YCH Group stays competitive with tech

Using drones to manage inventory and its key warehouse is just one of the ways the Singapore-based supply chain company looks to set itself apart from the competition

PUBLISHED : Friday, 02 September, 2016, 1:17pm
UPDATED : Friday, 02 September, 2016, 4:14pm

One company is making the traditionally staid world of warehouse management exciting, with a little help from technology.

Manually counting inventory is a chore, says Robert Yap, the executive chairman of YCH Group. It makes for dull work, and if items are counted wrongly, everything has to be counted from the top all over again.

“If you use the manual system, it could effectively take you two days to count inventory. With drones, it’s just one, two hours,” Yap tells CNBC’s Managing Asia.

Among the high-tech logistics solutions the company has adopted are automated storage and retrieval systems, drone inventory management and radio-frequency identification (RFID). All of these are put to use in Supply Chain City, the YCH Group’s US$163 million automated flagship warehouse – the largest of its kind in Asia.

The YCH Group has a history of switching things up. The company had originally been in the passenger transportation sector when Yap first joined the family business.

“I changed [our focus] to cargo transportation and from [that], we moved up the value chain to include warehousing, international freight forwarding and integrated logistics,” Yap explains, “As we were migrating the value chain, I sort of fell in love with [the business].”

Despite his current enthusiasm, Yap had initially been resistant towards joining the family business after university. “I said, if you retire and I run it my way, I might consider it,” Yap says on the exchange with his father, “And he said, you got a deal. I took over and kept my word ever since.”

In the 39 years he’s been with the company, Yap has expanded the YCH Group’s regional presence. It is now in more than a hundred cities throughout Asia Pacific. Yap also says that he is not worried about the slowdown in the Chinese economy, citing growth from other emerging economies, including Vietnam, the Philippines and Indonesia, as a reason to be optimistic about the logistics industry.

Even though the YCH Group might not be the biggest player in the Asian logistics scene, it is one of the most technologically advanced. Yap believes that investing heavily in technology will enable the company to differentiate itself from its competitors. “We are not adverse to investment [and] we are not afraid to invest for the long haul,” he says.

This has led to the development of the company’s standalone IT arm, Y3 Technologies. Yap refers to this as his “secret weapon”.

Also operating in the supply chain logistics space, Y3 provides a range of next generation solutions, including cloud computing, e-commerce and customer relationship management products. Unlike the YCH Group, which deals in large scale solutions, Y3 operates on a shared services concept so that even small businesses can utilise its services on a pay-per-use basis.

Yap also dabbles in angel investing, having set up a $14 million venture arm that invests in supply chain start-ups. This has been especially helpful for incubating innovations more quickly and at a lower cost than if the YCH Group were to do so internally. “When you [take] too long, you will miss the market,” Yap says.

Yap points to the drone and RFID system that has been trialled in Supply Chain City as proof of the incubator’s success. He intends for the technology to go live in the YCH Group’s warehouses by the end of the year.

The pursuit of technology has fuelled the rise of YCH over the years and Yap continues to remain open to innovation. He says that the company has been built on a vision that involves something called the “Logistics Super Highway”, which involves the integration of physical, informational and financial flows to enable the 60-year-old company to stay competitive.

“You have to dream, right?” says Yap, “It’s important for any leader to be very committed to what they want to do … [and] also be daring enough to take that risk and dream.”

Looking at where the YCH Group (which bears the initials of his late father, Yap Chwee Hock) stands today, Yap says that he believes his father would have been very happy. “Every distribution park we opened, I would make sure [my father] went and cut the ribbon [at the opening ceremony],” he fondly recalls.

Fast forward to the present, Yap continues to be the driving force behind the YCH Group and the many new ventures he started along the way. “Why [would I] want to retire? I’m having fun,” he says, “I’m not working, [it’s more like] playing because it’s a lot of fun.”

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Venture capital firm launches $50m fund for medtech

 

The private investment and venture capital firm Venturecraft Group has started a $50 million fund to invest in medical and infocomm technology companies that are still in their early stages.

It is Venturecraft’s second fund, and comes after it was recently appointed as an accelerator for the medical technology (medtech) industry under Spring Singapore’s Sector-Specific Accelerator programme.

That programme involves Spring’s investment arm Spring Seeds Capital co-investing in high-potential medtech start-ups with Venturecraft.

Medtech is a key sector within the biomedical sciences industry with strong potential for growth, noted Spring Seeds Capital general manager Johnny Teo in a statement yesterday.

“Medtech accelerators such as Venturecraft Group play an important role in the local start-up eco-system by providing critical support such as capital, regulatory advice, as well as access to markets,” he said.

START-UP LIFELINE

Medtech accelerators such as Venturecraft Group play an important role in the local start-up eco-system by providing critical support such as capital, regulatory advice, as well as access to markets.

SPRING SEEDS CAPITAL GENERAL MANAGER JOHNNY TEO

With Spring’s support, Venturecraft plans to focus on identifying co-investing opportunities in cutting-edge innovations within the medtech sector, particularly in the areas of in-vitro diagnostics, diagnostics devices, interventional medical devices and healthcare technology and analytics.

Even before the launch of this fund, Venturecraft, using its $4 million working capital, had invested in several tech start-ups with potential applications in the medtech field, such as AIM Biotech, which makes 3D multicellular biological models for research, drug discovery and clinical diagnostics.

