He may be based in New York as a chief technology officer now, but four years ago this startup cofounder was out in Western Australia on a mine site. Elto’s PJ Murray began his journey to tech startup-land, which he describes as the “holy grail of industries”, after his boredom in his mining job drove him online and he discovered coder news site Hacker News. Murray told StartupSmart his increasingly fanatical reading of software news soon morphed into a commitment to retrain and enter the tech startup space. “To start anything in the mining game you’re going to need a huge amount of capital. Plus no one would take you seriously until you have grey hair. It was a no brainer to me,” he says. With negligible coding skills, Murray briefly considered taking the business cofounder approach to getting into the startup game. But after posting a thread to Hacker News, he realised coding skills would be invaluable to getting any startup off the ground. The decision to become a technical cofounder wasn’t an easy one. He quit his job, dropped several salary brackets and began as a junior developer with software consultancy ThoughtWorks. He began to train himself working on small projects and at meetups. While learning a new language is never easy, Murray says his preconception that is was going to be intensely tricky to understand was soon proved wrong. “There are facets of software that are very difficult, and yes learning to code (like learning any new skill or language) can be difficult, but day to day you're mostly solving lots of small problems, and the best solution is almost always the simplest one.” But the most daunting decision was still to come, quitting ThoughtWorks to work full time as the CTO of Elto, which was called Tweaky at the time. “That mentality shift from working a job with a regular salary to having the ultimate responsibility and accountability to your customers, your investors, and the businesses success, that's a little scary,” Murray says. He adds the steepest learning curves of becoming a technical cofounder weren’t coding tricks, but the ancillary soft skills that come with running the coding output of a company: prioritizing features, figuring out what is and isn't part of an MVP, and knowing when to stop writing code and start hustling. “It's really easy to fall in the trap of thinking you can solve all your problems with more code and product. The ‘If only we had this feature’ mentality. In reality you probably just need to ship it, start collecting data and getting customers. You’ll work it out from there,” Murray says. Murray’s company Elto went on to raise several rounds of seed capital, change their brand, broaden their offering and create a team sprawling across much of the world. He and cofounder Ned Dwyer moved to the US recently to pursue their growth goals.
It’s a conversation that regularly occupies the Australian start-up community. Despite several smash hit start-up successes, why do so many of our most successful and innovative start-up leaders take their talents overseas? Mick Liubinskas, mentor at Telstra accelerator Muru-d and Pollenizer, believes the Australian “brain drain” to abroad (predominantly America) is a result of limited resources and small populations. He suggests that while the accessible market in Australia is small in one sense, it ought to be regarded as an invite to lift our eyes to others. “Part of the problem with Australia is our home market isn’t big enough to build a massive company, but it’s not small enough to make start-ups realise they have to be selling globally from the beginning,” Liubinskas says. Limited population mass is never a death sentence. Liubinskas suggests Australia could learn a lot from countries such as New Zealand and Israel, where tiny populations have installed an accepted wisdom that start-ups need to roll-out their services internationally as quickly as possible. It is not difficult to understand then why “global from day one” has become a mantra for the Australian start-up community. But having the capital to establish local sales teams in large markets can be challenging. For many lean start-ups, relocating is the most achievable option. One example of this is online business development marketplace Elto, which launched here in 2011 and followed their customer core, moving to San Francisco early this year. Co-founder and chief executive Ned Dwyer told StartupSmart that despite Melbourne’s impressive track record with similar start-ups, it made sense to run their company from the country (and time zone) where 60% of their customers and all their major partners were. Another key reason behind the move was to