It was 20 years ago today: what’s in a name?

In the fourth post of this series, I recall 20 years ago when we decided on a name for our startup, and the issues it then caused for the next decade…

Before the idea, there was context, an unforgettable comedic event before we talked to people we trusted about our idea.

Now, a few weeks on in mid 1999, we were actually thinking seriously about forming a business, raising funds and building a prototype.

We jumped on the ASIC website to buy ‘aussiehome.com Pty Ltd’ business name (having landed on ‘aussiehome.com’ as the best website domain a few days earlier).

We gave ourselves 50% ownership each, and with the company now formally established, we could set up a bank account to hold our initial seed capital. We valued the business at $1M (nice round number) post money, and would look to sell 20% to investors for $200K if we could.

Before that, we needed a business plan, and a rinky dink prototype of the site.

I remember being up in Exmouth during that mid year winter school holidays. I was still teaching, and had somehow agreed to go on a Year 9 camp. In order to get emails, I had to climb onto the tin roof of where we were staying to get reception, so I could contact co-founder Nick.

Weirdly, 20 years on, I’ve just been back to Exmouth again for the first time since 1999. Memories of that time flood back. Exmouth had just had a cyclone back then, and I remember farmers asking us if we’d seen any sheep out in the bay or on the islands. Apparently 50,000 had be swept out to sea during the storm.

Everything was moving fast. Within a few weeks we had bashed out a very ugly html prototype, and had the first draft of our business plan. We went back to our MBA professor, and he seemed interested in investing. He gave us a few names to follow up on, and we would go and show our demo and idea to several high net worth people around town.

One meeting would become three more as we asked for more introductions.

Looking back, I’m sure we made sensible decisions during this time, but there was certainly some gaps in our knowledge. We failed to set up a shareholder’s agreement between us (mistake), as we rather naively presumed all would be well. Or perhaps did not give it a thought? Later, when things got tough, we had no clear exit for either of us. We were locked in.

The name ‘aussiehome.com’ would continue to cause confusion with ‘Aussie Home Loans’ (or ‘Aussie’ or ‘Aussiehomes’) for years and years. Even nine years after the sale of the business, friends of mine still get the name wrong.

It’s aussiehome.com, not aussiehomes.com, I still say. So many people said they could not find our site, because of the confusion over our domain name.

We did not realise the high profile name of the ‘Aussie’ brand would create issues for us. Oddly, we never heard from Aussie Home Loans. They would never complain about our brand name being so close to theirs. We even approached them in the early days to see if they’d like to partner, and they ignored us.

And so we marched on. I thought the name was distinctive, clear and cool. Very Aussie.

A year on, there was even an ASX-listed Perth company called ‘Aussie’. They did a quick IPO (or back door listing? I can’t recall) but did not last long. We remember having a few chats with them, but it went nowhere, and they got bought out by Aussie Homes anyway.

Years later, I was speaking at an event, and even had a clear type written intro the MC would read out to introduce me.

“Ladies and gentleman”, said the announcer, “Please welcome Charlie Cunningham, from Aussie Home Loans.”

Agh well. Twas my cross to bear.

~~

These days, I speak about naming and trademarks every now and again – here’s my slide deck on the very subject.

Photo by Matthew T Rader from Pexels

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It was 20 years ago today: markets are conversations

In the third post of this series, I recall 20 years ago when conversations with various people massaged ‘an idea for a business’ into a business itself …

Before the idea was born, there was context. Then – spookily – an unforgettable comedic event would herald the idea.

Now, the idea needs testing. Could it become an actual business? What problem would be solved for customers, and why would they pay? What did the existing market look like? Were there any competitors and threats (there always are)? What skills and experience would we need on board if we are to launch this thing? Who would build it? How much money would we need to get this off the ground?

A gazillion such questions occupied our thoughts in those early weeks and months in mid-1999.

I was still teaching – but the buzz had gone out of it for me. My co-founder Nick did some relief teaching at the same school, and we chipped away at the idea in our spare time. I would drive to his place one evening a week or he to mine, and we’d spend a half day every weekend on it.

We drew out some sample pages for what we wanted in a map-based property search website. We researched existing sites, and map data, and the tech behind mapping (which is GIS, apparently). Nick even walked onto UWA campus and knocked on the door of a GIS Professor. She told him that what we wanted to do was eminently possible.

We approached our former MBA professors, to see if we were ‘mad’ or actually had something that might have legs. One of them sat us down in his leather sofa’d study in Nedlands surrounded by shelves of hard back volumes. We showed him our one page of bullet points for what we had called ‘Real Simple’.

We wanted to “make real estate simple”. Make it easy to find properties for sale or rent, all on interactive, zoomable maps of Perth.

You’d be able to see the properties (colour coded depending on whether they were for sale or rent) on maps, plus see the local parks, schools, roads and transport routes. All the things people actually want to see when they are choosing a place to live. After all, we figured, people buy into the lifestyle of the suburb, as much as the property itself.

The Professor made encouraging noises, but there was much work to be done. He wanted to see a proper business plan, cash flow projections. ‘Come back with something a little more fleshed out, and we can discuss it,’ he said.

Unfortunately, the ‘realsimple.com’ domain name was already being used by a Californian IT company. Today, it seems to be a home and lifestyle magazine.

We thought ‘PerthHome.com’ would be good, the domains were available, but the 2 ‘h’s in the middle looked odd, and you could hardly go with ‘Perthome.com’. Anyway, we thought the idea had potential beyond just Perth, so we landed on ‘aussiehome.com’.

