The realities of entrepreneurship with Andrew Walker #S1E1
Do the skills and traits required to win in sport also apply to running a successful business? Start-up advisor, strategist and software expert Andrew Walker discusses the realities of entrepreneurship.
He provides a very honest, down-to-earth view on the type of people and set of skills required to start and scale a successful business, from building your co-founding team, to understanding your end goal whilst sharing his experiences in building and selling “Software as a service” (SAAS) companies.
This episode of The 10th Degree covers:
Tools to help define your business strategy
Understanding your product
Solo-founder vs Co-Founding
Founder & Shareholder Agreements
Being cautious with selling equity
Investment - Finding Good Money vs Bad Money
The process of selling a company
"Being an entrepreneur and a start-up is one of the most hardest things I've ever done in my life, yet there is still a very rose-tinted view, where everyone thinks they'll become a multi-millionaire overnight, and that's just not true."
"From a founder point of view you have to "go eat your own dog food!". I think a lot of founders think the first thing they need to do is get someone to sell their product and I think it's the exact opposite. You have to be able to sell your product yourself to start with, and if you can't do that, you're not going to know if a Sales Manager is selling your product well."
"Your focus should be on "How do I get my first 10 paying customers?" Then after that, "How do I get my first 100 paying customers". It helps if you think in those sort of terms rather than "How do I get to 26 million customers?" because you can't conquer those steps in one day, whereas getting the next customer is always something you can do something actionable towards achieving."
"People ask me, what trait do you need, and when I look at people I've worked with who were exceptional entrepreneurs, the one trait that comes through to me over and over again, isn't intelligence but complete and utter tenacity to believe that they will get the job done. It doesn't matter what happens or what befalls them in terms of highs or lows, they just keep going and it's incredible."
"95% of people are bootstrapping so you have to face up to the expectation that you aren't going to earn any money for a while. If you don't know if you are able to get through that period or side-hustle to pay your bills, it's going to be very difficult for you to survive."
"I'm quite left-brained, linear, analytical, and logical, I struggle with my imagination and creativity at times. In a business you need that complete brain. I think the only way you get that is by co-founding with somebody else. You can do the single-founder thing, but you're going to have to found those people around you to provide that complimentary set of skills."
"Whilst you can compliment skills, I think the thing you cannot replace is passion, commitment and tenacity that the most successful entrepreneurs have."
"When you start a business, it will take up 100% of your time. You will be thinking about it 24 hours a day. Can I pay the bills? Where am I going to get my next customer from? It really does consume you - if it doesn't, maybe that's not your thing."
"Unfortunately there is a tendency for founders to give equity around like they're sweets - that's the worse thing you can do. Equity is for founders, investors, advisors and employees - no-one else. It's certainly not for the marketing agency you've outsourced the development of the app too. It's certainly not for a contractor whose working a day a month doing your marketing. It should never be for those people."
"You're better off to get your product sold in your local environment or local country at least, but people get stretched too thinly looking at a global scale too quickly. Until you understand your process and it's scalable, repeatable and predictable. Once you've nailed that you can look at other ways of growing it."
Andrew Walker is an entrepreneur, mentor, business advisor, Co-Director of Start Up Grind Bournemouth, and a life long football fan. He was Co-Founder of Clicktools which provided him with a 14 year journey of founding, growing and selling a successful software business.
Andrew and I have also worked together in delivering several start-up accelerator programmes, which means I have some first-hand experience witnessing some of the dubious practices Andrew employs in reducing someone with a badly thought-through business plan into something of a jabbering, quivering, jelly - often involving tears.
The most dubious practice he uses is what some might call, "telling the truth", and others might say is "speaking your mind".
So Andrew, provide us with some back ground about yourself and how you came to become a business advisor.
My first start-up was in 1989 when I became a Sales & Marketing Director, having previously been a Product Manager due to a management buy-out. I had no idea what I was doing. So I tried to find help in Bournemouth, and at that time there was only Business Link, who ended up putting me in touch with a Butcher, who had no idea what software was. I had a few of these conversations, and I couldn't find anybody who would give me any help as a tech start-up.