avoid regulatory challenges. Dwyer says the regulatory environment in Australia “has made things a little bit complicated for us.” “We registered our company first in the US then created an Australian subsidiary for our local operations. We're meeting more and more companies who are doing this to make it easier to take US-based investment,” he says. There are many other factors behind why start-ups regularly leave Australia. One of them concerns accessibility of funding, and all too often involves investors with business expertise in the right fields. Nitro co-founder and chief executive Sam Chandler told StartupSmart many start-ups who have big ambitions have no choice but to leave Australia because the mid to later stage funding options simply aren’t available. Launched in Melbourne in 2005, Nitro turned over $25 million 2013. Like Elto, the company is now headquartered in San Francisco. “In the intervening period between when we moved in 2008 and today, later stage funding has basically fallen in total capital commitment,” Chandler says. Information released by the Australian Bureau of Statistics revealed this week confirmed this. The total amount of new money committed to venture capital industry has fallen significantly, by 77% in 2013. While Nitro were seeking skilled software marketers rather than capital when they moved, Chandler says the capital ecosystem is the biggest issue for Australia needs to fix, as soon as possible. “As long as there isn’t an effective capital ecosystem that helps start-ups transition from early stage into the larger scaling stages, the talent and the capital will flee the country,” he says. “The lack of government support for start-ups and early stage investors won’t hurt Australia this year, or even next. But over the coming 10, 15, 20 years, the nation will pay the price because it takes years for innovation to return on investment.” Catherine Eibner, lead start-up advisor at venture technology accelerator Blue Chilli, agrees that the exodus of larger tech start-ups to more welcoming markets is a significant concern. Albeit, she says, one Australia can overcome. “I strongly believe you can build a global company anywhere, especially at the beginning -- when you’re refining the idea and testing product market fit. “It’s not just about simpler regulation. The bigger issues are access to capital and resources. We’re seeing a lot of both of the latter at the very early stages now,” she says. Training, attracting and retaining technical talent to Australia are ongoing challenges. Convincing bright people to join emerging companies in a country still finding its start-up feet is another. Dilip Rao, outgoing chair of Asian-focused entrepreneurial network TiE, has been building tech businesses in Australia for 30 years. He is heading to Silicon Valley to launch his next start-up. “All start-ups look for three things in the market: markets, money and muscle,” Rao says. “The biggest challenge here is cultural. My mindset is not to look to the government to do anything, because frankly governments don’t have much to do with the success of start-ups.” Without significant action to bolster all three resources required for a vibrant, self-sustaining ecosystem of fast-growing and lucrative tech companies, Rao says rapid cultural change is unlikely, although he remains hopeful. “Changing attitudes and growing an ecosystem takes time, success and people coming back,” Rao says. “Maybe 2014 will be the year of inflection, and I’ll be very sorry I left at exactly the wrong time. Here’s hoping.” We're keen to keep covering this discussion. 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The Australian start-up scene has spawned several billion dollar online marketplaces. Just think Seek, carsales.com and realestate.com.au. And there’s a fresh crop, such as Freelancer, FlightFox and GoCatch coming through. But what is it about this particular kind of start-up that Australian entrepreneurs and investors find so sexy? Marketplace start-ups, those connecting two distinct groups of customers and managing their transactions, are relatively easy to build with little funding and to scale, providing the founder has identified a genuine pain point for both groups. But it’s finding the right problem and pair of customers that can be challenging for start-ups. Locating your market’s pain point Leni Mayo is an early investor at SitePoint, which launched website marketplace Flippa and world-leading multi-million dollar design crowdsourcing platform 99designs. He told StartupSmart the allure of the marketplace models is sustainability profitability and defensibility. “They’re popular because