Trade Me’s $30 Billion classified businesses

Over at Fairfax columnist and mate Mod O’Donnell* writes that last year there were 782,000 changes of registration for cars, and that 58% were private to private sales.

If you are going to buy a car privately these days, there is really only one place to shop: Trade Me Motors. (Please let me know if I am wrong and there is another sizeable viable market.)

Let’s be conservative, and say that Trade Me is part of the sale of not 58%, but 40% of all private to private car sales in New Zealand. There really is, to be fair, no other viable venue for selling cars aside from to friends and family, so I think this is too small.

There are currently 12,000 cars listed under $6,500; and another 14,000 between there and about $11,000, and over 32,000 cars listed over that number. Nobody really knows what the final prices are, so I’m going to estimate an average sale price of $12,000, assuming that the cheaper priced cars are more likely to sell.

So we can now estimate that Trade Me Motors is responsible for:

782,000 NZ sales x 40% of the market x $12,000 average price
=$3,753,600,000 worth of private to private car sales.  

I feel that the estimates of both average sale price (ASP) and the share of the market that Trade Me touches (40%) are low. If we nudge the ASP up to $15,000 and the market share to 50%, then the result is $5.865 billion.

However essentially every motor vehicle dealer worth their salt is also advertising on Trade Me, and dealer to private sales represent 24% of the total market. Their average sale price will be higher than the $12,000 assumption, say $15,000, and let’s take 60% of dealer sales and ascribe them to Trade Me.

782,000 NZ sales x 24% of the market x 60% of sales advertised on Trade Me x $15,000 average price
= $1,689,120,000 worth of dealer to private vehicle sales.**

Add the two together and round and we get a range of $5 to $7.5  billion worth of car sales that Trade Me is responsible for – let’s choose $6 billion as our estimate. The entire New Zealand GDP is about $210 billion, so that’s a substantial part of our economy.

Mod, the writer of the article, was originally brought into Trade Me to build the Motors business. I think we can say he succeeded.

We can also say though that Trade Me has removed vast amounts of inefficiency from the car sales market, and that means lower prices, easier and faster sales and a fairer market for all. There is still plenty of room to go, however, and Mod writes about dealers being incredibly unresponsive when contacted about cars across at Stuff.

And for those who like big numbers, Trade Me also has over 52,000 houses listed for sale, the average house sale price over the last 12 months was $380,000***  and over $35 billion of houses were sold in the last year. Trade Me Property and RealEstate.co.nz have divided the market for a while, but it’s fair to Say Trade Me has eased ahead. I would assume that almost all properties sold these days are listed on at least Trade Me, and most often RealEstate.co.nz as well. So let’s grant Trade Me 60-70% of the total, which is a range of $21.5 to $28.6 billion. Let’s choose $24 billion as the overall estimate, add it to the $6 billion for cars, and we get a nice round $30 billion in sales that Trade Me is responsible for. Compare that to our GDP of $210 billion again.

Trade Me also do jobs, but let’s not start that.

Real estate agents also exhibit many of the characteristics of used car salesmen – they are often slow to return emails, rarely qualify you when you do so and they add a tremendous cost to the process – commissions. Selling privately works for some, if you have the time and penchant for negotiations, but I do recommend, of course, that you try 200Square.co.nz****

 

* He writes so superbly well, far better than I did when I tried my hand at Fairfax Business columns.

**We are also missing from the equation the influence that Trade Me has on new car sales, and the lessor effect on dealer to dealer sales.

*** REINZ market facts

**** I’m a shareholder and director.

Goodbye to the flower

 

PowerKiwi

A few years ago I met a bunch of revolutionaries who were working on a new way to sell power – a marketplace to sell electricity called Powershop. Ari and the team were about to launch their shop to the public, but I noted that they had no independent power retailer, and needed someone to act in that role.

