Entrepreneur

The Ultimate Cheat Sheet for Becoming an Idea Machine

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James Altucher

James Altucher

Guest Post: James Altucher is an entrepreneur and bestselling author who has founded over 20 companies, failed with most of them but managed some big wins including founding and selling StockPickr and Reset, each selling for approximately $10 million.

James is an Angel investor and was one of the first seed investors in Buddy Media which sold to Salesforce for $745 million and managed to get angel investments in Bit.ly, Ticketfly, CTera, Acebucks, Cancer Genetics and Optimal.

He has published 11 books including Choose Yourself, 40 Alternatives to College, How to Be The Luckiest Person Alive and is a frequent contributor to publications including The Financial Times, TheStreet.com, TechCrunch and The Huffington Post.

James blogs at The Altucher Confidential, you can sign up for his Insiders List here

Ed: You may have read some of my rants of recent times about talented would be entrepreneurs working on non problems and the dearth of investable startups as a result. I asked James if we could share his idea machine post to help those of you trying to start new businesses so that you don’t get too locked into to your initial (and possibly suboptimal) ideas.

The Ultimate Cheat Sheet for Becoming an Idea Machine

The way to have good ideas is to get close to killing yourself. It’s like weightlifting. When you lift slightly more than you can handle, you get stronger.

In life, when the gun is to your head, you either figure it out, or you die.

When you cut yourself open, you bleed ideas. If you’re broke and close to death, you have to start coming up with ideas.

If you destroy your life, you need to come up with ideas to rebuild it.

The only time I’ve been FORCED to have good ideas is when I was up against the wall. My life insurance policy was like a gun to my head: “Come up with good ideas… OR ELSE your kids get your life insurance!”

At an airport when I realized a business I had been working on for four years was worthless.

Or when I was sitting in the dark at three in the morning in the living room of the house I was going bankrupt and losing my home, my brain figuring out how to die without anyone knowing it was planned.

Or when I was getting a divorce and I was lonely and afraid I wouldn’t make any money again or I wouldn’t meet anyone again. Or my kids would hate me. Or my friends would be disgusted by me.

The problem is this: you’re NOT in a state of panic most of the time. States of panic are special and have to be revered. Think about the times in your life that you remember – it’s exactly those moments when you hit bottom and were forced to come up with ideas, to get stronger, to connect with some inner force inside you with the outer force.

This is why it’s important NOW to strengthen that connection to that idea force inside of you. This post is about HOW.

Nothing you ever thought of before amounted to anything – that’s why you are exactly where you are at that moment of hitting bottom. Because all of your billions of thoughts have led you to right there. You can’t trust the old style of thinking anymore. They came, they saw, they lost.

You have to come up with a new way of thinking. A new way of having ideas. A new ways of interacting with the outside universe.

You’re in crisis. Time to change. Time to become an IDEA MACHINE.

People know what “runner’s high” is. It’s when you are running for a long time, at the point of exhaustion, and then something kicks in and gives you a “second wind”.

400,000 years ago people didn’t jog for exercise. They didn’t even have jogging shorts. Or sneakers.

400,000 years ago people need to eat and live. And either you’re running to catch a prey, or you are running from a lion. You’re the prey! And you need that second wind in both cases or you DIE.

The same thing happens in the brain. When you are about to die, a second wind kicks in. Ideas, experiences, opportunity, and probably hidden forces and neurochemicals we don’t understand.

But you can’t get runner’s high unless you’re ALREADY in good shape. Unless you are already able to run long distances.

This is why it’s important to exercise the idea muscle right now. If your idea muscle atrophies, then even at your lowest point you won’t have any ideas.

How long does it take this muscle to atrophy? The same as any other muscle in your body: just two weeks without having any ideas. Atrophied.

If you lie down in a bed for two weeks and don’t move your legs you will need physical therapy to walk again.

Many people need idea therapy. Not so that they can come up with great ideas right this second (although maybe you will) but so that people can come up with ideas when they need them: when their car is stuck, when their house blows up, when they are fired from their job, when their spouse betrays them, when they go bankrupt or lose a big customer, or lose a client, or go out of business, or get sick.

Ideas are the currency of life

Not money. Money gets depleted until you go broke. But good ideas buy you good experiences, buy you better ideas, buy you better experiences, buy you more time, save your life. Financial wealth is a side effect of the “runner’s high” of your idea muscle.

Whoah! That was a big intro. Depending on where I post this, some people will write “tl;dr” which I had to look up and it means “too long, didn’t read.” I encourage those people to stop reading here and save yourself the trouble. It’s ok. I’m not mad at you. I’ll write smaller articles also. I’ll even draw cartoons.

I’ve often written about the idea muscle as part of what I call my “daily practice”. Every day I have to check the box on physical, emotional, mental, and spiritual health.

And I get a lot of questions about it so I will try and answer them here. If you have more questions, ask in the comments and I will answer.

Sometimes people ask, “did you only start coming up with ideas because you already had it made?”

ANSWER: I was on the floor crying because I was dead broke and dead lonely and had no prospects so that’s why I had to do it.

So now, 1000 words in (“tl;dr”) The Ultimate Cheat Sheet for Becoming an Idea Machine

The below is what I do and what works for me. If you have anything to add, please add them in the comments, I need all the help I can get.

What do you mean Idea Machine?

You will be like a superhero. It’s almost a guaranteed membership in the Justice League of America.

Every situation you are in, you will have a ton of ideas. Any question you are asked, you will know the response. Every meeting you are at, you will take the meeting so far out of the box you’ll be on another planet, if you are stuck on a desert highway – you will figure the way out, if you need to make money you’ll come up with 50 ideas to make money, and so on.

After I started exercising the idea muscle, it was like a magic power had unleashed inside of me. It’s ok if you don’t believe me. Or maybe you think it’s bragging. There are many times when I don’t have ideas. But that’s when I stop practicing what I am about to advocate.

Try it for yourself. I’m not selling anything here. I have no reason for you to try this. I just want to share my exerience. It’s like part of your brain is opened up and a constant flow of stuff, both good and bad, gets dropped in there.

From where? I don’t think about it and I don’t care. But I use it.

In early 2009 was one of those times when I desperately needed to do this. I was fulltime either trying to find a girlfriend or I was trying to start a business or both. I was also going broke in the stock market and losing my home (until I personally saved the entire stock market – see my book).

Every night, I’d have waffles for dinner and a bottle of wine and start writing ideas down. This is before I went paleo (no waffles!) and stopped drinking alcohol (five years sober!) and I was writing 10-20 of the most ludicrous ideas a day down.

And you know what ? It worked.

How do I start exercising the idea muscle?

Take a waiter’s pad. Go to a local cafe. Maybe read an inspirational book for ten to twenty minutes. Then start writing down ideas. What ideas? Hold on a second. The key here is, write ten ideas.

Why a waiters pad?

A waiter’s pad fits in your pocket so you can easily pull it out to jot things down.

A waiter’s pad is too small to write a whole novel or even a paragraph. In fact, it’s specifically made to make a list. And that’s all you want, a list of ideas.

A waiter’s pad is a great conversation starter if you are in a meeting. Someone at the meeting will eventually say, “I’ll take fries with my burger” and everyone will laugh. You broke the ice and you stand out.

A waiter’s pad is cheap. You can get about 100 for $10. This shows you are frugal and don’t need those fancy moleskin pads to have a good idea.

Oh, and I just found out another reason for a waiter’s pad while I was writing this. Someone with alcohol on his breath, a bottle in hand, looking like he could crush me with one hand, just came up to me in the cafe I’m sitting at and asked for money. I held up my waiter’s pad and said, “Can I take your order?” and he said, “OH!” and he walked away.

Why ten ideas?

If I say, “write down ten ideas for books you can write” I bet you can easily write down four or five. I can write down four or five right now. But at six it starts to get hard. “Hmmm,” you think, “what else can I come up with?”

This is when the brain is sweating.

Note that when you exercise in the gym, your muscles don’t start to build until you break a sweat. Your metabolism doesn’t improve when you run until you sweat. Your body doesn’t break down the old and build the new until it is sweating.

The poisons and toxins in your body don’t leave until you sweat.

The same thing happens with the idea muscle. Somewhere around idea number six, your brain starts to sweat. This means it’s building up. Break through this. Come up with ten ideas.

What if I just can’t come up with ten ideas?

Here’s the magic trick: if you can’t come up with ten ideas, come up with 20 ideas.

But if I can’t come up with ten, how am I supposed to come up with 20?

