StartupNorth

Category: Startups

  • ExtremeU 2009 – The Graduating Class

    extremeventurepartnersWe first covered Extreme University back in June 2009.  The 12 week program has completed and there are a great crop of early stage software startups.

    What is ExtremeU?

    ExtremeU is an investment and educational program run by Extreme Venture Partners. It is a 12 week program that provides small founding teams (2-3 people) with US$5,000/founder and shared office space for the 12 week program in exchange for 10% of the company. You gain access to shared resources (mentors, servers, outside speakers, the odd beer and/or lunch). It’s a program that is in the same vain as TechStars, YCombinator and SeedCamp, though there are significant differences in the programs, funding and delivery between these four incarnation.

    Who are the graduating companies?

    assetizesuperheroesallianceMy first commentary is only one of these companies, Assetize, manages to have a corporate web site. It’s like everyone did very well in Extreme University, but 2 out of 3 failed the required course on corporate marketing. Unbelievable, though it is possible that I’m being a cranky old man that wants to see a standard web site/blog with a home page, an about us page, a contact page, etc. One of the companies, Locationary, is launching in stealth mode. And it’s unclear if they’ll be cooperating to provide details for their launch.

    Over the next week, I’ll be providing deeper posts into each of the 3 startups (maybe) that include details about each of the companies, their market, the problem they solve, and their founding team.

    Stay tuned.

  • CIX Top 20 – Showcase your Innovation

    CIX Top 20 Submissions are open

    We covered CIX in the past, and the Achilles Media team are hosting another great event in

    CIX conducts an exhaustive search for the most innovative ideas, products, services and companies in the country. Each year 20 technology and clean technologies are selected via a qualified Selection Committee to showcase their innovative product and services in front of the CIX community. Each of the selected 20 will be asked to deliver a seven-minute presentation live on stage at CIX.  Recognized industry experts will act as Judges, evaluating the merit of their product or service and giving constructive feedback and guidance. The CIX community present at the event will vote for the CIX 2009 Award for “Canadian Innovation Leader”.

    I’ve written a lot about CIX (Exchanging Innovations Canadian style, CIX Survey Says). This is a similar discussion on the 2 different models presented by TechCrunch50 and by Demo. CIX is a great event to connect later stage startups, investors, and the entrepreneurial ecosystem in Canada and the US at a local venue.

  • Hockey sticks and consultants

    Exponential Growth Curve

    I’m always giving consultants a hard time. It’s not that I dislike consultants. It’s not that I think that consulting is a bad business model. It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is so important. I’m talking about real numbers, not projections. Revenue. Users. Customers.  (Need help figuring out what you should be tracking? Go read Dave McClure’s AARRR! Startup Metrics for Pirates). And go read Mark MacLeod about why compound growth changing your funding requirement.

    Consulting is a linear growth business. It grows based on:

    • # of consultants billing
    • # of billable hours
    • hourly rate

    Unfortunately, all of these are limiting variables. There are examples of very profitable firms and corporate structures that enable a very profitable model. I’m not discounting the profitability of the Big5 consulting firms. Consulting firms are generally limited to the number of consultants. Corporate culture are defined by the people.

    The number of billable hours is a limiting factor. There are only 8760 hours in a year. You can’t work every hour. You can’t bill every working hour. It’s just not possible. Billable hours are the currency of consulting and legal firms. Many firms require 1700-2300 billable hours/year. Just think about this: 2300 hours/year =  46 billable hours/week + 2 weeks of vacation. If you assume a 80% utilization rate, i.e., 80% of your time is billable and 20% is on overhead/email/meetings/etc.  To achieve 46 billable hours you need to work 57.5 hours per week.

    Hourly rate is generally set by the skill set and the market. Flippa. Rentacoder. 99designs. crowdSPRING. Elance. There are others willing to do it for less.The market determines a consultants hourly rate. 

    So for an independent consultant billing at $200/hour on a 57.5 hour work week at 80% utilization would have revenues of $460,000/year. This is an extremely high rate. Looking at the NASDAQ 100 using Cognizant averages $35,892 versus Apple ($1,014,969), Ebay ($551,049), Microsoft ($663,956) and others. This might be a little extreme. Don’t believe me, Hoovers.com suggests that IT/software consulting has average revenues of $160,000/employee (MarketResearch.com has this closer to $100,000/employee). Realistically the easiest way for a consulting firm to achieve exponential growth is to grow to the number of consultants working. And the risk of exponentially growing the number of consultants is that you kill the culture that attracts many people in the first place.

