How to fuel your startup with Steve Baxter
Last week Tanda sat down for a chat with Steve Baxter. We talked about some issues that matter to Tanda, and similarly issues that matter to a lot of other startups out there. Here’s a few gems of wisdom Steve had to offer when you begin to consider how you’re going to keep your […]
11 June 2015 |
Last week Tanda sat down for a chat with Steve Baxter. We talked about some issues that matter to Tanda, and similarly issues that matter to a lot of other startups out there. Here’s a few gems of wisdom Steve had to offer when you begin to consider how you’re going to keep your startup fuelled and ready to succeed. You’ve toted the hashtag #fundfromcustomers which is about the value of paying customers for early stage startups, why do you think this is important? A lot of early stage startups get wire wrapped about raising money. Do you know what the term wire wrapped means? For our readers, go ahead – Wire wrapped is getting wire wrapped around the axle so to speak, a term when you’re driving in the bush and you get wire wrapped under your car. People tend to keep driving and make it worse. For some reason startups feel they absolutely need to raise money. But something that’s dead sure is after they raise money they’ve then got to go and sell something to a customer. The reliance on selling to customers never goes away. If you sell something to a customer first it proves a couple things. The customer wants it, it proves they’re willing to pay for it and it demonstrates too to an investor you might meet in the future customers will pay up which is a huge thing when you’re selling. And you get to own more of company. When you’re investing equity in your company investors don’t give you money, they buy part of your company from you so there’s no gift involved here. Raising money from investors is really hard. They want to give you money less often because they want to see the durability of your company. As a tactic they like to slow things down. They don’t want to make a rash decision and if you’re coming across as desperate that’s a reason for them to stay away. There’s a bunch of reasons why it’s easier to fund from customers. Tanda is a big fan of treating your customers as your best investors, what are some theories and practices you’ve picked up on that support this mentality? The big thing in the startup space is to give your product away and then when you gain traction work out the business model. If you can fund everything else in the meantime that’s even better. Being able to charge for a demo, charging a customer for a trial is very important. A lot of large corporate customers won’t take you seriously unless you’re charging money. You’ve got to engage enough to get them to spend money. Getting it for free means they have nothing to worry about, whereas if they’re paying they don’t want to lose anything on it and they will engage you more for that fear. Being able to convince your early stage customers as a part of a trial is maybe counteractive but paying nonetheless is very important. At some point you have to convince a customer to put their hand in their pocket. On the flipside you have strategically funded some start ups. What are the do’s and don’ts for those searching for venture capital opportunities in Australia? Do, have your product built. Investors are hesitant to fund ideas. Have the first version built and ready. If you can’t technically do it you’re fundamentally broken at your core. Don’t expect it’s going to be easy, well it’s never easy. Don’t expect once you’ve got your investment you’re going to be able to pay yourself a standard wage. In the two success stories of mine, SE Net and Pipe networks we took no wages for a very long time and then minimum wage for probably even longer. Sales people always made more money than founders. There are usually a lot of people in the company that make more than the owners. If you try to make money at the front end you’ll never be successful. Start ups always make more money at the backend than in the beginning. You manage cash to get the scale you need to do something else. Mark Cuban from SharkTank US wrote that we are in a worse technology bubble than 2000. What’s your opinion on a statement like that? I think there’s more substance to this bubble (laughs). There’s more substance to the technology and the promise this technology brings. The difference is that we are in a bubble, there’s no doubt of that when you’ve got Uber worth 50 billion dollars it’s ridiculous. But the technology has more ability to fill the promises that it did 15 or 16 years ago. That’s helpful. This time around we were actually seeing the disruption occur. We are seeing the Ubers of the world; we’ve now seen what Amazon has done for the book industry for example. We’ve seen what Dropbox has done for commercial disc storage. We’re seeing a bunch of examples that are actually true. Whether they’re actually worth what they’re currently valued at you don’t really know. Something’s worth what people are willing to pay for it. Is it a worse tech bubble? Its a bigger tech bubble, I wouldn’t say it’s