Andrew Vasylyk, Founder of StartupSoft
Andrew is a founder of StartupSoft, where they lower the risk of startup failure by leveraging software to directly address top reasons why startups go under. Andrew also runs a podcast called Startup Exits, where they get insights from founders that started, ran and sold a tech company.
AUTOMATED EPISODE TRANSCRIPT
[00:00:01] You're listening to Scaling Up Services where we speak with entrepreneurs authors business experts and thought leaders to give you the knowledge and insights you need to scale your service based business faster and easier. And now here is your host Business Coach Bruce Eckfeldt.
[00:00:20] Welcome everyone this is scaling up services. I'm Bruce Eckfeldt.
[00:00:23] I'm your host our guest today is Andrew Vasylyk who is founder at StartupSoft. And we're going to find out a little bit more about the company and his background in the startup environment. Learn a little about what he's doing with investment and services. Andrew welcome to the program. Thank you. Great to be here. So why don't we talk a little bit about your background before we get to the startups often and kind of what you're doing with the service model. How do you get into attack how do to get into startups. What was your background effort.
[00:00:48] I got into startups about five years ago with my brother.
[00:00:50] We were in the middle of university studying psychology so it's kind of a prudent redundancy program and somewhere I think second year for me we the startup bug we had a bunch of ideas that we wanted to work on.
[00:01:04] Yeah. And then it pretty much got to a point where we had either teams part of life or we can do it with education and we chose startups. So we we ran through a couple of ideas and and yeah we were done unpacked and texting one of the guess tech companies that we we had were similar to Canada. He was in the electronic cigarette world at that point cannabis was legalized yes. We had some plans of kind of getting into the cannabis space knowing that it was such a huge kind of black market at that time was going to become a non black market crop. Now we're sort of forced into the service business which is probably a different world than what we're used to but you know some degree of thought.
[00:01:41] Yeah. And what I guess was prompted focusing on this need I guess what was the problem that you saw that you said well if we could solve this that could be a really good business.
[00:01:50] So it was a personal problem for my brother and I were both non-technical and you know you're not a technical founder you have an idea you want to get it off the ground. How do you do that. You know you talk to mentors and you talk to investors and whoever and everybody gives you the textbook answers you're gonna get a co-founder. The reality of the situation is a lot more complicated. It's not easy to find a co-founder and it's very difficult to find a good tackle on there so ends up happening for a lot of startups as equal offshore outsourcing and most of them get burned. The best thing in the world to outsource an MVP and we had some pretty bad experiences ourselves so we saw that this is a problem that we had. We've seen a lot of other entrepreneurs haven't and that's the problem. We wanted to go out there and that's when we didn't really know exactly how we were going to tackle this problem but we had some kind of personal expenses with us so we had a we had a start and then we kind of signed off on that.
[00:02:41] Yeah. So yeah I see that a lot. I got a lot of folks coming to me saying hey do you know any technical co-founders ever. Everyone's searching for their technical co-founder. It seems like these days. And why do you think that is like what. Give us a sense of your kind of assessment of the kind of market challenges and the market problems that leads to this lack of technical folks that can help in the early stages of companies.
[00:03:02] Well I think the startup at their core are very risky ventures especially in the early days getting involved as a co-founder technical or non-technical there's very little chance of any sort of fail. So most people you know if you get a you have to offer them on the table once for a normal job where you're getting paid and able and the other one is a startup unless you're crazy passionate about the founder you're probably gonna choose a regular job. So I think that's one reason another reason is lack of network next year or the future for a second venture and you haven't had any big quick offers or don't have a huge network then it's not really that easy to convince people to join something that possibility stage.
[00:03:41] Yeah I think those are both very true. I think that kind of access access to the market is a huge one I certainly see not to over characterize but I do find that you know most technical folks are not super strong networkers. So you know being able to kind of get out there and get access to some of these offers of these opportunities is a bit of a challenge or at least getting enough of them that you feel like you're making a good decision. You may you may find things come across your desk but knowing that you're looking at lots of different offers and you're actually choosing the right one for you as is hard. But yes certainly that kind of the lack I know in New York here it's it's kind of this combination of lack of talent and also that competition for talent. And we've got a huge financial banking industry here that tends to suck up all the high on talent and happens to pay them stupidly high 30s in terms of you know a full time job so it's particularly hard in places like this you know in terms of the offshore I mean I you know I see this happen a lot. I guess what do you see as the kind of typical pattern when people say all right well I can't find a technical co-founder so I'm gonna go I'm gonna go at my own I'm going to find an offshore team to work with. Where are they typically going what are the options that you see most of these kind of non-technical folks have in terms of finding a development team to help them in the early stage.
