Brand Embassy is now part of NICE. We sold our stake, the money is in the bank and everyone, including the buyer (NICE stock performance post announcement jumped considerably), is celebrating. We were the largest investor in Brand Embassy since the beginning and we experienced the whole journey first hand. All’s well that ends well?
I met them for the first time in 2013. I was visiting my friends Nikola and Petra in their new StartupYard offices. I came around half past five in the evening and the offices were almost empty. Of the dozens of startups, only two worked late that evening. Petra told me, “Yeah, that’s Vítek and Damian. They’re always working.” This was one of the important moments for us to give the boys the first investment. They weren’t like many other “startup founders”, enjoying the startup lifestyle. They really worked hard. They also complemented each other perfectly. Damian was dealing with operations and Vítek was able to travel around the world and ink contracts with huge corporations. He was bold and phenomenally successful. This led to us investing in two more rounds.
Brand Embassy grew. But as it usually is with B2B, the costs were always ahead of revenues. Developers need to be paid now, but invoices are only issued on delivery and with long maturity. Cash was burning at alarming rate. But there were parties on the deck, dancing, catering et al. Everyone was happy and every other month a new photo of the excited team was published on the website. We started to get concerned (by the way, the “jumping team photo” then became our internal codename for exorbitant spending). Along with our co-investor Rockaway, we started to push the guys to greater efficiency and we didn’t want to increase our investment exposure. Yet Vítek disagreed with the cost-cutting and was able to raise the money anyway. He had amazing growth rate, great contracts and great persuasion skills, so he took money from angel investors, and more of them. Over the course of few years, perhaps 50 individual investors have invested on convertible notes. This is absolutely unique and a record that will last for years.
At the end of 2017, the guys understood that this was not going to last forever and the business model was not sustainable. They had to save hard. I admit I did not trust completely, that it was not just a calm down talk. I didn’t believe they could change their style and cut it to the bones. However, at the end of March 2018, Vítek and I were looking at his monthly expenses, and I had to give him a huge compliment. They did it. Within three months, they cut off everything they could from the company. A lot of people were dismissed, some had their salaries lowered, overhead costs went to a minimum. At that moment I knew the boys will eventually succeed. That they can not only dance, but also live through a crisis.
And now, a year later, we are in a situation where the efforts have paid off. In hindsight, I also see our mistakes. I wonder if our “jump photos” judgments were fair. Maybe if they didn’t dance, it would change the culture in the company so that it would have attracted different talent. I wonder if our costs pressure did not come too early. Maybe those parties helped Vítek to address more angels. They were simply part of his journey. And I wonder, why we actually questioned Brand Embassy success internally. After all, “never give up” is both my life and business motto. I guess this wisdom just applies everywhere: give more praise, less criticism.
Vítek and Damian, thanks a lot. Thanks for the exit. But most of all, thanks for the privilege to be part of your journey.
It’s an old saying, that proper tech startup owns only two kinds of hardware: laptops and coffe maker. Everything else must be in the cloud. Cloud is great, because you do not need capital investment nor people messing with the servers. And better yet, cloud providers will compete to get your business. They’ll drown you in cloud services credit. It’s not uncommon, that you can get a hundred thousand dollars worth. That’s a lot of money saved, which is handy, especially at the beginning.
But of course, it’s not as simple as that. Cloud providers are presenting their model as “only pay for what you use”. Quite often it’s however “pay for what you forgot to turn off”. Even worse, when the cloud services are free, nobody is much bothered, that you have a unused ten-node Elasticsearch cluster for playing around with and the daily backups, which were supposed to be deleted after a month, are not in fact deleted and are stored forever. Cloud services are not cheap. The amazing flexibility you are getting costs something.
The problem obviously surfaces, when the credit runs out. Suddenly you go from zero to thousands of dollars cloud bill. In the best case scenario, you calculated with it in your projections presented to investors. Even then, you will probably need to adjust your roadmap and postpone business projects, because you need to clean up and optimize. In the not so best scenario, you did not calculate with it. And you are in trouble, because the runway you thought you had, which was supposed to get you to break-even, is suddenly too short and you have to raise some money quickly, otherwise you run out of cash. You don’t want to do that.
To avoid a situation like this, consider the credit as another source of capital. Put it on your balance sheet, alongside the money you raised or put into the company yourself. Post the cloud bill in your P&L statement and watch it closely, same as other cost. And clean up regularly.
I’ve noticed that certain young start-up founders are developing a bad habit. There are only a few of them, but some individuals get caught up in promoting themselves as part of marketing their company. Now, I know this is hard to resist, especially at a younger age: There is the constant stream of profiles that focus on new start-up stars; self-proclaimed experts flood the market with their latest motivational handbooks; Forbes is also full of it; and not a week goes by without some sort of conference with the opportunity to give a talk or record a podcast. Social networks are full of pulp wisdom and you’re admired by throngs of followers that inundate you with likes despite being wannabes themselves. I understand it all, I really do. But let’s be real here: Reading the biographies of Elon Musk and Steve Jobs and being slapped on the back by your high school buddies doesn’t make you a global innovator. Not by itself anyway.
Now it’s not my place to criticize what someone does in their free time, but when that sort of self-promotion is presented as an investment for the company, it’s a bit worrying. Those are usually the types that haven’t achieved all that much, but they’re able to endlessly discuss the right way to build a start-up at three conferences each month all while mentoring others, organizing conferences, writing books, and adding to an ever-expanding list of other accomplishments. “It’s good for the company. It’s great PR,” we often hear. But is that true? The boundary between corporate communication and massaging one’s own ego is paper-thin and submitting to the latter can be oh-so tempting. Yes, educating oneself and representing the company at events is important, but it shouldn’t be something that becomes a burden for your marketing team. And it certainly must not become something that’s the butt of jokes.
The chief disadvantage to this approach is the clear and direct comparison to people who keep working with their eyes on the prize; building a great product while motivating the people in the team. That’s the type that isn’t thinking about posting a motivational status to their profile and waiting to see how many likes it gets; it’s the type that supresses his/her own ego in favour of building the brand.
When I see that sort of behaviour, I have to stop and wonder what would happen to the company if the energy put into promoting the individual went into the team. What if instead of networking at a conference where everyone knows him, he’d take his team out for a fantastic dinner? It’s an example of poorly allocated energy.
I had two bosses in my life and I can’t recall either of them speaking at conferences, much less organizing them. They gave all their time to their companies and led by example. Neither of them wanted us to spend time presenting ourselves. I can’t imagine taking them seriously if they criticised me for my effort while they just came back from the printers where they posted the first copy of their new book to Instagram. Could I really respect someone like that? An entrepreneur needs to be a true leader and not just a face that spends a third of his/her time representing himself or the company to the outside world.
Work hard and let your results speak for themselves. Once you make it, then you’ll be a star in your own right without having to force it.