From idea to exit - Shit just got real (2of3)

Reflections of a first-time founder and CEO.

If you’re reading this and haven’t read part 1, it might be worth starting from the beginning:

Check out Part 1 of this 3-part series: Part 1: From idea to exit - An idea, to a business that makes money

Part 2 (of 3): From idea to exit – Shit just got real (Years 2-4)

“Mate, if we don’t do ... this week, we could run out of money on ...”

I have heard that panicked war cry so many times over the past few years. If you’re thinking ‘sounds like you didn’t have a clue what you were doing’ you’d be mistaken.

We knew exactly what we were doing. 

We had been trading for more than a year. We’d been exhilarated watching acquisition climb daily and then month on month, seeing our brand in consumer and industry press and monitoring impressively low rates of churn.

We were high-fiving ourselves, celebrating little milestones frequently and pretty proud of what our small team was able to do in comparison to the big guns in the industry. But quickly the celebration turns to hard work and the hard work turns to boredom because overnight the entrepreneurship and innovation is replaced by the reality of cash flow and commerce!

The hard thing about hard things

The premise of OVO was that we would use entertainment – specifically live sport at the top of our sales funnel to market and acquire subscribers onto OVO mobile phone plans. Our research showed us that live sport that had often been neglected by mainstream media not only would help to acquire customers but that we would retain those customers for longer because of our association with a customers passion.

In practical terms, this meant our cost to acquire customers was lower than competitors might be able to achieve, and we could retain customers so that our business was healthier and more profitable over the longer term.

The truth is, if that’s all there was to it, we would have been golden! Then we started to appreciate the really hard stuff to contend with that we hadn’t anticipated.

Of all the challenges, the one that we misjudged most significantly, was the challenge of acquiring sports rights. It was exhausting, time-consuming, competitive and complex and we, well we were an unknown quantity competing with the big guns.

As I mentioned we’d started with Supercars our next advance into sport broadcasting was through Sports Australia. Our plan was to emulate the Supercars model on a smaller scale using our platform (OVOPlay) to promote and monetise sports that weren’t mainstream.

Sports Australia represents the major sports – tennis, rugby, netball etc but also hundreds of sports that don’t have sufficient fan base to garner the attention of major TV broadcasters and therefore do not attract major sponsors. Therein lying the opportunity - there were still hundreds of sports with millions of fans that couldn’t watch their favourite sports because they weren’t broadcast. Sounds like a goose laying a golden egg right?

Well this great idea turned into a monumental learning curve immediately! It’s not for the faint hearted – broadcasting is really complex; production, master control, content management, encoding, transcoding, security, piracy and so on.

If you’re not sure how hard something really is then assume it is infinitely harder if you’re not even sure where to start!

We thought that the creation of OVOPlay would be pretty tough but actually we set up version 1 (I wish we’d called beta version) pretty quickly. OVOPlay V1 was a very crude a website with an embedded video player. As we slowly and methodically worked through rights deals with sports bodies including Gymnastics, Water Polo, Badminton, Skateboarding, esports and more the quality of OVOPlay improved, our capacity to manage broadcasts and with more sports, the quality of our proposition improved too.

Things were progressing well. OVOPlay was doing amazingly as a lead generator for OVO and working exactly as expected and we’d managed to secure sports from Professional drag racing to Water polo and heaps in between.

The hard thing about hard things when it comes to industry disruption is scaling across multiple dimensions simultaneously – how could we create enough brand awareness for OVO whilst acquiring streaming rights?

Well the answer is not fast enough! Certainly not fast enough to get to cash flow breakeven.

That’s when all the fun of innovation evaporated and was replaced with the stark reality of business viability, cashflow etc. And that’s when it becomes boring for entrepreneurs. Overnight the focus moves from innovation, marketing, PR and celebrations... to just metrics.

For me that is when the doubt set in. Are we doing the right thing? Is this all hypothetical? Perhaps it’s all coincidence? What else have we underestimated or misjudged that could blow everything up?!

At this time, the board was still just the 3 founders plus Barry O’Brien in the capacity of Chairman. We met monthly and quickly the agenda become two items – business metrics (that discussion lasted for about an hour) and then we’d spend all the remaining time (several hours!) trying to decide how we could protect the business from a cashflow cliff.

Upon reflection, this is possibly the point just before you “cross the chasm” as Geoffrey A. Moore wrote. Moore’s point was that it’s not until the machine feeds itself that you have crossed the chasm, and possibly there are a number of chasms to cross. That is when you go from the early adopters to the early majority. By the way, we got there eventually, but it wasn’t until very recently.

So, the question was what do you do if you aren’t growing fast enough, particularly in a low margin business with lots of costs, that can’t possibly breakeven until it’s at scale?

You raise capital.

Raising capital

So that’s exactly what we did, we raised capital. Plenty of it, and over many rounds.

Why so much – well we couldn’t reset the cost economics because we didn’t have scale and we couldn’t achieve scale without growing dramatically….and growing dramatically needed proper marketing spend.

