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Thursday, 19 April 2012 17:24

Why Silicon Valley sucks


More than 200 people turned up for the first full day Techconnect event in Sydney today, which brings together technology entrepreneurs, incubators and investors from all over Australia. One of the first things delegates learned was what it takes to scale internationally from an Australian base - and moving to Silicon Valley probably isn't it.

Mitchell Harper is the co-founder and ceo of e-commerce platform builder BigCommerce which was established in Sydney in 2003. Initially known as Interspire, the company developed the WebEdit system before branching out, and eventually recasting itself as BigCommerce.

The company was entirely bootstrapped (initially from $10,000 on credit cards) from its 2003 foundation until mid-2011. By then however the entire focus of the business had shifted toward selling its e-commerce platform, and centred on a growth and land-grab strategy.

In its WebEdit days the company achieved revenues of $1 million in its first 12 months of operation, and $6.5 million by 2008, of which 90 per cent was pure profit. Today the company is a much larger $20 million a year business, with 25,000 customers, and is no longer profitable after making the strategy switch.

'We are on a recruitment drive for customers - for us at the moment it's a land grab,' according to Mr Harper. 'We are not profitable deliberately. We could be immediately - but we are investing in growth.'

Mr Harper said that 'When we hit our revenue targets in two to three years then we can adjust the metrics to become profitable.'

Last year after resisting the approaches of venture capitalists for some time, the company accepted a $15 million investment from General Catalyst which was needed to fund the growth plans. 'It is almost impossible to be the number one player in a vertical if you are bootstrapped,' said Mr Harper.

He added that the company was now looking to grow into a $50 million business. Besides growing revenues the company has moved a significant portion of the business to Austin, Texas, although research and development is retained in Australia. Over the last three years it has grown headcount from 25 to around 125.

He said that Austin was a better fit for the company than Silicon Valley. 'The West Coast is way too competitive - just a crazy atmosphere. We wanted to be away from that noise.'

Another speaker at the conference, Hamish Hawthorn, the ceo of incubator ATP Innovations, also cautioned start-ups about Silicon Valley, warning that it was the venue for a war for talent and start-ups would have to compete with 'the big boys.'

They were better off located close to their customers, he said.

However David Jones, a serial entrepreneur and co founder of companies including Streethawk and ThreatMetrix warned that unless Australian companies based their US operations close to US venture capitalists, they should not expect to secure any US funds. He said he had personally been told by a US investor that he never put money into a company that was more than an hour's drive from his office.

Besides securing funds for growth Mr Harper said that one of the key lessons for any start-up was to have a very close understanding of the business, especially the customer acquisition costs, lifetime value (particularly when selling a software as a service solution) and the churn rate.

He said BigCommerce's typical customer was male, 40 years old, based in the US, ran a bricks and mortar retail business, contributed $41 a month to BigCommerce revenues and stayed a client for 32 months.

The insights which Mr Harper and other seasoned entrepreneurs provided were lapped up by delegates, many of whom were in the very early stages of getting business ideas off the ground.

Rachel Slattery, the CEO of SlatteryIT, and organiser of the event said that she had been running events to provide a forum for entrepreneurs and investors for over eight years, but that this was the first time a full day event had been hosted. More than 200 people attended with entrepreneurs from right along the eastern seaboard, from as far away as Townsville and Melbourne attending the event,

She said the entrepreneur community in Australia was now achieving a critical mass, with a number of trailblazers willing to share their experience with the latest crop of start-ups.

About 80 per cent of delegates at the event were from start-up companies with most of the remainder being angel investors or venture capital companies, with a smattering of government officers responsible for grant programmes and incubator operators.

Ms Slattery also announced that Tech23, the fourth in a series of annual events where 23 local tech start ups pitch their wares to potential investors or business partners, would be held on October 23. She invited interested companies to apply to participate in the event which will again offer cash prizes for the winning ideas.


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