The Importance of Timing, Grabbing Opportunities and Surviving – an Interview with Adrian Schauer

by Benjamin Yoskovitz | January 24, 2011

Adrian Schauer is an investor and mentor at Year One Labs. He’s shared his entrepreneurial story in a quick Q&A. This is part of our ongoing series of interviews with our investors and mentors. You can check out the previous interviews with Tobias Lutke, Mike Montero, Jeremy Edberg, Randy Smerik, Ash Maurya and Luc Levesque.

It’s interesting to see how Adrian and his partner, Brady Murphy (also an investor & mentor in Year One Labs), discovered a market opportunity for their startup Vortex Mobile (which also spun out Vortex Connect.) There’s some interesting wisdom and insight with respect to co-founder dynamics and selling your company. And Adrian is very honest about the struggles his company faced during the financial crisis.

What’s your entrepreneurial background? How did you get started?

Adrian: My father is an engineer / entrepreneur (see www.proceco.com) so from an early age I saw starting a business as a great way to get leverage, add value, and have a good quality of life. After graduating my M.A.Sc. in Photonics at UofT in 2003 I toyed with some business ideas, the leading candidate being an energy efficiency consulting business. However, when my prospective partner decided to go back to grad school I took a job at Rogers Wireless in New Product Development. This allowed me to see the early stages of the cross-carrier SMS marketplace in Canada which seemed to be burgeoning with opportunity. After only a couple of months on the job I began discussing business ideas with a friend Brady Murphy, who I’d met playing varsity basketball in CEGEP. After 9 months of revisions on an idea that started as building an SMS nightlife community to supplant the club flyering model, we settled on the idea of becoming a full-fledged mobile marketing provider. Brady quit his job in Oct 2004 and began pitching our offering. Our first software was written by a friend on my ultimate frisbee team. $20,000 of personal savings financed our first year and by September 2005 we had enough business coming in for me to quit Rogers and go at Vortxt Interactive full-time with Brady. We grew organically from there eating what we killed and hiring alternately developers and account people as the business required. Until Q1 2009 we never had a quarter with less revenue than the previous quarter.

Originally, the company was called Vortxt Interactive but we rebranded to Vortex Mobile in the summer of 2007. The reason for this rebrand was that we had started doing much more than SMS marketing (Facebook, mobile web, apps, etc.) and so the “txt” reference became limiting.

What happened around Q1 2009 that impacted the business negatively?

Adrian: Here I’m referring to the period from November 2008 to February 2009. This is when the financial crisis hit “main street” for us. Our revenue in Nov 2008 dropped 60% vs. the previous month. Customers just stopped signing deals because no one knew how bad things were going to get economically and mobile marketing was a “discretionary” spend. At the time, we were also very dependent on agencies as channel partners and when their volume of business dropped so quickly they found themselves overstaffed and unwilling to outsource any work.

We implemented an austerity plan (staff took 15% pay cuts, management took 30%, 2 people were laid off, and 3 support staff were put onto 3 day workweeks). At the end of January we were making payroll out of our personal lines of credit. We redoubled our sales efforts, collected our receivables aggressively and stretched our payables. Then, as quickly as the crisis hit, by February it had passed. Everyone went back up to full pay and support staff came back full-time.

After this crisis we became a bit more conservative in our growth plans and more diligent with our cashflow.

Vortex Mobile was acquired by Transcontinental – what was that experience like?

Adrian: The process from initial meeting to closing was 4 months. We had decided that given the market and company dynamics, it was time to shop the business and we had hired an M&A advisor to run a process for us. However, before we went to market with our pitch Transcontinental emerged as a suitor. We thought the fit was great and so held off on involving other prospective buyers provided that they were fair and moved quickly. This proved to be the case.

From the 2 months it took to negotiate the LOI to the 2 months of due diligence and back-and-forth on the SPA the sales process was an exhausting affair. With Brady focused on delivering good final quarter numbers and in the interest of keeping him out of antagonistic interactions with his future bosses, most of the work landed on my shoulders at the same time as Vortex Connect was going through a period of rapid evolution. When the SPA signed on Friday and the money hit the accounts on Monday there was a great sense of relief for both Brady and me. The fit was so good that both parties felt like they’d gotten a good deal.