Enter Powerkiwi, and our flagship product, FlowerPower. We joined as the only independent retailer on Powershop, and we have been delighted to have been a part of Powershop’s very successful journey over the last several years. We saw them deliver over 1.29 billion units of electricity to happy customers around New Zealand, and a quarter of that amount sold was under our Flower Power brand.

But all good things must end. The Powershop business model is maturing, moving from a competitive marketplace into a low-priced superstore. With the change we will see a Powershop site that is far more simplified, and they will have increased ability to move quickly both here and offshore. We think they will offer a far stronger proposition to the next wave of new customers.

Unfortunately, this maturing and change in direction means the Flower is no more. We accepted an offer from Powershop to buy us out of our reseller arrangement early, and the last Flowerpower sold by us will be before midnight tonight, the 30th of June. Powershop will have the rights to sell Flowerpower in the future, so I hold out hope that it will be back before long, in some form or other.

While our revenues at Powerkiwi grew at an astronomical rate, we were always conscious that all of the real work was being done by Powershop, and we were assisting with marketing only. This was also an incredibly low margin business – we could not even afford a single employee.

Regardless, it was an absolute pleasure to be part of the journey, one which saw us collect 2nd place in the Deloitte Fast 50 last year, after Powershop themselves collected the top prize in 2011. We were also proud to be able to make a number of donations to causes we thought deserved support.

The timing is right for me as well – I’ve switched my focus to the Punakaiki Fund.

The rest of the team, some of whom have come and gone during the time, are all still involved in early stage ventures. These include two where I am a shareholder. I expect to see Vend, which had early assistance from former shareholders Rowan Simpson and Southgate Labs, feature in the Deloitte awards this or next year, while Nik Wakelin, who co-founded online real estate agent 200Square, will no doubt be there in the future also.

The end of TV as we know it – and good

Many of us are already there – living in a world without Sky TV or terrestrial broadcasts, as well as abandoning  newspapers, books and magazines. My own setup is all- Apple, using iPads small and large to read books, an Apple TV to watch movies and programs and phones, computers and iPads to browse the web. Since getting rid of the Sky box I’ve freed up considerable amounts of time, and freed myself from the tyranny of having to know everything about by favoured sports.

But despite the rise of the internet, the iPad, the iPhone and the computer itself; and despite the rise of peer to peer content such as Facebook, Twitter, YouTube, blogs, Vine and everything else, we still see vast money being spent on SkyTV and broadcast TV. The bulk of that money directly from consumers is captured by Sky TV, and Sky TV does so because it can deliver all of the channels in high quality, including sport.

Sky have locked up the rights to the content that attracts loyal customers willing to pay money. That content is primarily rugby, with all other sports taking a secondary, niche position that is the significant factor for many.

These days it is possible to replace Sky Movies with superior quality and quantity of movies from Apple’s iTunes (US store) or torrents. TVNZ, TV3 and others host their content on the internet, and even Sky offers an online service, but only to subscribers.

For those that persevere, and who don’t mind bending a few rules, it is possible to get all of the content onto your computer and then TV. Possible, but not that easy in most cases, and at lousy resolutions to boot.

So while some enjoy being at the leading edge of technology, most are allocating their income and time to more important things like food, shelter and education, and yes, for half of households, a Sky subscription. While most households do have a broadband connection, not so many have computers and tablets and TVs that can seamlessly send content between themselves.

Enter Coliseum Sports Media, and the transfer of the rights to English Premier League football from Sky to an online service.  In New Zealand football (soccer) is a niche sport, yet English Premier League has a significant number of devout fans – here and across the world. Fans will be able to pay $150 (or more or less) and get access to the games over the internet. Coliseum promises it will be easy to flick the content from the internet to their TV screens.

So what’s good and what’s bad about this?