For the obvious reason. You are putting too much pressure on yourself. Perfectionism is the ENEMY of the idea muscle. Perfectionism is your brain trying to protect you from harm. From coming up with an idea that is embarassing and stupid and could cause you to suffer pain.

We like the brain. But you have to shut the brain off to come up with ideas.

The way you shut the brain off is by forcing it to come up with bad ideas.

So let’s say you’ve written 5 ideas for books and they are all pretty good. And now you are stuck. “How can I top this brilliant list of five!?”

Well, let’s come up with some bad ideas. Here’s one: “Dorothy and the Wizard of Wall Street”. Dorothy is in a hurricane in Kansas and she lands right at the corner of Broadway and Wall Street in NYC and she has to make her way all the way down Wall Street in order to find “The Wizard of Wall Street” (Lloyd Blankfein, CEO of Goldman Sachs) in order to get home to Kansas. Instead, he offers her a job to be a high frequency trader instead.

What a bad idea! Ok, now go onto the next 15 ideas. (and it anyone wants to buy the movie rights to “The Wizard of Wall Street” please contact Claudia.)

How do I know if an idea is a good idea?

You won’t. You don’t. You can’t. You shouldn’t.

Let’s say you come up with ten ideas a day. In a year you will have come up with 3650 ideas (no breaks on weekends by the way if you want to get good at this). Maybe more if you are trying to do 20 ideas a day.

It’s unlikely that you came up with 3,650 good ideas (after you become an idea machine your ratio goes up but probably in the beginning your ratio of bad ideas to good is around 1000:1).

Don’t put pressure on yourself to come up with good ideas. The key right now is just to have good ideas. When Tiger Woods is practicing he doesn’t get disappointed himself if he doesn’t hit a hole in one every shot. You’re just practicing here.

Practice doesn’t make perfect. But practice makes permanent. So that later on when you do need good ideas to save your life, you know you will be a fountain of them.

When there’s a tidal wave of good ideas coming out of you, you only need a cup of water out of that to quench your thirst.

How do I execute on my idea?

Here’s what I do often when I am writing down ideas that I think I might want to act on.

I divide my paper into two columns.

On one column is the list of ideas. On the other column is the list of “FIRST STEPS”. Remember, only the first step. Because you have no idea where that first step will take you.

Imagine you are driving 100 miles to your home late at night. You turn on your headlights so you can see in front of you. All you can see is about 30 feet in front of you but you know if you have the lights on the entire time, you’ll make it home safely, 100 miles away.

Activating the idea machine is how you turn the lights on so you can get home. But you don’t need to do any more than that.

One of my favorite examples: Richard Branson didn’t like the service on some airline he was flying. So he had an idea: I’m going to start a new airline. How the heck can a magazine publisher start an airline from scratch with no money?

His first step. He called Boeing to see if they had an airplane he could lease.

No idea is so big you can’t take the first step. If the first step seems to hard, make it simpler. And don’t worry again if the idea is bad. This is all practice.

For instance, let’s say one of my ideas is: “I want to be a brain surgeon”. My first step: I would buy a bunch of books on how to do brain surgery. I don’t have to plan my whole way through medical school.

Wait!? Did I just say I would be a brain surgeon without a medical degree? No. I simply had a bad idea and the first step I would take if I was going to “execute” on that idea. And, yes, I’m absolutely confident I would be able to do successful brain surgery before someone throws me in jail (hence, the bad idea aspect of it).

A real life example: In 2006 I had ten ideas for websites I wanted to build. I knew how to program but didn’t want to. So my first step was to find a site like Elance and then put the spec up and find programmers in India who could make the websites for me. One of them I paid $2000 to develop and sold for $10,000,000 9 months later. (this is not bragging – I went dead broke about 2 years after that).

Nine of the ten ideas were BAD. But you only need one.

But if I’m coming up with business ideas, how do I know if I’m on the right track?

There’s no way to know in advance if a business idea is a good one. For instance, Google started around 1996 but didn’t make a dime of money until around 2001.

Here’s my favorite example. A company called Odeo was a software company to help people set up podcasts. Since I do a podcast now this seems like a great idea to me. So they raised a ton of money from professional venture capitalists.

Then one of their programmers started working on a side project. The side project got a little traction but not much. But the CEO of Odeo decided to switch strategies and go full force into the side project without having a clue if it would work.

He felt bad since this isn’t what the investors invested in. So he called up all of the investors, some of the best investors on the planet, and described the side project to them and all the traction they were getting, etc and then made an offer, “Since this is a different direction, I’d be willing to buy all of your shares back so nobody will lose any money.”

100% of his investors said, “YES! GIVE IT BACK!” and so he bought all of his investors’ shares back. Now, Ev Williams, the founder of Twitter (which was the side project), is a billionaire as a result.

Nobody knew. Nobody knows. You have to try multiple ideas and see which ones gets the excitement of customers, employees, and you can see that people are legitimately using it and excited by it.

When I started Stockpickr someone once wrote me and said, “please block me from the site. I’m too addicted to it and it’s ruining my life.” That’s when I had a sense that I had a halfway decent idea. And that was one of ten ideas I was trying simultaneously. The rest failed.

So don’t be afraid to test, fail, test, fail, try again, repeat, improve, test, fail again, and keep improving. The way to keep improving? Keep coming up with ideas for your business and for other new businesses.

As your idea muscle improves, so will your ability to “fail quickly”. Failing quickly is a better skill than executing quickly.

When do I shut down an idea?

In 2009, I started The Leading Love Site on the Net. It was going to be a dating website where your twitter feed was your profile. Everyone I spoke to say, “that’s a great idea!” I had already raised money and was raising more.

Then, on the day I was going to close the fundraising round I woke up shaking. I had this vision of myself a year from now explaining to all of the investors why it wasn’t going to work. I returned all the money. I was out the money I had spent to create the website.

I can guess why it was a bad idea (people on dating sites want to be anonymous, for instance) but I didn’t really know. I just knew I had to return the money.

When your idea muscle is developed and the other legs of the daily practice are fully developed (Phyiscal, Emotional, Spiritual) you’ll have a better idea when you should shut things down. When you are shutting them down for the right reasons. When you are “failing quickly” as opposed to self-sabotage or fear of success or you’re just stupid.

That was the last time I tried to start a business. Since then I’ve done very well by not starting businesses. Starting businesses is not the only way to make money in this world. There are many ways.

How do you keep track of your ideas?

I make a list of ideas and then I usually just throw them out.

The whole purpose is to exercise the idea muscle. I know most of the ideas are bad ideas so I there’s no sense keeping them around.

If one of the ideas is good then I will probably remember it and build on it for the next day. Sometimes it’s kind of funny when I come across an old list of ideas to see what I was thinking. Every now and then I think I find a good idea in my old lists but it’s rare.

And then what do I do with that rare good idea? Probably nothing.

Are all of your ideas business ideas?

No. Almost never. It’s hard to come up with over 3000 business ideas a year. I’m lucky if I come up with a few business ideas.

The key is to have fun with it. Else you don’t do it. People avoid things that are not fun.

Here’s some types of lists I make:

  • IDEA SEX. Combine two ideas to come up with a better idea. Don’t forget that idea evolution works much faster than human evolution. You will ALWAYS come up with better ideas after generations of idea sex. This is the DNA of all idea generation.
  • OLD TO NEW: 10 old ideas I can make new. (Dorothy, Wall Street, etc). Similar to idea sex.
  • 10 ridiculous things I would invent (the smart toilet, etc).
  • 10 books I can write (The Choose Yourself Guide to an Alternative Education, etc).
  • 10 business ideas for Google / Amazon / Twitter / you
  • 10 people I can send ideas to
  • 10 podcast ideas I can do. Or videos I can shoot. (“Lunch with James”, a video podcast where I just have lunch with people over Skype and we chat).
  • 10 industries I can remove the middleman.
  • 10 Things I Disagree With that everyone else assumes is religion (college, home ownership, voting, doctors). Or, for any one of those ideas. 10 ideas why!
  • 10 ways to make old posts of mine and make books out of them
  • 10 ways I can surprise Claudia. (Actually, more like 100 ways. That’s hard work!)
  • 10 items I can put on my “10 list ideas I usually write” list
  • 10 people I want to be friends with and I figure out what the next steps are to contact them (Azaelia Banks, I’m coming after you! Larry Page better watch out also.)
  • 10 things I learned yesterday.
  • 10 things I can do differently today. Right down my entire routine from beginning to end as detailed as possible and change one thing and make it better.
  • 10 chapters for my next book
  • 10 ways I can save time. For instance, don’t watch TV, drink, have stupid business calls, don’t play chess during the day, don’t have dinner (I definitely will not starve), don’t go into the city to meet one person for coffee, don’t waste time being angry at that person who did X, Y, and Z to you, and so on.
  • 10 Things I Learned from X. Where X is someone I’ve spoke to recently or read a book by recently. I’ve written posts on this about the Beatles, Mick Jagger, Steve Jobs, Bukowski, the Dalai Lama, Superman, Freakonomics, etc.
  • Random: 10 Things Women Totally Don’t Know About Men. (that turned into a list of 100 and Claudia said to me, “uhhh, I don’t think you should publish this”).
  • Today’s list: 10 More Alternative to College I can Add to my book: “40 Alternatives to College”.
  • 10 Things I’m Interested in Getting Better At (and then 10 ways I can get better at each one).
  • 10 things I was interested in as a kid that might be fun to explore now. (Like, maybe I can write that “Son of Dr. Strange” comic I’ve always been planning. And now I need 10 plot ideas).
  • A problem I have and ten ways I might try and solve it. This has saved me with the IRS countless times. Unfortunately, the Department of Motor Vehicles is impervious to my super powers.