We both celebrated a successful exit financially, a great end to an era, a significant de-risking, and the fact that we came through some stressful times with our friendship stronger than ever. I was happy to now be able to focus on just one business, and Brady was happy to be in a great situation with executive support and extremely positive relationships with Transcontinental leadership.

Instead of working at Transcontinental, you spun off Vortex Connect, which is in the B2B space. Why?

Adrian: We had spun off Vortex Connect, the B2B enterprise software division of Vortex Mobile in Feb 2009 specifically because we believed that the two business lines would ultimately have different acquirers. It also allowed Brady and me to run separate businesses more in line with our diverging risk tolerances. Connect was a higher risk proposition with the potential for greater upside since it is more truly scalable as a product company. It was also a riskier bet that could (and still can) miss the mark. Vortex Mobile was more established and was growing strongly in a market leading position but was not looking for >100% year-over-year growth anymore.

The final chapter on Vortex Connect has not been written, but so far one could say things are going according to plan.

How did you get into the mobile workforce management business with Vortex Connect?

Adrian: It began with a single concept, using SMS to fill shifts on short notice, which became the Shiftex product. We came up with the idea while pitching one of McDonald’s agencies when we were challenged to solve some business problems outside of promotions. Although the idea didn’t go anywhere through that agency, we liked the idea enough to build a prototype and start pitching it. Tim Horton’s signed up shortly thereafter followed by McDonald’s. The mobile workforce management business line was born.

Although you’re the CEO & President of Vortex Connect, you’re an engineer by trade, how did you find the transition from a tech focus to business focus?

Adrian: The transition was a natural one for me. I enjoy complex problems and running a tech start-up offers plenty of those. When Brady and I started he was more sales focused and I was more product focused but over time managing people became the most important skill for both of us.

What drives you?

Adrian: I enjoy building companies in emerging spaces. Finding a niche, conceiving of a product and go-to-marketing strategy, and finding and motivating great people are the most rewarding parts of entrepreneurship for me. Although it’s nice to make money, it’s more about building something of value. Creating jobs and producing products that fill a need fit well with how I want to be in the world, but it’s the challenge of the game that really drives me.

What have been the most important lessons you’ve learned as an entrepreneur?

Adrian: It’s all about the people.

If you can sell the rest will follow.

Make sure you’re in the right space and the right business model will find you. This works better than being rigid about your business model and hoping the market comes to you.

Any predictions for what will happen in the mobile market over the next 12 months?

Adrian: The barrier to entry for building mobile apps is coming WAY down. Mobile companies have to find a way to add value over and above having mobile development competence.

The browser will start to take over from apps for everything except gaming.

What are your goals for working with Year One Labs and the startups we bring in?

Adrian: I am keen to see lots of different business models: B2C, freemium, infrastructure plays, … and learn how applicable the lessons I’ve learned in my entrepreneurial career are. I’m also on the hunt for the business I will one day run which is guaranteed to succeed, will make all stakeholders hugely wealthy, is free from ups and downs, and takes very little effort to run. *grin* There may be some clues at Year One Labs.

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Mike Montero’s Lessons Learned as a 3-Time Entrepreneur

by Benjamin Yoskovitz | January 11, 2011

Mike Montero is a serial entrepreneur with two successful exits under his belt and a third startup in-the-works called CrowdTwist. Mike is also an investor in VYou and Year One Labs. He’s recently published a blog post entitled, 11 Observations the Third Time Around, reflecting on his past experience and current experience building his latest startup. It’s a must-read; for entrepreneurs in the thick of things I expect you’ll nod your head throughout in agreement. For those that are thinking about jumping into startup life, you’ll get a great sense of how serial entrepreneurs attack things.