The Good

  • It will give a reason for a significant number of households to migrate to UFB
  • It will give a reason for a wave of households to set things up so that they can easily watch internet video on their TV. That means it’s easier for the next wave of sports and other content such as local and foreign moves and TV programs.
  • It will provide global evidence for (or against) the migration of TV from Satellite/Cable to Internet, bypassing the current content middlemen.
  • If this works, then every other niche sport will be lining up to fund similar providers, and that will mean better service for fans, more money for those niche sports and better connection and communication between fans and the sport.
  • With the emergence of a viable alternative, expect bidding wars to increase the income to all sports, especially Rugby here, NFL in the US and soccer everywhere.
  • Thousands or perhaps tens of thousands will be able to take their Sky box back to sky, saving $100 per month or so.

The Bad

  • Fans of both football are up for an additional $150 per year, along with the set-up costs if they have not got internet video working on their TV.
  • Some households on the end of slow internet connections will have a very poor experience, either degraded from HD quality due to speed, or even essentially no video.
  • Satellite and Cable TV operators have their livelihoods on the line. If they lose the core sports (Rugby, NFL, Soccer) then their reason to exist drops away. Expect their incentives to purchase the larger sport rights to rise even higher, and profitability to fall.
  • ISPs in New Zealand have ludicrously low data caps, and until these are removed we will continue to bask in the sunshine of the past, and penetration will be low.
  • Sky and TV broadcasters pay or commit to pay for shows and sports upfront, whereas pay as you go makes it much harder for direct to internet content to be made. We will still need deep pocketed middle-men to commission, and price, programs. Expect change to be slow as the deepest pockets are with Sky.

I’m all in favour of this, of slicing content up so that we buy what we want, and of encouraging the acceleration of the UFB rollout. It’s a great deal, and well done to Colesium and TVNZ in the background for getting this content away from Sky.

The future is obvious – every bit of content is delivered over the internet, and we can pick and pay for individual or bundles of content, or else get it free elsewhere, legally or not. That means prices need to be fair, content needs to be available and woe betide anyone who tries to fight the rise of the internet

Survival Rates are high – so why not start something?

We hear a lot of numbers about survival rates, so it’s gratifying to see some quality statistics from Statistics NZ, via this MBIE infographic.

It measures 3 year survival rates, and to me three years is about the time it takes to  figure out whether a business is going to enjoy sustainable growth or not. Obviously businesses that are successful are more likely to employee people, and with more people employed the chances of failure are a lot lower.

Start-ups can take faith from the 1-5 employees line, where 69% of these businesses are still alive after 3 years.  Even for zero-employee new companies, like Powerkiwi or MyTours* over half survive for over three years.

So what’s stopping you starting a business and employing some staff? Chances are you will succeed.

*Until this year – we now have our first employee.

On the growth curve – from Timely to Trade Me

Ryan Baker and Andrew Schofield have done it before, building BookIt and then selling it to Trade Me in 2010. It’s 2013, and the pair were still spending time at Trade Me up until a few months ago, but were also working on a new company – Timely.

Timely is an online service for companies who run appointment based businesses. Their website is a homage to doing everything right for cloud based businesses selling to small business.

I’ve been watching progress for a while, and today it was great news for Timely that they have attracted a round of funding from Rowan Simpson. Rowan was the logical first investor, as he has not only been part of both Trade Me and Xero, but was also a first investor in and a key part of the growth of Vend. Rowan has a knack of not just picking winners but also of being picked by winners, as all of these companies are on lovely growth curves.

In fact these companies collectively almost define a company maturity growth curve:

Despite the continued growth, Timely is still at an early stage, and will now need to build out customer service, product development and sales teams and performance. Their job is to prove that the next round of investment, which should be over $1 million, will almost certainly get more growth and returns. Unlike when Trade Me and Xero began, but like Vend, they are in a competitive market, and sowill need to carve out a global niche for themselves. Overal I seea very strong chance of success and wish them well.

Vend is a bit further ahead, and their job is right now focussed on building their team from 40 to 120 so that they can expand, build the product features and serve customers. They are recruiting for a new office in Toronto and recently opened one in Melbourne.

Xero, like Timely and Vend, is addressing an enormous global market. Their job is the same as Vend’s, to run as fast as they can while building out their sales, support and product development and operations capabilities and results. They are looking for hundreds of people at the moment, and the key for them (and Vend) is to keep the culture consistent as they grow.

