated hosting, but using a cloud hosting approach which makes it truly elastic. When you use StackBlaze you install your site/app not on a single computer but on a grid network of multiple servers, so that:

As the load on sites/apps changes, StackBlaze will automatically allocate and load balance resources, across the servers, to give a good performance.

Because you are sharing this grid network of servers with others, we can provide high performance like dedicated hosting but with a much lower cost

You don’t have to think about how many instances you might need or really worry about the nature or number of servers, as this is all taken care for you automatically

You can just think of StackBlaze as one big computer.

I would love to know from you if you think that is a clear enough explanation of what we can offer in terms of true elasticity.

This different approach means we can also offer, what we believe is a more cost effective service. Currently we have two plans, with a monthly rental cost:

Developer plan at $5 per “app” (apps are defined as unique domain name) and $3 per database
Startup plan at $15 per “app” and $9″ per database
Each plan has limits of usage as defined here, but essentially, you pay no more than this per month until you reach these limits

For those wishing to try out the service, we offer:

First month for any app or database is free
First app and database on the Developer plan is always free
You pay monthly, for as long as you wish: No need to commit to one year, for instance

As for usability, the proof is in the eating but to give you a taste, here are screenshots of the dashboard and control panel:

It’s early days, so you can expect the control panels to change. We have had some good feedback already and would appreciate more of it. We want to make set-up, monitoring and reporting as intuitive as we can. One example of a first step is automated install of WordPress sites. For now, for other applications, you can use ftp. Git to deploy code will follow.

Right now StackBlaze is hosting for applications and web-sites that are PHP and MySQL based.

If you have any feedback email me here or don’t be shy to make comments below. If you want to go as far as giving it a spin, obviously we would be delighted: You can sign-up here and get going immediately.

If you have read this far, thanks for the interest and whilst I don’t know want to stretch your patience. However I know that some of you have been wondering what I’ve been up to since finishing my job last year, as a Portfolio Director for the now defunct Innovation & Growth Teams. So, at the risk of boring you and those who already know, here is a short history of that time and the evolution of StackBlaze:

August 2010: James and myself met at the Young Rewired State event, orchestrated by the wonderful Emma Mulquenny.
February 2011: We discussed in detail some ideas for a startup. In very short time I agreed to put in, and help raise, some funding and set-up a company.
May 2011: Having successfully raised a small amount of TSB funding, we set to work, after James finished college in April and moved from Dundee to Brighton. Work started work on the StackBlaze technology and a demonstrator web application to be tested on StackBlaze.
July 2011: Lawrence Job joined us during his summer break between school and university to help.
August 2011: We made an alpha release of StackBlaze available to a small number of users and Young Rewired State 2011.
September 2011: With the freedom coming from finishing my previous job, I decided to focus on StackBlaze.
October 2011: We started a private beta programme for StackBlaze.
December 2011: We focussed on the commercialisation of StackBlaze.

Which brings us to today and the commercial release of StackBlaze. Between the beta programme and now we have been hard at work, improving the product, particularly with the front end and putting in place the commercial elements of the service.

Actually James has been the really busy one, building the whole platform from the ground up. It’s been a privilege to witness and work with one so talented. Not only has he developed the back-end architecture but he has also implemented the front-end too. Now I was for many years a full-time developer myself, and worked on core back-end technology and front-end (GUIs as they were called then) so I can empathise with what he has done. Nevertheless he’s streets ahead of me as a developer so I won’t be getting deeply involved in the coding side of the business. In any case, my technical talent was really in designing and implementing difficult algorithms in high performance computing and later in managing four product development teams: A good number of those developers were also better than I ever was, but none of them had the breadth of talent and skill that James has.

I would love to hear from you what you think about StackBlaze. Perhaps you can share your experiences, and in particular your frustations and pains, in web hosting? Do you like the idea of hosting without hassle? Who do you think should be aware of StackBlaze and who should be talking to?

Finally, thanks for reading this far and if you want to kept up-to-date on StackBlaze in particular you can sign-up to our email list on the home page.

This blog moved to eat it’s own dogfood

Blogging, StackBlaze No Responses »

Nov 042011

from here: http://colinhayhurst.wordpress.com

I’ve moved from wordpress.com to wordpress.org.

Plus the blog is hosted on the web hosting platform developed by my new startup StackBlaze

To YC or not to YC

Advice, Events, Funding, Startup No Responses »

Nov 012011

I woke up at 03:35 this morning to read an email starting “We’re sorry to say we couldn’t accept your proposal for funding.”

Like an estimated 4,000 others we (James and myself at StackBlaze) got an email from Y Combinator (YC) saying that we had been rejected for the Winter 2012 programme. The email continues:

“Please don’t take it personally.” We haven’t and many other won’t. After all the email continues in very polite startupspeak:

“The applications we receive get better every funding cycle, and since there’s a limit on the number of startups we can interview in person, we had to turn away a lot of genuinely promising groups. Another reason you shouldn’t take this personally is that we know we make lots of mistakes……..We’re trying to get better at this, but the hard limit on the number of interviews means it’s practically certain that groups we rejected will go on to create successful startups.”

