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…

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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

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.

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.

Why most new products fail

A better mousetrap does not necessarily sell. In fact, most of the time, it doesn’t.

If you build it, they will come.

Nonsense.

If they come, build it.

That’s pretty much the message I try to ram into new startups, imploring them to use the lean canvas, or some such method, to ‘just get out there’ and be nimble and responsive to customers’ needs, building up their business along the way.

These days, you can get a new startup going on credit card debt, build an MVP (minimum viable product), work with your first paying customers, get revenue coming in as soon as possible, laying the ground work for a possible scale up later on.

That way, you don’t risk piles of cash. Having less money also teaches you to work smart, fast and love your early clients to death. You’ll learn the fine art of on-boarding, and how small tweaks to your landing pages can make massive differences to your conversion rates and first revenues.

The fact is that most products fail.

Studies show that, depending on the category, 40% to 90% of new products don’t last. Every year in the US 30,000 new products are launched, but 70% to 90% of them are no longer sold after 12 months.

It’s also a myth that you have to be first to market. 47% of first movers don’t make it. Sometimes, even better products don’t cut through. Better, as in ones that have distinct advantages over incumbent offerings.

Why?

A classic Harvard Business Review paper (“Eager Sellers and Stony Buyers” by John Gourville) a dozen years ago laid out the reasons, yet we still see people ignoring the advice.

Gourville’s paper is a must read for anyone looking to develop and market a new product.

People are not always rational. I’m not talking about some crazy guy you see on a train or shuffling down the street. I mean all people, as a rule. Irrational.

For example: studies have shown that if you give people a 50% chance of winning $100 and the same risk of losing $100, most people won’t take the bet. In fact, you have to offer most folks a two to three times gain over a possible loss before they are swayed.

In other words, if they have 50% chance of winning $300 and 50% chance of losing $100 then more will go for it than not. But not if the 50:50 chance of winning was $100, or even $200.

The reason, says the theory, is that losses loom larger in our minds that wins. We may know what we have is not all that great, but the costs of switching means we are happier to stay with our current lot, than strike out and go for something potentially better. Unless the odds are stacked more heavily in its favour.

Put it another way, better the devil you know than the devil you don’t.

“Loss aversion”, says the paper, “leads people to value products they already possess more than those they don’t have.”

This bias is called the ‘endowment effect‘. And it is quite strong.

The implication is that if you are trying to get people to change their behaviour (use your bright shiny new object rather than the one they are used to), then your new product better have massive advantages, well communicated and understood, before your potential clients make the switch.

In 2007 and 2008, I was happy with my Blackberry. It had email, allowed me to surf the net (chunkily, but it kinda worked) and the keyboard was on the outside, much like the PC I was used to. It was way better than my old flip top Nokia phone.

Then came the iPhone. No keyboard. I heard rumours the batteries did not last. It took me til 1999 to make the move, but after I’d started using it, I never dreamt of going back to Blackberry. Nine years on, I still use iPhone.

Many millions did likewise. Blackberry subsided and never recovered. Apple went on to become the richest companies on the planet, and is inching its way to a trillion dollar valuation (it will be the first company to do so, if it gets there).

The fully electric car may seem like something fantastic (no more petrol pumps) but if you are not sure there will be charging stations, are you really going to switch to the Nissan Leaf?

The 9x Effect

Company executives tend to over emphasise the benefits of the new product (by a factor of 3) while the consumer tends to over emphasise the benefit of their existing product (also by a factor of 3).

This means that the new product actually needs to be better by a factor of NINE if it is to be viewed as equivalent to the incumbent.

Which is why you hear of innovators talk about the ’10x’ effect, which means their new product may have a chance.

I recently saw a new agtech service that would (at least) save the user 10 times the cost of the product itself. It should stand a chance. If they were going for 2 or 3 times uplift, little chance.

Easy Sells

The best new products are those that require little change for the consumers, while providing massive improvements on the existing product.

Maybe this is why hybrid cars have made a greater impact than fully electric ones. The consumer gets the benefit of better fuel consumption, but still has the knowledge that a petrol tank exists, which is something they’ve been used to all their lives. In time, perhaps the fully electric car will out, but for now, the hybrid serves a purpose.

Another implication is that you need patience. Patience is a virtue, as I tell my children at every occasion, much to their annoyance. Customer acceptance of a new way takes time. Google, Facebook & AirBnB all took several years to take hold.

It also means that you should strive for 10x improvement. Find believers, get them to be evangelical about the new product and spread the word.