    “But isn’t the consulting company itself startup? No, not generally. A company has to be more than small and newly founded to be a startup. There are millions of small businesses in America, but only a few thousand are startups. To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn’t scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.” – Paul Graham

    That said, consulting is a great way to take the risk out of a startup. The best consulting projects are the ones where you can build the software you want to sell as a product. This assumes that you have necessary legal agreements where you retain ownership of the intellectual property created during the consulting gig. This is often referred to as “bootstrapping” (read Paul Graham’s Fundraising Survival Guide to understand the tradeoffs).

    There’s nothing wrong with consulting. It’s a perfectly viable career. It’s a perfectly viable business model. But do the math, it doesn’t scale like a product company.

  • Hire a co-op!

    Looking for ways to get new talent? Hire a co-op! The Ontario Government has a great program to help offset the costs. It’s interesting how all of these programs are located in and around Waterloo. This is one of the benefits of starting a company in Ontario.

    I know that Kontagent, Extreme VP, Bumptop, LearnHub, Sysmos, FreshBooks, Well.ca, Idee and others have hired co-ops in the past. Here is some basic math, pay your students $15/hour for a 40 hour week for 16 weeks. It will cost you $9,600. The program will return you 25% which is $2,400. Cost for you for the 16 weeks is only $7,200. A steal!

    For each co-op student hired, your organization can take advantage of the Co-operative Education Tax Credit.  The Ontario Government recently increased the credit to 25 per cent of salaries or wages and benefits (30 per cent for small businesses) to a maximum of $3,000 per student, per term. For more
    information:

    Anyone know the contact details for UofT, Seneca, or Ryerson’s coop programs?

  • GigPark.com acquired by CanPages

    Gigpark logoIt’s hard not to like Pema and Noah. The two founders of GigPark have been two of the hardest working and (more importantly) most focused founders to have come out of Toronto in the last few years.

    We first covered GigPark in February 2008. I loved the site, and the focus on maintaining the integrity of the social network, but I wondered whether they could build the mass needed to go from walled garden to healthy ecosystem. Then, earlier this year GigPark partnered with Metro, a free national newspaper.

    Today CanPages is announcing that they have acquired GigPark. The deal also received a nice mention in the Globe and Mail.

    Pema and Noah are examples of what a laser focus on product will get you. They released early and they continued to develop GigPark with regular releases and improvements. The key here though is that they got the product out early and didn’t try to come up with the perfect product from day one.

    When I first started using GigPark, I didn’t remember to go back to the site regularly, but over time GigPark became an integral part of how I found new places to eat and businesses to call. As my network slowly grew, it became not just useful, but critical.

    I am feeling especially proud to know these guys and to have had the chance to watch them grow from first release to acquisition. They have been behind-the-scene supporters of a lot of the community and have always encouraged the entire Toronto community.

    Noah and Pema will be staying in the CanPages family for a little while, but I am sure it won’t be long before they are back in action.

  • Toronto Startup PagerDuty Launches Beta of their Web-based Alert Service

    When a critical server crashes in most businesses, an alert email is sent out, often to a group of people, in the hopes that someone will look into it. But who should handle the problem? What if they are unavailable? Or what if no one was checking their emails? A crashed site can result in lost revenue for a company but the problem of alerting the right people in the right way was traditionally only available to large enterprises.

    PagerDuty is a new Toronto startup that aims to solve this problem through their newly launched web application at PagerDuty.com. Started by former Amazon employees, the newly launched (and currently free) beta service is a well-executed, easy to use to solution to a common and costly problem.

    landing_page

    channels_smallI love how it works. To use it, you sign up using a one-page form, and you’re then set up with your own account (accounts are free during their beta, but it’s not clear how long they’ll be in beta). You then set up your own alert software to send emails to PagerDuty whenever you want a notification (this is the most time-consuming part because you’ll need to set up each monitoring software individually). PagerDuty doesn’t do the actual monitoring; rather, it receives alert messages via email and routes them to the right person on your team based on rules you build. Alerts can be in the form of SMS, phone calls, or email.