Yes, YC considers itself a lean startup too.

“If you do, we’d appreciate it if you’d send us an email telling us about it; we want to learn from our mistakes.”

Don’t worry YC. We’ll be delighted to tell you.

Our Application

StackBlaze started in earnest in May this year so this was our first chance to apply. That makes our journey short compared to some. Indeed yesterday I contacted a startup I’ve been helping a little and was delighted to hear they had been invited to interview. But this is their third application with no previous invite. I understand this is not unusual.

We decided in August that we would apply having reached our goal of launching our private alpha of StackBlaze. We then aimed to have at least some private beta users by the application/interview stage. Clearly that was important whether our application progressed or not. In a perfect world we would have applied with some traction but that was simply not possible for us. At least we could demonstrate an ability to ship.

Around that time we saw the announcement for the YC event in New York. Some entrepreneurs laudably lobbied for a similar event in London. That was never going to happen, if you read what Paul Graham had to say. But to the credit of Matthew Stafford, one the partners Harj (Harjeet Taggar) came over to talk at Hacker News in London.

In the meanwhile we decided that it was no use lamenting the lack of a YC event in London. We decided to do something positive and risked the time and cost of a trip to New York, for just myself.

I have to say that event was fantastic and I was very taken aback about the largely negative blogs about it. As a way of finding out about YC it was great, so I was very happy. But too many folks there and bloggers afterwards seemed to zero in on New York versus Silicon Valley issues.

There was also a boatload of moaning about the networking, which yes, may have been daunting with perhaps 1,000 people there. But hey, guys & gals: You just had to be proactive! I must have spoken to 20 odd alumni who were easily accessible, interesting and helpful without exception. I came away with all my key questions answered. That was despite suffering from food poisoning all of that day and evening.

In London, Harj did an interesting talk about his journey through YC and patiently answered a huge amount of questions from a very large audience. Having been in New York I was able to get his commitment to talk to James and myself whilst he was in London. After giving him our mini-pitch, he encouraged us to apply and even contacted us after our application had gone in, to check it out: That made us quite optimistic about our chances.

A lot has already been written about the application form and process before, what you should do and examples of how to do it well, so I won’t add to that.

We are grateful to several alumni who reviewed our application and provided insightful and useful feedback. For instance one of the application questions was: “What’s new about what you’re making?”. We were able to better answer that based on their feedback to:

It seems crazy to us that automated scalability is not available for hosted PHP applications. We have set out to provide this with StackBlaze: Why worry about your application grinding to a halt or having to pay at a high level to cover for temporary peak demands?

What did we get wrong?

I really don’t know. It’s hard to know without feedback. We had a pretty solid application, I think. No doubt many others, who did not make it through, feel the same way. We are optimists after all.

Perhaps there were more than 100 better than ours: Obviously the YC team thought so.

Perhaps we have to apply twice or more to prove our determination.

Perhaps I’m too old: Nobody in their 50′s has yet made it, apparently. James is definitely not too young at 18: Daniel Gross of Greplin made it at 18 but he has since been trumped by a younger founder. Greplin is awesome, by the way, check it out. None of the alumni I spoke with in New York saw age as an issue.

Now we learned lots from successful applications and helpful posts on Hacker News and the main YC website. But we learned little from previous unsuccessful applicants. We are considering publishing our application form. Perhaps others can learn from it. Should we? Would you?

What now?

Should we apply again? We might. That decision can wait for five months.

Right now we are focussed on making StackBlaze easier to use, following beta user feedback. The underlying architecture is working well, as far as we can tell from our own testing and that of our early stage testers.

If you are interested in an invite to our beta programme or hearing about our progress you can sign-up here on the home page .

We’ll continue to develop the StackBlaze product and business, of course. YC or not YC does not change that.

Will governments ever get startups?

Advice, Companies, Funding, Government, Startup 20 Responses »

Sep 062011

In two words: Not likely. I could end the post there but this is a blog, not Twitter.

Now there two reasons for this post right now:

Flickr image courtsey of johnsnape

My employment on a government entrepreneurship programme finished on August 31, so only now can I blog about my experience: My contract of employment effectively disabled me from blogging about it in depth and honestly. I could have taken the risk of “mouthing off” but that would have helped neither me, my colleagues or more importantly clients. So I copped out of saying what I think online although I did take the risk of using Twitter where the only civil servant types you will find engaging on there are similar mavericks and forward thinkers.
Steve Blank, an extremely influential entrepreneurial thinker and teacher, made this post on September 1st: Why Governments Don’t Get Startups.