The second fund has already invested in MiRXES, an A*Star start-up with a technology to advance the field of cancer diagnostics.

MiRXES co-founder and chief technology officer Zhou Lihan said: “Outside of the controlled lab environment, scientists often need a little assistance to adjust to the unpredictable commercial nature of business development. Venturecraft’s investment offers a double boost to our venture, as we get not only critical financing but also access to regulatory expertise and industry leaders who could pave the way for our entry into key markets.”

The moats that fintech companies must cross

Traditional finance companies’ competitive advantage operates like moats protecting mediaeval castles. Fintech companies must cross the moats of trust and regulation to break into the mainstream.

It started with a question which seemed simple enough when I first started investing in technology despite my training in years as a value investor: How do you invest in a fintech (financial technology) start-up with the potential to revolutionise finance, but which has not gained wide traction or turned a profit?

Cue the Oracle of Omaha with a question in response. To paraphrase legendary American investor Warren Buffett, investors of all stripes must first be able to answer this question: Is there any asset which deserves to be paid more for than the asset is worth? In the rapidly shifting sands of the disruption-prone fintech world, this fundamental question remains as relevant as ever.

How does one pick a fintech stock that might be priced below its worth? Let’s consider the concept of moats. In mediaeval days when kings lived in castles, the moats surrounding these castles determined life or death during an enemy invasion. The larger the moat was (and/or the more crocodiles the moat housed), the more likely the castle would withstand an enemy attack. And just like kings in castles, businesses live and die by the size and durability of their competitive advantage.

This competitive advantage can stem from a multitude of factors, including economies of scale in which unit costs decrease with increased production, as well as network effects and branding.

Like a moat, the larger a business’ competitive advantage, the more easily it can fend off competitors and the more likely its product will dominate the market. This will, in turn, lead to higher top-line growth which will increase the business’ worth.

 Conversely, just as the moats of mediaeval lore can be breached, business competitors and fickle consumer preferences actively erode businesses’ competitive advantage. This is nowhere more evident than in the start-up world, where many fintech start-ups are leading the charge in revolutionising traditional financial services – or, as some put it, unbundling finance as we know it today.
Employees of fintech start-up N26 on a carpet with the bitcoin source code printed on it in Berlin. The key problem is not the start-up’s technology stack, but the challenge of convincing people to entrust their money to it. PHOTO: REUTERS

They erode the defensive moats of these traditional financial services by offering a more convenient, efficient and secure alternative. In other cases, such as blockchain and peer-to-peer (P2P), they seek to transform the very nature of finance.

Blockchain, for example, is groundbreaking because it bypasses a central middleman like a bank, to make a transaction. Instead, it allows consumers and suppliers to connect directly, removing the need for a third party, as the World Economic Forum explains it: “Using cryptography to keep exchanges secure, blockchain provides a decentralised database, or ‘digital ledger’, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.”

Employees of fintech start-up N26 on a carpet with the bitcoin source code printed on it in Berlin. The key problem is not the start-up’s technology stack, but the challenge of convincing people to entrust their money to it.

This decentralisation means banks, remittance companies and financial intermediaries are not needed for such transactions, as people can transfer money, or make payments, to each other directly using this blockchain technology.

Then there is Funding Circle, a Britain-based start-up which provides a platform for investors to directly loan to accredited small businesses. This removes the need for banks as middlemen in the process, introducing transparency and increasing returns simultaneously. Using an online platform, investors can now self-select their loans based on their risk appetite.

Indeed, it is no wonder that start-ups tend to see themselves as the underdog, the David pitted against the Goliath of Big Finance. While that is analogous to a certain degree, start-ups should not forget that just as they are upending other businesses today, they themselves could be rendered obsolete with similar swiftness.

Prime Minister Lee Hsien Loong, in his National Day Rally speech, alluded to this when he discussed how ride-hailing start-ups Uber and Grab might experience disruption themselves as driverless taxis (and cars) are rolled out on the roads. No business can assume that its competitive advantage will remain intact forever. It is a matter of time before others start noticing the opportunity in its area of business. Mr Andy Grove, the legendary CEO of Intel, once said that “business success contains the seeds of its own destruction”.

Regardless of the size of the company, entrepreneurs and businessmen have to think deeply and deliberately about how the trends of today will destroy their moats and eat into their profits. They have to honestly answer the question – What is the durability of the business’ competitive advantage?

TRENDS THAT BREAK DOWNMOATS
Several recent trends have accelerated the erosion of moats as well. One is the democratisation of ideas and information. The financial world is driven by information – just ask Bloomberg. Yet, both the supply and demand of these ideas and information, which have long kept traditional financial institutions at the forefront, are increasingly being democratised.

For instance, Smartkarma, based here in Singapore, is aggregating and identifying the best sell-side research – previously sequestered in the equity research departments of banks. This allows analysts or experts who are truly good at their craft to submit pieces of original research unhindered by their management or company policies.

Despite all this talk of “creative disruption”, however, a very wise man once said that there is nothing new under the sun. Ideas take on new forms, but fundamental human nature does not change. Traditional financial institutions capture this well with their twin deep moats of trust and regulation; both are equally important for fintech start-ups to surmount. Trust: Indeed, finance has been around for a long time, and the force that has always undergirded finance was that of trust. Why do people hand their money over to the bank for safekeeping? Because they trust the banks to keep their money safe. How do creditors know that their borrowers will repay their loans on time? Because there is an implicit trust in the borrower to repay, or the financial system to guarantee, the loan.