This is just a sample. Every day, 10 ideas. The other day, “10 ways I can release more endorphins into my body”. Today is, “10 ways I can help people build their idea machine”. Tomorrow is “10 Ways I can turn my next book into a webinar for Oprah.” The day after that: “10 things I can talk about in my next talk on May 3” (which means, developing an entire standup comedy act from scratch since I have a rule, “if it’s not funny, then a tree fell in the forest and it didn’t make a sound.”)

Is the idea muscle the most important part of what you call “The Daily Practice”?

No! They are all EQUAL.

Imagine you’re sitting on a stool. By the way, I only see stools in bars because you have to be drunk to sit on a stool. It’s so uncomfortable. And then invariably, someone falls off a stool and then half the people laugh and half the people say “is he ok?” but everyone crowds around because we smell blood.

So, now you’re on a stool with four legs. If someone pulls away one of the legs you might still balance and the stool stays up but it’s tricky. If someone pulls two legs off, you’re down for the count.

The Daily Practice is to be: Physically, Emotionally, Mentally (the idea muscle), and Spiritually healthy.

If you aren’t physically healthy you won’t come up with ideas. You’ll be coughing and vomiting.

If you are around people who hate you, you won’t come up with ideas. Because they will be yelling at you while you are trying to think.

And if you aren’t feeling grateful and calm in your life on a regular basis, then you will be anxious and it will be harder to come up with ideas.

So all four parts of the Daily Practice work together to come up with great ideas.

Do I really do this every day?

Let’s say you get tired for a day of writing ideas. Try something different. The key is to keep activating parts of your brain that have atrophied.

Sometimes if I don’t feel like writing down a list of ten ideas I’ll do something else.

Like I’ll draw ten eyes.

Or I’ll make a collage.

Or I’ll take photographs of the ten most beautiful women I see today. Or the ten ugliest men (if I take picture of the ten most handsome men then I might get jealous and that’s a whole other thing I’d have to deal with).

Or I might come make ten prank calls (well, when I was a kid I did that. I never do that now! Maybe).

Is it important to read before writing?

I don’t know. But I do. Here’s what I do:

At any given point I have about 10-20 books on my “to go” list. Books that I can just pop in and continue reading.

Every day I read at least 10% of a non-fiction book that gives me tons of new ideas, an inspirational book, a fiction book of high-quality writing, and maybe a book on games (lately I’ve been solving chess puzzles). And then I start writing.

Right now the inspirational book is “The Untethered Soul”. The non-fiction book is “Antifragile”. The fiction book is “Blind Date” (Kosinski) and the games book is actually my chess app (“Shreder”) which has non-stop puzzles. But this list changes almost every day.

How long does it take?

It takes at least six months of coming up with ideas every day before you are an “idea machine”.

Then your life will change every six months. I’ve said this before but my life is completely different than it was six months ago, and six months before that, and so on. So different there is no way I could’ve predicted the differences.

Six months ago I had no podcast. Now it’s a big part of my day. Six months before that, “Choose Yourself” had not come out. Six months before that, several I had not yet gone on several board seats that have done well for me. And so on.

Do I give my ideas away for free?

When you come up with ideas for someone else, always give ALL the ideas away for free if you think they are good ideas (remember: six months).

I read recently one person said to give HALF of your ideas away for free and make them pay for the other half.

This is very bad. This guarantees you will only come up with bad ideas. Because you will hoard your ideas. You will develop a SCARCITY COMPLEX around your ideas.

Ideas are infinite. But once you define your capacity of good ideas (“half”) then they instantly become finite for you. Not for anyone else. But just for you, your ideas will be finite.

If you stick to an abundance mentality, and be grateful for the ideas that are flowing through you, then they will be infinite. Where they come from, nobody knows. But they will be infinite and lucrative for you.

So give ideas for free, and then when you meet, give more ideas. And if someone wants to pay you and your gut feels this is a good fit, then give even more ideas.

I keep coming up with ideas and they keep failing. What do I do?

There’s this “cult of failure” that has popped up recently. That you need to fail to succeed.

This is not true. Failure really sucks. You don’t want to fail. There is an easy way to solve this. Take the word “fail” out of your vocabulary.

Everything we do in life is a success. We breathe, we love, we practice kindness, we deal with other human beings. We improve. We have experiences. This is magnificent and abundant success. Just even being able to try new things is something to celebrate every day. To smile at another person. To play.

Most things I try to do don’t work out as I planned. But who am I to predict the outcomes of my preparation. My only job is to prepare.

Everybody, EVERYBODY, is a poor predictor of outcomes. From the weatherman, to the stock analyst. But we can all be good at preparation.

And once I prepare, I show up at the starting line. Then the whistle blows, the race begins, I try my hardest with the most amount of integrity, and the results are not up to me.

Then I go back and learn from the race, I prepare more, I love more, I celebrate more, and I shop up for the next race. The whistle blows, and eventually good things happen. Preparation leads to Faith in yourself.

I used to think good things never happen. I saw my father die without anything good happening to him. I thought my fate was going to parallel his. But every moment, this moment while you are reading this, you get to choose abundance, gratitude, kindness, integrity, “goodness”. Only you get to choose what is in your universe.

When you don’t choose, you excuse.

Is it really worth it to become an idea machine?

Every day I come up with ideas. I haven’t had a business since 2009. And it failed, as mentioned above.

Since then I’ve made more money than I know what to do with because I come up with ideas for people, for companies, for me, for people who have no idea who I am, for random anonymous things.

I then get invited to share my ideas. Sometimes I get paid for them. Sometimes I give them for free. Sometimes I get more introductions to people and sometimes I get a chance to advise companies that do well and make me money. And sometimes I write books.

When you’re an idea machine, everything you look at breaks down into a collection of ideas, just like physical objects ultimately breakdown into collections of particles if your eyes were subatomic microscopes. Your eyes and brains become sub-idea microscopes that see the ideas that become the building blocks for everything in society.

See them, build them, change them, seed them, birth them, love them, live them. Ideas are the dark matter of the universe. We know it’s there but only those “in the know” can see them.

– – –

What do you do once you become an idea machine?

This is what I don’t know the answer to.

Now you have super powers. Now you’re ready to take your unique place in the world. You will know how to get to the Justice League satellite that orbits the Earth and solves problems at a moment’s notice.

You will know what to do. I don’t know. Nobody else knows. You’ll do it and the world won’t be the same.

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Fiona Anson - Allison Baker - Workible.com.au

Flexible work goes mobile – @Workible

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Clare Loewenthal

Clare Loewenthal

Clare Loewenthal was the founding editor of Dynamic Small Business magazine which she launched from her home in Sydney growing it to become the largest circulation small business magazine in Australia.

She has interviewed hundreds of successful entrepreneurs, fearless start-ups are her greatest inspiration and fuel a passion for small business, which is channeled through her role as Editor and Advisory Board Member for DSBN. Clare has written or published 8 books including Nothing Ventured Nothing Gained and Risky Business and spends most of her time writing books on successful businesses.

Flexible work goes mobile

When serial entrepreneur Fiona Anson realised a mobile app would turn her business into a serious contender, she didn’t hesitate. Although Fiona and partner, Allison Baker, had limited experience in the tech space, they quickly attracted the funding required to develop their app, and Workible was launched in record time.

Fiona and Alli started HireMeUp in 2011. An online jobs board for the part time, casual, contract and temporary workforce, the business reflected the changing nature of the Australian workforce and was quickly embraced by both employers and people looking for flexible work arrangements.