Steve has made some interesting points, detailed below, but I think he has missed some other crucial ones, as follows:

Government programmes are policy driven and furthermore policies change every five years, or more often
Few civil servants, or people in quangos running government programmes, have ever run a business, let alone a scalable startup
Governments think locally, regionally and nationally. A scalable startup has too think globally and at some stage connect sell globally.
Governments make little effort to speak with businesses about their real challenges: Sure, politicians visit businesses in their local area but that’s almost invariably a PR exercise for both parties. So there is a disconnect between policy makers and those who deliver the interpreted policies and interact directly with businesses
Government bodies and programmes tend to attract individuals and organisations that fit several of the following characteristics:

They are risk averse
They are very keen on procedures
They have political aspirations
They like talking more than doing
They are experts in doing funding bids and spending money on overheads

Why should I have an opinion on this? Well for the last 4 years I have been working in three different government funded business growth and startup roles:

As a business development manager in a University (mentoring, pre-seed funding programmes, commercialisation, spin-outs). A large part of this role was working with ten other universities
As a Portfolio Manager in a scalable startup programme funded by a UK regional development agency
As a Portfolio Director in a business innovation and growth programme funded by the same UK regional development agency (for the South East of England)

Before that I sold a software company, in wihich I was a co-founder, to a NASDAQ listed company. This was very much a scalable (albeit bootstrapped) startup. More details are, of course, on my LinkedIn profile.

So in total I’ve spent 22 years in business (small and large) and 4 years in the public sector or a private contractor that was publicly funded. Also as of 1st September 2011, I’m focussed on my new startup, StackBlaze whilst continuing to help a few other select startups.

So what about Steve Blank’s post? He concludes that:

Unless the people who actually make policy understand the difference between the types of startups and the ecosystem necessary to support their growth, the chance that any government policies will have a substantive effect on innovation, jobs or the gross domestic product is low.

However my experience is that the people making policy did understand something of the difference between different types of businesses and even startups. The primary problem is actually in the execution of their programmes. Indeed it seems to me there has been to much government money spent on analysis and policy making, which is all well and good for consultants, but little use to the rest of us.

But I do agree that there is a lack of understanding of how to develop an ecosystem. I’m talking here about the UK, of course. Don’t get me started on Europe! It’s no joke that the vast millions spent on cross-country innovation networking got coined as “Euro-jollies”.

Steve talks about the (only) success of the Israeli incubator programme and there is an emerging trend for incubators here and elsewhere. A UK government funded incubator may well come about. But I shudder to think about how much hands will be tied for the managers of that through inappropriate reporting requirements, audits, changes in policy and any other top down suffocation.

Steve states six lessons that need to be learnt:

Each of these six very different startups requires very different ecosystems, unique educational tools, economic incentives (tax breaks, paperwork/regulation reduction, incentives), incubators and risk capital.
Regions building a cluster around scalable startups fail to understand that a government agency simply giving money to entrepreneurs who want it is an exercise in failure. It is not a “jobs program” for the local populace. Any attempt to make it so dooms it to failure.
A scalable startup ecosystem is the ultimate capitalist exercise. It is not an exercise in “fairness” or patronage. While it’s a meritocracy, it takes equal parts of risk, greed, vision and obscene financial returns. And those can only thrive in a regional or national culture that supports an equal mix of all those.
Building a scalable startup innovation cluster requires an ecosystem of private not government-run incubators and venture capital firms, outward-facing universities, and a rigorous startup selection process.
Any government that starts publicly financing entrepreneurship better have a plan to get out of it by building a private VC industry. If they’re still publicly funding startups after five to ten years they’ve failed.

Im my view the regional programmes, that I have worked with recently, had taken on the lessons of 1, 2, 3 above but not 4 and 5. Will the UK learn these two lessons next time? I doubt it. In fact the signs are that lessons 1, 2 and 3 will end up having to be relearned. This might be funny, if it were not so serious.

Having said all this I don’t think the main problem with government is them knowing and learning these lessons: The main element in success lies in the execution of any programmes that are set-up. Sadly, I’m not optimistic.

When a start-up executes badly it goes to the deadpool. Those startups that execute well flourish. When the government executes badly we get another one in five years. When the civil service, and many others dependent upon them execute badly, too many just hang around for the next programme to work on or a nice pension plan. I am sorry of you feel this is rather insensitive at this time of cutbacks and please don’t think that the majority of these folks don’t have good intentions.

Plus don’t get me wrong, I loved my recent jobs: When I was working with the entrepreneurs, that is. It’s been a honour, a privilege and great experience working with so many fantastic entrepreneurs. But you can see why I’m happy to be back, properly, in start-up land!

What is your experience of government business startup support? Do you think these programmes spend money effectively? Should government leave it to the private sector? And, if not, what types and stages of companies should they support?

Beware mentors who aren’t

Advice, Mentor, Recruitment No Responses »

Jul 232011

Have you ever sought a mentor to help you with your business? If so, you will have asked yourself how you find a good one.

Mentors can provide a lot of help but some can do a lot of damage. Just as there is a lot of damage that can be done if you get involved with the wrong investors.