We liked the ring of it, and we could play on the ‘aussie’-ness of the brand. (‘Want to find your next Aussie home?’) The .com was available, so we grabbed it. Later the ‘.com.au’ domain also became available, so we had both.

We then set up the business using the ASIC website, aussiehome.com Pty Ltd, with Nick and I as 50:50 shareholders. We decided to put a few thousand up each to cover admin and other out of pocket expenses.

Looking back now, we were a little too trusting. How well did I know Nick, or he know me? Going into business is a big step, and I’m not sure we had “the conversation” about each other’s rights and expectations. We certainly did not draw up a shareholder’s agreement between us, nor had any exit plan, should, for any reason, one of us want to leave.

Naive you might say. A mistake, certainly. It would later turn out, when things got very tough in those early trading months and years in 2000 and 2001, that we both felt ‘stuck’ with the business and each other. There was no exit, no way out, except to make it a success. Perhaps that drove us on. Maybe it was brilliant, in hindsight, or we just got lucky..?

For now though, it felt like the start of an exciting new adventure. We weren’t thinking of the worse case, we were solving problems and pushing it forward.

We spoke with people we trusted about the idea, and after each conversation we’d learn something more about our business. Talking it out really helped. As a general rule, people don’t steal your idea. They are busy living their own lives. Pick who you tell, for sure, but don’t keep everything to yourself.

I would later learn this through the excellent ‘Cluetrain Manifesto‘ book, which was published that same year. It would come to define markets as just as ‘series of conversations’ between people. If you think about it, every market is just people talking with each other, persuading each other, selling to each other, buying from each other (or not).

During these weeks and months – it took 7 months from that Dame Edna night to our official launch in December that year – I had the feeling that something would eventually derail us. A door would be closed in our face, and we’d think ‘Agh well, it was a good idea, but it was not going to work.’

Quite the opposite happened. We seemed to open every door put in our way. And so we marched on.

As hard as we looked, we could not find a map-based property website anywhere (in the world). This was 6 years before Google Maps was launched (interestingly, in Sydney, Australia).

Property websites, such as they were, had very little content on them, hardly any listings, and seemed to be out of date and very clunky to use. Certainly in Western Australia, there was little direct online competition to concern us. We were more worried about someone else getting out there with our idea, than the incumbents. Or perhaps the main newspapers getting in on the act. They would have most to lose, and could have owned this space if they wanted to. As it would turn out, they didn’t, much to their cost.

As we researched the tech, we found a local GIS consulting company that could build a prototype for around $50-$70K. Take an isolated mining town like Perth and there you shall find GIS expertise. We happened to living in a global GIS centre.

We figured we needed to raise $125K or so to have enough get us to launch. We wrote various drafts of a business plan, and spent more time on the tech, acquiring the required map databsets and the like.

As two co-founders we had a lot of energy and drive for the project, but between us we had little or no experience in real estate, technology or business. Nick had done property deals before, but was mainly a hedge fund dealer and investor. I was an Economics teacher. We had few contacts in business or real estate in WA. We had few business connections in Perth.

But one thing we could do was talk. And so we did…

~~~

It was 20 years ago today: ideas can come at odd times

In the second post of this series, I recall 20 years ago when an evening with Dame Edna led to a memorable phone message, and a dotcom idea …

Before the idea was born, there was context. A back story. A breeding ground for an idea, with a few push factors that made me look away from teaching, and some pull factors that drew me towards the dotcom idea.

But ideas are just that, ideas. Nothing more than a thought. We must have hundreds a day. What always interests me though is why some ideas become more than an idea, and how they translate into action…

An Evening with Dame Edna

It was a totally unrelated evening out that led down the path to the business that became aussiehome.com.

I’d always loved Barry Humphries, and after a particularly frustrating day’s teaching I was looking forward to a good chuckle with the brilliant Aussie comic.

For some reason we had seats in the second row. Not a great idea if you want to stay a safe distance. Humphries is renowned for ripping into the audience and making them part of the act. Personally, I’m not a huge fan of humiliating paying customers. If I wanted to be part of the act I’d sign up. You entertain me. That’s what I’m paying for. It feels like a breach of the relationship to make fun of the audience, but it’s a long trodden path for many entertainers.

During the first half, he did all his other characters … Sandy Stone, Sir Les Patterson and all. I remember him making eye contact with me a few times. Was I imagining that, or was he sizing up potential victims for the second act?

It was the latter. After the interval he bounded onto stage as Dame Edna, and lights went up on the first ten rows. We all shifted lower in our seats.

After a few minutes he started down our row asking what we each had for dinner. When he got to me I blurted out something or other. Rather than moving on, he stopped and said “What a delightful couple we have here, ladies and gentlemen, what are your names darling?”.

I suddenly felt my face reddening, and within a few minutes he was ordering a meal for Lisa and I from the Subi Hotel from across the street – on a gold plated phone brought out on a silver salver no less.

Twenty minutes later, the meal arrived and was set up on the side of the stage.

Agh, where’s my lovely couple?” he said, as he motioned towards us both. Now, I am happy to be on stage, but I was not sure how well Lisa would go. ‘Losing face’ in public is about the worst thing for Asian culture.

The old professional that he is, Humphries understood this instinctively. He gave Lisa a huge peck on the cheek, and settled us down on the table on stage, and carried on his act. I was too nervous to eat, so tucked into the white wine. Over the next hour he got other people up on stage, and was perfectly lovely with us. He was very motherly with Lisa, and we actually relaxed and enjoyed the rest of the show.

Perhaps, we had the best seat in the house.

Lisa and I with the Grand Dame, on stage, March 1999

Phone call

Arriving home there was a message on the answerphone. “Hey Charlie, Nick here, ring me back; we’re going do properties on maps, you and me baby!”

So I rang my fellow MBA grad Nick Streuli back and we chatted for a while about his idea of a map-based property website. You have to remember that in 1999, property listings were almost exclusively in the weekend papers. Property web sites were few and far between, clunky, had little content and were not updated. Print ruled.

We both knew the internet would make an impact on this market, and disrupt the way properties were marketed, and how people would search.

It was a big idea. But what would convert this idea into a business, one we could actually run and what should we do next..?