    Picture 1One of my favourite parts of the software is the great UI on the built-in calendar that allows you to set up which person on your team is on-call at any time.

    Here’s how PagerDuty’s Alex Solomon describes the service:

    PagerDuty prevents a sysadmin’s worst nightmare: coming in to work on a Monday morning and finding out that their site has been down for the entire weekend. […]  When something goes wrong, PagerDuty springs into action by calling, SMSing, or emailing the engineer on duty.  If for some reason, PagerDuty can’t get ahold of the person on-call, it automatically escalates the alert to someone else.”

    Everyone on the PagerDuty team spent some time working at Amazon which uses sophisticated internal tools for handling problem alerts. According to Solomon, they created PagerDuty because, after leaving Amazon, they “spent some time looking for something similar to what Amazon has, but the solutions we found were either lacking key features, or were priced well beyond what we were willing to pay.”

    The team had the option to possibly start up PagerDuty somewhere in Silicon Valley, but in the end, they chose to start in Toronto because of reduced costs and the fact that they had a better network here. “the Valley wasn’t really an option for us. We chose Toronto because all of us grew up here — most of our network is based here, so it really made sense to try not to stray too far from home,” says Solomon.

    PagerDuty has done many things right. The website looks slick and the UI is smooth. (Some have commented that the front page may look a lot like some other Web 2.0 startup websites but that’s probably a good way to start, in my opinion). The problem they deal with is a real one that their team has experienced in the past, and they’ve solved it elegantly. Some of the challenges I expect they’ll have is that the market will be limited to a specific segment of companies that already use server management utilities that send emails – marketing to the right people in these companies and gathering enough adoption will be a challenge at least in the beginning.

    PagerDuty founding team is Alex Solomon, Andrew Milkas, and Baskar Puvanathasan.

    You can learn more about PagerDuty’s service and sign up for a free account on their website at PagerDuty.com.

    I’m going to try using the service at my company.

  • J2Play Acquired by Electronic Arts

    J2PlayThat was fast! Earlier today Electronic Arts announced the acquisition of J2Play in their latest quarterly report. Congratulations to Rob and the entire J2Play team!

    Waterloo based J2Play was founded by Rob Balahura in 2006 to create the world’s first mobile multiplayer game and SDK. The product that ultimately emerged was a “social wrapper” for online games, the first incarnation, a Facebook App that enabled games to be embedded within the social network and extended with chat and leaderboards.

    While the J2Play powered games themselves garnered limited user interest, Facebook having reined in on Apps in a catastrophic way for most, the team was hard at work establishing relationships with industry leaders who wanted in on some social network pixie dust.

    extremevpJ2Play was funded by Toronto’s Extreme Venture Partners. Running with the new fund was a smart move on Balahura’s part, they were instrumental in getting the company in front of fbFund and helping secure an additional $250,000 in follow on grant funding. Worth note, ExtremeVP has also since been able to secure follow on funding for Kontagent.

    The terms of the acquisition were not released, but ExtremeVP’s LPs have to be pleased. This early exit bodes very well and has demonstrated some savvy investing by partners, Amar Varma and Sundeep Madra.

  • Backbone Magazine’s Top 20 Web 2.0

    Backbone Magazine announced their “PICK 20 round of Canada’s leading Web 2.0 pioneers” that includes 4 companies form our list of web startups to watch, it’s a great list of Canadian technology companies and startups.

    The List

    1. FreshBooks, Toronto
    2. Myca Health, Quebec City
    3. CoveritLive, Toronto
    4. Viigo, Toronto
    5. Radian6, Fredericton
    6. Filemobile, Toronto
    7. BoardSuite, Toronto
    8. NowPublic, Vancouver
    9. Tungle, Montreal
    10. HootSuite, Vancouver
    11. ThoughtFarmer, Vancouver
    12. AfterCAD Online, Vancouver
    13. TeamPages, Vancouver
    14. The Manufacturing Innovation Network, Kitchener
    15. Well.ca, Guelph
    16. Clarity Accounting, Vancouver
    17. Voices.com, London
    18. Taglocity, Vancouver
    19. PollStream, Toronto
    20. Pixton, Vancouver

    The majority of the startups on the PICK20 list are in Vancouver (8) and Toronto (5). It’s a great list of Canadian startups.