Trade Me is the aging rockstar of the group, and sadly for them addresses only the domestic market with their core product. Their challenge is to find the next wave of products that will allow them to get back on to a larger growth curve – say one aimed at the rest of the world. They need to do that while also making sure they stay ahead of the pack in New Zealand. Their website used to set usability standards, but now their products seem a bit dated, if still dominant. They have significant opportunities if they can grab them, and being unleashed by the IPO seems to be helping.

Ten things we know, and we assume you know

I’m struck that there are some basic things that those of us from the Internet sector just take for granted, and yet sometimes appear to be new ideas to those used to other sectors.

We learn these basics by being founders, being embedded in the start-up and growth ecosystem, taking part in events like Webstock and Gather and by reading sites like Hacker News, books like Lean Start-up and following and understanding stories like Amazon, Apple, Trade Me and Xero.

So without further ado, here are 10 top of mind basics for early stage companies in NZ.

  1. Start with nothing, engage with end users and and build a prototype product, before seeking money from investors. It’s easier to invest when you can see the product and talk to the end users.
  2. Organic Growth is better than paid growth. It allows us to scale up and improve the product, sales and customer service as required, and allows investors to see a track record of growth and a curve ahead.
  3. Products and services need to constantly evolve, based on learning from customers through sales, observation of how they use the product and greater understanding of their unmet needs.
  4. Usability and design is critical as it drives end user delight, and happy end users is what drives lasting revenue. The drive for end user delight should come from the top.
  5. Monthly subscription revenue is one of the best business models, with recurring revenue from loyal customers close behind. It means that you can focus on growing the monthly revenue through product improvements and reducing churn.
  6. IP and technology are generally overrated as a competitive advantage, with companies often worrying about patents and secrecy rather than developing compelling products. The compelling part of a technology is that it is integrated into products that sell.
  7. It’s ok to make losses as you are rapidly growing and increasing market share. Amazon set the standard, as they still makes a loss but is worth $120 billion. They have almost doubled sales in the last two two years to $60 billion and had over $2 billion in free cash flows in 2010 and 2011, down to $395m last year. Their loss was 19 cents per share, and their shares are worth $278 each.
  8. The technology and internet sector is already large in NZ, with 34 ICT companies in NZ earning over $50m, 18 over $100m and the tech sector itself is worth over $23b a year, and third biggest. Above all – it’s growing very quickly.
  9. Great staff and leaders drive the fundamental value of companies.
  10. Get on a plane and sell. Nothing beats getting face to face with customers and stakeholders, and New Zealand based companies are only one flight away from a number of key markets. We are lucky to have the worlds best airline, so use it.

 

Standing again for InternetNZ Council

After much agonising I’ve decided to stand again for the InternetNZ council. It’s an important organisation, and we have seen excellent results over the last three years. While the demands on my time have sometimes been very high, the cause is worthy, and it has been rewarding to meet and work with a wide range of new people.

Members for more than three months will be allowed to vote for councillors, and I encourage everyone to sign up the the superb NetHui.

Here’s my election statement:

I’m proud to be a current InternetNZ Councillor, finishing my first term with this election, and I seek your vote for this 2013 election.

The last three years have been a great time for Internet NZ. The team and members responded with energy and intelligence to bring a calm and authoritative tone to a large number of critical policy debates. We’ve also been active in less visible work including IPV6 and Internet Filtering, and in supporting the 2020 Trust in getting better at helping people to learn and connect.

But we really caught ourselves doing something right  with NetHui, and kudos goes to Vikram Kumar for both pushing for the event, and coining the name. This year promises more than ever, and I’ve been impressed with the continuing professionalism in the preparation and conduct of the event under the acting leadership of Jordan Carter.