~~~

To be continued…

It was 20 years ago today: before the idea

The first in a series of posts about 1999 – the year I went from being an Economics teacher to dotcom entrepreneur…

‘It was 20 years ago today’ the Beatles famously sang on Sergeant Pepper in 1967. Well, more than half a century later I’m reminiscing and musing about 1999, 20 years ago.

1999 turned out to be quite a pivotal year for me. I had completed a full time MBA course at UWA the year before, which I did on first arriving in Perth, WA, from having lived and worked in Singapore since 1990.

By January 1999, the MBA course over and I was back in a full time teaching role. Lisa and I were DINKIES (double income, no kids), as she worked in the city.

I remember my parents coming for a visit and they were blown away by Perth.

‘You’ve landed on your feet here son,‘ said Dad, as we walked across the endless cricket ovals of Hale School, where I was Head of the Commerce.

I was coaching cricket too, and often the headmaster (and former Australian cricketer himself) John Inverarity would wander down to the nets to make some comments to the batsmen. Usually he would be accompanied by some legend or other of the game, such as Dennis Lillee, Geoff Marsh or even Barry Richards (who lived locally, and whose eldest son was in the 1st XI). I was just this rather average club cricketer from England. I sure had landed on my feet.

So 1999 was supposed to be the year I would relax back into a teaching role, after the previous two years spent emigrating, completing an MBA, fixing up our house, making new friends and settling into life in a new country.

Yet, by the end of it, I was running a tech startup (or ‘dotcom’ as they were then known).

Before an Idea… the Context

Remember 1999? The Y2K bug? The Dotcom Billionaires? GST being passed into law in 1999 (it would come into effect July 2000). John Howard PM. Richard Court Premier of WA. The referendum on moving from a monarchy to a republic went down. A certain Malcolm Turnbull was running the republican case. The Aussies won the cricket world cup (they were in the middle of a 16 year run of beating all comers). Stars Wars came out of hiding with the terrible Phantom Menace prequel, yet it topped the box office that year. The Sixth Sense and Toy Story 2 were also huge, as were The Matrix, American Beauty and Fight Club. Britney ruled supreme. The President was impeached (but not convicted). There was a shocking school shooting at Columbine. Sadly, some things have not changed in 20 years.

Having bought our first house when we moved to Perth two years earlier, I’d been amazed by the pain staking process of having to wait for the weekend papers (which had minimal information on each property listing, often no price or address), then trawling around the home opens, week after week. It was grossly inefficient, and only by chance really did we alight on the one we bought, courtesy of a great real estate agent, who then became a good friend, and colleague, Phil Knight. We still live in the same house today.

By 1999, dotcoms were being set up all the time, all over the place. The news was full of stories of the latest dotcom venture, billionaire, investor, and the rush to the ‘new millennium’. Boring old traditional bricks and mortar businesses were out of fashion. Every new business would most likely have an ‘e’ or ‘i’ in front of it and a ‘.com’ behind it, so we saw edocs.com, ebusiness.com, inature.com, etoys.com, boo.com, … gazillions were raised (and spent) by these and thousands of other businesses, worldwide. eBay, Amazon, Yahoo and others soared. The race was on. Share markets rose, the new millennium came and went (Y2K was not an issue) and stocks kept rising.

Certainly real estate was ripe for disruption. (It still is.) The information on listings was mainly held by the agents, with scant glimpses released by the weekend and local papers. Internet sites (such as existed in 1999) were limited and held a small proportion of the listings. They were clunky to use, and none showed where the properties actually were.

Push Me Pull You

Around this time I received a letter from UWA Business School that would stir up all these thoughts together.

Incredibly, the letter told me that I had topped the MBA, and after the formal graduation ceremony that April I would receive my award at a ceremony a few weeks later. This blew me away. I’d topped few classes at school, but nothing like this. My scores were set against all the clever business and professional people in Perth, and I had actually topped the whole blooming MBA graduating class of 1999.

‘This has currency’, I thought, ‘And next year there will be a new top graduate. For the moment, and for the next few months, I am it.’

As we moved towards the end of that first term I was somehow not having a good time at school. I can’t put my finger on why, but teaching was not doing it for me anymore.

I grew frustrated and bored. The students would simply regurgitate the class notes in boringly repetitive essays, and yet attain marks that would easily allow them to sail into UWA on a BComm course, which is where most of them were heading. A cardboard cutout could be teaching them. Or a trained monkey. The zing of teaching had gone. I was ready for a new challenge.

On holiday in Esperance in Easter 1999, Lisa and I were walking down a beautiful white sandy beach, and I stopped for a minute and said, “I don’t want to teach anymore… I want to go and do something else.”

It felt good to say it out loud.

Instead of trying to persuade me otherwise, or tell me I was being an idiot, Lisa simply said, “Go do it.”

[TIP: Don’t try and start a new business without an amazingly supportive partner.]

Trouble was, I had no idea what other thing I could do.

