Now is the right time for developers, says expert

The economy is down but start-ups can still take off

What makes start-ups successful and how should new companies deal with the global economic crisis? To find some answers, Computerworld talked to local experts, start-ups and companies that have seen success in the global market.

There is still a strong proposition for supporting development from New Zealand, but with a clear focus on the global market, says business start-up advisor Nick Gerritsen.

The goal for start-ups should not be listing on the New Zealand Stock Exchange, he says. Rather, it needs to be about making as much money as quickly possible and then exporting the proposition.

Research and development, as well as finance and administration, can be kept locally -- because that will help keep costs down -- but sales and distribution, the front-end of the business, needs to be positioned in the global market, says Gerritsen.

The days when a start-up could go out and raise a few million dollars are over, he says. There has never been much venture capital funding available locally, so anyone involved in start-ups is going to be reliant on the help of family, friends, close business associates and angel investors.

The start-ups that have a chance now, according to Gerritsen, are companies that have identified a technology solution demanded by the market, and where people have been prepared to spend evenings and weekends building that solution, he says.

Gerritsen recommends avoiding business plans with a large burn-rate for a number of years. "Going slower, and demonstrating revenue and cashflow sooner needs to be the focus," he says.

Local start-ups should be open to collaboration, says Gerritsen. He says health software is one example. In Auckland alone there are around 10 companies developing health care applications, with a number of them competing for the same deals overseas, he says. Gerritsen reckons having a strategy around collaboration could work in favour for many of these companies. This could involve bulking up the offer by rolling companies together and creating more value.

Now might actually be an optimal time to develop the next generation of technology solutions. "If you look back through history, some of the largest and most significant global companies were actually established right in the middle of a depression."

Three local start-ups Computerworld talked to say they are going well, despite the economic recession.

Wellington-based open source software developer SilverStripe is forecast to earn at least 60% more revenue in the financial year ending 31 March, 2009, than the previous financial year, according to its sales and marketing director Sigurd Magnusson.

Last year the company, which has more than 200 customers, had a 50% revenue growth on the previous year, he says, and he anticipates similar revenue growth for the coming 12 months.

SilverStripe now employs 21 staff -- twice as many as at the end of 2007 -- and plans to hire more staff in 2009.

Magnusson thinks the growth of the company is partly down to open-sourcing its software. SilverStripe released its software as open source two years ago, which opened the door to the international market.

Rather than investing time and money in responding to tenders, or having a large sales force, the company acquires new clients by letting them download and trial the software for free.

There have now been more than 130,000 downloads of the software, and the company gets several sales enquiries per day, says Magnusson.

In the past 12 months, about one-third of SilverStripe's income came from overseas, mainly from the US. Two overseas customers are the US Democratic Party and the Metlink Melbourne website.

One local start-up that really has got off the ground is Auckland-based wi-fi provider RoamAD, which was acquired by global wireless broadband provider Xiocom Wireless in February. Xiocom took onboard the whole team, says Martyn Levy, RoamAD's CEO, who is now Xiocom's vice president for APAC and India.

From the start, the plan was to grow and eventually sell RoamAD. It just "took a bit longer than I thought", says Levy.

He raised the first round of funding for RoamAD and joined as CEO in 2006. Building a successful company comes down to three things -- people, technology and markets, Levy says.

"Whatever you are doing, you need to have the right people on the development side and sales and marketing side," he says.

Naturally, the technology itself is critical. You need to have an intellectual property protection plan and execute on that. You also need to be able to embrace your competition and find what differentiates your offering, he says.

Levy also recommends managing cashflow so you don't have to shell out, say, half a million dollars, to be able to deliver a deal. Leverage partners and have "just-in-time" arrangements in place, says Levy.

Equally important is to understand your market, your business model and your go-to-market strategy, he says. It is vital to understand who wants your product and how to get it to them, he says.

And don't be afraid to get on aeroplanes to close deals, he says. You have to go and visit people to make deals -- don't expect to do it any other way, he says.

As SilverStripe has realised, responding to RFPs could easily drain a start-up, says Levy. There are two winners in an RFP process, he says -- the company that pulls out first and the company that wins the deal.

"If our competitors turn up with 20 people to a meeting and I turn up [alone], I'd just go home at that point because there is just no chance," says Levy.

Auckland-based Promapp, which develops software-as-a-service process improvement software, has been growing quietly since its first release in 2003, signing up clients such as Toyota Financial Services, Zespri, 3M, DHL, and St John along the way, says Ivan Seselj, the company's director.

One of the main benefits of Promapp's software is that it generates process maps off text. Users simply paste in text from, for example, a Microsoft Word document, do a little bit of formatting, click OK and the process map is generated, he says.

Promapp recently got a boost when the New Zealand Business Excellence Foundation recommended the software to members.

"One of the key elements of any sort of business improvement programme is understanding your processes," says Mike Watson, chief executive of NZBEF.

Companies could either go down the path of an ISO accreditation, which is "hideously expensive" or thinking about mapping processes, he says. Once you have mapped them you can start to improve them, he says.

Promapp is a flexible product at the right price to recommend to members, he says.

Another local company that has not yet felt the cooling of the global economy is mobile phone content marketplace voeveo. The Wellington-based company provides an independent portal for buying and selling content such as games, MP3 files and ringtones, for mobile phones.

The model of the voeveo platform is breaking "the stranglehold that carriers have on content", says chief executive James O'Hare.

The company is targeting mobile virtual network operators, which may find having their own content portal too costly. Voeveo's first MVNO partner is Black+White in New Zealand. It is also negotiating with another potential partner in New Zealand and one in Australia, says O'Hare.

The company has a strong focus on the UK market and has secured funding and support from the UK Trade & Investment, and locally from the New Zealand Trade & Enterprise and the Foundation for Research, Science and Technology.

The UKT&I has provided the company with a deal-maker in the UK, who sets up meetings with the right people. This significantly helps when trying to break into the market, says O'Hare. The company is opening a UK office this year.

The portal is not restricted by rules set up by carriers, and it is not restricted by language or size -- "we can just keep adding MVNOs to it, globally", says O'Hare.

There are around 60,000 pieces of content on the site, which has had more than 40,000 visitors so far, he says. Content providers get 70% of a sale, while voeveo gets 30%.

Unified communications and contact centre solutions provider Zeacom, founded in 1994, is today delivering its products to close to 3,000 customers across 25 countries.

So far, the company has come through the economic squeeze relatively unscathed, says chief executive Miles Valentine. While the company is not necessarily growing, it is doing about the same as last year, he says. The good thing is the company has no debt, and a reasonable amount on money in the bank, he says.

The falling currency has been beneficial to Zeacom. While the company reports in US dollars, its costs in New Zealand dollars have come down dramatically, he says. About 70 of its 120 staff are based locally, working in R&D, finance and corporate functions.

Tips he would give local start-ups include offering a top-quality product. Particularly in the US market, customers are not willing to deal with any bugs, he says. Start-ups also need to be well-funded because it costs a lot to establish a company overseas. New Zealand companies generally underestimate how much it costs to go offshore, he says.

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