But we can do more. A lot more: 

  • Too many people are not connected to the internet in New Zealand. Statistics NZ reports 331,000 households don’t have broadband and 63,000 households with children don’t have internet*, and that’s unacceptable. We can count the number of disconnected better, and we can work to connect them and keep them connected.
  • There is no single authoritative place to find information about the Internet in New Zealand. We are the natural place to collate and host it.
  • Our policy makers and media are often at a relatively early stage of a learning journey in topics that we know well, albeit often a rapid one. We are the natural providers of fact-based independent advice and education.
  • New issues rain upon us all of the time, and we need the scale and experienced hands on the team to be able to present well informed and aligned responses and advice across a broad range of topics.

However:

  • We have perennial discussions about the scope of Internet NZ. Are we guardians for the infrastructure and values, or are we also guardians for matters that are more material today, such are privacy, security and copyright?  We need, in my opinion, advocates in NZ for all of these matters, and to ask if not us, then who else? for  issues like copyright, PRISM and TPP.
  • We are wonderful custodians of our .nz mandate, but I worry that a large share of the source of our source of income is from purchasers of domains for profit, who may switch to more lucrative gTLD offerings. NZRS will need Council support and guidance that allows them to conduct their business in a newly competitive realm while still adhering to the Society’s values.
  • We hold funds, most of which are payments in advance. We have an incredibly conservative bank-debt-only investment strategy, and need to continue to gently explore more professional ways to manage those assets. That means we need professional investment heads around the Council table, to act as a committee to advise the council and the external parties who are the investment professionals.

What I stand for

My shared mission is simple – Let’s connect everyone at ever increasing speeds, let’s help individuals and business take advantage of this wonderful infrastructure to improve society and the economy, and let’s create the best environment to create and consume content in the world.

But let’s also ensure that while we are a non profit, that we are unafraid of money. Money allows us to better achieve our objects, but like any business we need to be prudent and take a long-term perspective.

Bio

I’m a founder, director, active investor or advisor to several early stage companies including 200Square, PocketSmith, Vend, Lingopal, myTours, Powerkiwi, Define Instruments, Cadimage and more.

I’ve recently launched a fund management company a colleague, and that in turn is launching a fund, Punakaiki Fund to invest in growing Internet, Technology and Design-led businesses.

I’ve been a part of the NZTE Better by Design program as a private practitioner, and serve on the Return on Science Investment Committee. I’m also the current Chair of the Council’s Investment Committee, and was a driver in creating the strategy and committee itself.

I was a co-founder of Pacific Fibre. We tried, and I learned a lot. It’s now the time for someone else to have a go, and one of our team is now with Hawaiki.

http://nz.linkedin.com/in/lancewiggs

Writing: Blog at LanceWiggs.com and business advice column for Idealog.

Education: MBA (Yale), B Tech (Massey) and a large number of professional development courses, including the COMU/Massey course in governance.

Member of the Institute of Directors and (currently unpaid) member of NZICT.

The non-visible community

Today we saw an announcement that Optimizer HQ has raised $4 million from local and offshore investors. They are apparently considering an IPO, but needed cash to tide them over for the next few months.

For me Optimizer HQ, who have 60 staff here and offshore, comes out of nowhere, from the non-aligned community or non visible community in the diagram below.

I know very little about them aside from what I can read on their websites, but it’s yet another sign that the number and size of the early stage and growth companies in the innovation sector is a lot bigger than anyone has yet recorded. The NZ Young Company Index, which VIF reports, records around $36 million of investment goes into the sector each year. My own belief is that substantially more than that is being invested, and that there is also even more substantial pent up demand from quality companies.

Favorite posts – reboot

I’ve just re-compiled the Posts I like page. That meant trawling through three years of posts. I’ve typically avoided highlighting the ones about businesses, but a few are in there.

Three that were older favorites:

And the motorcycle pictures bought back memories of snow and sand.

Much ado about strawberry jam: End Users please Air New Zealand

I’ve written at LWCM about focussing on the end users, not the customers. While customers may be good for short term cash, lasting value comes from making end users happy through delivering to them valuable services and products.