I’ve included a quick synopsis on a few of the points that stood out for me:

  1. Craigslist remains an effective place for recruiting startup talent. Mike points out that he met his co-founders Irving Fain and Josh Bowen through the post. And CrowdTwist has hired two people as a result of postings Mike made in Craigslist.
  2. Mike remains paranoid about his competition. Before going to sleep he’s panicking that the competition is working harder and catching up. He does admit that things are a bit more balanced these days with the confidence he’s accrued after having two successful startup exits. He writes, “I’m confident I will be paranoid tonight before bed but I’m also confident that I’m going to lead.”
  3. Don’t get attached to what you just built because it’s going to be rewritten many times over. Mike makes a note that he’s amazed at how many times he’s rewritten the Crowdtwist product (and they’re still an early startup). Being able to scrap things and redo them is critical.
  4. The Front End Developer role is becoming more and more important: “being able to put together world class HTML, CSS and JavaScript is an essential part of building Web applications now and HTML 5 is going to require even stronger skills.”

And finally, Mike gives a shout out to NYC and what’s going on there in terms of the respect the startup ecosystem is building. Things are definitely moving in New York, although there’s a lot of work still do to. Charlie O’Donnell’s recent post 250 Developers calls for the addition of 250 developers into startups. Fred Wilson adds his thoughts in a post, Talent and Bandwidth, addressing the talent shortage in the city. Things are happening in other cities too, and I think it’s a good sign that more people feel like starting a Web startup is becoming a legitimate alternative to getting a “day” job.

Go check out Mike’s post: 11 Observations the Third Time Around.

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Top 5 Keys to Shopify’s Success – an Interview with Tobias Lutke

by Benjamin Yoskovitz | December 22, 2010

Tobias LutkeIn an ongoing series of interviews with our advisors at Year One Labs (see: Mike Montero, Jeremy Edberg, Randy Smerik, Ash Maurya and Luc Levesque) we’re now speaking to Tobias Lutke, CEO and founder of Shopify. The company is based in Ottawa, Canada and extremely successful. Shopify provides an extremely robust but simple e-commerce platform to help people sell their wares online. And they’ve got some very well-known companies using their service including Rovio, makers of Angry Birds. Recently they raised $7M in funding from Bessemer Venture Partners, FirstMark Capital and Felicis Ventures. Tobias is a developer at heart, a Ruby on Rails core team member, and a supporter of open source technology. It seemed like the perfect time to speak with Tobias about Shopify, how they started and how they’ve been so successful.

1. What’s your entrepreneurial background? Please provide a quick summary.

There isn’t actually all that much. My background is mainly technical. I’m a programmer by trade (yep, Germany has that). I love to make things and I especially love solving tricky programming challenges.

I’m the kind of person who goes through a day thinking how I could improve every single tool or object that I come across. My tolerance for poor design in function and looks is almost non-existent.

Sometimes the above two paragraphs combine and it gives me the impetus to create something that solves a problem that I can’t stand to ignore. Shopify was created exactly like this.

2. Can you provide a bit of history on Shopify? Why you started it? How you got started? What it’s like now versus when you started?

In 2004, after immigrating to Canada I decided to start a Snowboarding and Winter sports gear store, with my friend Scott Lake. The idea of starting my own business came pretty naturally. During an apprenticeship in Germany I started a company with some friends to create a call center ticketing software. Naturally this fizzled out completely, but by then I had caught the bug. That, and I don’t do very well working for others.

Initially, I assumed that setting up the online store was going to be the smallest issue in this venue. To make a long story short, after trying a series of existing online store software packages I got so disgusted with the quality of the whole lot, that I wanted to do something about it just to spite them.

After a lot of pizza and late night coding, we re-launched Snowdevil in late 2004. This time it was powered by our own store system that I built in Ruby on Rails. We continued to sell our products for the rest of the season and then pivoted it to become a software company. The Shopify software is now exactly what I had hoped to find for myself in 2004. It continues to develop and improve all the time, making it better than I could have ever imagined. What used to take months in 2004, can now be done in about 20 minutes on Shopify.

3. Now that Shopify has announced the fundraising, can you share what that experience was like, since I believe it was your first in terms of raising capital? Why did you decide to do so at this point?

Traditionally most businesses raise outside capital to pay their staff. Employees tend to leave if there isn’t enough money to pay salaries. Obviously, Shopify doesn’t have this problem. We have been profitable for a few years now.

