Bounc­ing back from your mis­takes

I don’t be­lieve any suc­cess­ful en­tre­pre­neur has ever writ­ten a de­tailed busi­ness plan on day one, and looked back years later with no change at all to their ini­tial strat­egy writes Mat Ja­cob­son.

Business First - - CONTENTS - by Mat Ja­cob­son

En­trepreneur­ship is about great busi­ness skills and a com­pet­i­tive prod­uct of­fer­ing, sure. But it’s just as much about adapt­abil­ity: the abil­ity to move and re­spond to mar­ket changes and mar­ket op­por­tu­ni­ties. The flip­side is that mis­takes will in­evitably oc­cur in a volatile, fast paced en­vi­ron­ment. But learn­ing from the mis­takes you’ve made and grow­ing from them plays a crit­i­cal part in achiev­ing suc­cess. The good news is it’s even bet­ter if you can learn from other people’s mis­takes, in­clud­ing mine, in­stead of re­peat­ing the same mis­takes.

Be­fore found­ing ter­tiary learn­ing or­gan­i­sa­tion Ducere, I founded an ed­u­ca­tion com­pany fo­cused on pro­vid­ing the high­est qual­ity cer­ti­fi­ca­tions to the fi­nan­cial ser­vices sec­tor. I brought in a ven­ture cap­i­tal firm very early into the busi­ness. They were a high pro­file firm and af­ter the ne­go­ti­a­tions and due dili­gence, once the deal was signed, we thought we were then all on the same side with the com­mon goal to build a great busi­ness to­gether.

The struc­ture was such that the in­vest­ment amount and share­hold­ing was agreed to, but that the in­vest­ment would be spread over a num­ber of pay­ments. As fairly young and naive en­trepreneurs, we saw no is­sues with this ap­proach.

They were not a pas­sive in­vestor by any means. They ac­tu­ally op­erat-

Mat Ja­cob­son

is the founder and ex­ec­u­tive di­rec­tor

of Ducere.

ed more as a con­tracted op­er­a­tions man­ager of the busi­ness. That was some­thing that ap­pealed to us as we thought that we would learn from their past ex­pe­ri­ences on how to build a big busi­ness and even go pub­lic.

Over the next few months we re­lied heav­ily on their rec­om­men­da­tions, which were to greatly in­crease ex­penses (e.g. us­ing PwC as ac­coun­tants in­stead of a small sub­ur­ban firm, us­ing high pro­file lawyers, spend­ing all our money on R&D and prod­uct im­prove­ment). The ar­gu­ment from their end was that we needed to think about set­ting up for an even­tual pub­lic of­fer­ing, not on prof­itabil­ity in the next few months.

We went along with that logic. We were work­ing to­gether on a day-to­day ba­sis with all com­mu­ni­ca­tions be­ing very pos­i­tive and no is­sues raised what­so­ever. Un­til that is, it came due for the sec­ond tranche of

I can tell you with ab­so­lute cer­tainty, even know­ing the short-term pain of start up own­ers and hav­ing learnt from my own mis­takes; it’s bet­ter to take no money than to take money from the wrong part­ner.’

fund­ing – all of a sud­den things took a turn for the worse.

We were brought into a for­mal meet­ing where we were pre­sented with a long list of things that were not as our in­vestors ini­tially pre­dicted, such as greater ex­penses on lawyers and ac­coun­tants, far more money into R&D etc. We found this some­what ab­surd as we were sim­ply fol­low­ing their ad­vice, how­ever it was clear this ar­gu­ment wasn’t hold­ing any sway. Very quickly we re­alised the game that was go­ing on and lo and be­hold, the con­clu­sion from the ven­ture cap­i­tal firm was; we will put in the same money but we want twice the shares as were orig­i­nally agreed to.

We were be­ing played, and as we were young, and they were hold­ing the cash, they thought we would sim­ply ca­pit­u­late to any­thing they de­manded.

We were very for­tu­nate to have great lawyers (les­son num­ber one!) as our le­gal con­tract didn’t al­low for them to al­ter the share­hold­ing and they mis­tak­enly thought we would be des­per­ate for their money.

It then be­came not only a commercial is­sue, but a moral one as well. We felt that we had been duped. If we had made the mis­takes we would have taken it on the chin and ac­cepted the con­se­quences. But to be de­lib­er­ately set up in such a way, there was no rec­ti­fy­ing the re­la­tion­ship in those cir­cum­stances. We in­formed them that we wouldn’t ac­cept fur­ther in­vest­ment from them on that ba­sis.

This was quite a sur­prise to them as they as­sumed we would have to take their money, but in­stead I de­cided to mort­gage my house to pay for the on-go­ing fund­ing needs of the com­pany, and in ad­di­tion I bought out their ini­tial fund­ing round so that we fully ter­mi­nated the re­la­tion­ship.

The whole in­vest­ment ex­er­cise was a huge waste of time and money. In the end, we sold that busi­ness to a global pub­lic com­pany for about 40 times their in­vest­ment amount. If they had kept to the orig­i­nal deal I be­lieve it would have been one of the best in­vest­ments that com­pany ever made.

I guess their school of thought was to try and screw people to get the best pos­si­ble deal you can… but my phi­los­o­phy is to work in a part­ner­ship that is fair and rea­son­able for all par­ties. Aside from be­ing the right thing to do, hav­ing this ap­proach also cre­ates the en­vi­ron­ment where ev­ery­one is mo­ti­vated to get the best out­come for the busi­ness.

This is a very tricky sit­u­a­tion for start-up en­trepreneurs. Of­ten they need the cash des­per­ately to get their dream off the ground, but the re­al­ity is that you need to do as much due dili­gence on the firm you are about to part­ner with as they will no doubt con­duct on your busi­ness. We sub­se­quently re­alised that they weren’t all they were cracked up to be, with very limited ven­ture cap­i­tal suc­cess. But start-up en­trepreneurs are of­ten blinded to the de­tails and sim­ply see a cheque with ze­ros on it as the vi­tal fund­ing they need to suc­ceed. I can tell you with ab­so­lute cer­tainty, even know­ing the short-term pain of start up own­ers and hav­ing learnt from my own mis­takes; it’s bet­ter to take no money than to take money from the wrong part­ner. Mat is a pioneer in the e-learn­ing field. In found­ing Dūcere, Mat works to­gether with Pres­i­dents, Prime Min­is­ters, global CEOs and other prom­i­nent lead­ers to deliver on the vi­sion of pro­vid­ing the most so­phis­ti­cated ter­tiary qual­i­fi­ca­tions.

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