But, whatever you do, do not believe that simply because your new mousetrap is better, it will sell. It will most likely fail.

The trend is your friend

The Sydney Harbour Bridge was opened in 1932, and took eight years to build.

In 1926, you could see the large pillars on either side of the harbour, from which the famous steel arches would start to appear a few years later. By the end of 1928, the entry roads were clearly visible leading up to these pillars, but other than that there was no ‘bridge’ (yet), and ships and ferries could pass by through the opening as they had done for decades. [In fact, if you look at the photo above, you can see exactly that in 1930 and 1931.]

By 1931 most of the arch had been completed, and the future bridge could be imagined. A year later, in March 1932, the bridge was officially opened by the then Premier of NSW, Jack Lang.

In a film clip of the event, you can hear the cheers of the onlookers and the commentator saying “Can you hear those boats? Can you hear those sirens? What a great day this is…”

Not so merry for the ferry

Many Sydneysiders know the saying ‘Seven miles from Sydney and a thousand miles from care‘. This slogan was coined by the Port Jackson and Manly Steamship Company in the 1920s to promote its ferries on the Manly run. Without a bridge, a ferry was the only way to get from one side of the harbour to the other.

Yet, once the bridge construction had been agreed on, and building commenced, you could literally see the thing being built above you and across the 1km+ span of the harbour.

Before the bridge was opened in March 1932, ferries took 30 million passengers a year. After, ferry patronage plummeted to 13 million.

I tell this story to remind all industries that disruption to their mainstay business is often dramatic, yet can be foreseen. But in this case, the disruption was clearly visible to the ferry companies as the bridge was literally being built above their heads!

Often disruption is not that visible. It’s slow and inexorable, eating away at your business like white ants under your floorboards. Ignoring the problem does not make it go away. Putting one’s head in the sand does not protect you from its inevitability.

You may as well assume disruption is the norm. The more safe you feel, the more worried you should be. Check for white ants. Do your research. Think.

The good news is that you may have time on your side. Sydney’s harbour bridge took 9 years to build. Google took about that time to really take hold and make an impact on local advertising revenues. Same with Facebook.

It may have been that one day you looked around and suddenly Facebook and Google was all pervasive, but they took years ‘pushing the flywheel’ before they were so impregnable.

So, what are you doing in your business, in your industry, to prepare for your inevitable disruption? How are you positioning yourself so you can take advantage of the changes that are coming? Are you researching the possibilities of AI, bots, drones, AR, VR or the blockchain? All these, and more, are visible right now and making their creeping impacts.

Don’t be the ferryman, ignoring the inevitable while the seed of your destruction is being built around you. Get on a trend, because the trend is your friend.

Take it from Eddie Izzard – Quality is more important than Speed

Over the break I read Eddie Izzard’s excellent ‘Believe Me, a memoir of love, death and jazz chickens‘. Bill Gates, of all people, had recommended it as a top read, and I thought ‘now why would a serious bloke like Mr Gates be into the autobiography of an English cross-dressing comedian?’

Then I reached page 306, which I quote from heavily below.

Eddie Izzard was born a year before me, and was packed off to an English  private boarding school aged 6 after his mother died suddenly of cancer. He grew up with the same TV shows and music as I remember from the early 70s, and went to uni around the same time (although he dropped out to pursue his dream of performing).

As a teenager, while still at school, he decided one day to take a bus and a pay a visit – uninvited – to Pinewood Studios, just west of London (where they made James Bond movies and the like) walking right through the side door and exploring around all day pretending to be busy and part of things.

During his ‘lost decade’ of the 1980s he took various failed shows up to Edinburgh Fringe, then spent a few years as a street performer before finally getting into stand up. He explored and created, and slowly honed his craft. He put on shows himself, producing them from scratch and co-writing inventive nonsense with friends. Most of it simply did not work, but slowly he found his own voice and style and confidence and audience.

From the 1990s his stand up act took off and then he made it into films and TV. Now, in his mid 50s, looking back, his advice for creating new business is crystal clear …

“When I was 25, the direction of my career suddenly became shaped by my ‘Field of Dreams’ rule – if you build it, they will come. ‘It’ being quality and imaginative shows.

“Previously, this had not been my thinking. Quality was not high on my list. Speed was. But who the hell cares if you get somewhere fast? The only person who cares is you. 

“If you could get somewhere faster, then you’d just have a lot of money, a big house, a fast car and a big cat. The individual is the one who wants to get somewhere quickly. It’s what you want when you’re young. At nineteen I thought I would begin to cut through within a few years, but this was not the case. At 25 I was racing to get somewhere fast but getting nowhere.

