Bootstrapping a start-up no longer a choice

By Jason Flick

Jason Flick, CEO of mobile application-development company Flick Software, shared some of his experiences at last night’s Start-up Drop-in of The Ottawa Network. Following is an edited version of his notes.

I have led or started eight companies in the past 17 years, three bootstrapped, two VC-funded, and three angel-only companies. Not a huge sampling but the stats I have show that in the end, the non-VC funded companies brought more value to share holders. Bootstrapping is something you should want to do as opposed to most start-ups that seem to feel you need that VC money to prove you have a great idea. Prove your great idea with a couple of customers.

Below I hope there is some useful advice for you if you are at that early stage, and a few pointers for bootstrapped companies that are a couple of years into it.

1. Services

There is always a service you can find that you can wrap around a yet-to-be-built product, or that will help get you to a product. Start there. Don’t start with a glossy brochure promising a full features product; promise a custom solution built to meet your customers’ needs. Selling a product out of the gate is much harder for a boot-strapped company as customers often place significantly extra demands on you such as demos, feature assessments and product certifications.

2. Could you help me?

For your first few accounts, don’t be afraid to tell potential customers you are working on a product, and that you are looking for someone to validate and give advice on your idea. This works best if you start with the CEO or decision maker. (Don’t try this approach from the bottom up.) They are just as likely to become your customer if your idea is solid, the market is not that mature, and they can look up your competitors in the yellow pages.

3. Avoid one product for one customer

While selling your service and product combo, be careful with developing a product or features that only one customer wants. Some companies you think might have a need others have, might be just one unusual company and your product will be skewed to the needs of a one-customer problem. Be careful not to lose your product vision for your first customer’s needs. Talk to lots of potential customers.

4. Web site and search engine optimization.

If I had only $1,000 to start my company, I’d spend it all on the website. Your company is perceived through your website, and having a nice website, even if it’s built by you, is something that is easy to do and, in fact, a must. At a minimum, have a professional create a logo, and then build your website around that. Search out the top 10 SEO tips and tricks. If you can afford it, this is something you might want to outsource.

5. Google ads

There is a reason Google is worth billions. Flick Software gets 90% of its business because of Google. You can spend as little as just two cents a click if you really focus your keywords, and with the wizard Google has, even a monkey could set up an ad campaign in under an hour.

6. Watch the service-to-product tipping point

In most cases, the bootstrapping plan involves services to get to product. It requires some careful planning so that your service can eventually be wrapped around your product that initially doesn’t exist. In many cases, if you are solving a real need, there is a service you can run to fill that need until the product can be built.

The tricky part, and where most bootstrapped companies fail, is in the transition from being primarily a service company to being primarily a product company. It is different for each company, but you must constantly measure the demand and your investment in product and make the move carefully. The investments you put into product trade shows, websites, branding and so on could take many months to produce revenues. They say cash flow is what kills a company, but it is often the decision to put too much into the product before the market is ready.

7. At size 25

For the more mature bootstrapped companies, a professional services department pulled from engineering is important. Initially, you need to do your service and product development from the same core team, but at some point that won’t scale, and services will be conflicting with product deadlines. I find the tipping point occurs at 25 staff.

8. Look into government programs.

There are programs that can help give your company a small boost, and consider SEEB, IRAP and of course SR&ED in Canada. Use your network of other start-up entrepreneurs to be sure which is best for you; some programs sound good on paper sound but prove not to be in practice.

9. Watch your cash flow

Seek a relationship with the right people at your bank. For me the bank was my single biggest hindrance until I found the high-tech division at the Royal Bank of Canada. Now, my banking relationship is the reason Flick Software is still here.

10. Be partnership friendly

Focus just as much on partners as customers, know the full ecosystem for your business.

Be careful how many other start-up companies with whom you partner. If you have four other partners that are all also only a year old, it can make a lot of work for nothing as each of them will change direction 10 times and many won’t be around in two years. Ideally, try to partner with established companies that you could help move into new markets.

11. I spoke to my wife about my top 10 list and it is now a top 11.

Get your other half’s buy-in. This was my wife’s suggestion. I could go on for awhile on the top 10 tricks for staying married while running a start-up, but first start by getting her buy in.

Over his 17 years in the high-tech sector, Jason has been actively involved in all aspects of starting, running and growing small and large software companies. He currently is founder and CEO of Flick Software.

2008 Canadian budget a boon for entrepreneurs

Gues Blogger 2

By Peter Kemball

In its 2008 budget released last week, Canada’s Conservative government proposed beneficial changes for entrepreneurs, angel investors and venture capitalists seeking to create wealth by building businesses from the foundations upward.

When laying the foundations of a business, Canada’s Scientific Research and Experimental Development Program (SR&ED) tax refunds earned by early-stage technology firms are a vital source of cash. By allowing for 10% of all wages and salaries paid to Canadian residents for work performed outside Canada to be claimed, Budget 2008 will help improve cash flow. This change eliminates the ludicrous anti-marketing result of not allowing those expenses when experimental development work is conducted on export customer premises.

Budget 2008 also raised the limit of qualified expenditures for Canadian-controlled private corporations from $2 million to $3 million. However, the budget continued the anti-growth-rate policy of reducing the qualified expenditures amount for companies with taxable income of $400,000 or more, and phasing it out for those with taxable income of $700,000 or more.

Another addition to Budget 2008 was the introduction of tax-free savings accounts (TFSA). In brief, starting next calendar year, individuals can contribute up to $5,000 annually from after-tax income to a TFSA. Funds can be withdrawn, tax-free, at any time, positioning this new savings vehicle at the opposite end of the spectrum from registered retirement savings plans. The latter lets money to be put aside to invest before taxes are paid but requires taxes to be paid upon withdrawing funds.

