Last week I sat down with the team at Tanda to chat about all things startups. Here’s how it went…
You’ve toted the hashtag #fundedbycustomers 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 thats 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 dont 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’t’s 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 us. There’s 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 in the beginning. You manage to get the scale you need to do something else.
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. Thats 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.
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 labs are doing these events, even Tanda put on the hackathon, that was a great community event. We had the Unearthed guys do the startup weekend.
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 23 year olds to Silicon Valley for two weeks. We immersed them in the san fran 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 dont 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.
Any last words for Tanda?
Good luck. I think Tanda’s going well. I’ve been to the office, enjoyed their beer … Yeah you gotta set a culture. Be successful. Be rich. Give us hundreds if not thousands of new millionaires. Wash, rinse, repeat.
This interview first appeared on Tanda. Read it in full here.