Tag Archives: acquisition

Before you can help me, please sign the NDA

I’ve come to see you about a new business venture I have because I think it could be a great opportunity for your business.

This is usually code for “I’ve got a great idea but need your help to make it a great outcome”.

The next thing they usually ask for is for you to sign a NDA.

But hang on, you’re asking for my help and I have to sign a legally binding document before I can help you?

It’s a funny concept when you think about it in the context above; well I reckon it is.

I regularly see entrepreneurs, startups, etc coming in to get advice on and/or present the next big thing that is going to help “make carsales a lot of money”.

The first thing they want is a NDA signed to protect their idea and fair enough I suppose, I would expect the same thing but that’s not to say I can’t help but ask myself “Really; aren’t you asking for my help?”

There is, however, a very good chance that a large online player – not just carsales, I’m sure this applies to all leading online players – has already explored ideas very similar and/or has plans to execute on similar ideas at a point in the future. They wouldn’t be doing their job if they have not.

Of course the online company is not at liberty to say at the time if they have or haven’t looked at similar concepts (this would be commercially sensitive) and in order for them to pursue anything there would need to be documented proof before that meeting and/or signing of the NDA.

Therefore any NDA has to cover this off which can be difficult to understand for the entrepreneur!

I am sure this scenario would be pretty “standard” in any online company of a reasonable size especially with teams of people charged with the responsibility of keeping the company “ahead of the curve”.

I had an example recently where a couple of guys came to see me about their new business. They took me through the plans for their new business showing me their point of difference to anything else out there – “they had done their homework”

“This is leading edge; no one is doing it online and it is waiting to be exploited”, they said.

Before we went to the next step of doing some due diligence on the concept, they wanted me to sign their “standard NDA” which was fine and I explained that it needed to be looked at by our legal experts first.

“But this is a standard NDA that everyone uses”, they said. I countered that “there is no such thing as a standard NDA and I need the right people to look at it first”.

We made a couple of changes that are somewhat mandatory for our business; the changes were pertaining to protecting the business from doing something similar. To them this implied we were going to steal their idea.

What they didn’t realise was that we had looked at a similar technology process some time before – whether we were going to implement the same or a similar process hadn’t been decided but the business reserved the right to do it themselves not remove that right because someone came up with the same idea and wanted to make money from it!

I’ve been a party to literally hundreds dozens of NDA’s and never seen two the same, the other side always needs something changed although the end result sees them usually have the same meaning. They may not though.

Of course getting a NDA signed off before giving away too much detail on your idea is seen as an important step for entrepreneurs and startups; just make sure you always have a legal representative working for you, give you advice before signing one and most importantly, understand that not all ideas are “new”.

7 vital things that made my startup successful

What makes a successful startup?

There aren’t too many startups like Google and Facebook or even carsales, Seek and REA and the stats tells us that 9 / 10 startups fail (remember 90% of statistics are made up) so my definition of a “successful startup” is growing into a profitable, sustainable business and/or having a successful exit.

I’m sure every one is different in terms of the steps they took, road they traveled and end result so here’s 7 vital things that I found were fundamental to Digital Motorworks Pty Ltd (DMi) being a “successful startup” in 1999:

Identify the market opportunity.
As this will be your focus. This seems simple and it is more than wanting to do something because it’s what you know or to be your own boss. There has to be a gap in the market that you can fill or simply do it better and most importantly, it has to make commercial sense. The market opportunity for DMi was the gap of an independent inventory aggregation and dealer web services player for the big media players wanting to propel their online automotive sites, especially once Reynolds had made the decision to keep their inventory capabilities in order to push carsales (remember the quote “If it is this f&@king hard for us imagine how f&@king hard it is for them” in my post The Hard Decision carsales Had to Make).

Develop (and live by) the Business Plan.
My business partner is a finance guy and started us off straight away with the discipline of creating a financial business plan. I found that by thinking about and collating all the costs upfront and ongoing that we would incur, forced us to articulate a plan for getting money through the door (i.e. revenue). We went hard on the costs and realistic on the revenue because the costs were always going to be incurred but the revenue had to be earned! The importance of this step and ongoing revisiting of it cannot be underestimated.

3 Securing finance.
Most companies need to raise some money to get properly going, be it from family, friends, VC’s or the bank. Most certainly with the latter two and most probably with the former two, the before mentioned business plan is imperative. My business partner and I each secured finance to be used as working capital through the bank as second mortgages on our houses and the business plan was critical to making this process as straight forward as it could be.

Getting out of your comfort zone.
This is stating the obvious because you literally have to do everything no matter what your previous experience or expertise. Almost as soon as we started we were served legally by our former employer. Now this threw me straight out of my comfort zone and made me confront it head on which we did and got through, growing me enormously. My business partner took up a short term contract to get some money through the door with Esanda as they were trying to build Eauto.com.au while I pulled together our technology infrastructure and worked the sales process to secure our first client. This was again jumping out of my comfort zone as my background had only ever been technical. With the help and guidance of my business partner, I made it through the other all the better for the experience and most importantly, it secured the immediate future of our startup business.