This new initiative has potentially eliminated the capital gains tax for entrepreneurs and angel investors. Was introduction of the TFSA brilliantly accidental, or a sound implementation in support of the role assigned to entrepreneurs in the government’s science and technology strategy? Used in this way amongst other possible purposes, it would put the returns from investing in early-stage ventures on the same footing as winning the lottery. As a U.S. ambassador once observed, a country that valued entrepreneurship would not tax capital gains while leaving lottery winnings tax-free. Introduction of the TFSA meets the National Angel Organization’s request for support, albeit in a way akin to the relationship between the RRSP and the TFSA.

Finally, Budget 2008 appeared to remove a long-standing barrier to investment in Canada by U.S. venture capitalists, the infamous Sec 116 requirement that each investor provide Canada Revenue Agency a certificate that taxes are not due. This effectively prevented them from being rewarded for success and beating the odds against creating significant wealth.

What could Budget 2008 have done to really reinforce its hidden subtext of rewarding entrepreneurial success? You be the judge. Go to http://www.fin.gc.ca/activty/consult/sred_e.html where submissions provided to the consultation on the SR&ED Program before November 30, 2007 are being posted. When the government meets its commitment to posting all public submissions, review them and decide for yourself whether or not the SR & ED changes are a big “Eh” or a D. Given the Tory promises in respect of the capital gains tax, would an accountability review grade the budget as an Eh!+, a gentlemen’s C, or a D from the perspective of supporting implementation of the commercialization goals of the S&T policy?

Of course all of this would not be necessary if we were to enact the Tax Lawyers, Accountants and Economists Unemployment Act. Its key provisions would be a 15% tax rate on income, coupled with a capital gains exemption on a continuously declining daily basis, reaching zero at the end of a decade. Then the only questions for debate would be the amount of the basic exemption and the GST percentage. This won’t work, of course, except it is already available in competing countries.

Peter Kemball is CEO and founder at Acorn Partners, an innovative firm that helps B2B SMEs finance their success.

Time for an SR&ED tune up

Gues Blogger 2

By Peter Kemball

For a quarter of a century, the Canadian government has operated a popular program that puts cash in the pockets of innovative firms and reduces taxes for others, the Scientific Research and Experimental Development program, popularly called “SHRED.” It’s now time for a tune-up and recently the feds invited submissions from any and all interested parties on how to improve the program.

For this they deserve praise, do they not? Well, yes and no.

Yes, if they are fortunate enough to receive thoughtful commentary and perhaps even innovative suggestions to make the product of greater value to customers, small innovative firms. No, if their follow though is inept. Expectations have been raised that suggestions will come to the attention of open minds. Now that we’re past the submission deadline of November 30, how are officials and politicians going to demonstrate respect for the time and effort invested by those submitting commentary? One step they can take is to post to a web site the submissions for which they received permission to do so. Here speed is of great value and a week or two after receipt, the postings should be up for all to review. Better yet, the comments of those officials reading the submissions should be publicly posted to seek further feedback.

We at Acorn Partners submitted our thoughts to the review process and in subsequent posts, I’ll share some of our thinking with you.

Peter Kemball is CEO and founder at Acorn Partners, an innovative firm that helps B2B SMEs finance their success.

Ottawa’s young professionals get inspired

By Linda Forrest

Last night, I attended the launch of the second season of the Young Business Network of the National Capital. This was my first time at an event put on by this organization, as it seems was the case for most of the attendees. It was a good opportunity to network with other young professionals and hear words of wisdom from Adrian Salamunovic from DNA 11, an intriguing company that we were first introduced to when its other co-founder spoke at a Junior Achievement of Eastern Ontario event last year, Kim Dixon from TalkSwitch, a celebrated businesswoman with a long history in Ottawa’s tech community and Kevin Dee, CEO of Eagle Professional Resources and the Ottawa Business Journal‘s CEO of the year in 2006. The theme was “inspiration” and each speaker had valuable insights into what they think are the keys to success. Adrian in particular talked about harnessing the power of public relations and how the coverage that his company has received in top tier publications has had a direct impact on the spectacular growth of his company from inception to 7-figure revenues in under two years. I’m looking forward to other events put on by this organization, of which I’m now a member, and am encouraged to see so many of Ottawa’s bright, talented young people looking to share ideas and network.

Ottawa’s Venture Creation Group gets ‘re-energized’

By Francis Moran

I heard some terrific counsel last night from serial startup veteran Mahshad Koohgoli at The Ottawa Network’s inaugural Venture Creation Group event of the season. Koohgoli, who helmed Nimcat Networks from launch through to a successful acquisition by Avaya Networks, was the key presenter at what the VCG hopes will be a re-energized forum for the local start-up community. Or, as gracious host LaBarge Weinstein lawyer James Smith put it:

“Our overall objective is to re-energize the VCG by providing a forum for hard, constructive networking among local entrepreneurs and enterprising service providers – facilitating management team formation, in particular – with a view to similarly re-energizing the nature, volume and impact of technology startups in the region. We welcome anyone interested in the same objective, and would be happy to hear from startup founders who would like to participate.”

The new format, sessions of which will be held at LWLaw’s offices in Kanata every second Wednesday starting at 5pm, aims to bring practical advice to entrepreneurs so they can, as Koohgoli more or less put it, “Learn what to do in your first start-up so you can avoid making the same mistakes in your next start-up.” Incidentally, his next start-up, called Protecode, is very much a consequence of some lessons he said Nimcat struggled to learn.

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