Grant Bissett co-founded Pin Payments with Dom Pym in 2011, eventually exiting to Checkout.com. Pin Payments was started at a time where payments infrastructure was stuck inside legacy systems, making it hard to launch a new business and sell globally from Australia.

In this story we dive into:

• Competing against Braintree and Stripe

• The shit-show of legacy tech that is the Australian banking system

• How the Australian banks impacted the value of Pin Payments

• Transitioning out of the CEO role

The Problem That Had to Be Solved

Scott Handsaker: What was Pin Payments as a business?

Grant Bissett: Pin Payments was an e-commerce payment facilitator. But really, it was an attempt to update Australia’s internet payments capabilities.

We started the company at the end of 2011. The team had a lot of software experience with our own products, client projects, and companies. Every time we were building something online, there would be this payment problem. Australia didn’t really have products like Stripe and Square. We couldn’t build from Australia.

Every time we got to the point of taking people’s money, it was broken. We thought it’s kind of inevitable that that gets fixed, but can we participate in that change? We wanted to work and live in Australia and build projects, build companies, build products. But we couldn’t do it if we couldn’t participate in the commercial internet without these payment capabilities.

The Stripe Question

SH: Stripe was around when you started. What about Braintree? Did you see them as competition?

GB: We thought about them as really inspiring. We loved their products. Braintree was a little bit ahead of Stripe, established a bit earlier with a slightly different approach. We’d been watching both of them. It seemed like the obvious solution to the problem. Use everything we know about the internet and do that for money.

We loved them from a product point of view, but that didn’t translate into ideas about how to collaborate with them. When we started Pin, Stripe weren’t in the Australian market yet. Braintree came first with a technical solution that went in front of the merchant accounts. The banks don’t provide technology that developers can use, so Braintree was the gateway that made it easier to integrate with financial services.

Later, Stripe entered the market with a more all-in-one solution where you don’t need that banking relationship. You can get it all from Stripe. That’s exactly what we started.

Behind the scenes, there was a lot of concentration. Only one bank in Australia had multi-currency payment capabilities. All of us were building on the same platform, and behind the scenes it’s the same shit show of legacy tech, legacy thinking, no automation, no consistency, no APIs. Just large-scale retail bank infrastructure. Each of us were wrapping that mess up and building a more modern front end.

SH: Was your approach similar to Stripe? My understanding of Stripe’s approach was very developer-first, developer-friendly. Was that the same for Pin?

GB: That was our go-to-market. Imagining the developer as the customer was the most focused, clearest problem we were solving.

We built a product that fixed that, and it taught us about what small businesses need. We discovered this other market of millions of small businesses. Australia had several million businesses with under two million in revenue. They all shared this payment problem, they just described it differently. Whereas a developer might complain about APIs and technical capabilities, we found millions of people saying, “I’m trying to pay my rent, but I can’t take my customers’ money.”

It’s a really urgent, critically important problem solved with the same technology, but just with different language. Our developer audience was the same as Stripe at launch, but then we discovered this broader opportunity around just fixing payments for people. That’s where we diverged. Stripe kept building the best SDK, the best toolkit for doing things with money. Pin over time evolved into something more like Square in terms of its customers. It was very SMB-focused. Our job was just to get you your money from your customer, whether that’s via an API or something else.

Building the Foundation

SH: Were you aiming to build a global company or were you focused on Australia?

GB: Day one, it was just fixing it for Australia with the assumption that we would then expand one by one to different regions. It should have been a global project, as the needs of an e-commerce or SaaS business are fairly portable. If you’re doing anything in a regulated industry, that global rollout is very different to just opening up your website worldwide. So we weren’t sure how to approach that scaling thing. The plan was Australia first, then New Zealand was obvious, then the UK was next.

SH: Who were the founders of Pin?

GB: That’s myself and Dom Pym. Dom and I have worked together for a long time on a variety of projects. Dom’s built so many companies and is a very experienced entrepreneur.

Initially, the idea was I would build the product and Dom would do everything else. In practice, it didn’t really work out that way. In the early days of a startup, everyone does everything.

What Dom brought right at the beginning was a design for a custodial system that managed the funds in the payment system. He had a design he’d already tested and partnerships with financial services firms that could build that. So it was legally proven and technically proven. We had the relationships to implement it, and that was a massive part of what enabled us to get started with Pin.

We weren’t just two guys with a startup idea walking into banks and demanding special facilities. We came in with the support from Perpetual (the oldest financial firm in Australia), and a really well-tested custodial system with novel automation and controls around it.

It started with two of us doing everything, and then over time I was running the business. I was very product and tech-oriented, so that meant I had to bring in others on the operations and commercial side and grow things from there.

The First Signs of Life

SH: When did you first know it might be working? When did you feel that buzz?

GB: There were different stages. The first one was just the pre-launch list of people who wanted this thing. The problem we were solving was just so clear to a lot of people. The value proposition was crystal clear. They really needed it.

When startups talk about finding product-market fit, we kind of skipped that step because we were solving something that seemed so obvious to a particular audience. That was super encouraging. It was proven from the start that there was a list of people who wanted this thing, and they were ready to buy as soon as we could get the product to them.

The first time we technically thought it would work is when we built it for ourselves. We didn’t have the bank’s permission. We just built it. But when we had to think about building a company around it and offering it externally. We knew it would work when we saw those pre-launch signups.

SH: Do you remember who the first customer was?

GB: I remember the first transaction was an e-commerce website selling clothes. There was one sale for a skirt or a t-shirt, and we earned maybe 50 cents. That was a huge milestone.

The True Challenge: Australian Banks

SH: I would think of launching a payments business as being harder than a standard SaaS business. You’re dealing with regulation, concerns of money, legacy software. What were some of the biggest challenges?

GB: There are challenges that we know about that make it difficult. A highly regulated industry, aggressively competitive, and just the importance of the subject matter. If you lose someone’s money, that’s a problem. If their website’s down, it’s a different type of problem. We know it’s going to be hard.

But the challenges that surprised us were when we learned about what happens when you have a regulated activity that interacts with a very established, highly concentrated network of people that you need to work with. The dynamics of the industry behind the scenes was more challenging than we anticipated. And I think it actually has consequences that are really significant for Australia’s startup and innovation scene in general.

SH: Do you have any particular stories around that?

GB: The obvious ones are technical. Everyone can relate to a large bank or telco having technology that doesn’t really match consumer expectations. Maybe your bank goes offline for a weekend for maintenance. There were technical challenges where the systems weren’t available when we needed them, or the systems don’t behave in consistent ways.

When your system is misbehaving and the stuff it represents is people’s money, that escalates quickly. If you send me back the wrong number and the wrong amount goes into an account, that’s a problem.

But it gets worse. These are technical faults, but then there’s the more strategic, more challenging stuff where the banks could interfere with the development of a startup.

A bank once blocked our funding when the company really needed to get more capital into the business. They have ways of doing that by talking about seniority of debt and that sort of thing. They interfered with an M&A transaction and blocked that. They forced us to enter into agreements and then changed the terms shortly after.

I would say Australia’s banking industry decimated the value of our startup. That is not an exaggeration. And I don’t have any reason to expect that they’re not doing that across the board. I think it’s a real impediment to innovation and growth in Australia.

SH: Were they acting economically rationally or were they bad corporate citizens?

GB: I’ve definitely had times where I felt they’re acting in bad faith. But the challenge is it’s not the institution that’s operating that way. It’s one team, one individual, or one division.

You can have these situations where everyone is acting quite rationally, but the sum of those actions is pretty hostile and in bad faith. There’s this saying about never assuming malice when something can be explained by incompetence. If we’re talking about large Australian retail banks, I think you can assume both. I started to think of them as like a drunk baby with a machine gun. Lots of incompetence, lots of carelessness, and a readiness to take some really destructive actions.

SH: Would you build another payments business in Australia? Or does the environment turn you off?

GB: I’m quite happy to be working outside of fintech currently, but I think there’s just so much opportunity. We haven’t even begun to bring that industry online yet.

There are significant benefits to improving those systems. I don’t care about banking or fintech or credit cards or any of that stuff. No one cares about the mechanics. We care about the consequences. And when you’re talking about money, this is social mobility and accessibility and all of this good stuff. There’s an abundance of meaning that’s still trapped behind this shitty, concentrated, old-school industry. So yeah, I would absolutely go back into payments one day.

The CEO Journey

SH: Your role sounds like you were originally going to be very product and technology focused, but it turned out you were actually the CEO for a number of years. How did you enjoy that role?

GB: I like learning and I like making things. I think the startup journey is just massively educational. It’s very introspective, very educational, very challenging. All that stuff which I really like.

What I didn’t like so much is not knowing the level and the consistency of the challenge. It’s hard. We all know that startups are hard. But they’re hard in terms of relationships and psychology and mental health and your wellbeing and all of that stuff. That was challenging.

A long time ago, I thought maybe there were gaps and areas where I should be improving, be more rounded, be more capable in different areas. I’ve given up on that. That’s bullshit. I know who I am. I know what I’m good at. It’s actually more effective to hire the folks who are experts in the areas where I’m not so proficient.

Understanding the Business

SH: Do you recall your standard revenue metrics as you grew?

GB: I don’t know when we got to the first million in revenue, but I do remember when we had the first understanding of the seasonality of the business. That was a really weird thing to go through.

We ran an e-commerce platform and everyone knows that holiday season is a big deal for these kinds of businesses. Meanwhile, Pin was serving all these small businesses, and a lot of them were organizations that had membership fees or something other than an e-commerce retail purchase. Because of the composition of our customer base, we had a massive spike in March.

Things would decline, and then we would see the same again next year. That went on for a decade! It was just something counterintuitive, something unexpected because of the customer base we had.

That probably coincided with the first million in revenue.

The Fundraising Journey

SH: I know you raised from angels early on. Tell me how you thought about fundraising for this business?

GB: It was all angel-style early on. There was an angel round super early, might have been half a million dollars to get started. Then we brought in a handful of other angel-style investors who were experienced startup folks in Melbourne and Sydney.

That went on with small equity rounds right at the beginning, then convertible notes or safe notes over a period of years. That got us into market and got the business established. We sort of skipped over a seed round and then did a proper Series A with a fund.

It was in 2015 that we raised a Series A round with VIXS Investments, who had a fintech fund in Australia. That was the first time we brought in a VC-style fund into the business.

SH: Did much change when you took on institutional capital?

GB: It changed our network a bit. It didn’t significantly change reporting or operations or targets for the business. It didn’t change much about what we were doing. That’s why they were the right investor, as they were looking for what we were doing in our area.

SH: Blackbird, Square Peg and AirTree would have existed. Did you talk to them at all?

GB: I’m sure we spoke to everyone, including those three. I’m sure with Pin we spoke to probably 20 more names you would recognize.

One challenge we had was that when we started, VC in Australia was just getting started. Blackbird was just beginning, was just very early. It was a different scene to what it is today. By the time we’re a few years in market and understood the dynamics and growth of the business, there was a point where we had a healthy, happy business that was growing every year, but maybe it wasn’t on trend with the thematics of VC or it didn’t have the growth characteristics that matched what the VCs were filtering for at the time.

We struggled with that a lot. If we were a little bit more on trend, I think some of those discussions might have been easier.

The Leadership Transition

SH: I know you stepped away from being CEO. Talk me through the thinking at that point.

GB: It got to a point where it was clear that this was a business that, going forward, is better served as a sales organisation more than an R&D organisation. It’s more of a scaling phase than a design phase.

Meanwhile, I’d been working with Chris Dahl at Pin who we brought in really early on to build the commercial business. Chris built the sales motions, the distribution systems and networks. Chris had been building that for years. And Caitlin Zotti had been working as the COO, managing all the operations. It seemed like it was the right time because what served the business best was what those two were doing best. So Chris and Caitlin both stepped into the role of Co-CEO.

It no longer made sense to treat it like the early stages of the startup where you’re defining what the thing is. It’s more about operating and scaling. So that was the right time.

SH: Was it a hard decision for you to make?

GB: It was an easy decision aside from timing. It was easy for me to understand that it would happen at some point. But the hard part was when do you know it’s the right time?

It got to a point where it’s abundantly clear that this is the next stage for this business. If I were to lead it, I would recruit expertise to execute. And I’ve got those people right next to me. May as well hand it over to them.

The Exit

SH: You ended up exiting to Checkout.com. Was that a merger or an acquisition?

GB: It was an acquisition. Pin sold to Checkout.

SH: Prior to that happening, you mentioned you got one M&A blocked by one of the banks. Did you have any other interest from parties?

GB: We had a couple of transactions that didn’t proceed in a variety of ways. We had some people who were interested in acquiring this kind of business because perhaps they already had a similar business and were just expanding it, or perhaps they had similar relationships with the financial services backends but didn’t have a distribution channel.

Others were more like a SaaS business looking to expand its revenue by incorporating payments. We had several different scenarios that we contemplated, and several different deals that commenced that didn’t conclude for a variety of reasons.

With Checkout, that was related to a process that we ran with an advisory firm in Melbourne called Platform Partners. We could either put together a Series B story and fund it and expand ourselves, or we could put this into an organisation that has the security and financial services capabilities that we need to build on top of.

That was a dual process that we ran quite deliberately. We went out to market looking for what was out there and found a few folks that were interested in buying these kinds of businesses.

It was quite a deliberate process at that stage and probably the first time that fundraising had been so deliberate for the business. Whereas in the early stages it’s sort of raising capital because you need money, this was a much more deliberate process.

The Hardest Question

SH: Was there ever a time during the journey where you thought, “We’re not going to make it”?

GB: There was the routine startup stuff where your runway is getting really short, and you’re running out of cash. Then it’s difficult to find new investors or find new ways to fund the business or new ways to cut costs. That happened a lot and that was really stressful, but quite generic in a way. Every startup has that.

So that was stressful but pretty standard. There were times where we weren’t sure how we were going to get through those times, but there were never times where we were in doubt about the opportunity around what we were building. Pin was always growing from the start. We knew the size of the problem that we were working on and we saw that the business was growing and we believed in it.

The Wrapup Questions

SH: What is a book we should all read?

GB: I Am a Strange Loop by Douglas Hofstadter. It’s a contemplation on where consciousness comes from. While everyone’s talking about artificial intelligence, this is not that. This is a question about what intelligence is, what consciousness is, but it’s an easy way to read about that kind of subject matter without any particular belief framework associated with it. A fun bit of philosophy.

SH: What is a podcast we should all listen to?

GB: I don’t listen to podcasts. I can’t recommend a single one. I just don’t know.

SH: Either do I. I thought I was the only person in the world. I probably listen to about one every two months when there’s a guest I just want to listen to, but typically I don’t. I read books. That’s where I get my information.

GB: Three hours of talking. Who wants that?

SH: Yeah not me. Okay, what is a band or artist we should all listen to?

GB: Everyone should listen to Éliane Radigue while we can. She is a French composer and artist making really fine, let’s call it drone sound art, that needs a lot of attention and contemplation. It really rewards some attention and some time. She’s in her 90s now and still practising and still giving interviews.

This is an amazing person making really fine work that reminds us of what we can get from slowing down and giving things some attention. The total opposite to a podcast, the total opposite to some cynical pop music stuff. It’s actually like, what do you do when it’s time to stop and think? I like to be reminded of that.

SH: Thanks for your time Grant!

👋 Welcome to Valley of Doubt, a free weekly newsletter that goes deep into founder stories from the early days of startups. 🚀

Tom Amos and Jacqui Bull co-founded Sidekicker, a digital marketplace for hiring short-term staff in Australia. After twelve years of relentless execution, they have exited the business to their strategic investor, Seek.

In this interview with Tom, we get into:

• Coming up with the idea for Sidekicker

• How a lack of technical skills didn’t stop them from getting started

• Turning down a million dollars from a prominent Australian VC

• Moving quickly to save the business when the economy turned

Scott Handsaker (SH): Tell me who Tom is in 30 seconds or less.

Tom Amos (TA): I'm Tom. I'm a father to Astrid and Gus, husband to Linnea. Since 2012, I've been running Sidekicker, which I founded with my co-founder Jacqui. We recently sold the remaining shares to Seek, so that creates a bit of an identity crisis. You're like, hang on, who am I? Beyond that, I'm passionate about lots of hobbies. I’m a passionate golfer, and I love St. Kilda Football Club. It's handy that Andrew Bassett, who led Seek Ventures who invested in us, also happens to be the president of St. Kilda. So I get to combine two passions in one. I spend a lot of time in the town of Wye River on the Great Ocean Road.

SH: Give me the overview of Sidekicker. What do you do?

TA: Sidekicker is a digital marketplace for short-term labor. We make it really easy for a business to go on, make a request for a worker to fill a gap in a roster or deal with seasonal peaks. Business makes a request, pre-approved workers are notified, they apply, business selects a favorite, and we handle all the admin. We operate across Australia and New Zealand with around 20,000 sidekicks. Every month we payroll six to seven thousand of them across hospitality, events, warehousing, manufacturing, retail, business support, admin and aged care.

From Tax Accountant to Excel Wireframes

SH: How did you come up with the idea and get started?

TA: I was at Deloitte in their private business advisory area and knew very quickly I wasn't cut out to be a tax accountant. I'm also very bad at admin and domestically focused tasks in general, so I loved the idea of being able to pay someone to do stuff for me. That was the genesis.

I had no idea about tech back then. I had read half of the 4-Hour Work Week.

SH: That is very on brand to only read half of the 4-Hour Work Week.

TA: Exactly. I'd grown up going from high school to uni to a grad job, never having exposure to startups or alternative ways of living. Then I went to New Zealand for work and got friendly with a couple of guys who brought out this beer they'd home-brewed. We're drinking out of big plastic containers at the snow, and two months later they're launching Parrot Dog Beer, selling out all over Wellington. I was like, shit, okay, you can start things!

When I got back to Australia, Deloitte was kind enough to keep my job open for a year. The company back then was called Lend Me A Hand. It was neighbours helping neighbours, so quite similar to TaskRabbit in the US. Jacqui, who would become my co-founder, came on as a marketing intern while still at uni. At the same time a strong competitor in Airtasker launched. So we realized we needed a differentiated model.

That's how Sidekicker was born. We decided to focus on curation, business customers, and speed. No bidding, no browsing. Our model allowed people to get anything done for $29 an hour. We didn't understand marketplaces and dynamics at all. Jacqui and I just put in 25 grand each and got started with no idea what we were doing.