Working bloody hard.
Again, this is stating the obvious but until you are in the position where the business survival rests on what you are doing, you don’t really know what hard work is. We just didn’t have enough hours in the day to get through everything we needed to. While my business partner would travel backwards and forwards from Adelaide to Melbourne putting strain on his family life, I would be working on securing clients by day and through our technology requirements by night. Mouth ulcers were a common side effect for me; and those don’t kill you!

Having a passion for what you do.
This one cannot be underestimated. It’s one thing to work bloody hard and it’s another to work bloody hard on something that you have a real passion for and love. We both loved doing what we were doing and our passion for it shone out as I’m sure it helped us secure new clients. This was when I learnt that I could sell anything – if I was passionate about it.

Having the right business partner.
It is ok not to have a business partner, in fact some people believe that you have to have 100% control to make something work. For DMi I had 2 business partners – a former colleague and Digital Motorworks Inc out of Austin, Texas. Having the guys from the US was vital in our time to market and helping us to secure our first big client. They provided the technology platform which I then had to take on, setup, maintain and adapt to Australia and later transform from auto to jobs. This was a great leg up but everything else was on our shoulders in Australia as a startup.

For me getting a startup off the ground with the experience and confidence (or lack thereof) I had at the time, having a business partner on the ground with me was vital. I have referred to my business partner multiple times in the previous points because we really did work as a team. First thing was that I probably wouldn’t have gone into this on my own or been able to get through without his expertise, experience and being able to talk things through. His background was finance and sales in the automotive space. My background was technology in the automotive space and playing/coaching football. We made a good team because our skills complimented each other, we had the same goals and we actually had a good time doing it.

These 6 things were vital in making DMi a success. We were profitable within 6 months, grew to employ over 30 permanents and 60 casual employees and had a successful exit. We were no carsales or Seek or REA but then again they are no Google or Facebook either.

Nonetheless, we started a business from scratch and made it as one of the 1 out of 10 to succeed. For me, that was pretty successful.

6 moves that drove carsales

With carsales turning 20 this year, everyone seems to forget or fail to realise that for the first 5 or so years, carsales was not profitable and was fighting for the number 1 position with a number of (much bigger) players.

carsales had a (seemingly) unique advantage from the outset in terms of access to dealer inventory by virture of starting out of the number 1 dealer management system provider, Reynolds & Reynolds.

This is a snippet from the carsales’ website in February 1998 when there were just 9 dealers online (1 from South Australia, 4 from Western Australia, 4 from New South Wales):

But this wasn’t the silver bullet everything thought it was (some still think it is today funnily enough), things didn’t just happen for carsales though – they happened as a series of good, calculated business decisions that weren’t necessarily popular or seen as the best way forward at the time but each of them were winners.

Who have thought the “I’m Interested” Form would have been so influential:

Here’s 6 influential moves that drove carsales to where it is today:

Private Listings (2000): Despite having a seemingly huge advantage with unparelleled access to dealer inventory, carsales needed to find a way to drive traffic to the dealer’s cars especially since it didn’t have the seemingly huge advantage it’s competitors had – offline marketing presence. It’s leaders understood that “buyers are sellers and sellers are buyers” so if they could attract private listings on carsales these sellers would also be buyers (of dealer cars). Of course the dealers did not agree with this thinking as they were worried that nobody would look at dealer cars if cheaper private cars were also available for sale. We know who was right.

carsales September 2000:

Sell Your Car Until Sold (2002): Most automotive websites around the world are products of media groups, usually newspapers migrating online. Their model for selling was/is “pay me now for this edition, if it doesn’t sell pay me again to advertise again…and so on”. Translated, this means if I do a bad job helping you sell your car, pay me again. This makes sense for a newspaper as there are costs associated with re-publishing each edition but there is no (cost) reason for this model online. When carsales introduced a flat fee to sell your car until it was sold, private sellers lapped it up. It now made sense to sell your car where you are looking to buy.

Lead Model (2002): Like the previous point, the media groups and their online automotive off-shoots were all about sellers advertising their cars “for sale”. If carsales followed this lead, it would be tough to compete as there was no differentiation to its competitors who being propped up by their offline assets. The carsales leaders decided to change the paradigm by moving from “fee per listing” to a “fee per lead” model. Almost instantly carsales changed the currency of online automotive to leads and created a differentiation that helped propel the business. For dealers, the proposition was now not about “advertising” online but it was all about “selling” – the better they worked the leads they were paying for, the better their closing ratio and more cost effective their online “advertising” would be. It was a true win-win-win for dealers, consumers and carsales.

Acquired Trader Assets (2005): For a number of years there was speculation about “who was going to buy carsales”. Yahoo was the first to take a small stake in carsales in late 2000 which they on-sold to Fairfax in early 2005 but for the carsales’ leaders, each inquiry for acquisition was a takeover bid, something they did not want. The approach from PBL and the end result was different as it was about merging the complimentary assets for both sides to get a win-win (one plus one equals three…or ten as the saying goes). carsales acquired the Trader online assets in the deal in return for 41% of the business giving it the number 2 online auto player as well as number 1 online assets in bikes, boats, trucks, machinery, etc. adding an unparalleled depth to the business.