For us, we raised the money because we are too impatient. We run a SaaS business and it’s easy to accelerate growth through customer acquisition once your business model is proven.

Raising the money was fairly straightforward because we already had a proven business model. Considering the wealth of data and history with our business, there really wasn’t much hesitation by the investors to provide us with a term sheet.

Due diligence was just as much a pain in the ass as everyone says it is. In our case it lasted longer then expected, as a result of cross border issues. Luckily, the recent change in Section 116 of the Canadian Income Tax Act meant that we could remain a Canadian company without having to setup an American shell company. What a relief.

4. What are the top 5 keys to Shopify’s success to-date?

  • Being our own customers – Building software that we use ourselves.
  • Giving designers the ultimate power over the product, not sales or even developers.
  • When getting feature requests, saying no a lot more then saying yes.
  • Creating an API powerful enough to allow other people to implement all the features that we said no to.
  • Having a lot of fun doing what we are doing. Your product reflects it!

5. How important is company culture for a startup?

That’s impossible not to overstate. Every team member will spend a lot of time together, so they better enjoy themselves. If you don’t think that you can have tons of fun together, then don’t bother starting. I could list all the crazy stuff we do for having fun, but the point is that every company has a different DNA and I doubt that you can adopt another company’s culture wholesale to fix your own. If your company culture is mediocre you won’t fix it by having Street Fighter tournaments and nuggeting the interns.

It comes down to this: Your product is a manifestation of the company that built it, just like paintings are a manifestation of the painter behind them. No great product has ever been made by people who didn’t love their work. You have to create an environment that is conducive to creating great products. A fantastic company culture is not just important. It’s the price of admission.

6. Any key startup lessons learned from your experience with Shopify? Anecdotes? Stories?

I love products created by people who are trying to solve their own problems. I feel like the best software is made when the founders really have an itch to fix something. It takes a lot of time and dedication to make a great product. Disgust with the status quo is a powerful motivator.

Another undisputed lesson that I have learned is, if at all possible, you should base your business model on monthly recurring revenue. This is customary in modern SaaS businesses and I find it very beneficial. We experimented with other systems in our early years and really regretted it.

7. What are your thoughts on the changing landscape of venture capital and investment for startups?

I think it’s very exciting and really great for the founders. Talking to my friends in other industries, especially in the hardware business, there is still the sense that the financiers play the role of king maker. You can have the best idea in the world, but if you can’t find a VC to buy into your idea it won’t be made.

Luckily, many of the startups in the software industry can be built at a cheaper rate and there is capital available specifically for seeding. Let a thousand flowers bloom.

That being said, I think the value added within this new seed stage, of what level funding can bring to the table, will prove to be worth more than the money itself. The essential process of building a business has been discovered quite well over the years, but it’s far from common sense at times. Using this knowledge and sharing it at the right times with the founders, can make even more flowers bloom. Too many companies fail because of irrelevant issues, other than the quality of their products. My sincere hope is that this new startup funding environment will lead to more companies making it over the initial “hump”.

8. What are your goals for working with Year One Labs and the startups we bring in?

I’m a product guy, with a very technical background, that holds a ‘business’ job. I combine a lot of things that are usually done by dedicated people in normal business.

I hope to help Year One Labs’ startups with some sanity checking of their technology, especially in the early stages, their monetization and go-to-market strategy a little later on and if the founders are interested, transitioning from a pure technology play into a thriving business that is just as good at marketing and biz dev as they are at making the software.

What’s my real goal? Running and building a company is a blast. More people need to experience it. Perhaps I can help some people have as much fun building their companies as we have building Shopify.

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Adrian Schauer and Brady Murphy Join Year One Labs as Investors

by Benjamin Yoskovitz | December 20, 2010

Adrian Schauer and Brady Murphy recently sold their company Vortex Mobile to Transcontinental. We’re now very pleased to announce that they’ve joined Year One Labs as investor-mentors.

Both are operational entrepreneurs that have spent years in the trenches building their company. Their first-hand, fresh experience will be extremely valuable to Year One Labs and our portfolio.