In fact, I wireframed the first version of Sidekicker in Excel.

SH: In Excel?

TA: In Excel. Hyperlinks and everything. We had absolutely no right to succeed. I'm frightened now by how much we didn’t know, but maybe that was a blessing as we didn’t see all the risks. I'm not sure how we managed to get it off the ground, given we had no exposure to technology whatsoever.

The Bootstrap Years: Living Below Minimum Wage

SH: What was your personal runway like when you stepped away from Deloitte?

TA: I could live really poor. I was at Deloitte on maybe $64,000 AUD as a senior analyst, so you're not on much money anyway. You have nothing to really give up or risk. I was 25 and it was just me, so I could live super cheaply.

I got a tax return that was worth maybe six grand and that got me started. I also did jobs on Sidekicker when we launched. I did some bookkeeping jobs, and just did whatever it took to make a couple of grand a month. We had a desk at a co-working space called Inspire9, and the owner Nathan was really good at giving us free rent. It was an amazing community to be involved with and we met so many incredible people. So yeah, we lived cheap for two or three years. I'm talking below minimum wage.

We didn't raise meaningful capital for probably three years, so we just bootstrapped and lived super poor. I don't know how I would do that now.

SH: Do you remember how long it took to pay yourself properly?

TA: It was when we raised our Series A from Seek. So I got a proper salary again in 2016.

SH: So three or four years.

TA: Yeah. I couldn't do that now, but we were very lucky. I think that's a big thing. If you're going to start a company, you have to be prepared for that. If you're not prepared to live poorly, it's hard.

SH: Many parts of entrepreneurship are painful, but one is definitely the fact that you have to go a long time without getting paid. I don't know a good solution to that.

TA: Especially now in Australia where you get to a certain age and you're indebted to your eyeballs just to have a house. It's really hard to take those risks.

The Co-Founder Dynamic

SH: You mentioned co-founding with Jacqui. When you left Deloitte, were you looking for a co-founder?

TA: Jacqui and I knew each other before we teamed up. She attended Monash University where I was president of the Commerce Student Society. We were running an orientation camp and Jacqui and some of her friends came on that. She also joined my team at Deloitte, and we got on really well.

When I had this idea and needed help, I reached out to Jacqui. To her credit, she took a bigger risk than I did. She had a grad job at Deloitte and dumped that to come on a journey with me when neither of us had any idea what we were doing. I got text messages from people at Deloitte saying, "It's fine for you, but what are you doing with Jacqui?" She took a massive gamble.

SH: How did you decide who's doing what, and how has that evolved over time?

TA: Because Jacqui and I have similar skill sets, it could have been problematic. But I'm very proud that we're still friends. I'm actually going to her wedding on Friday!

I think I was always the CEO and Jacqui was very good at respecting that. We never had this fight for control that ruins founding relationships.

We'd divide and conquer. Sidekicker is a two-sided marketplace, so in the early days we'd focus on one side each. We'd be quite comfortable flipping that. I'd probably do more early sales, while Jacqui looked after operations and the supply side. We've been able to navigate our cofounding relationship without too many fights, which I'm really proud of.

The Wild West of Early Fundraising

SH: You talked about those first two or three years as a grind. Did you ever come close to falling over?

TA: Our moments of failure actually happened post-2020 with COVID. In the early days, we were both comfortable having no money, so we didn't have pressure in that regard. And Sidekicker is a pretty compelling idea. It's very hard to scale without a distribution channel, but we could always get enough traction because the idea made sense.

We'd always see this month-on-month improvement. While Sidekicker was a good idea, it was never an idea that was going to go from $100 to a million dollars super quickly. But we could always see strong, steady growth, and that meant it was easy to maintain conviction.

Along with that growth, though, we knew eventually we would have to try and raise money. Back then, raising money was a lot different. We would go to these parties with all these older guys, and I would be trying to raise money from these people. It was the Wild West.

But we had this steady growth so that kept giving us confidence. We grew 400% from 2013 to 2014, albeit from a very small base. We won some good clients like Uber and eventually raised some seed money. We had constant momentum right up until COVID.

The Seek Deal: A Tale of Two Pitches

SH: Can you tell me more about your fundraising journey?

TA: From 2012 to 2016, we probably raised around 400 grand in total. We grew to the size where we were big enough for a Series A, and we had a choice between a traditional VC and Seek Ventures (a corporate VC).

I remember the traditional VC. We had to meet them in Sydney, and being poor a flight to Sydney was still financially painful. We made that trip up there a few times and we thought we were about to get a deal. The final time, I got off the plane in Sydney and the general partner calls me on the phone.

What! I thought we were at the finish line and they want me to pitch again? I was feeling pretty flat.

Almost immediately after that conversation, Simon from Seek calls and tells me,

SH: That was the morning you were pitching in Sydney?

TA: Yeah. I'm off the plane at 8am, and the VC gives me the news that I’m pitching again. I'm feeling pretty annoyed, and then Simon from Seek calls me straight after.

I'm like, "Hell yeah." These guys know a lot about marketplaces, and they felt really ethical, good folk. So I called up the VC and said,

At this stage I hadn't even seen the term sheet from Seek Ventures, but I was just so pissed off that I didn’t care.

SH: You didn't even know what the terms were from Seek?

TA: No. I just thought, if they're going to treat us like this, what's it going to be like working together? By this time the general partner at the VC has started panicking. He calls me back:

And I'm like, "Nah."

Whether that was the smartest decision or not I don’t know. I probably should have gamed it out a bit more, but at that point I felt the Seek team were really knowledgeable and ran a more transparent and respectful process. I didn't want to play them off against each other. So Jacqui and I went to the Coogee Pavilion and had a pizza and a couple of beers. That was it.

SH: So you flew all the way to Sydney to have pizza and beers?

TA: Yeah. Given we had done three or four years of bootstrapping, we just decided to go with the partner that's really keen and who seem like good people. We probably didn't have the energy to negotiate them against each other. If that was me now, I'd probably play it differently. But we were comfortable with the decision and excited to get a proper salary and capital to execute.

COVID: From Near-Death to Government Contracts

SH: You mentioned you had some moments of failure during Covid. Can you tell me about that?

TA: We were primarily a hospitality and events marketplace, so that went to basically zero. I still remember sitting in the shower, sitting down on the floor going,

The idea of letting a staff member go at this point terrified me.

Then I walked into the office and got a call from the Seek representatives on our board. They said, "Hey, don't worry. Don't do anything. We've got you covered." We'd done all the work preparing for layoffs, and they said, "Don't worry about this. Let's take a long-term view." It was such a relief.

A couple of days later, we won a major contract with the Victorian government. We ended up powering the Jobs Victoria program for two years using our technology. That was hell. We had to take our eye off our core business for two years, but it's what we had to do to survive. At the same time, we launched warehousing and healthcare, which started to go really well.

It's only now that we've probably recovered operationally. We went through near-death and then landed a massive contract with the Victorian government. Lots of revenue, but the business pivoted pretty hard.

The 2023 Crisis: From Growth to Bloodbath

SH: Apart from COVID, was there any single crisis that felt like an existential threat?

TA: Yeah 2023 was rough. As the economy started to reopen, our revenue was going ballistic. Our operations were really challenging as we couldn't get workers, so we threw a lot of people at the problem in an attempt to solve it. We hired a whole bunch in operations, product and design. With that also came hiring in support services, which put a lot of pressure on our cost base. It’s insane when I look back now, but at that point in time, we were so focused on supporting our customers and maintaining the growth rates.

At the same time, we were growing really quickly off decent numbers. If you project that forward, all the hiring actually makes sense and you're going to be profitable in nine months. But then the economy flipped and we went from growing 80 to 100% YoY, to negative 20% YoY within a couple of months. Everything we'd planned for just fell apart.

We had to move really quickly to save the business. We made the obvious decisions as quickly as possible, but then over 12 months we worked out what we needed to do to get to the right cost base. We had to do a couple of rounds of layoffs, which obviously isn't great, but we had to solve big operational problems along the way. We were super transparent with our team throughout.

At the end of 2023 to 2024, we had a really empowered and engaged team because people appreciated the transparency. But that was by far the biggest and toughest thing we faced.

The Personal Cost of Leadership

SH: What's something you didn't predict would impact you personally in being an entrepreneur?

TA: Probably the emotional part. You get very obsessed with it. It almost defines you. If Sidekicker is going badly, I'm not as happy. If Sidekicker is going well, I'm stressed about it not going well enough. Plus all the interpersonal stuff with team members. When you grow quickly, you make a lot of mistakes hiring, and that can be pretty niggly. The emotional impact is all-encompassing.

SH: Did you change as a person?

TA: I've changed over the last five years. When you have to make really hard decisions that you know are going to make people feel pretty average, you have to shut down yourself a bit. Because if I thought about the human impact of restructuring the business, where we went from losing money to being profitable within 15 months, I wouldn't do it.

I've probably become a bit more callous, and I'm hoping to shake this off. If I thought about it emotionally, I wouldn't make the decisions. You have to become pretty unemotional about letting go of people you've worked with for an extended period. That was probably the biggest change.

I know everyone says be your authentic self, but that's not always the right answer. The role of the CEO is quite distinct in the company.

Scaling Lessons: The Danger of Getting Too Big

SH: What's the biggest the company got in terms of staff?

TA: Probably 140, which is way too big. I look back on it and wonder what we were thinking? I see startups make the same mistake now. They raise capital and go on hiring sprees.

We probably didn't have the right controls in place. When your revenue is growing quickly and you've got capital it can be easy to hire. These things are always easy in hindsight, but we got way too bloated. I've been surprised at how much more efficient we were able to get, and with better metrics, by having a more lean and disciplined organization.

If I go again with a new company, I'll be way more deliberate with hiring.

SH: What staffing number were you when you sold to Seek?

TA: Probably 60 to 70, which is much more appropriate. In fairness, we were able to reduce headcount through innovation. We used to run onboarding centers where we'd interview every worker, and that was really human intensive. We were able to build a lot of that onboarding into our product, and we also changed the way we did support.

We were forced to be smarter. When you've got cash and you're growing, it can lead to a lack of innovation because you try to solve everything with humans. "We want to onboard more sidekickers? Just hire five workers to onboard sidekicks." It was a real positive for our business to have to focus on being lean. It made us much better by going through that step.

The Strategic Exit

SH: How did you approach the sale with Seek?

TA: It was a long time coming. Everyone knew it made sense. We had a great product that needed distribution. What does Seek have? Distribution.

The co-founder of Seek is Andrew Basset, and he and I have a really good relationship. Very transparent. We were talking about what's needed, and the choice was:

1. Do we try to raise capital and maybe get someone else on the cap table?

2. Do we just press on with Seek?

My view was that we should do this acquisition now. So what started as a capital raise turned into an acquisition over about 15 months. When. it finally went through, it was just me sitting there as Jacqui was out on maternity leave. All of a sudden money lands in your account and it's done. You're no longer an owner. It's a really weird feeling.

The Lightning Round

SH: Three wrap-up questions. First: what's a book we should all read?

TA: Shoe Dog from a business standpoint is very good. You realise how similar everyone's journey is. No matter how successful someone gets, you hear the grind they put in. Phil Knight achieved way bigger things, but you can still resonate with a lot of that journey.

SH: What's a podcast we should all listen to?

TA: I'll give a few. I'm a massive golf fan, so No Laying Up is a really good golf podcast. For sports, I like The Howie Games. I really liked the All-In podcast, but it's become too political. I wish they'd just go back to being a business podcast.

SH: Last one: what's an artist or musician we should all listen to?

TA: I'm going to go with something Swedish because I do like Swedish summer music. We head back every year to see Linnea’s family in summer. Every year in Stockholm, because they speak their own language and there's only 10 million of them, there's this really nice community. There'll always be some Swedish artist that breaks out with a summer song.

A guy I used to really not like was Benjamin Ingrosso. The Ingrossos are like the Swedish Kardashians. I used to bag him out all the time, but I listened to some of his music recently and it's actually really good. Very left-field, definitely not my favourite, but give Benjamin Ingrosso a chance.

My actual favourites are more rock and bluesy stuff. Teskey Brothers get a really good play at our house, and The National as well. Quite diverse.

SH: Thanks for your time Tom!

Paul Stovell and his wife Sonia co-founded and grew Octopus Deploy into one of the world’s leading continuous delivery tools, despite not raising external venture capital until almost a decade into the journey. They recently closed a A$45m round with Insight Partners, boosting their valuation to A$880m.

In this story we dive into:

• Getting into the magic of computers after growing up in a steel mining town

• Hacking on nights and weekends to build and grow the first version

• Being scared to charge anyone in case they didn’t want to pay

• How focusing on sustainable growth and profitability produced an outsized company

SH: Tell me who Paul is in 30 seconds or less.

PS: I’m a dad with three kids and a Westie pup. I like to build things, and I have a strong tendency towards self-reliance. If there’s something that needs to be done and it’s conceivable that I could do it myself, I would always lean towards doing it myself rather than hiring somebody or outsourcing the problem. I’ve spent 13 years building Octopus and was a self-taught software engineer before that.

SH: You bootstrapped Octopus Deploy for most of its existence. Did you have any history of entrepreneurship before that?

PS: Not really. I grew up in Whyalla, a steel mining town. The whole economy was dependent on the steel mill. Growing up, every adult either worked there or was involved in a business related to it.

But by the mid-90s, the internet had come along and computers were in every house. Like all 15-year-olds, you start playing video games and then you feel like this thing is really magical.

Around 16 I got interested in how computers and software worked. It was like discovering the unlimited Lego set. With most hobbies there’s some cost involved, but with software, once you have a computer, everything is free. It’s like having a billion Lego bricks at your disposal. The only limiting factor is your time and creativity. For a teenager with not much else to be interested in, that was an amazing discovery.

SH: This was during the dot-com boom and bust?

PS: Yeah, this was the dot-com boom. I was still a teenager so I might be wrong with some facts, but all this money had flown into software in the early 2000s, and then that money suddenly came out again as we realised people weren’t going to buy pets on the internet.

What was left around 2003 were a handful of independent people who loved software and were writing it because it was fun to write. Those companies who hired their nephew as head of IT because he had a computer? All of that collapsed. The people who weren’t there for the love of the craft left.

The only entrepreneurial activity left were people like Joel Spolsky and Eric Sink running small boutique software businesses. I fell in love with that because you realise software is unlimited. It’s only limited by your creativity, and you can make an income out of it. I started developing websites for people around 17, then moved into developing apps and open source things.

SH: How did you get to the idea for Octopus Deploy?

PS: I was 25 when Octopus started. I’d moved to Sydney at 18 and got my first job as a software developer. I did get into university but I never enjoyed school much, so I wasn’t excited about three or four more years of it! But through the open source work I’d been doing, I found a job at a small software company in Sydney.

I learned very early that the only way to build client trust was to deliver something and get it into production quickly. Every new customer, you’d spend time setting up source control and build automation. Then you’d spend weeks trying to get something deployed to production.

Once you got something into production, the relationship with the client would really change. For the first four or five weeks, they’re giving you trust and have hopes you’ll meet their needs. But it’s not until they start seeing something in production that their hope starts to reconcile with your actual ability.

At the time, the continuous delivery book had been published and agile was a big thing. As an industry we knew that continuous delivery pipelines and getting changes into production quickly would create faster feedback loops and more successful software teams. But the reality was this was really hard to do. Getting something to production became this nightmarish process you’d do on a weekend that wasn’t documented, and that had all kinds of production access issues.

SH: So Octopus was born out of that frustration?

PS: Yeah, it was my desire to solve that through a bag of tools I’d carry around from job to job. Originally it was going to be an open source project, but I’d done open source things before and realised for this to really work, it needed good documentation because it’s running in people’s production environments. It needed a good user interface so people could use it. Those things don’t tend to work well in small-scale open source projects.

So I thought I’ll just make a little business out of it and start selling licenses.

SH: When did you start building it?

PS: By this point I’d moved to London and was contracting at Credit Suisse. I’d spend every day at the bank dealing with bad deployments, queuing up behind the ops guy to get access to production. Then at night I’d think, “I’m fed up with these issues, I’m going to solve them in this product that was becoming Octopus.”

From 2010, I started writing code for it. Through to 2012 when people started buying licenses, it was a nights and weekends hobby project.

I’d work on it on weekends, I’d blog about it. I’d been blogging for a while so I had a few people reading my blog anyway. This was at the height of blogging, and people were paying attention to what I was doing. They started using the product for free, because I was reluctant to charge for it at first. I just wanted people to use it and give me feedback.

Honestly, I was worried that if I charged for it, people wouldn’t find it valuable and wouldn’t buy it. That would be really sad. So I thought it’s better to be ignorant and not charge for it at all!

SH: How did the transition to a business happen?

PS: Through that period of the hobby project, you could buy license keys but the software didn’t require you to put them in. The software never asked for a license key, but there was still a pricing page on the website. People did it almost like a donation. The software wasn’t asking for it but they liked it so much they felt it was valuable and bought it anyway. You had this trickle of a handful of license sales every month, which was really nice positive reinforcement.

I moved back from London to Brisbane in October 2012, and that was when we thought I could either get another contracting job or turn this into a business. So we made the software start to ask for a license key. That’s when it shot up in terms of sales.

SH: Who’s “we”?

PS: My girlfriend at the time but now my wife of 14 years. As we turned it into a business, she started doing all the books. She had a finance background, so she started doing all the financial work. The moment we turned it into a business, that was the two of us working together. It was a family business for the next 10 years.

SH: I read your wife describes herself as a self-taught CFO?

PS: Yeah, much like me. She had a background in financial advice, power planning, that sort of thing. A natural talent for it, but hadn’t formally trained as an accountant or CFO. There’s something about when you’ve had a tradesperson come to your house and you watch them work. You’ll learn a lot, but you’ll also watch them do things and think, “I could do that better.” Mostly you’ll do it better because you care about it because it’s your house.

For us in starting the business, we did every little detail ourselves. We backed ourselves to figure things out and give it a go. We knew that because we cared about the result, that would make up for any lack of skill we might initially have in the task.

Brought to you by Murmar

SH: Do you remember your first paying customer?

PS: I know it had a number in the front of it, like a company name that started with a number. It was a UK travel-related company. We used to charge £500 for a license key because that was my day rate contracting at Credit Suisse. So what would happen is I’d sell that license and that would cover my day rate. Then I’d call in sick or take the day off.

