Accelerating start-ups: Luther Poier on developing ideas and building scale

Founders need resilience and can expect a long haul.

Luther Poier is chief financial officer and head of venture capital at Sydney-based BlueChilli, a start-up incubator that helps entrepreneurs design and build their pilot products in exchange for equity. Poier spoke with Julian Lorkin for BusinessThink.

An edited transcript of the conversation follows.

BusinessThink: What actually works if somebody thinks they’ve got a great idea and they want to sell it to you for funding?

Poier: The most important thing really for them is to understand [if it’s] a valid commercial idea. There are lots of great ideas out there but how do they make it commercial? Which is probably one reason why most of our start-ups are built with founders who usually come with, say, five to 10, 15 years’ industry experience. They understand the problem, which is the first thing they need to have – that they’re solving for a problem, and that the product they have is something that will fit an actual market.

One of the first mistakes probably a lot of people make is to focus on the solution and not the problem they’re trying to solve. The founders that we tend to focus on are those founders who are usually single founders, maybe one or two people, and they don’t usually have technical experience. They don’t have a team around them already. For us, it’s really about helping individuals with a great idea –with some industry background, as I said – take their idea from zero to one. We help build a team around them and give them the advice they need.

"One of the first mistakes probably a lot of people make is to focus on the solution and not the problem they’re trying to solve"

LUTHER POIER

If they come to us with a team already set, we can still work with that and we can usually provide some great development expertise, business development expertise, an understanding of corporate governance and the business formation side. So, we can work with everybody but our focus is usually on single founders or very small teams.

BusinessThink: And equally, as I understand it, you can even help people with their coding. You’ve got a floor of developers. You’ve even got a great Nerf gun on the wall for those coders who don’t quite make it.

Poier: One of the things that I think differentiates [us] in the market is that we have a full stack of developers, both front-end, back-end, web, mobile. So, in essence, we can act as their technical co-founder without giving away 50% of the company [as] often happens with first-time founders, where they have an idea, they find somebody who’s maybe done a little bit of coding in the past and give away 50% of their company.

What we like to see are single founders or small teams that come to us. We help them validate the idea and we help them build the technology around that solution and then we will actually help them hire and train the technical teams later on so they have their own team. In essence, we start out as their technical co-founder but instead of taking 50% we give them a full experienced team and usually take between 7.5% and 10%.

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BusinessThink: For that 7.5% to 10% you’re obviously going to be putting money in. What sort of money are we talking about for a typical start-up that may have a bright idea for a new website that’s going to innovate some new area that hasn’t been disrupted before? What sort of money do people actually need, as opposed to want?

Poier: Every start-up has a different need. I would say that normally start-ups begin with about $50,000 to $100,000. And you’ll see a lot of different accelerator programs in the country giving about that much to start-ups, either in kind or in cash.

One of the things that founders always have to be careful of, though, is husbanding that cash well. And like any small business owner, or medium enterprise owner, those founders have to really understand what they’re paying for and what they’re getting, whether it’s in kind from some places, or whether it’s cash that they then have to spend on developers or on marketing, or on even premises sometimes.

BusinessThink: And it’s that earn/burn cycle. You must have seen companies that have burnt their way through all that cash in just a few weeks. What shouldn’t you be spending your money on?

Poier: I’ve seen it and I’ve been there. The key is that it’s very difficult for founders sometimes to understand how quickly they’re going to spend money. And over years and years, the IT industry has gone from what we would think of as large [specified] projects, where it’s going to take $500,000 or $250,000 to build something, whereas now, certainly here at BlueChilli, we try to do things in agile sprints – so we know we’re just going to spend a little bit to get to this point, we’re going to spend a little bit more to get to [the next] point. And what that does is reduce your cash burn. It means that you’re trying to always achieve something with that little bit of money.

"It’s not just about how much cash you’re going to burn but almost how much emotional energy you’re going to burn"

LUTHER POIER

BusinessThink: But equally, if you’ve just got one person who’s really driving the plan forward, as you described earlier, how do you avoid the problem that after six months they may only just have a viable product? They’ve made a little bit of an inroad into the market but they’re exhausted. How do you energise them to keep on going and push on through?

Poier: It is really tough for new founders. If you read the papers, sometimes it seems like, you know, fruit bowls and massages and Mad Men kind of places where everything’s cool and it’s like this happy-go-lucky workplace environment. Being a founder of a start-up, whether it’s a digital start-up or not, is difficult.

So one of the things we try to do when we’re first validating ideas with founders is, in a way, we’re pressurising and validating the founders themselves so that they understand that this can be a long haul. It’s not just about how much cash you’re going to burn but almost how much emotional energy you’re going to burn.

Do you have the resilience to be able to follow through on that business idea? Lots of times founders will come up to a point – and this is where we try to get to that point sooner rather than later – where they say, “You know what? This isn’t a commercially viable idea”. And then [they] either pivot to something else or say, “You know what? I think I’m just going to go back to my day job.” And that happens. And there’s nothing wrong with that. We’ve gotten to that point. There’s value in the no and value in the yes.

Read more: Novelty vs commercial viability: what makes entrepreneurs successful?

BusinessThink: It seems to be about having a start-up working on a small scale, and then rolling it out – and rolling it out around the world. Is Australia the right place for this? If so, how do you achieve that with an idea that may be working in a small market in Sydney? How do you globalise it?

Poier: One of the things we try to do is also bring in corporates and funders so that you have both the funding base to scale globally if you need it, and also corporate clients and other clients as customers, because that’s really what scaling is all about – being able to reach as many customers as you can. And using the corporate clients in Australia both gets you ready and also gives you access to outside markets.

We have lots of links in BlueChilli with Silicon Valley; we have an outside office there. A lot of those major cities have landing pads that the government has put in place. So, there’s a lot of facility for Australians to be able to build their start-up here, get ready to move offshore – and in the end, what we want in Australia are global businesses that have started up and scaled up from here.

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