Thursday, 30 August 2007

The kind of feedback tech startups need

Blue Prism just got a great write up about their work with the Co-operative Bank, where their software is increasingly being used to automate processes.
It's great when a large company is willing to help spread the word for a relatively young company like Blue Prism, it's a simple and comparatively painless way in which a large company can support a supplier.
What I find slightly disappointing is that it seems to me that very often the large purchaser will not offer their vendor this kind of support. For example, Blue Prism has some other similar companies who appear more reluctant to go on the record about their work with the company.

Wednesday, 29 August 2007

What type of web startup are you?

Rail Mail Sorting Slots
Originally uploaded by Potjie
I had a very thought provoking conversation yesterday with Lee Strafford the former CEO of Plusnet about web companies. One part of the conversation I think might be interesting was around classifying the different types of such companies by the way in which they build competitive barriers:
Class of barrierCharacteristics
Tech HeavySome piece of technology is strikingly difficult to do, perhaps requiring realtime communication or tricky client software to make it work. These companies can take a little longer and can raise money earlier in the adoption lifecycle due to the inherent IP. We've got a couple of these in the works, but they're in no hurry to tell the world what they're up to!
Execution orientatedIn these cases the company is not doing anything that technically that groundbreaking, but they're getting the business model, user experience, pricing etc. right in a way incumbents with more inertia would struggle to do. Here the key is about speed and quality of execution. I think I'd probably put Yuuguu in this category at the moment...
Critical mass orientatedLots of web1.0 gravestones here! This is where you have to find ways to get the kind of critical mass of users which means that the service can gain a strong lead. This is more like the Facebook model. To be honest we've only tried this once and we ran out of capital before we reached critical mass. You can't sell these early and the key is probably to find ways to reach that early audience cheaply. I believe that Facebook did this early by getting links with US colleges.

Perhaps it's interesting to think which model fits your company best, and then what that implies for strategy?

Friday, 24 August 2007

Yuuguu off to DEMOfall

I'm delighted that Yuuuguu are presenting some great new stuff at Demo in September. I think it'll be really well received. If you're thinking of going there's a useful discount if you click via the following Yuuguu off to DEMOfall 07.

Monday, 20 August 2007

The "Lucky 13"- Managing cash gaps in technology companies

Back from hols :-)
Over the years a number of useful tips about how to manage cash in early stage tech companies. It's really commonplace for such companies to have sticky moments waiting for cash to come in from customers, investors etc. and it can be very handy to know some of these hints....

If you're this close to being out-of-cash then knowing the solvency situation of the company at any time becomes important, and as a board it should be considered carefully and frequently. I can't endorse the use of any or all of these in any situation on a blanket basis- it's more complicated than that!

Please let me know any improvements or changes to this list via the comments- I'll update it accordingly. Thanks.

Area Tool Comments
Managing Ordinary Creditors Paying late Careful, you mustn't favour some creditors over others, but generally you should look to the timing of each creditor payment to see what really needs to be paid when. (OK that one was obvious!)
Paying erratically One FD I know favours paying erratically from the outset, but paying reliably. So, if sometimes you pay at 10 days, sometimes at 30, other times at 50, then your creditor may get used to the fact that you're inconsistent but reliable. this could give you a bit more slack when you need it most. Contrast this with the company who always pays bang on 30 days. If you don't pay by 31 the credit controller will be on the phone!
Early payment terms I've found that many start ups are so keen to impress their customers, and so keen not to draw attention to their small size that their reluctant to go for strong payment discounts. Likewise they tend to favour rental models over upfront models in the face of the economics (see below and here.)
Salaries etc. Transferring cash If the new cash is very close, but is going to miss the BACS payment deadline for the salary, it's handy to know that you can usually pay your staff using a same-day payment mechanism from the bank (for a fee). The extra few days saved can occasionally be a lifesaver.
Staff late payments If some of your staff are willing to work on the promise that they'll be paid shortly after the transaction that can be great. Watch out though, because there's a chance that you'll still have to pay the PAYE and NI. It can be helpful to get a formal waiver from the staff of some kind- so the company accrues the cost but doesn't necessarily trigger the tax.
Payment date During the early optimistic days companies often like to offer their staff a relatively early payment date in the month. Pushing that back as a matter of routine early can make sense and saves you having to ask the staff for the concession at a key time.
Cost of directors If things are tight the directors may be willing to work for nothing- make sure you keep accruing the costs otherwise the next round investor may get shirty if you want to pay them the back fees post transaction.
Banks and investors etc. Bank Banks need attention well in advance of the cash demand if you expect them to be sympathetic. Especially important if you've a loan already as bad news can give them the jitters.
Investor bridge Keeping your investors fully up-to-speed and informed is the key to this one, but if there's real evidence of close cash from either customers or investors it's useful, if unlikely to be cheap!
Director's loan Not really where anyone wants to be!
Other etc. R&D Tax Credit I'm no expert on R&D tax credit, but it's proved a godsend to companies on tight cash on several occasions (thanks Gordon!). Two caveats- you can only claim as cash up to the limit of the previous years PAYE+NI, so if you've been mean and lean and had no full-timers then it's not going to help much. Second, you CAN do a short financial year to claim early, but remember that you can't keep doing short years from a Companies House PoV- hence never change year end for convenience reasons, keep it up your sleeve for rainy days. It takes a couple of months minimum to go through the process of closing your year and making the claim, but handy none-the-less.
Grants Frankly, unless you saw it coming months earlier this is only likely to help around the edges.
(my favourite!)
The ingenious amongst you will probably have a whole set of crafty ways to extract cash from your customers wallets. One particularly appealing idea is to offer to convert existing rental customers to perpetual licenses for a tempting once-off price.(see this post.

Wednesday, 1 August 2007

Why did a satellite tv company want to buy a set top box company?

So Sir Alan Sugar has 'fired' his creation Amstrad for what has been reported to be £ 125m gbp -(around $ 260m usd) on a PE of about 6. I can see why he'd want out- Amstrad may be concerned about commoditisation and the threat from the Chinese entrants. But even the Ovuum analyst on the news last night was struggling to find a reason why Murdoch's Sky would want to buy them. In the Guardian piece various analysts provide rather weak justification about improved time-to-market, but it'd be hard to see that Sky is currently competing with Virgin media on that basis at the moment anyway.
Sky has had a reputation for being a canny buyer of set-top-boxes and is in a position to drive a hard bargain from its suppliers- surely it didn't need to own one just to get suppliers to do what it wants quickly.
The only reason I can think makes sense is that Sky's purchase is not to get their mits on this generation of product but because they are looking to the next. This might seem sort of obvious, my speculation however is that it's because they need to own the STB company. That would let them build their own "locked-down proprietary" set-top boxes, and might help Sky persuade Hollywood that it's really secure. At that point they might be able to get access to the kind of premium content that the AppleTV box carries. Better yet- they have a delivery channel via the satellite to send over high popularity High Definition content that'd struggle to get down the narrow ADSL pipe.
These kind of changes may seem tectonic to our portfolio companies, but that doesn't mean they're irrelevant.
NB the above is no more than a theory compounded on speculation- I have no actual knowledge of the situation or link with either company! If you know/think better (or can corroborate!) please do so below.