That went from being one day a month to a few days and grew from there.

SH: What was it like in that first year or two?

PS: Every month we would sell a bunch of licenses. I think in the first month where we started charging, we made $8,000 or $10,000. Then it dropped to $5,000 and started to build up again. For the next two years, it got up to about $30,000 to $40,000 a month. That was the point where we thought, okay, maybe it’s time to start hiring some people.

Getting the first full-time employee was really scary because when you hire contractors, there’s an expectation the work might dry up in six months and that’s okay. When you hire someone full-time, it’s a big responsibility. We put off doing that for as long as we could. By 2014, we hired our first employee, Henrik, who’s still with us today. We grew from there.

Honestly, it wasn’t a grind. We were living together, working on Octopus together, raising kids. It was fun actually. We didn’t have high expectations or hopes. It was really a hobby business that turned into a full-time thing. If it has some customers and people find it valuable and it makes some money for a while, that’s great. That’s all it needs to be. We hadn’t raised funding. We weren’t trying to change the universe. It was just software that hopefully if people find it interesting enough, they’ll pay for it and that will sustain its development.

SH: Why didn’t you get overtaken by well-funded competitors?

PS: Through my consulting time, I knew there were a handful of products in this space. They were mostly sold by IBM and CA, so they were very expensive, and they tended to be shelfware. People would buy them because they have a contract with IBM for everything, but the software would sit on the shelf because it wasn’t all that usable or good. That was the first generation of deployment automation. Really designed to be sold to CTOs, never adopted bottom-up by practitioners.

Then you had a second generation of tools coming along that were a bit more bottom-up oriented, a bit more usable, but still expensive. But by and large, everybody in this market was building their own deployment tooling much more than they were buying anything else.

Funded startups in most IT-oriented software tend to focus a lot on the enterprise market. You often see this thing where it’s open source and then they sell the enterprise version. When you look at them, they only have 600 customers, but they all pay a million dollars each. A lot of the software market works that way. It’s free and open source or it’s a million dollars, and there’s not much in between.

So I think that’s why we worked. We went bottoms up with a reasonable price.

SH: You mentioned you grew 30-50% every year for 10 years. Was there ever tension about raising money?

PS: No, we never paid attention to it honestly. The conception of the business was that this is a family business. We’re going to build this thing, and if people find it useful, they’ll buy it.

Employees would notice and ask questions about why don’t we consider fundraising. But at the time, Octopus had been growing around 30-50% every year for 10 years. We’d been profitable for almost every one of those years. Not just a bit profitable either, but really profitable, like 30-40% profit at the end of the year. We got to $20M ARR in US dollars and never felt like more capital would have helped.

SH: In classic startup parlance, VCs might look at 30-50% growth and call it a lifestyle business?

PS: Yeah, but once you get to a million dollars, which we did in the first two years, if you sustain that 30-50% growth rate every year, at some point you’re doing a billion dollars in revenue and it’s only 20 years. To this day, the Octopus business plan is to just keep doing that. It’s a more organic rate you can keep up with.

When you’re trying to grow at 100 or 200% every year, you’re having to hire that many more people, change that many more processes. The wheels are just falling off. Even at our growth rate, it always felt like the wheels were falling off to some degree, but you can handle it better.

Your company culture is decided by the people working with you. When new people are being trained by new people, that’s really hard and the culture changes fast. If you’re only hiring 30% more people every year, they’re at least being trained by people who have been at the company for a couple of years. The company tends to be more sustainable.

SH: You didn’t have an ESOP until the Insight round, which means for the first 10 years there was no equity for staff. Was that a challenge?

PS: No. The business was already running, had revenue, and was profitable at the point we started hiring the first employees. It wasn’t like a startup where it’s “come and join the ride, we’re going to build a rocket ship, maybe we won’t have a job in two years.” By the time we hired our first person, we were covering our own needs with a lot left over.

We were quite slow about it. When we were hiring people, we were hiring people who we felt would be here for the long term, who cared about their craft and their job. We could provide some level of stability. Not the same kind as a large corporate, but certainly not the chaotic environment that a startup would have. We’re not planning to grow fast, we just plan to keep doing what we’re doing.

When they joined us, they were coming from government or consulting companies where there was no expectation of stock options and no risk associated with it. We paid really strong salaries. They’re effectively joining us for a better paying job with the same ownership structures but a more interesting set of problems to solve.

As Insight joined, that bargain changed. We introduced the stock option program and went back and looked at the years people had put in and made grants that reflected that.

SH: What made you finally decide to take investment?

PS: We started getting a lot of investor interest, not just Insight Partners, but a bunch of other firms. The thing on my mind was: what are they seeing that we’re not seeing?

After 10 years, every first of the month you’re still starting from zero. You’re still wondering, is this the last person that needs an Octopus-shaped product? You expect a business grows and then plateaus after a few years, but it just kept growing. So you start to wonder why it keeps growing and what investors are seeing.

We started to zoom out and look at the bigger picture. Every company at this point has teams of software engineers, some with really large teams. So software is eating the world. What do those software teams need? Software teams produce bugs, so Atlassian makes $2 billion a year selling Jira. Whatever they build, they deploy into production, so they spend $4 billion a year with DataDog and New Relic monitoring that software.

The entire software thing is moving changes into production. Jira tells you what to change. Making the change goes into GitHub. But the button isn’t blue until it’s deployed to production. Then DataDog tells you the website hasn’t crashed.

Getting into production is, in some ways, the hardest part of all of that. It’s why so many companies built their own deployment tooling. There’s no software team on the planet that isn’t using something for CI/CD or hasn’t built something for it. Of any team of substance, there is a CD pipeline whether you bought one or not.

We realised the limit to Octopus’s revenue isn’t tens or hundreds of millions of dollars. It’s probably in the billions. Someone will build that. If it’s not us, someone else is going to do it. Then you start to ask, well, why not us? This is where the Australian tall poppy thing comes in and you say,

But you have to talk yourself into backing yourself. By the time Insight invested, we were eight years in and realised actually, we do have the makings of doing this.

The mistake so many people make is they get investors and they think there’s a really big business to be built in this space, and the investors think there’s a big business, only to find that there isn’t for some reason. Maybe the TAM just isn’t there. We were the opposite. We realised the TAM was there and we had just been oblivious to it.

SH: So why bring an investor on rather than continue bootstrapping?

PS: When you build your company, the first year or so you’re just writing code and building a great product. If you emailed support, I wouldn’t reply until Friday because I’d spend Monday to Thursday writing code. Customers didn’t care because the software was useful, the price was low, and the expectations were low.

As you grow bigger, there’s less and less room for not being good at things. We were good at software development but bad at support. By the time we got to $10M in revenue, we needed to be really good at support as well. By the time you get to $30M, you need to be good at marketing and sales. The stakes get higher.

We realised more and more of these things, such as sales, marketing, go-to-market, finance and tax burdens, were things we were going to have to become good at. If we were working with investors who had been on that journey before, maybe that is going to be easier rather than trying to bootstrap and figure it out from first principles. A lot of this stuff, when it comes to go-to-market, is transferable from company to company.

SH: Did Australian VCs like Blackbird or AirTree ever reach out?

PS: No, they didn’t. I think it’s because no one knew we existed. They probably emulated the Silicon Valley model of “there’s enough people trying to create startups here that if we wait, they’ll come and pitch to us.”

The Insight approach is they hire people out of college and put them to work. Your job is to build a database of every software company on the planet, get on the phone, reach out to them and learn everything you can. They find their opportunities rather than wait for them to come.

SH: To be fair, I consider myself reasonably well informed about the Australian ecosystem and I didn’t hear of you until the Insight announcement.

PS: No one did. There’s something funny about startup publicity. If you want to turn up in the paper as a startup, it almost doesn’t matter what you’re building or how interesting it is. You’ll only turn up if you’ve raised funding or you’ve done some ethical violation worthy of being called out. Until that point, they’re just not interested.

SH: How has your operating rhythm changed post-investment?

PS: It didn’t change at all. There was a bit more reporting, mostly tax or legal jurisdiction related. Our board meetings have stayed really informal. It’s once a quarter, mostly business focused. Not like what I imagine the board meetings of an insurance company would be.

When you bring investors on, they’re not operators. They may have seen other people dealing with your challenges, but they’ve never had that challenge themselves. Most investment firms have less employees than you do. The best way to work with them is to get introductions to people who have had those problems. They might say, “Hey, you should try this tactic,” but if you can say, “Can you introduce me to someone who’s tried that?” and you talk to that person, you’ll hear a very different story about did the tactic actually work, and what’s involved in executing on it.

Fundamentally, whether you follow their advice or not won’t matter at the next board meeting. What will matter is the results you’re bringing. That’s what should matter to you as a majority owner founder too. It’s about trying to find the truth of what is the best course of action here.

SH: Your rate of hiring must have increased post-funding?

PS: Not really. What changed was we’d been running Octopus really profitably because we were totally tied up in it. We started to realize there’s this really big opportunity we want to go after. We should not be so conservative that we miss out on experiments we can do to drive growth, particularly as the market we’re in was changing a bit. The go-to-market approaches we were trying were changing because customers were changing. There was a lot of experimentation needed. It changed from that point of view but not drastically.

Three Wrapup Questions

SH: What’s a book we should all read?

PS: High Output Management by Andy Grove. That’s a really good book, particularly for software engineers who move into people management roles. I think they start to focus on “My job as a software developer used to be to make stuff” to “Oh gosh, I’m managing these people, I’ve got to make them happy.” They forget the job is: you’re managing the people to make stuff. What is the job of a manager? That book answers it really well.

There’s another book called How Big Things Get Done. It gives a very beautiful description of what product development actually is and the way human knowledge gets embodied into products in a way that makes you really proud to be a product creator. It also looks into practical ways to predict and estimate projects and go about really big challenging projects. It juxtaposes things like the Empire State Building and how quickly that was built, compared to train networks in California that now take way longer and cost way more. It’s a really fascinating book.

SH: What’s a band or artist we should all listen to?

PS: My go-to when I’m doing stuff these days tends to be Paramore. I went to a concert with my 16-year-old daughter, a Paramore concert, and I think I just enjoyed going to the concert with her. But the music wasn’t too bad either.

SH: What’s a podcast we should all listen to?

PS: I tend to listen to podcasts that are a bit more politics oriented or about car restorations or whatever topic I happen to be interested in at the moment. John Anderson, the former Nationals deputy prime minister runs a really nice Australian politics-oriented podcast. I quite enjoy it too.

SH: Thanks for your time Paul!

Phil Bosua was the CEO and co-founder of LIFX, a company that set out to reinvent the lightbulb. LIFX had one of the more successful Kickstarter campaigns of all time, before going on to raise a Series A from Sequoia. It eventually sold in 2022.

In this interview we cover:

• Launching a Kickstarter at 1130pm on a Saturday night

• Solving manufacturing challenges on the factory floor in China

• Becoming the most “Uber’d” traveller in the world while raising on Sand Hill road

• Leaving the company under difficult circumstances

Scott Handsaker (SH): Tell me who Phil Bosua is in 30 seconds or less.

Phil Bosua (PB): Whoever I want to be. I have a very strong feeling that you can make your own reality, so I just make my own reality.

SH: You bend the world to your will?

PB: Yeah. It’s been called a reality distortion field. I’ve had multiple people say that to me. Omar at Sequoia said it once. He was getting worried about something and said to me, “You’re living in a world where you have a reality distortion field.” I just smiled at him. Then he said, “But don’t stop doing it. Just keep doing it!”

I guess one example of this is that I tried to hire a full-time cinematographer at LIFX. Not just anyone, but someone who’d shot the last series of Star Trek. Omar said, “I don’t think you need that.” I’m like, “I’ve got 50 staff at the moment and I’m going to get a Hollywood-level cinematographer to make these light bulbs look beautiful. I think that’s a good idea.”

SH: Did you end up hiring that person?

PB: No, but he’s still one of my best friends.

The Spark

SH: Tell me a little about LIFX?

PB: It was a way to bring creativity into the house.

SH: How did it get started?

PB: I was at a school parents party, maybe 200 people there, pretty rowdy. The host was a Qantas pilot. He goes, “Phil, I’m doing some renos. You’re pretty inventive. I want to run an idea by you.” I was an electrician who had done an apprenticeship. He wanted to cut a chase up a solid plaster wall to get a wire from his switch to the light in the middle of the room. Brickwork dust going everywhere. They’re not fun.

He asks, “Do you know of a way where I can turn that light switch on and off without having to cut a chase in the wall?” I was building IOS apps at the time, so I said, kind of trying to be funny, “Oh, I’m sure there’s an app for that.” I said I’d go home and see if I could find something.

As the night went on and I started going home, I thought that I’m pretty sure I would know if that existed on the App Store. And I don’t think it does. And if it doesn’t, I’m fucking doing that.

SH: What was it about this idea that stood out over the one you were working on?

PB: I showed it to Andrew Birt, who ran the accelerator that I was in, and he goes,

And I thought, “Wow, when you think about it like that, that sounds way cooler. And actually, I think you might be right.” It took a few days for this stuff to dawn on me.

Six Weeks to Kickstarter

SH: From the point where you had the idea at the party to putting it up on Kickstarter, how much time had gone by?

PB: Six weeks. It took a week or two to build the prototype with Andy Gelme and my father. But while we were building the prototype, I was doing a hundred other things in parallel. The moment I had an Arduino prototype in my hand that I knew worked, we shot the video within a day or two.

SH: Who were the actual co-founders of LIFX? It always felt like there were quite a few.

PB: Looking back now, I didn’t know what a startup was. I certainly didn’t know what a co-founder was. I came up with the idea for LIFX because I was an electrician. My father got involved because he was an engineer. He was actually the sound engineer for ACDC back in the day. In addition to being an electrician, I was also a lighting technician for rock shows. I knew how all the stuff worked, so I knew I could just jam RGB in there and get 16 million colours out of a single light bulb.

In the first few days it was just me and my Dad. I told him I was going to the hardware store, I’m going to buy a bunch of shit, and then I’m going to rip it all apart and we’re just going to Frankenstein this thing back together. My Dad knew the guy who could do the software. It was a guy called Andy Gelme who was running the Melbourne Hackerspace, and he turned out to be amazing. The three of us got together and Andy said,

My dad made the hardware, Andy’s making the software, and I’m making sure everything they’re building aligns with my vision for this light bulb. Andrew Birt, who was running the accelerator, was also involved 100%. He brought marketing, branding and general startup knowledge. So in terms of co-founders I would say it was me, Andrew, my father, and Andy Gelme.

Jake Lawton gets an honourable mention because he was sitting opposite me in the accelerator as all of this was going on and was just a huge support to me. He took on the role of all the administration. He wasn’t there at the very spark but certainly very quickly after.

SH: Was there any discussion about the role everyone had in the business?

PB: After Kickstarter hit, it was literally like, “Holy shit, who can do what?” And we just split up all the things we had to do. Andrew Birt took a huge burden on with all that. He was filling in a lot of the gaps in the team, while also leading marketing and branding.

The Launch

SH: You did Kickstarter and it was incredibly successful. What was it like in those first few days when it was kicking off?

PB: One of our first investors was Guy King, and he had figured out that Tuesday at 4pm or 10am was the best news cycle time for a Kickstarter to launch. He had done some analytics on it I think. So that was the plan, to launch on a Tuesday.

But we were sitting in a New York apartment on a Saturday night. It was really tiny, and only just fitted three of us. It was about 11:30 at night and we’d just gotten something to eat. We were looking at each other and thinking, everything’s done. There’s literally nothing we can do. We’ve gone over the Kickstarter page so many times. Every video was edited.

And I just went,

11:30 on a Saturday night, possibly the worst time. We just went, “Fuck it,” and launched it.

Within 10 or 15 minutes, we started seeing pledges. Maybe an hour or two in, we’d hit refresh and it’d go up another sale or two. We could literally just hit refresh and the numbers kept going up. We’re like, holy shit. I think we went to bed on like $20,000 or $30,000 or something.

We got up five or six hours later and it was on $50,000. Then it hit the front page of Hacker News and the front page of Reddit. The thing just took off. It got up to $500k the next day.

Then I start getting all these interview requests. I did about 40 interviews in the first 40 hours. I remember at one point, I had just finished an interview for breakfast radio in Melbourne, and I immediately collapsed onto the bed from exhaustion.

SH: That’s quite an introduction to startups from someone who didn’t really know anything about startups?

PB: Yeah.

Brought to you by Murmar

Manufacturing in China

SH: Once the Kickstarter was successful, you had to manufacture this thing. You manufactured in China, and I think you lived there for a bit didn’t you?

PB: I spent three months there in total, but not in a row. The longest was about a month. At the time, people were skeptical that we could build it, but it’s not that hard. You’re using a small chip that has been around for 30 or 40 years. You can just buy a Qualcomm chip or a Texas Instruments chip. Through prototyping on an Arduino, I knew you could turn that into your own circuit board.

So I was never worried whether we’d build it or not. We did have one big hiccup, and my dad and I were the last men standing to solve this problem. It was the heat. The chips that made the bulb affordable to manufacture only ran up to 75°C, and our bulb was operating at 85°C.

It was just my Dad and I who stayed behind in the factory. Everyone else went. The factory couldn’t solve it because they’d never built it. We’re in there with the Solidworks guy trying to troubleshoot it for quite a while. “What happens if you do that? What happens if you do this?”

They were teaching me about the volume of air flow required when it comes to heat. You can’t put the fins too close together, because there’s a gaseous state where air won’t run right next to the heat. I found myself designing a chimney. We ended up making it so that the hot part of the bulb exhausts and just pulls the air up from underneath. You get that bonus of air movement because it’s colder down the bottom. Ultimately, that idea got us over the line with the heat.

Go-to-Market

SH: What was the go-to-market motion like? What did you learn?

PB: During the day-to-day it was difficult to do anything well. But the GTM process was kind of laid out before us because of the Kickstarter success. Best Buy were courting us to launch the physical product on the front page of their catalog. We didn’t have to beg like most startups.

It was hard because we were worldwide shipping at that point, which was a mistake. I wouldn’t do that again. I would just do US, especially if you’re in the US. You don’t want to do worldwide shipping on a brand new idea. But we got through it.

For a period of time, it felt like as many as we could make, we knew we would sell. So it was more about trying to make sure we had stock and that the software and firmware was constantly updating and getting better and more solid.