But when Fiona and Alli won a 2012 TiECON pitching competition, the resultant trip to Silicon Valley confirmed that to deliver a solution offering employers not just flexibility but speed, the business model required three new components; it needed to be mobile, social and incorporate video.

http://www.youtube.com/watch?v=KkYJn7_ybvg

“Social media is important because flexible work opportunities have traditionally been communicated through word of mouth, and social media is the new way to do this,” explains Fiona. “Video shortcuts the selection process and mobile is vital because future is mobile.”

Fiona and Alli’s learning curve was steep but they were unfazed by entering a new industry that moves at a dazzling speed.

“Business is business,” says Fiona. “In fact, I think being an outsider can be an advantage because you don’t automatically do things the way they have always been done.”

Funding & Capital Raising

Fiona and Alli bootstrapped the original business, but developing the app required external funding. And so began a process that Fiona cheekily calls the “100 cups of coffee method”. They simply met with as many people as possible and told them their story.

“The tech community is a tight one,” says Fiona. “Having gone through the process of obtaining seed funding here in Australia, my best advice is to find investors that fit not just with your requirements and skill sets, but also with the values of your business. The investor needs to see the problem you are solving and needs to be confident investing in you.”

Their first investor committed in September 2012, and after two investors were on board, the development of the app began. Today Workible has five outside investors, with Alli and Fiona retaining 80 per cent of the company.

The initial round closed in August 2013 and Workible will need another $500K to enter the lucrative US market, followed by a Series A of $5 million.

There is much to be learnt from how Alli and Fiona view the relationship with their investors. “I treat them the way I would want to be treated if I was investing in someone’s business,” explains Fiona.

No new investor is brought on board unless all existing shareholders feel that the new investor is a good personal fit. Investors are provided with constant feedback on what is happening with the business and client wins. Initially this was through a weekly update but more recently it has occurred via Yammer.

How it works

Workible.com.au

Workible.com.au

The response to the launch has been overwhelmingly positive; little surprise to those who know the recruitment industry and understand the challenges inherent in finding quality temporary staff quickly. The app allows job seekers to create profile that showcase their industry skills, experience, references and availability, as well as joining company-based, skill based or industry-based shortlists. Employers can then tap into these pools of job seekers when they need to find staff fast.

Corporate clients use Workible on a subscription basis but for balance, Fiona intends to build an e-commerce facility, so they can launch to SMEs.

“SMEs are harder to access and not traditionally early adopters of new technology, but they make decisions quickly and can provide us with steady cash flow,” says Fiona. “Corporates can contribute on a larger scale and investors love them, but they take a long time to make a decision. We need both.”

Whats Next?

Fiona and Alli will set up a US operation early in 2014, probably via a co-working space, and will then start knocking on doors looking for the next round of funding. Speed is important as there is currently no direct competition and so they have the first mover advantage. But Fiona says they have a healthy dose of paranoia about how quickly a competitor could emerge.

Despite their passion for what they have created, like most tech businesses, Fiona and Alli are looking at a two to three year exit. “We don’t want to die with the business, which keeps us very focused on our goals and on how they are going to be met,” she says.

iPledg

Surprising numbers – Australian Startups, Fundraising & Crowdfunding – iPledg.com

Crowdfunding, , , , , ,
iPledg

iPledg

Andy Tompkins and Bryan Vadas are the founders of the iPledg.com Crowdfunding platform.

iPledg is serious about helping the Tech and Startup sectors get the seed funding they need. As a special offer to Startup88.com readers iPledg are wiping their fees for projects listed before December 31st 2013. Simply go to www.ipledg.com , sign up, login, create and submit your campaign then email us at [email protected] to ensure we wipe our fees for your campaign. Good Luck!!

Andy Tompkins - Founder iPledg.com

Andy Tompkins – Founder iPledg.com

The numbers are out, surprisingly only 24% of start-ups seek external funding from any source*. Of these, 57% are successful in securing the funds they request.

This means just over 13% of start-ups are successful in receiving external funding of any kind. Why is it so? And how do we overcome this hurdle to allow more start-ups to get the funding they need to launch, employ, innovate and develop? The answer may well lie in equity crowd funding.

The current Australian economic landscape is a patchwork made up almost completely of small business and start-ups. Despite a huge geographic footprint, Australia is home to just 24 million people. Between them, they are involved in the 2 million businesses currently operating. Of these, 96% are small business, those defined as having 0 – 19 employees. Small business in Australia accounts for just over half of all private sector employment, so their importance as an employer cannot be understated. Add to this the fact that at any time, over half a million people are involved in some form of early stage entrepreneurial activity, and you see that small business and start-ups are the foundation on which the entire economy is build.

Bryan Vadas

Bryan Vadas – Founder iPledg.com

The current misunderstanding is that start-ups are funded through the 3 Fs – Family, Friends, and Fans of the initiator. The truth is actually quite different, with entrepreneurs looking inward and providing the funding themselves, either from personal savings or personal credit card. Completing the list of the top four sources of funding currently used by start-ups, we find personally-secured bank loans, or cross subsidy from another business owned by the founder. In fact, of the top 20 sources of funding for start-ups, money from friends and other external investors rates only as number 11.

The ironic part of the whole situation is that the Reserve Bank of Australia claims that 80% of loan applications made by small business are accepted. In contrast, their figures point out that only a small fraction of small businesses are successful in securing venture capital funding.

The impact of the overall lack of success in small business and start-ups receiving the funding they need cannot be understated. The primary impact is on innovation, with 33% of early stage and start-up businesses claiming that the biggest obstacle to innovation is a lack of access to the funding they need to make it happen. Currently in Australia, the other options for equity fund raising are offers to the public (heavily governed and high cost to prepare and lodge a prospectus), angel investors (with whom start-ups have an average success rate of 1.4% in securing their required funding), and venture capital (which has funded an average of 25 companies per year over the past 10 years).

So the reason why start-ups don’t seek external funding is relatively clear – they believe there is a lack of options open to them. They recognise the slim chance of securing funding from VCs and angels, and the costs and high levels of governance around offers to the public makes them feel “why bother?”. In fact, 76% of start-ups that don’t even concern themselves with seeking external funding. The other major contributor to their lack of willingness to secure outside investment is a lack of education about what external funding will do for them, as many believe external funding means giving up control, something that is not palatable given their emotional investment in their innovation.

Enter Equity Crowd Funding. In Australia, the rules of the game have only just started to be drafted. Regardless of how the mechanics will finally be delivered to the market, equity crowd funding will simplify the access to capital for entrepreneurs and small business. Seeking funds will no longer involve having to bow down to grey-faced men and jumping the hurdles they set. Those seeking funding will soon have world wide access to investors through online campaigns. “Asking” will become much less daunting, as the innovator can approach their “first tier” (family, friends, and fans) to check out the campaign online, rather than going cap in hand and asking for a handout, thus making the whole process for less confronting. Engaging with the “second tier” or “friends of friends” also will become much simpler as the first tier is able to easily pass the campaign on to their networks by forwarding and endorsing a link. Once momentum is achieved, the word can more easily spread to a broader audience through online campaigning. The vast “third tier” or “smart money” can then jump on board and deliver the bulk of the funding, and it is access to this tier that innovators would traditionally never have access to without equity crowd funding.

With the pending introduction of Equity Crowd Funding, seeking funds will become much simpler. First followers will then be able to spread the word to their networks of what they have done by way of their investment, and then campaigns will have a greater chance to go viral and have global reach through the use of social media and the internet. Whilst equity crowd funding is largely unavailable (or, at least, highly regulated) in Australia, the initial noises are being made to hopefully make broad based equity crowd funding permissible in the not too distant future, making it far easier for start-ups to ask for (and to secure) the funding that they so desperately need.

* http://www.innovation.gov.au/SmallBusiness/KeyFacts/Documents/AustralianSmallBusinessKeyStatisticsAndAnalysis.pdf

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Australian Venture Capital – Can We Escape From Past Failures? Ian Maxwell

VC/Advisors, ,

Ian A. Maxwell is a veteran Technology Entrepreneur and Venture Capitalist. He is currently CEO of BT Imaging, Chair of Instrument Works and Co-Founder of Accordia IP as well as a partner at Zetta Research and an Adjunct Professor at RMIT. He has a PhD in Chemistry and has either founded or worked at Memtec, Allen & Buckeridge, Redfern Photonics, Sydney University Polymer Centre, James Hardie, Viva Blu, Enikos, Wriota, RPO and Instrument Works. You can connect with him on Linkedin au.linkedin.com/in/maxwellian

Ian Maxwell - Credit Linkedin.com

Ian Maxwell – Credit Linkedin.com

Disclaimer: I would like to say that in what follows any resemblance to real venture capitalists, public servants and entrepreneurs, living or dead, is purely coincidental. If anyone I know is reading this article I would like to say that you are, of course, the exception to any broad generalizations that I may make in this article.