worse. With that in mind then, what are some of the worst or best strategies you’ve seen pitched on Shark Tank from tech start ups trying to enter that bubble? Universally every tech start up pitch we’ve had on Shark Tank is terrible. There was nothing redeeming about them. We didn’t get very many either. The best tech business pitch was an un-investable pitch. It was a Nexus Note. For the most part they fundamentally misunderstood their valuation. When one of the sharks asked about their valuation their response was our valuation is so high because were a tech start up we have such disastrously high valuation. That’s a crap answer. They don’t understand why people are willing to price tech start ups. It’s really weird, if you can fund from customers you shouldn’t need to talk to investors. You shouldn’t need investors at all. If you can take a working business funded from customers to an investor after 18 months and say we have this mature business we just need to drop more money in the front end to get more from the back end. That’s what investors want to hear. That’s when you should be having this valuation question, why are you worth a lot of money? Not beforehand. You mentioned when SharkTank started you didn’t get many tech startup pitches at all. Do you know why that is? I think when Channel Ten started with it they promoted it as an inventor’s show. That’s a theme that’s a hit with Australians and they would have market tested this too. I think Season 1 has been quite successful. I don’t think they got it wrong. I’ve gotten some great investments out of the show. From our personal perspective regardless of the media side, in that respect it’s been successful. We could change the mix of those businesses, just not that many tech start ups. Well in that sense you’ve already answered my next question. I was going to ask you to tell us about your experience on Shark Tank AU so far? I enjoyed it. It was four and a half weeks of long days, sometimes boring days. I met a lot of people. I think we saw 106 people over those 4 weeks. Everyone got a piece of me. Five pieces of me and four others to be honest. Some left with investment , all left with advice, some with a TV ad. You know the teaser ads, whether it was a good ad or a bad ad. A lot of good was done by the tv show. We can just highlight mistakes people make in pitches. In my day job here I talk to 10 maybe 15 investors in a month. I get to talk to a lot more people every Sunday night on that show than I ever would in this office. That’s a good thing, right? At the beginning of the year you said you were excited to work on Shark Tank because you wanted to inspire and educate the next generation. Tanda is very much that next generation. They don’t need education. They’ll be right. They’ll be on Shark Tank in the next couple of years. At least I hope so anyway. (Laughs) Well, having that generation sitting in front of the table right now what do you want to say to inspire? To inspire – well it’s not easy but it’s worthwhile. Just get out there and try it. You hear people in their sixties who say I knew that fellow or I had that idea years back but I was lazy and I just didn’t do it. It’s never been easier to start a business. Especially a tech startup. you’ve got your Dropboxes and Office 365s and Amazon web services so inexpensive to do this now. What we spent hundreds of thousands of dollars on things maybe only eight years ago you can now get for 12 bucks a month. Unbelievably cheap, unbelievably flexible. The community is far more understanding of this activity. Not as understanding as it can be but it’s far more than its ever had before. Which is good. So get out there and do it, don’t die wondering. In an article for BRW it was said tech startups have the potential to contribute 4 per cent of GDP, or $190 billion by 2033, and create 540,000 new jobs. What’s required to make this potential a reality? Lots of things are involved – we need lots more start ups. I’m not talking dozens, I’m talking thousands every year. Startup culture is about trying different things. I’m 44 and I have no idea what’s going to work. I really don’t. It’s people, your age, at Tanda who understand the trends and have the nimble brain power to follow those trends. Whereas when you get older you’re fixed in your ways. So we need lots of younger people with technical skills to give it a go. If it doesn’t work – stop it, change it, do something else. It’s not failing, it just didn’t work. We need the feedstock of thousands of technical startups. We need our universities producing tech minded graduates for the startup sphere. Because it’s suffocating and limiting. We want to get them into the real world, solving real world problems. In every sector, let’s not talk about four pillars, let’s talk about no pillars. Once we have that we need to close some funding loops, especially in education. I see the labs [River City Labs, the not-for-profit co-working space founded by Baxter] doing these events, even Tanda put on the hackathon, that was a great community event. We had the Unearthed guys do the startup weekend. So what you’re saying is failure