Tag Archives: finance

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.

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.

Make Money While You Sleep

I saw a quote from Warren Buffet recently that read “if you don’t find a way to make money while you sleep, you will work until you die”.

With Buffet’s background and track record you know that he was most likely referring to investing in businesses via the stock market but it also reminded me of a quote from my Dad that had similar connotations – “you need to find a business with a recurring revenue stream to build on otherwise you will always be limited to the number of hours you can work”.
He was specifically talking about getting paid an hourly amount to do something. For instance, if you are a plumber and charge by the hour or per job completed, you are limited to the number of hours or jobs you can complete in the day/week/month.

Running a business specializing in road detector loops, he was able to turn his business from purely getting paid per job completed into a monthly recurring revenue business with any work beyond the scope of the contractual requirements a bonus. This gave him scope that was never there previously.

I remember in my early days as a software developer, the goal being to have enough Systems at our clients where the recurring monthly service contracts would cover all fixed costs so that sales were actually profit. Eventually the compound effect of the monthly service contracts would also add to the profitability. This was my first glimpse of what recurring revenue was.
When we started Digital Motorworks in Australia, obtaining contracts with a guaranteed recurring revenue base was the cornerstone of our business planning. We worked with our clients to find a model where they would guarantee a minimum monthly amount in return for getting exclusivity and/or economies of scale if they secured volume use of our services.

This way if our client failed to sell our services we would have a win in getting a minimum monthly payment. Conversely of the client was able to sell more of our services, there was a tipping point where our profitability per service would be reduced and they would achieve economies of scale benefits for their investment.

The Internet has opened up more and more ways to “make money while you sleep” by allowing to put your goods and services in front of people to transact at all times.
Whether it be investing in good businesses via the stock market, investing in property or working in a business that is structured around a recurring revenue model, the concept of finding something to make money while you sleep is a very sound one.

Hard to argue with Warren Buffet on anything to do with making money. And I think my father has been pretty successful in his own way to.

What Does Brazil Know That We Don’t?


carsales acquisition of Stratton Finance last year caught a few people by surprise as they thought it was outside of our core offering. What makes it more interesting is that in Brazil, the three leading automotive vertical websites are owned by banks. More on that shortly.

An automotive portal’s core value proposition is as a channel between buyer and seller. For dealers and private sellers it is a buying channel where buyers can come to the one place, find the car of their dreams (or needs) and deliver leads to the seller, thus providing them with the opportunity to sell their car.

As around 50% of used car sales are financed, it makes sense that at the time of enquiring about a car on carsales, the buyer can/will/does also enquire on the best finance to purchase the car.
Stratton had been a carsales display advertising client for over 10 years as they looked to capture these finance enquiries so it made sense for carsales and Stratton to get closer and maximise the finance lead generation opportunities.

Just to be clear here, the Stratton Finance brand and integration is ONLY placed against private seller cars on carsales, NEVER on dealer’s cars. In fact, carsales has NEVER placed a finance advertisement on a dealer car as dealer’s offer their own finance to their buyers and we do not want to diminish this opportunity for them.
The finance model and automotive portals is nothing new in Australia. In 2000 ANZ Bank’s Esanda Auto Finance started an automotive portal called eauto.com.au in an attempt to be a finance lead channel. In the same year, St George Bank formed a strategic partnership with Autobytel.com to launch Autobytel.com.au in Australia and try to replicate what was a successful model in the US. By 2002 both were gone with millions of dollars lost.

carsales had also tried its hand of monetising finance leads long before the Stratton investment with the creation of a business unit called Click For Finance 7-8 years ago. This effort didn’t last long either.

Webmotors.com.br, 2007, shortly before the Santander acquisition

Back to Brazil.
We have looked at automotive portals around the world and I am yet to find any that are owned by banks, except in Brazil, where the three leading players are owned by banks:

1. Webmotors has Banco Santander as the controlling shareholder (with 70% and carsales 30%) after it acquired ABN Amro Bank in 2007 (ABN Amro had acquired Webmotors in 2002);

2. iCarros is owned by Itau Bank; and

3. Meucarronova is owned by BV Financeira

Do they know something others around the world don’t? No, I think that since Webmotors came to Santander through a bank acquisition and they kept hold of it, the other two banks took opportunities to follow suit.

As a side here, the founder of Webmotors also founded iCarros after he sold Webmotors to ABN Amro Bank so he followed a successful path for him in selling iCarros to Itau. “Only in Brazil” as my friend Fernanda says to me, seemingly all the time.

I also think the concept of automotive portals being a legitimate finance lead channel is acknowledged everywhere but as Esanda and St George found out, it takes a little more than simply setting up a website. Even in Brazil where the three banks acquired the automotive portals and have owned them for a number of years, they are still yet to maximise the opportunity for finance origination (as opposed to finance leads).

This is where carsales is adding enormous strategic value to Santander as a strategic investor in Webmotors having the experience of trying a finance model internally years ago and now successfully integrating with Stratton.

It is only the start of the journey and should be a great ride!