The traditional route for the MBA grad was to go into consulting, but how could I consult to business when I’d not done one myself? What other jobs were there for ex-teachers? I’d not gone into the MBA looking for a career change anyway. My idea was that it would be a good feather in my cap when I go for a headmaster interview. Head teachers end up running fairly large organisations. An MBA would be useful.

Should I now turn my back on the career I’d been building over the past 13 years?

I was confused, and frustrated. And at precisely this moment, Lisa and I would have a night out at the Regal Theatre that would open the next door…

To be continued…

~~

Photo by rawpixel.com

NEXT: Dame Edna pulls me on stage

A Dog’s Brexit – or why you don’t give students a vote on homework

Watching the fall out from the 2016 Brexit vote has been met with increasing alarm and bewilderment. No matter what side of the debate you are on.

The increasingly entrenched tribal views of each side of the Brexit question have added to the mess. No one is listening anymore. Hard, extreme core groups are facing off against each other, making it hard to see a sensible way forward or any palatable compromise that can get passed by the UK parliament that is also acceptable to the 27 EU member nations, and that also honours the ‘Leave’ result of 3 years ago.

At this stage, no one knows what the end result will be. At the time of writing almost anything is possible: from a no deal crash out of the EU, to a managed exit with some kind of deal, to a long delay, to a total change of mind and remaining in the EU.

The poor British public are losing the will to live – they are either saying “get on with Brexit!” or “for goodness sake, stop this Brexit madness!”

It’s an extremely complex issue, as global and regional trade, business and politics are intertwined in all kinds of ways. Hundreds of thousands of companies in Europe rely (and have been built up on) free movement of goods, people and services over the past 45 years, and to rip that up is very destabilising.

Even more so, when those businesses have no idea what the final outcome of all this wrangling will be. Uncertainty is the greatest killer of business.

What happens to the millions of Europeans who have settled in the EU, and those Brits who have done likewise in Europe? What happens at the Northern Ireland/Irish border, and what implications does this have for the 1998 peace deal (‘The Good Friday Agreement’)? What about Gibraltar?

It is for these precise reasons  – and many more – that a complex issue such as Britain’s membership of the EU should never have been boiled down to such a simplistic choice of Leave or Remain in 2016.

Lunatics taking over the asylum

It’s akin to asking school students whether they would like to ban homework or not.

I bet if you held that vote in pretty much any school, it would come down on the side of ‘Leave’.

“We want to take our lives back!” you could hear the Leaver camp scream. “It’s a golden, new future that awaits us – we can do this!” they would argue. “Imagine all the time you would have now to do those other things you can do, like social media, listening to music and going to parties?!”

Sounds like much more fun. I am sure it would get up. It’s easy to bash things that are difficult to understand. Even easier if you want to stick it to those in power.

No doubt there’d some some brave souls arguing the benefits of remaining with homework, the educational benefits, the long term lessons it teaches in working independently, solving problems yourself and solidifying your understanding. The study skills it teaches. The self reliance. The confidence. The feedback on learning it provides.

But they’d be drowned out by the leave populists. Why not try it? What’s to lose?

On the Leave side, there may even be some arguing against homework stating its adverse impacts on education, how only the richest kids have nice study areas at home and how divisive this is. And how mean it is to set homework which some students can’t complete. But mostly, the Leave arguments would be based on emotion, not facts.

“I don’t really accept your alleged ‘facts’ about the benefits of homework,” a Leave proponent would say, “I am more interested in how homework makes students feel.”

And so, when it comes down to it, on polling day, a majority vote to ban homework. Great celebrations ensue. The lazies love it. They can’t quite believe it.

But it’s not long before issues start to take hold.

So we’ve voted against homework, does that mean all work done at home is banned (Hard Leave) or just that teachers can’t set and grade homework (Soft)? It was not all that clear. Leave meant different things to different people.

Parents and teachers bemoan a further dumbing down of an entire generation of students, and the results the school can deliver. The older students are only a year out from uni anyway so aren’t as bothered. It’s the youngest ones that will suffer.

The implication of banning bright, studious pupils from doing work at home is becoming hard to implement. There’s a back lash against the vote, and the decision to even hold it in the first place.

(It was only held to appease a noisy hard core of teachers who had had enough of marking homework. The head teacher had been pressured to hold a ‘put up or shut up’ in or out vote. That head teacher has since resigned and the much-harangued successor is now feeling duty bound to follow through on the decision.)

A mass exodus of families starts as they move out of the school catchment area, selling their houses and buying in other suburbs where the local schools still have homework. House prices fall around the school.

Sounds crazy right?

The Real Politic

Politicians are elected to make decisions in a representative democracy.

This means they represent their constituents and make decisions on behalf of the people. It’s why they are there. They don’t go back to their people every time they have a decision to make. The public have their own lives to live, and differ among themselves anyway.

Politicians are then held to account at the ballot box every few years. They make the decisions and vote on behalf of the people, for what they believe is in their best interests.

The referendum was flawed from the outset. Even leavers could not agree on (nor know) what they were leaving for, and how that would be arranged. No one is happy. One lesson from the mess is not to ask a simple question to a complex issue; especially if those answering it have little idea of the long term consequences, or understand what’s good for them.

~~

Photo by Deeana Creates from Pexels

How do I value my startup?

Valuing a tech startup is one of those ‘how long is a piece of string’ questions (which is no help at all), but it’s still an important factor in trying to raise money for your early stage venture…

Naturally, both sides will look at valuation in opposite ways.

