Black Coffee - percolating nicely after tough start

Y2K, the dot com bubble, the Asian financial crisis, September 11. But now, the future's bright

Wellington’s Black Coffee Software chose to start out during what turned out to be “the worst possible time in history” for ICT start-ups – in 2000, says chief executive Ian Prisk.

But, despite this shaky start, the company has enjoyed marked success. This culminated in its securing tenth place in the 2004 Deloitte “Fast 50” listings of the fastest-growing companies in New Zealand.

Prospects for Black Coffee initially seemed bright after the industry had straightened out the Y2K problem. Computer users should have felt safe when it came to making major new ICT investments, and Java was a rising star, so being a service provider in the J2EE space looked like being an excellent thing to be.

Black Coffee’s three principals had been working for a company which had New Zealand, Australian and Hong Kong offices. But the company’s culture and standard of service changed dramatically for the worse after its takeover by a British multinational in the late 1990s, says Prisk.

Following this, the principals-to-be drew up a business plan for Black Coffee. It contained some “gems”, says Prisk. “But it wasn’t anchored in reality. We didn’t seriously consider who’d want to work with a start-up.”

The trio’s previous employer engaged Black Coffee to develop some software, which meant the new company not had only a substantial early piece of work to kick off with but it could also maintain contact with both the Australian and Hong Kong markets. However, the expected post-Y2K boom proved to be an illusion, with businesses seeming to be rather distrustful of IT. Then came the dotcom bust and, following this, a third blow for the emerging Black Coffee in the form of the September 11 terrorist attack on New York, in 2001. This catastrophe hit stock-broking firms particularly hard. “And one of our biggest clients sold into that market,” says Prisk.

However, right from the start Black Coffee had been studious in its efforts to cultivate long-term relationships with its clients so as to ensure continuity of work. Even so, there were inevitable peaks and troughs. This led to sensitive decisions concerning the level of capacity that should be maintained — enough to handle any peaks, but not so much that too much was spent on staff salaries.

“Prospects are aware that starting out isn’t easy,” says Prisk. “They ask, ‘Do you have continuity? Can you handle six months of not getting work from us and still be there when we need you?’”

Part of the approach when it comes to coping with these variations in work is simply to retain a cashed-up position, says Prisk. “We ensure we always have four months’ expenses in the bank.”

The company has also obviously enjoyed good fortune. But this was not down to “luck”, says Prisk.

For example, Black Coffee representatives once visited an overseas conference, “And someone there said, ‘Hey guys, I know someone who has just the job for you’. The point is that we bothered to go to that conference. We made our own luck,” says Prisk.

A common trap for start-ups is for the founders to remain too involved in day-to-day affairs when strategy-setting requires that they take a step back from such direct involvement.

“Run the business, don’t be the business,” Prisk advises. A plan is needed for making that move once the start-up phase ends. One important move here is diversifying the client portfolio as early as possible — rather than relying on one particular industry which could hit a bad patch.

Having the wrong staff — or the right staff but in the wrong positions — can also hurt a new company. In particular, many new graduates are just exploring the field and may not be committed to IT, much less to a particular company and its style of business.

Prisk’s advice concerning such misfits: “Talk to an employment lawyer and be prepared to write a big cheque.” But, more proactively: “Think carefully before recruiting. Why are they joining you?”

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