when you get them right, they make money in a sustainable fashion,” Mayo says. “Once you’ve got the scale and network effects, it becomes difficult for people to compete with. Because of that, you have pricing power and can maintain your prices.” With this in mind, start-up pitching events almost always include a marketplace or two, but Mayo says the key misconception about the model is assuming two sets of customers is all you need. “A marketplace isn’t a marketplace if it’s just two groups of customers. It becomes a marketplace when more of one kind of customer makes it even more valuable for the other, then you get network effects and it just grows.” Co-founder of the RecruitLoop Paul Slezak told StartupSmart the nexus between their two markets, recruiters and companies, was the engine of their growth. “Managing momentum is really important. If you’ve got a two-sided marketplace like we do, there is no point in having 200 recruiters if only five are getting work. And it’s not worth promising solutions to people in 100 countries if your recruiter base is only in one,” Slezak says. Launched in 2011, RecruitLoop connects recruiters and companies. The start-up now offers services in 10 countries, with offices in both Sydney and San Francisco. Ann Parker, coordinator of Telstra-backed Muru-D accelerator, told StartupSmart two-sided marketplaces were popular in Australia due to the legacy of companies like Seek, but also a smart choice because of Australia’s geographic isolation and small population. “Trying to be global first is the right solution for Aussie start-ups as a population of 20-odd million won’t make your start-up a colossal success. If you want to be a truly successful digital start-up, you need to be heading elsewhere pretty quick,” Parker says. Ned Dwyer is the co-founder and chief executive of small business solutions marketplace Elto, which launched as Tweaky in 2011 in Melbourne. They recently moved the company to San Francisco as 60% of their customers are in the US compared to 5% in Australia. “The great thing about most of these marketplaces, like RecruitLoop and Elto, is you get to connect people all over the world with different talent. The geographic restrictions in Australia doesn’t matter at all, provided you can connect those people efficiently and they can have a great transaction and experience,” Dwyer told StartupSmart. Elto’s pivot was to enable Dwyer and his team to add new suppliers to their marketplace, opening up new fields of revenue. “Marketplaces are sexy because it’s winner-takes-all, or at least most,” Dwyer says. “The biggest challenge a lot of new founders face is not picking a market that’s big enough.” Global scale thinking Attacking a problem with sizeable global market is exactly why DesignCrowd founder Alec Lynch and his investors are confident about his start-up despite his key competitor being 99designs, the largest design marketplace worldwide. “Globally the design market is over $44 billion dollars, so it’s very big and it’s also very fragmented. Six years into this and I’m confident if you added up the revenue of all the 30 or 40 crowdsourcing sites globally, we’d only have 1% of this market so there’s space for a few players,” Lynch says. Launched in 2007, Sydney-based DesignCrowd has grown to include 150,000 designers and have processed over $14 million worth of design jobs through their services. “Offering something different and building a brand around that is really important. Word of mouth is a big one because that dynamic is critical for growth. If you’re a newer brand, that can be tough. But once you’ve built both sides, a marketplace is valuable and defensible,” Lynch says. Once a big enough market is located, the make or break factors for marketplaces is building both sides sustainably. DesignCrowd recruited their designers first, by targeting design colleges and running their own competitions. Elto (then Tweaky) built their development capacity and market first, before reaching out to customers. RecruitLoop developed both sides at the same time, carefully and slowly. “There is no right answer about how to build a marketplace. It’s very context specific, so you need to really know your space. It boils down to relative sensitivity,” he says. Mayo says founders need to identify which market will be more excited about the solution they’re building. “If one side responds massively well, then it’s the other side you need to get first so it can take off,” he says. Now a start-up strong suit for Australia, the successful waves of marketplace start-ups have established an ecosystem of mentors and money with a passion for the dynamics involved.
