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The Old Mutual Entrepreneurs’ Guide, a Cape Town-based website that focuses on successful innovators, recently interviewed Endeavor Entrepreneurs Yossi Hasson and David Jacobson. The two discussed how they started their email and internet securities business, Synaq, how it has developed over the last few years and what they have learned along the way.
Watch the full 15-minute interview here or download the official transcript [PDF]. The transcript is also reprinted below.
Question: Who are you?
My name is Yossi Hasson and I’m the managing director of Synaq.
I’m David Jacobson and I’m the technical director.
Synaq is a company which started in 2004. We specialise in managed services on the Linux system. We also build email services for corporate companies in South Africa.
Our business is now based around this system. I am an inquisitive guy and Linux-based systems, break into many big corporate and government agencies. I did it for fun and learnt through this process. I then took all that knowledge and used it to build a successful business.
David and I were at school together. I’d heard of David’s Linux shenanigans, if you want to call them that. Since that time I have always been interested in this open source platform, what it means, how it evolves and what it does. David was a front runner or thought leader at the time. He was above everyone else. While I was using the Linuxbased system, I became friends with David. We spoke about what he was doing and what his plans were for this system. When we were in school, we spoke about starting various businesses in the IT space and security space but David wasn’t interested in either. David played hard to get and after we left school we continued our conversations, regarding the starting of a business. We were now older and had work for other businesses and companies. When we found what we were passionate about, that’s when we began Synaq.
Question: What do you think of the Do Great Things campaign?
It is important to share knowledge with people across all sectors and in all businesses. Being passionate about what you do is very important and I think that’s a huge step in doing great things. You’re hopefully changing the world in some small way.
The campaign is an unbelievable cause in trying to inspire people to follow their passions. It tries to educate people and help them to move forward. So, from a campaign point of view, it’s unbelievable. What’s important to note, however, is that building rock star status around entrepreneurs is sending the wrong message. My message would be that there are no such entrepreneurs. There’s no person who has a specific set of character traits that result in building successful businesses. The people who go out and build businesses had an idea, a passion, and they happened to be starting a business. They could have been running a marathon, by comparison. What they did is they took the necessary steps to move forward and get out there. And if that’s the result that you get from this type of campaign, then I think it’s an unbelievable effort, and that’s what I’d like to see people doing. I’d like to see them saying, “I can do this!” and then taking that step.
Question (Yossi): How can you use open source software and cloud technology to keep costs down?
Using open source technologies
When starting a business, your cash flow and your start-up capital is limited. If you use technology in a low-cost way, then you’re already ahead of other start-up companies. For us, open source software and cloud computing represented a significant opportunity to do just that. Open source software is freely available for you to use, commercialise or modify for your business environment. The premise of cloud computing is technology you can use on a pay-as-you-go model. From that point of view, the old premise of building your own infrastructure, scaling it and then investing in applications you may not need to a great extent, is an old and outdated model. We liken it in our minds to the early 1900s when you built your own power station to give electricity capacity to your business. Today, when you look back at that, it’s a ridiculous statement. You plug your computer into a wall socket and you pay the utility provider. And that’s the way computing is moving. At Synaq, from the day we started, we had CRM applications, email applications, accounting packages… We never paid anything for those applications, either because we were using open source software, or we were using some kind of cloud provider to give us those services.
• If you can leverage open source technology to keep your costs low, then you’re already a step ahead of the other start-ups out there.
• Many key business applications, including CRM, email and accounting packages, are free if you are prepared to use open source software.
Question (David): How is knowledge shared throughout your company?
Capturing your knowledge as you go
At Synaq we believe in knowledge sharing, which is similar to how open source software works. One of the first things we introduced into our business, which has been invaluable, is a wiki system. The wiki system is a collaboration system where everyone enters all their information about the customers, about the projects that we’ve done, marketing ideas, operations, birthdays… It’s been absolutely fundamental in building this business. We don’t have to tell every new person we hire what we’ve done with each customer, what our principles are or how our culture works. When new people enter the business they have many questions. Since we are a technical company we can say, “Look at the wiki – if the answer to your question is not there, find out what the answer is and put it there.”