In turn, companies that create a culture of over-delivering to end user needs, who execute well, and who are good at finding and retaining great customers will create long term value for shareholders.

Air New Zealand has in recent years been a shining light for placing the end user at the center of their operation. To me the transformation over the last few years was superb, and the airline was justified in winning the awards it did. I do still enjoy the flying experience, but tonight I was reminded that the airline is eternally at risk of forgetting about their long term value at the feet of over-emphasis on selling. This needs constant vigilance.

The first sign was the realisation that I paid for travel insurance on a trip a few weeks ago. I only realised when I saw the invoice:

Air New Zealand managed to extract $18 from me for a service I did not want and value at less than zero. Less than zero because the pain of unclicking the travel insurance box is a waste of my time and interrupts the flow of each flight purchase transaction. The interruption to flow means I am marginally less likely to buy. Meanwhile the amount is too small for me to bother to waste my time to call to explain the problem and ask for a refund.

The second reminder was an NZHerald profile of new CEO Christopher Luxon starts “Air NZ boss Christopher Luxon has sold everything from soap to icecream. Now he wants to sell tickets – lots more tickets.” Luxon arrived at Air New Zealand from Unilever, a sales-led company that sells products which surprisingly we have none of in our house.

Luxon talks about growing the market pie for travel rather than just winning market share, and that’s absolutely right.

But then there was this:

A change in strawberry jam supplier saved the airline $200,000 a year … The new jam was “good enough” ‘

Now we know. The food on Air NZ is “good enough” and not “Air New Zealand quality.”

I know that most flyers are going to accept the lousy jam, but for me reducing the quality of jam is a symptom of erosion of the Air NZ experience. It sounds trite, but I have for years examined the backs of jars of jam (and other products) to make sure that the ingredients are acceptable, and I do so on planes as well. For everyone the taste left from each trip will diminish ever so slightly.

Let’s not blame the new CEO – the procurement process a year or two ago for tea and coffee on domestic flights no doubt saved a bundle of cash for Air NZ, but the price for flyers is now wretched undrinkability.

These little things sum to the customer experience, and Air New Zealand’s focus on the customer experience is what won those awards, bought record numbers of tourists to our shores and helped move our domestic economy.

For me the key champion of the customer experience (over the shareholder) has to be the CEO, supported by the board. If not, then who will it be? And how would anyone else  ever have the power to keep the tasty jam over the short term voice of the shareholder?

In this instance we the people of NZ are the majority shareholders, but we also derive benefit far beyond the profits of the airline. Every passenger Air NZ brings to or from New Zealand contributes to our economy and society. Every pleasant trip makes us happier and less frustrated. This is something worth preserving, as any flight in the USA will remind us.

What should Air NZ leadership do?

1: Keep it up

Please continue to place the end user, that’s us flyers, first. You’ve done so for several years now and the staff and service are fantastic.

2: Door to Door, end to end

There seems to be increasing acceptance that the trip is door to door not gate to gate, and that trend needs to continue, whatever the mode of land transport.

The mPass iPhone application and the revamped check in process are superb, and both have obvious room to improve and hopefully development paths. But the website is grossly dated, and the opt-out steps conflict with the goal of simplicity.

3: The next big thing

But that’s the status quo – continuous improvement is only standing still. We need Air NZ to keep surprising us with a series of “one more things.”

Consider putting yourselves back into our shoes, but lifting your standards of minimum acceptableness. Train yourselves to get frustrated easily, like I do, and to observe the point of pain that earned the grimace.

To start, book your own end to end travel, and do so using your own retail website and other services. Drink the tea in flight, eat the cheese with inadequate crackers, and sit at the back of the plane.

I’d like to see the next generation of products emerge from a Hanger 9. I’d like to see things that nudge passengers to get on and off planes faster, that make booking and flight management a joy and help travellers of different types self-identify and get what they need.

When it’s more fun and easier to fly, we fly more. And that’s good for Air NZ, the economy and the country.