Introducing Elto: Tweaky founder shares about their major pivot, brand change and latest investment round2:33AM | Monday, 3 February
After 18 months of solid growth and several sizeable start-up hurdles, the team at Tweaky, now Elto, have moved to the United States, changed their offering, and closed an investment deal with Blackbird Ventures. Tweaky launched in July 2012 as a marketplace of developers providing a quick way for small business to make small changes to their websites for a set fee. Co-founder and chief executive Ned Dwyer told StartupSmart they’d always knew their offering was unscalable, but chose to pursue the idea to get insight into the challenges facing their target clients. “Tens of thousands of customers later, we realised small tweaks to websites wasn’t the way we could add the most value to small businesses, who really want help to grow. Part of that will always be adding functionality, but we’re now also focusing on connecting them to marketers and growth strategists,” Dwyer says. It was Tweaky’s own growth challenge that informed their decision to pivot to a broader offering. After every two or three months of rapid growth, they’d experience a flat period as they struggled to bring their internal systems up to speed, manage a supply issue or an acquisition. “The biggest reason we’re pivoting is all the options to grow the volume we’re doing in a three-sided marketplace just didn’t make sense,” Dwyer says. The decision to focus on growth by adding new services to their existing marketplace led the 16-person team to face a difficult decision about their brand. They changed the brand to Elto, which stands for ‘every little thing online’, a move Dwyer describes as tough-going. “It’s definitely been challenging and will be for a little while,” Dwyer says. “Tweaky was very relevant to exactly what we were doing when we started, but this time we’ve gone quite broad. We know this is where we want to go, or we wouldn’t have gone through the pain of this change.” Elto’s plans for overcoming their scalability issues were of particular interest to the team at Blackbird Ventures, who made an investment into the company late last year. Dwyer declined to detail the amount contributed but said the investment negotiations encouraged their pivot and rebrand. “They didn’t raise any major issues with what we were doing during discussions but they could see we’d have some issues with scaling the marketplace, so we made sure we were really clear on how we were going overcome them,” Dwyer says. In order to grow their business as efficiently as possible, Dwyer and co-founder PJ Murray recently relocated to San Francisco. Over 60% of Elto’s customers are based in the United States, as are all of their major partners such as blogging platform WordPress. “As the business grows, there is more potential for strategic partnerships here and if we want to raise more capital, Silicon Valley has the smartest money we can find,” he says. Most of their team works remotely, with a marketplace manager in the Dominican Republic, a team of project managers in Portugal and hundreds of developers scattered around the world.
When Yahoo! chief executive Marissa Mayer announced a complete ban on employees working from home in late February, she copped a hefty amount of criticism. But as Mayer wrote in her memo to staff, some of the best decisions and insights come from “hallway and cafeteria discussions, meeting new people and impromptu team meetings”. The international co-working community has thrown its support behind Mayer, insisting workers are more productive when they are together than when they are alone. In fact, Mayer’s decision was one of the hot topics at the annual Global Coworking Conference, held in Texas earlier this month. Nearly 500 shared workspace enthusiasts met to discuss the merits of working alongside others, and the evolution of the way we work. Of course, not everyone is a fan of shared workspaces, however modern they might be. Among the critics is British entrepreneur Sir Richard Branson, who has stated: “In 30 years’ time, as technology moves forward even further, people are going to look back and wonder why offices ever existed.” But for many people, offices – and co-working spaces in particular – offer an opportunity that is simply not available whilst working from home. That is, the opportunity to collaborate. Co-working spaces continue to gain pace throughout the world, and Australia is certainly no stranger to the concept, having welcomed a throng of new venues in recent years – much to the delight of start-ups. However, there comes a time when start-ups need to decide whether they’ve outgrown their co-working space. StartupSmart spoke to a number of industry players to determine whether you’d suit a co-working space, when it’s time to move on, and how co-working spaces could improve. Pros and cons of co-working spaces If you do decide to use a co-working space, you need to think about how it will affect your operation. For example, you and your team could run the risk of being distracted by others. “This can definitely happen. It’s up to the individual. Those who thrive in co-working spaces are able to block out distractions when they need to get down to work,” says Tweaky.com co-founder Ned Dwyer, who used to work out of Inspire9. Dwyer was also a panelist at Australia’s 2013 Coworking Conference, hosted by Inspire9 and Hub Melbourne earlier this month. In addition to distractions, the image