• A wiki system is very effective as a knowledge-sharing tool.
• One of the advantages of recording all your information in a wiki is that new employees can find out a lot of information without having to take time from other staff members by asking them questions.
BUILDING A BUSINESS MODEL
Question (Yossi): How do you design a model that scales?
Designing a model that scales
When we started the company, the basic premise of the business model was to provide managed services on the Linux platform for our customers, that is, offering support and services around the Linux operating system. When we started the company, we thought that was unique. We teased other companies that did everything in the IT space. We went to the market with that and got many customers saying, “Can you do this for us?”, “Can you do that for us?”, and because Linux is such a flexible platform, we could do everything for a company. Three years into the business, we realised we’d implemented about 100 to 150 projects. And when we looked back, not one of them was the same. We were left with a business that was growing and making money but it became difficult to scale beyond that point, since everything was different. We needed a person who could enter the organisation and be a jack-of-all-trades. We needed a person who understood CRM databases, could customise applications and move forward using all of this knowledge.
At that point we made an expensive decision – and it was the right one. We knew we couldn’t scale a business where we provided niche services around a technology stack. The organisation wasn’t being focused and we took the decision to standardise on a number of products – four products to be exact. We decided to build these products, invest in them and offer them to the market instead of the bespoke services we had offered up to that point. It took us about two years to do it and get those products into the marketplace. We’ve been doing it for about 12 months now and the business has grown much quicker. And the human resources we need to be able to scale the business is a tenth of what we needed before. So our decision was that we need to now scale the business, to grow it. To do that you need to be able to say, “What are we really good at?” and focus just on that.
• Identify at an early stage what your business is good at and focus your attention on that.
A ONE-PAGE BUSINESS PLAN
Question (Yossi): How did having a short, flexible business plan help you to pivot your business?
Staying flexible but on strategy
The one-page business plan, in principle, allows you to say, “What are the key things we’re going to try and do over a short period of time?”, and will help you to execute that. What you’ll find when starting a business is that nine times out of 10, you think something is going to happen, but something completely different happens instead. And if you get married to a well-thought-out, well-planned idea that takes you 12 months to put together, then you don’t allow the feedback you’re getting to modify your behaviour, and you carry on with a rigid approach. When we started Synaq, we wrote a business plan. It wasn’t a 24-page document that was researched in depth, but it had a fair amount of structure to it. We followed through with that, but realised very soon that what we had assumed in our plan turned out not to be what we needed to do to build the business. But we are flexible and so we changed our business model probably three times to get to where we are today. If we didn’t have the ability to say, “Well, that’s just another thing that isn’t going to work”, then we wouldn’t be in the position we are today. So my encouragement is that rather than having an elaborate plan, instead say, “This is what we’re going to try and achieve over the next six months, this is what the business needs” and execute that. Reiterate as often as possible and don’t get married to a bigger, more rigid plan.
• Create a one-page business plan to set out what you aim to achieve over a six-month period.
• Your initial business objectives probably won’t pan out as you first imagined.
• As your business progresses, you will probably see that your preconceived plans, assumptions and objectives
don’t fit where the business is headed.
• Your business plan needs to remain flexible and you need to continuously redesign and review it.
• Don’t get married to a plan.
• Instead of creating an elaborate plan, rather adopt a more flexible view and say, “This is what we’re going to
try and achieve over the next six months”.
DEALING WITH LEGAL STUFF
Question (Yossi): How do you enforce contracts?
Drawing up contracts
At Synaq, we’ve spent a lot of time putting contracts together. We do this to make sure that, from a legal point of view, we are protecting ourselves and our customers, regarding the engagement we are entering into. But time and again we’d find that a customer with whom we had a really good relationship would say to us, “Look, the business has changed and we can’t continue with you”, and they’d want to exit the contract. Most of the time we’d feel sorry and we’d understand. We’d say, “No problem, we’ll see you again in two years time.” We would be quite laissez-faire about the situation. More recently, we’ve taken a different approach. The principle of a contract is more than words written on paper. The whole foundation of commerce is built on the premise that a selling party is receiving from a buying party and they know the terms they are entering into, which are governed by contracts. Now we have been a lot more firm when entering into contracts with our suppliers and customers. The result is that we have customers who have really appreciated the service and the value we offer them. And we put more thought into the agreements that we have entered into. Now we say, “This is what we’re doing for you, this is the agreement, this is the value we’re offering, and this is what you’re signing up for.” We make sure we each meet that commitment going forward. So we’re being a little bit more harsh, if you want to call it that, or a little bit more firm, but it comes from the principle that a contract is what governs commerce and if we’re going into this relationship we know what we’re doing and we should stick by that, otherwise there’s really no point in entering into a contract at all.
