John Studdert is the Managing Director and Founder of 80/20 Advisors – a business name inspired by Pareto’s famous 80/20 Rule.
This Week on So You Want To Start A Business Podcast:
John Studdert is the Managing Director and Founder of 80/20 Advisors – a business name inspired by Pareto’s famous 80/20 Rule. 80/20 Advisors is a Business Advisory Firm specialising in helping the founders of B2B service & start up technology companies. Many are building their first or second business and are experiencing the growing pains associated with the transition from being technically strong, to the additional management, leadership and entrepreneurial responsibilities required as they move from employee, to self employed, to business owner.
This journey is one John is passionate about having founded and built an award winning, highly profitable consultancy that grew to have an international footprint. And also having run Australia’s largest and most awarded Public Relations firm, Ogilvy PR as CEO and then Chairman. In addition to advising business owners John is also an investor in a number of technology start ups and service firms.
And in the interests of promoting education in entrepreneurship in Australia John is on the Advisory Board of the not-for-profit organisation – Start Up Australia.
Podcast Full Transcript:
INGRID: John, welcome to the ‘So you want to start a business’ interview series.
JOHN: Thank you. I’m delighted to be involved.
INGRID: Our first question is why did you start your business, but I guess more important than that is what business have you started and why did you start businesses?
JOHN: I’ve started a number of different businesses over the years, and I grew up in a family that very much respected and expected you to work for yourself. To be self employed or run your own company, so that was always part of my expectation of what I would do in life. And the first businesses I started were actually pretty unsuccessful, which in a lot of ways was a good thing, because I didn’t have a lot of money to throw at them, so my initial losses were always quite small. But then the first business that went to become a really successful business, well I started because there were 3 or 4 things I wanted to start from a business. The first was the ability to control my own destiny, in terms of what hours I worked who I chose to work with, how I spent my day, the purpose, the remuneration, lots of stuff. So that’s sort of why. And I had a number of experiences working for other people, which I enjoyed, but it was always this dream of setting up my own company. So that’s why, I was always following a dream.
INGRID: So a big dream.
JOHN: Yes, big dream.
INGRID: So when was the very first business, did you do something as a young person, or when you look back, when was the first real business?
JOHN: The first proper business was when I was at Uni, and I started to import software and it was a business with a university lecturer. He was in his 40s and I was probably 19 or 20 and we got some learnings from that, and then the next proper business I started when I was about 23 which was again a software company, and that was a disaster. I lost quite a lot of money for a 23 or 24 year old at the time. The one after that, the learnings I took to that I put into the business that went on to become very successful. I started that when I was 25 or 26.
INGRID: Great. So one of the questions I was going to ask you was when did you realise you were actually in a business? Were you deliberately starting a software business with the lecturer? Were you deliberately getting into business? So you set about having a business, you didn’t accidentally become a business?
JOHN: No, we set about starting a business. And the key difference, to answer your question, I knew I had a business, when we had satisfied customers, who were repeat purchasing and recommending us to there people. That felt like a business.
INGRID: Yes, so that was a business.
JOHN: I had a series of unsuccessful start-ups with one-off purchases, and I never really gained the sales to make a proper business of it. But subsequently I’ve been in other businesses, and you know you’ve got a business, at least I’ve always known that I’ve got a business when I’ve got repeat purchasers, referrals, covering overheads, drawing decent sort of money from the business. You just know. It feels like something of substance and people want it, and you enjoy delivering it, and it’s profitable to deliver, so that’s been my experience.
INGRID: So that’s a sense of that.
INGRID: Lovely. So do you always, when you set up your different businesses, do you always think about an exit strategy at that point? Do you think about where it’s going, how long it’s going to be, that sort of thing?
JOHN: In the first businesses no. honestly I was just interested in creating an income at that stage in life, buy a house and that sort of thing. But subsequently having gone through the process of building up a business and exiting through a sale, in all businesses I’m always thinking about what the exit is. Because that always has significant implications on structure, ownership, the actual nature of the products and services you offer. It really does become quite a shaping influence and I believe it should be. So the businesses I’m involved in either personally or as an investor, or if I am advising, it is one of the key questions we are constantly asking.
INGRID: So right from the beginning – what is the exit?
INGRID: Even if that exit is 20 or 30 years down the track, people may want to be in the business for a reasonable length of time, they are building something you might want to be part of, but still down the track you have that exit strategy?
JOHN: Absolutely. But not all businesses have an exit, some for example are very reliant on self employment opportunities and don’t necessarily have an exit, but if you can develop a business that pays you a salary, pays you dividends and you are building an asset that’s saleable, that asset can be an enormous wealth creating opportunity. And that has certainly been my experience from businesses I’ve been involved in. When you are creating an asset that’s then able to be on-sold, that a wonderful opportunity to create wealth.