The plucky founder will want to give away as little of the company as equity for as much cash as possible (the highest valuation), thus retaining more for themselves, their co-founders and any future funding rounds.

Meanwhile, the investors will want some meaningful slice of the company, so if things really do take off and the company is worth something in the future, they will get some kind of nice return on their money. As they may invest in several startups knowing most will fail, for each one they do invest in, they will want to see 10 times return on their money (to cover those that fail to give any return at all.)

Maybe, somewhere in there is a deal. Maybe not. You may have to speak to dozens of people before you raise a cent. It can take months. It might not happen at all.

But if you are venturing out to get some equity funding, my best advice is ‘be realistic‘. That means, don’t go crazy over your valuation, don’t do it slap dash (invest the time to do it properly), prepare yourself and practice.

I am assuming we are talking about a brand new, pre-revenue startup with no trading history. You have an idea, a business plan, maybe a prototype, have set up a company, put in some of your own money, and have something (an app, website, some users) to show for it. But you are otherwise brand spanking new.

Are you really going out with him/her?

Before worrying about valuation, please think carefully about WHO you get on board as an equity stakeholder in your business, and think WHETHER you actually need new shareholders at all.

Investors tend to hang around (as there are only limited opportunities to get them out). It can be very awkward if – later on – you think you’ve made a mistake. Also, some future investors won’t touch you if you have the wrong people on your share register. The same goes for co-founders and sometimes employees too. Be careful what you wish for.

You will be assessed by who you associate with, and having investors in your business is about ‘as associated’ as you are going to get in your life. Like a marriage, it can take a lot of nasty unravelling to undo.

Also, have a real think about how far you can go on your own.  With your own money, or some cash you can cobble together from some kind of early or trial revenues, partnering, R&D tax incentives, rich Uncle Tom Cobley and all.

Do you really need to raise money? Can you not get your customers to fund your business, at least a little bit further… to profitability? In many ways, that’s the best way.

But let’s say you’ve done all that and exhausted all other avenues. Equity fund raising it is. It will just take more money to give this thing the push it needs.

How to value it?

Simply put, the price of an early stage tech company is whatever the founder is willing to sell a piece for, and whatever someone is willing to pay for that piece. This is also not very helpful, but it’s true.

It’s a bit like selling your car, or your house. There is only one unique version, and a limited amount of buyers. But you only need one (or a few) brave buyers, and then the deal could be done.

If you need, say $50K, and are willing to sell 10% of your startup for this investment, and someone is willing to pay you $50K cash that for the stake, then, by definition, your company is valued at $500,000 pre-money.

Pre and Post Money Discussions

The ‘pre-money’ bit means that BEFORE they put the $50K in, your company was worth $500K (as $500K is 10% of $50K).

Note that AFTER they have put it in, it now ALSO has $50K in it, so technically your business is now worth $550,000 (‘post money’). Talking ‘pre-money’ is cleaner and easier to calculate in any valuation discussion. ‘Post money’ gets a bit fiddly.

With your startup now valued at $550K, the new investor does not actually have 10%, they have 9.09%. What was 10% pre-money is now 9.09% post money.

If they wanted 10% post money, then they’d have to put in $55K (which is 11% pre).

If you, as founder, owned 100% of the business beforehand, you now own 90.91% after the transaction. The issue of the new $50K of shares has diluted you a little. But you will have over 90%, which is almost as good as 100%. You have complete control, except you now have an investor, who one day hopes will get more than $50K back for their investment, hopefully half a mill or more. That is the point of investing, after all.

Now, with the $50K in the bank, you can get on with business and ring every last ounce of value out of that fresh investment. The hope is that if used wisely, future valuation will be way more than $500K by that stage. Which is the whole point. You and your investor wins.

Stuck in the Middle with You

Except, the investment is not liquid (they can’t get it out of a bank as cash) and you won’t be able to borrow against it. Effectively, it’s stuck in there until there is some ‘liquidity event’ (someway down the track) like the future sale of the whole company, an IPO or new investors come in allowing some original ones to exit some or all of their shares.

This latter eventuality is a rarity. What new investor wants to see their money used by original investors exiting stage right?

Another way of earning on shares is dividends, but I am assuming you are a long way out from profits.

Valuation Ranges

So, back to valuation. How do you come up with $500K, or $1M or many millions as the fair market valuation for your early stage tech business?

There’s a basic rule of thumb, which seems to be ‘accepted wisdom’ in these parts.

Assuming the business is a truly scaleable tech startup with a clear defensible position, a significant market to go after and with good founders…

1. If it’s just an idea and a slide deck, you can’t value yourself more than A$500K. That is, if you wanted $100K to build a prototype, then you’d have to sell off 20% for that (pre-money). Better to try to cobble together $100K, or whatever you need, or code it yourself, and get to MVP that way? Many startups can get to MVP on less than $20K if they are frugal and clever. Startups usually turn to “family, friends and fools” (the 3Fs) in this round. (Hint: don’t get fools.) If you expect your business to be worth a few million over time, why even start at a valuation so low, give away so much for so little and raise money on an idea? Go further.

2. If you have a MVP/prototype, but are still pre-revenue/launch, or perhaps have a trickle of early sales, then you may be valued in $1M-$2M range. So if you wanted, say $500K for growth/sales and gain market traction, then you’d be selling off 25%+ for that. Or ~10% for $200K, etc. This would be ‘Seed Angel’ round (pre-VC) from high net worth investors most likely. This is perhaps the hardest money to get, as you are still very early, and too small for VCs. Raising $20K is much easier, finding people who can part with a lazy $50K or $100K each takes more effort.