• Spend time carefully putting together contracts, making sure from a legal point of view you and your customers are protected in the engagement.
• Include an exit clause or strategy in the contract.
• The principle of a contract is more than just the words written in it.
• The contract needs to be clearly understood by both parties.
Question (Yossi): How do you work out if you have the funds for your strategy?
Managing cash flow
We decided to standardise our products and develop our product offerings, rather than offering bespoke services. So we employed a management team to manage our developers as well as execute that strategy. We thought the project would take six months or so but soon realised it was going to take 12 to 18 months to complete. By stopping the bespoke development we were not getting in the type of revenue we got before. We were spending money to build these products so we could make a go of our new strategy. When you’re thinking about growing your business, you’re not thinking of the cost of growth or what it will take to achieve that growth. As a business person, you’re probably only seeing the opportunity you want to exploit. And while it may be the best opportunity out there, if you don’t have resources to execute it, you’re going to cripple your business. Understanding what you have available to you and what you can do with those resources is the best way to look at the equation. It took us six months to decide that our new strategy couldn’t be executed with the resources we had. We were either going to have to get funding, scale down or apply a more focused approach.
• When you’re thinking of growth, remember to consider the costs of achieving that growth.
• Remember to consider the resources you have before you commit to a strategy for growth..
• You may have the best idea or opportunity but without the necessary resources available, you will be unable to execute it.
Question (David): How do you monitor cash flow?
I’m not an accountant and I know very little about accounts. In the early days, I found this aspect of the business difficult. It is worrying to be a co-founder of a business and not be able to understand the financials. We were sent income statements and reams of emails that I tried to understand but couldn’t. So one of the things we introduced as a management team is a one-page dashboard, which has everything on it relating to the company financially. With graphs and other visuals on the page, I’m able to understand things such as month-to-month sales, GP, cash flow and certain metrics. This has made a big difference to my understanding of the business and it’s helped the business to move forward financially.
• If your understanding of finance is limited, you can introduce a very simple one-page dashboard relating to the company financial situation.
• A one-page financial dashboard could include graphs, month-to-month sales, GP, cash flow and relevant key metrics.
RECRUITING YOUR TEAM
Question (Yossi): What recruitment process do you follow?
Finding the best people
At Synaq, it is important that we hire the right personality type for the job and for the company. To pick up on a person’s personality in an one-hour interview is a difficult task, so we ask open-ended questions and try to get the interviewees to tell us a story about themselves. Some of the questions are:
• Who were you as a kid?
• Who was your favourite parent?
• Who was your best boss and why?
• Who was your most irritating colleague and why?
We ask the interviewee what gets them ticking and how they structure their day. All these questions have no right or wrong answer but they give us a very clear picture of the type of personality of that individual and the type of environment where they are going to succeed. If these two things are aligned with the job, then we know we have a candidate. We would then test for aptitude and skills and give them the relevant aptitude tests and a technical test they would need to pass. If it’s a sales position, they will have to do a sales pitch or we’ll test whatever the functions of the job are. We need to make sure the candidate has the right personality for the job function and that they will thrive within the environment of the company. This person could be a genius and be brilliant but if they are not the right fit for the job and the environment, then he/she won’t be happy and won’t shine within the organisation.
• You should always hire the right personality type for the job as well as the company.
• It’s difficult to get a clear picture of a person’s personality in a one-hour interview.
• Use open-ended questions during the recruitment interview to help you build up a story of what the interviewee is like.
• Once you’re happy with the personality of the applicant, you can do the relevant aptitude and technical tests as another screening process.