Introduction

I have been asked many times for my opinions on why the Australian Venture Capital (VC) sector has failed. The answers to this question are pretty complex and often I get the feeling that a listener might not get the full picture. Hence I decided that this is a subject worthy of an essay.

Firstly though, has Australian VC actually failed? I find that it’s always worthwhile testing the hidden hypothesis in a question such as the one posed here. People often anecdotally claim things to be true without ever providing evidence for their assertions. However in this case it is pretty easy to validate the hypothesis.

For example, an Australian Venture Capital Association Limited report (see http://ict-industry-reports.com/wp-content/uploads/sites/4/2013/10/2009-Evolution-of-Venture-and-Private-Equity-Capital-in-Australia-AVCAL-Apr-2009.pdf) shows that all 37 Australia venture capital funds between 1985 and 2007, many of which included government funds, had an average return on capital of minus 5.4%. Even the upper quartile of funds only averaged 3.3% return, whereas venture capital is not deemed successful until it returns 20% on capital, due to the high risk factors associated with this investment class. Indeed fund managers typically do not share in fund profits until the 20% hurdle is reached. Returns on Australian VC funds have not improved since 2007, in fact just the opposite.

Looking through the industry reports I noted a 2013 effort (see http://ict-industry-reports.com/wp-content/uploads/sites/4/2013/09/2013-Economic-Impact-of-Venture-Capital-in-Australia-AVCAL-May-2013.pdf) which extols the economic impacts of Australian VC. You can read this article as an attempt to get our government to continue investment into the VC sector on the basis that, although a financial failure, the VC sector creates all sorts of positive economic impacts for the country. The key quantitative claims in this report are:

  • “VC-backed firms make up only 0.01% of GDP but 10% of all business R&D expenditure in Australia”. I would comment that R&D expenditure is an input and I would rather see a measure of outputs (e.g. revenues or profits). The truth is that a large fraction of the R&D expenditure in Australian start-ups has no economic return as highlighted by the poor return on VC investment.
  • “Top VC-backed companies Cochlear, ResMed and SEEK alone employ nearly 7,000 people”. There has to be a statute of limitations on using these old companies as icons of VC investment. They were all started in the last millennium; in 1981, 1989 and 1997 respectively. The reason these companies are listed is that there has been no VC-backed equivalent success stories of similar scale since 1997.
  • “Australian VC-backed companies accounted for $4b in assets and $2.8b in sales in 2011”. Yep, and that a good fraction is from the three companies listed above.
  • “VC-backed companies make up a fifth of ASX healthcare market cap”. Now that is not something I would boast about. This sector is zombie-central.

Ok, now I have got that out of the way, I think we can happily assert that the VC sector in Australia has been a financial failure and that it also has had somewhat dubious economic impacts. So why is this?

The answer lies in four key categories; the investment model, the people, the deal flow, and investment scale. I will discuss these in order.

The Australian VC Investment Model

The investment model that has been attempted to be introduced by most VC’s in Australia has been the Silicon Valley ‘General partner/managed funds’ model. Implicit in this approach has been a desire to re-create a mini-version of Silicon Valley here in Australia. Well this hasn’t worked and I doubt it ever will. Silicon Valley exists to serve the whole world, and not just California or the USA. Deals and entrepreneurs flow to Silicon Valley from all over the place, including Australia.

Silicon Valley VC is very ‘fashion-driven’ – in any given decade there are the industry sectors of choice where deals are being done and then there is everything else, where they simply won’t invest. The reason for this focus is due to Silicon Valley’s continued desire to invest in only high-growth industries and low-capex technology plays where they can get a more guaranteed return on their investment. Also Silicon Valley VC’s are very reluctant to leave the herd else they will look pretty silly when a deal goes south. Historically, areas of interest have included semiconductor, software, photonics, pharma, cleantech and the internet (the one that is still going strong).

The semiconductor sector is a good case study – there were once hundreds of investments into fabless Semico companies designing new chips for various applications. If successful these companies would be acquired for many times their revenues in the high-growth bubble-like market of the day. Today of course the semiconductor market has settled back to slow single-digit growth rates because the world has been saturated with chips. Merger and acquisition (M&A) values are down and VC investments into this sector are now quite rare.

If Silicon Valley VC has the capital and the machinery to invest into the key segments du jour then what role does a local Australian version of a VC industry serve? The claim of the local VC industry is that they can serve to either compete with Silicon Valley (which is ludicrous) or act as an intermediary, where the seed capital to get companies up and running is sourced locally and then the successful companies can transition to the more highly capitalized US market. This latter claim, while it has appeal, is also mostly false. It is my experience local investment is both under-scale and under-skilled, and hence any VC seed capital into an Australian start-up usually serves to slow that company down and delay its transfer to a more sensible domicile.

One key aspect of the Silicon Valley investment model is that typically 2% of funds under management go directly into the pockets of the fund managers every year, for up to ten years, quite independently of their performance. This makes this model very lucrative even if the funds are never profitable. Many of you will realise that this is a very dangerous structure in ‘rent-seeking’ Club Australia.

I would argue that the local copy of the Silicon Valley investment model simply hasn’t worked but it is far easier to point out the model’s deficiencies for the local environment than it is to suggest a useful alternative; more on this later.

The People

Another cause for the failure of Australian VC is the people.

In the US, after a few years of working in a specific industry and then after achieving a high quality MBA, an individual may join a VC firm as an Associate. Then after working their way up to Principal they might become a partner or leave to create their own VC firm if they have forged a good reputation. Alternatively a successful CEO, after selling a company, might join a VC firm as a venture partner, essentially seeking the next big deal. All individuals in US VC firms will normally have a single-sector focus where they are extremely well-networked and can qualify people and opportunities with a high degree of success.

Contrast this with Australian VC firms where virtually no-one have gone through this apprenticeship program. Most are former entrepreneurs and finance or corporate types. Entrepreneurs think that because they have been on the receiving end of venture capital that this makes them qualified to manage VC funds. This is like you or I arguing that because we went to school we are qualified to be teachers. The financial & corporate types drift down from the top end of town into VC for many reasons but mainly because it looks like a cushy ten year gig with guaranteed income, where they can use their existing networks to extract investment funds from unwitting limited partners (LP’s; investors in VC funds). Of course the financial types are even less qualified to manage VC funds than former entrepreneurs since they usually have had no contact with start-ups or any experience in a tech sector. And corporate types, while sometimes having worked in a tech corporation, usually have very little appreciation for what it takes to create a company from scratch as opposed to being a little cog in a big machine.

Another problem with Australian VC is that it is a small segment and there is not enough deal flow for any investment manager to focus on a single sector. As a result we have a bunch of ‘generalists’ who know a little bit about a lot of segments. This often makes their investment decisions very dubious. In the US a typical partner will have a very good personal relationship with the key M&A decision makers at the half a dozen corporations that will eventually line up to buy a start-up that the partner is about to invest in; this is rarely the case in Australia.

Of course if the VC’s are singularly unqualified for the job so too are the entrepreneurs that they invest in. This is a case of the blind leading the blind. If I was forced to list the single most important thing in any investment decision I would have to respond that it is the CEO of the company. The right person will make the most of every opportunity. It takes skill, energy and luck to make a start-up successful. The right person brings the skill and the energy – and the right investment manager can identify the great entrepreneurs with one eye closed and at 100 paces at dusk. And the wrong investment manager, with fund-lifetime constraints forcing them to invest quickly, will forever make compromised decisions as to the types of deals and the types of entrepreneurs that they invest is, and this is what usually happens in Australia.

Deal flow

The lack of quality deal flow in Australia is a case of the ‘emperor’s clothes’. The myth that is propagated through our media is that there are endless high quality tech opportunities in Australia but what is missing is investment capital, usually followed by calls for government to supply more of this, free of charge. Arguments for the high quality deal flow are usually accompanied by a nod to the usual chestnuts, being the Hills Hoist, the Victor lawn mower, the ute (my personal favourite), Resmed, Cochlear, and more recently Atlassian (which was originally bootstrapped by the founders and then later received US venture capital; what they are still doing here is a mystery). Statistically speaking one cannot make an argument for an investment class (like VC) based on statistical outliers like Resmed or Cochlear; any argument has to be based on mean returns because all financial markets and their players regress to the mean over time. And our mean return on VC investment is negative which highlights the low quality of our deal flow.