Why would an investor choose to invest in one company but not another? Because we invest only in people who we trust can grow their company and make our investment worthwhile. Mr Jack Ma himself asserted that Alipay was created to address a trust deficit and became a huge driver of e-commerce in China.

Gaining the trust of stakeholders and end users remains a critical moat which many fintech start-ups have to breach, to truly disrupt the financial giants of today.

Perhaps, then, it is no coincidence that the fintech revolution really started to take off post-global financial crisis where there was a deficit of trust in many financial institutions. Today trust in the traditional financial system is low and we need to make a social case for the value of finance. Clients are not looking for more products to buy from banks; they are looking for solutions for their needs.

The key problem is not the start-up’s technology stack, but the challenge of convincing people to entrust their money to it – even if its product may not handle transactions directly. This is why traditional financial institutions strive hard to win and retain the trust of their customers – they are continually deepening and solidifying their moat. Regulation: Additionally, another key hurdle that start-ups have to crack is that of regulation. Start-ups in Singapore have to think deeply about this challenge, given the fragmented nature of financial regulation around the region. Localisation to reach customers around the region has been a perennial challenge (and opportunity) for start-ups based out of Singapore.

Fintech start-ups have an added layer of regulatory requirements to consider. They should consider fully leveraging on the Monetary Authority of Singapore’s FinTech Innovation Lab to learn from industry experts and work with traditional stakeholders to co-create adaptive solutions.

In a recently released World Economic Forum report on the state of blockchain technology, it highlighted “an uncertain regulatory environment, lack of standardisation efforts, and the need for a formal legal framework” as some of the key challenges to the technology. It is thus the fintech start-ups’ imperative to educate not only their users but also regulators on the potential risk and reward of each new technology.

Despite having these two deep moats, traditional financial institutions are not going to get off easily either. In the same speech, PM Lee spoke about the disruptive effect of online e-commerce on brick-and-mortar retail stores. Similarly, retail banks have to consider the impact of online and mobile banking on their retail strategy. Traditional brokerage firms have to be cognisant of the competition posed by start-ups, such as Robinhood, which have no brokerage or transaction fees. These advances could be made possible only by start-ups which leverage technology, consider new business models and exploit inefficiencies in the current way of doing things.

To return to the initial question – of how to identify companies that are priced below their worth – the answer lies in picking companies that are leveraging technology to drive efficient operations; and that are invested in building trust and engaged in shaping regulatory frameworks for the banks and financial companies of the future.

It is thus with a certain degree of irony that I am writing this as an active investor. Who knows what the future holds – with the growing plethora of artificial intelligence- driven wealth management products and learning algorithms to optimise investment accuracy and improve the rate of return, a totally different set of features may prove to be the most important metric for businesses to flourish.

Yet, until then, the time-tested strategy of building deep and lasting moats will give companies that extra edge to thrive in the economy of tomorrow.


  • The writer is the Asia-Pacific CEO of a global company and a member of the Monetary Authority of Singapore’s financial centre advisory panel.

HOW TO DESIGN EFFECTIVE TEAMS USING POSITIVE PSYCHOLOGY

 

Great Branding Strategy: Why First Round Capital Launched 9 Magazines

By Jordan TeicherSeptember 28th, 2015

In publishing, quality always means more than quantity. But when a company manages to pull off both, it tends to make a name for itself. Take Condé Nast, which puts out 21 print magazines; Hearst produces 19. Online, Gawker Media has 24 blogs. These impressive outputs all come from traditional media companies, but another publisher from an unlikely industry is taking on the challenge with nine magazines of its own: First Round Capital.

First Round Capital, which focuses solely on seed-stage funding for companies including Uber and Refinery29, was founded in 2004, but it didn’t start publishing until 2013. Initially, it posted sporadically on its blog, First Round Review, recapping events and turning them into articles whenever possible. The firm’s goal was to raise its profile by gathering insights at these events from successful entrepreneurs. The content seemed to resonate with readers, so after a few months, the company known for financing other people’s projects decided to invest in its own publishing efforts.

In the summer of 2013, First Round hired Camille Ricketts, a former journalist who was working as a content strategist at a nonprofit, to run the site. She began as a freelancer, handling all interviews, writing, and ideation by herself. The role gave her tremendous autonomy, but it also led to an unusual situation that shaped the blog’s editorial direction. Since Ricketts, now head of content and marketing at First Round Capital, was the only contributor at the time, she decided not to use a byline to avoid the awkwardness of having her name attached to every article.

“I didn’t want people to feel like there like was a filter standing between them and the subject of the article,” she explained. “I really feel like people need to think they’re hearing directly from the person [being profiled].”

That philosophy has stuck ever since. Most articles on First Round Review are full of quotations and actionable advice from the biggest names in tech—a perfect example being this 4,000-word piece about how Stewart Butterfield used customer feedback to grow Slack into a billion-dollar company.

But with an approach that constantly highlighted other companies, First Round still needed some element that would showcase its own brand and perspective. When the Review was ready for a redesign in February, Ricketts and Brett Berson, the firm’s VP of platform, thought about how to organize all of the articles in a way that would give readers from certain verticals a more comprehensive experience.