  • SR&ED Tax Credits – From now on, Less is More

    This is a guest post by Stan Singh [stan.singh [at] ca.pwc.com] and Peter Allen, Senior Managers in PriceWaterhouseCoopers SR&ED practice. Stan and Peter work with software companies to ensure they are making the most of their investments in new technology and will be contributing posts to StartupNorth with advice on how to do the same. Welcome aboard guys!

    Bailout-shmailout! SR&ED tax credits have been available since the 1980s. For those of you out there who are not claiming these credits, perhaps you should be. And for those of you that already are, then you should note that for tax years ending after December 31st 2008, the claim application process got a facelift: you will have to use a revised claim form (the “Revised T661”), and you should be prepared for this new approach to claiming these credits.

    What’s the difference? Well, the biggest change is that you will have to write your project descriptions with word limits of 350 words for the Technological Advancements and the Technological Obstacles (aka Technological Uncertainties or Technology Base Level) sections respectively; and you will be limited to 700 words for the description of the Work Performed. Up till now, there have been no such limitations.

    A quick survey of a set of SR&ED project descriptions for start-ups showed an average of 900 words for the Work Performed section. The Technological Advancements and the Technological Obstacles sections both came in under 250 words. But now, the Technological Objectives have to be included with the Technological Advancements. And there is no place to provide any background information. So, for all but the smallest projects, we have a new challenge – we have to be very concise.

    I recognize that entrepreneurs are all proud of the way they push the boundaries of technology to amaze customers, and the desire to describe in great detail the impressive advancements made resulting in a viable business with amazing potential – but basically, Canada Revenue Agency is saying “we don’t have time to read all that – just give us the facts!” And they are right – the purpose of these narratives on the Revised T661 is simply to prove that Experimental Development actually took place. The quicker that can be described clearly, the sooner you can get back to your technology development, and the sooner CRA can give you your tax credit.

    So in the Work Performed section, focus on no more than three or four of the major technological challenges you tackled during the project, relate those efforts very clearly to the Technological Advancements and the Technological Obstacles, and don’t bother with any background material.

    The Revised T661 brings other important changes to how you make your SR&ED claims, some of which we’ll cover in future posts. In the mean time, consider SR&ED credits to be your “stimulus package.”

  • Friday Night Fights

    Whether you think of the UFC and mixed martial arts (MMA) as bloodsport or entertainment, there’s no denying that it is big business. Sure it’s still a bunch of individuals pounding the hell out of each other, but it’s an interesting brand building exercise capturing the attention and wallets of  18-34 year old men.

    Dana White along with Frank and Lorenzo Fertitta, as Zuffa LLC,  purchased a near bankrupt UFC for $2 million in 2001. By 2006, the UFC grossed more annual pay-per-view revenue than any other ‘”combat sport” promotion, think boxing, mixed martial arts, etc. The 2008 estimated revenue was close to $250 million through a mix of pay-per-view, live event tickets, television deals, advertising, video game promotion deals, and other varied revenue streams. It had become a huge business. Big enough that Mark Cuban has creating HDNet Fights as a promotion and leveraging the HD television outlet to highlight other combat sport promotions.

    Love it or hate it this is big business. It’s no longer “human cockfighting” as it was referred to by Sen. John McCain (R-Az).

    So how do organizations like Zuffa LLC and Oscar De La Hoya’s Golden Boy Promotions make money. And what can software startups learn from these marketing organizations. MMAFrenzy provides “A Look Behind the Curtain: Zuffa’s Finances Come Into Focus” that provides a breakdown of the financial side of a private company. And Portfolio.com provides insight into the wheeling and dealing that is Golden Boy Promotions

    Television Licensing & Promotion

    Television promotion is about “the people who create something worth watching and the audience”. Both Golden Boy and Zuffa have crafted television deals to help them reach fans beyond their strong base. Golden Boy Promotions has a deal with HBO and Zuffa has a deal with SpikeTV to broadcast their shows to cable audiences. For both promotions this allows them to focus on building brand awareness, create superstars and sell their live pay-per-view events. In the case of Zuffa, this has resulted in the creation of new content specifically for their television broadcast partner with the reality television show, The Ultimate Fighter (orignially created for $10M), and a host of other shows out of the archive materials from live events. The networks either sell premium cable subscriptions (HBO) or advertising (SpikeTV) based on their audience reach and demographics. Better content equals more diverse people watching, which allows for a shift in advertising demographics (details on Traditional Television Business Model and Video on Demand). The Ultimate Fighter has become the “most-watched original series on SpikeTV” with over 1.8 million viewers.