Punakaiki Fund – and Photos

Punakaiki Fund issued this press release just over a week ago.  Pre-registrations are going along very well. We are meeting with selected accredited investors in the coming weeks, so get in touch if you would like to be included.  

I cannot really say more than this due to securities law.

Punakaiki Fund Limited (Punakaiki) is pleased to announce that it is considering raising between $20 million and $50 million by Initial Public Offering (IPO), to fund investments into high growth potential New Zealand companies.

The proposed offer of ordinary shares to the New Zealand public is expected to commence in late June to July this year.

The company intends to appoint Lance Wiggs Capital Management Limited as manager.

Punakaiki intends to apply any funds raised from an offer to invest in New Zealand-based growth companies, including seed stage and focussing on early and mid growth stages. Punakaiki will seek to make long-term investments in companies which can demonstrate the ability to:

  • generate early revenues to validate their business model;
  • follow an attractive revenue (and profit) growth curve; and
  • create a sustainable competitive advantage through the clever use of internet, technology and/or design.

Punakaiki director and co-founder Lance Wiggs said: “We can say very little about this offer right now as we are bound by NZ Securities law. We are working hard on getting ready to make the offer to the public, and expect to do so towards the end of June or in July. To help potential investors we have launched Punakaikifund.co.nz, where we are accepting pre-registrations of interest until June 14th. As we all know from recent events that doesn’t commit investors to anything, but it will allow us to keep investors informed and also inform us about the opportunity.”

No money is currently being sought by Punakaiki and no applications for shares will be accepted or money received unless and until a combined investment statement/prospectus containing information about the offer has been registered and has been received by the subscriber.

Contact:

Lance Wiggs
Director

Phone: 021 526 239
Email: lance@lwcm.co.nz
Twitter: @lancewiggs

Meanwhile I have just returned from our annual visit to the deep South via motorcycle – stopping at the the Brass Monkey rally. Along the way I took the time to take a few photos in Punakaiki.

Investing on the dot – Syft

Some early stage investment is speculative, and other investment is into a steady growth curve.

Christchurch based mass spectrometer company Syft seemed to never want to emerge from the speculative early stage, absorbing over $30m of investment and revenue without ever lifting out of the starting blocks.

But now things have changed. There’s a new CEO in town, my friend and fellow Yale MBA Doug Haste, and there is Syft steadily selling the Voice units that they spent so many years developing. Syft have just closed a round for $3.5 million, which does not seem like a lot compared with previous rounds, but is meaningful now, and at a very good price.

My take is that Syft spent too much time being a science and engineering compamy rather than a sales, customers and end user company. This was not helped by obtaining government grants to further research and development, as laudable as that was. Nor did a team full of scientists and engineers focusing on science and engineering help.

The same team, minus a few lost due to belt tightening, remains, but things have changed.   Doug, famous for his Chanui Tea advertisements, has shifted Syft since he has arrived last year into a customer and sales-led organisation. It started in his first week when he and almost all of the staff stayed behind to paint the offices, and continues now when those same scientists and engineers are driving the distribution and sales efforts. With the business now focused on selling, manufacturing and product and process improvement, the sales are mounting and the income is flowing.

However Syft were burdened until now by high levels of debt, and by the need to borrow in order to buy parts. With the $3.5m that need has now gone, and so the P&L will also look a lot better without the interest and fees associated with the debt.

So from outside I see that Syft have entered their phase, where every dollar invested is gainfully used to grow sales. With money in the bank they will able to build inventory,  manufacture more quickly, and, even stock the several hundred thousand dollar Voice units ready for sale.

I call this investing on the dot – investing at the sweetspot stage when it seems fairly clear that solid growth is ahead to a clear yet diverse market and with a defined and improveable product.

Syft have little credible competition when competing head to head in many applicaitons, and for now their job is to build and nurture the distributor network and to build and service units. The more customers in the more regions that they get, the more they are insulated against lumpy or low sales volumes in a particular region or customer.