3. If you have launched your product, have paying clients, revenues, growth and traction, you could value yourself more than $2M, and really the sky’s the limit the more of that (and the more time/evidence & unmet potential you have). Once you’ve been around for a while, have good market share, growth… you get more into normal business valuation metrics like annual total and growth of sales, net profit, clients, market share, etc… You’d need to know your ‘Cost of Client Acquisition’ numbers really well, as well as ‘Lifetime Value of Client’ etc.. Investors will be all over this. You may then be in VC and Series A territory, so would looking at investment here of at least $500K, probably $1M or several millions.

If you are a WA-based early stage tech startup and have an idea/deck and perhaps an MVP, and think you’re worth $4M or $5M+ then I would have to say ‘you’re dreaming’.

That’s not to say you won’t be able to raise money at all on that valuation. There’s always someone out there with more money than sense, and might be persuaded by a slick slide deck and some fine words. But even if you did get early stage money at that price, how can you sustain it? How will you be able to build an upside for your investor(s)?

Knowing how risky it is, most investors into early stage ventures are looking for a 10x return over time. If the valuation starts too high, that makes the 10x even less likely and they will shy away. Remember, it’s easy to buy things, but when you buy you are setting the base price from which you want to see a multiple. The buyer can make a profit when they buy, depending on the purchase price.

Finally, it’s more than money

Of course, this all depends what you want to do; how much money you need, what you want to sell it for, and (more importantly) the VALUE the investors bring besides money.

It’s YOUR company remember.

How much do these investors ADD in more ways than money? Can they open doors to your next round? to new clients or partners? Do they have experience commercialising what you are doing? Have they been there and done it before? How have their other investments gone? What are their real motivations for investing? Are they going to be active or passive investors? Involved, but not too much, or just plain annoying?

If you’re not happy, 100% rock solid happy with an investor, don’t take their money. Listen to your gut. It’s usually right. Making the wrong choice is simply not worth it, no matter how much money they throw at you.

~~

Photo by rawpixel.com from Pexels

We need to educate the investors

Startup-image

In the recent Business News corporate finance report for calendar year 2018, I added up over $9.58B worth of equity capital raisings for WA companies, across 548 deals. That’s $17M+ per deal. And this does not count another $41B+ in M&A (merger and acquisition) activity.

How much of the capital raising money went to early stage private (Pty Ltd) tech companies?

Go on, have a guess… no?

$28M.

That’s less than 0.3% of total raisings.

So, this proves there IS money in Perth ($9.5B of it in our calendar year!), but NOT yet for early stage private tech companies. Well, there’s $28M a year, which is not nothing (and MORE than there was a few years ago), but it’s still a drop in the relative ocean.

A company I came across recently – one of the best startups I have seen – told me they went to 130 meetings, and pitched their business 130 times before raising a cent. They had 129 ‘no’s; before a single yes. There was no one else I could introduce them too, they’d seen them all.

Where did they raise money from? Singapore. (Everyone in WA and Australia passed.)

Over the past 6 years we’ve seen the development of a pretty strong local ecosystem for startups – startup weekends, meetups, co working spaces, accelerators, incubators, pitch nights, media interest.. etc.

The education of startups & founders is happening and well entrenched. There’s no excuse now for your lonely tech entrepreneur not to know what they are doing – they could wander down to Perth Morning Startup, join the upcoming Startup Weekend or pitch at Perth Angels, Innovation Bay or plus-Eight tech accelerator. They should find their way, knowledge and people if they put their mind to it.

What we need now is the EDUCATION OF INVESTORS.

People with money to invest in businesses need to be taught HOW to do this in the early stage tech sector.

People who’ve made money will fall back on what has worked for them in the past. That’s perfectly natural. And if you are a Perth investor, then that probably means via ASX companies, mining investment & commercial property, whipped up by the brokers of West Perth.

We do not need much to swing the startups’ way to make a material difference.

If we could raise it from 0.3% to just 1% then we would be tripling the amount of investment. To $90M or so a year.

Imagine what that could do.

Not for ASX companies or rushing companies (too early) to a listing. For private, early stage, little or no revenue tech companies that could scale and become the next Canva.

99% can still go to ASX, mines and property. Just carve off 1% of early stage, scaleable businesses, that could “do a Canva” and grow to $1B valuation in 6 years.

By the way, Canva failed to raise money in WA too. They tried, for many years. In the end, a chance meeting with a visiting American VC in Perth set them off on their road, assisted by Lars Rasmussen (ex of Google Maps and then Facebook). Canva moved to Sydney.

Yes, we need more startup success stories. You can point to a mining billionaire or two in Perth, and several property or ASX multi-millionaires. Business News is full of them. You bump into them walking down the Terrace.

But to get more success stories, we need more early stage investment. We need to ‘throw more darts at the dartboard‘ to see if we can hit some bulls eyes.

I don’t know which ones will succeed, but I know within the 500 or so startups in Perth, there will be the next Canva, HealthEngine, Moodle, or whatever.

So, we need to EDUCATE the investors on HOW to invest in startups; how to value them; how to spot the potential wheat from the chaff; how to be patient; how to give advice; how to mentor.

The monied classes have a lot to give in this respect. They offer much more than money; they have hard won experience, contacts and savvy.

Perth Angels do their master classes – which is great! – but in a way they are preaching to the converted. Members of Angel groups.

We need to reach more of those that have money, know they probably need to invest in tech, but have no idea how to start; but are willing.

How do we reach them I wonder?