Mediamotive (2009): The move by carsales to create its own direct corporate sales presence was pivotal in the growth of the business around this time. By taking control of the display sales and recruiting seasoned experts, carsales was able to take its product directly to the buyers using analytical data to ensure a premium marketplace. The Mediamotive business has been a show point for carsales to all automotive classified marketplaces around the world such has been its effectiveness in delivering in a results driven environment.

carsales May 2009:

All Car Search (2009): This may not seen significant to some but by including all cars in the one user search was a great success for carsales. Once again they were ahead of curve in understanding that “all car buyers are new car buyers, it’s just some of them are used” (credit to Greg Roebuck for that quote). For the first time a user could search dealer used, private used, new cars in stock and new cars available in the one search meaning consumers who thought they couldn’t afford a new car, were presented with new cars directly comparable to used cars. There was a fear by some that leads on dealer cars would go down if a consumer could directly compare dealer and private seller cars in the one search given dealer cars are usually a little more expensive (to cover warranties, overheads, etc). Well the opposite was true, interest on dealer cars (new & used) increased and a whole new consumer experience was the result, another win-win-win.

Running an online business like carsales doesn’t just happen, it takes hundreds if not thousands of constant decision making moments (big and small) to ensure it first of all gets ahead of the curve and then stay there.

I Survived Business With Family & Friends, You Can To

We’ve all heard it before, “don’t go into business with family or friends”.

Well I mustn’t have read the memo too well because I went into business with family AND friends! Overall the experience has been a positive one for over 10 years now but that’s not to say we all haven’t learnt a few things along the way.

In 2005 I went into business with my best mate when we acquired my father’s small, successful business that he ran with a business partner. They were ready to retire and the proceeds of the sale were to be their superannuation.
Within months my brother and brother in law entered the business. The three of them were to work in the business and each of them having skin in the game made sense to me as I was to be the only passive shareholder.

The first thing we did was put together a Shareholders Agreement to set some governance and protect our collective interests in the case of an exit (read problem). Of course controlling an exit was an important piece but being the only shareholder not working in the business, I also wanted to ensure I had some comfort around governance, things like:

  • What required unanimous board approval like the cap on a capital expenditure item, cap on services to be agreed to, hiring employees or altering salaries over a dollar amount, etc
  • Setting expectations for directors meetings, forecasts, plans, etc
  • Creating the process and rules for an exit by a shareholder

It is one thing to have a Shareholders Agreement and it is another to adhere to the specifics with friends and family. This is where conflict can occur especially when you are the only one of the shareholders not working in the business.

It can leave you with a choice to make – dig your heels in and make sure it was followed to the letter OR suck it up a little since they are doing a good job, making money and was it really worth jeopardizing relationships with family and friends over? I chose the latter potentially sacrificing some money each year for the bigger picture (for all of us I might add).
What would I have done differently? The easy answer to this question is “don’t go into business with family and friends” but I don’t look badly at that decision. I should have ensured that every detail of the Shareholders Agreement was followed for the benefit of all of us; after all what was the point of it?

A business needs to be run as a business and when you have multiple shareholders you have responsibilities to each and every shareholder to do the best thing by all. A Shareholders Agreement is constructed to ensure this objective was met and we failed ourselves by not adhering to it all the time.
Would I do it again? Absolutely!

It’s all a state of mind and anything where more good than bad can come out can’t be a bad thing.

3 Alternatives When Acquiring or Starting a Business

Despite my relatively risk adverse nature, I’ve been in the position of successfully starting a technology based business (with a successful exit) and also acquiring a going concern in a completely different field.

In both of these businesses I had partners – in the startup we had a US business (49%), myself (25.5%) and a partner (25.5%) and in the acquisition we have four of us (2×30% incl me & 2×20%).
Now, imagine the opportunity to buy the company in which you are the Managing Director of a very good, profitable business which is owned by an international company and you have the ability (i.e. access to funds or otherwise) to acquire 100% of the company yourself.

Would you:

a) acquire 100% yourself;

b) invite partners in to split the shareholding evenly; or

c) buy control (51%) and invite your best/key people already in the business to acquire the remaining 49%?
I know some that would go the 100% option for sure (“partnerships don’t work” is a quote that sticks in my head) and probably most I know would look down the partner angle to split the risk (and reward) relatively evenly.

I believe that the smartest option from a risk perspective here is third one. Not only do you have control of a business with great potential that you know intimately, you would also have your best, hand picked people all with “skin in the game” with a lot more riding on their day to day performance than collecting a pay check each month.

My opinion is based on seeing all three options at work close by me including the most successful business people I know personally and of course weighing in my risk tolerance.
Owning a business 100% and being able to call all the shots is certainly attractive but you had want to ready to roll up your sleeves and be prepared to ensure you protect your investment. Not that having partners in the business precludes you from doing this but the buck starts and stops with you from a risk/reward perspective.

My risk profile dictates why I love the option of ensuring you have control of the business (the shareholders agreement would need to reflect this) and having key people who you trust and know are good for the business, tied up in the success of the business.

There is no right answer here. After all, we are all different!