What no founder that starts a consumer business truly appreciates, no matter how many times they’re told it, is just how much you’ll need to dedicate to marketing. I mean you know you’ll need to spend money to tell people about your product (direct response style marketing) but launching a consumer brand needs material investment in brand. Direct response marketing is all well and good, but if no one has actually heard of your brand then direct response is not likely to be massively impactful.

We once again realised how fortunate we were to have Barry in our corner. His advice was that we should raise capital with a plan to allocating the majority of this on marketing and distribution to help us scale. He marched us in to see some of the top brass in Australia’s entertainment industry, putting his credibility on the line, and we asked them to invest in OVO.

One of those introductions led to a yes and that lead to a media for equity investment. To this day I owe an immense amount of gratitude to the executive team at Southern Cross Austereo who said yes to us. Their investment is public, so I’ll leave it at that, but I’ll never forget Grant SCA’s CEO saying to me, “We don’t do these sorts of deals often, but I like you guys.” I’m not suggesting that SCA invested solely because we were good blokes (there was a heap of due diligence too) but as a founder it made me realise that it is YOU that people are investing in.

My message to any founder is to make sure you really believe in what you’re doing and you’re committed to doing what you say.

That’s how we were fortunate enough to have a major media company investing in OVO, and with that investment millions of dollars in advertising at our disposal. We raised a modest amount of cash alongside SCA’s investment and we were off to the races – we were golden again!

That gave us something new to talk about at our board meetings, the fun returned and with it a massive sense of pride every time we heard an ad for OVO on Triple M.

Scaling a Startup

We had all the ducks lined up and were ready to scale. We continued to acquire more sport, podcasts and new partners and began to spend properly on marketing – we were on billboards, on TV and being promoted by 15+ sporting brands at their events throughout the year. We were able to reset our cost economics as we scaled and that meant better margin and a return to innovating as we invested in our growth.

Despite telcos being relatively ubiquitous we strived to innovate and package things differently. We launched the world’s first purpose-built kids’ mobile plan which came packaged with Family Zone for cyber safety, and branded our mobile broadband service as ‘OVOBoom’ so that it was packaged and priced for students and renters – they both went gangbusters.

We brought on a top class CMO, Nicole McInnes to help us scale and the results were amazing. She helped us plan strategically and really stand out…I mean nothing else stood out in the telco world of 2018 as much as the headline “The Telco that gives a lot of F’s”!

Part of our scaling strategy was to move beyond ecommerce and launch retail distribution. With the insatiable determination of Lucille Kola we got ranged in Aussie Post and also 7 Eleven. For a start up the expense wouldn’t have been possible but thanks to the capital raise it was possible and the results were immediate.

We were really scaling.

We were also fortunate during our scale up phase to be introduced to Lawrence Drayton, who started as our Head of Fan Success, and whom we later promoted to Head of Operations. Lawrence built what we believe to be one of the most high performing customer service teams in telco. This team are massive brand advocates, really fantastic people and the performance of the team spoke to their commitment. The team have had a daily average NPS above 50 for more than 2 years and sometimes when we looked up it was as high as 90. To put this into context, this meant there were days when no single customer interaction (across thousands per day) were scored below 9 out of 10 by the customer. The performance of the team was phenomenal so much that the “OVO lunch shout” when team NPS exceeded 50 needed a rule change so that the NPS had to be 50 three days in a row and we’ve recently had to up the NPS target again.

My learning was that consumer brands need both product and service to be prioritised – without both kicking goals you’re still at risk of going backwards. Word of mouth really matters, especially in the social media world we are operating in and the compound effect of being awesome is that you become better every day that you treat customers well.

It wouldn’t be fair to leave out my wife, Mel, who was the Head of Marketing from year two until Nicole joined. The thing about Mel is she’s constant, organised and people like her the people that keep the wheels from falling off when the pace becomes frantic . She was always there, working tirelessly, even when we weren’t being dealt the best cards.

Of course it’s not just about the people you hire – it’s also the relationships that you form that enable your team and extend your business. During our scale up phase we had the great fortune to meet some fantastic partners who have contributed hugely and deserve a mention – Tim Levy from Family Zone, Steve Menasse and Nicole Moriarty from Butterstream, the folks at Pendulum and some amazing people at Optus.

Another thing I learned during this phase is that you don’t want to lose the people that helped you right from the beginning. As a founder you become focused on growth but the wheels still need to keep turning and it’s your job to introduce new people in to help grow the business without losing the culture and loyalty of the people, vendors and partners that helped you get there.

I grew up allot during this phase - personally and professionally. The privilege of the CEO title gave me the opportunity to meet some of Australia’s most successful CEO’s in telco and media. I learnt a huge amount just by being in the same orbit with them.

Barry introduced us to Prue & Luke from Verve along the way – these two legends really helped us scale. They thrust me into the spotlight, quite literally, and all of sudden I became a credible spokesperson (who’d have thought!) on mobile, broadband, sports rights and OTT broadcasting. Thanks to Prue and Luke I’ve appeared on Sky News, A Current Affair, Seven News, Lateline, The Business and plenty of other Radio and Print publications.