“How do people read the Review?” Ricketts said. “They probably don’t just scroll through, because if you’re a sales professional or a designer, there are a lot of stories that aren’t going to be relevant. So how could we make it easier for people to discover one story, and from there, find all the other stories that would really interest them. Tags is the standard way people usually approach that question, but we wanted to do something that was a little bit off the beaten track.”

From that point on, First Round Review turned one blog into nine digital magazinesthat deal with everything from management to fundraising to office culture. There’s even a magazine about women in technology that features in-depth takeaways from top female professionals at companies like Facebook, Google, and Airbnb.

Switching to nine magazines was a clever branding strategy, not a move meant to make Condé Nast look over its shoulder. The site only runs a total of two new stories per week, but the redesign still shows how a publication can use subtle adjustments to stand out in a crowded arena.

In the past few years, venture capitalists have really started to pay more attention to publishing. As Jay Acunzo explained in July, entrepreneurs looking for funding now have more options than ever thanks to the proliferation of smaller VC firms. Investors, therefore, have turned to blogging and social media as a way to show off expertise and thought leadership.

“Because so many talented entrepreneurs are drawn to this idea that if they work with a particular VC they will get all of this awesome service in return, it’s becoming a huge selling point for VCs,” Ricketts said. “If they see that excellent content is coming out of First Round and that we’re really knowledgeable about certain things and we have a lot of connections, they’re much more likely to work with us, frankly.”

But now that content marketing is the new norm for investors, the mere act of publishing may no longer be enough to win new business. Firms still need a specific edge that will appeal to startups. On First Round Review, the biggest distinguishing factor is the way the content focuses on other people, regardless of whether they’re affiliated with First Round or not.

“We admire people who are extremely good at what they do,” Ricketts explained. “Whereas, I think that at a lot of other VC firms, the content that they’re focus on is less about the operator side and more about the actual investors talking about where they see the market and what trends are growing.”

She stressed that no one way is better than another; they’re just different. Investors like Fred Wilson—with his AVC blog—and Marc Andreessen—with tweetstorms to his 400,000 Twitter followers—have had plenty of success and exposure leveraging their own personal insights. But for a site that only publishes twice per week, First Round Review has seen remarkable traffic. Over the last three months, it’s averaged more than 250,000 unique viewers per month, and time on page has hit more than four minutes per reader. According to Ricketts, the content has even started to help close deals (although she declined to name specific companies that were wooed by the articles).

Despite the steady success, Ricketts told me she still struggles with time management since, until recently, she ran an entire editorial operation by herself. In June, First Round hired another editor to help run the site, and as a result, the Review may start to publish three stories per week in the future. But outside of her day-to-day responsibilities, Ricketts wants to focus her attention on landmark pieces of content with long-tail potential.

At the very end of July, First Round unveiled the “10 Year Project,” a data storytelling initiative that revealed VC trends based on a decade’s worth of the firm’s investments. For example, the report found that “companies with a female founder performed 63 percent better than our investments with all-male founding teams.” It’s one of the rare times when the company wrote about its own experiences, and opening up its books paid off—the longform project has racked up almost 7,000 social shares.

And as to whether First Round will add any more magazines, Ricketts believes nine is enough for now. “We want to be a benevolent actor in the technology ecosystem,” she said. “Too many smart people in the industry have a lot that they could share and teach people, but they have no time to do it. So we’ve made our mission lowering the bar so they could share all this wisdom.”

 

One Founder, Both Sides of the M&A Table — What All Startups Can Learn from His Experience

January, senior year, Stanford. Jeff Seibert and a couple of his friends start casually building collaboration software. Nothing fancy. Nothing serious. At least not until casual conversations turned into a seed round from DFJ and an official launch complete with TechCrunch coverage mere days before graduation. That’s one way to rocket launch a career.

To Build Great Products, Build This Strong, Scalable System First

At the time, he had no idea his path would be so defined by companies wanting to buy what he built. That first startup went on to join Box in 2009 — followed by a second outing, Crashlytics, eventually snapped up byTwitter. Now, as its Senior Director of Product, he’s seen the company evaluate the acquisition of over 50 startups, and been involved in a number of deals — notably the purchase of Periscope.

Each of these experiences have yielded concrete lessons about not only weathering the M&A process, but also about building strong companies, period. While an exit should never be your starting goal, so much of being a good leader — maintaining team trust, clear communication, focus on culture — will be what gets you a good deal if you want one down the road. All of this starts from day one.

In a recent talk at Stanford, Seibert shared the blunt, unflinching details of acquiring and getting acquired, what he wishes he would have done differently, and what startup leaders should keep top of mind every day as they build toward an uncertain future.

INCREO MEETS BOX: The Pleasant Surprise

Initially dubbed Feedbackr (riding the trend kicked off by Flickr), the collaboration tool Seibert and his college friends built became Increo, and was intended to help freelancers and employees instantly receive feedback on ideas. This took the form of converting image and document files of all types to appear right in the browser so people could quickly review and write comments.

After their very public launch on TechCrunch, they saw a spike in traffic, but it disappeared in just two weeks. “When you first see that rush of interest, you think, ‘Oh my god, people are using what we built!’ Turns out that’s only the start of a very long journey,” Seibert says. “But we didn’t give up, we built the team over that summer after graduation and kept chugging on product and marketing. We literally begged bloggers across the internet to write about it, which was the right thing to do, because we did get some articles, and that led to us getting some traction.”