~~

[Sources: Business News, Techboard]

Being your own (digital) worst enemy

A few days ago I was trying to get me some car insurance, having bought a little run around Toyota for the eldest child, who is now learning to drive…

So, there I was looking up the usual car insurance companies, and comparison sites, and seeing what kind of a deal I could get for my precious first born. I began with a Google search – of course – and scoured some of the websites thereto thrown up in my direction.

A few minutes later I was trying to complete an online quotation form and seeing what the thing would cost me. The number seemed a bit high, so I tweaked a few variables, and was still getting an answer I didn’t much like.

So I rang the company – their call centre number was clearly displayed on the same page – and a very nice lady answered and helped with my query. It seems you don’t need to insure the driver, as they are an L-plater, and cannot get insured anyway. YOU, as chief driver, sitting in the passenger seat, would be the insured driver.

Ah-huh. Makes sense.

So I tweaked the online quotation form and – bingo – out popped a number that was far more to my liking. Simultaneously, the nice insurance lady told me her number, and it was $100 more than the same number I was staring at on the screen.

So, we had the same, exact insurance, from the same company, at the same time, and the online quote was significantly less than the one I was being quoted on over the phone.

How could that be? Had I done anything wrong online? Nope, it was all correctly done.

So I asked the lady if she could get me the same quotation, and I could buy from her. To which she prompted said (and this blew me away)…

“Sorry sir, I cannot help you with the online quotation. Is there anything else I can help you with?”

This response flummoxed me for a few seconds. What the..?

‘Hold the phone,’ I thought, ‘Is she saying that she cannot help me complete an order online for her own insurance, on her company’s own website, the same one with the phone number showing that I rang her on?’

Her silence was golden. My jaw dropped.

After a few seconds, I think I said “Oh… thank you very much, goodbye”, got off the line and duly completed my insurance online saving myself $100 or so.

This whole nonsensical episode got me thinking as to the logic of the rules that she was (presumably) being told to follow.

Did the company only provide phone assistance to those not able to do all the quotations online? As the online quotation involved less cost (no human being being paid to be on the end of a phone) is that why they offered it cheaper online? For the exact same product?!

But as I was already online and used their published phone number – ON THE SAME WEBPAGE! – to contact them in person, why were they not then allowed to even help me submit online?

They could have lost me as a customer at that very point.

I could have printed off the quotation, gone to a rival car insurance place and told them to match or even beat it.

Or I could have shoved their business through a fit of pique. (Happily, dear reader, I am not that small. Well I think not anyway.)

Surely, the call centre staff in the insurance company should be empowered to use their common sense, help close the deal, provide a service and take the customer’s money? No matter what mechanism that is done by? Online, phone, letter, walk in, carrier pigeon, steam engine, wax tablet..!

Why compete against yourself? Isn’t the market competitive enough?!

Here we are, 25 years or more into the internet age, and people are perfectly happy to buy online, and in many cases, happier. They are doing so in droves. Have you been to a shopping strip lately? Yeah, nor have I.

Online, customers don’t get hassled by pushy sales people, can shop when they like, compare what they are buying easily, get independent reviews, have their order placed immediately and get back to what they were doing 3 minutes earlier. No commuting, no parking, no rain, no 40 degree days, no fines.

If businesses are going to fight against online, and put up unnatural barriers for their customers, then they will struggle to maximise the benefits of their digital transformation. Indeed, they could be sowing the seeds of their own digital disruption. Butting heads against themselves.

Think like the customer. Think user interface, and customer experience. It’s not you you are trying to better, it’s the customer you should be focused on serving.

Always. And in every way.

11th hour of the 11th day of the 11th month

The Gunninghams at the cavalry charge field, south of Villers Guislain, earlier this year

One hundred years ago today, at this time, the guns fell silent. The great war was over.

We pause now to remember those that fell, that never came back, those that were scarred for life, families affected… the massive sacrifice. It was a bludgeoning war, a stalemate of forces stacked up against each other, smashing away for 4 years at terrible cost.

But within it, were personal stories. Here’s one…

At 9.35am on 1st December 1917, the Indian 2nd Lancers (Gardner’s Horse) Cavalry were ordered to charge on horseback up a valley with the intention of capturing the town of Villers Guislain.

This was northern France, during the wider Battle of Cambrai, that had been raging for months. The battle was the first time tanks had been used in war. They were moderately successful, many broke down, so commanders still liked the fast paced nature of a horse back attack. After years of bloody stalemate, you had to do something different to break through.

My grandfather, who I am named after, Charles Harris, was on horseback that day charging up that hill. I remember him telling me how some of his regiment fell off their horses during the battle, and he wondered why this was happening as the ground (mainly cabbage patches) was not too hard going. They were being shot off their horses of course. Something that did not occur to him in the adrenaline of the moment.

As bullets whizzed overhead, the Lancers made it to the top of the hill and jumped over the trenches. Most of the fighters had fled, and some returned to their positions as the mounted cavalrymen overshot their positions, were halted and then jumped back over the trenches and retook them a second time. 3 officers and 42 ranking servicemen were killed. My granddad (‘Pop’ as we called him later) survived.

Now becoming surrounded, two volunteers rode back on horseback to get word on what to do next. One was killed, the other – Lance-Daffadar Gobind Singh – had three horses shot from under him, an action that would result in the awarding of the Victoria Cross.

The upshot of this skirmish was that the 2nd Lancers were told to retreat to their former position. They had gone too far too fast, and could not be supported. Pop and his crew had to fight their way back to their own lines.