This experience stood with me ever since and so when I was fortunate enough to leave Clicktools and offer some help, my only goal was to try and help people in start-ups understand some of the complexities, troubles, highs and lows that they would go through on that journey.
I was very fortunate to be in an incubator in the USA, where they were quite brutal - "this isn't going to work", "you need to do it like this", and it was very much a traditional, mentoring approach. I just assumed that was the way you do it, which is where the "reducing people to tears" has come from.
I have softened a lot, to be fair, and it's been a constant battle for 30 years, how I calm my passion for subjects, but I still ultimately believe that we live in a world, where being an entrepreneur and a start-up is such a difficult thing to do and everyone tends to look at it through very rose-tinted glasses and they think it's the easiest thing in the world, and they'll become a multi-millionaire over night and the reality is just so different from that. It's certainly one of the hardest things I've ever done in my life. I just like to tell people the reality of the situation rather than try to tell them that everything will be okay and they'll be able to buy Necker Island off Richard Branson this time next year, because that's just not true.
So Andrew when you start to talk to a company for the first time, what are you looking for and what are you trying to understand?
The first thing is trying to understand where they are trying to get too. It's very important to understand what people's view of success is:
- If you want to start your own business and work for yourself and earn a salary that keeps you in a comfortable way, that's one thing and that's a very valuable thing to do.
- If on the other hand, you want to grow a business and start to employ people, raise venture capital and grow a multi-million pound company, those are two very different things.
So the first thing I'm trying to figure out is what is their goal and purpose for starting out on their own, and how I can then best help them along that journey. If it's the former, that's absolutely fine, but my set of skills are probably not suited for that.
Out of all of the people you've spoken too, how many do you think have actually thought about that? Are they thinking more about what is their product or their service rather than what is their business plan?
Unfortunately in the majority of cases it's probably neither. Most people seem to have an idea right at the start and think this idea will make them millionaires. They think if they build it, everyone will buy it. The reality is the complete opposite, if you build it, they probably won't come.
From that point on, it's a process of trying to understand where they are in their journey. So have they thought through:
- who might buy their product/service
- how many people might buy it
- how many people they want to buy it
- whether their product/service is something that might appeal to those people
As a linear-thinker, my immediate thoughts are about the steps this person is going to have to go through to get to their goal. If it's that they want 10 customers to pay them £200 a month that's a very different journey to someone who wants to raise capital of £1,000,000 in the next 9 months. There are a lot more steps between one and the other.
So when people are getting their ideas and plans together, do you have particular tools that you use to help and communicate the steps you should be thinking about?
There are lots of approaches, I generally use the lean business model canvas or strategise.
I don't think the method matters as long as you go through the thought process of "who is going to buy my product?" "what problem am I solving?" "where am I going to sell it?" - the questions that those methods all answer are fundamentally the same, they just articulate your answers slightly differently. I'm looking for that thought-process rather than just "I have an idea".
So before "Clicktools" you co-founded "Adaptive" - was that a management buy-out?
We worked for National Provincial Building Society, which was bought by Abbey National, who didn't want to use the software we had developed for change management and didn't understand the potential. So a group of around eight of us raised £1,500,000 and
completed a management buy-out from Abbey National and scaled it from there. Our turnover when I left was around £1,500,000 which was not recurring as it was installed software and around 25 employees. I left due to founder-alignment.
You studied "Computer Information Systems" at University, how did you get to be the Marketing Director?
Good question! I applied to a software company in Ringwood as a Product Manager and when National Provincial bought us, I became the Business Analyst and Product Manager so I was the interface between the business and the software product that we were building for them. When we did the management buy-out, the company was basically a firm of engineers, and me - the CEO got assigned due to his history of procurement, and I was the person who was "the business guy" so I became Sales & Marketing Director - that was it!
So aside from learning how to sell twenty chunks of steak, from the Butcher who originally advised you, how did you learn the rest of the job? How did you learn what a Sales & Marketing Director does?