[00:04:49] You have a couple options. The two big ones is freelancers laying on platforms like up work or you know 10 years ago it's called Iran. The other option would be working with them swaps so a firm that can actually give you teams and they tend to be more expensive but usually are better options than and freelance usually are stable options where they're freelancers. Yes. From what we've seen from our experience of being on both sides of the table it's clients as well as service providers. There's a pretty big mismatch of interest with service providers and startups. If you're very very early founder one you don't have a lot of money so you're you're not going to go with a top freelancer on off work you're not going to go with a top firm in India or in Eastern Europe. That on its own you know it can. It's not hard to see how that could lead to a pretty pretty poor experience or a bad product. The other side is that the interests of the founders the building the company and the interests of the duck shop or the interest. Well I would say usually a duck shop but in some cases a freelancer as well as to get as much money out of the relationship as possible. So there is a pretty big mismatch of interest there.
[00:05:49] So what we ended up doing is we came up with a pretty I don't wanna say crazy innovative but pretty effective model for us where we be different. And then the difference between whatever the market rate is we give this cover story and whenever the market returns we actually charge you took an equity.
[00:06:04] So what that distresses me. You gave us vested interest as well as allow people to work with more experienced designers and developers while still spending while still having the same budget.
[00:06:13] So it's a pretty simple but effective solution price. And it resonated with people pretty well. I mean we've worked pretty well.
[00:06:20] And what services I guess where you originally focused on that that you focus on now when you say you're providing the services what exactly are you helping these early stage entrepreneurs with in terms of that all of a sudden.
[00:06:31] So it's unplanned. We started off with kind of a target audience perspective with very very early stage people but people that just had that idea on a napkin. They're not technical they want to get it off the ground. They're not necessarily looking for service providers they're looking for more of a I know like relationship. So we offer them end to end exclusion. Anything from design to develop into a Q A to project management to get them to be off the ground. And we also have additional kind of value added services of memberships so we can connect them with mentors if they're struggling with a marketing or maybe some other piece of the or the business as well as helping them raise capital and then connecting them with the investors that we think might potentially be interested in putting in cash. And we do that because you know when we want them to succeed in others because it often makes financial sense for us as well.
[00:07:16] You have equity now. Right. I mean if you're taking an equity position so let's dig into that equity calculation a little bit just as I'm curious and how you've kind of structured it and how you think about it. So you basically say that we'll take a market rate well we'll agree on a market rate for these services you then discount those services some percentage I'm kind of curious how much that Delta you basically treat as a equity investing like a cash investment on an equity position and the company as I have that kind of formula right or the concept right.
[00:07:50] Yeah yeah it's pretty much set and that's pulled into a note. Typically it was in such an early age and then whenever they go up to raise money then it gets converted.
[00:07:57] That's like I say if you're basically just saying you're taking that amount and saying we're not going to we're not going to value it yet but it will get it will convert into equity when you get when you do your next round at whatever valuation happens at that point. Yeah. Yeah. How did you come up with market rate. I mean what's your having done this a couple times myself. You know there's there's always the concept and then you end up negotiating what will what is market rate. Where do you provide your services from the stuff. How did you do it. Where are your teams and what's the market rate that you're kind of hinting to.
[00:08:27] Yeah. The mark market rate is something that's not like you said it is sometimes it can get down to negotiations. There's no less clear cut mercury or something.
[00:08:35] Typically as we look at the team that's involved in the contract we look at what the salary or that team would be in the market. And then then we we'd take a look at how much into our profit margins we can begin to. And then the delta is what gets put into the hole.
[00:08:48] So the delta I guess would want to modify general rules was always kind of philosophy as was. I'm happy to put profit at risk but it's hard for me to put hard costs at risk meaning if I'm you know if I'm going to if the service I'm delivering is a fifty thousand dollar service and the salaries that I'm paying are twenty five thousand I have overhead of 10 I can put fifteen thousand dollars at risk in terms of converting that into something either on a performance performance bonus you know outcome bonus or equity level but it's hard for me to forgo paying rent.
[00:09:23] It's harder for me to forego paying salaries out of my pocket for those cases. How did you I guess where were your lines or how did you approach the sort of internal calculation of the amount that you could put at risk.
[00:09:34] Yes crisis was usually only profit but we begin to know there have been a couple of cases where we were helpful and we we covered the salaries of the developers ourselves usually too risky and it very rarely has actually worked out like you wanted to work out just like you said you know profit a company that we can actually afford to dig in to but it's worth having week is something that we try to avoid.