Now it’s relatively easy to tell an angel by just asking questions about what investments they have made. But how do you verify a mentor? After all we can all claim to be mentors. Far fewer can claim and prove to be angel investors. An angel investment is not one unless it involves a concrete monetary transaction.

Anyway what defines a mentor-mentee transaction?

A conversation in a corridor?
An in-depth frank conversation between you and a critical friend?
A constructive exchange between a junior executive and experienced senior colleague?

It’s not so clear is it? Mentoring is a fuzzy topic.

So how do you tell if somebody is going to be a good business mentor for you?

Here are some things you can do:

Ask who they have mentored before? When was that? For how long did the relationship last?
Ask for references and even better ask to speak with previous mentees
You might also ask other mentors what they think your prospective mentor.

Now you can do that yourself but I am glad to say that a new organisation has recently been set-up that does that for you. The Association of Business Mentors does that for members before they join. Quite astonishingly no such organisation like this existed, in the UK, until now. So I am delighted that is no longer the case and I am flattered to have been asked to be an inaugural member.

More importantly the aim of this not-for-profit Association is to link you with credible, successful mentors so that business owners can feel confident when seeking a business mentor. All members of the association have been carefully screened, ensuring that you will receive a professional service and that your chosen mentor has a proven record of successful mentoring. All members are required to sign up to a code of ethics, are encouraged to undertake regular training and share best practice. The entire emphasis for members is on their client’s success.

This is a great service to our business community but it should not stop you from doing your own due diligence too. Nowadays it’s easy using LinkedIn and other online profiles. Remember too that gaps and non-disclosure on a LinkedIn profile can be as bad a sign as they are on a CV.

If the mentor is not on LinkedIn, or their profile is thin, then you have to question how much they can help you anyway. Embracing social media is nowadays, or soon wil be, vital for every business. Do you really want a mentor who does not get it?

Good mentors won’t feel you are bothering them if you ask them questions. Indeed they will be impressed with your professionalism.

So ask yourself questions like:

Does he listen? Or does he/she interrupt or talk over you? How much of the time does he/she spend talking and how much do you?
At what stage do they start asking about money?
Ask yourself if this person feels more like a consultant than a mentor.
Do you really think this person cares about you?
Do you trust this person?

Last but not least: Trust your gut instincts.

Do you have experiences of mentors you are willing to share here, for the benefit of other readers?

Are you made of the right stuff?

Companies, Customers, Funding, Investors, Startup 8 Responses »

May 312011

Endless Forms Most Beautiful

An ambitious and interesting project aimed at discovering the patterns at successful internet startups was announced on Saturday and is called Startup Genome. Over 650 businesses have been surveyed in quite some detail, so the results should be telling. The concluding reports will, I predict, turn out to be some of most influential pieces of research ever done on internet startups.

If you are a passionate internet entrepreneur you will have either already read the report or will do so soon. So, I’m not going to summarise the whole piece of work; not only is it substantial, but it is also a work in progress. Rather I’ll focus on parts that are of particular interest and make some interpretations of my own.

It’s important to state that this study is about internet startups specifically. There are lessons that other businesses can take from the report but one needs to be careful not to generalise. Also it’s important to remember that, as far as I know, the results are largely based on startups in Silicon Valley. As we all know, things don’t happen the same elsewhere: Availability of risk capital is much scarcer, for one thing. Also much of the initial report relates to companies that raised investment funding in seed and VC rounds. We can learn as much, if not more, from failures, of course. Some interesting findings, about that, have now been published here.

Six stages of company evolution are proposed as follows (personally I like this model), which I’ve paired with my personal take as shown in italics :

1) Discovery: Create something useful and listen or die

2) Validation: Find ways to get customers to part with cash

3) Efficiency: Get more customers whilst burning cash effectively

4) Scale: Growing pains of every type

5) Profit Maximization: Milk your customers, oops sorry: Reward your shareholders

6) Renewal: Start your next venture

The authors propose four classes of startups, as follows, with some well known examples:

Automizer: Google, Dropbox, Hipmunk
Social Transformer: Ebay, Skype, Airbnb
Integrator: PBworks, Uservoice, Flowtown
Challenger: Oracle, Salesforce, Yammer

These classes are provided without a clear explanation of what they constitute, although helpfully, they have provided a list of example companies and typical characteristics. So, what the hell, let’s have a go at trying to clarify this thinking.

OK, I contend that all the classes of startups are aiming to provide:

More efficient & effective ways….
to do stuff….
for different classes of users

I would then propose to define the four classes as being focussed, on different users, as follows:

Automizer: Individuals and small groups
Social Transformer: Individuals, in a network, who interact and transact
Integrator: SMEs
Challenger: Enterprises in complex & rigid markets

OK, I’ve over simplified. But I think their classification of startups is interesting and insightful. I find it helps when thinking about my past experience and current activities.