• You may be interviewing a genius, but if their personality doesn’t fit the company culture, it may not work out.
Question (David): What do you look for when hiring new team members?
Finding the best people
We are a technical company. When we hire new members we want to know, “How good are these guys technically? How good are they with Linux? How good are they with networking?”. Over the years, we asked all the wrong questions in our interviews. We would say, “Are you a good team leader? Can you work well under pressure? Can you do this? Can you do that?” but these are all questions where you’re leading them to the right answer. They’re going to say, “Yeah, I work great under pressure.” In an hour interview, it’s difficult to understand the type of person you’re hiring. We have been through many courses with various individuals and now our interview process is somewhat weird. We ask them very weird and strange questions, such as the things that freak them out. That seems irrelevant. One of the questions we ask is, “Who are you closer to, your mother or your father, and why?”. We find out some problems they’ve had at their company and how they dealt with that situation. We ask if they brought this situation forward to the manager or if they bottled it up inside. We are interested in how they dealt with the situation. So some advice I could give is, make sure you’ve got your interview process sussed out very well. The main aspect to look for is attitude. We found you can teach anyone anything if they’ve got the ability to learn but you cannot teach someone to have a good attitude.
What we’ve found is that one exceptional person can do ten times more than hiring five average people. And that’s what we look for in our interview process.
• Very often during the interview process, you ask the wrong questions.
• Asking different and somewhat weird questions invokes an unplanned response or highlights problems/issues that normally would not be exposed.
• The ability to learn and a positive attitude are crucial when hiring new team members.
Question (Yossi): How can you use equity for later-stage finance?
Using Equity to Finance Your Business
When we started the business, David and I were young. We were 21 years old and we raised about R1 million. This was six years ago and, to us, R1 million was a large sum of money. It was unbelievable that we were getting that type of backing. We managed to execute a lot on that R1 million – it got us to this point today. But when I look back I often ask, “What did we require to be able to start this business? How much money did we really need? Could we have been more flexible or innovative in how we started the business and approached it? And if we could have been more innovative and flexible, how much equity would we have had to give up back then?” These questions are important because at a certain point in your business you may want to grow it further. In growing your business, you may need funding or you may need some capitalisation of the business. But if you decide to give away a large chunk of equity when the cost of building your business is actually quite low, then you are decreasing your chances of later taking it from a R10-million business to a R100-million business. Because what R10 million three years later could do for your business versus R1 million when you started it, is the difference between building a highly scalable, high growth type of company versus a company that’s restricted to a few people. So try and reduce the equity you’re giving away and, if you can, don’t give away any. Suppose you’ve given away 60% of your equity for that initial seed capital to start your business. It becomes a difficult exercise when the business has reached a point where you need to capitalise and fund the growth, but there is very little money left. Firstly, from the point of view of a potential investor who is going to provide the funding, because they have to pay out a large chunk and, secondly, from your own point of view, because if you want to profit out of this business and if you want to have an exit for yourself, the less equity you have at the end is going to make your exit strategy all the more expensive. So try and give up less equity at the beginning when you don’t need that much money.
• Be flexible and innovative when you work out how much money you need to start the business.
• Try not to give up too much equity at an early stage – try not to give up any, if possible.
• If you resist taking money from investors in the early stages, you will be able to use your equity as a way to fund growth later on. The advantage of this is that you’ll be giving up less equity for more money.
Question (Yossi): How do you build systems for your staff?
Systems that make it easier for your staff to function
If you want to build a business that can scale beyond yourself, you need to make sure that you’re processifying and systematising the business so that you can employ the least qualified person to do that job expertly. When business people start their business, they’re dealing with so many different things and they want to hire brilliant people who can take everything off their plate and be able to do it for them.They start hiring many of these brilliant people and eventually the business becomes dependent on the mood and the personalities of those brilliant people rather than being focused on creating a franchise, which can be scaled and grown. You as the entrepreneur will be doing everything, so take the time to document what you do and turn it into processes. Each process should explain how you want a specific task and function to be done to the finest level of detail. So when you are employing the next person who needs to take over that role you can say to them, “This is exactly how I want you to perform this job function”, rather than leaving it up to them. That way, you don’t have to rely purely on brilliant people, and because of that you’re now building a business.