INGRID: Even if it’s not sold, it’s the fact that it could be.
JOHN: That’s right.
INGRID: Well with your software and your other businesses, how did you know that your customers wanted what you were offering them? How did you know there was a market for what you were delivering?
JOHN: I’ll give you an example of a business I called Impact Employment Communications, and at the time, we were very much helping large organisations build employee support for their most important initiatives. I had an idea that if we could record in those days it was audio tape or CDs, record high performers for a particular organisation, share those interviews with staff so that staff could learn from those interviews, then that would be of value for those organisations. Now it was theory, I didn’t know it would work. So I removed the risk from clients and took on the risk myself. We were dealing with large pharmaceuticals, banks etc, and I said we will go about the process and make the tape, and once you listen to it, you can decide if you want to but it or not. We will pay up front all the production costs etc, and without fail every client bought and then we started getting repeat purchasers, asking us to do other things for them, and so, the way I knew we had a successful business is because people wanted what we were selling and people would pay for it, and there was enough margin for us to deliver it. And that was a really exciting feeling, because you move from this space of being uncertain and optimistic, to being certain and optimistic. And that is a great place to play.
INGRID: Yes. Because sometimes people have a great idea, but nobody wants what they’ve got, and you really have to take that chance and think it through. So how did, in terms of you funding it, what sort of things helped you helped the customer and client realise that they needed what you were offering? Was it around the value to their company, you know, how did you introduce it to them?
JOHN: Yes it was. Absolutely.
INGRID: How did you convince them it was going to work?
JOHN: We spoke to them in terms of….If we were able to increase the performance of your employees by X percent, what would that to sales, for example? Or what would that do, if you were interviewing managers, to reduce attrition of staff, or manage costs. And by putting the investment in what we were doing along side the gain for them, and then removing the risk so that they weren’t questioning whether or not they might invest in something they’ll never use, then we ended up being able to convince clients quite quickly that what we were offering was easy for them to buy. And as our success grew, we added all sorts of case studies, and testimonials, and if we reduced costs by X million dollars for these 10 other companies, or we increased sales, then customers would look at that and go that’s a chance that we are willing to spend a little bit of time on. And if you are carrying all the costs then we might be interested to buy.
INGRID: So the interesting thing with that, is what you are really selling is interviews with the champions in the business, but that is not what you were talking to them about, you were talking to them about the solution to a problem that they had, and the gains they could make. I think that is a real art to be really clear about what you are really selling, its not just the interviews with the champions.
JOHN: We would talk about what we could do to help address those challenges. And we would pitch it, and offer them a solution, but it was always geared towards what’s the problem and the value in addressing their problem. There may have been 20 different ways to address the problem, but we always promoted ours as a viable means. That definitely helped us sell what we were doing for enough value that we could make it profitable for us as well.
INGRID: Yes, and what lovely work talking to champions.
JOHN: Very inspiring.
INGRID: Very inspiring for you as well.
JOHN: That’s right.
INGRID: Just to move to a different area, how did you fund your businesses? You were 19 and chumming up with your professor, in your 20s as you said, lost a lot of money, then went onto develop bigger businesses. Where does funding come from?
JOHN: I’ve always self funded. I’ve never…..it’s just my personality. I never want to risk other people’s money. So I’ve earnt money through full time jobs, part time jobs, whatever I could do, and I always saved enough for a rainy day. I always saved thinking this business will take X amount of money to get off the ground, and then I’d draw down on that to get things started. Sometimes I still had a part time job while I was funding a business. Other times, I just drew down on savings. Some of the businesses I’m involved in now, we’ve raised funding through a number of shareholders. And it’s quite different. There’s a lengthy period between starting up and….I’m involved in one business particularly at the moment where I can’t imagine we will ever draw any money out, the shareholders, until the time the actual business is sold, and that could be years in the future. Different businesses have different capital requirements.
INGRID: But your personal model was using your own funds?
JOHN: Yes using my own funds.
INGRID: Great. So the what you wish you’d known questions. So you said that your third business was more successful because of the lessons you learned from the first two. So what were one or two of those lessons that you took away and that you probably still continue to take away from those early investments?
JOHN: Yeah, well, I think one of the first lessons is, and it’s so obvious when I say it, was very much sell something that people want to buy. And getting so excited about a product and while its going to be fun to work on and develop and build, if people don’t want to buy it the fun stops really quickly. (Laughs). So that was one of the first lessons and I see it constantly when we advise, when people get so excited about their product, almost to the point of ignoring that other people may not be as excited as them and don’t want to buy it, or the cost of selling it is so great its going to undermine any potential.