[00:09:57] I guess any other terms or structure you put around things like I certainly found like how long we were doing this for you know that kind of the scope time frame things like that ended up coming into play.
[00:10:06] How did you deal with those sort of factors when you cut these deals with clients if it takes more it's a lot easier like if you look at the example to building an app would cost 50 cable we're going to take with the 40 then we just say OK here's what we're putting into the into the note. If it's more of a kind of a rolling Medicare in kind of format that we just take a look at what this scheme would cost in the month. We look at other companies would you offer similar themes. And then we say OK on a monthly every month we give a little pay. I don't know took a discount. And then if we assume the relationship is over the course of the three or six months and we just multiply that by we have over many many months. Eventually you're going to come to a point where both I just have to agree OK. This is this seems to be somewhat fair for everybody.
[00:10:49] Any learnings about types of companies have to work well for not so well or some products types of situations front stages what were your kind of heuristics around making some of these decisions earlier earlier the riskier like IDF debuts in the U.S..
[00:11:06] We've actually now launching a new service that's going up.
[00:11:10] More like funded startups a little bit later stage only here and beyond.
[00:11:15] But early stage is crazy risky. People with no experience typically stuff with them as far as industry is we're pretty industry agnostic. We've done a good amount of blocking work. We've done pretty much a little bit of everything. I can't say anything. I mean industry specific but stage wise and experiences is a big loss.
[00:11:32] Anything about the kind of types of founders that you found you know either more successful less successful or that you kind of tend to steer towards or away from it in terms of just like approach or thinking or personalities and I'm always curious kind of what people use in terms of qualification criteria or filter is that they now tend to work better like you. In terms of these these customers work out really really well for us and these customers tend not to say how do I do my prospect and qualified people appropriately. Any learnings there.
[00:12:02] Yeah I mean if you take a look at kind of from an investment point of view like if you're early stage investor and you're trying to pick and you try to get a good a good return or whatever cash you're putting in at an early stage it's a lot more about kind of filtering out the losers rather than cherry picking the winners because it is simply impossible and there are certain patterns that we've seen you know kind of trait of personality or certain circumstances that have at least somewhat of a higher chance of success. Experience is a big one. If somebody for example had an angry before and we had a couple of companies like that they blow mostly mostly everybody out of the water.
[00:12:34] If you have people that have experience in a particular industry with you as an employee and then they see pain points in that industry and then they go on go out to solve it they tend to do a lot better as an example one of the companies that we're working with is a guy at a Toronto she runs a bar and you run it for 10 years and he like all bars do they have to order beer right. So I met with in one day and he showed me the process of ordering beer for a bar and it was like a mortgage document no crazy long and just a very very archaic process. And he's you start a company to simplify the process of ordering beer for bars. And I think I got to the first 15 meetings that he had with breweries. Everybody signed on so too early to tell how they're going to do but these kind of situations we like both teams. So solar found there's they have a harder time somebody that can sell well is a big plus especially your position. Eventually you're going to be selling to everybody where you have to come from employees to to investors to them.
[00:13:29] So those are kind of some of the I guess rules of commerce. Some of the circumstances that we seem to have worked out better but at the end of the year you just can't predict.
[00:13:37] Yeah well I think it's correlate. I always think about correlating to success or other trends and predicting like can I increase my odds 5 10 percent. You know that will that will give me a good edge but I like that. I certainly find the you know certainly accident after. I mean people that I've have been through the process once tends to be you know a huge indicator or a huge correlation to their ability to do it a second time the sales one. I certainly agree with. I mean I think that that it is the nature of an early stage CEO to be a salesperson even selling themselves some spot on ideas and keeping them motivated and pushing them through talk a little bit about your team.
[00:14:12] So how did you build your team you know in terms of the services that you provide. How have you kind of structured yourself. How have you found your talent. How do you organize that talent to be able to work with these different companies and manage things.
[00:14:23] Yeah I mean I think in any service being business planning and having a proper structure is a lot more important than it is for a product based business. So we've we've struggled you know to some degree in the early days getting better with time. You know you have a bunch of different projects that people are working on that you have to have kind of a structure and a project by project basis as well. We're on a high level. We're close to 80 people now. So it's you know the more you grow you you kind of have to make sure that you have the right processes in place and go through us without having these forces in place and the structure companies by the way is just gonna get it going to be mayhem.
[00:14:58] But so far I mean it it seems to be fine it can always be better but it's not like anything you think you did either intentionally or serendipitously earlier in the company that has worked well for you. Any kind of learnings that even thankful for in terms of how you structure things or approach to to running the business.
