Our business model

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I briefly discussed the topic of this blog post in my first blog post. I want to discuss more directly the business model that we evolved with Mindscape as I think it’s an exciting one that many software folk should look at adopting when they don’t have oodles of money to start with.

Lets re-cap

We formed Mindscape with 3 founders who each put $10,000 in the pot. This gave us total starting capital of $30,000 which obviously doesn’t provide much of a runway for a business. Each of the founders was fairly well- known locally for our previous work and community involvement so we were approached to undertake some services work which we gladly did to put some more money in the bank. The runway had been extended.

The next project

The next project we got involved with was Valuecruncher. Rowan Simpson, who was acting as an adviser to our business knew of an opportunity with Mark Clare to build the site and asked if we would be interested in helping build the site. We decided the least we could do is go and listen to the idea especially since we value Rowan’s input a lot and getting the opportunity to work more together was appealing. Mark gave us the sales pitch for what he wanted to create and we thought it was a cool idea.

The site was dedicated to helping find and value stocks, and give end- users the ability to do what-if style analysis that often either requires impressive Excel skills or access to some finance geek to do it for you. Ctrl + Click here to open it in a new tab to look at later and let me know your thoughts :-)

We undertook this project in exchange for equity. At the same time, we were delivering LightSpeed 1.0 and still had the money in the bank to get through this work as well. This was our first foray into taking equity stakes and it was helpful to have people like Rowan and Mark involved who had experience with these things so it didn’t devolve into an “us vs. them” type situation. Valuecruncher has continued to evolve and it’s even been through a successful capital raising round which further taught us things that geeks wouldn’t tend to know about. I’ll be writing in the future about some of the lessons we took from these processes.

Beyond Valuecruncher

Having been through the Valuecruncher process we started reflecting on what we had achieved. There were several things that appealed to us about this type of deal:

  • Taking equity means we neutralised the “us vs. them” nature that often arises from services work.
  • You can invest your skill and time. Not every investment has to be money and early on you are not likely to have lots of cash to invest.
  • By having these investments it was similar to investing in the products side of the business – we weren’t just after short term cash injection but hopefully building future revenue streams.
  • We think we have a bit more than just technical skills to offer. I subsequently became a director of Valuecruncher and hope that I add value to the business beyond just the technical elements.
  • We build stronger relationships – you can’t be in business with people and not build a cohesive bond with them. This always feels better than having them just be your “client”. The strength of our network is? much stronger.
  • We like seeing where our work goes – No more building a system and then having it just disappear and only get updates when you remember to check the site. We get to keep our finger on the pulse of developments of “our baby” and see it grow, and see feedback directly.
  • It teaches important business skills. While I wouldn’t say I’m an expert on any of these things and was in the hands of experts at the time, I’m comfortable now dealing with term sheets and discussing how an early stage capital raising round may progress.

Of course, there are also some downsides too. Some things to keep in mind if you’re looking at this type of deal:

  • Less cash than you may otherwise get with straight services work.
  • You need to be careful about taxes. You’ll likely be paying tax on cash and equity income if you’re receiving it once the business has a value (post-capital raising generally). Check your local laws.
  • You’re unlikely to be able to just liquidate your shares quickly (or if you can, at a big penalty).
  • Further to the previous point, you must be thinking long-term which is why you should believe in the business. If you don’t believe in it – don’t invest. There are several we have passed on because we didn’t believe in what was being attempted.
  • There’s costs associated with legal and accountancy input on your involvement with the venture.

I’m sure you can think of other things that could be in the pros + cons lists and if so do please drop them in the comments for others to read.

Onwards

We’ve continued to take stakes in new businesses using this approach but often with a cash/equity split rather than just pure equity. We’ve added 3 ventures following Valuecruncher and we’re always on the lookout for more opportunities. We’re even at the stage now where our experience with some of these early stage ventures is an attractive proposition in itself – beyond just the software development skills we can provide.

After 2 years of operation, we now have 5 products available and invested in 4 ventures. I’m a strong believer in this approach being very effective for people wanting to move from IT into business – you don’t even need a pile of cash to start out with.

What about losing focus?

This is a concern that I had early on and I’ve read many essays where focus is suggested as being key to business success. We always kept at least part of the company working full time on our vision of building a software products company. I do not think the approach we have taken is right for everyone.

If you’re a venture that’s backed with capital I would suggest absolutely just going full on at your goal. We didn’t have the cash floating around but didn’t want to get stuck in the services game – this felt like a happy medium. The connections and skills we’ve gained from this style of business has absolutely benefited our core business and likely will have further unforeseen benefits in the future.

Thanks for reading and please do leave a comment with some feedback. I love hearing what you think – do you agree or disagree with me? What would you like me to talk about next? And, as always – do subscribe if you enjoy my writing :-)

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Choosing a business name

What you name your company is important – it’s the identity you’ll operate under for the foreseeable future. You need to be proud of the name and feel it reflects enough about yourself and what you do, and is also unique enough in a crowded market. This post covers what we did in picking the Mindscape name.