And I also wish I had delegated sooner. I think there was a real fear mentality, especially in start ups, of penny pinching and watching every dollar. For example there are so many things, like administration, I should have had a bookkeeper and all those sorts of things earlier. And as I’ve built bigger businesses I now hire people who do those tasks with so much more enjoyment and so much more efficiently then I ever did them. There were things I procrastinated about, and didn’t do particularly well, and then I think I wish I’d hired that person 10 years ago. So that would be a couple of my key lessons.
INGRID: So your barrier to hiring other people was more about not having the money to do it, then thinking you could do it better yourself?
JOHN: Yes. I remember doing the books weekly for one of my businesses which had a million dollar turnover and I’d still do the books on a Sunday afternoon on the dining room table. Silly stuff, really silly stuff because it came at the expense of the joy of my family, it came at the expense of the thinking time and building the business. I was doing work that I could have hired someone $40 an hour to do, when I could have spent more time building the business and doing the things that would have made so much more money.
INGRID: Yes. I see people that think no one else can do what I’m doing. It doesn’t sound like that was one of your things? No one is going to do it as well as I can, so therefore I have to do it all.
JOHN: That did enter one of my businesses at some stage, on the consulting stage, and I remember going to a client meeting about to give some advice, or being asked for advice, when a senior person I hired, who was a former CEO, and really capable and experienced, completely countered the advice I was about to give. And the client congratulated them and thanked them for such sound advice so I kept quiet for the rest of the meeting. I shared that story with a couple of friends of mine, a very successful entrepreneur who built a business that sold for tens of millions of dollars, and another colleague of mine who’d been an employee all his life. The employee patted me on the back and said you‘ve just had an off day. The entrepreneur shook my hand and said, that’s a milestone day.
The day when you’ve hired people better in all parts of the business then you are, is the day you are aiming for. Subsequently since then, every business I’ve been involved in, I’m endeavouring to be the dumbest person in the room. I fill the room with people far more capable in each part of the business then I am and I focus on the entrepreneur and the model, and make sure I apply it and setting the right sort of goals and guidelines for everybody else around me. So I’ve been through that learning as well. (Laughs)
INGRID: Is there something else, apart from hiring the bookkeeper on the Sunday afternoon so you didn’t have to do your books, is there something else you wish you’d done differently? If you look back and go, if I had done that, then history would have been so much better, or easier, or more profitable or more streamlined.
JOHN: Yes one of the big mistakes I made earlier on was developing the wrong mix between income type and cost type. And I’ve learnt this lesson a few times in fact, I’m a slow learner. And the business I found was one which had a very good income, but yet I booked up a big fixed cost base against it. And through experience along the way I’ve learnt you are much better off if you have a variable income try to have a variable cost against it. If you have a fixed income you can have more fixed costs against it. I’ve really learnt to try and marry up the right type of income base with the right type of cost base. I’ve become far more sensitive around fixed overheads as a result.
INGRID: Hmmm. Is that around people?
JOHN: It’s all other costs. It was funny because at the time I was building a business that was unsuccessful, and it cost me about $30,000 I was also doing an MBA which cost me about $30,000. I probably learned me more from the business that failed, which cost me about the same. But by the time I finished my MBA and my final theses on the outsourced corporation and how to outsource and turn costs into variable, and that’s been one of my big learnings, and when I see start-ups who are investing in big fixed costs, that shorten their runway, that put a lot of pressure, accelerate their need for funding external to sales, I get really nervous and I try and counsel any business I’m involved with as an advisor or an investor very much to be wary of every dollar that they are spending , particularly a dollar going on fixed costs like that.
INGRID: And once they are fixed its there for a while.
JOHN: And they are very hard to exit.
INGRID: Very hard to exit.
JOHN: Like rents and large employment bases.
INGRID: Yes. Along the way people have helped you or assisted you, or inspired you or mentored you, with or without mentioning names, who has assisted you along the way? Because I know you now assist other people, but who has helped you, the university professor, for example?
JOHN: I’ve had a few. Firstly my wife has been a phenomenal support to me with everything I’ve been involved with. An entrepreneurial journey is one of successes but failure is, to me, inseparable from those successes. And Abby has been so supportive at every stage of me investing the money we’ve saved up for the next venture. There was one stage when I’d exited a business and ended up as CEO and Chairman of the acquiring company on big salaries and that sort of thing, and then deciding to leave that now and I’m going to do another start-up. All those steps of the journey, and I’m sure a lot of partners would say, ‘what are you doing? Over my dead body.’ (laughs) Abby has always had this belief that I’ll make a success of the next thing. So she’s been a key person. My father, mother and an uncle I’m very close to have always been so supportive of the entrepreneurial journey and working for yourself. That’s a big empowering thing.