you wish to convey to clients can become an issue when you’re operating in a co-working space. “Co-working spaces can affect how clients perceive you,” Dwyer says. “But generally it’s in the positive – in my experience clients found it amusing that we worked in such an unusual environment. If your clients might care, maybe it’s not for you.” Sole trader Linnet Hunter, founder of Wild Sky, lives in the country but uses Hub Melbourne as her city base one day a week. Like Dwyer, she says her clients are intrigued by co-working. “I do a lot of one-to-one coaching, which requires a private and confidential space,” says Hunter. “I have always had the most positive response from clients… They have always been thrilled to meet at the space. “It has quite a corporate feel and some clients are under the impression that everyone in the room works for me, which is a good start! “They are always curious and delighted to find the space, and to know more about it. I am perceived as being quite ahead of my contemporaries by being part of it.” Getting the most bang for your buck David Vandenberg, who heads up Fishburners and EngineRoom in Sydney, admits co-working spaces could, at times, be more flexible and less generalist in their approach. However, he has made a point of developing two very different offerings within his own co-working spaces. “With EngineRoom, they’re the spaces I’ve created for digital businesses, whereas Fishburners is focused on tech product businesses,” he says. “The digital service guys have clients, designers, developers, UX, SEO – that type of thing. “Right from day one, I’ve been tailoring the EngineRoom spaces to be accommodative of that so that they’re presentable. It’s definitely somewhere where people do bring their clients. “It has been [the same] with Fishburners but that’s not the main purpose of Fishburners. A lot of those guys aren’t really dealing with clients so much.” Hunter believes co-working spaces are getting better at catering for the specific needs of start-ups, and are becoming more flexible. “Hub [Melbourne] has created permanent spots for groups who now have a few employees – something they refused to do in the early days,” she says. “The Hub is flexible in that it alters its approach as it grows and tries to involve the members in changes to some extent.” Story continues on page 2. Please click below. Outstaying your welcome Dwyer says while a co-working space can offer start-ups numerous benefits, there are ways of knowing when you’ve outgrown it: You’ve got more employees than will fit into the meeting room for your morning WIP. Your employees are spending more time playing ping pong than shipping product. That big client comes in for a meeting but the meeting room is double-booked so you have to go to the ball pit. They run out of desks to house your employees. Vandenberg is quick to point out size isn’t the only factor, although it is an important one. “The things they’re thinking about are ownership of their culture and ownership of their space and branding,” Vandenberg says. “Obviously once you get up to 20 or 30 people, you shouldn’t be in a co-working space – that doesn’t make sense. I find the transition point is around six to 10 people. “When companies get around that size – say around the 10 mark – that’s when it becomes a lot less valuable to be part of a community like that… There’s less opportunity for engagement.” Moving out “The first thing is to communicate clearly with the space you’re moving out of. They’re a small business themselves relying on your rent for their income so they need to plan,” says Dwyer. “Let them know it’s not working for you (for whatever reason) and give them a roadmap for how and when you’ll be moving out. “Often these spaces are incredibly responsive to feedback so if there is an issue causing you to leave, make sure you let the space know – they might even be able to fix it. “Finally it’s usually easiest to move on the weekends as it’s far less distracting for other members of the space and doesn’t interrupt your own work week.” Another entrepreneur, who wished to remain anonymous, says they are considering moving out of their current co-working space, but doesn’t anticipate it will be a tricky process. “I am thinking of moving to another larger, less crowded, less noisy co-op space. I would need to change my address on about three documents and that would be it,” the entrepreneur says. Keeping in touch Dwyer says it’s definitely worth staying in touch with your co-working space even after you’ve moved out. “We still stay in touch with Inspire9 and go back to work out of there at least once a month. We still feel like we’re part of the community but we also enjoy the benefits of having our own space,” he says. “By being a part of the community, we’re able to find out about upcoming events, find out what other cool start-ups are working on and find new people we can work with.” The changing face of co-working spaces “We’re going to see more specialisation going forward. That’s what should happen,” says Vandenberg. “Personally, I’m not a big fan of just your regular co-working spaces… It can be a bit too social and not really focused on business. But I think there’s a huge space for more specialisation. “We see more spaces opening up around hardware hacking, industrial design, video production and other markets that need different types of shared resources and infrastructure.”
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