I just sort of did it! You just kick the ball and run. Marketing was very different then - I was always the "product" guy anyway which was one of the 4 P's of Marketing in terms of writing collateral and product positioning, product messaging and pricing. I'd always struggled with the promotional aspects of marketing, but in terms of product, price and place I'm pretty well covered. So for the promotional aspect, it was literally about finding help, so we recruited a Marketing Manager.
From a founder point of view you have to "go eat your own dog food!". You have to be able to sell your product yourself to start with, and if you can't do that, you're not going to know if a Sales Manager is selling your product well, so to start with I did the selling - badly!
But by doing that you were able to understand what people were reacting too, and how to make your produce better?
Yes absolutely, I think a lot of founders think the first thing they need to do is get someone to sell their product and I think it's the exact opposite. If you look at some of the great software companies, the first customers are sold to by the founders because you really need to understand why people are buying your product. What is it about your product that ignites their passion and it's very difficult to do that second-hand.
You also learn whether you can build a repeatable, scalable engine that you can then go to somebody and say "we know this works, we've tested it with 80 people, this is what they liked, this is what they didn't" so if you get somebody along to build that process and they suddenly can't do that, you know there is something not quite right somewhere. You hope that when you get a good sales guy they can add value to it and improving the process, not making it worse. Because if you're not a sales guy and you can sell it, then a good salesman should be able to.
So it's still about trying to understand where that product fits within the market place more than the numbers side, such as addressable markets and how you bring those into obtainable markets and the more scientific side of it? Ultimately you have to get a very clear understanding of why anyone wants to buy it in the first place?
Addressable markets is important to think about but in the early stages the focus for founders has to be "how do I get my first 10 paying customers?" You can have the big-vision stuff, as long as your addressable market is big enough, your focus is on the first 10 and from there the next 100. It helps if you think in those sort of terms rather than "how do I get to 26 million customers?" because you can't conquer those steps in one day, whereas getting the next customer is always something you can do something actionable towards achieving to improve your chances of success.
So you said that you came to Ringwood, on the outskirts of Bournemouth originally? Where did you come from originally and what brought you down here?
I'm from Birmingham originally, moved to London and did some IT consultancy, but I didn't want to stay in that world, my ambition has always been to work with great software companies, which I'm obsessed with. In the 1993, there weren't many software companies in the UK, but Ringwood had a world renowned software company called "VSF", historically "Systemactica", a virtual software factory. They were world-leaders in their field and were advertising for a product manager.
So developing your career was the real motivation for you move?
Yeah, I've had chances to go to the USA - something I would do now, but in the early 90's I was from a working-class family and the first member to go to university, the thoughts of going to the states weren't even on my radar - I got funny-looks when I moved to London!
Despite having left Birmingham you've remained a life-long supporter of football team Aston Villa?
That's the wrong colours, I don't even know who you're talking about. I'm old enough now to not react to that comment! It's all about Birmingham City. I'm a season-ticket holder, and travel up to Birmingham every couple of weeks. When I hear that back, I realise how stupid that sounds!
It shows there is an element of passion and commitment, which is what football supporting requires - do those traits play a part in becoming a successful entrepreneur?
Absolutely. When people ask me, what trait do you need, and when I look at people I've worked with who were exceptional entrepreneurs, the one trait that comes through to me over and over again, isn't intelligence but complete and utter tenacity to believe that they will get the job done. It doesn't matter what happens or what befalls them in terms of highs or lows, they just keep going and it's incredible.
How do you know if you are that person?
I think there is an inherent self-belief and confidence that you could argue some people would call complete arrogance. I think at times you can recognise it. I'm honestly not sure if you can develop it, there's this big nature vs nurture debate and the more I speak to people who are successful, I increasingly come down on the nature side, I'm not sure it is something you can learn. That may be a little controversial, but if I'm honest, quite a few of the people I know who want to start a huge business, I honestly think would be better off getting a job. Because the chances of them succeeding are just so small.