INGRID: A lot of people don’t have that model around them.
JOHN: They come from environments where you go to school, hopefully you get a good grade and you go to university then you go and work for somebody else.
INGRID: So the programming is there, the modelling, the expectation.
JOHN: That’s right. That sort of environment is bedrock for growing up. Being an entrepreneur was very natural for me. And I had different advisors along the way. I had a wonderful university lecturer, I’ve had accountants and lawyers and other entrepreneurs at different stages. And there is a hope that says you become the average of the 5 people you spend the bulk of your time with. And a lot of my friends are successful entrepreneurs and the learnings and sharings, that sort of environment makes things so much more natural then when I spend time with people who are employees or climbing the corporate ladder.
INGRID: It’s just different isn’t it?
JOHN: yes, it’s different.
INGRID: Great thank you. So my next question is around if someone came to you and said they were going to start a business, what sort of things would you say to them, and we’ve already said a bit about that. But specifically if someone came to you, you didn’t know them, and they were thinking about starting a business, is there anything else you would say to them?
JOHN: Yeah, I would ask how are they going to generate their leads. How are they going to convert those leads into sales, and then I’d be interested in their business model. What’s it look like, what’s its cost base, how does it scale up and what sort of evidence have they got that what they are doing is going to be a successes? You earn so much more in the first month of actually delivering it and giving it a go, then you do in the month of making notes on the computer. So I’m always in favour of just getting something to market. This concept that’s become around quite popular around minimum viable product which is appropriate not just in the realm of technology but also in the realms of service offering. Get out and have those conversations, and put it to market and you’ll learn really quickly what works and what doesn’t work. Sometimes you might get some feedback from your target market that helps you shape the product and the pricing, and you learn how to better promote it, and all those things. You know I would expect most businesses will look significantly different after 3-6 months then they will as a PowerPoint slide.
INGRID: Yes, I remember listening to a fabulous interview with Steve Blank, he’s one of the leading start up people, and he sent his students out and they spoke to 10 people would they buy this, or a 100 people would they buy this, and two said no, and 8 said yes. He asked why did the 2 say no, you learn more from that. And the 2 said if you make this one tweak, we’d pay $10,000 instead of $100 for this product – so you learn so much more. It’s that whole idea about getting out and talking to people about what they want.
INGRID: Oh sorry, it’s supposed to be your interview.
JOHN: No no no. (laughs). You are absolutely right. Being open to listening to what it is people want to buy. That is the way. When people have problems to solve, and you get a list of what those problems are. Impact the business I talked about earlier that went on to be really successful. That evolved so much over the years that it enabled scale and solved so many more problems through listening to what customers wanted, and figuring out a way to go about solving them. And it wasn’t based on the initial product – it was through a conversation that other problems were shared and explored, and we just looked at how we could solve so many more problems.
INGRID: Hmm. Did you sell that business?
JOHN: Yes I sold that business to in Australia it was called Singleton Group, STW then became Ogilvy, which is one of the biggest communication companies in the world. And for my sins I ended up as CEO and Chairman of Ogilvy in Australia, Ogilvy Public Relations.
INGRID: So last question, and I’ll roll two questions in together. It’s around the characteristics of the entrepreneur. What are 2 or 3 of your characteristics that make you who you are and able to do what you do? And if someone was coming to you, what do you think they absolutely have to have? And they may not be the same thing as what you have, but what do you have and what do you think people need to have to be entrepreneurial? Even if they see themselves as not being fully entrepreneurial but want to have their own business. What are those characteristics?
JOHN: I think the first thing is a real enthusiasm, optimism, and belief in yourself. You want to be an entrepreneur but you’ve got some new passion about you want to offer the world, and you’ve got enough get up and go to get out and take that step. And if that’s a step from employment into self employment in your own company, I really appreciate that’s quite a big step. So that’s the first. The second is a good set of ears. Because you have to listen, learn and understand what the problems are that you are going to solve. And getting the rejection, and listening to what it is that is being rejected and how do you reshape it. And I think the third is the flexibility which comes from constantly shaping and reshaping yourself as a leader and an entrepreneur, your product offering, and I think if you went into your world lacking any of those 3, the self confidence, the enthusiasm or ignoring what people are telling you, or you lack the flexibility to adapt, I think it would be quite catastrophic. I would say those 3 elements have been helpful to me and are 3 key ingredients for anyone who want to embark on an entrepreneurship.
INGRID: What a lovely way to finish. John, thanks and we look forward to hearing more of your entrepreneurial journey.
JOHN: Thanks so much Ingrid.
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