At Century Dynamics (sold to NASDAQ: ANSS) where I was a co-founding technical director then managing director, we were definitely a “Challenger”. OK, we were largely pre-interweb but we were a software company selling globally, so the model still works. Also we were never funded by anybody outside the company. That’s one of the reasons it was a long road of bootstrapping and 14 years from startup to exit. It did not seem much of an achievement at the time but reading this post makes me question whether we actually did extremely well, particularly since we were selling to some glacially slow engineering sectors.

With the current startups that I am closely involved in, we are an “Automizer” (Pitchie) and a “Social transformer” (Tripbod).

Actually with Pitchie we are in our first month, at the Discovery stage, so it’s quite possible we will end up positioning differently: But to talk about that further would be revealing our plans for world domination, which we are keeping quiet about for now

Tripbod is very much a social transformer. We are driven by our desire to cut out economic leakage in the tourism industry, where much of the money is taken by middlemen. We are all about connecting travellers directly with local travel providers making us a bona fide network business.

Part of the report findings were that Automizers and Social transformers have as their primary motivation a desire to change the world. Similarly the desire to build a great product was found to be the main drive for Integrators and Challengers. Tellingly only 8% of entrepreneurs surveyed said they care more about money than impact (68%) or experience (27%).

One of the main hypotheses, that the authors set out to test, is that success correlates with founders who are open to learning. Their initial findings are, they say, strongly suggestive of that and cite the following evidence, which is interesting but hardly conclusive:

Companies that track metrics effectively, and thus learn, achieved 3 to 4 times better growth rates of users

They considered that following thought leaders was a proxy for willingness to learn. Those companies that did so were 80% more likely the raise funding

Companies with helpful mentors were significantly more successful and raised around 7 times as much investment capital

The average funding received by company stage is shown below:

Discovery = $150,000
Validation = $600,000
Efficiency = $900,000
Scale = $3,000,000

The authors recommendations on what they think should be raised are $10,000 to $50,000 at Discovery and $100,000 to $1,500,000 at Validation. They further propose that nothing more is raised at the Efficiency stage. They suggest that the stark differences in the funding raised and what the authors recommend is due to angels over investing in startups. But remember this is in Silicon Valley: I don’t see that problem in the UK and neither does Scott Allison of Teamly.

Surely a difference today is that it costs a lot less to build an internet business than it did even two years ago. Many of the companies surveyed must have started out before that time.

Apparently there was no difference in whether investors were helpful or not on a daily basis. They conclude “We think this may be because investors’ main value add is their ability to increase the valuation in future rounds, and get larger exit sizes. Their help on a daily basis, which consists mostly of introductions and help with recruiting is not that signiﬁcant because great entrepreneurs will ﬁnd a way to get introduced to the people they want to hire and build a great team even if their investors don’t help.”

The most telling finding, in my opinion, is buried in the Miscellaneous section. They found a dramatic difference in the market size estimates made by the companies for their target markets, as shown here.

For companies that did not raise funding:

Discovery: $200Bn
Validation: $120Bn
Efficiency: $50Bn
Scale: $8Bn

For companies that did raise funding:

Discovery: $0.16Bn
Validation: $1.3Bn
Efficiency: $20Bn
Scale: $9Bn

Enormous differences you will agree at the first two stages! One is tempted to conclude that if you have failed to raise early funding then it’s very likely you are deluded.

Finally here is an interesting statistic that is reported without explanation or context: 81% of entrepreneurs don’t care about rules.

What do you think, fellow troublemakers?

How would you classify your startup? Do you like the classification used? Is it helpful?
Are mentors important for your learning? Or are they just good for contacts, so raising funding becomes easier?
What are you going to do differently having read this blog post or the report?

If you want money, ask for advice

Investors 16 Responses »

Nov 222010

For the last 3 years I have been helping start-ups and early stage companies raise investment finance in the equity gap.

Having been through a successful trade exit (Century Dynamics, sold in 2005 to ANSYS (NASDAQ: ANSS)), I am often asked: “Why have you not made investments in the companies that your are helping?”. The short answer, for most cases, is that I cannot: As a Portfolio Director, with the Innovation & Growth Teams, I am paid to be a impartial supporter to companies and to sit on their side of the table.

Now, I have helped in my spare time, other entrepreneurs and companies who fall outside the remit of my day job with the Innovation & Growth Team which has a geographical boundary. So there is a longer answer and angel investing was something I considered. However back in 2006 my personal enquiries into angel investing led me to the apparent collective wisdom that:

You need to make at least 10 investments to hedge your bets
One should expect only one of those 10 investments to do very well and compensate for complete losses on 6 or more of the others
Investing as part of a syndicate (group of angels) is likely to be more successful
Only invest money which you would not lose sleep over losing

So on balance the priorities of investing in my young kids or making 10 investments and not worrying about losing all the money were clear.