As for investors in the current round? We, and I was one of them, and we are gaining the benefit of the millions that were invested before, and at relatively cheap price. Investors have been hurt a lot in the journey to date, and so this round was at a very cheap price (a down round) to encourage investors to ante up. The low price will mean some investors who did not put in will be diluted a bit, but it rewards others who over subscribed.

The winner in the round is the ACC fund, who over subscribed with $750,000, and is now the largest shareholder. They see that what Doug is doing is great, and it’s also nice to see Doug on the register with just under 5%, but that should increase to 15%. There are 1.1 billion shares on issue, so my few million are beneath the reporting limits of the companies office.

For me this is a long term investment, and I’m investing not in the technology, which is great, nor the staff and leadership, who are also great. Instead I’m investing in the long term sales story, the ability to steadily grow sales over the next 10-20 years without recourse to another funding round.

And if I’d had more to invest, I would have, and I also invested in Vend’s last round so the well was dry.

MiniMonos is closing; MinoMonsters is hiring.

No – they are not the same company.

Sadly Kiwi Melissa Clark-Reynolds’ MiniMonos is closing down. It’s a virtual world for kids full of monkeys, and seems to have had a good run, so this is a tough time for Melissa and her team. The tag line is “love to play, love the planet” and it was aimed at younger folk.

The problem was stated as losing member numbers. My take is that their target market was ever changing, as kids grow up, which means the site would have to constantly get a new generation of kids on board. Meanwhile the technology and gaming world moved quickly on to the next thing, in this case iPods, iPads and iPhones. It seems that their outstanding customer service and other efforts came at a cost that was to high versus their declining revenue.

Meanwhile similarly named MinoMonsters is hiring engineers.  Here’s their web home page, which simply points to their iPhone app:

and that app on  iTunes is doing very well:

2446 reviews, a very high rating along with that and a long list of potential in-game purchases. This looks like it’s well loved and making good money. The game promises that you can “collect, raise and battle your way to greatness”, and is aimed at everyone.

Aside from the names and cartoon look, it is a little random to compare these two businesses. But doing is interesting to show how the world has moved.

I see three definitive differences between the games:

  1. MiniMonos is Flash based, aimed at kids using computers, while MinoMonsters is iOS based, aimed at people using iPhones and iPads. While Flash is still surprisingly huge, the world has shifted hard towards Flash-less mobile devices.
  2. MiniMonos is a wander around and touch world aimed at small kids, MinoMonsters has battle element and is attractive to people of all ages. Older people have more money to spend and ability to spend it.
  3. MiniMonos is played in a virtual world with others, MinoMonsters on your own device in your own time. A virtual world needs other people in it to interact with, and once others start disappearing the reasons to stay evaporate. iOS games have various techniques to bring in gaming with friends and strangers, but they are often playable when the other party is offline.

So what should MiniMonos do?

It looks like they have done the right things.

Firstly they have launched not one but two iOS applications. The first, MiniMonos Flight was released in 2010, panned by the handful of reviewers, and best left alone. The second, MonkeyMe, which seems to have just been released, seems much better. It has 7 reviews in the US store, all positive, and while the cynic in me discounts the first few reviews, the current paying customers if MiniMonos will come across to try out their free coins. The app lets players create monkey avatars, share them with friends and enter a daily competition. It’s an interesting approach that keeps the community aspect of MiniMonos while allowing offline play. Time will tell how it works out, but at the very least it will be a lot lower cost and  maintenance than the MiniMonos flash site.

Secondly they made the hard call and closed down the MiniMonos site. It’s hard to watch something that you have poured a lot of money and effort into get switched off, but it’s the right thing to do as it frees up that time and money to focus on other internal or external work. If the paying customer numbers are not rising, or start to fall, then in general teams need to take a hard look at the reason why, and either change things up or walk away.

And thirdly they will surely try again. There are a lot of learnings on the path to failure, and while the iOS app may or may not be too late, the MiniMonos team no doubt has plenty of other ideas to dive into.