Adrian SchauerAdrian is now running Vortex Connect, a company he spun off from Vortex Mobile in 2009. Vortex Connect provides B2E mobile software solutions. Adrian is the President & CEO of the company. As a business minded engineer, Adrian is responsible for conceiving of products as well as managing the go-to-market strategies and operations of his companies.

Brady MurphyBrady led sales & marketing for Vortex Mobile. His expertise lies in leveraging mobile applications to create compelling brand experiences that encourage dialogue between brands and consumers. He is currently working with Transcontinental.

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Derek Szeto Joins Year One Labs as an Investor-Mentor

by Benjamin Yoskovitz | December 8, 2010

Derek SzetoWe continue to add fantastic investors and mentors to the Year One Labs team. And today we’re announcing that Derek Szeto is joining Year One Labs as an investor-mentor.

Most recently, Derek’s company ClearSky Media (which owned RedFlagDeals) was acquired by Yellow Pages Group. Derek is now working with Yellow Pages Group as General Manager of Deals, Coupons, Shopping. He’s already launched a group buying play for YPG called Deal of the Day.

Derek adds to a growing list of great entrepreneurs that will help our Year One Labs companies build successful businesses.

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Entrepreneur, Coder and Investor – an Interview with Mike Montero

by Benjamin Yoskovitz | December 6, 2010

Mike MonteroMike Montero is a serial entrepreneur, developer, angel investor and investor-mentor with Year One Labs. He’s currently the CTO of CrowdTwist based in New York. We caught up with Mike to talk about his past entrepreneurial efforts, what he’s currently up to, and the future. My favorite line in the interview, “You don’t get to decide if your idea is ‘disruptive’, the market does.”

1. How did you get started in entrepreneurship? What was your first entrepreneurial endeavor?

When I was thirteen years old my parents purchased a Commodore 64 computer and a printer. I acquired a copy of Print Shop and purchased a ream of yellow paper. I printed signs advertising my first business – a printing business. I put them all over the neighborhood. I did not get a single client. For most of my life I’ve worked for myself trying to build my own businesses. I have intense passion for taking risks and I think I’m a better boss.

2. After 2 exits (Community Connect Inc. and Fotolog) what keeps driving you to start companies?

I’m a little more critical about my exits and the times I find myself in. I’m in the right place at the right time and I don’t delude myself into thinking otherwise. This is an amazing moment to have the training and experience that I have acquired. I’m merely striking while the iron is hot.

But more importantly, I am fascinated with the period immediately after the start and right before things start to go. The toughest decisions, the longest hours, the greatest ups and downs occur then. That keeps driving me. I know that when I’m in that spot, I call it “finding the edge”, things are going to go my way.

I’m constantly trying to find the edge.

3. As a technical guy, do you believe that there’s less and less technical risk for startups and these days it’s all (or mostly) market risk?

I can say with certainty there is less and less technical risk. When I built Community Connect Inc., most of the software that is available free right now I had to build from scratch. The abundance and maturity of software in this industry makes it almost impossible to argue Microsoft vs. Linux or MySQL vs. Oracle. All of the tools are there. This speaks nothing of the cost of physical infrastructure now which bears no comparison to the costs ten years ago.

Putting it all together, though, is the second greatest risk, in my opinion. Execution, taking pieces of the puzzle from all over the place and putting them together into a coherent, kick ass product, is key. This is not something everyone has the skill to pull off. It is my greatest strength.

But it is so much more doable now than ever. The obvious challenge is reaching the market – the target audience – predominantly because so many of us are all trying to talk to the same people at the same time with the same ideas. This is the greatest risk and the dilemma is figuring out if you have a chance in hell of rising above the rest.

4. When deciding to launch CrowdTwist, what excited you about the project? What did you see in the market that made you think, “This is my next startup”?

A number of things excited me about CrowdTwist. The most important was the depth to which my partners, Irving Fain and Josh Bowen, understood the product they wanted to build, the deficiencies with existing products and the customers we were targeting. Their story held water.

As they described it to me I could see myself fitting into the picture and building a world class solution to the problem. As I walked away from my meetings with them I was able to start constructing the back end. They made me a “formal offer” but I honestly felt like CrowdTwist was already mine.