Can you see specifically in that journey of building a successful company, where they are going to fall down if you are not that sort of person?
I don't think it's that precise, I think it comes down to firstly having an expectation of how long it's going to take you, and because I'm a linear-thinker, doing the math to a certain degree.
When we started Clicktools, we'd gone through the founder-alignment problem with Adaptive and I was fortunate enough to exit with some money - (the only person to ever make money from that software company) - but that enabled us to not earn any salary for two years. That's not an uncommon thing for founders of companies to do, especially if you're bootstrapping, which 95% of people are, you have to face up to the expectation that you aren't going to earn any money for a while.
If you don't know you are able to get through that period or side-hustle to fund your way through, it's going to be very difficult for you to survive. I don't know exactly where people are going to fail, I just think that there is something that is within people for them to be able to success against the odds.
So you've been a co-founder a couple of times, is that important that you found something with somebody else?
Funnily enough when I left Clicktools, after twiddling my thumbs for a while, I did try to do another start-up as a solo-founder, and I absolutely hated it. I think I knew very early on that I wasn't enjoying it and should have stopped it earlier than I did. But being a solo-founder, is very different. You don't have all the skill-sets. I'm quite left-brand, linear, analytical, and logical, I struggle with my imagination and creativity at times. In a business you need that complete brain. I think the only way you get that is by co-founding with somebody else. You can do the single-founder thing, but you're going to have to found those people around you to provide that complimentary set of skills.
Did you find that when you were by yourself there was so much more to do, where as with co-founders you could separate that up and work out who would do what?
There was some of that, I think that some of the decisions become harder because they are not decisions you'd like to necessarily make. For example the creativity side.
So you became less productive as you're forcing yourself to do a job that doesn't come naturally?
Yeah I think you become a bit more insecure in your decision making and you question yourself and almost end up in "start-up death!". Any decision is better than no decision. On my own I found it harder to make certain decisions, as I didn't have anyone to say "right you go and deal with that, I trust you to make the right decision, I don't care what colour it is".
Do you find you start thinking more deeply about things and there's no-one to snap you out of that and say "come on, let's just get on and do that"?
Yes although it's probably less deeply and more superficially, as I don't have the knowledge or experience to think beyond blue and red! I don't have 800 shades of magenta in my brain to think about the decision, I become a bit paralysed.
For people that don't have that passion and drive to know they really want to achieve something, can you get around that by teaming up with someone that has?
No I don't think so. Again, when I was young, the first thing I wanted to be was a footballer. I wanted to be Trevor Francis, who played number 8 for Birmingham City. But at some point in time, I was told that I wasn't good enough to be a professional footballer - unfortunately that was just life. The next thing I wanted to be was a singer in a band - not good enough to do that.
I think the same thing applies to entrepreneurship - not everyone can be anything they want to be, I just think it's a ludicrous proposition. Whilst you can compliment skills, I think the thing you cannot replace is passion, commitment and tenacity that the most successful entrepreneurs have.
When you start a business, it will take up 100% of your time. You will be thinking about it 24 hours a day. Can I pay the bills? Where am I going to get my next customer from? It really does consume you - if it doesn't, maybe that's not your thing.
You're going to be successful if you do something you're naturally good at, because life is going to be easier if you follow things that you don't have to force your way through. When you talk to early founders, do you recognise that people are lacking that ability and do you share that with them and do they ever take up your advice and decide to stop?
No, I can be quite blunt about things, but I don't ever try to stop people finding their ambition, if people really believe that they can do that, I'm not there to stand in their way, I'm going to try to help them. I would ask them questions about whether it's something they're really committed too and if they are enjoying it. If you don't enjoy this, there is absolutely no point doing it.
My Dad always used to say "If you find a job you love, you'll never work a day in your life." I loved doing the start-up thing. When people come to me and say their motivation is money, those people are not right to be an entrepreneur. The goal has to be something different. If you have two founders and one is 100% committed and one is only 75% committed, I guarantee they will fall out.
When you started "Adaptive" and "Clicktools" did you set up founders agreements?