can be good? Experimentation is required, so if you an experiment right and say you’re testing drugs and you inject ten different drugs and a placebo into different subjects and you watch what happens. So if you don’t cure the disease is the experimental failure? No. You try again and alter the experiment. A startup is about testing a hypothesis. You successfully launched the first Startup Catalyst trip that our CTO, Alex Ghiculescu, was lucky enough to attend. What motivated you to start this program and what are some of the results you’re seeing? Startup Catalyst is a program that took twenty technically wired 18 to 25 year olds to Silicon Valley for two weeks. We immersed them in the San Francisco Bay Area ecosystem. I actually wanted to call it Startup Ebola because it illustrates what I was trying to do. I wanted to send people over there and infect them with start up. Bring them back and let them run around and infect other people. But then of course Ebola happened during the planning and it didn’t seem politically correct to say the least. We just want to get them exposed to other technical people. I believe there’s a lack of younger technical people with entrepreneurial skills starting startups. We need multiple hundreds in Brisbane every year alone. We’ve got a 20 fold gap to close to get to where we need to be. I’m not sure how you could quantify that but have you seen the gap closing since Catalyst? Not really unfortunately. We got one or two actually in start ups and as many as four. I’m actually having a meeting following up Startup Catalyst tomorrow. I don’t know the stats. From talking to people it was well received. I think the requirement was for people to come back and spread the startup vibe, and we didn’t enforce that as hard as we should have. But we’re doing it again. There’s some things we’ll change. We won’t make the same mistakes twice. Will you do the same circuit you did last time? I don’t see why not. The premise isn’t changing. It’s going to be four or five days either side of a startup weekend. We’ll dictate from our friends and supporters over there, there’s plenty places over there trust me. In your opinion, what role does Australian state and federal governments play in the startup community? Do they or should they? There lies the real question – do you think they should if they don’t already? Hmm, what role do they play… I think they play a very poor one. Federal government all make noises if they like the sector but they fundamentally don’t understand it. They use the words startup and small enterprise interchangeably which is disappointing. While a startup may look like a small business it’s not the same as a small business. They can both fail but only a startup can exponentially succeed with global success. There’s movement at the station, the last three or four years the Labor government laid some plans that essentially destroyed potential for startups to easily issue equity to their employees. That’s changing; we’re seeing the full rundown of those changes. Priority startup related, not much else is happened. When we talk about commercialisation, government grants people will talk about CSIRO. Honestly, if you’re really looking into commercialisation and CSIRO –how much research is there on Tanda? The answer is none. There’s not a single bit of intellectual property from universities. There’s lots of graduates from university but that’s where the distinction ends. What role should they play? If you believe the government is actually there to smooth out market failure, so when there’s a failure in some market they’re there to pick up the slack, then yeah there is a chance for them to play that role. They should actually be out there producing more STEM graduates. You hear the term STEAM being used where they’re adding arts into that, I’m not sure if I agree with that. How come? Name me one tech start up that’s got a bunch of arts graduates. People point to games companies, but three quarters of that field is tech and science people. They’ve got a creative bent, but when it comes to the arts community they’ve got their own wagon to jump on. They should be working together, state and federal, to be producing more graduates. Until we have an oversupply of graduates were not going to get that sector going. Ideas like making degrees in that sector free would encourage more students. We need more startup catalysts, and we need to be encouraging more startup founders. We should be bringing people in from overseas to talk to people. State wise I think we should have an Office of the Chief Entrepreneur to monitor and control things. We had three startup weekends clash this week, I think that’s stupid. Its a big statement to just spread it around, I think on a Brisbane scale we need real entrepreneurially-experienced people running the show. Any last words for Tanda? Good luck. I think Tanda’s going well. I’ve been to the office, enjoyed their beer. They’re good for that. Yeah you’ve got to set a culture. Be successful. Be rich. Give us hundreds if not thousands of new millionaires. Wash, rinse, repeat. Interviewed by Meredith McLean, Tanda.