After we launched the product, we had around $12 million in sales in the first year. We don’t have to have $200 million of sales in our first year, even if we had that demand. I wanted to build it right because I knew if I built it right, there was no ceiling to how big we could get.

The Fundraising Journey

SH: Let’s talk about your fundraising journey. I know you raised some angel money first. Was that before the kickstarter was so successful?

PB: Guy King was our first investor, and he made it possible pre-Kickstarter for me not to go bust on all of my credit cards. He loved what we were doing. We were having a beer at a bar in Richmond and I said,

He said, “Done.” That was amazing. Then he put about another $50k in to help us out while we were in the States. He was so generous and inspiring, and he loved the project so much. The time I spent with him were some of my most enjoyable moments at LIFX.

SH: Did you ever do a formalised angel round before you raised the Series A?

PB: Yeah. Guy came to me and said let’s do it. He told his former business partner Bevan about it, and Bevan wanted to jump in as well for the same. So we formalised the seed round just after Kickstarter.

The Sequoia Round

SH: The next round was the Sequoia round. How did that come about?

PB: Andrew and I kept going over to the States because we needed to. I think we’d been like five or six times, dropping into VCs when we went. We’d been to Sequoia maybe four times, and we had dropped into Kleiner Perkins a couple of times.

I was in China at the time and I’d just done an ABC radio interview. Omar Hamoui from Sequoia had caught that interview and reached out again. We went back to the US and we’re sitting in the Sequoia boardroom. Omar said, “All right, this is all good. We love it. We absolutely love it. But we’re getting a little frustrated with you.”

I’m like, “What’s your frustration?” He said, “When are you opening up a round?”

I replied, “Oh yeah. We should do that, shouldn’t we?” So I came back to the team in Australia and told them we were opening up a round.

We agreed to open up a round and we headed back to the US for conversations. Word spreads fairly quickly so we had a lot of meetings lined up. We spent the first week in a hotel in Menlo Park putting the deck together.

I headed up to San Francisco for a party, where I showed the deck to my friend Diesel. He read through it, very patient, and goes, “It’s awesome. But it looks like shit. Why don’t you just make it look good as well?” So I took it away and spent another week just making it look nice. I took out 90% of the words and added lots of pictures, but it communicated the vision better.

Then we did 60 VC meetings in six weeks. Uber had actually started a couple months before, and we found ourselves in San Francisco needing to get to places quickly. We didn’t want to be on calls while driving, so did a lot of Uber. Back then they only had black cars, so it was expensive. At one point, they said I was the most Ubered traveler in the world in the first three months.

Early on in the fundraising, Sequoia said they wanted to do it. They hadn’t given us a term sheet yet, but they told us that they wanted in.

SH: You ended up with multiple term sheets. Did you then have to choose or was it an easy choice?

PB: Yeah, you get the multiple term sheets and you choose. I chose Sequoia.

SH: Was that the last fundraise you did?

PB: We did have a Series B on the table before it went up shit creek.

SH: What did the Series B look like?

PB: It came to me. I didn’t even have a deck. One of the VCs said, “We would like to take the whole thing.” They’d already been talking to Sequoia. Good valuation and everything. The person I was talking to said at the end, “Can you just put me together a deck? If everything you’ve just told me is how it is, we want to do it.”

I said, “Everything I just told you is exactly as it is. So I will get that deck to you.”

That was just before the shit hit the fan.

When Things Fell Apart

SH: What are you referring to there? What happened?

PB: The whole thing was getting a little bit much for me because I was so inexperienced. I’m a quick learner, but I wasn’t happy with where the product was at after about a year of the Sequoia investment. I just wanted to get the product right. That was my passion. I enjoyed all the other stuff, but to me the product mattered the most.

I was starting to murmur that I’d prefer to focus on product. Marc Alexander, who was CTO at the time, came to me and said, “I’ve got an idea. I could be interim CEO while we find a new CEO, and then you focus on product.” I thought that was actually a really good idea.

I talked to Omar at Seqouia about it and he said,

That’s kind of what I wanted because I’m having to learn about financial charts and millions of dollars of balancing budgets. I’m actually pretty good at doing that, but when I hit waterfall charts, I’m like, really? I just want to make light bulbs and make them look good.

SH: How did that process go?

PB: Marc became interim CEO for a time. Eventually we were interviewing a new CEO that Sequoia found for us. He loved it. He spent two or three hours in a session with me and we got along really well. He said to Omar, “I think Phil’s vision is the type of vision I can get behind. I’d like to do this.”

So then it was time for him to meet the team. Marc was the first person he needed to meet, and Marc didn’t turn up to the meeting. I rang Marc and he said, “Oh, I’m down at Nest. I can’t get away.” I’m like, “No, you can get away from this. Get up here.”

He came up, but the whole thing was flat right from the start. Marc was 45 minutes late and didn’t look interested. Some of the staff started to tell me, “I think he wants to be the CEO.” I thought, “No, no, no. That wasn’t the agreement. Interim CEO, we said maybe six months.”

The company started putting the squeeze on me and telling me I couldn’t do the things that made me who I am. I eventually got an official warning. In the end I thought, go fuck yourselves. This is my company or I’m not involved. And you can see how you go without me. I don’t give a fuck.

That’s basically where it ended up. I resigned. I thought fuck you. You’re telling me what to do. Well, you’re on your own.

SH: Looking back on that, what do you think you missed?

PB: Too trusting. I was too trusting. Totally missed it. Didn’t see it at all.

SH: How much time was there between this happening and the eventual LIFX exit?

PB: I think from that point LIFX started to slowly go downhill over years, until it ended up where it ended up.

SH: Do you remember at the point you left what kind of revenue you were doing?

PB: I left about a year after Sequoia’s investment. I think that was the $12.5M and we were projecting $30M to $40M the next year.

SH: Did you manage to make some money out of it in the end?

PB: Yeah but not as much as it might have been.

SH: If you go back in time, what could you have done differently?

PB: Staff were turned against my way of thinking. They were saying I’m spending too much money, whereas I had investors telling me to spend it faster because they like a big burn. As long as you’re creating value, they don’t mind how much money you’re spending. You want to take whatever money they give you and increase it in value by 10x. I was doing that.

But I was getting labeled internally with statements like “You need to watch your spending,” whereas I’ve got actual investors asking me to spend more!

SH: How were your relationships at that time with your co-founders, and how are they today?

PB: They were in the gutter after the shit hit the fan. It was just a political event and I don’t like politics.

Obviously with my father, everything’s great, but I’ve fallen out with most of those people. I have a theory on it though. It’s when people get involved with my crazy, creative ideas that they get very excited. And given the intensity of the relationship, people are either all-in or the relationship breaks.

Lessons and Reflections

SH: Did any other relationships suffer during the building years that you didn’t expect?

PB: The relationship with my wife at the time. It wasn’t the strain of what we were going through. In fact, it was exciting. We were both excited and the kids were excited. But I relished the growth opportunity that was thrust before us as a family, and my wife at the time did not. That’s fine. People don’t have to grow at the same level.

We were just trucking along doing our Melbourne suburban thing and having a great time, and then this worldwide thing is thrust upon you and you either grow or you don’t. We grew apart.

The Final Wrap Up Questions

SH: What is a book that we should all read?

PB: I’ve never read a book in my life. Genuinely. I got through half of Call of the Wild when I was in primary school. I do read a lot, but I don’t get into the medium of books.

SH: When you say you read a lot, what do you read?

PB: Articles. or I watch research heavy things on YouTube. Physics, science, AI. I could watch five hours of those videos. PBS Spacetime and all that heavy shit. I’m taking in an awful lot of information, but I’ve never read a book.

SH: Well then what is a YouTube channel or show we should all watch?

PB: I would follow Anthropic’s podcast. They do a video podcast and that company is incredible. I’m very impressed.

SH: What is a band or artist we should all listen to?

PB: I’m making AI music at the moment. If you go to soundtrip.app, you can hear it.

SH: Was there anything I should have asked you that I didn’t?

PB: Why did I do it?

SH: Okay. Why did you do it?

PB: I wanted to bring the joy of ambience to people. It can improve your life. Ambience is beautiful. That’s why I wanted to do it.

SH: Did you achieve that?

PB: I think I did. I definitely made some inroads in making people’s environment more beautiful.

SH: Do you currently own and use any LIFX products?

PB: Yes. Always. I have other light bulbs in my house, but the ones I use the most are all LIFX. Absolutely. It’s a great product.

👋 Welcome to Valley of Doubt, a free weekly newsletter that goes deep into founder stories from the early days of startups. 🚀

Keith Pitt is the co-founder and former CEO of Buildkite, a devtools company that started in Melbourne and grew to have some of Silicon Valley’s biggest companies as clients.

In this interview we dig into:

• Starting Buildkite as a side project

• Running out of money and having to go back to investors

• The challenges of growing into a venture capital valuation

• Finding your product voice

Scott Handsaker (SH): Tell me who Keith Pitt is in 30 seconds or less.

Keith Pitt (KP): I'm a dad with three kids. I'm someone who loves to explore with his hands and code, and I love exploring ideas.

It's no surprise that I ended up in developer tools. Before I was a programmer, I was a magician doing magic shows. That's all about pleasing people, bringing joy and excitement to someone's day, subverting expectations and having them walk away with a memorable experience of something you spent a lot of time working on.

Developer tools is the closest I can get to being a magician in programming, because I get to please my peers, help them be better, and bring a little magic to their day.

I don't consider myself an entrepreneur. I never have, even though I do entrepreneurial things. I consider myself more of an inventor. The way that I like to figure out if my inventions are any good is by selling them, because I feel like the only true way to determine if something is of value is if someone's bought it.

SH: Is the “inventor” identity something that you carry with you throughout your life?

KP: Yeah, I think so. I like making stuff, whether it’s Lego with the kids or software for developers. I have a mad Lego collection, but I make something and then just pull it apart and put it in a box because I don't like displaying Lego. I like making it.

The Accidental Beginning

SH: Tell me how you got started with Buildkite.

KP: It was a side project of a side project. I started building an email transaction API like Mailgun. I needed some CI for it, and at work we were transitioning off Travis CI. My personal requirements collided with my work requirements and I thought, I'll quickly just bust something out. Years earlier I’d written a CI tool just for fun, so I dusted that off.

At the same time, PIN Payments launched in Australia. It was sort of the first time in Australian development history where you could charge for something on the internet without messing around with PayPal or getting a merchant account and SOAP APIs. It was a REST API to charge credit cards.

Because I'm a commercially minded inventor, I packaged up Buildkite. I spent my evenings working on it, and I wasn’t really building it to make money. I was just building it for me and what I thought was good.

I'd go to work and show my peers, "Hey, what do you think of this?" Little did I know that I was testing product-market fit. I thought I was just working on something that I liked.

SH: When did you know you had something people wanted?

KP: I eventually strapped a credit card system on there and put it on the internet. People I knew bought it to start with, but then one company bought it that I didn't know from Europe. I think they were called Moneybird. I was like,

That's when I knew I had something that people wanted.

SH: How did pricing evolve?

KP: I started at $5, $30, and $100 a month. Just classic SaaS tiers.

I remember I was walking back from lunch and I got a ping on my phone that someone had upgraded to $500 a month. That was a moment of pure joy for me because this particular customer knew who I was, but they had believed in me. There's a lot of people telling you no throughout the whole journey, and so part of that whole experience was just ignoring people that didn't believe in you.

When that enterprise customer came through, it was the first moment that I felt like someone else believed in me. That's when I knew I would be okay.

The Bootstrap Years

SH: Were you still working at Envato at that point?

KP: I was doing Buildkite after hours because my wife was studying to be a social worker at the time. I would do my day job and come home and work on Buildkite in the evenings. The work at Envato was super easy. I was on a green fields project, but my creative itches weren't being scratched at work.

I needed someone that could support my Buildkite work. I wanted to do one day a week on Buildkite, but Envato weren't too keen on a part-time position. So I ended up leaving Envato and going to work at PIN Payments. They were cool with me working four days a week.

SH: At what point did the co-founders come into it?

KP: I was two years in and still solo. I remember the moment it started. I was on Twitter and one of my competitors had announced they'd raised some money and I was really pissed off because I thought,

I tweeted something salty and Matt Allen from the Ruby community replied. He said, "You can raise money. I'll show you." So I started applying for accelerator programs. All of them knocked me back because they didn't want to support first-time founders. This was 13-14 years ago when the Australian startup ecosystem was pretty small and risk tolerance was basically non-existent.

They were like, "You have to find a co-founder." I went co-founder hunting but couldn't really find one. I had this weird romantic relationship with bootstrapping and going at it alone.

At that same moment, I asked Tim Lucas, who I was working with at PIN, "Hey man, can you make me a new logo for Buildkite?" Instead of making me a logo he said, "How about I be your co-founder instead?"

I said, "Okay." That was basically what it was.

The First Raise and Growing Pains

KP: Matt Allen helped us raise 200 grand from people we didn't know. Just a bunch of rich people, some of whom I still have not met to this day. We quit our jobs, paid ourselves 80 grand a year, and just worked on becoming profitable.

We built things and sold them, tried marketing, and made enough money to hire someone. We did this until we were 15 people, just rinse and repeat. Grow the bank balance, increase revenue, hire people.

SH: You mentioned it was a hard slog during those years. Do any particular moments stand out?

KP: I ran out of money. I stuffed up big time. In Australia you have to pay employees superannuation, and no one told me that superannuation payments were quarterly. I thought I was doing the right thing by using our cash to pre-buy EC2 instances, and then a couple weeks later our external accounting firm told me, "Super's due".

I thought, "Oh, we don't have enough money."

But I wasn't that scared because I had a plan. I thought, "Why not be open about it?" because it would probably help. I was completely open about it and said to the team, "All right, so here's the situation, but here's what we're going to do."

I converted a bunch of customers to annual payments, went back to investors for loans, and did some invoice advances. It was about 100 grand to see us through until we got R&D tax credits and bigger invoices.

SH: What did you learn from that experience?

KP: Cash flow is an art form in and of itself. It's not just the bank balance. It's the bank balance at any one moment in time. At that point the game changed for me to making sure that I don't run out of money. That's the number one thing.

Don't run out of money and do whatever it takes to not run out of money. Buildkite took a long time to bloom and blossom, but if we had run out of money earlier on, I might have just given up.

Brought to you by Murmar

Finding the Third Co-founder

SH: How did Lachlan join as the third co-founder?

KP: Lachlan joined a couple years in as a late-stage co-founder. I wasn't precious about the titles. When he joined, I thought if he does what we think he's going to do, the company that exists will be just as much of his creation as mine.

The reason he joined was that Tim and I didn't really know what we were doing. We had a good sense of how to navigate, but we didn't know big company enterprise stuff and were still thinking small fry. Lachlan really helped us charge lots of money.

That's probably the biggest gift he gave the company. He gave us the confidence to ask for more.

I didn't realise at the time that by having such a low price point, people weren't taking us seriously. For us to charge more, we had to really believe in ourselves. To walk into a company and say, "This is $100,000" with a straight face and truly believe it in your soul.

SH: How did you handle the dynamics between three founders?

KP: It's always hard when each of you want to be the CEO. I think all of us wanted a little bit of it, and that was super hard to navigate.

I gave the role away twice. I started as CEO, but I was the CEO of one person and I never really liked the title. I gave it to Tim because I was struggling with it. I always thought I wasn't doing what I thought that role was supposed to be. I was too invested in the product, too invested in customers, and wasn't interested in budgets or back office stuff.

Later on Lachlan took it over. I struggled with that because I always thought I could do a good job of it, but I wasn't ready to take the title and really own it.

It wasn't until a couple years later that I personally gained the confidence to say, "I'm the CEO." When I eventually could do it, I think I did a pretty good job because I learned I needed to be the sort of CEO that I was. I couldn't be trying to replicate something I thought in my head.

I decided I was a product-centric CEO, and when I owned that, that's when I started to flourish in the role. If we were selling brake pads, you'd want the person in charge to be an expert on brake pads. If we're selling developer tools, the person in charge should be an expert on developer tools.

The Series A and Growth Challenges

SH: Tell me about the first major funding round.

KP: In 2019 we raised a Series A of $28 million. The reason we did that was because I wanted to buy a house. I had previously been to the bank for a home loan and every bank rejected me. I was too risky because Buildkite's finances were largely US revenue, and my finances were Buildkite's finances.

A lot of that Series A round was taken out as secondaries. Everyone who had invested the original 200 grand in the seed round got their money back plus some. I had enough money to buy a house, and only a few million went into the company as rainy day money.

SH: What did you learn about taking VC money?

KP: We effectively chose the one that gave us the highest valuation and a clean term sheet. At the time it was awesome because it meant we could sell less of our company for more money, but no one really tells you what happens if you go in at a high valuation early on.

If you're given a high valuation, you're not worth that at the moment. They're pricing you based on what they think you're going to be worth. You effectively need to grow into the valuation, and if you don't then in your next round, you end up with a down round.

It made the next round much harder. We hadn’t grown fast enough to justify the valuation, so the next round was effectively flat. No one warns you about that.

I think we were naive going into that transaction. We always painted the picture of being a long-term sustainable business, and our position on that never changed. We weren't building something to sell. We were building something that would last forever. The VCs gave us money even though we said those words, but I think in their mind they were hoping we would change.

Once you take big VC money, expectations change. They want big results, and we were still behaving like 37signals.

Eventually I realised that if we’re going to play the enterprise game, we have to play it properly. That meant raising again, and building the team to go after bigger customers.

The Transformation: Embracing Sales

SH: What changed when you took over as CEO the second time?

KP: When I took over CEO, I really embraced having a sales team. Up to that point, Buildkite didn't have a sales team. I used to have this romantic relationship with the Atlassian approach, who famously had never had a salesperson. In reality they did have salespeople, they just called them something different.

The biggest learning from hiring a salesperson was that there is a certain dance you need to have with customers during a sale, and you want someone whose job it is to do that tango.

We hired a salesperson and built a sales team, and tripled revenue in a couple of years through doing that.

The Product Philosophy That Almost Came Too Late

SH: Buildkite is well known for being a much-loved product in the developer community. Tell me about your product development process.

KP: It took me nine years to figure out my product voice. I read a book by Rory Sutherland called Alchemy. It was a book on marketing, but weirdly enough, this marketing book helped me find my product voice.