Here’s another learning to founders – PR might seem daunting and also incredibly vain but every time I appeared on a consumer talk show talking about OVO, sales doubled. For consumer brands the impact of great PR can not be understated – the effect can be immediate as well as enduring and it’s not bad for your personal profile either.

I had the privilege of being introduced to a telco luminary, and a guy that I had admired throughout my career. We had dinner together one night and he said to me, “I would never do a mobile business.” What the hell do you do with that kind of advice? But I think I now understand!

Some of the world’s most successful software technology founders flew me around the world to speak at their customer conventions and I had the privilege of keynoting at a number of major events.

This journey has allowed me to create a massive personal network of experienced people across our investor base, industry friends, and partners – the value of these relationships and the perspective they bring to support really can’t be underestimated.

That is all to say, that my personal journey has been immensely rewarding and one of privilege.

The reason that I could do these things was because of the partnership and support of my co-founders, Dave, Matt and Barry and through the talent I’d hired along the way. On reflection I think that being a solo founder would be a terrifying endeavour. OVO really was about a team, not just me, and frankly, I wouldn’t be writing this if it wasn’t for the other founders and the team we’d built.

We hired good people, there were no mistakes in terms of the people themselves, if anything we just got the timing wrong, more than once. I had to let good people go on occasion (that never gets easier), again no fault of theirs, it’s business.

We ran some great campaigns, and we had some shockers, but regardless, what we did learn as a team was that if people felt safe to speak their minds and be honest, we could react fast and get ourselves out of a hole pretty quickly…well, most of the time.

Around about mid 2018 though we hit another…rut. Market forces, challenging supplier relationships and some poor or perhaps unlucky decisions on spending and marketing. We really needed to level up or consider selling!

Raising capital...again!

So mid 2018 David and I hit set about raising more capital. This time was different – we had some scale and we actually needed cash to reset our costs and invest in more sports and more distribution – we needed a strategic investor.

A strategic investor is code for someone that will put in serious money and/or a strategic asset into the business. It was at this time that we were introduced to Incoming Media – the beginning of a fantastic match that would alter our journey massively.

Incoming Media had come out of NICTA and Data61 where they had been working on some AI and ML tech that they had patented and we could see how this could really move the needle for content services like OVOPlay. It was our conclusion that if we could successfully apply this software, and more importantly, the talents of the three incredibly skilled engineers and data scientists from Incoming Media, we could genuinely transform OVOPlay into a material revenue stream.

Moreover, if we got it right, we could help other broadcasters do the same. After all, if you read part one of this series, you’ll recall that David, Matt and I were not consumer telco types, we started with the intention to be the platform for new media distribution – we were really software guys.

So, we acquired Incoming Media. The engineering team joined OVO and we set rebuilding OVOPlay, building out a proper "A grade" OTT service, developing native apps, enabling monetisation through advertising and subscriptions and ultimately drive the multi-revenue business model that we had imagined from the beginning.

The Incoming Media team had a massive impact on the revenues from OVOPlay, and within six months we were generating revenues of more than $100k from OVOPlay. Fast forward to 2020 and projections were north of $1m (pre COVID!). In a previous role, I had watched a telco spend hundreds of millions of dollars to build something similar and achieve not even half of what we were able to do. This was a massive engineering feat.

Over the next 18 months, we also raised capital (again) and we were spending to scale further and get ourselves to the elusive point of cash flow breakeven.

We were scaling in a difficult time – across the market telcos were struggling. The downward pressure characterising the market was certainly against us, ARPU’s were tumbling and we knew we needed to get to a sustainable position quickly so that we were an attractive prospect to investors if we were to IPO, or to potential acquirers.

The diamond reveals itself

In parallel, Tanya and I (Tanya now in her 15th role at OVO) rebranded Incoming Media to “Sourse AI”. We rebuilt the collateral and repurposed some of the IP and services with the engineering team. We re-platformed the core software and started adding new capabilities around personalisation, recommendations, and started experimenting with some other techniques such as video analytics. We also started measuring the impact that Sourse was having on OVOPlay and that compelled us to dust off our software sales version of ourselves.

We hit the road in Asia, NZ and Australia to start selling Sourse and within 18 months we had several licensed customers across media and telco.

We were really proving out the technology assets as a standalone SaaS platform just like Amazon and AWS do. We were building something for ourselves with a view to ultimately licensing it to brands to use to build their businesses and address their business metrics.

Meanwhile, what ensued was 18 months of constant tug of war between spending, saving, optimising and experimenting. There were tough conversations happening all the time. The telco part of things wasn’t a huge amount of fun to be around, honestly. In fact, there were some really bleak days.

Lots of folks came in to help, which of course costs a lot.

We were turning over more than a million dollars a month and growing, but sometimes not the right sort of growth. It really was an eye-opener into the start-up philosophy of growth at all costs versus profitable and sustainable growth.

Reflections

There’s plenty of war stories there, but the point is, through a lot of grit, determination, and commitment from the team at OVO and a whole range of advisors - we survived!

Ultimately there came a point where it was time to test the market and seek some form of liquidity event.

Check out Part 3 of this 3-part series: Part 3: From idea to exit - The journey is more important than the end