In "Clicktools" there were three of us initially but then that became four. In "Adaptive" there were three or four. We had founders agreements, we had shareholders agreements. They were quite broad to start with but we did fine-tune them. You can change them as you go on. "Clicktools" was quite interesting, because when we started we had a very unequal share allocation and over time we equalised it to a quarter each, but that took 2-3 years to get to and that came from a couple of us feeling that there was an imbalance in the work we were doing and the reward we were getting. But we worked that out. We were a tight, functioning team and that was fine. But in other companies I've seen that cause tremendous issues and companies fall apart because of those fundamentals.
Do you think it's better to have 3 rather than 2 so you don't get that 50 - 50 split which can cause stasis?
We had stasis with 4, in lots of ways. The biggest challenge we had was that we didn't have somebody who was in charge. We were very much a team, we were very flat, and although David was the CEO, I don't think we ever let him be the CEO. We could actively stop his decisions and that definitely caused stasis and that became harder the bigger we got. We were very fortunate and did very well but looking back I think it restricted our growth. However with Adaptive we had 1 person who was the CEO, which caused the opposite problem, and I left as I didn't agree with where the rest of the board were going.
Did you find that the time you spent getting the founder agreements and shareholder agreements upfront were useful at the point where you wanted to sell or leave? Did you refer back to them?
They were vital, even before then. I talk with people a lot about equity. Unfortunately there is a tendency for founders to give equity around like they're sweets - that's the worse thing you can do. Equity is for founders, investors, advisors and employees - no-one else. It's certainly not for the marketing agency you've outsourced the development of the app too. It's certainly not for a contractor whose working a day a month doing your marketing. It should never be for those people.
I also see people giving equity away from day one. In software there is quite an accepted concept, more so in the USA, called "Cliff Vesting" - you don't get equity from day one - you have to work with the business for 6 - 12 months before you start to get equity and them you earn that over a period whilst you're with the company. If you're given 8% of the company, you wouldn't necessarily earn any equity for the first 12 months, and then over the next 2 years, you'd earn 1% per quarter. You don't give that person 8% at day one, so they can then walk away after 6 months with your business. I've probably seen that 10 times in the past 12 months. One has someone they don't even speak to anymore, who now has 30% of their company.
Do you know how Birmingham City was founded? By a cricket team. They had a field, got bored over the winter, and decided to play football and set up Small Heath Alliance in 1875. This just shows that diversification can be really helpful, whilst they hold on to their intellectual property. What's your experience with this?
There are only 5 ways of growing a business and one of them is expansion of diversifying into other markets or going international. In "Clicktools" we didn't exploit that enough due to a lack of business development knowledge. There's a point at which that becomes relevant, I think you've got to have got all the "low-hanging fruit" from your first venture.
For example, Survey Monkey, they really started to grow massively, laterally when they went international and diversified into other markets. But they'd been going 12 years before they did that, as they collected the "low-hanging fruit" at a lower cost. I think if you can diversify at low-cost and low acquisition cost from a customer perspective then that's absolutely fine, but I do think certain start-up think about diversification too soon.
You're better off to get your product sold in your local environment or local country at least, but people get stretched too thinly looking at a global scale too quickly. I think until you understand your process and it's scalable, repeatable and predictable, you get most benefit when you constrain that to something that is nicely defined. Once you've nailed that you can look at other ways of growing it. Ultimately it comes down to how much it costs you to acquire a customer. It's always cheaper if you're doing it in a smaller area.
In terms of growth, quite often that's when people are looking for investment. You started "Adaptive" with VC money to begin with and you sold "Clicktools" - tell us some of the happy and less happy memories of the money side.
I found it difficult having venture-capital as I thought honestly that the venture-capital company would add more value than they did. They gave us a chunk of money, which was very nice and presented a different set of challenges in how were were going to spend it. We met some goals and didn't meet others. If we got stuck the venture-capital guys weren't massively helpful, which I think was typical of the times - I think it's different now but I think you still can get "good money" and "bad money".