The technology ended up being pretty cool. Increo could display hundreds of document files at once, whether they were PowerPoint, Adobe Illustrator, PDFs, etc. This was pretty special, all things considered, but the problem was on the growth side. Freelancers loved the product, with thousands immediately signing up to communicate with their clients. But that’s where Increo’s market began and ended, topping out at 20,000 customers.

How A/B Testing at LinkedIn, Wealthfront and eBay Made Me a Better Manager

This doomed the team to revisiting Sand Hill Road for a cash infusion in 2009 — just months after Sequoia Capital published its infamous “RIP Good Times” slide deck, marking one of the toughest fundraising environments in years. And here they were, six people with a niche product and a handful of users. All 36 firms they pitched turned them down.

“So the question was, where do we possibly go from here?” says Seibert. “We had six months of runway left. We were feeling the urgency to do something. Luckily, from constraint comes creativity.”

Increo decided to ditch the collaboration bent and focus on their most differentiated and desirable asset: the underlying file-conversion technology. That spring, they approached a bunch of prospective “partners,” proposing that they pay a penny per document converted. Immediately, four companies were interested, but they all sang the same tune: They wanted exclusive access to the tech and to host it themselves to avoid legal and privacy snafus. This didn’t sound like a partnership — it sounded like a takeover. When Seibert said as much, they didn’t balk, they simply asked what he proposed. Three ended up making offers, including Box.

DECISION-MAKING FOR ROOKIES

“We didn’t expect this at all — we were just trying to find a route forward for the company,” he says. “So we did what anyone would do and made a list of pros and cons.” Code-naming the companies ‘Red,’ ‘Blue,’ and ‘Purple,’ they got to work, thinking through what really mattered to them.

RED

  • Pros: Absolutely massive scale. The Increo team had always wanted to reach a large number of people while staying true to their vision. Not to mention, they were willing to shell out. They understood how powerful Increo would be for their own product.

  • Cons: Bad culture fit. It was an older company with a very corporate culture, located in downtown San Jose (not an appealing idea for fresh grads). They also wanted the team to rewrite its Ruby stack in Java — an 18-month chore.

PURPLE

  • Pros: Chill, middle of the road, mid-size company that was a decent culture fit.

  • Cons: Focused on the wiki space, which Seibert and the team weren’t passionate about. They didn’t see how Increo would fit into their model in a significant way. And what they craved was impact.

BLUE (i.e. Box)

  • Pros: Great culture fit and really clear product need. Amazing team that the Increo crew had gotten to know over the course of a year working with them on a potential partnership.

  • Cons: Younger, smaller than Red, and — as a result — not willing to pay so much.

They quickly ruled out Purple. Sure, it was uncontroversial, but that also made it unexciting. An acquisition isn’t just a day in the life of a startup, it’s three to four years in the lives of its founders and employees. If you’re passionate about technology, you can’t stomach going somewhere for that length of time that doesn’t light you up inside.

In the end, of course, Increo went with Box, despite the lower offer. Plainly, the team valued culture and opportunity over money, a fact they never tried to hide. In the end, they got what they wanted, because nine months later, their technology was already powering the document preview tool used site-wide.

LESSONS LEARNED

Incidentally, Increo was also the first company Box bought, so both sides were new to the game. Even so, Seibert says, they managed to get a few important things right:

  • Focus on the Future: “This is deeply, deeply important,” he says. “There are so many founders I talk to today who are looking to sell, and they talk about it like the day the deal closes they get to declare mission accomplished and enjoy the money and look brilliant and all that. But none of that has anything to do with long-term success, since you’re going to be living your life at the company for many more years.” You can’t let what you would value on that one day influence your thinking when the company acquiring you will fundamentally shape what you learn, what you do next, and who you become. Realizing this early, he and team placed much higher value on working at a company that would help them realize their greater vision for Increo.

  • Culture is Nearly Everything: “The more I’ve seen and learned, the more critical culture fit becomes. There are many great companies in Silicon Valley, but the one that’s right for you is the one where you deeply identify on a cultural level, where you love the people, you love talking to them about what you love working on, and you know you’ll have a blast working together on it.” Seibert and the team had gotten to know their future colleagues at Box well in the months preceding the sale, and really admired their style and approach.

Sounds great, but this doesn’t mean the deal was big mistake free. There’s plenty he wishes they would have done differently:

  • They Waited Too Long: The busted financing round delayed Increo’s hunt for partnerships, setting them back by the time they had acquisition offers coming in. “Because we had such a short runway, we couldn’t evaluate every possible option,” says Seibert. “If we had more time, we would have gone much deeper and pitched a more strategic deal, not just a deal that was about our tech. We could have made the strategy a stronger negotiating point.”

  • They Were Too Transparent: “It’s interesting, because I really support transparency within companies, but I think there’s a limit when it comes to deals like this,” he says. “As a founder, it’s your responsibility to gauge how transparent or not to be in this situation to reduce stress for your team.” In most cases, being a transparent leader reduces stress. But acquisitions pose a special case. You can’t have your team weathering the same anxiety you are during the process. Nothing would get built. People would crack. The Increo team went along for the ride during the three months prior to the buy, and were visibly stressed. They didn’t know whether to continue the company roadmap or build product to fit Box or the other prospects.

In retrospect, we shouldn’t have told the team about the process until we were more certain of the direction. We should have kept executing toward our original goal.