Our approach

In typical geek fashion we decided to approach the problem by using a divide and conquer method. We each went away and wrote down as many names as we could think of over the course of a week. We then put them all into a spreadsheet and each ranked every name out of 10. Then we summed the values and sorted by the rank.

There were some really terrible names in there…

Dodging a bullet

I still have the old Excel spreadsheet floating around and thought I’d dig a few of the names out that did not make the cut.

  • Spawn – Great if we were starting a game company or a sperm donation clinic
  • Azure – I think we all can see why that wouldn’t have been wise in light of Microsoft’s cloud offering
  • Aeon – Supreme Commander was the game of the day and Jeremy liked that race
  • HydroDam – “Harnessing the power of the waterfall” ;-)
  • CodeRed – Naming your software company after a virus probably wouldn’t build trust
  • AsusOfBasis – We must have dreamed this one up at one of those many nights at the pub. WTF were we thinking?

There were hundreds of names in the spreadsheet. To be fair, many were very good and have used many of the other names for codenames, passwords, etc.

The .com

One of the biggest pains in your backside when picking a name is finding a .com that’s available. Hunting for something that was available was the biggest suck on our time. I’m fairly sure we could have looked up a GUID for a domain name and found it taken by a domain squatter. We didn’t start out with a truck load of cash so we didn’t want to spend up large on trying to pry a name from one of these sorts of individuals, so we simply gave up. We went with a local TLD – .co.nz (New Zealand).

In retrospect, should we have done that? Probably not – a lot of people still have a strong trust of .com’s and we’re a company asking for credit card details. Our audience is one of software developers and hopefully many of them realise there isn’t really any additional trust just because somebody has a .com, so I still hope it’s not damaging our potential for revenue. If you can find a .com or buy one for a small price, I’d say do it. Don’t delay the launch of your business for months just to find one though.

Why Mindscape?

Back to our spreadsheet – Mindscape wasn’t even on the top of the list. There were six above it. We ended up just talking through the top few and seeing what everyone was happy to settle on together. How very un-geeky of us. It also focused on the mind – something that reflects software development strongly since writing code is a very intellectual pursuit.

You’ll notice however that if you visit www.mindscape.com, there is a software publisher there also called Mindscape. This was frustrating as they’re a multinational company, however we didn’t let that deter us – perhaps it should have, but it didn’t. Their products include products relating to Thomas the Tank Engine and Carmen San Diego. We were fairly comfortable that software developers would realise they were not on our site if they ended up there (and if not, the queries about when Barbie would be integrated into Visual Studio 2010 would likely fall on deaf ears :-)

So we ended up living at www.mindscape.co.nz

Other things to consider

If you’re planning the name of your software company keep these thoughts in mind:

  • .com availability if possible
  • How early in the alphabet the name is – earlier is better. Start with “A” if possible
  • Keep it as short as possible (may conflict with the .com point)
  • Does it express anything about your organisation?
  • Is it easy to pronounce and spell?
  • Don’t start it with a number or symbol – it makes it hard to use in namespaces, class names, phone books, etc

I hope this post has helped tell some of the story about our name and help those thinking about starting a software company by providing some guidance on what to consider. If you’re enjoying these blog posts and want to keep up with what I’m writing about, please subscribe via RSS.

Any questions or requests for future posts are more than welcome. Drop them in the comments after this post.

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Starting out

This is my first blog post on this blog and since it is new I thought it appropriate to write a little about myself and the experiences of starting Mindscape in the first place. The intention of this blog is to document a little about the experiences and things I’ve discovered while setting up and running Mindscape. I’ve always enjoyed the stories from other software company founders such as Eric Sink, Joel Spolsky and Patrick McKenzie – each has their own style of writing and shares different types of information but all are interesting. I’m not going to suggest I’m even remotely as good as them in terms of writing style, advice, humor, looks, body odour, etc but hopefully you’ll still find this blog interesting and subscribe to my RSS feed.

The earlier years

Several years ago I used to work for a brilliant company – Intergen. They are a services company based in Wellington, New Zealand. When I finished university they offered me a job after I applied for their graduate program.

Rewinding further, back then I used to operate a computer repair business while studying – I would drive out to a person’s place and fix their machine for a reasonable rate. I built up a nice income stream and a lot of repeat business (lesson learnt #1 – repeat business is easier to get than initial business if you’re good at what you do and provide actual value. Old guys also appreciate that you don’t make a song and a dance about the fact their computer is screwed up because of the porn sites they tried to sign up on!).

I was tossing up if I should try giving the repair business a real go or if I should slot into careersville and see how that went. I decided on the latter as I expected that it was probably better to see how a “real company” operated before trying my own seriously. That turned out to be a good decision in retrospect in my opinion.

