Kristo Ovaska, Founder and CEO, Smartly.io answered questions from the audience at Aalto Design Factory on Dec 16th 2015. The title for his presentation at Aalto Ventures Program was “Entrepreneurial Journey”. Kristo started with setting the frame for the discussion by introducing his background with two less successful and one very successful startup company providing software as a service for e-commerce customers. Then he casually requested the audience to ask him questions and spent the lecture hour answering them.
What did he learn from the first two startups that did not succeed?
- You cannot outsource coding.
- The founding team has to have a unified view on how to run and grow the company.
- Do not focus on pleasing potential funders but focus on pleasing the customers. The time spent with investors is away from the time learning from working with the customers.
- In order to understand customer needs you need end-to-end working prototypes and wireframes, slides are not enough.
- Secure frequent feedback from the customers. It does not pay off to develop products that the customers do not need or want.
How to get the startup’s founders’ targets aligned?
- This is most of the most challenging things and it has been said that 95% of startup failures happen because of this.
- It does not really help that the founders discuss the vision among themselves. The vision keeps changing as the customers and the market develop.
- The co-founders need to have aligned targets in life.
- For those wanting to become millionaires there are simpler ways to riches than running a startup.
- Those wanting there face in the headlines may find out that personal publicity does not result in a successful startup.
- If both or all the founders want either of these, the changes of succeeding are higher but not too high. Aalto Design Factory
- At Smartly.com the co-founders share motivation to learn new things. This, Kristo emphasized, gives them freedom to go always for the most challenging targets where they also can learn the most. The customers, investors and the team members should be selected according to from whom you can learn the fastest.
So what you should do when starting a company?
- Do not try it alone, get a partner.
- For a software company the essential aspects where you need to excel are R&D, marketing & sales and hiring. The founding team needs to have these competences.
- Lacking software development experience in the starting point will slow down feedback from the customers and the startup will not be able to scale.
- There are two camps on the competitive advantages that the founding team has to possess:
- Solve your own problems – this may work well for consumer businesses
- Customer development model by Steve Blank
- Compensate the weaknesses with a diverse skill-set of the founders, e.g. a coder and a salesman-recruiter.
The turning point at Kristo’s entrepreneurial carrier was
- Learning from the customers at the previous startup that there was a niche in the market opening new opportunities as Facebook advertising emerged alongside Google advertising and the existing vendors could not keep up with the phase of this change.
At this point, why did you start a new company instead of redirecting the focus of the existing compay Metrify?
- The core team of Metrify had differing views on what the company should focus on. The options were to go for rapid software development and customer consulting or to start with offering consultancy work to customers. At this point the best decision was to split up.
What would Kristo do differently if he would be starting Smartly.io now?
- Hire co-workers earlier. He had an extremely talented software developer who was risked to burn out because of the workload.
- Prepare for the amount of coding work to triple from the initial estimate.
- Early recruitment is an important cultural question. Problem solving, documentation, best practices, understandable syntaxes and processes will be developed more efficiently in a team.
- The easier the code is to understand the faster it is to take new developers on board.
What is the right time to get investors on board?
- [Never.] A quick smile on Kristo’s face.
- If you focus on developing a product that fits the market needs, they will come to you.
- The most important thing is not to waste time for getting funding.
How does Kristo take care of himself and the employees?
- The recommendation is to limit work to 8 hours a day.
- No working or e-mailing on weekends.
- Employees are forced to take holidays without reading e-mails.
- To remain as a creative problem solver you need to go away [from the work] from time to time.
- One-to-one walks and runs.
How about office arrangements?
- com is two years old, has six offices and international presence.
- All the physical things take time, virtual things are fast.
- It is important to have an office space to detach from work.
Getting back to financing the company…
- You should not burn anyone’s money as a company.
- On personal level you need to avoid bankruptcy. The changes of succeeding are low and if you go bankrupt, they are even lower. When you are sure that you will succeed, you can ask for financing to support the early stages.
There are three types of presentations. Some make you feel worse (as you think that you would have better use for the time), some do not change your status quo (as you are browsing and not listening the presenter) and then there is this third category that Kristo’s presentation fell into: the ones that make you feel better. Why was this? My subjective judgement is as follows:
- Kristo was invited as a speaker because of his success but he started off with openly discussing that he has made mistakes in this career, has learned from them and is willing to share the experiences and learnings. This made him easy to approach for the audience.
- He treated the audience as a customer inviting us to ask questions from him. Later on when he was telling that he has learned by listening to the customers, this was easy to believe as he was truly interested in the question’s from the audience instead of pushing a predetermined agenda.
- He gave only very positive comments on his partners, co-workers, customers, mentors and financiers.
Thank you Kristo, this presentation was worth attending!
The picture in #6 refers to Hans Christian Andersen’s short tale The emperor’s new clothes.
Associate Professor of Management Practice, London Business School, John Mullins shared his ideas on customer funded business at Aalto Ventures Program Thought Leaders’ Talk in Otaniemi StartUp Sauna on January 26th 2015.
Mullins’ presentation title was asking “What entrepreneurs and angles should do before they dance?” He started the lecture with requesting the audience to have a short discussion on why the amount of money a start-up raised from investors often turns out to be inversely proportional to the success of the startup.