Is that because they didn't have the ability to help you?
Probably, I think it was quite a new market but I still think you can get "good money" and "bad money". Good money has good networks, they will help you, they have lots of other founders in the same sort of space. Bad money, doesn't have experience in the space, won't have a network and will generally put a high amount of pressure on your to succeed no matter what, which may sacrifice longer term growths.
Do a bit of research and see which companies they've invested in previously, look at their records and partners. In SAAS, there are some exceptionally well known seed and pre-seed companies in the UK that you'd always go to first. If you can't get money from those guys there is a second tier who are slightly less well known.
What about your experience of selling a company? When did you decide that you wanted to sell? How soon did you start the process? Did you start planning years ahead or months ahead?
We didn't plan at all actually. I don't think were doing it for the money, our goal was to build a successful software company which probably generated certain revenues that had a certain number of customers and as a bi-product of that we thought that if we did that enough, we'd be able to live to a very good standard. Whether that was an exit or generated by profit, we didn't actively choose either of those.
I would argue that because we didn't think that, we didn't take full advantage of when we were acquired. Looking back, when we were acquired, we were at the low point of multiples - they probably got us at a really good stage, as as founders we were all exhausted. Someone could have offered us £10 for it and we'd have probably taken it as we'd had enough.
We didn't actively plan the acquisition but we'd grown really well, we had 50 employees, we had offices in the US & UK, serving over 1000 customers, considering we'd bootstrapped it we'd done really well. We didn't have any investment at all. We funded it customer by customer. We had a loan of about £80,000 that we all had to sign our houses against. We paid it back quick so it was never at risk. That was it, there was never any venture capital.
We were acquired twice - initially as a minority stake by Survey Monkey. The CEO called and said "can we have a chat" which we thought was a bit strange as they were much bigger than us. We flew over to New York, met in their lawyers office and he said "I'd like to buy your company". It was literally that - I think I fell off my chair! That was such a high, as Survey Monkey were almost the inventors of SAAS. Then we had the low that we had some negotiations and talks and they said that the board wouldn't sanction the purchase. So they bought some of the company.
Then we had a bit of a mexican stand-off for a few years, as the purchase seemed a bit odd and pointless. Both parties were waiting to be told what to do next. I learnt so much from them but it always felt as though we didn't take advantage of the situation.
Then we had another phone call from CEO of a company called Callidus which turned into a full acquisition so they bought our shares and the Survey Monkey shares.
The international flurry reminds me of the first time Birmingham City were the first English team in the Europe Cup final, where they lost by 4-0 by Barcelona. It struck me that this fits neatly into competition! Most people are scared of the opposition, but what's the good side? What can you learn from them? Should you be inspired instead?
I don't spend to long thinking about the competition. Somebody once said "when you're winning a race, you don't look backwards". You should be aware and understand where you're different, but if you have confidence, in what you're really good at then you should be aware but not obsessed with them, which many people do.
In 1963 Birmingham City won the League Cup - the first trophy ever in 100 years! They beat Aston Villa in the final. But only a few weeks before Aston Villa had beat them 4-0 in the every day league. This links to having your head in the right place! Do you think this is something you see in the entrepreneurial thinking and success or is it about sitting down and doing the numbers?
I think it's a bit of both - again due to my linear focus, I look at traits of people who are successful and they generally have a plan and a goal and they figure out the steps to get there and they execute on those steps. They may succeed or fail. That's doesn't matter. It's actually setting the steps and realising that you have a goal. That's certainly one of the things that I try to encourage everyone I work with to have. Where do you want to be in 12 months? Go through the process and fixate on the goal.
Understand your numbers so you can figure out where you are at that particular point and focus on the journey but also get the focus on how you are going to get there. If I need to go and get another 20 customers at 2 a month, where am I going to get my 2 customers from this month and if it's the 15th November, I need to find them. It's that level in the early days which is the drive. Doing those simple things to meet those simple goals.
So do you know where you're going to get your next 2 customers from today? If not, get started.