More recent research in a report “Siding with the Angels” by NESTA backs up what I learnt a few years before: “In the UK, 9 per cent of the exits produced 80 per cent of the cash returned. In the US, 10 per cent of the exits produced 90 per cent of all the cash returned”. Other conclusions from that report are:

Angels with entrepreneurial expertise outperformed those without it, especially in earlier-stage opportunities
Those who invested in opportunities where they have specific industry expertise failed significantly less
Those who perform at least some due diligence, even just 20 hours, experienced fewer failed investments
Post investment some involvement with the venture was related to improved investment outcomes

Over time, I have come to regard the “collective wisdom” in numbered points 1 to 3 above as being rather pessimistic in outlook. Wise perhaps but it rather comes across to me as being all about risk management rather than opportunity creation. After all, there are other ways to balance your investment portfolio which I won’t go into here. Some other aspects of some angel investor behaviour also irritate me:

Lack of interest in meeting with the entrepreneurs face-to-face early on. Why assess a business plan when the business is run by people. Business models and plans can and do change. People don’t change much! If I want to hear about an investment proposition I would rather hear a pitch by a CEO than receive a business plan.
Lack of politeness: Many angels do not even bother to send any response to propositions unless they are interested and currently investing. Nobody is too busy to write a short email of response simply saying: “Thanks for sharing this short investment proposition with me. It’s not really for me this time but I wish you well in your efforts”. I can understand sending no response to unsolicited, dreadfully prepared and presented, propositions. But is this wise, on the part of the angel, to a well prepared solicited proposition?
Middle men: Those who will take an upfront fee to introduce you to their network of investors and then take a success fee (typically 5%) of the money raised. If you are good enough at this why do you need an upfront fee? Some of these people are great but many are a waste of space. I could do a whole rant on this topic alone but it’s been done by others notably Jason Calacanis here.

So what would interest me enough to invest? You may ask, and my answer is, in rough order of importance:

A great CEO and/or founding team
An idea , technology or business model with disruptive potential
A business where I can contribute with much more than money
A business that through success makes the world a better place
A new interesting challenge where there is an opportunity to learn and grow

And, of course, since it’s an investment a big potential upside and good return.

Well after four years of mentoring entrepreneurs, working closely with around 100 early stage businesses and interacting with angel investors, I have now made an investment for an exceptional case.

Three months ago at a TWiST (This Week in Startups) London event I saw 4 great pitches by @Teamly, @opentwit, @campingninja and @Tripbod. You can read more about this great little event organised by all action Steve Schofield of @Fidgetstick here. The video for the winning pitch by Sally Broom, founder and CEO of Tripbod is here. To say, I was impressed would be an understatement and afterwards in conversation with Sally she enquired as to whether I was an investor and I replied that I wasn’t, explaining some of the reasons why. Shortly afterwards she asked me if I could provide some advice. Naturally, I was delighted to be of help to enthusiastic entrepreneur with a interesting business. In short, this led onto much interaction over several weeks. It was clear that advice and guidance was helpful to them but some financial support was required too. I really did want to help and by this time had got to know Sally and the business well. It just goes to show that the old adage “If you need money, ask for advice” does work!

This whole process has reinforced my contention that you should invest in people first. Sally has many great attributes but perhaps most of all she is relentlessly resourceful. The same applies to her co-founder Liz. So what is Tripbod?

A Tripbod is a trusted local person, with local knowledge, who can help you plan your trip before you go
Tripbod provides on-line personalised bespoke trip planning across the globe
The one-to-one service includes unlimited on-line contact with your Tripbod through a private trip planning page and personal calendar before you go

Some of you may be wondering whether I have any relevant industry experience to contribute to Tripbod. Well, I don’t. I can certainly claim to have a lot of experience of international travel both as an independent tourist and businessman. However, no worries there, as I am being delighted to be joining as an investor and active board member with Martin Dunford, who was a co-founder of Rough Guides, and who stayed with them through acquisitions by Penguin and Pearson until last year.

No doubt, I’ll be blogging about progress with Tripbod in future posts, so I’ll leave it there. If you’ve read this far, thank you for your interest. We would love your feedback on what you think of Tripbod. Would you use it? Do you think a local travel expert can enhance your next trip? Let us know here.

How to find a CTO

CTO, Development, Events, Leadership, Personal, Recruitment 15 Responses »

Oct 182010

One of the most common requests I get from portfolio companies and entrepreneurs goes along the lines of:

“How and where can I find a CTO/tech co-founder/key developer?”

This is invariably followed by:

“How do I go about selecting and assessing candidates?”

Whilst this post will be primarily aimed at companies where software forms an integral part of the business, there are some answers to these questions that relate to any type of early stage company.

Personal Experience
Before looking at these questions it’s probably a good idea to tell you a bit about my background and experience of recruiting.

My passion for computers was ignited, in the 70′s, at school. It occurs to me, writing this post, that I was always the first person to get the latest electronic calculators: Indeed I still have the ones in this photo. These cheap calculators were bought with money scrapped together from milk rounds, newspaper runs, plus growing and selling fruit and vegetables to the village shop.