  • They Didn’t Demand Commitment: Inexperienced at negotiating, Seibert didn’t get any guarantee from Box that they would continue investing in the Increo product after the fact. They seemed excited about the technology, and moved quickly post-acquisition to integrate it. But then they hit a wall. There were no more resources to keep iterating, so the team transitioned into other roles. Ultimately, Box bought Crocodoc to take its file conversion tech to the next level.

If the team had navigated these areas differently, they might have had more leverage, increased productivity, and ensured a more expansive future for their work. But time marches on, and all of these shortfalls became important lessons in the next chapter of Seibert’s career.

CRASHLYTICS MEETS TWITTER: Riding the Wave

The next company Seibert sold was actually born at Box — a testament to how well the culture embraced and supported his personal goals. After rolling off the document preview tool, he started working on Box’s sync project. Generally speaking, sync tools are complex and buggy and crash all the time. After suffering through his fair share of this, he decided there had to be a better way. So, with his manager’s blessing, he launched a side project to prevent mobile apps from crashing. Soon, he had a product and a great co-founder in Wayne Chang. His experience was night and day from Increo.

No struggling to find customers. No massive marketing effort. Seibert and the friends he recruited to the cause shared with their communities, and found a host of people desperate for exactly this type of solution. These beta testers told even more people until, just months into development, thousands of apps were running Crashlytics. They even had a wait list.

It struck me what a difference it made to be serving a visceral need people have in order to do their business. That’s what drove all our growth.

Twitter was among their biggest fans. The company put Crashlytics in both their iOS and Android apps, happy as can be, until — seemingly out of the blue in 2012 — they called Seibert up to ask: “Hey, have you guys ever thought about working for us?”

“We were like, ’No! Why would we do that? We have a great business. The product is going gangbusters. We’re really happy. We have a great team. That doesn,’t make sense,’” he says. “They said, ‘Okay, Great chatting,’ and hung up.” That was in October. In December, they called back, urging Seibert and his co-founder to fly from Boston to San Francisco to meet the executive team.

They reluctantly agreed, but reflecting on Increo’s sale, they knew they needed to be very careful about messaging their trip. In fact, they chose not to message it at all. “We had no interest in selling Crashlytics. We needed the team to stay focused. We were in the middle of raising our B round, we needed to keep building,” he says. “Basically, we couldn’t afford for this to be a distraction. So we threw a big holiday party on the 18th, gave everyone the entire next week off, and we flew west without anyone knowing.”

The first thing that struck them was Twitter’s nuanced understanding of mobile. They had a very clear vision of how they would grow their mobile presence over the next five years and the products they’d need in their arsenal to make that happen. They were also committed to aggressively reinventing their developer platform, which appealed to Seibert and Chang.

“They really helped us understand that they didn’t just want to have their own crash reporting tool, they saw the purchase of Crashlytics as a beacon for a new wave of developer tools,” says Seibert. “This was very intriguing to us, since our goal was the empower developers too.”

Twitter asked to see their roadmap in exchange for a peek at theirs. It turned out both companies had nearly identical visions for how to develop the technology. “We had such complete strategic alignment that the opportunity suddenly became very compelling,” he says. “We could leverage Twitter’s brand and notoriety and their ability to build all this stuff much faster than us to very quickly scale up our platform.”

There were a number of other pros to the deal: Besides the massive scale, the culture fit seemed perfect. Most of the people they spoke to shared Seibert’s background. He knew a number of them personally, making it easy to backchannel and see how they actually liked working for the company. There was also a very clear product need. Twitter didn’t have an SDK at the time. The Crashlytics team could and wanted to build one. The larger company even made a long-term commitment to invest in the company long-term, double the team, make the product free, and more.

It was this completely rare chance to build our own big business and learn what that’s like.

Twitter made a fair offer after some back and forth and countless phone calls. Negotiation lasted until 2 a.m. on Christmas Eve, and they signed the term sheet at 10 a.m. Christmas morning. “On one hand, it was like ‘Wow, incredible!’ and on the other it was, ‘Wow, now we have way too much to do and we have to tell all these people who have no idea what just happened.’”

WHAT THEY GOT RIGHT

  • Strategic Alignment: This was really the lynchpin. Crashlytics had funding alternatives and a year of runway left. It didn’t need to get bought. If it’s mission and ambitions didn’t fit so precisely with what Twitter needed, the deal wouldn’t have happened. Realizing this was the case, however, has allowed them to dump fuel on a fire that mattered a lot to them, and that would have taken much longer to burn on their own.

  • Tight Communication: Seibert and his co-founder were rigorous about experiencing every conversation together or immediately relaying all the details. They kept the number of people in their circle of trust very small in order to control the story. They didn’t want there to be any misconceptions or missed connections. This helped tremendously when it came time to tell more people.

Most Importantly, Fortifying Team Trust

As of that fateful Christmas morning, Crashlytics had 18 employees — 14 of whom were engineers. “They had basically taken this job, put their life in our hands, and believed completely in what we were doing. They wanted to join a startup and didn’t necessarily want to go work for Twitter — it was on us to motivate that,” says Seibert. “We had to convey why we were so bought in, and why we thought this would make us all much more successful.”

Instead of scheduling an unexpected meeting to reveal the news — which would have raised eyebrows and freaked more than a few people out — they rolled it into a 2012 Year-End Review. He and his co-founder poured hours into their slide deck, a photo montage running through all the people and milestones they had reached together. The last slide made the announcement.