My intuition turned out to be correct. Our ideas for the product were, and still are, dead on and we’re backing that up with an absolutely amazing product. If I was one of my competitors I’d be very nervous right about now.

This might sound naive but I don’t look at the market to figure out what ideas might work. When people looked at Community Connect Inc. in the early years they laughed us out of the room, “You’re an online community for Asian Americans running on Linux and PHP?” And at a time when upload quotas were going away we launched Fotolog – a product that allowed for a single photo to be uploaded per day.

The market then did not support either of these businesses.

5. As an angel investor, what do you look for in a startup?

Below are some guidelines that are very important to me but are not listed in any particular order:

  • Is there a live product?
  • How good/experienced are the founders?
  • Does the idea make sense to my friends and family?
  • Can I use the product or do I believe others will?
  • What are the founders’ opinions about exit?
  • Who else is in the space?
  • Who else is investing?
  • What are the mechanics of the deal?
  • What value can I bring to the table?
  • How does the business make money?

Here are a few random thoughts that also guide my decision:

  • Ideas are cheap.
  • It isn’t a good thing that there are no competitors.
  • You don’t get to decide if your idea is “disruptive”, the market does.
  • Once I realize what the current trend or fad is, it’s already passing.
  • So businesses trying to capitalize on the immediate trend are riskier.
  • I love the underdog.
  • Is there a clear, cost effective marketing strategy?
  • No revenue potential is no longer interesting.
  • Do I believe in the technology and implementation of it?

6. What are your thoughts on the changing landscape of venture capital and investment for startups?

Now is a great time to raise money, there’s a lot of it and the scales are tipped in favor of entrepreneurs. Furthermore, there are lots of ways to raise money other than just venture capital.

7. What are your goals for working with Year One Labs and the startups we bring in?

I am anxious to be part of helping a group of great entrepreneurs achieve the success they are seeking. Nothing would be more rewarding to me than imparting a piece of business advice or an algorithm that changes someone’s idea in a manner that leads to success. I want to bring to bear for someone all of the lessons I’ve worked very hard to learn – I want to cut a bunch of corners for some really smart, motivated people.

I want to feel artistic and academic. I want to be on the edge with a group of people whose work ethic is as strong as mine and who believe in building businesses in an ethical and professional way.

I want to meet great people and be influenced by them. I want to have fun doing it.

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Communities and clouds – an interview with Jeremy Edberg

by Alistair Croll | November 29, 2010

One of our advisors, Jeremy Edberg, handles operations for Reddit, one of the online world’s most active communities. Reddit has over eight million unique visitors a month, and its traffic keeps growing, having recently surpassed better-known news aggregator Digg. Part news site, part meme farm, and part chatroom, it’s been called 4chan’s polite older brother. Reddit’s team deals with huge amounts of traffic each month, running entirely on cloud infrastructure, and is known for its transparent relationship with users.

The company was an early exit for YCombinator, and is now part of Condé Nast, based in Wired’s San Francisco offices. We asked Jeremy for his thoughts on startups, psychology, incubators, and communities.

1. You have a background in cognitive science. Tell us how you went from that to tech startups?

I studied CogSci in school because I was interested in AI, and that was the closest they had. While I was in school, I also worked for the housing department doing various tech related things in the ResHalls. It turned out that a lot of the folks I worked with went to go work for startups, and even convinced me to drop out of school to work for one (I eventually did finish).

So basically, my degree had nothing at all to do with how I got where I am (although I do sometimes get to use what I learned in my job).

2. Does your background in how brains work help you in a startup?

In a sense. A large part of my degree was Psychology, and that definitely helps with things like marketing and negotiations. Another large part was computing theory as relates to the brain, like neural networks and parallel processing. These concepts come in handy when dealing with large datasets.

3. What’s the biggest misconception you had before working on a big social platform like Reddit?

I had no idea spam and cheating would be such the problem it is. I figured it was just a slight annoyance, but it turns out to be by far the problem we spend the most time on (with scaling just slightly behind.)

(more…)

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