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By Leo Valiquette

There’s a very simple, and very valid, reason why Ottawa’s flow of venture capital has slowed to an occasional spurt, Celtic House’s Andrew Waitman told his audience at OCRI’s Technology Executive Breakfast yesterday morning.

The reason is that area companies haven’t proven themselves a good investment, if one takes stock of the new companies started since 1995 and tracks the results of the investment dollars that have been pumped into them.

While the managing partner of the local VC firm insisted he’s an optimist, since it’s impossible to persevere in his business otherwise, he nonetheless considers himself a frank fellow. Taking a frank look at the numbers demonstrated that the billions of dollars in VC pumped into the Ottawa area since the mid-1990s have failed to generate a single home-grown success story that has reached the $100-million revenue mark, his benchmark for being a mid-sized company. (He raised the bar to $250 million when talking about U.S. companies.) Never mind that none of them have gotten anywhere near the kind of returns that that level of investment should have returned to the VCs.

Now, while the erosion of deal flow may be simple enough to understand in theory, why the return on investment has been so poor is infinitely more complex, Waitman said. One of the obvious reasons is the irrational exuberance of the boom and how much of that cash was pumped into startups that proved to be utter flops. That tends to skew the statistics a bit. On the other hand, the region has plenty of strong and growing companies, many of whom have done just fine without any VC cash at all, so it’s not like Ottawa is utterly inept in terms of building and sustaining a vibrant tech economy.

But while the reasons for Ottawa’s tepid performance may be complex and difficult to distill down to a few key factors, I think an underlying cause is that same old issue of executive bench strength. It’s a combination of too many executives having an engineering rather than sales and marketing-oriented background, and the complacent sense of entitlement that comes of being a government town. When I’ve harped on this before as a journalist, one reader wrote in to criticize my griping, claiming that he had spent time in Washington, D.C. and found that city to be no different than Ottawa. He suggested that the bureaucratic and corporate cultures can’t really co-exist in a city like Ottawa and expressed his preference for a sleepy old government town. “Move somewhere else, if you don’t like it,” he wrote.

For those of us who actually do care to see a strong local economy built from more than our tax dollars at work, that’s the kind of sentiment we need to escape. On the surface, it appears that it may be limited to a specific segment of our population. But Mr. Waitman’s frank assessment of Ottawa’s track record over the past decade would suggest it’s far more pervasive and caustic than we think. It’s the kind of sentiment that smothers the tenacious and scrappy attitude that defines true entrepreneurship.

I think the lack of VC dollars is a good thing, a harsh slap in the face that may prove positive. It forces startups to bootstrap, to push out into the global market to identify potential customers and generate early streams of revenue. (See our excellent guest blogger, seasoned start-up veteran Jason Flick, who wrote on this here yesterday.) In other words, become a sales and marketing-centric, rather than engineering-centric, organization. There’s already ample evidence to prove that engineering a product for it’s own sake is a recipe for disaster. It’s a fact that’s been dogging Ottawa for years. Any company today must look at itself as a services business tapped into what potential clients want and need and figure out how it can distinguish itself from the competition. And of course, that all starts with screaming its existence to the world and understanding how to get its message out.

Technorati Tags: Technology, venture capital, Andrew Waitman, Celtic House, Ottawa

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.

Technorati Tags: Start-ups, entrepreneurs, bootstrapping, venture capital, angel financing, The Ottawa Network, Flick Software