[00:15:17] I mean there's there's always a these decisions that you make kind of wonder why sometimes you just don't know how they're going to work out and work on better and work or worse. Like right now we're we're trying to in any serious business you have a problem of capacity or resource management. And how do you how do you make sure that people are not too busy and or not busy enough and kind of structuring that. It's pretty pretty hard to make sure that everybody thinks up all you know marketing you think about where the fire department like the army think that would finance. So that's that's something that's not easy to work for but I think comparing service based businesses to product. If we were my brother and I if we were to start a product business I think we'll be kind of I like you here from an operational standpoint comparing stories be to product based businesses is tough I think when we look at these kind of a product based business that sell companies special like milk you know having the proper planning accreditation is a lot more important. So that's something that we always try to focus on. My brother he's a few other companies he's a lot more involved in the operations at a high level.
[00:16:16] Yeah I mean it's a learning process but yeah I always found service based businesses it's either feast or famine and there's this elusive momentary perfect balance but you're never really on it you're either flip flop you know you're on one side or the other side and sometimes you're flip flopping back and forth.
[00:16:32] The other challenge I find you kind of hinted at it but I think it's important for service based business or one of the dynamics and surface based businesses is you know whereas there is an there's an absolute capacity limit meaning that an individual can only work 10 hours in a day. And so you know you can't work in a 40 hours on Monday and then not work the rest of the week it just there's there's a there's a time component to capacity that I think is really part of the service based business dynamic and if you can't find a load balance your demand like if you can't figure out how to kind of lineup your clients in the right way and kind of balance some of the right way it creates this kind of chaos inside the business where you may have you know everyone working overtime one week and then have no work for them the next week and getting that sort of the art of balancing demand and it becomes really hard for service based businesses. Anything I guess one thing that I often see as ways in which they sort of contract with clients or manage engagements with clients to do some of that load balancing. I mean is there anything about how you manage your projects or how you engage with your clients that allows you to kind of better manage the capacity over time for us.
[00:17:37] It's tricky because we work with startups and sort of they are pretty unstable. Yeah. So there is no free if you look at other with the software consulting companies that work with large enterprise clients you can plan a lot better when my clients believe they have certain budgets allocated and they have cash they you know they have certain policies in place and just a lot more stable startups everything could be great one day another day they could be going bankrupt. We could be planning for you know a particular client that it strength or development release perhaps in less than two weeks and then another Sprint's Assad or another big bad Bill to begin but then all of a sudden funding goes dry. So then a team that we were kind of planning for is now without work. We're always in this kind of situation. That's part of the reason why we're trying to switch over to a little bit later stage companies that have at least risk some cash and we know they're going to be around for you know typically at least two years so that should kind of simplify the planning side of things. It helps to have everybody think up a lot of the time know even if the stable clients. If one department doesn't know what the other departments are doing then that could cause a lot of people. Now if you know for example marketing gets a new client and then they'd better notify the fire department or something of that sort then they can on board a new person without actually needing a new person just as a kind of a bad example.
[00:18:57] But yeah I mean just just proper planning is very needed and proper communication with clients and between everybody within the company.
[00:19:03] Yeah. And where are you. I guess what's your development cycle look like what kind of rhythm are you generally working on in your projects.
[00:19:11] So we've we followed scrum and if we do an MVP like a very early stage product kind of thing usually two to three month build up pretty much nothing to two already part of the thing that people can launch with after that usually we try to switch people over to a dedicated team where we where we take a look at what their budget is like either they raise capital or maybe they are making some money or they have a certain budget we put together a team based on what we've seen before. And then that team works with the founders on a one to two week sprint.
[00:19:44] You've got that kind of iterative process in place and working with their clients. So you can do. There's a certain amount of kind of adjustment or ability to kind of right size things on a weekly or to you know every other week basis. And in terms of communication I mean we mentioned it a few times. Anything that you've seen particularly successful and how your teams communicate with clients either kind of practically technically any kind of habits patterns rhythms things that you put in place in your projects that facilitate communication between customer and team.
[00:20:16] I think in terms of basic unlike product there is a lot less a lot more difficult to stand I think. Just like you mentioned you're dealing with people. Everybody works differently. Some people are more calm than others. Some people are more blunt than others and there's a lot more variables that come into play. So when it comes to communication I think a good rule of thumb is to double check or to double confirm something rather than have a couple weeks or a couple of months go by and then people will be disappointed little surprised that something happened but if you're making any sort of changes or anything that you know could be even better to get that in writing or better to send an email after they're called to kind of confirm and make sure everybody thinks absolutely you can refer back to it if something goes wrong. Those are kind of the basic things that don't help us.