“So I turned the plan upside down: don’t get somewhere as fast as possible. Get somewhere as good as possible.

“No one ever says, ‘This piece of creative work is crap, but it was made in a couple of weeks, so let’s go check it out.’ Contrariwise, no one ever says, ‘Now, this piece of creative work took 10 years to make and a lot of care and attention – so I must check it out because it took so long to make.’

“There is something fun about a fast trajectory, someone’s career taking off quickly. It’s all about the wind in their sails. But in the end, you want your work to last. And to do that, your work must be good…

“(My career) took 12 years to appear, and to me it felt like a bloody eternity… there was something I had to learn. It was stamina. And it was also the idea of quality over speed.

There is an eternal truth in this passage.

Do your best work, not your quickest work. It might take time. In fact, if you’re doing something new, wacky and disruptive, it will definitely take time. More time than you’d like. But in the end, only the best work wins. Keep plugging away, find your audience, keep innovating.

This experience and advice has obvious crossover to business and particularly startups. I think I can see why Bill Gates admires Mr Izzard.

Change is slow, and that’s good thing

Methuselah is a 4,849-year-old Great Basin bristlecone pine tree growing high in the White Mountains of Inyo County in eastern California.

An oft-heard refrain these days is a lament “Everything’s changing so fast!” and it would be easy to sign up to this notion.

Look how we totally rely on our smartphones these days, turning to them an average of 150 times a day. It makes one wonder what we did for entertainment, news and chat pre-2007. And yet, we’ve only had them for 10 years. It’s gone in a blink of an eye.

See how Uber and Airbnb have blasted into our market, totally disrupting and changing the way we move around the city, or stay in other cities (or have total strangers to stay with us). Uber only got going in Perth in 2014, and has over 20% of the market. Airbnb launched into Australia a couple of years earlier and has upwards of 30% across Australia these days.

And yet, even these stories prove that the best changes – the ones that stick – take time.

There had been smartphones well before 2017, and phones with access to the internet had been around for a while. The best marketing the iPhone did was to announce itself as the game changer, yet even the iPhone took a while to take off. Early versions’ battery life was poor, and not everyone liked using a finger to tap on a virtual keyboard through glass. The Blackberry ruled supreme, and had a built in keyboard. This was much closer to peoples’ existing experience, which was why it was named “the crackberry”. Its devotees were obsessed by it.

The iPhone 3 was the version that took off, launched as it was with the app store in 2009. It was this moment that saw the inexorable shift to the smartphone (which  really should have been termed the ‘app phone’, as phones had been smart before – it was the apps that made them different now). The creation of the cottage industry of app makers was the true revolution, and this underpinned the smart (sorry, app) phone’s rise. Soon Samsung and Google jumped on board.

Looking deeper into the Uber and Airbnb cases you can see that they did not exactly take off as over night successes either. Launched in 2007, it took til 2011 before Airbnb would launch in multiple cities and gain traction, on the back of some serious capital raises in 2010. Likewise, Uber, founded in 2009, took a couple of years and then a major seed round in 2011 before it could launch in various jurisdictions with UberX in 2012. Indeed, Uber was not the first ride-sharing service, and they held back looking at the rulings coming out regarding the legality or otherwise of this new form of transportation. (Others could argue that ride sharing had actually been created in the early 1900s, or even the 16th century, but that’s another story.)

The history of even these wildly successful game-changing disruptors started with relatively quiet 2 or 3 years where things were far from certain. They were learning, pivoting and inching their way to the best formula. When I meet tech founders who think they’ll take off immediately with hockey stick growth I tell them the real stories of hardship, years and years of struggle, before even the best break out. Are you up for that? Founding a startup may seem glamorous when you see the gazillionares adorn magazine covers, blaze around at Burning Man or stomp across tech conference floors delivering well honed keynotes in their black t-shirts, dark blue jeans and high end trainers. But they all had hard starts, and there were many failures, mistakes, missteps and sleepless nights. It’s not all glamour, believe me.

So I would argue that change is slow. Indeed, the best ideas always grow slowly, and that’s a good thing, because things that grow slowly tend to last a long time.

Just talk to a turtle (average age 100 years) or Methuselah, a Californian bristlecone pine tree that was seeded in 2,833 BC. She ain’t pretty, but she’s still here.

Slow is good. Slow and steady wins the race. It’s hard work. It’s not very glamorous. It’s a million small things you do, day after day after day, that get you there. There is no silver bullet. And that’s a good thing.