I had a lot of stuff that was just instinct and gut, but I never figured out how to turn that gut into something actionable or a set of product principles. Reading this book helped me find that voice.

I remember the day I showcased to the company,

I did a three-hour presentation to the company, and I think everyone hated it. Everyone hated it because so many people disagreed with the principles.

SH: What were some of those principles?

KP: Here's a great example: don't listen to customers. Listen to them, but don't listen to them. What I learned is that when a customer comes to you with a problem, they come to you with a cry for help disguised as a feature request. You have to ignore the feature request and get at their problem.

Ninety-nine percent of the time, they've had some configuration issue somewhere else, 10 steps earlier, that's led them to this point where they've fucked it up so badly that they need something to solve that.

A feature request is not a feature request. It's a cry for help. That was difficult for a lot of people to unwind in their head, but that principle helped a lot.

Another principle: I always wanted developers to be treated as humans, not robots. Just look at any error message in any developer tool. It's probably obscure and shit. One of the magical parts of Buildkite was that I spent a lot of time taking what the developer would give me, and interpreting it to be what they actually meant.

You have to have pure empathy for the user. You're almost like a parent because you can't always give them what they want. You can easily just add all these checkboxes and make everyone happy, but you pay for it later with a million checkboxes.

SH: Why do you think the team reacted negatively?

KP: I think I should have packaged up my principles differently or had a different approach. They were pretty black and white, quite dogmatic. It was like, "This is how it is." Anyone receiving that would probably not like being told "this is the way it is from now on."

At that moment, I realised the company I had was somewhat incompatible with that. I should have spent more time thinking about that stuff before going on mass hiring.

The Hard Truth About Hiring and Culture

KP: There's something not a lot of founders talk about because maybe they're scared about it, but in industry there's this thing called culture fit that people get wrong all the time.

If you hire too many different people with different work styles, different wants, different needs, different approaches, different ideas, different values, different ethics, then everything becomes hard mode.

I wish I had gone back and been more involved in hiring. I would have opted more for culture fit. I would have been more bullish and precise: here is the type of person we want, let's go find that type of person.

At some point in hiring you get exhausted and you just hire the person who's at the top of the pile, even if they might not match who you wanted. You think, "We need somebody, so we just get them." That's a trap I see a lot of founders fall into, and it has major repercussions over time.

When I'm starting my new company, Unreasonable Magic, I'm being very strict about who I let in, way more exclusionary this time around. Teams that build products aren't a party. It's a set of inventors and makers, and you need everyone on the same wavelength.

The Board Dynamics and Exit

SH: How did having a board change the way you operated?

KP: I personally struggled with board stuff. The board was heavily American, and they were all operators who were used to working at a particular pace. I wasn't at that pace, and I couldn't help but feel that I was always letting them down. Not going fast enough.

Board work at some point becomes theater, and I struggle with that. I struggle with having to put on a show for a board. I was always struggling to find the balance between how do I get the most out of these smart people versus how is this not just a press conference? I never figured it out.

The thing about boards is they have a lot of control, but these people think about your company for only a couple of hours a month. That was super tough because you care a thousand percent, and they care, but they only care for a couple of hours.

SH: You have since moved on from Buildkite. Can you talk about your exit?

KP: I worked on Buildkite for 13 years, and the hardest part about leaving was that I didn't get to see what happened next. It was almost like I left halfway through a season of a TV show, and there were all these characters and stories and threads I never got to see the ending to.

Whenever any founder exits a company, so much of that company is them, so you're leaving a part of yourself. The biggest struggle I've had since leaving is that no one's ever going to care as much about the thing as you did.

It's like when you have an electrician come to your house. Sometimes they don't vacuum up as much as you would. You're always going to find that extra wire or bit of gyprock because it's not their house. Your company is your house.

No exit is good enough for any founder after a 13-year thing. It's almost an impossible task to try to figure out how to exit someone from a company after 13 years gracefully.

What's Next: Unreasonable Magic

SH: What's next for you with Unreasonable Magic?

KP: I've got 13 years of ideas to explore. Where I'm focusing my energy is on programming. A lot of programmers like programming, as they like to code. The rise of coding tools fundamentally changes the relationship you have with the work, more than anything in the history of programming.

A lot of programmers who would program and get fulfilment out of it have become managers of a coding machine. Whenever I have a day of using Claude or similar tools, I walk away feeling dumb and empty. It's like popcorn. It's not a real meal, it's not feeding your soul.

Unreasonable Magic is about how can we take these tools and make you feel fulfilled? How can we let you be as productive as using a coding assistant but also feel that you are the boss, that you walk away smarter at the end of a coding session?

It's that doing-the-opposite thing again where everyone's trying to be more productive, but for me it's not about productivity. It's about relationships to the code.

Programming is thinking. When I'm writing code, I'm thinking about how each line will be executed, what happens if this line goes wrong. You just don't get that same level of intimacy with the program when you use coding assistants because they can whip out so much code so quickly.

The products I built with Claude are worse than without them because I use programming as a way to think and interact with the problem. When you're coding, you're deeply invested in the problem you're solving, getting intimate with the problem. With AI tools, it's surface level. It's a one-night stand with a problem versus a deep and meaningful relationship.

Claude certainly makes me more productive, but at what cost? You're paying with the knowledge you would have learned from interacting with the problem.

The 3 easy questions

SH: What’s a book we should all read?

KP: Alchemy by Rory Sutherland. It’s the book that helped me find who I am. That book changed more about Buildkite than I can list out.

SH: What is a band or artist that we should all listen to?

KP: Uhmm, I like beatboxing.

SH: Do you beatbox yourself?

KP: Oh gawd no. But there is this band I like, and the song is called Candy Thief. It’s K-pop. I probably listen to that song on repeat every day.

SH: What is a podcast we should all listen to?

KP: I listen to Conan O’Brien Needs A Friend. If I’m working all day, I feel like it's important for me to make sure my brain goes somewhere else at the end of the day. And Conan O'Brien is just a very silly human.

SH: Amazing. Thanks for your time Keith, and good luck with Unreasonable Magic!

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Michael Gianarakis is a hacker, founder and entrepreneur from Queensland, Australia. Together with his cofounder Shubs, they bootstrapped Assetnote from nothing into a $100m+ exit.

In this interview we cover off:

• Getting started in an apartment in Brisbane

• Receiving a term sheet on the back of a beer coaster

• Making the decision to bootstrap

• Knocking back an $80m acquisition offer

The Origin Story: From Bug Bounties to Business

Scott Handsaker (SH): Tell me who Michael is in 30 seconds or less.

Michael Gianarakis (MG): I'm one of the co-founders of Assetnote, an attack surface management company. I've been working in cybersecurity for almost 20 years now, mostly in defensive security. I'm married, have three kids and enjoy playing the guitar. I joke sometimes that I'm a full-time guitarist, part-time CEO on the side!

SH: Let's go back to the early days of AssetNote. How'd you come up with the idea?

MG: My co-founder Shubs and I were both involved in the bug bounty scene pretty early on. He was doing full-time bug bounties and had built some tooling. Not exactly Assetnote, but a lot of the DNA of what became Assetnote was in that tool. He released an open source version at BSides Canberra years ago.

There were folks using it who really loved it and encouraged him to keep building. We'd known each other for years. We met at Crikeycon in Brisbane where I was doing a talk on runtime hacking for iOS apps, and he came up to me talking about his voicemail hacking techniques.

The breakthrough moment came when we found a vulnerability in Slack using this approach. It was described by Slack at the time as the biggest vulnerability ever found externally. That really got Shubs thinking there was something there.

For me, it was hearing from companies who'd say, "Hey, you keep rinsing our bounties. We spend all this money on pentesting, source code review, all these tools, but you still keep finding crazy stuff. How do you do it?" When we'd explain our approach, these really big companies would say, "If you were selling this, we'd buy it."

SH: What was the moment you decided to actually do it?

MG: We'd been talking about it for a while. I was working at Trustwave running the SpiderLabs team, and Shubs was about to move to Thailand for six months to work from there. When you're doing full-time bug bounties, you have a lot of flexibility.

Shubs wanted to know what it would take for me to jump. He was like, “Is it money? Is it something else?”

I told him, "Look, I'm really keen, but I can't bum around Thailand. I've got a wife, two kids at the time, a mortgage." He was in Brisbane before he moved, and one weekend after our conversations, he just texted me:

I just responded, "I'm in." That was it. I quit my job, Shubs moved to Brisbane, and we started working on it.

The Bootstrap Philosophy

SH: I assume it's just the two of you in the early days. Were you working out of your bedrooms?

MG: Shubs moved to Brisbane and got an apartment in the city. It was a really nice apartment, way up high with great views of the river. I would just come in each day and we would work together in that location. I remember we had floor to ceiling windows, and we would use that as a makeshift whiteboard. It was just all over the place. When Shubs would have the cleaners come in, he'd say “don't rub any of this off!”

It was pretty hectic in those early days. Shubs was living with a roommate called Pat, who ultimately became our first employee. He caught the vibe and really got excited by what we were doing. So in the early days it was the three of us. We grew to about five people pretty quickly, but we stayed there for a long time.

SH: You guys were bootstrapped the entire way through to exit, right?

MG: Bootstrapped the entire way. Not a single dollar of external capital or debt funding. When I talk about bootstrapping with other founders, I think there's a perception that we're anti-VC. We're not. We're more pro "it's your business." VC funding is just one way to fund your business.

I remember we started sketching out the first product. We started writing it all down and I just threw it out to Shubs,

And he's like, "No, no, no. We can totally do this in like six weeks. Six weeks tops."

I can tell you it didn't take six weeks! He even wrote that date in his notebook, and we still have a photo of that. It didn't take six weeks, but we managed to get it off the ground without VC.

We had VCs hitting us up early on. I remember Accel Partners reached out. Obviously a big name in VC, particularly in security. I remember Shubs and I agreed to take the meeting. After we got off the call I said, "What did you think?", and Shubs said,

And I'm like, "Dude, they're finance guys. They're all going to be like that. What did you expect?"

So early on we explored VC, but there was an interesting kind of vibe with it. I don’t think they really understood us. They were attracted to the logos that we were signing up, and the revenue and the traction, so they knew that there was something there. But they didn't really get it.

We did receive a term sheet from one of the large Australian VCs, but it had some crazy terms in it, and we pushed back. You could tell they wanted to invest, because they started negotiating against themselves! It played out over the course of a year, and eventually we met up with them in Brisbane at a pub. The VC picked up a beer coaster, and on the back of it, he wrote an amount. He added “information rights” and then he asked us to pick a valuation that was reasonable. Then he signed it and said “That’s a legitimate offer”.

SH: Are you serious?

MG: Yep.

The thing that finally turned us off was the mentality. Early VCs would say, "You take this money, that gets you to this headcount, then you do your Series A and that gets you to this headcount." I'm like, "Are we going to talk about sales, product, or profitability?" It felt like an all-or-nothing, hamster wheel approach.

Building a growing, sustainable company felt like we were maximizing optionality. If it was going well, growing and profitable, we'd always have investment and acquisition interest. Even if we had neither, we could keep going and extract profits as owners.

Early Customer Success

SH: Atlassian was your first customer. Do you remember what you charged them?

MG: $150k a year USD. It was an amazing first customer - not just the contract value, but they were really engaged with the idea. The feedback we got was really practical because they were security buyers, not compliance buyers.

Security buyers don't care about your logo or team size. They care whether it solves a problem. They're proactively trying to improve security. Compliance buyers are just trying to tick boxes. In the early days, you really want to target security buyers, and Atlassian was perfect for that.

SH: Where were you deployed?

MG: We were originally on GCP because Shubs had a few credits that he was able to get. But we had built a port scanning module, and we started to get you all these automated messages from Google that they were going to shut us down. They thought we had been compromised. We explained that it was all legitimate, but they let us know they couldn’t turn off the emails.

But the emails were very threatening! They were going to shut down our account. I said to Shubs, “If we miss an email because we're traveling, that could be existential to the business?”

So we started shopping around. We ended up on AWS and managed to secure $100,000 in AWS credits, which we managed to make last for a full year.

The Lean Years

SH: How long did it take until you and Shubs started paying yourselves a salary?

MG: About two years before we took anything, and even then we were the lowest paid people in Assetnote. We made a commitment to our early employees that they'd get all the raises first until it got reasonable, and we wouldn't hire externally at higher rates than what they were on.

We didn't take market-rate salaries for probably another two years after that. We kept everything in the business. We had over 50% EBITDA margins and 90% gross margins. We were highly profitable and cash was piling up. It was kind of stupid in hindsight, but we weren't taking that out. We were focused on growing the business.

SH: What did headcount look like through the journey?

MG: At acquisition, we were around 16-17 people including Shubs and myself. As we were building we stayed at about five people for a very long time. We were very considered with hiring. We strongly believe headcount can become a vanity metric. VCs ask about target headcount, and I'm like, "That's stupid. Is there a need or not?"

We'd stretch things further than we should have sometimes, but that was because of how good and capable the team was. Most of our headcount came in the last three years of AssetNote. We had very little churn and we've never fired anybody.

Crisis Management and Culture

SH: What's the biggest crisis you went through at AssetNote?

MG: Probably our React migration in the early days. We were migrating from AngularJS and it kept dragging on. We had pressure from customers wanting things, but we didn't want to update the Angular frontend because it would add to the React scope.

We pushed for a particular date, but it wasn't quite ready. There was also a separate OAuth service migration to Okta that got linked in weird ways. When we deployed, it was a nightmare - bugs everywhere, and every vulnerability in our platform was firing for literally every customer.

Shubs was away at the time, so it was all hands on deck. We were checking in every three hours around the clock for a week. Even our salesperson was joining calls at 3 AM in solidarity. It taught us we needed better development processes and planning.

Co-founder Dynamics

SH: How did your co-founding relationship work? Any challenging moments?

MG: Everything was 50/50 from the get-go, including equity and decision-making. I was CEO and he was CTO,. Someone had to be he spreadsheet guy and I guess I drew the short straw! But it made sense as he is a better hacker and coder than me. Even with those titles though, we never had an instance where either of us pulled rank. If I couldn't convince Shubs something was a good idea, maybe it wasn't, and vice versa.

One of the big things Shubs and I share is ruthless pragmatism and no ego. There's no "it's my idea so it's good." We focus on outcomes. People sometimes think it's Shubs's company because he's more prominent in security research, but it never bothered me. It all evens out in the end.

The $80 Million Decision

SH: You knocked back a number of acquisition attempts. What's the highest price you turned down?

MG: $80 million US. We had acquisition offers right from the get-go, even pre-revenue. The very first was a $3 million acqui-hire before we even signed Atlassian.

The fundamental question we asked ourselves for all early offers was:

Shubs and I would immediately say no, because we had so much early momentum and traction.

What changed our perspective was meeting Zane from Signal Sciences at RSA. I asked him how he thinks about acquisition timing. He said, "The way you should think about acquisition is as the next phase of your business." That really shifted our thinking away from viewing it as just an end or liquidity event.

The Final Deal

SH: Walk me through the actual acquisition process.

MG: In 2024, we had multiple parties expressing interest, then one sent a term sheet out of the blue without us discussing expectations. It felt like the right time to start taking it seriously. We felt like we should at least see if anyone else was interested.

We decided to work with bankers and see what the market looked like. We ended up with five LOIs all broadly similar in scale and terms.

We were deciding between two companies, one of whom was SearchLight. The competing offer had edged them out on deal terms, but we thought SearchLight was a better fit for the next phase. We went through due diligence with the competing offer and I remember speaking to our bankers at 11pm at night. They said, “We just spoke to their lawyers, and we are expecting the draft definitive today”. So I thought great, I will wake up in the morning to an email with the final offer.

What I woke up to was an email that said "pencils down". The company that wanted to acquire us, was being acquired themselves! Lucky for us SearchLight came back and matched the deal, so we got everything in the end.

Building From Australia

SH: Did you ever feel like you had to move to the US?

MG: We wanted to create opportunity in Australia for people to work on interesting, difficult problems. A lot of folks in our community were going to America, not because they wanted to live there, but because that's where the interesting work was.

I remember being on a panel with VCs who said it doesn't matter how much traction you have in Australia. You have to move to America and at least one founder has to be there. I put my hand up and asked, "What if all your traction in Australia is international? They're all US companies." She couldn't really answer.

We had that pride and attitude of "No, that's bullshit. We can absolutely build an international company from Australia." We wanted to prove them wrong.

Key Lessons for Founders

SH: What did building this business cost you personally that you didn't expect?

MG: From a financial perspective, being bootstrapped and putting everything into the business made things very tight. But the trickier cost was managing that with family and relationships. Money became a very conscious thing in a way it wasn't before.

There was also a sense of disconnection from various circles. We didn't fit into the VC sphere because we were bootstrapped. We didn't fit into the hacking community because most are pentesters and consultants, not building businesses. We didn't fit into the corporate security scene either. We never really fit into one of those places.

Lightning Round

SH: What is a book we should all read?

MG: For cybersecurity startup founders specifically, "Cyber for Builders" by Ross Haleliuk. It has really good insights into how you need to think when you're starting, running, and growing a cyber company.

Cyber founders are very technical and focus on the product. There's this "build it and they will come" mentality that exists for cyber startups, and that book gives a better perspective on why that's not true.

Personally, the book that's had the biggest impact on my life was "Getting Things Done" by David Allen. It's a productivity book that really shifted how I approach work. Those concepts are so ingrained in my day-to-day now.

SH: What is a band or artist we should all listen to?

MG: I'm into so many different things, but I think when you pick up an instrument, it's to emulate bands you were into at the time. I got into guitar in the early 2000s with pop punk bands like Blink-182 and Green Day. Even as your tastes evolve, you always have a soft spot for that.

The band I'd recommend is The Paradox. They're a new band out of America that really does that style very well. I've been listening to them a lot on repeat. Maybe a little more obscure than some crazy big band, but they're worth checking out.

SH: What is a podcast we should all listen to?

MG: I would have said Surfacing Security, which is the AssetNote podcast, but we've been a bit slack on getting the next season out. Stay tuned for that!

I like "Acquired". Lots of stories about companies and those kinds of interviews.

Obviously, I've got to give a shout-out to Risky Biz. Pat's been a big supporter of AssetNote from the get-go, and in my opinion, when it comes to cybersecurity podcasts, it's the gold standard.