My personal belief is that the claim that we have endless high quality tech opportunities in Australia is utter bullshit (sorry there is no softer noun that portrays my thinking on the matter). We are in fact very short on quality deals in Australia. Recall that a quality deal has to have many rare properties; it has to solve a verifiable and large problem or create a verifiable and large opportunity, the entrepreneur needs to have a track record in an industry as well as in start-ups, the technology must be genuinely novel, the sector has to be in high-growth with bubble-like exit values (high multiples on revenue or EBITDA) at the time of exit, there has to be a source of highly qualified people to employ, there has to be local investors (at least two) who get it and have networks in the industry, collectively the VC’s need to be able to put tens or hundreds of millions of dollars into the deal and not choke it with under-scale investment, there has to be a large local market, there has to be a large local exit opportunity or two, and the list goes on. You may now understand why a smart entrepreneur will take his or her deal to Silicon Valley! And also why I argue that we are short of high quality deals.

Even if you only measure deal flow by the quality of the technology or technology inventors I would argue that we under-perform in Australia. One reason for this is that our university sector is incentivized by their grant schemes to cluster their research efforts into highly competitive technology segments where they can get high citation counts for their papers, but also where innovation is very hard to achieve solely because of the crowded nature of these areas. Additionally our academics are not employed by any measure of their entrepreneurial nature; just the opposite in fact. Another reason why we have a low number of technology opportunities it that our private sector is dominated by corporations that are users of technology rather than vendors of technology; this means there are few spin-outs or people leaving our corporate sector with relevant technology development skills or insights into what problems are truly worth solving.

Investment Scale

I have mentioned this above, but typically Australian VC is awfully under-scaled. VC’s funds exist as small as $20m. After subtracting management fees, this might mean that such a small VC fund can at most invest $1-3m into a single deal. Well there aren’t many modern tech start-up opportunities that can be successful at that scale, and what we find is that these small VC funds end up choking their investees as they look to avoid dilution and keep control in subsequent larger funding rounds. That is, there is a bias in the Australian VC market towards trying to fluke high-value exits with small investments and a lot of praying.

A part of the problem in the Australian VC market is that a large slab of the limited partner funding has come from government sources. I recently talked to a public servant whose reply when asked why the government keeps investing in sub-scale Australian venture capital firms, after 30 years of losing substantial amounts of government cash was ‘Well, it took 40 years for Silicon Valley to take off’. He failed to note that Silicon Valley always had profitable venture capital firms from the get-go and that the US government played a minimal role in its development.

More recently Australian superannuation funds have finally realized how unprofitable the Australian VC sector is and have pretty much completely pulled out. This is proof, if still required, that Australian VC sector has failed. It also means a further shrinkage of the average VC fund size in Australia (of those remaining) because of a greater reliance of small government schemes like the IIF scheme, thus further guaranteeing failure of this investment sector.

I believe that government should not invest into VC funds because they make very bad LP’s. This is because they are not driven purely by a profit motives, they are also driven by policy requirements with any number of political overtones and also a fear of negative publicity; this leads to all sorts of weird constraints on those VC fund managers accepting government funds. If government insists on trying to create a tech sector then more useful activities could include creation of incentives via the selective removal of the myriad of government taxes and regulatory hurdles, or via repayable loans. I also argue against government grants of any type, R&D or otherwise, to business – all financial input from government should be loans repayable by businesses once they achieve a pre-agreed capacity to repay the loans from profits derived from the investment of any such loans.

Government stimulation is best placed into comprehensive development of plans to create new industries,[1] and in this context the development and early implementation of policy framework, selection of technology sectors for national focus, acquisition of key intellectual property to be later on-sold to private enterprise, creation of tax breaks on new ventures and also for their investors, R&D tax schemes, ‘export-only’ patent box schemes, delayed-repayment loans for business development, initiation of local consumption through government purchasing (only on products that are not otherwise available) and also the development of local consumption schemes (to create early local customer demand for emerging product niches).

Is there a VC Opportunity in Australia?

Just recently I have talked to a few people who are convinced that there is an opportunity for a new VC model in Australia, with the inherent assumption that the prior failures of Australian VC has been due to the investment model. They are, in my opinion, deluded patriots. But good on them for their optimism and I for one don’t want to talk them out of their efforts. Rather I would like to frame the problem comprehensively so that they don’t waste their efforts solving non-problems and ignoring real ones.

So is there any role for a local VC market? Just possibly there is, but probably only in segments where the local VC market is not competing with Silicon Valley. This might appear to be counter-intuitive since Silicon Valley obviously picks the highest return market segments. However because they just about ignore all other sectors any future Australian VC sector would be well placed to target these lower return segments simply because they are less competitive. Who knows, we might also be able to attract foreign deal flow to Australia! I have said it before we need to get over the idea that any local tech sector has to be based on proudly developed local innovations.

This statement then flies in the face of the fact that about 99% of all current start-ups in Australia are internet deals. But our internet start-ups are competing with Silicon Valley equivalents with 10-100 times the funding; statistically speaking, what chance do our start-ups have? I would say to the entrepreneurs of our internet start-ups; if you really want to make it big then please get on a plane to Silicon Valley and don’t come back.

What about the investment model? Clearly we don’t have the LP’s to invest into managed funds so we may as well get entirely away from the managed funds concepts. In fact I think any new model should not have management fees at all just so that we can be assured that the managers are incentivized by profits rather than guaranteed salaries. Recently I have heard of groups trying to promote investment funds by equity crowd-funding, by corporate partnership and by alternative stock exchanges. Other ideas also exist. I have absolutely no conviction that any of these models, by themselves, solves all existing problems. Typically what these new investment models do is access money that is easier to get and possibly requires a lower return on capital than typical VC LP funds; that is these new models are targeting ‘dumber’ money. Trust me on this; dumb money leads to dumb outcomes. The possible exception is corporate partnerships – but we hardly have any corporations that are global vendors of technology solutions. So it would have to be foreign corporations; this is starting to look hard.

The people will define themselves. Those promoting these new investment models will only be successful if they have the ‘right stuff’ anyway. And they won’t be successful unless their new model provides sufficient investment funds for their startup opportunities. They need to have excess capital so that they can break through walls and solve as many of their problems as possible just with capital. Remember this might mean more than $50-100m per deal.

And government? To be honest I think government is best advised to stay right away from the sector. Although they are well intentioned, every time that they promote funds to VC, a raft of the usual characters swarm around to extract that money as their own stipend. Government is probably best placed by removing the very hurdles to new business that they themselves have created with legislation. Just starting and owning a business in Australia is ridiculously complex and expensive.

Having said all that, I still come back to the problem of the lack of high quality deal flow in Australia. This is the biggest hurdle that we have to face if we want a thriving tech sector and an accompanying investment model.

Our university segment is not a source of reliable deal flow, and this won’t change unless we create an alternative university sector with a primary focus on commercial outcomes. Our corporations are primarily users of technology and not vendors of technology; maybe someone could usefully create a database of our corporations that are most actively focused on selling technology solutions to the world, and round these up as part of an investment model. Our government of course could do something very unusual, like creating an Asian-style five year plan to create a whole new industry from scratch; that might promote some deal flow. Or we could look to source deal flow from overseas and import technology opportunities much like we import ‘Australian’ sports stars from the developing world.

I am sure that some readers might have other ideas for deal flow that I have not thought of.

As a final note, I am pretty sure there are those that will find this article offensive. I could have written it five years ago; I only do so now because it is petty clear that the 30 year old experiment into recreating a little Silicon Valley in Australia is just about over. We have to look to the future if we want to create a thriving tech sector in Australia, and we can only do this successfully if we are honest about what has failed in the past. So please please forgive my offence; I too may be a deluded patriot.

 

[1] For more details on this see http://www.scribd.com/doc/162429121/Australian-Manufacturing-a-Framework-for-a-New-Future

As always we would like to hear your views on Venture Capital in Australia

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The UNSW Centre For Innovation

UNSW breaks ground on new Crouch Innovation Building

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The UNSW Centre For Innovation

A Model Of The UNSW Centre For Innovation
Source: http://www.facilities.unsw.edu.au

The University Of New South Wales (UNSW) has started to get real Entrepreneurial and Innovation momentum. There are numerous pitch competitions, entrepreneurial groups and hardware hackers such as NSW Create, it feels like an entrepreneurial spring is blooming.

New South Innovations the commercialization group for the University has put significant effort into the new ‘Crouch Centre For Innovation’, which was inaugurated by its generous benefactor Mr. Michael Crouch.