Get them on the drip

When we were contemplating the best revenue model for aussiehome.com, the online real estate portal we established in 1999, we considered the following main alternatives:

  1. Subscriptions – real estates agents pay regular fees to list their properties
  2. Advertising – advertisers pay for display ads on the website
  3. eCommerce – home seekers can buy/rent directly off the website

Any other revenue model you can think of is just a variation of the 3 above. Note that for each option you have a different paying customer. And knowing who your customer is, and what problem you are solving for them, as I have discussed in these pages, is critically important.

In subscriptions, your client is the real estate agent, and the users of the site (home seekers) get to use it for free. What would agents want in return? Enough enquiries (and as we learned over time, a listing edge) to justify these fees.

Advertising income means your paying customers are your advertisers. In return for the promotional investment on your site they expect to see lots of views of their ads, and click throughs. Likely advertisers would be banks, mortgage brokers, home builders and any other home-related businesses.

The final one is pure ecommerce – taking on the whole industry, competing against real estate agents, and selling/renting properties directly off the site. Back in 1999, barely 3% of all properties in WA were sold privately (ie by the owner, not through an agent).  Fortunately, we discounted this 3rd option. We did not believe the world was ready for home owners to take a punt on a new website, chancing their arm with their largest financial asset (their house). 18 years later, this is still the case. Nearly everyone selling their property in 2017 does so through a licensed real estate agent, and REIWA member. ‘For sale by owner’ sites have floundered.

Selling ads, we thought, would be tough as we’d be up against Yahoo! and others and we’d need huge traffic to pull any decent ad dollars. This would mean raising a King’s ransom in funding, and blowing most of it on our own promotions. This seemed too risky. Another good decision this, as Google and Facebook would come along and scoop up nearly all of the digital ad money in Australia.

So, almost by a process of elimination, we plumped for subscriptions. Subscriptions is no easy solution though. Real estate agents, and most small business owners, resist paying ongoing fees. It adds to their costs, and makes their business riskier. They would be far happier paying for something large in one bulky purchase (as we found out, on such things as banner ads and websites).

Subscriptions is also a long, slow row to hoe. In order to get properties on the site, you need enough agents to be paying to load them up. Only then will visitors have enough content to peruse, find your site useful and return.

This is the major problem with brand new two-sided market places. You have to build supply and demand simultaneously, and this is extremely difficult.

When you’re building a 2-sided marketplace from scratch, how can you get demand when you have little supply, and how can you get supply when you have little demand?

Uber solved this curly one by paying the first drivers to sign up in a city some income, irrespective of whether they had passengers. They realised that the minute the first passengers used the service, there had to be Uber drivers nearby. Uber knew this first experience had to work well, so their early adopters would rave about the service. They grew from there.

We did something similar. We gave away 3-month free trials to our early real estate agents, so they could plop all their listings on the site, for free, in order to get some supply up there. As soon as the first people looked on the site, there had to be hundreds of properties for sale and rent. Once a few agencies were supporting us, it became easier to get others to give us a go. Obviously, this does not produce any income, so we could not do this forever. After our first year, we stopped giving away  free trials.

Slowly, but surely, we started to earn monthly income. As agencies came off their free trials, they started to pay a fee. Not huge bikkies, but something. Once you get customers paying for your service, you are in business. They take it more seriously than a free offer. They update their listings, and then, something wonderful happens – they start to get enquiries. We could see the email enquiries coming directly off the site. (We could not see phone calls of course, but these were happening, so we were told.)

On top of this base of subscriptions income, we added some ecommerce (users could buy Landgate sales evidence online) and advertising (banner ads for agents, and display ads for mortgage brokers and the like). We then moved into web site design for our agencies (building their sites off our system), magazines and in time feed income so that our clients could be on up to a dozen sites through us. But it was the bedrock subs income that built the strong foundation.

As Seth Godin wrote recently, the ‘drip drip drip‘ of subscriptions is the most sustainable business model.

Newspapers have had to learn this. The NY Times put on 800,000 new paying subscribers since Trump was elected. Their shares are soaring, built off a base of 2.2 million subscribers, up more than 60% in the past year. Failing NY Times fake news indeed. Quite the reverse Mr President!

One thing that took me to Business News in 2013 was that their readers had been paying for subscriptions since 2002. By 2017, these subscribers were renewing at record levels, and subscriptions income was the largest single income source. A great local story of a media company taking a brave route, and prevailing.

Netflix entered Australia 2 years ago, and now 1 in 3 Australian households have a subscription. Quickflix, its Aussie competitor, started more than 10 years ago, never passed more than a few hundred thousand subscribers. Although prevailing against all other local competitors, they could not compete with the US-backed giant and shut down within months of Netflix’s entry.