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Aaron Wallis is the former co-founder and CTO of Lexer, a Melbourne based Customer Data and Experience Platform (CDXP) that has raised over $35m in venture capital. But it didn’t start out life as a CDXP!

In this interview we cover off:

• Spinning his first product out of an agency

• Having to move back home with Mum and Dad to keep the lights on

• Raising a Series A, only to have GDPR kill 50% of the revenue

• The crucial pivots that Lexer went through to still be thriving today

• Making the decision to move on

Scott Handsaker (SH): Aaron, tell me who you are in 30 seconds or less.

Aaron Wallis AW): I'm doing a fractional CTO role at the moment, and someone in the team posted on Microsoft Teams, "Hey, let's play a little game. Explain what you do, but in the worst way possible”. After chatting with my favourite AI, I landed on this:

I help people not hate computers and help computers not hate people.

A lot of my career has been spent being a really creative person in technical teams or a really technical person in creative teams. That middle ground is what sparks me the most joy.

The Genesis: From Agency Life to Social Media Scraping

SH: Take me back to the founding days of Lexer.

AW: I was working as technical director at M&C Saatchi. Dave Whittle, who became a co-founder, was my boss there. We actually met at the very first Twitter meetup in Australia! There was this tall man dressed head to toe in Dolce Gabbana among all these nerds, so I went to chat with him. A month later I was working for him.

At the agency, I'd see account managers and strategy people browsing MySpace and Twitter, looking for mentions of clients or competitors. They were spending hours taking screenshots of tweets and putting them into PowerPoint presentations as "quantified research." I thought, this can be so much easier.

This was 2008. I built this really rudimentary social media monitoring platform running on my iMac at home, scraping Twitter and major Australian news publications, dumping data into a Postgres database so we could search and see it all at once. Cloud computing had just landed. Amazon had launched maybe a couple months earlier, so I could deploy this in the cloud.

SH: How did it become a business?

AW: Dave was encouraging me every step of the way and we started selling it to agency clients. I was 23 at the time, so I was leaning on Dave for help with the commercials. Westfield was our first paying customer, and they said if we built it for them in the next six months, they'd pay a subscription fee. We had revenue really early on, probably about six clients total. At this stage it was still a business unit of M&C Saatchi.

About 12 months into it, the agency decided it didn't want to invest anymore. The CFO pulled me aside and said,

I had no idea that conversation was coming, but Dave was great. He said, "Let's find some high net worth individuals and get capital. You should keep doing this."

So we got a few angels and everyone put in cash. I think I contributed sweat equity. In total we raised around $200k and at the same time we acquired the IP back off M&C.

I moved back home with mom and dad and my partner Corey came with me. We lived at home for almost a year, then decided to move to Melbourne instead of back to Sydney.

The Solo Founder Years and Board Meetings from Hell

SH: When did co-founders come into the picture?

AW: I was solo for about two years. I became a company of one with a board of five. I'd wake up every morning asking myself: Am I selling? Am I working on marketing? Am I improving the product? I'm a product guy, so it almost definitely meant I was spending time on the product.

We had these Monday morning calls (I called them board meetings) where everyone dialed in and basically took turns asking me why I hadn't done that thing yet.

I got to the point where I was like, "I think I need to give up on this." I spoke to Dave and said something needs to happen. The board got fractured, and two investors wanted to take the business one way, and two wanted another way. They said "Aaron, you need to make a choice!"

I made the decision to continue working with Dave and an angel turned co-founder Chris Brewer. We all put our hands in our pockets, bought out the other angel investors and cleared up the cap table. That's when Chris and Dave started working part-time in the business. Over time it evolved into both of them going full-time.

I was passionate about being the CEO for the first few years, but once Dave and Chris came on board it was clear I was going to be CTO. It wasn't until we started raising capital that I realised that I really don't like the job of a CEO. I kept leaving all of these VC meetings thinking, I would much rather be at home working on the product than hearing these people tell us how bad our idea is!

Brought to you by Murmar.

Finding Product-Market Fit and the First Big Raise

AW: We had this social media monitoring product called Lexer Listen. We had built that up to a decent ARR with Australian enterprise organizations, but we kept hearing about problems where the content needed more context.

Westfield would freak out when there were negative sentiment spikes, which was almost always people complaining about toilets. But we didn't know if it was someone shopping at Louis Vuitton complaining, or people using the train station at the basement. Completely different reaction required.

That led us to explore how to get more data. This was pre-GDPR, so if you had an email address, you could hit an API and get their Twitter handle, Instagram, and Facebook. We started building this rich identity graph, creating behavioural profiles. As an example, we would know that “Aaron Wallis follows Nike and Adidas, is into electronic music, and lives in Melbourne”. All based on geolocated tweets.

We would harvest huge amounts of social content and use that to infer behavioral profiles. We went from social monitoring to social enrichment, licensing behavioral data to companies. That's when we did our Series A.

SH: Do you remember how much you raised and at what level the business was?

AW: I think we were doing about four million ARR when we raised five million from Blue Sky Ventures, now January Capital.

The GDPR Crisis: Losing Half Your Revenue Overnight

SH: Can you walk me through what you think was the biggest crisis in Lexer's history?

AW: About 12 months after our Series A, GDPR kicked in and made our social enrichment essentially illegal. We'd basically built what Cambridge Analytica had built. We were using it for good, but the market decided this shouldn't be allowed.

We had to notify all clients using social enrichment, and it was a significant portion of our revenue. We decided we had to turn it off.

SH: Did it feel existential at the time?

AW: Maybe not to me because I'm happiest when I've been given a direction and have free reign to build something new. And that is what it felt like to me.

Dave Chin, who's now our CEO, was the one who came up with the pivot.

We started talking with clients about transaction histories, call center logs, creating profiles of what Aaron Wallis is doing INSIDE the business. We didn't know it yet, but we'd essentially built one of the first customer data platforms.

We probably went from the low point of GDPR crushing our revenue, to having Optus as one of our first clients on the new platform in about three months. It didn't feel like we were saving the business. It felt like we were doing something incredible and new.

The COVID Rocket Ship

AW: We entered COVID with a strong business and a war chest thanks to Chris's financial management. But we were terrified because retail was dead, and the new Lexer product specialized in retail data analytics. But the team did an incredible job repackaging what we did for the market.

We grew like a weed, with 100% year-on-year growth for almost two years. We raised about $25 million led by Blackbird during COVID, when the VC market was hot and money was cheap. That brought total investment to about $35 million.

My only KPI at that point was to hire a new developer every week for two years. The plan was to burn bright and do another capital raise in 18 months time, but then the world changed again and we just couldn't.

Almost instantly, the next board meeting was "Why the hell are you still hiring? You need to get rid of people." That's when the tech, VC, and retail bubble all exploded at once.

We were born during the first GFC and survived that. We survived GDPR which should have killed us, as it torched about half our revenue. We then turned COVID into a positive and even today we continue to survive and thrive.

As founders, you always look back and think "what would you do differently?" There's so much we would do differently, but there's not many regrets because we took the best decision with the information we had at the time.

Hard Lessons on Sales and Delegation

AW: I remember trying for so long to sell to Qantas because I knew they didn't have a platform and their CEO was bullish on Australian technology. I just couldn't get any traction doing cold sales, as it's not my natural place.

When Dave suggested working a couple days in the business, he asked "Who are your prospects?" I said I'd been trying to get in front of Qantas for months. He grabs his phone: "Yeah Paul, it's Dave. I've just joined this new startup. Yeah, cool. I can come in the office on Monday."

I went through this whole gamut of emotions in 30 seconds. First devastated at how easy it was for Dave to get into Qantas with one phone call, and feeling inferior about the hours I'd wasted. But then, I realised how awesome it was to have this person on my side. Literally two months later, Qantas was a client.

I still question myself today. Am I delegating enough? Is it ego? There's definitely things I probably should have let go of a long time ago, things I do today that I should get someone who's way more passionate about it or better at it.

The Personal Cost and Eventual Exit

SH: What did this startup cost you personally that you didn't expect?

AW: I started Lexer when I was 23. I poured all of myself into the business, which meant I deprioritised travel, exploration, and personal relationships. When I moved to Melbourne, I locked myself away and worked. By the time I felt like I could come out and smell the roses, I realised I didn't have anyone around me to hang with!

Making new friends as an adult is hard. I realised the people I spent time with were exclusively tech and startup people.

SH: Why aren't you at Lexer anymore?

AW: About two to three years ago, I realised my role didn't spark the creativity I needed. I can't expect the business to change to satisfy that. I started a menswear label as a side thing, but realised I can't just do something on Sunday that makes Monday through Friday feel good.

I found myself pretty unhappy at the start of this year. My partner Corey called it out, as I was clearly not in a good place. After a series of challenging quarters, we had a leadership offsite where I found myself telling them why every idea wouldn't work.

I got home absolutely miserable at the attitude I brought. I called my business partners that Saturday: "I have to go." My rationale was I'm doing more damage in the business than out. I'm a glass ceiling for talented people who need room to grow.

I still remain involved. I'm on the board, a major shareholder, work a couple days a week. But I enjoy having distance and the opportunity to do something different.

Rapid Fire: Books, Music, and Podcasts

SH: What's a book we should all read?

AW: The Hard Thing About Hard Things by Ben Horowitz. It's like my Bible. Great combination of stories from the golden era, like inventing SSL over a weekend to close a deal! It made me feel very sane about the frustrations and stresses I was feeling.

SH: What's a band or artist we should listen to?

AW: I came across a Melbourne EDM artist today called Ninajirachi. She just released an album called "I Love My Computer". All the songs have a nostalgic computer vibe, but it's pretty intense. Definitely not for everyone, but worth checking out.

SH: What's a podcast we should listen to?

AW: The Colin and Samir Show. They interviewed Mustafa, the CEO of Microsoft Copilot. The conversation went down the road of societal impact of AI and how it's going to change our lives. Mustafa is a philosophy major, so hearing that from someone clearly passionate about positive social impact as a philosopher was really compelling.

SH: Thanks for your time Aaron, and good luck with your next venture!

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Ian Yip is the founder and CEO of Avertro, an Australian cybersecurity startup that helps organisations automate their cyber resilience and regulatory compliance processes. A software engineer by training, Yip spent years in the corporate world at companies like IBM and McAfee before taking the entrepreneurial leap.

In this interview we dig into:

• The reality of building product - Why it took him four and a half years to be confident his startup would work.

• Learning from failure the hard way - How his first startup crashed, and why he completely flipped his approach the second time around.

• Surviving a crisis - The brutal financial crunch that forced him to cut staff hours and salaries, and how fighting it together forged his core leadership team.

• The co-founder breakup that didn't kill the company - How losing his technical co-founder two years in became a blessing in disguise.

SH: Tell me a little about Ian.

IY: I've always been a builder at heart. I hold a software engineering degree, but I did the responsible thing when I graduated and entered the corporate world. I joined IBM, which, in hindsight, was a very long training course that allowed me to become a founder.

SH: What was it like working in the corporate world, knowing that your true passion was building your own thing?

IY: I was always looking for creative ways to make my corporate job a little easier. If it meant building something, I would build it. I finally immersed myself in the startup mindset while living in the UK. I started to live and breathe the blogs from Silicon Valley influencers, before they were even known as influencers! It's great to read about it, but they do romanticise it and don't actually get into the heart of entrepreneurship.

I started something when I moved back from the UK to Australia, but it failed. If I'm being blunt, it was because I built an MVP, but I lacked the skills to take it to market. I was not the same person back then. I needed to expand my experience and knowledge to understand how to achieve commercial success.

Build It And They Won’t Come

SH: Your first startup failed. Was there anything in particular you knew that you wanted to do differently the second time around?

IY: My first time I followed the philosophy of "build it and they will come." It doesn't work that way. The realisation for me came a year into it, when I realised I didn't have the commercial and operational maturity to go and find the customers.

The second time around I understood the commercials and I understood what it took to go to market. This time around, we didn't build a single line of code before validating the problem. We spoke to a bunch of people. I deliberately went out to find the demand first before we built anything.

SH: Was it a long conversation with your partner about giving up a steady income to build something new?

IY: I think she understood where my mindset was and was happy to support me. It was more that some of the people around us were a challenge. I come from a background where everyone needs to be a doctor or a lawyer and have a steady income. So I think some of the pressure came from related parties.

There was definitely some friction there, but ultimately she was supportive.

SH: Did you have a long financial runway to give you a chance to make it successful?

IY: The corporate world afforded me a good amount of personal runway. I had two to three years of personal runway when I started Avertro, which de-risked it for me somewhat.

When I first started Avertro my partner wasn't working. When we had our child she deliberately decided to take a break from her career, so for the first one to two years of Avertro's existence, we had zero income coming in. For the first 24 months we had to eat into savings to survive.

SH: What does Avertro do?

IY: Avertro is an end-to-end cyber resilience automation platform. We are the system that a security leader and other stakeholders use, to put it bluntly, justify their existence. We help them with regulatory, board, and executive accountability, governance, and all the necessary components to automate and drive that process.

When Your CTO Says "This Isn't Going to Work"

SH: I know you started Avertro with a co-founder. Tell me about how you found your co-founder and what that relationship was like? I know you then parted ways, so if you can talk a little bit about that as well?

IY: Finding a co-founder is one of the hardest things to do. One of the biggest brick walls I kept hitting when trying to start a company was finding a co-founder. A lot of people in my network, especially if you grew up in a traditional manner, don't want to start a company.

We are an Antler-funded company. The Antler process helps a bunch of people who are accepted into the Antler program to find co-founders. You're basically business speed dating through the program and I ended up fitting with my co-founder Roman.

Roman is a developer through and through and he built version one of Avertro pretty much on his own. He stuck around for around two years, but I think his lifestyle changes made it hard for him to continue. For his own personal reasons he needed to move back to Europe, and the different time zones made the dynamics challenging. He was gracious enough to say to me, "I'm going to tell you right now that I don't think it is going to work if I remain in Europe, and I'm not going to move back to Australia. So what's the best way forward?"

That was a stressful period for me personally. When things like that happen, you really don't know how it is going to end up. Founders not getting along and one co-founder leaving takes many companies down. We did try to see if we could find somebody to fill Roman's shoes, but ultimately they all had the wrong mindset.

We ended up promoting internally. One of our early engineers was a guy called Ani, and we hired him straight out of university as a junior engineer. In the absence of Roman, Ani was forced to grow up very fast. To his credit he took every challenge that I threw at him and excelled at it, and he became the reason that we never needed to replace Roman.

SH: You got your first customer within two weeks of releasing the MVP. How big was that first invoice you sent?

IY: That first customer was $20k I think.

SH: Did it feel good?

IY: Yes of course! A thousand dollars would have felt good. You just want to feel like somebody paid you something for it. We no longer charge people $20,000, but that was really great for a first invoice.

SH: Was there a point in Avertro where you thought, "Hey this thing might actually work!"?

IY: Probably only in the last 12 months, in terms of having objective data points to back up my unwavering belief as a founder!

SH: How long have you been going for?

IY: Five and a half years.

SH: So it took four and a half years to get to a point where you thought it might be working?

IY: Yep! The problem we're trying to solve is not a trivial problem. It was always going to take four years to get the product to the point where it was mature. We are now at the point where the product does everything it needs to, because we took the time to get it right, and we are seeing the benefits in our very sticky retention rates. Around 12 months ago we started to see all our metrics tick up and to the right.

I think one of the most rewarding things as a founder is when people start to talk positively about you. There's been a huge uptick of that in the last couple of months. Just the other day I got on a call with a potential customer and they started the meeting by saying to me,

I sat there and thought, and then about five seconds later I said, "Yes we are!"

SH: If you think about that journey, for the first 75% of it you were not actually sure it was going to work. Was there a time where you wanted to quit and just go back and get a job?

IY: No never. Never. There were hard times, but it's never crossed my mind to stop. The question I asked myself when I decided to start a company was when you're retired at the age of 70, what will you be proud of when you look back? It was never going to be my corporate career.

Brought to you by Murmar.

The 2022 Survival Test

SH: You have mentioned a few times that there have been hard times. What are one or two that come to mind?

IY: The first one was Roman leaving, which was probably the first really hard point. That was really hard because that was the second moment post-COVID where we were sitting there and asking ourselves, how do we survive this? If we don't have the CTO to build this, how do we move forward?

I literally called my investors and asked them "What should we do?” To their credit, they all responded in the same way.

Instead of talking about fire and brimstone, I had the moral and financial support of that network of investors which I will always be immensely thankful for.

The other really difficult point was in 2022. The world was going through a hard time financially, and so 2022 was a difficult time for businesses in general. We were feeling it as people weren't spending money, and some of the renewals that we expected to come through didn't come through. There was one particular renewal in mid 2022 that we expected to come, but it failed to materialise because their budget was slashed. It meant we had an immediate cash flow problem.

I had to be quite direct to the team to let them know that we would all have to make sacrifices. If you want to stay around you've got to make sacrifices, and if you don't want to stay around then the door is that way. Some people took the door and I think that's the kind of thing that builds character in the people who choose to remain. I had to ask all the staff to take leave one day a week for the next six months, and some of the casuals had their days reduced.

But out of all that, I understood who would be able to fight for the survival of Avertro. The people who fought through that took every challenge presented to them. Many of them are now part of my leadership team.

SH: I imagine it was quite a bonding kind of experience for you all?

IY: We bring it up occasionally. Sometimes when we have a shitty day, we might pipe up with "Well at least it's not like 2022!" It's a shared experience that you will never forget for the rest of your life. There is an additional bond that forms every time you fight your way out of something like that, and the key people on our team were the ones who fought out of that together. It was never "oh it's your problem, you're the founder." We worked through it as a team.

SH: Let's talk about fundraising. How much of your time goes into raising capital?

IY: The least favourite part of my job as a founder is fundraising. If I could delegate one thing in my job, it would be fundraising. It is a necessity if you want to get to scale and become a unicorn, because it's very difficult to be a unicorn without venture capital.

The only way you raise money as an enterprise B2B business in Australia is to de-risk it for investors first. I love the Jeff Bezos quote where he talks about innovation in America.

Australia is not great at risk capital. Our investor ecosystem likes to de-risk everything to the nth degree, especially when they don't understand what they're trying to invest in. Which is why you see in Australia so many investments go into consumer companies or product-led growth startups, because we can understand those more easily.