Michael is the Executive Chairman of Zip Industries the company that pioneered instant hot water heaters. The ‘Crouch Innovation Centre’ is established with a vision to make Sydney the ‘hub of innovation’ of the Asia-Pacific region.

A Word About The Benefactor

Michael Crouch is an Australian businessman. Interested in promoting Australian exports, he was also the prestigious member of the APEC Business Advisory Council from 1996 to 2007. He is a member of the Advisory Board of the Australian School Of Business, and was a former member of the advisory board of the Faculty Of Commerce and Economics at UNSW. He also holds an honorary Doctorate of Business from UNSW.

Breaking ground on Crouch Innovation Centre

Breaking ground on Crouch Innovation Centre _ Credit UNSW ASB

An avid supporter of entrepreneurship and innovation, Mr. Crouch believes that Australia can achieve greatness through innovation.

The ‘Crouch Innovation Centre’ aims to promote entrepreneurship and innovation for its students. The centre will house state of the art facilities such as: an innovation hall and multipurpose work space; and a floor dedicated to special materials for fabrication. The various types of fabrication will include 3D printers, laser cutters, electronics, machining, etc. Initially the innovation centre will be available only for students, and then it may be extended to the university faculties and researchers. The centre will take the best of the innovation schools which are already up and running in Harvard, Yale and MIT, etc; in the words of Mr. Geoffrey Garrett, the dean of the Australian School Of Business, “ inspire in students a life of innovation; to seek better ways to do things and solve problems.”

Location of the Premises

The centre is located beside the Australian School of Business building and inside the Material Science Engineering Building at the UNSW campus.

The UNSW Centre For Innovation 2

The UNSW Centre For Innovation
Source: http://www.facilities.unsw.edu.au

Final Word

The UNSW’s ‘Crouch Innovation Centre’ will help the university achieve greater milestones in the field of innovation. The centre will also be of huge assistance to the university’s various research initiatives that are happening in ASB and NSi. The construction of the centre will be complete by the commencement of the first semester of 2015, i.e. probably by April 2015.

 

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More insights from launching Cloudherd.com- Alex Stamp

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This is the third article in a series of articles from entrepreneurs that have been through Incubate, the University of Sydney Incubator program. Alex Stamp launched Cloudherd.com along with Mike Titchen and Luke Fries in 2012 as the first group of businesses in the Incubate program. Cloudherd is trying to solve the problems that farmers face when trying to sell their cattle, it’s a very inefficient market that seems to be stuck in the 1900s and Cloudherd is trying to drag it into 2013 with an online Auction system and cattle inventory application. The first article is here Launching Cloudherd.com and the second article is here Start-up execution @Cloudherd.com

 

So the third article in this series slipped. I suppose that as a hard charging, networking, all-singing, all-dancing entrepreneur it is a bit hard to finish three long form articles in three weeks.

I’ve also been having chronic laptop overheating problems with the recent warmer weather, so much so that I couldn’t even watch YouTube the other day unless I wanted my computer to turn into a kettle. The reality was that although I may have had the spare hour or two I would have needed to get this article out, I just didn’t. I’ll try to make up for that.

To round off my series of articles, which some have described as “bad”, “confronting” or somewhat favorably as “a sledgehammer of honesty to the face”, I thought I would talk about what not to do.

Lots of entrepreneurial articles essentially consist of generic buzzwords and lists and end up being “The four things about big data you have to know” or some equally banal piece of outsourced tripe. My list is better, maybe, since I wrote it myself and there are substantially more than four points, though some of them may be elegant ways of restating what I said in previous articles.

Team

Investors are always obsessed with the team, here is what not to do,

  • No one loves your idea as much as you. If the idea is kind of your baby then don’t necessarily expect your other founders to work as hard as you or be as passionate about the business as you. They may not necessarily care about organic dog food, or whatever it is you are doing, but they’ve still agreed to work for no money and the Russian roulette of compensation known as equity. Respect that.
  • Glossing over tech issues. I see a fair number of young founders doing this particularly grievous sin. They get one guy on the team to learn PHP and they then brand him as the tech guy and gloss over all technical issues. You will get found out if you do this and it is embarrassing, admit what you don’t know and at least try to start your tech guys off from some tangentially related field, like embedded systems.
  • Your history probably doesn’t count. Don’t think that anyone will think you are a red-hot startup founder just because you did an internship at PwC, Deloitte or Random Professional Corporation #528. Everyone knows that your job was close to that of a monkey’s, except monkeys cost more to feed and house. If you weren’t a monkey then don’t expect anyone to believe that, you unfortunately have to prove yourself when you are a young entrepreneur.
  • Create a learning team. Your team’s skill base will affect how long it takes you to execute a given set of tasks but in the end what will determine the most valuable members of your team is how much they are willing to learn. Always be learning, and not selling. If you’re selling, you’re not learning anything about your customer, investor or partner. Socratic dialogue can be very powerful.

I’m also assuming that most of my audience is people thinking about starting a tech start-up, not organic dog food, and as such I’d like to also present some points about the small amount of technology implementation that I know and participate in.

prototype inventory module

 

Tech

  • Patents.Don’t say your technology is patentable as you are lying in an obtuse manner. Anything is patentable in the US, including Amazon’s stupid one click shopping cart, put enough claims in and you can probably get a patent. If you invented cold fusion, or a way to stop cows from emitting methane, then maybe you can patent it but it will end up costing you a lot of money to protect it.
  • Algorithms. Stop running around like a parrot who has drunk a coffee, clucking about how your advanced analysis and algorithms will give you an unassailable competitive advantage. Not only do your competitors likely have the same data, if not more, they also have smart people working for them who can probably reverse engineer your algorithm or features. Furthermore your advanced algorithms which are likely to be slightly more complex versions of existing common algorithms,so you should use standard deviation to figure out outliers and then throw them out. I know a civil engineer who just wrote a GPS tracking algorithm to get rid of junk data; if he can do it, so can your competitors. All of which begs an interesting question, why do so many people use all the same statistical models?
  • No one will understand for a long time. If your technology is actually valuable no one outside the industry, nay maybe even a few people inside that industry, will actually understand what you are doing and how you are doing it. Expect lots of blank looks as you tell people about the complexities of serving genetic data from databases and that being why you had to partner with another company. Most people will never even bother to learn about this stuff even if you tell them about it.

Investors

I’ll finish on investors, as most startup founders will talk to them many hundreds of times during their lives. Investors give you fuel to burn and can bring a lot to the table; that said there are lots of things that you shouldn’t do:

  • Don’t spend too much time talking to investors. Outside of certain investor markets capital availability can be very poor and as such you should spend a lot more time executing than you should trying to hustle investors. If you can get a few paying users then you will be in a lot stronger position to talk to them; not that that is easy. Without any seed funding it can be extremely difficult to launch to certain markets.
  • Trust & Alignment. Don’t necessarily trust investors that don’t make their living from the startup scene. They won’t think twice about screwing you because their reputation isn’t their way of putting food on the table. Break out the NDA. (ed not sure I agree with this one, it just depends on the individual)
  • Persistence. Don’t think that investors will understand or even be interested in your idea based off one pitch session. There can be a lot of brutal, hour-long discussions about the ins and outs of the business on a microscopic level which will leave you exhausted before they even think about term sheets. That first pitch might even be a disaster, but don’t write things off as you might still have a chance to impress.
  • Do your own due diligence. Don’t be afraid to look into potential investors, you might be surprised what you find…..

Anyway, thank you for reading through my series of articles and I hope you found them amusing and useful. Though at times I may seem harsh I just wish to dispense with this American entrepreneur style of things that seems to affect some young entrepreneurs; they think that they will pump out a few weeks of code and then get funded to the tune of several million dollars.

This is not likely to happen in Australia and I encourage those thinking of starting a business to be realistic about what they hope to achieve. If you would like some more advice there may be a few more articles in future, and I’m always available to help if you connect with me on LinkedIn http://au.linkedin.com/pub/alexander-stamp/44/582/917/

 

 

 

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Cloudherd

My experiences launching Cloudherd.com – Alex Stamp – Student Entrepreneur

Entrepreneurs, , , ,

Cloudherd

This is the first article in a series of articles from entrepreneurs that have been through Incubate, the University of Sydney Incubator program. Alex Stamp launched Cloudherd.com along with Mike Titchen and Luke Fries in 2012 as the first group of businesses in the Incubate program. Cloudherd is trying to solve the problems that farmers face when trying to sell their cattle, it’s a very inefficient market that seems to be stuck in the 1900s and Cloudherd is trying to drag it into 2013 with an online Auction system and cattle inventory application.