“We pitched it as, ‘Oh you thought this was the end of the slideshow — nope, there’s more!” says Seibert. “Then we told the story of flying to Twitter and showed a photo of me and Wayne celebrating with a humorously romantic dinner under a Christmas tree. It made everyone laugh right away and broke any tension.”

Immediately, they talked through the delta between their opportunity as a solo company and their opportunity with Twitter, emphasizing how it would power up their roadmaps. “We made it clear we’d be building exactly the same thing, so no one got their dreams shattered. We’d just have a larger mandate and making the product free would make it accessible for more developers.”

They also timed their lead investor to show up to reinforce this message, armed with champagne for everyone.

The goal was to very slowly break the news and spend the rest of the day partying.

Because nearly the entire team had been with Crashlytics for less than a year, they were able to offer an unexpected little bump, too. The way standard option agreements work, there’s a one-year cliff and four years of vesting. They made it so that everyone, even those who had been there a month, got their entire four years of equity. This went a long way toward solidifying trust and assuring everyone that their best interest was at heart.

OKAY, BUT WHAT WENT WRONG?

Seibert and Chang wish they would have looked a little more closely at where they would fit into the bigger org.

“As we negotiated the deal, we agreed that we’d report directly to the VP of Engineering, which seemed great at the time,” says Seibert. “Soon after that, Twitter did a re-org and we ended up reporting way deep in engineering for months.”

It wasn’t the end of the world and eventually got corrected, but they also didn’t get the support they needed right away for idea integration. When Increo got bought by Box, the latter company had 40 people, so reporting structure didn’t matter. Twitter was much larger, and reporting structure makes a big difference to the level of support and visibility you get.

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Very few startup leaders think of these things. They’re literal afterthoughts, but they can make a huge impact on your experience and future at the company. It’s also important to lean on other founders who have gone through acquisitions to inventory all the things to ask about. If you rely solely on your prior experience or the basics, you’re sure to forget about something critical.

Fortunately for Crashlytics, Twitter made good on everything it said. With the additional resources, they were able to modernize the product and scale it immensely. It’s now been used by over a million apps across half a billion mobile devices.

More importantly, at the time Seibert gave this talk, not a single person had left the team. They now have over 75 engineers working toward the same objective that Crashlytics set out to reach.

TWITTER: Life on the Other Side of the Table

The key takeaway is it’s incredibly unlikely for a deal to happen. Ever.

Roughly 1 in 17 deals Seibert has observed has panned out. In his experience, there are endless things that can go wrong along the way. But first, it’s important to understand the different types of acquisitions:

ACQUIHIRES

These are the simplest deals in terms of monetary value. The goal here is simply to get the talent. Even if a product doesn’t work out, the engineers can be incredibly valuable. “Lots of companies fail, but lots of teams want to join a company but stay together,” says Seibert. “It sounds nice, but you have to do a lot of work to guarantee culture fit and make sure people can stay tight-knit if they want to. Sometimes this is good if you want a lot of brainpower on a focused project. Sometimes it just can’t work.”

TECH DEALS

Increo joining Box fell firmly into this camp. The company had a clear technical need. They could either buy the technology they needed or build it themselves (which might have required staffing a team and two years of development). The cost-benefit analysis pointed to the first solution being better overall.

STRATEGIC DEALS

These are the rarest and largest deals. This is where you’re augmenting your business in a deeply strategic way in order to go after a new market. The Crashlytics deal falls in this bucket because Twitter lacked a strong developer platform prior. They didn’t just want the technology — they could have remained a paying customer for that. Instead, they needed a product, market and recognized brand within the developer community. Twitter’s purchases of Periscope, TellApart and MoPub also fall into this category.

“For acquihires and tech deals, it’s typically the startups approaching the larger company — it’s ultimately their decision to go look for suitors to see if there’s a match,” Seibert explains. “On the strategic side, it’s almost entirely the opposite. So it’s on us in product of a large company to think about where we need to go and where we should invest. That’s when we canvass a space to look for potential players that might be a fit.”

This is also the type of deal where autonomy becomes a meaningful bargaining chip. Good acquirers learn the skill of making autonomy part of the negotiation. For instance, with Periscope, the company got to keep their office, their roadmap, and their business plan. The success of strategic deals is often dependent on the ultimate success of the team that joins, and sometimes autonomy is a necessary ingredient.

WHAT DOES BUYING A COMPANY ACTUALLY LOOK LIKE?

Initial calls and meetings are devoted to understanding the founders’ mission and strategy of their company. Where are they coming from? What kind of technology do they want to build? What kind of team do they want to build? If that goes well, Twitter moves them on to a tech talk where a group of their lead engineers dig in to really understand why the startup built their product the way they did.

“It’s fascinating all the different architectures companies are using today. Some match what Twitter is doing better than others, but the real key is understanding why the startup has made the trade-offs they’ve made,” says Seibert.

If they pass on this level, interviews are next. In almost every case, an acquiring company will want to interview the entire startup team. It’s mostly about cultural alignment. This isn’t only a concern on the startup’s side. Big companies like Twitter need to care deeply about how this group of people will fit into their current operation. If the fit is bad, it can slow things down and break something that didn’t need to be fixed in the first place. “The team here spends most of their time ensuring that they’re bringing on people they think can be successful at Twitter and are uniquely likely to thrive here.” The technology is important but secondary to this assessment.