SH: How many times have you raised capital for Avertro now?

IY: We've raised twice. The pre-seed was in 2020, and then we raised a seed in 2022. Which we've never announced publicly, but I guess it's okay to say it now!

SH: Do you remember what stage the company was at for that pre-seed round? How many customers did you have?

IY: I think when we closed the pre-seed we had one customer. For the seed in 2022, we were in double digits for customers and would have been in the low six figures for revenue.

The Easier Questions

SH: What's a book we should all read?

IY: Start with Why, by Simon Sinek.

SH: Can't we just watch the Ted talk?

IY: Hah. You can as a first step, and I'd say that's the easiest way to consume it. But if I think about life-changing things that have switched my thinking, that book is one of them.

SH: What is a band or artist we should all listen to?

IY: The Bee Gees. My favourite band of all time.

SH: Wow I would not have predicted that.

IY: I've not really been ready to admit that openly until probably the last couple of years! There's a lot about their music to appreciate. Because I'm musically trained, I can appreciate the musicality.

SH: Awesome. I mean if you love the Bee Gees, you should just rock it. My last question is what's a podcast we should all listen to?

IY: Diary of a CEO, by Steven Bartlett. He interviews leaders and they're very long podcasts. You'll sit there for two hours and watch it, but it's got a good variety of global leaders that he's interviewed.

SH: Thanks so much for your time Ian. Good luck with Avertro!

👋 Welcome to Valley of Doubt, a free weekly newsletter that goes deep into founder stories from the early days of startups. 🚀

Scott Julian has built and sold multiple companies, but is most well known for cofounding Effective Measure in 2008. During his stint at Effective Measure he raised venture capital, was ousted as CEO by the board, but then picked up the pieces and eventually purchased his company back. After the Effective Measure journey, he now focuses on restructuring and turnaround work, helping other founders navigate the complex world of venture capital and company building.

In this interview, we dig into:

• Chasing a term sheet all the way to San Francisco

• Getting replaced by the board

• The $20m deal that never was

• The personal cost of entrepreneurship

The Three Types of Money

SH: How's life for Scott Julian right now?

SJ: It’s good, and I’m in an interesting spot. I've started to define money in three ways as I've gotten older. There's "fuck me" money, "fuck you" money, and "fuck everybody" money.

"Fuck me" money is like, "Fuck me, how am I going to sort this shit out?" That's where the vast majority of us are.

"Fuck you" money. There's no aggression. It's just like, "No, I don't need to do that. Fuck you."

Then you've got Elon Musk with "fuck everybody" money.

I'm maybe on the beginnings of "fuck you" money, but definitely somewhere between "fuck me" and "fuck you." I’m having a bit of an emotional reset to go, "How can I use whatever I've got to actually be a better human?"

SH: It sounds like you're on a journey of self-inquiry?

SJ: Yeah, you can call it that. Over the last couple of years, I've had to be a bit of an asshole to achieve some things. Now that they've been achieved, I'm happy to not be the asshole. It's not my preferred natural state.

SH: As an outside observer, I would have thought you'd be good at being the asshole?

SJ: Oh, I'm absolutely good at being the asshole. Doesn't mean I enjoy being the asshole. They're very different things. Some people relish being a prick and being selfish. I see it as potentially a necessary tool. Not a fan of it personally, but I've got a practised facade for when it needs to be done.

SH: Give me the 30-second overview of who Scott Julian is.

SJ: Fucking great question. If you find out, let me know. I'm a kid who got all the fancy shit early on, including selective schools and a good environment. I found myself at university around 1999-2000 going, "Hey, I'm not really interested in becoming an accountant or doctor or lawyer." I was convinced by a bunch of friends that there was gold in the hills around startups.

What followed was what I describe as "compound stupidity". Every time something worked, I doubled down. I built a couple of businesses that were successful, generating revenue, and then I sold them. Then in 2007-08, I took most of that money and put it into someone else's startup idea. That became Effective Measure, which I think was the first Australian registered company to raise from a US VC.

I'd encourage people to apply a similar amount of logic to their careers. You've got to take risks, otherwise you end up at 55 going, "What the fuck have I done with my life?"

Finding the Idea That Changed Everything

SH: What was the business of Effective Measure?

SJ: Effective Measure was a leading provider of digital audience, brand and advertising effectiveness measurement and targeting solutions. We brought best practice online measurement data to premium publishers, agencies, networks, advertisers and researchers. Over time, we operated as the leading and most trusted audience measurement platform in MENA and South Africa

SH: Effective Measure wasn't your idea. How did you decide that was the thing to pursue?

SJ: Based on my 15 years of experience since, I've seen a pattern where some of the best businesses come from people who've worked in an industry and seen a stupid friction point.

We'd sold a couple of businesses and had enough money to have some choices, but not enough to relax. We set up an office in Cremorne way before it was cool. Mostly we did it for the cheap rent! We shared space with some guys working for Web Trends, which became Omniture and eventually part of Adobe.

One of them, James, said there's a shift occurring with third-party cookies and an opportunity to build a better system to service a market worth billions. So with James and another cofounder, my brother and I went ahead and built it. This was pre-AWS, so we had to build data centre infrastructure ourselves.

We were originally trying to replace Nielsen in Australia. Everyone agreed we had built something better, but the market dynamic was too hard to shift. They did eventually get replaced by Ipsos, so perhaps we were right on the idea but wrong on the timing.

Instead of quitting, we said, "If we can't replace incumbents, let's go somewhere there aren't incumbents." That's how we ended up in Dubai. Dubai at the time was an emerging market, and we attacked it like any other startup would. Lots of hanging in hotels and trying to convince people what we had was amazing. It started to take off but it was still bleeding money.

The Serendipitous $4M Term Sheet

SH: What was it that turned it around for you?

SJ: At the time Yahoo was one of the biggest players in the ecosystem. On a whim, I chased a Yahoo executive who was in charge of emerging markets back to the Bay Area, and spent a week in a shitty motel waiting for a meeting that never happened. The only point of being in the Bay Area was that meeting, and he never confirmed it.

Being bored after a few days, I started to reach out to people I knew and had met before. I didn’t tell them I was in town with nothing to do! I eventually got a meeting with an agency and gave them a demo. They said:

In the last five minutes of the meeting, I asked if they knew anyone interested in investing. Three weeks later, I got an email with a Skype connection. I had a 90-minute conversation with someone I hadn’t met before, but it turned out to be David Carlick. David was the former chair of MySpace and the founder of DoubleClick, and he’d just been given a $40 million early-stage fund.

David had missed out on investing in another Australian analytics startup called Hitwise, which went on to exit for over $250 million. I think he saw us and decided there might be a pattern to follow. A week and a half later, I received a term sheet from a US VC. It was a combination of serendipity, luck and stupidity. Being in the right place at the right time and not completely screwing up the conversation.

SH: That sounds amazing with hindsight.

SJ: Everyone believes they're a genius. Having spent time in this world, I understand that serendipity and luck play a much bigger role than everyone realises. The analogy I use is surfing - tons of waves come in, and if you paddle your ass off, you may catch a wave. But if you don't paddle, you ain't catching no waves.

We all play in a dangerous space with a lot of "hopium." The brutal reality is that startups are not the fertile ground people thought it was. But if you hang around with a mission and you care, sometimes things work.

Brought to you by Murmar.

The Brutal Early Days

SH: What were the early days like before that raise?

SJ: We were paying $35k a year in rent, had seven or eight people, burning $30-40k a month out of our own pocket. One of the biggest costs was data centres because this was pre-AWS. Our original data centre was in King Street, Melbourne, but we realised very quickly that migrating it to LA would pay for itself within months.

We flew to downtown LA, and it was a bit of a shithole back then. We found a sketchy data centre that was a fit for what we needed. For $1,500 US a month, we got what we were paying $15-16k for in Australia.

We managed to buy a bunch of second-hand servers from British Telecom, and I distinctly remember ungodly hour calls with my brother in LA saying, "This is bullshit, the server rail doesn't fit, this thing's heavy, I'm pissed off!" In one implementation, we set up servers in the wrong direction, taking hot air in rather than cold. It was an interesting time in the sense that a lot of things that are straightforward now were hard then.

SH: Did you ever come close to shutting down?

SJ: No less than 400 times.

SH: Tell me about one of those moments.

SJ: Late 2008, we'd probably spent about half a million of the money we'd made from previous startups. We were down to a couple hundred grand. This is when houses were $500k, so your mental heuristic is,

This was also about the time I chased that Yahoo executive across the Atlantic. I was sitting in a $70-80 a night Motel 6, on the other side of the world alone, going, "What the hell have I done? Maybe it's time to go be a lawyer." It was literally a week or two later that we got the term sheet for $4 million US.

Those "oh shit" moments happen all the time. I don't think there's a seminal moment where everything turns around. Startups can be death by a thousand paper cuts rather than guillotines. It’s a bit like being an actor in Hollywood. Some make it really big, some find satisfactory careers playing bit parts, others burn out and hate everything.

There have been thousands of small moments where I was considering what the fuck I was doing with my life. Startups are a bit like a lottery. You might be drawing the lottery ticket yourself, but you are still drawing a lottery ticket.

What I've learned, though, is that there's no problem I can't solve. Everything's fixable if you break it down into digestible chunks. Nothing is unsolvable. You just need to lean into the stress but not get sucked in by the process.

The Reality of Taking VC Money

SH: What changed once you took the $4 million USD?

SJ: In working with investors, the number one thing to know is that the partner matters more than the firm's reputation. Everyone wants money from Sequoia or A16Z, but what matters operationally is the partner you're working with. Make sure they believe in the business. They don’t have to completely believe in you, because sometimes you're not the right person for the second, third, or fourth stage. But they have to believe in the business.

Structured investment accelerates growth, capital, PR recognition, which are all positive. But it also accelerates expectations. It's incredibly important to understand they're not there to support a lifestyle business or help you buy a home. They're there to invest someone else's money for higher returns than the market average.

SH: Did you feel pressure from taking that money?

SJ: Absolutely, but it's not necessarily bad. The best analogy is steel forging, where the metal is folded and pounded. That concept of forging is very real in startups. The most effective founders have been put through some shit.

I see repeatable patterns of founders being starry-eyed about raising money, thinking all problems are solved. Three to six months later:

If there's a healthy relationship between an investor who understands they're making spread bets and a founder who understands they're one of many bets, that's positive. But anyone thinking their problems get solved by raising money is delusional. Some problems get solved, but there are commensurate expectations.

These bets aren't made to make people comfortable. They're made to create outsized returns. You need to understand the power law. Out of 100 investments, two to three pay back the fund. If you're not comfortable potentially being roadkill, don't do this.

The $20M Deal That Never Was

SH: Did you raise again after the initial $4 million?

SJ: We raised about $15 million total across follow-on rounds. In 2012, one of the world's biggest private equity funds approached us.

I'd been at the W3C, which is an organisation that focuses on defining the protocol standards for the Internet. I was working on the "Do Not Track" initiative, and I found myself sitting next to Tim Berners-Lee. I think most people know him as one of the founding fathers of the Internet, and we were chatting about what we did in emerging markets. About six months later, Tim was at another conference, and he happened to mention us to a private equity firm that was making investments.

We spoke to the PE firm, and they ended up flying to Melbourne to meet us two days later. They did intensive due diligence for three days, where they were less worried about the financials and more focused on the business potential. When they invest they are looking to make a step-change, and our numbers at the time were rounding errors for them. Eventually, they offered us a $20 million US term sheet. That would have valued us at $70-80 million US.

Unfortunately it fell through, as we fell victim to a pissing contest between our existing investors and the PE firm over who would own the largest share of the company. We were sitting there as founders thinking,

We wanted to do the deal, but our existing investors wanted to make sure they didn’t lose out. We ultimately fell victim to pro-rata rights. We were given commitments from the existing investors that they would backfill if we didn't take the PE money. That wasn't the case. We did get some more money from the investors, but it wasn’t anywhere close to what the PE firm were offering. Had we landed that PE deal with a multi-billion dollar fund, we'd be talking today about a meaningful exit.

In parallel, we had a founder fallout around the same time. There was a bit of political white-anting going on inside the business, and it wasn’t healthy. There was an individual, who I won’t name, who was a little bit more progressed in their career and saw a political opportunity to get themselves a role. They were a CEO of a public company and knew they were about to get canned, so they engineered a way to take over the CEO role at Effective Measure.

It was hard but after four years of hard slog, I was ready to step back into a president role. I know the President’s role can be a bit of a graveyard for founders. Moving from CEO to President meant I was still on the board, but no one in the ops team is going to listen to what I have to say. Someone else is in charge of the business.

Getting Ousted and Buying Back

SH: How did that transition feel? Was it liberating?

SJ: God no, it wasn't liberating.

SH: Did you fight it?

SJ: Oh yeah absolutely. I fought it, and accidentally divided the team into camps. "Are you on my side or theirs?" But the reality is that I'd already lost that battle before I knew there was a fight. Someone with experience worked out how to beat me politically.

I'd caution founders: if investors are approaching you about changes, you may have already lost the political war. The decision was made before I knew there was something to fight.

With hindsight, I think I was right because the following year and a half wasn't great for the company. The investors ended up selling us back the company for basically nothing. But I went about objecting in a very immature way.

SH: Talk me through buying the business back.

SJ: It was incredibly simple. Professional investors are clinical, and our investors have been investing third-party funds. It wasn’t like they had taken $50k out of their personal superannuation and bet the farm on some exciting idea. They allocated third-party money to this as part of a portfolio, and it wasn’t working, so how do they extricate themselves?

Their scarcest resource is time, not money. If you're a zombie company, you become a burden time-wise. Their thought process is,

We also benefited from their attempt at a management change that didn't work. It was still an interesting business, doing $4-5 million in revenue. So it wasn’t a complete “nothing burger”, but it also was not a "shoot the lights out" thing.

We did a rollover deal which took about a week to paper. The new company acquired the old structure. On Thursday it was a clean skin, and on Friday it was a new company with $5 million in assets. The founders owned 85%, and the previous investors retained 15%.

We made a few obvious mistakes after that and missed some opportunities to exit. We could have turned a scrip for scrip rollover into a $5m USD exit, but my brain at the time was telling me that it wasn’t enough. It sounds ridiculous when you say it now, but at the time, I saw it as a piddly amount of money compared to what the business could become. In my career I have been too dumb to quit sometimes, and that can be a positive thing but it’s a really fine line. I do think compound stupidity is the best way of describing everything I have done.

SH: Were all of the original four cofounders involved in the buyback?

SJ: No. Only three of the original four founders participated in the buyback. There were two sets of brothers as cofounders, and at the time I’m sure there is a good chance we all would have said to each other “I’m never working with that person again”. But in the fullness of time and having worked with a bunch of different people, I can confidently say I would work with them again in a heartbeat. There was something quite special there.

The Cost of the Journey

SH: What did Effective Measure cost you personally that you didn't expect?

SJ: It cost me a marriage. Whether that is a fair statement or not I don’t know, but there's definitely a correlation between raising initial money and having a separation. I'd spent a year and a half so maniacally focused on an outcome that I'd been neglecting other things.

The irony is that I now have a much better relationship with that person than I did when we were married, and we work together now. Sometimes things suck at the time and everyone goes on a journey, but sometimes things work out.

I don't feel like I missed out socially. I got to see the world - spent time in Pakistan's Swat Valley, Dubai, Southeast Asia, Silicon Valley, New York. There's always a payoff.

I'm cautious about saying anything has cost me anything. There's a toll, but that toll means you're on a freeway. A faster road. I definitely feel like I've been through some shit, but sitting where I am now, I'm happy. I'm not a billionaire, not in the papers all the time, but that suits my personality.

I look at people who've made tons of money and think it makes them better than everyone else. It's only one form of scorekeeping. For people where this lifestyle fits, they'll thrive either way. At a minimum, everything else in life will seem simple if you do startups for long enough.

Working with Family

SH: What's it like doing business with your brother?

SJ: One benefit is we can literally yell at each other and know we're stuck with each other regardless. His kids are my nephews, and nothing's going to separate our family unit. That's liberating, because you can call each other idiots with no consequence.

The downside is if other people are in those conversations, they think we're fighting versus discussing. We've spent time tempering how we speak in front of others.

We've been doing this for 22 years, so we've developed distinct work and family personalities. We have different skill sets. He's a more introverted thinker, and I'm more extroverted. My job is to kick down the door, and his is figure out how to make it work once it's ajar.

The Three Easy Questions

SH: What’s a book we should all read?

SJ: That's not an easy question! Anything by Dr Seuss is always useful in my opinion. I think the moral core of Dr Seuss is really quite powerful.

SH: What is a band or artist we should all listen to?

SJ: You said these were easy questions!

In the electronic space M83 are great. In the indie space I enjoy The Naked and Famous. I really like some of the more popular stuff now so like Charlie xcx, and I think Sabrina Carpenter is potentially underrated. She’s not for everyone but I think she's actually really clever. She understands the zeitgeist and the marketing, and has this great combination between being very talented but also understanding the business side of things.

SH: What is a podcast we should all listen to?

SJ: Oh that's a fun question. I am really getting into a podcast called Pod Save The World at the moment. What I do find really interesting is that it's a couple of guys who were ex-Obama people, who think holistically about the world and how the US fits into it. Perhaps more than the current administration does!

SH: Thanks so much for your time Scott!

👋 Welcome to Valley of Doubt, a free weekly newsletter that goes deep into founder stories from the early days of startups. 🚀

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Wesley Huffstutter founded and sold QuadMetrics, a cybersecurity risk startup spun out of the University of Michigan. He was also the co-founder and CEO of SecuritySnares, a cyber startup focused on defeating the scourge of ransomware. He now spends his days in Queensland, Australia, as an Entrepreneur in Residence (EIR) for several innovation programs.

In this interview, we dive into:

• How most founders live off minimum wages while they build their business

• Negotiating an exit with a large acquirer after just 18 months

• The importance of transparency with staff

• Choosing between startup life and a stable job

• The impact of the entrepreneurial journey on those close to you

SH
Tell me a little about Wesley Huffstutter. What’s the 30 second short story?

WH
I'm a startup guy. Trying to figure out what value there is in a product and how to take it to market. Those are the puzzles I enjoy solving. Guiding startups through those early motions with new products and new services. I enjoy solving business model problems, so I guess that's me in the smallest of nutshells.

SH
How did you get into startups?