The flames really took hold when I got my hands on the electronic analog computer in the physics lab at school. I can vividly recall the excitement of quickly programming traffic lights using a few op-amps and a plug-board. Did you know that computing was once done non-digitally? If not, might want to read this short article on Analog vs Digital computers and this for a more detailed history on analog computing.

Now I’d have loved to have bought a PC in those days but frankly I could not afford one until the Sinclair ZX Spectrums came out in later years. Anyway in my country backwoods world, Apples were things you sold to the village store. With the ZX, I really started having fun especially with the graphics. This was enhanced by programming on mainframes at university, and in industry during vacations. The problem was that to get any decent time on the university mainframe meant staying in the faculty at party time, when nobody else was using it.

In industry it was like: “What do you mean you want to write a program? The computer is for running the payroll”. Having got over that objection, with the help of more senior colleagues, I was still appalled that we had not plotting or graphics capability: Graphs had to be done by writing characters on a line printer. This in a company with 30,000 employees! So I took the opportunity, at an event, to make a case directly to the CEO. A few weeks later we had a PC: At the cost of embarrassing and no doubt pissing-off the Technical Director! But now we had some graphics capability the visualize the simulated motion of the physical products myself and colleagues were designing for manufacture.

Later as a co-founder and CTO of a software company, I got to pursue further my developed passion for solving problems and creating tools using programming. It is true to say that I was never the most brilliant coder: Programming for me was and remains a means to an end. But I will contend that I was extremely good at solving difficult technical problems and creating easy-to-use, albeit technically complex products, using programming.

As a CTO, and later CEO, I was instrumental in building a team of 40 people across 5 global offices. Since we developed almost all our technology in-house and outsourced little, most of our staff were technical and indeed based in the UK office. Software development often had to be done for things you would never do nowadays. For example, myself and colleague wrote a 3D graphics library because there was no such thing on PCs with DOS at the time.

By the time I was CEO, we had a sizeable development team deployed on four products: One of which I had been chief architect for and another one which I had pretty much written from scratch. But all these products were a team effort, built by hiring great people. As lead on recruitment I discovered a further passion for interviewing, assessing and recruiting people.

Funnily enough, speaking with a lot of CTO/CEO types nowadays, I have often noticed a distinct lack of enthusiasm for interviewing and recruitment. I find this hard to understand, quite frankly: What can be more motivating and interesting that meeting with, assessing and recruiting smart people? People with whom you can build a great company.

Oh yes, and finally, a few years ago I started a small specialist executive search project which taught me a whole lot more about how to connect with and find talented people.

Practical steps and CTO types

But let’s get practical now and have a look at some tips on recruiting, questions you should ask and some awesome blog posts on this and related topics. Also I’ll point you to some resources that can help with this problem and hopefully some of you will chip in with some comments and tips.

I am going to ignore the well-known conventional recruitment options of advertising, job boards and executive search agencies. It may well be that these can help solve your problem but many of the companies that I interact with can’t afford those luxuries. For those that can, I’m sure you’ll be keen to see how you might slash your recruitment costs.

First some questions you should ask yourself, particularly with regard to CTOs:

What do you really expect your CTO to do?
What kind of CTO do you require? Details at this paperbut in outline do you want:
- CTO as “Infrastructure Manager”
- CTO as “Big Thinker””
- CTO as “Technology Visionary and Operations Manager”
- CTO as “External-facing Technologist”
How much would you be prepared to pay your ideal hire, above that of an acceptable hire?
What are your intentions with regard to shares and options?

Recruitment Tips:

With regard to CTO’s, assuming you don’t have one already: Always consider hiring a lead developer and then if they have the chops, promote them to CTO. When recruiting lead developers and potential CTOs you, of course, want somebody who is a team player and is potentially a good manager and leader.

You also want somebody who is ambitious. But be wary of ambitious people who are ambitious for themselves and not for the company. You are likely to be a stepping stone to their next job; soon after you have begun to see the fruits of your investment in them. As put by Andy Grove, ex-CEO of Intel:

The right kind of ambition is: Ambition for the company’s success with the executive’s own success only coming as a by-product of the company’s victory
The wrong kind of ambition is ambition for the executive’s personal success regardless of the company’s outcome.
You can read more on that topic here at the blog of Ben Horowitz.

I am very much in agreement with Paul Graham about hiring good people for any role in start-ups and about developers in particular. He says that you need to hire “someone who takes their work a little too seriously; someone who does what they do so well that they, pass right through professional and, cross over into obsessive.”

from xkcd.com

Now I completely agree with this: Of all the really great hires and colleagues that I have worked with, I can’t think of a single one who was not somewhat obsessive-compulsive. Not to the extent of having a disorder you understand, but somebody who was incredibly meticulous, tending towards perfectionist and often completely wrapped up in solving a problem, completing a task and shipping on time.