Leaving Intergen

Despite thoroughly enjoying my time at Intergen and meeting a fantastic bunch of people I eventually decided it was time to push out on my own. This was a few years after working there and gaining a bunch of skills:

  • Getting comfortable with public speaking
  • Networking better – both in the office and outside the office
  • Meeting fantastic people who are core to my friendships and networks now
  • Understanding how to deal with clients – both at pre-sales stages, through to delivery
  • Gaining some team lead skills

I felt that these skills, coupled with having put some money in the bank had adequately prepared me for striking out on my own. There were a couple of guys at Intergen that I thought would be absolutely fantastic to start a business with – Jeremy Boyd and Andrew Peters. I approached each of them individually about the idea of doing something in partnership with me. I also asked each who they thought would be an excellent addition to start with and both named the other – always a promising sign.

We then all met over beers (many beers…) at a local pub and discussed what we wanted to create. We all had similar opinions and what came of that was Mindscape.

Opening the doors

We had several catch ups and decided that we should focus on software products. We all liked the idea that products were more scalable than trading our time for money. There is also the benefit that you get to focus on trying to really build something awesome – you don’t make profit by just being “good enough” and delivering under the hours you estimated. We were passionate about software development as a craft and wanting to help other developers build better solutions – it was also a domain we were intimately aware of.

However, products take time to build – common approaches for companies wanting to build products are:

  • Get somebody to pay for you to spend six months building stuff
  • Save up some cash and build it while living off savings
  • Do it part time in your evenings over the course of six to twelve months

None of these particularly appealed. The reasons were numerous:

  • Taking money off people seemed more risky than just doing it off our own backs
  • We wanted the freedom to pick our direction and make decisions ourselves – fast.
  • We wanted everyone involved to be working on the business full time
  • We didn’t want to just burn our savings and be stuck if things didn’t go to plan as fast as we hoped
  • Doing things in the evenings can work out well but can be challenging if doing it as a team
  • All getting an office together and focusing on the work ensured it was at the forefront of our thoughts
  • The list goes on…

We each invested $10,000 to cover initial costs of rent, desks, chairs, some shelves and some monitors. We all used our existing laptops and hauled in our development books from home. Doing things as cheaply as possible was a very good idea and something I would advocate to anybody starting out – no matter how much money you could potentially invest. I have very fond memories of our very early days – the sense of adventure was fantastic.

So we set about with a hybrid model – doing some services work but only really to the extent of funding the product development. We knew that if one or two people were working full time (out of the three of us) on services work then we would have enough cash to cover the product development work. The intention being that as product income grew, our services income could drop back and result in being able to invest more heavily into the product development resulting in a virtuous cycle (improve products faster or release more products sooner results in more income, more income results in less need for services, results in improving products faster… you get the idea!). There’s much more to our business model than this now but that’s for another post :-)

BackgroundMotion, Microsoft and our kick start

Microsoft New Zealand came to the party – we had existing relationships with the guys in the DPE team and they heard we were off to start something new. They got behind us by providing us with a project to do for them – BackgroundMotion. They kindly agreed to partly pay in advance to ensure our business had some cash and we set to work. This lead to us to being profitable extremely quickly in our life and gave us a great start – I’m not sure they realise how helpful they were.

We all worked feverishly on BackgroundMotion – it was a great way to really get the business pumping. Late night coding, sometimes ordering in pizzas and tracking everything on whiteboards was a blast. I’m an absolute fan of getting a bunch of devs together and just going hard – you can really feed off each others energy which is awesome.

We delivered the goods with BackgroundMotion and got some press within New Zealand. It was open source and even now we still spy folks around the web picking it up and being very impressed with what we came up with.

The cash from the work we undertook helped in re-instating our salaries earlier than anticipated and covered the development of our LightSpeed O/R Mapper Version 1.0.

Happily ever after?

This post covers up to about the first six months of operation – up until about two years ago. We’ve had our share of ups and downs since then – there is plenty more of the story to tell – employees, product releases, trade shows, new offices, the list goes on. Hopefully some understanding about Mindscape’s start in life will provide value to others thinking of doing their own thing or just interested in the beginnings of the company.

On a more personal note, I have an absolute fear that the moment you start thinking you’re successful, you’ll fail (or at the very least everyone will think you’re a tool because you get arrogant about it :-) . I know a bunch of people consider me successful, but frankly, until I’m taking my private jet to my own island and lighting cigars with paper money, I won’t.

What’s next on this blog?

I plan to continue posting tidbits and things I’ve learnt but more importantly, I’d like to hear what sort of things you’d like me to write about. For all I know this has been the worst blog post I’ve ever written – if so, tell me :-)

I get a buzz from engaging with people – it’s why I love hearing from our customers so much – so if you have something you’d like me to cover drop a comment on this post and I’ll do my best to discuss it.

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