Earlier this year, together with my two older brothers, and our families (which included three great grand children of Pop Harris) found the location of that brave cavalry charge, just over 100 years ago. I had last visited with my own parents in 1980, and when I saw the crucifix in the road, I remembered being there 38 years earlier, and how Pop had told us the cavalry turned left at this point then up the hill.

When I saw the crucifix, and the path to the left, I knew this was the place

This week, the Daily Telegraph in England, in homage to those that fought in the Great War, reprinted a series of articles and stories from the time. They chose to reprint Pop’s obituary that they had ran in 1996, when he passed away 6 days before what would have been his 100th birthday. (‘ Lest we forget: Brigadier Harris, the Battle of Cambrai veteran who charged the Germans on horseback – obituary.’)

I remember listening in awe to Pop’s stories over the years. He remembered that charge as if it had been last month, yet he was telling me the story over 60 years later.

Of course, if he’d not lived to tell the tale, he would not have had my Mum 12 years later, and neither me, my brothers, or our children would have existed.

What bravery. What a generation.

And so today, at this hour, I pay tribute to The Rev Brigadier General Charles E ‘Pop’ Harris, and all those that fought with him on that day and in that war, on all sides. May we never endure such a terrible event again. May we never forget the sacrifice of that generation, and those since.

Future Generations: 3 of Pop’s great grandchildren with poppies from the nearby field.

 

 

Your wealth is ultimately tied to the customer problems you solve

Anyone running a business should understand, with laser like clarity, the customer problems their business solves. Not only will this mean the business will be focussing on the right activities, it will also be the single greatest determinant of the business owner’s wealth.

There’s a coffee shop (restaurant really, that also does a nice coffee) overlooking a lake near where I live. When I have a new client to meet, and it is convenient for them, I suggest we meet there. For me, it’s a pleasant, neutral venue in lovely surroundings, where I can hear the founders’ story, what they want to do with their business, what they have ‘got’, and if I can help.

The customer problem the local cafe solves for me is that, as I work from a home office, I don’t want to invite the business into my own home, and I don’t necessarily want to pile out to their office (if there’s a second meeting, we can meet there), so I need a ‘third place‘ (as made famous by Starbucks) to meet.

Once the order for coffee is taken, I also want to be left alone to have a conversation with the client. I don’t want to be ignored, I don’t want to be pestered. I don’t want to feel we have overstayed my welcome just because we have finished my coffee (ooohh, how I hate that).

Coffee with a lake view

My local cafe understands this. They are friendly, attentive, chirpy even, and seem genuinely pleased to see me. I frequent the place so much they guess that the person at the front counter peering inside is probably coming to see me, or if I have arrived after the client, they point me to who it probably is.

In this way, they are going above and beyond, and they will have my business for a good while yet. In fact, the place is so thriving, that visitors usually remark ‘Wow, this place is a gold mine‘ or ‘What a great place.‘ Some come back on their own volition later on.

Contrast this to a cafe I used to visit. They seemed genuine and friendly at first, but as soon as your cup was nearly finished, they would pounce and whisk it from you asking ‘Anything else?‘ (which  was plainly delivered to mean ‘Can you leave now!?‘). Staying any longer made you feel uncomfortable. I would barely stay 30 minutes, and after a while, never went back. At my local cafe above, I stay an hour per visit, and often have 3 meetings there in one day. I like my coffee. And I like it there.

The second cafe seemed to be focussing more on solving their problems (getting as many customers in and out of the place), than paying attention to their customers’ problems (a third place to meet, a catching up place, a filling in time space, or whatever). By focussing on the wrong things, and taking a short term view, the ‘cafe-I-never-visit-anymore’ lost my business, and I wonder how many others? I passed it the other day and it had shut down. Meanwhile, my local thrives.

Now I am not a restauranteur nor am I well versed in running cafes – I often do a rough calculation of revenues at the place, notice the high number of staff and wonder how they make money – but if I was to run a cafe I think I would realise that the third place concept was well established and understood by now. Customers are not flocking there for the wonderful coffee, or even the view, but for a service that provides them that place other than home or work (even if it is nothing more than to catch up with old friends or fill in an hour reading the paper.)

If I was running a cafe, I would like to think I’d train my staff to appreciate what the third place meant. I would provide free wifi. I would encourage local business people to meet up, linger, and ‘become members’ (a simple loyalty stamp card would suffice). Yes, I would make more money from the evening meals served with alcohol, but if I am to open during the day, then I would encourage more and more to attend and keep the tills ringing over. The more that come through, the more will be enticed by the carrot cake and muffins, or to have lunch, or to come back one evening for a nice meal, give me nice reviews and to spread the word.

It’s the funnel concept of selling – tip more in at the top, and more shall be returned to you down the bottom. Tweak the conversion rates, and off you go.

In the end the value of any business – and the wealth it creates – comes down to one simple question: how well do you understand and then solve the customer problem?

For, as I have said many times before, only if you solve a customer problem (the person who pays you for your product or service) will you create value; only if you create value will they pay, and only if they pay will you even have a business.

And… if you rinse and repeat this enough over a period of time, your revenue will grow, as will profits (as long as you control your costs) and the business will be worth a pretty dollar or three. This could ultimately determine your own wealth.

If you are not born into money, or have not made it in property or mining, then probably the best way to build wealth is to create a business you own, build it up and sell it (or live off the wonderful dividends it provides). The recent Australian Rich List (self made under 40s) all made their money in business, with 42 of the 100 in tech or online business of some sort. Only 6 were in resources, and 1 in property. The next generation of wealth creators have understood the process well.

Meanwhile, enjoy the coffee.