Cloudherd Team left to right - Luke Fries, Mike Titchen, Alex Stamp

Cloudherd Team left to right – Luke Fries, Mike Titchen, Alex Stamp

Introduction

Hi, my name is Alex and I’m an entrepreneur. Sounds like something from Alcoholics Anonymous doesn’t it? Well let’s face it, entrepreneurship and start-up culture can be downright crazy sometimes, especially if you’ve just starting out in your professional or working life. There’s a lot to learn and not everyone is so fortunate to have the learning experiences that can transform people’s way of thinking about business and technology. That’s why I’m writing this short series of articles, to help the young entrepreneurs and even aspiring entrepreneurs save a lot of time, grief and heartache. I’ve been very fortunate myself to learn from some top quality mentors, especially through Incubate, (the student business incubator launched by the University of Sydney Student Union), whilst I’ve been working on my start-up CloudHerd but there were still many things that I wish I had learnt beforehand.

Cloudherd

Cloudherd

This post is mainly about the first stage an entrepreneur goes through, the ideas stage. The next posts will cover the execution of the idea and finally not what to do. I hope you find it informative.

Ideas

The old tired cliché is that ideas don’t matter. This is a meme propagated by various guilty parties, most notably investors looking for the most sweat equity out of you as possible, programmers who want to be free to reuse code in lots of different projects and rapacious industry giants looking to steal your idea and throw resources at it. The idea matters, the execution matters more, but the idea still matters. If you build a house on sand or if you don’t let a tree establish a solid root system then you will have an extremely poor root structure indeed. Lots of countries essentially monetise ideas through the patent system, so how can an idea not matter?

I spent a lot of time in Matt Barrie’s Technology Venture Creation class at University of Sydney thinking through a whole

Matt Barrie - Freelancer

Matt Barrie – Freelancer

range of ideas. Knowing what I know now, some of them were idiotic, some of them were too hard and some would never make money. So you probably have a great idea about now and you’re reading this article to figure out how to go forward with it. Just don’t. Stop and do some due diligence first, stop and prepare some documents and stop and canvas your idea with some relevant people.

Matt thought 2/3 of my initial ideas were terrible and I was one of the lucky ones, we all got hammered about stupid ideas in his class. You probably won’t be as lucky to have access to someone who can hammer you so hard as to refine your idea into pure, naked steel but you need to work out whether or not your idea has potential. I would recommend the following structured brainstorming process, in addition to the various lean business canvas propaganda that keeps floating around:

  • Does your idea solve a real problem? The corollary to this is that sometimes you have to lead the market a bit. Ideally you should have some first or at least second-hand experience in this area, otherwise you will have difficulty designing product features. Investors might also laugh you out of the room, despite the value of an outsider’s view.
  • Will your idea make enough money to cover its costs and support your team? This whole start-up business is too hard outside cushy fiefdoms like Silicon Valley, where the revolving door of big tech companies and venture capitalists makes entrepreneurship less risky, to slave away for nothing. The investor wants a return, make sure you get one.
  • Will the physical/software implementation of your product be within your capabilities within a time period that will not drive you over the edge? So it’s cool that you have an idea about a sonic based sensor network for rural applications…..but do you have any idea how to make this? Do you know if it is even going to work? What about software for it? This is something that we should have spent a lot more time on; if you can’t get information on this make sure you ask an expert.
  • Will you actually be able to make any money out of the first version of your product? When we finished our first release of the Cloudherd inventory system no one would use it, even for free. It just didn’t have enough features for our test users and as such we were really flogging a dead horse (Ed: or cow…) with our marketing and other business development activities. Make sure you can make money with version one of the product unless you have a big trust fund or some other form of support, see point below for more on this.
Cloudherd App

Cloudherd App

  • Will my financial resources stretch far enough to let me work on the project for as twice as long as I think it’ll take? No one cares about your product, you got fired from your part time job, you have no money in the bank and you have to pay the rent. What do you do? The project will take a lot longer than you’d think if you are a first time entrepreneur or relatively inexperienced developer and as such you need to have some fallback for life’s necessities.

Of course I could continue the list forever and waffle on about this subject for hours but I’m going to try and focus and bring the story back on track. Focus is something you, the baby entrepreneur, should be fanatical about.

Focus

You can have side interests, side projects, or spend time on a few dead ends but in the end you can’t spend too much time on side projects if you want your main project to succeed. You do need to preserve your mental health and retain some identity outside of your start-up so a few other interests are good. If you don’t, you’ll be depressed once demo day happens and no one wants to invest. This does happen, especially in Australia.

Indeed focus begins at the idea stage, don’t try to include every possible feature in an attempt to differentiate your product or you’ll fail at about month six or seven.

Focus on your team’s technical skills, if you have a team, and focus on what you can actually implement. Moonshots are not recommended for your first start-up, even though you should always have ambition. I’ll talk more about doing and the actual implementation in next weeks article, which has an expected arrival time of 7.5 days,(the 0.5 is wiggle room, you always need some wiggle room as a start-up).

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Dean McEvoy (credit Dean's Twitter profile)

An open letter to the incoming Government – Don’t forget the Startups – Dean McEvoy

Entrepreneurs, , ,
Dean McEvoy (credit Dean's Twitter profile)

Dean McEvoy (credit Dean’s Twitter profile)

Dear Mr Turnbull,

I write to you and copy Mr Hockey, Mr Bilson and Mrs Mirabella firstly to wish you all the best of luck on Saturday and secondly to highlight an opportunity to you all that at the moment nobody appears to own and could win a few extra votes for your party on Saturday.

As some background I have started a few startup technology companies over the last 10 years. Most were not too successful but I learned and kept trying and had some eventual success with Australia’s first group buying website Spreets.com.au. Spreets launched in Feb 2010 with just myself and 1 other person. A few months later I raised some money from European investors (As I couldn’t find any here). 10 months after launching my company we employed over 45 people and were approached by Yahoo!7 who purchased the business for around $40million. This industry which I started, now employs over 1000 people and generates over $500 million in 2013. There is an opportunity with the right incentives to inspire a generation of technology entrepreneurs and increase that number to over 500,000 employed and $109 billion by 2033 according to a report by PwC & Google. However I raised some concern in person to Mr Bilson at a lunch at KPMG that the needs of this industry are very different to a small business. It was suggested that your portfolio would be a better fit for fast growing technology businesses but from reading the press around your announcement at the York Butter factory the other day that focussed mainly on how the government will interact with the public more efficiently by investing more in IT and cloud services. This is great but it doesn’t really address the opportunity described above and I feel unless one of you decide to own it, it will be an opportunity that slips through the cracks.

So what can you do? Firstly fix the things that are broken. The current tax laws don’t incentivise people to take risks and be entrepreneurs and inhibit experienced people from helping new startups. The review of employee share plans is one area which I am glad to hear you are reviewing but there are more issues which I discussed on a public forum here that need fixing and it is why I wanted to bring it to the attention of Mr Hockey. It is also one of the reasons why my smart entrepreneur friends are moving to the US. Australian tax laws just make things too hard. There are some great things like the R&D tax credits which should stay but many things that just dont make sense.

One other reason people are moving is there is little support networks and sharing of knowledge for the elite technology entrepreneurs. That is why some leading technology entrepreneurs and myself have recently started the Endeavour Institute which aims to be like the Australian Institute of Sport for technology entrepreneurs but instead of gold medals we will build jobs and revenue. I have purchased a building on Stanley St Darlinghurst which I aim to utilise for this venture and we are currently securing initial funding from the top 20 technology entrepreneurs in Australia. 8 have already committed in just the first few weeks of us starting it.

The second and most important thing is to take ownership of this opportunity. Let it be known that you are aware of this opportunity and will sit down and help work out policies that make it thrive not let this massive opportunity slip through the cracks. I feel with your background in technology it probably sits best with you Mr Turnbull but I don’t mind who owns it as long as somebody does.

If any of you wanted to take me up on the offer and quite simply acknowledge the opportunity in the startup technology area, acknowledge that no current minister is really focussing on it at the moment and that you will address it. I know it would be a welcomed by the startup community. I will publish this letter on my blog so others in the industry can add their comments. If you want I will also push your response out to a very wide and very well connected audience to let them know of your support. I know at this last minute it could help sway a few undecided voters.

Of course I realise the last minute nature of this email so if it doesn’t reach you in time I would be happy to connect after the election and would welcome your feedback. As a registered voter and now business owner in Wentworth you can count on my vote and lets hope for a good victory on Saturday night.

Kind Regards

Dean McEvoy

 

Startup Adviser, Mentor & Investor

deanmcevoy.com

https://twitter.com/deanmcevoy

 

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