Realestate.com.au’s valuation today is north of A$9 billion. I remember when it was worth $6 million, after the throes of the dotcom crash in Easter 2000. But it built itself up, and the ‘network effect’ of having pretty much every agency on board meant every agency had to be on board, and everyone went there to view properties. A complete 2-sided market of immense power, they could pretty much charge what they like. It now costs more than $1,500 a property to list on the site.

As my cofounder Nick used to say to me, “Charlie, get them on the drip.” How right he was.

Solve problem, have business

Many of us can make business seem a little bit more complicated than it is.

Setting up a business is really easy. I did it (for the 2nd time in my life) this week . I had thought of a name, which had an available web address, a line that encapsulated what I would do, and I asked my accountant to do all the legal work. I bought a new PC and monitor to set up my home office, asked my bank to create a new business bank account and Fiverr did my logo (on 3rd attempt, but I was happy with the outcome). I tested the name and logo with some people and was met with positive reaction.

I’m not fully launched yet, but I’m on my way. The website (which will be here) is still being built. However, I do have my first paying customer.

Startups are easy!

As I have written before, startups are easy, as you are buying things. Anyone can buy things. Buy a domain name, buy a logo, office, PC, some accounting services… but it’s much harder to sell things. Get money coming back in, the opposite direction.

When it comes down to it, how you are going to get money coming in is the most important question in business, because without it, you don’t have a business. You may have a not for profit, or a loss-making organisation, but it’s unlikely to become a self-sustaining business. These days, setting up a business is so cheap (my total set up costs have come to $3,200) that you can be “in business” very easily, but unless money is coming in somehow, it is not really a business at all.

I’ve met a few people along the way who are still struggling with this fact. They have a great website, lovely content, are pure and passionate in what they do, but they don’t have a business model (a way of having money come in). They’ve tried a few things, but to no avail or not in sufficient quantity to cover costs.

Focus on the customer problem. Full Stop.

My advice to them is to stop thinking about what they want to do, and start focusing on the problem they are trying to solve for the customer. In business, the money flows in from the customer. In some cases, there are users and customers, different sets of people. One of them uses the service for free, the other pays for their use.

For example, when we started aussiehome.com way back in 1999, we thought we were building a web site for people like us, home buyers and renters. We were going to make property searching easier, by showing properties on maps on the web, 24/7, rather than forcing people to wait for the weekend papers. Fine, except the business model was a subscriptions one for real estate agents. They were our customers, the ones who paid us, not the users who used the site and found their properties for free.

So, in order to get the real estate agents to pay, we had to work out what problem(s) we were solving for them.

It took us about 18 months (post launch) to figure this out. (I don’t advise doing this post launch, as we did.) The agents’ problem was not trying to get buyers to see their properties. Buyers seek out properties. They will use whatever means they can, including driving by favourite neighbourhoods, reading sign boards, ringing up agents, waiting for the weekend and local papers…

You can rarely force someone to buy a house they don’t want to live in. What real estate agents know is that if they get a good listing (property), and present and price it correctly, it will sell (most of the time), depending on market conditions. In boom times, properties fly off the shelves. In tougher times, they seem almost impossible to budge. The poor agent can exert little influence on the market. The market is the market, as they like to remind us.

List and Last!

What real estate agents therefore want, is a great listing. List and last, as they say. In order to get the best listings, agents need ‘listing tools‘, the latest gizmo or script or shiny object that will set them apart from their competitors.

Once this penny dropped, we realised what our business was.

Give our agents listing tools, to make them more competitive over the next agent, and they might just win that great new listing.

Price and present it properly, and the property will sell. Or not, depending on market conditions.  Pretty much. It was all about the listing, not the selling.

We then spent the best part of 10 years building listing tools for our agency clients:

  • great websites that ran off our platform,
  • the ability to list on a dozen real estate sites through single data entry and XML feeds,
  • full colour gloss magazines,
  • apps and social media advice,
  • … anything to give them the edge in that pre-listing interview with the owner.

So – what is business really?

Business is all about solving problems for paying customers.

If you can solve problems for them, then you create value. If you create value, they will pay. If they pay, you might be in business.

It all comes down to relentlessly focusing in on the customer problem, and hammering away at that in ruthless fashion.

Never ever fall in love with your own product or service (the worst salesman does that). Fall in love with solving your customers’ problems instead.

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Photo credit: Steve Fettig, Flickr