Audience and his own answers to the question included the following:
- Time spent with the investors is a distraction the the actual business development.
- Money makes you lazy.
- You cannot know what the customers want without talking to them.
- Investors want to see the plan being implemented – even though that there would be urgent need to modify the original plan.
So a start-up’s initial target should be to find customers to fund the business, not to run after investor money. Mullis presented five types of customer funded business models (illustrations here are my own associations):
Examples on matchmakers are Amazon and eBay who take their slice of each transaction but do not maintain own storage that would require investments.
Pay in advance model
Customers fund the business by paying before the services or the goods are delivered to them.
Loyal subscribers make the entrepreneurs’ life easier By considerably reducing the need for sales efforts. For example Netflix relies on a subscription model.
Scarcity based model
Scarcity based business model may work in fashion industry – but here the offering needs to be highly attractive.
Service to product model
Microsoft started with a service based business model and developed that to product sales.
Mullins’ concluding advice at the end of the lecture was not to avoid talking to investors but to talk to them at the right time. Start-up companies’ first priority should be to get paying customers. As the business is up and running, it’s time to talk to investors to grow. In this phase the customer funded business will also wake much more interest among the investors.
John Mullins’ lecture and other Aalto Ventures Program lectures can be viewed in Youtube at Aalto Ventures channel.
Via a customer case I had an opportunity to attend Seed Forum International pitch training in Helsinki on Sept 5th. It was a tough yet rewarding day. The trainer, Steinar Korsmo, President & CEO Seed Forum Global together with the jury headed by Katri Liekkilä, Training Manager at Aalto Small Business Center walked the training participants through a learning path towards high quality investor pitching.
Have you ever wondered how investors can make even initial decisions on whether to investigate a company further based on a few minutes pitch presentation? They will be able to do this if the pitch has been constructed as Seed Forum advices to do. We were taught to present the key aspects of the company in a way that matches with the investor’s mindset.
If R&D means working in a laboratory whereas sales and marketing means reaching out to customers an investor pitch gets one major step further out from the cozy company home base. When pitching to potential investors the company business as a whole becomes the sales item that needs to be promoted. Compared to a traditional product or solution presentation, the scope an investor pitch is much wider reaching out to market potential, business model and budget figures.
Seed Forum has concluded through experiment and experience that seven minutes is an optimal length for an investor pitch. Given a three minutes slot the presenters tend to prolong the presentation over the admitted time and given ten to twelve minutes they tend to finish earlier than needed. So that’s why the seven minutes.
Back to the question in the heading of this post: how to analyze a company’s business opportunity and the team within 7 minutes? This is where the magic lies in Seed Forum training: they have defined the value drivers that the investors expect to be hearing and the order in which the facts need to be presented. A “scalable business model” is one of the mandatory requirements. Poor scalability would ruin the growth potential and thus make the company uninteresting for an investor having a rapid exit in mind. A global customer base, rapidly expanding global market, recurring revenues, patent protected innovation and the first mover’s advantage are also perfect additions to the pack.
Is this all easier to say than to implement? Surely yes, but the role of the Seed Forum training is to teach how to make the best possible pitch from the ingredients that are available in the company. Evolving from a startup to an investor ready company is a story to be written by each company by themselves.
Are you interested in attending? Check Seed Forum calendar at http://www.seedforum.org/calendar.
How to productize competences was my challenge when I wanted to set up the Vauhditin consultancy service. In other words, how to explain or give an idea on the consultancy services that I can provide to a person who does not know me in advance but may have a problem or a task at hand that I could help solving?
Having wandered around this and pondered it quite a bit, I wanted to write down my advice. This is not an ordered list as the process is not straightforward but will require multiple iteration rounds. The three main things to take you closer to the target are:
- Write down things that you have done, have enjoyed doing and would like to do more. You may also include things that you would like to learn. But I would advice to leave out everything that you feel unpleasant. Leave those to those who enjoy doing that stuff. There is always multiple ways to see and carry out a job and the one that enjoys doing something that you dislike, will most likely do it better than you. So concentrate on your favorites, pick the tasks that you are ready to fight for. Fighting will be needed as you go out hunting for customers.
- Cut out the context and leave what is essential and multi-purpose. In my case with Vauhditin, I cut out telecommunications and was left with marketing and technology. Nothing prevents you from leveraging a particular context if an attractive project appears, I’ve experienced this pleasant surprise as well. But you should not let the context to limit you from leveraging your capabilities in the first phase.
- From what you now have, start forming service packages. The thing is not to get it 100% right, this is not retail business where the shopkeeper either has a product on the shelf or does not. I’m talking about consultancy services and your service catalog is aimed to be just a tool for opening the conversation with a potential customer. The items on the catalog will help the customers to figure out what you potentially could do and those you think that you could fit for their purpose, will make their own proposals and requests on what you could do.
You can take a look at Vauhditin Service Catalog here.
The hardest thing for me was to come up with the first service idea. Inventing more of them felt much easier when I understood that I could just list things that I have done and would like to do more. So grab you CV and start listing your accomplishments. That’s the starting point for the competence productization process.