Paul Graham expands on hiring programmers, as follows:

“For programmers we had three additional tests. Was the person genuinely smart? If so, could they actually get things done? And finally, since a few good hackers have unbearable personalities, could we stand to have them around? That last test filters out surprisingly few people. We could bear any amount of nerdiness if someone was truly smart. What we couldn’t stand were people with a lot of attitude. But most of those weren’t truly smart, so our third test was largely a restatement of the first. When nerds are unbearable it’s usually because they’re trying too hard to seem smart. But the smarter they are, the less pressure they feel to act smart. So as a rule you can recognize genuinely smart people by their ability to say things like “I don’t know,” “Maybe you’re right,” and “I don’t understand x well enough.”

That resonates much with my own experience. I would also add that, in my view, really smart people have a large dose of humility. This means they are not worried about asking questions, or for help, when other clever or political people might be too proud or arrogant to do so. Smart people recognise their limitations, seek help and then learn and grow as a result. If you are interested in more wise words from Paul Graham on startups here is a link to the full article.

Here is another interesting post on how to recognise a good developer where positive and negative indicators are cited. Positive indications are programming projects outside work and before university whilst negative signs are learning new technologies only on courses and a lack of passion.

In the case where you are looking for a CTO co-founder, or indeed any co-founder, the following posts are interesting.

The first one is written by an entrepreneur turned seed investor
Whilst the second gives a more legal perspective
This one explains well the big difference between a technical cofounder and a first developer hire

My last personal tip is as follows:

Don’t be afraid of recruiting a great person with the minimum necessary skill set over a person, who you may have doubts about, but who has an impressive skill set.

Some of the best hires I ever made where with passionate, determined, relatively unskilled team players who learned new skills on the job, and no doubt at home. They invariably became more effective than those with better qualifications and an apparently impressive CV. They quickly acquired new skills. Notably the ones the company needed rather than a skill they wanted on their CV.

Resources:

Now what about resources for finding people? Beyond the conventional means, here is a list of ideas that will cost only a small amount of cash or nothing at all, except for your time:

Search on LinkedIn and indeed place adverts there
Post a job on Crunchboard
Check out Twitter lists: I keep one of geeks here
Open source developers: You can check out their work after all! You will need to look in several places.
There are several cofounder sites out there. It’s a big problem and nobody has yet cracked it so most are not much use unless you are in Silicon Valley. However these two are better than most, plus there is a raft of answers now appearing on Quora on other sites:
Also freelancers: Some are freelancing in the hope of hitting upon a great permanent opportunity and you can always hire them for a project first to check them out before making a bigger commitment:
- One suggestion is Guru which puts you in touch with freelance developers
- Another useful UK freelancer site is Peopleperhour
- vworker is an amazing site for engaging with freelancers and spotting tech talent
Engage in developer meetups: Again these take time and some intelligent searching but check out
This list is a far from being exhaustive and, no doubt, I will have missed some gems. What can you suggest to add to this list?

Since I wrote this post, this related answer on Quora, has attempted to survey the various resources you might look at.

What are you own experiences of recruiting and trying to recruit?

I’d love to hear from you and so would other readers.

Companies, Stars and You can’t have it all

Astronomy, Companies, Customers, Investors 7 Responses »

Aug 242010

CEOs, entrepreneurs & boards all struggle with how to satisfy 1) shareholders, 2) staff and 3) customers.

It’s hard to do that really well. Indeed most companies, with some lifespan, probably make a reasonable first of keeping two, of those three, stakeholders happy. Now I reckon striking a balance and keeping all three stakeholders happy, and importantly maintaining that balance, is nigh impossible.

I could bore you with a long post trying to prove this via examples.

Rather I’m going to can explain it conceptually, as a three-sided hill, looking like this from above.

Supernova remnant

Companies that gravitate to satisfying investors/shareholders and users/customers tend to expand (very fast in the case of VC fuelled growth), get well-known, achieve success for a (relatively) short while then, so often, fade from view: Let’s call them supernovae. Think MySpace or Boo.com, one of 10 failures you never heard of or forgot about. OK, the analogy is imperfect (supernovae are the death knell of stars) but you get the drift.

What about those companies that keep investors and founders happy but ignore customers? Well they end up building something customers don’t even want. Typically these companies develop a solution then go looking for a problem. There may be lots of energy, noise, activity and engineering going on in that company but nothing much comes out of it. A bit like a black hole really!

A star near us

Companies that look after their staff and customers well are more like stars: They often have a much longer life (like companies with a sustainable business) and have a more gradual start and end, when they burn out.

Indeed some stars turn into black holes and others get wiped about by supernovae.

You know it’s hard to keep a ball on top of a hill.

What do you think? Got some good examples? Perhaps you disagree with my broad thesis and can cite an example that disproves it.

Any comments are welcome. I don’t expect you, or anybody, to do so on this first substantive post, but go on surprise me.

Images sources: NASA and painting of Cerberus by William Blake

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