There are tons of different ways to solve problems. What we really look for is a great team.

This is where most deals fall through, actually — they’ll interview everyone and discover that there are more weak employees than strong ones. Or a certain faction just won’t mesh. At a certain point, you can’t justify bringing on everyone just to hire a few rock stars.

WHAT STARTUPS CAN DO TO MAXIMIZE VALUE

The best thing you can do when embarking on a deal is expect it to fail. You have to stay as disciplined, as productive, and as passionate about your own company as you would if you didn’t think you had a shot.

“Let’s say you’ve been working on a company for a few years, you’re a bit tired and feeling burned out — an acquisition is not your path to a vacation,” says Seibert. “It’s the opposite.”

Truly, you need to be far more energized than you ever have been. If you feel like you can’t give this new chapter of your company that level of energy, an acquisition isn’t going to end well. This goes for acquihires too. Any large company you join will have strategic initiatives. Where do you fit into their strategic priorities and market needs? Do you see their need for you continuing long-term? Double check these things before getting serious about an option.

As pat as it sounds, Seibert also urges entrepreneurs to stay true to their stated goal — seriously, for practical reasons. “You absolutely, 100% cant build something in order to get acquired or get to an exit. When you go out and raise funding, inevitably you’ll be asked, ‘Why are you building this company? To get acquired? To get to IPO?’” No matter what you say, they’ll know they truth. They’ve seen hundreds if not thousands of people like you before.

Always start a company to solve a problem. I started Crashlytics to stop mobile apps from crashing because it was costing people time and money,” he says. “Crashlytics was not successful the day Twitter bought us. It wasn’t successful the day Twitter IPO’d. It’s not even successful today because mobile apps are still crashing millions of times a day. That’s the drive Twitter wanted. So when you’re thinking about opportunities for your team on your company, focus on the ones that will help you achieve your mission.”

This story is based on a Stanford Entrepreneurship Corner talk Jeff Seibert delivered last year.

Equity basics: vesting, cliffs, acceleration, and exits

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As a cheatsheet, the “normal” equity structure is:

  • Founder terms: 4 year vesting, 1 year cliff, for everyone, including you
  • Advisor terms (0.5–2.0%): 4 (or 2) year vesting, optional cliff, full acceleration on exit

Getting equity structures right

When it comes to equity terms, there are only 3 things to understand: vesting, cliffs, and acceleration. For these examples, let’s say that I’ve got a co-founder and we’re splitting the company 50/50.

The problem we want to avoid is if one of us decides to quit early on, taking half the company’s stock with us. In that case, the other founder is then totally screwed, because they don’t have enough equity left to incentivize new team members. And even if they succeed, it’s super unfair that the guy who left still has half the company.

Cliffs & vesting

Vesting is how we fix that. Everyone who has equity should really, really be vested.

Vesting means that instead of each getting our 50% immediately, it gets given to us regularly over some period — usually 4 years. So if we quit after 6 months, we’d have earned 1/8th of our total 50%, or 6.25%. If we quit after 3 years, we’d get 3/4 of our total 50%, so we’d keep 37.5%.

A problem this can lead to is that you can end up with loads of people who each own a tiny percentage of the company. That makes future legal work more painful, and it’s what cliffs are designed to solve.

Cliffs basically allow you to “trial” a hire or partnership without an immediate equity committment. You agree on the equity amount and vesting period immediately, but if you part ways (via either quitting or firing) during the cliff period, then the leaving party gets no equity. Apart from that, it acts like normal vesting.

Remember our 50/50 split, 4 year vesting? Now let’s add a 1 year cliff.

With those terms, if I quit after 6 months, I’d actually have nothing. But then at 1 year in (as soon as my cliff is over) I immediately get a full quarter of what I’m entitled to (since I’ve made it through 1 of the 4 years of vesting). And after that, I get my remaining equity dripped to me smoothly as time passes.

Once I stay for the full vesting period (in this case 4 years), I’ve paid my dues to the company, and can choose to either stay or leave. The equity I’ve earned is mine in either case.

Advisors, acceleration, and triggers

Advisors get an extra term which is “full acceleration on exit”. That basically means that if you sell the company (or IPO), they immediately get 100% of the equity you promised them, even if the full vesting period hasn’t finished yet.

This one is standard and makes good sense. They did a great job advising you, you built a successful company, they get what they were promised, and their job is done. Hooray.

However, you can also get too complicated with equity triggers. For example, a hired-gun tech team might get their equity based on product deliverables instead of time passing. Or sales guys might have triggers from hitting revenue targets.

I’d would strongly advise against getting fancy, at least for now. When you add too many rules to your equity system, folks find wacky workarounds. Plus, if you’re new at this, you don’t have to justify yourself and don’t risk getting out-negotiated when you stick with the standard format.

Exits, investors, and re-vesting

It’s tempting as a founder to give yourself a “better” deal by picking a shorter vesting period, like 1 or 2 years. It seems good (“more equity faster!”), but typically leads to disaster since it allows someone to walk away with too much of the company.

And even if it doesn’t kill the company, it doesn’t actually help you. If you have an overly generous vesting structure, investors will only fund you if you “fix” it back to a normal 4 year period. And when you sell the company, the acquirer will usually “re-vest” you over another 4 years.

So speeding up your vesting now doesn’t actually help you cash out faster later. It’s all downside (co-founder problems) with no upside.

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