WH
I graduated with a degree in computer science, and my first job out of uni was writing AI software. As one of the more extroverted engineers, I ended up leading marketing for a startup. I wasn't the founder - I think I was the 12th employee or something around that mark. I joined after they had already lost some people because the company had moved from New Mexico to Austin, Texas. I joined them in Austin, and they had just closed one million in angel money.

That was my first startup experience, and I guess I never left. The company eventually sold to a public company during the dot-com crash. They had raised 20 million in venture capital and then received an acquisition offer. At the time the board thought the better option was going public, but then the market for companies to go public fell through the floor. In the end they accepted an offer from the same acquirer for a lot less. But at the time, being acquired for money was a real feat in itself.

SH
Did you make anything out of it personally?

WH
No, I didn’t make anything out of it. It was one of those situations, unfortunately, where it didn't trickle down to the common shares.

When Academics Meet Reality: The Art of Spinning Out

SH
I know you spent the next few years working in startups that were created via a University commercialisation process. Helping academics take their ideas and spinning them out into companies?

WH
Yeah my job was to help start companies.

I was mostly doing startup consulting until my partner, who is a professor, was offered a position at the University of Michigan. Someone who knew me as a startup consultant suggested I should talk to the commercialisation office at the same uni, because unlike most commercialisation offices at the time they had a separate group that focused on startups. It was highly unusual, and Michigan University was very forward-thinking at the time. I ended up working there for about a decade, helping faculty start companies based on research.

I ended up spinning out with QuadMetrics as co-founder and CEO. The great part of that is that it was sold to a public company pretty quickly. From founding to closing the acquisition was 15 months. I'd be naive to say serendipity doesn't play a role in these things, but I think we had a good strategy.

At the time we exited I was making minimum wage, and the only reason my co-founder and I were making minimum wage is because we had a federal grant. We didn't want to lose it by breaking federal minimum wage laws, so we gave ourselves the minimum requirement.

Brought to you by Murmar.

SH
What was the idea that you decided to go all in on?

WH
The company was called QuadMetrics. We used internet scale data and machine learning to do predictive cyber risk analytics of networks. We monitored signals from open source and proprietary data sources to provide an overall security score for an enterprise and to understand a firm's security risk. We could determine the probability of any organisation in the world being breached in the next 12 months, with a prediction accuracy greater than 90%.

The company was essentially creating "credit scores" for cybersecurity risk, helping organisations and insurers better understand and quantify cyber risk.

SH
What was the spinout process like? Would you do the same deal today?

WH
Absolutely I would do the same deal. The deal was very good and fair.

We took certain steps to ensure the deal was structured the way we wanted. A couple of the co-founders gave up their entitled portion of the University’s take to make everyone comfortable.

You know the University of Michigan office knows what they're doing. Their goal is to get it out where it does good. They're looking for fair value, but they're not trying to pull every penny off the table. They are really reasonable. It wasn’t a hard deal to do.

From a university perspective, what they don't want to do is kill the company. So the deal was good and they were completely reasonable.

Riding the Startup Rollercoaster: When Highs Meet Lows

SH
Was there a time during QuadMetrics that you thought, “Holy shit - this might actually work!”

WH
It comes and goes all the time. That's the roller coaster. Every time you have a sales call where someone says “this is the best thing since sliced bread”, or you close a deal, or you see the numbers and you just think “this is killer”.

But then you push on and make a few more sales calls, and you realise maybe you don't have as much product-market fit as you thought you did, and that all these sales aren't as repeatable as you'd like. Then you're in the trough of sorrow again, and it just bounces back and forth.

There's a constant emotional rollercoaster that happens all the time. When there's a win the highs are high, but equally the lows can be very low. I tend to be very transparent with my team, and it all stems from my experience at that very first startup I worked at.

I think about that now. When we were at QuadMetrics we would have these meetings with our team where we were very open. We were clear about what we were struggling with. I don’t believe in holding back because sometimes those team members could be the source of a solution or a connection. The highs are high and the lows are low, but it’s easier if everyone is transparent about everything that's going on.

When FICO Came Knocking (And We Said No)

SH
You managed to exit within 18 months of starting, which is astonishingly quick. Tell me about that process.

WH
The acquisition came to us. We didn’t have to chase. The company that acquired us was called the Fair Isaac Corporation. In the US we call it FICO.

It's well known in the US, because in order to get a loan or anything like that, your creditworthiness is based on a FICO score. They came up with the algorithm. And so at the time when we were qualifying security risk, our goal was always to be the FICO score for cybersecurity. But everyone had started making the same claim, that they were the “FICO score for cybersecurity”.

At that point in time, FICO started to look like they were going to move into the cyber risk space as well. When they appeared to be encroaching on our market, we decided to have a conversation with them. We approached them with some interesting research we had and asked for a chance to partner.

In the conversations, I threw out the idea of having FICO invest. I let them know that we were going to raise a round at some point, that we didn’t need the money as we've got revenue, plus we've got money coming in from a grant from the Department of Homeland Security. So if they were interested in investing, we would be happy to chat. They quickly let me know that they don't invest, they only buy. They expected us to ask for permission to call ourselves the FICO score for cybersecurity, like our competitors did. We didn’t.

We left it at that and we moved on and kept running the business. Then just before attending RSA I got an email from FICO with an offer of acquisition. Which we rejected of course! We did have dinner with them at RSA but we let them know their offer was too low. Eventually they came back with a better offer and we accepted.

SH
How many customers did you have when you sold?

WH
I think we had 14 or 15 customers and not much revenue.

SH
Did the exit go smoothly?

WH
Yes. We could not disclose that we were selling, as part of the deal is that you need to keep it confidential during the process. So we couldn’t shop it around to see if we could get a better offer.

There was one VC we were pursuing at the time, but they had clearly figured out who we were in an acquisition process with. By the time we accepted the offer to sell, they were getting ready to invest in our competitor. They called up the corporate development team of FICO to let them know that they were investing in a competitor, to get them to move off the idea of acquiring us. They were going to announce their investment before we intended to make our acquisition public. We didn’t want to appear as followers in the market, so we announced first, causing the VC to delay their investment announcement.

SH
You talked about how important your partner has been to your success. How did starting your company impact your relationships with other people in your life?

WH
A lot. The stress of it is enormous. I've been in startup land for so long, and you know we were talking with the kids about this just last night. We've never assumed that we were going to have a lot of money just because I've been in startups.

When you talk to entrepreneurs, you feel like you don't have the retirement that everyone else has, because you have to plan for long periods of little to no income. You do that for a future payday, but sometimes those paydays don't happen. So yeah it's tough. There are times when I needed to prioritise my partner’s career because it's what's bringing in the income. I recognise that I end up being a bit of a burden, but I guess she has enabled me to do this.

SH
I know founders often live off very low salaries for many years. How much did you pay yourself at QuadMetrics??

WH
It was $24,000 a year, and that was in 2015.

SH
How did you live off that?

WH
I couldn't live off that. I mean the dirty secret is that probably nearly every successful entrepreneur is really either young and living off their parents in the basement, or has a partner who is the reason for them to be able to do this in the first place. For me it was my partner. If it weren't for my partner, Amanda, I wouldn't be able to do any of this.

SH
Was there ever a time you wanted to quit and get a normal job to live the 9-5 life?

WH
I think regular income is always in the back of your mind. And then I have to realise that I'm an entrepreneur. How hireable am I? My skill set is geared for a niche of companies who either can’t afford to pay me, or companies that haven’t even diagnosed that they have a problem.

I think any entrepreneur that says they have never thought about quitting and choosing a salary is lying to you. We all want to get paid for the value we create. I think every entrepreneur has that thought at some point. You do a financial calculation in your head, and just think about that money sitting in an account compounding somewhere. It can make more economic sense not to be an entrepreneur.

SH
Let’s finish off with some fun questions. What’s a book we should all read?

WH
A couple of years ago I read a book called The Qualified Sales Leader. I found it really interesting, and it made me think about how software is sold.

SH
What’s a band or musical act we should all listen to?

WH
I’ve found many Australians haven’t heard of the Dave Matthews Band, so they should give that a listen.

SH
What’s a podcast we should all listen to?

WH
I listen to the Risky Biz podcast because I'm a security guy. I'm also a massive Arsenal fan and so I listen to the Arsecast podcast.

I’ve just started to listen to a contrarian podcast: “Better Online”.

I’m not sure I'm recommending it yet, but it provides a counterpoint to the growth at all cost mantra we get as entrepreneurs.

SH
Thanks so much for your time Wes.

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Vaughan Shanks is the founder and CEO of Cydarm, a case management system for security operations teams. Prior to this, Vaughan spent almost a decade at the Department of Defence of Australia, as well as 4 years at Palantir Technologies.

In this interview we cover off:

• Taking the risk to jump into entrepreneurship

• Setting milestones to understand whether it’s working or not

• Shitty behaviour from large competitors

• What it feels like to have to let staff go

SH
In a nutshell, who is Vaughan Shanks?

VS
I think at my core I am a builder. I like making things that people find useful. I've chosen to work in computing and in software engineering, but if computers weren’t around I would still be making things. I just think like an engineer.

I'm not really a materialistic person in the sense of trying to accrue stuff. I'm really here for the journey. I think of life as a set of experiences, and you know wealth and possessions can come and go, but your experiences just stay with you. There's something to be said about having that experiential wealth that can't be matched.

SH
You have dabbled in public service, private industry, and now entrepreneurship. Was it intentional to go from lowest to highest risk over your career?

VS
I think what is a risk and what isn't a risk depends on the context you're operating in. Growing up I definitely had some sense that one day I would be an entrepreneur, but no one in my family was an entrepreneur. I had no idea what it looked like. We're all salaried people, and going back a generation, you see tradies and farmers.

I decided to pursue a PhD after finishing my undergraduate studies. I had a scholarship to do the PhD, and I also had a scholarship in high school. Both those scholarships allowed me to pursue education I wouldn’t have been able to otherwise. At the end of the PhD I felt a strong sense of duty that I should contribute something back to the society that had raised me. Some of the people that funded my research were from the Department of Defence, and so I naturally approached them to see whether I could be of use.

I was motivated by a strong sense of civic duty, and I wanted to help contribute to the defence of Australia. You've got to remember this is 2004, and I was working right after the September 11 attacks and the Bali bombings. It really felt like a dark time. I thought I needed to do my bit.

When Smart People Solve Only Half the Problem

SH
Yeah I can see that sense of mission in you. Tell me how you went from the DoD to starting your own company. What pushed you to create Cydarm?

VS
I started to get itchy feet in the public service. I had an awesome career and got to do a variety of roles, most of which I don't think I can talk about for another 25 years or so. But I knew that my time there was coming to an end and I had to find something to do.

I thought about it for about five seconds and thought, you know what, she’s right! I really have no idea. I've had some jobs in the private sector, but I’ve never had any private sector job for long enough to know how the world works outside the Canberra bubble. So I got a job at Palantir instead.

I eventually found myself in a meeting room in Palo Alto, California and I was watching a demo that some really smart developers had put together. They were doing data analysis around a data breach. They had some beaconing activity, an infection on a user's machine, and were conducting graph analysis, following links, producing histograms and timelines, and creating a beautifully animated diagram that showed exactly how the threat actor gained access. At the end of it I said,

“That's great, but what happens next?”

The guy just looked at me blankly and said,

“What do you mean?”

I said,

“Well, you've just exposed this incident, what are you going to do with that information?”

He replied,

“Well, I guess you call someone and tell them we've had a cyber incident!”

No! You've only solved half the problem! You have to record this information in a system of record, and you've got to have accountability, because someone's going to have to take action on this. There will be decision points, reporting, and lessons learned. How do you apply everything you've learned from this incident to ensure that this doesn't happen again tomorrow?

At that point I had blank faces staring back at me. What's this guy talking about? I think that's when I realised that maybe there was something here. If these really smart people hadn't considered what happens after you perform the clever detection, then maybe this is a broader problem.

After that, I started connecting with former colleagues who now worked in security operations to ask them how they track the status of security incidents. The answer was not very well. They were using spreadsheets and ITSM tools, which were often clunky and ad-hoc. There's a lot of swivel chairing, a lot of cut and paste, and getting any sort of meaningful output or doing an incident post-mortem was really hard.

What if you could build a platform that specialises in helping people work in security operations? Help them perform better, but also move faster so they can do more and do it more quickly? So that was the dream.

SH
Did you have a discussion with your partner about how long you were going to give it? What was that discussion like?

VS
My wife has been very, very supportive. It's a wonderful thing to have someone who will let you pursue your dreams and put up with a very high level of personal financial risk. There was always a line in the sand though.

There were always little things that kept coming up that kept me going. There was an accelerator program with structured accountability and a very strong learning component throughout. There were the major household brands that had shown genuine interest in what I was building and really wanted to meet with me and talk about it. Then there was a term sheet from an investor that was just unbelievable. It just felt like the stars were aligning.

Of course, once you take that money you can't back out. I think the point of no return was taking funding from VC’s. That's where you are committed to doing your absolute best to see it through.

Brought to you by Murmar.

Why Small Teams Can Punch Above Their Weight

SH
There were already case management solutions available when you kicked off. What was your thesis for how you were going to win?

VS
My hypothesis was that a small team operating independently, focused on a very specific problem for a very specific audience, and having constant interaction with the individuals who would be using the platform, would be able to build a greenfield solution that would be much better adapted to the needs of those customers.

There were some large incumbents, and I think what I've learned since then is that they often abuse their market power. They bundle and discount and force their way into situations where they can squeeze out a smaller player. And yet, despite all that, you can disrupt these industries because the incentive structures are just different. Most of the cyber case management solutions I've seen are bolt-ons. They're being built onto an existing SOAR platform, and they initially started with an automation platform. As a result, it doesn't feel like anyone truly cares about case management. It might have very similar features to what we do, but it's just not lovable.

Whenever I feel a bit downhearted about the competition we're up against, I remember that even in a company of 30,000 employees, the team working on the specific thing we do might be smaller than ours. And they don't operate with free license like we do. They have to get permission from their bosses to work on their roadmap, and they might get deprioritised or moved on at any time. They're probably not on an employee share option plan. They don't have a strong vested interest in what happens with the thing they build.

SH
What kind of shitty competitor behaviour have you seen?

VS
We've seen people who knew what we were quoting come in just under our price, when we know that they usually charge four times that. If they can kill us, then they can bait and switch the customer into a higher plan next year.

We have prospects approach us sometimes with scepticism about what we do. They tell us the way they've been treated by other vendors, where the vendor promises they can do this and that, and then they find out that actually the features are quite weak. So sometimes the claims are exaggerated.

Then we also see strong-arm tactics with bundling or discounts. They'll come in over the heads of the people who use the software to someone completely unrelated and do a deal where they bundle. They bundle a product that competes with us at no cost or a very minimal cost. And it seems like a waste to buy a best-of-breed solution when you can settle for a mediocre one because it's almost free. It’s frustrating.

SH
I'm interested in how you found your co-founder and how useful it has been to have someone else to lean on?

VS
Yeah really good. Certainly investors like to have at least two founders in a business for continuity. If you get called away for an unexpected emergency, there's someone who knows the business intimately that you completely trust who can carry on.

I met my cofounder Ben at an (ISC)2 event. He'd come from a high-growth business that he'd just exited, where he was employee number one. So he'd had a taste of the entrepreneurial journey and was keen to try it again.

There are a few things Ben and I do agree on, and number one is integrity. We also both firmly believe that cyber is built on trust. If you share the same core values, then I think you can make a business together.

SH
Have there been any particularly intense moments during the development of Cydarm that stand out?

VS
There's been many intense moments. The thing that stands out the most is when we were in a situation where we had no choice but to make several roles redundant. That is the most painful and awful thing. You've hand-picked these people. This is a cast of rock stars you put together.

When you read about a Roman centurion who loses a battle, and they have to decimate their soldiers. So they walk along the aqueduct and push every tenth soldier off to fall to their death. That's what it feels like. They haven't done anything wrong, but as the leader of the unit, you know you screwed up. Just even thinking about it makes my hands shake and I feel a bit sick.

SH
Ahh man that is always tough. Lets swing back to the brighter side of startups and tell me, what gets you really buzzed?

VS
The thing I like the most is when users appreciate something we built.

I remember presenting a demo at an ASX50 organisation to the SOC team, and there was silence all through the demo. At the end of the demo there was this sort of pregnant pause, and then finally someone spoke. The person who spoke was a feisty and plucky sort of person, so he was the first one to speak up. He said,

I got this sense of relief. Like I've got one one true believer. Then everyone else started nodding. That was really exciting, and I felt like all the months and months of work we'd ploughed into it, all the money we'd spent, was worth it. There's been a few of those kind of special moments. It is just so motivating.

SH
If you could go back in time and tell a younger Vaughan a few things that might help him throughout the journey, what advice would you give to better prepare for what's coming?

VS
It’s hard to tell which advice to heed because you get so much advice from so many people and most of them are wrong, but I have a particular advisor who I'm very grateful to for so much good advice. One piece of advice he gave me was around my product. He said,

“Now that you've managed to raise venture funding, you should take that prototype that you've built, put it in a bag, tie a brick to it and chuck it off a bridge.”

I was like no way! It's not a prototype, it's a beautiful product that I've built! I'm going to build on top of it.

That was 2018, and now I think maybe I should have started building all over again. Maybe we wouldn't have made any better progress, but I think I probably should have taken a bit more time to think things through. There are just so many things about software architecture that you don't know. I'm quite an experienced software developer, but until you build something from scratch, you don’t realise you have blind spots in your knowledge. Sometimes I think you have to slow down a little bit and make more considered decisions.

SH
Okay we always finish off with 3 lighter questions. What’s a book we should all read?

VS
The Great CEO Within, by Matt Mochary. I think there were parts of that book where he gives you a shortcut, and you can see you have spent years learning the same thing the hard way.

SH
What’s a band or artist we should all listen to?

VS
Oh wow that's a hard one. I'll probably be revealing my extremely eclectic taste in music. If I was to give you one, it would be Girl and Girl. They're an Aussie punk band.

SH
What’s a podcast we should all listen to?

VS
The Startup Podcast with Yaniv Bernstein and Chris Saad. It is a really, really good podcast for learning about startups. These guys have great discussions and great guests, as well as really good news and market analysis. I can't recommend it enough.

SH
Thanks so much for your time Vaughan.