Stop Making Sense

headsA recent article in the Washington Post implored society to stop focusing on tech start-ups and begin encouraging more entrepreneurs to start mainstream businesses, because these have a greater chance of both generating new employment and staying the course.

The logic behind this proposition is based on demographics. As “millenial” entrepreneurs come of age, there’s an opportunity to further empower the founder pipeline with better business education and a stronger emphasis on mentorship. Idealistic young people from this generation have a more diverse view on what kinds of businesses interest them and a more holistic understanding of what the art of entrepreneurship looks like in the context of social and environmental responsibility. An overemphasis on tech sector could therefore be limiting because of its somewhat linear narrative.

Much of the mythology around tech start-ups is media driven and does not necessarily reflect the wider tech industry of course. We generally only hear about the success stories of companies that raised millions in funding or had huge exits. We are rarely informed about the 98% of tech start-ups that never get funded or those that crash and burn within a few months due to lack of product-market fit. Moreover, we do not hear often enough about value creation and social equity as measures of performance.

This is partly why I cringe whenever someone suggests we need to build an entrepreneurial ecosystem just like Silicon Valley. There’s more than one way to grow a company. But much of the prevailing wisdom involves companies “getting offshore”, setting up shop in the Valley and networking madly until they score a round of funding. This is not the only pathway. With iwantmyname we proved that it is entirely possible to bootstrap without capital and grow organically, simply by consistently delighting customers.

Furthermore, the Valley is no longer the centre of gravity it once was. The focus is shifting as increasingly affluent Asia-Pacific economies look outwards for investible opportunities across a wide variety of sectors. Our friends across the Tasman already know this and have become very successful at building bridges and welcoming more productive inflows of capital. The face of business investment is changing and it’s no longer defined by slick, white guys in big suits. Making sense of this involves us being able to adapt to the new environment through clearly articulating our personal values as entrepreneurs and as an entrepreneurial nation.

Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

How Long Is Your Runway?

runwayAs a pilot I love it when I can draw aviation analogies and experiences into my entrepreneurial life. Perhaps the most obvious comparison involves the “runway” metaphor.

Most of us appreciate that the numbers we drafted in our start-up business plans are (let’s face it) rather meaningless. How can we possibly predict several years worth of revenue and cost data when we are still testing our initial business hypothesis? We simply cannot – but that doesn’t mean we shouldn’t have a plan. Cashflow distress is one of the leading causes of business failure. I’m not too proud to admit that I experienced a “near miss” myself in the past. Here are some tips to avoid a plane wreck.

The good news is that a cashflow crisis is entirely avoidable, if you have a robust planning and reporting process. Obviously, one of the goals of business is to generate a profit, but even profitable businesses are not immune from cashflow problems. If your bill payment cycle is out of sync with your revenue cycle, be wary. If you operate a web-based business, you have a particularly lumpy cashflow because your payment gateway provider may only pay you monthly initially. After a period of trading it is generally possible to negotiate weekly payments. Arrange this as soon as possible.

For other kinds of businesses, the chief risk is aged receivables. In other words slow payers. You aren’t a bank, so why should you loan precious operating capital to your customers?  Which is effectively what you are doing. There’s no law that says customers only pay on the 20th. For consulting or services work, I generally apply terms of 10 working days. Make sure you discuss the terms up front however, so everyone is on the same page. If they can’t be flexible – is that the kind of customer you want to be involved with?

Even if you don’t know exactly what your revenue is in advance, make an intelligent guess based on past experience. But be conservative. A cashflow forecast is quite possibly the one tool that will keep you out of the shit. Figure out your burn rate and balance this against cash on hand and income. That’s how you work out your runway. You should be able to forecast how much cash will remain at the end of each week, at least a few weeks ahead, preferably more. Initially this is tough, but it becomes easier as you collect more data.

Most businesses start out under-capitalised. Provided your business model is sound and revenue starts flowing early, this is not always a problem. But the reality is that under-capitalised businesses fail more often and grow more slowly due to less investment available for growth initiatives. If you are worried about excessive burn rate there are only two possible solutions. Sell more product or reduce outgoings accordingly. Unfortunately salaries are usually the first target, so be realistic with your early employees or co-founders and be clear about what the options are if cashflow drops.

Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

 

Startup Weekend Comes to New Zealand

Startup Weekend is a life-changing creative workshop for web entrepreneurs that has been held all over the world from Boston to Bangalore. Participants have 54 hours from 6pm on the Friday evening to strategise, build and launch a brand new web business. It’s a pressure cooker event that ensures everyone leaves with new ideas, brilliant personal networks and maybe even a new business. The great news is that the very first New Zealand Startup Weekend will be held in Auckland on 1st-3rd of April.

About a year ago, Startup Weekend global director Marc Nager approached me about bringing the event to New Zealand. But anticipating a very full year at Unlimited Potential plus lots of hard work growing iWantMyName, regrettably I had to decline. So I’m really pleased that Jason Armishaw and his team have stepped forward and I’m chuffed to be invited along as an advisor to the initiative. I’m looking forward to rolling up my sleeves and getting stuck in with some brain-storming on the day. It’s an opportunity for me to share some of the lessons learned within a high growth web start-up business and no doubt to learn heaps myself from a bunch of much smarter people.

With the event only a few weeks away, we need to muster resources and get folks signed up pronto! Developers, designers, business strategists, marketers, investors. Get your dream team together or just rock up by yourself and be ready to contribute your particular skills. If you know of any companies that can help out with some resources please contact Jason as soon as possible. There will be media involvement, so it’s a great opportunity to share what you do. See you there.

Starting Lean: When to Pivot

Lean Startup methodology when applied to technology start-up companies advocates rapid prototyping, iterative re-testing of market assumptions and soliciting frequent customer feedback to more quickly evolve a product offering. At a recent lunchtime seminar hosted by Wellington’s Lean Startup group, we discussed when to pivot.

Pivoting involves a fundamental change to one or more of the three fundamental questions that frame the business model and could be a response to either a flawed model or a new opportunity.

We Are Selling What? + Via Which Channel? + To Whom?

Bruce Aylward from Psoda described how his company underwent a complete change in strategic direction in terms of how their product was marketed and distributed. Psoda is a SaaS suite that assists professionals to manage programs, projects, requirements, testing and product development. Psoda’s pivot point came when they realised that customers only wanted some of the services being offered – so they created a pick ‘n mix option. It was a subtle change that boosted the company’s revenue take.

The domain registrar industry has a well established model and hundreds of incumbents. Finding ways to innovate within such a model is tough, but it is the only way forward for a new company. At iWantMyName our pivot point came when we realised we were creating a scalable platform-as-a-service offering that we could rapidly roll out to channel partners. It was a great learning experience for us that added a lot of value to our business.