    Pay-per-view Revenues

    UFC has 5.1 million pay-per-view (PPV) buys in 2007. The PPV are split with the PPV distributor. The PPV buys number is reported for most major sporting events, Yahoo!Sports has a summary of the 2008 business which the UFC was reporting $237.9 million on 5,315,000 buys (average price of $44.75/purchase). Assuming a 60/40 split between Zuffa and the PPV distributor that generated approximately $142,740,000 in revenue.

    Live Event Ticket Sales

    Average ticket price in 2007 was $250/ticket. For example, UFC 99 attracted 12,800 fans and had a live gate of $1.3 million for an average seat price of $101.56. Different venues and fighter cards have different results, UFC 90 drew 15,359 fans and had a live gate of $2.85 million for an average seat price of  $185.92/ticket. (As a side note, these figures include the seats/tickets that the UFC gives away as part of the promotion. If you assume that 30% of the seats are given away to promotion companies and others the price per seat changes to $145.09 and $265.61 for each event respectively). The interesting part is that these numbers do not include any of the costs associated with running a live event: arena, security, medical staff, athletic commissions, promotion, etc.

    Other Revenue Streams

    The great thing once you have an audience, content and a recognized brand you can look for an infinite number of ways to monetize it. You start to ask questions like how do you find new audiences? How do you increase the average revenue per user (ARPU) of your existing users? What are new channels for reaching the audience? What other partnership and revenue generating opportunities exist?

    Video game rights licensing. Subscription internet video. Wait it seems that was tried and failed. No it looks like another opportunity presented itself with Heavy.com. Apparel deals with TapouT. Once you’ve built an attractive global brand, the world is your oyster. Zuffa has negotiated broadcast distribution rights in Australia.

    What can startups learn?

    1. Build a product that people want to pay you for
      I know this sounds cliché. And is not always as straightforward. Just look at the broadcast licensing and pay-per-view revenues for sports promotion. There are complex relationships between the people that produce the content and the people that watch the content. It involves cable companies, advertisers, intermediaries. But it starts with creating a product that people will use, in this case a product that people will watch/use and pay you for.
    2. Engage and support your loyal fan base
      The goal of the adoption funnel is to move from awareness to loyalty. You need to nurture and support the audience that is passionate about your product/service. Go read Kathy Sierra or Saul Colt to learn about how to inspire your customers to become evangelists. It’s about figuring out how they help their customers “kick butt better than their competitors”. Who are your super stars? What are you doing to help them kick butt?
    3. Don’t be afraid to self promote and create superstars
      You’ve got to love Golden Boy Promotions, the UFC and Saul Colt. They are masters of self promotion. Dana White, who owns 10% of Zuffa, has become an instant celebrity from his appearance on SpikeTV’s The Ultimate Fighter. The non-stop promotion of UFC Pay-Per-View events through the SpikeTV audience (2.8 viewers million for TUF9) help reinforce known revenue streams while building characters and superstars. Do all of the commercials feel like their cross promoting other UFC events? Well there is a reason for that, 75% of the UFC revenue comes from PPV sales. Startusp need to find ways to promote the features and solutions that help solve problems, inspire users and make superheroes. Rinse, lather, repeat. By refining their messaging and telling a better story, startups make it easier for customers to tell their story. Saul Colt (who is a big deal) does a great job promoting his companies (Zoocasa, FreshBooks) the power of community and sharing and asking the audience to promote using the channels that are important to users.
    4. Diversify your revenue streams
      There are many different ways to diversify revenue streams. Look at consulting companies that run training events (educating others about great design). Music television channels that are game companies (isn’t it all about music distribution regardless of channel). Go read Peter Frisella’s 2 awesome posts for a review of the different types of business model (part 1, part 2) to figure out your business model. Have a look at Alex Osterwalder’s Business Model Generation and look at his presentations on SlideShare to learn his Business Model Canvas.

    Building a successful startup is hard work! But after watching combat sports, building a startup sure beats the hell out of getting punch in the head for a living.