[00:21:02] Yeah I would say don't don't assume and to assume makes an ass out of you and me to pull apart the word a little bit. I think you know I think the you know a lot of these translate into basically any types of services but certainly technical services where you're doing fairly detailed work and the kind of thing. Oftentimes I find clients you know customers clients don't appreciate or don't really understand a lot of the technical complexity and the dynamics that are happening so for technologists to try to explain in business terms what the decision you know what are the options and what is the decision kind of criteria. And if you're going to go that way. Here are the rest coming to get are considerations that's often quite complex a lot of times it's really just assessing how much the client really understands how they're answering or what they're answering to. So yeah kind of double triple checking on those things and then following up seems prudent prudent options. So let's talk a little bit about where you're going with the business now. So we spoke earlier and you mentioned you're putting together or you're working to put together some some investment or put together a fund. I guess what's prompted that or now that you've kind of taken the business to this level. What has been the interest in putting together an investment fund and what's the strategy there.
[00:22:09] On one hand we've been investing kind of money making non-cash investments and forms of services. So we have the experience of at least from some experience that investors do an offensive sourcing deals and getting deals seeing how deals turn out that are on paper one thing and then I actually turn out and and rely on another hand and we realize that if we actually want to make money and make serious money from equity then we wouldn't be able to. So it's all about selection when it comes down to any sort of investment or for picking a company is not really so much about how what sort of help you give this company it's about the type of people that you actually choose to put in your passion or whatever you make make any sort of investment into them.
[00:22:48] As an example you take a look at Y Combinator you take any company that went to Y Y Combinator into almost any leader in the world they're going to do what they do you take any sort of Harvard student you put them in an equivalent they're going to do well at a bar there's not so much about Harvard so much about a Y Combinator or the services they offer is more about the selection process or the people that that actually end the program. So we realized for us to be able to get these kind of people we wouldn't be able to get them on the terms that we have which is cash and equity. We have to actually do something just for free for equity without expecting any sort of cash from them. So the idea of raising a fund and actually looking into companies that kind of were where it all started and then the idea of investing in previous the equity Founders explicitly was know as I mentioned kind of before the recording one part of that was intuitive sense that somebody had done something that you wanted to do which is to have an equity before there's a much higher chance and they'll do it again.
[00:23:40] There's insane amounts of research that actually supports that. People that had a much more likely to have another exit usually their leader argued so much. I think that in Max's Max's fund previously the two founders may have a much better return both on a deal by deal basis loads of fun fun by fund basis. So a lot of research does make sense to go in that direction. We haven't seen anybody that wanted to that does that exclusively. I think most investors they want to fund previously good founders but there's not anybody out there who actually does what exclusively and the reason being. Very few people can actually get in when these kind of deal. I mean there's not a lot of negative numbers out there. Relatively speaking compared to the number of startups that are as a whole not a lot of people get in on these rounds. The reason being is that if you have an idea that you have options like your average entrepreneur years you're chasing investors but if you're negative founders lot of banks investors are chasing you. So you have a lot of options you're going to go with somebody that you know personally or maybe the frontier your previous companies and everybody else they're going to be stuck out of luck.
[00:24:37] So the idea from our side of things that we're not going to be offering them cash even though we're raising a fund. But the idea is that we're going to be able to offer them an environment where they can pressure hopefully for somebody to set an exit. They're probably going through a pretty similar cycle. They're going to take some downtime. They may be stuck with an empire for a little bit then they travel and they give back but eventually they're going to do another start. Yeah most people say well we're offering them as we're offering this sort of studio model where they come in with us for three months. They come in with an idea. We help them to pressure test ideas to see if there's any marketing tool meaning we build on repeat for them we help a bunch of issues there's a market. Then they make a decision. OK. That's something that I actually went to. They've had a person in two or not. So even though yes it is a fund it's a non-traditional and we're not writing any checks. We're putting this into this sort of studio like model.
[00:25:24] Yeah I like it. I'm curious to see how it plays out. Andrew this has been a pleasure. If people want to find out more about you about startups soft your kind of future investment fund here and stuff the studio. What's the best way to get a hold of you or get more information.
[00:25:37] Yeah you can follow me on Twitter at @AndrewVasylyk or LinkedIn Andrew Vasylyk, for StartupSoft you can check us out at startupsoft.org
[00:25:46] I'll make sure that those links are in the show notes Andrew. Thank you again. It's been a pleasure. It's fun to talk to someone who's been through that tech service cycle before. Lots of familiar kind of patterns fill your experiences. I enjoyed that conversation. Thanks for taking us. Yeah thanks Bruce.
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