• You want to build a business that can scale beyond yourself, where you’re not tied into having to control the way the business operates.
• You need to put processes and systems in place that allow the business to continue functioning effectively without specific people in place.
• If you fail to put systems in place and instead become too dependent on brilliant people, you risk not being able to scale your business.
PLANNING YOUR DEVELOPMENT TASKS
Question (David): What should you look out for when developing large systems?
Managing product iterations
We’ve been through many challenges over the years. We maintain hundreds of Linux-based systems across Africa and one of the biggest challenges we had was accountability – auditing and logging – with many engineers performing many different tasks. When someone leaves who had 200 systems they managed that aren’t linked to your organisation because they’ve all got their own access information and are integrated in access control, then you have a problem! We’ve learnt to make sure that when someone leaves, all these systems get configured to either remove or add access for that particular person. In the past, we built systems that were built only as well as the person building them. Nowadays, we’ve taken all the knowledge we’ve learnt and put it into automated systems.
We automate absolutely every aspect of an installation and we only do the bare minimum in a manual kind of way.
• When you manage many large systems, you need to try automate the installation of each to whatever extent is possible.
• Make sure that when engineers leave your company, others can access their systems and all the knowledge of how to deal with those systems is recorded for others to follow.
DECIDING WHEN TO LAUNCH
Question (Yossi): How do you align your development with real needs?
Launch, get feedback then iterate
The principle we have tried to follow, is to make sure we’re focusing our resources in a way that is going to differentiate us for our customers. We spent about 18 months developing an application we’re extremely proud of. For all intents and purposes it is a market leader from an interface design point of view, from a functionality point of view and from its ability to simplify the management of an anti-spam solution. We are proud of it and it cost us a fortune. What we found after developing the solution is that 95% of our customers never logged on to the interface or saw what we developed. So, we spent a fortune on something that only 5% of our customers were using. But we’ve learnt a lot from it and we’ve been able to gain a fortune in learnings as well as the ability to commercialise a product. We’ve learnt to build unbelievable interfaces and we use it as a sale tool when we’re in a presentation to promote the product as well as to differentiate ourselves. What we possibly could have done is spent 12 months on it, getting it to 80% where it was standing on its own and then released it. The difference in taking it from that 80% to 99% – to being the best product in the market – wasn’t only a one- or a two-month difference in time, energy and resources, it was an extra 12 months in development! So you only need to ask yourself the first question: “Where am I spending my resources and is that giving additional value to my customer and is that going to differentiate us?” The second question is, “Is that extra 20% worth the extra 12 months in development and the doubled expense?”
• You should focus your resources on areas that differentiate you in the eyes of your customer.
• You should focus your resources on giving additional value to your customers.
FINDING YOUR CUSTOMERS
Question (David): How do you support your customers?
The main reason we started this company was that we were irritated with the customer support from other companies.
We took all our problems that we had with those companies and said, “How can we change that paradigm?” So one of the things we wanted to do at Synaq was to build a world-class help desk. Now that might sound easy, but it isn’t. We wanted to give a customer a consistent experience, no matter if they chat to me or to anyone else. It’s merely to get a consistent experience and have people who are knowledgeable chatting to the customers. Often companies will hire call-loggers to log calls and that’s very irritating to a customer. There’s nothing better than picking up the phone and having someone extremely competent to resolve your issue in a friendly manner. Further to that, I was the help desk for the first few years and I found there’s a big disconnect between CEOs, CTOs and the help desk, which is often seen as a small, relatively unimportant part of the business. Running the help desk myself for the first few years gave us a lot of insight into this problem.
• A world-class help desk has huge benefits for your interactions with customers and clients.
• Supporting and helping customers with knowledgeable, competent people insures a consistent experience.
CREATING A MARKETING STRATEGY
Question (Yossi): How do you create a marketing strategy?
Crafting a marketing mix
For about four years Synaq delivered services to a wide range of clients, and for a long time we contemplated the question of who our customer really was. Then one day we actually sat down and focused on that question and we spent a significant amount of time deciding who our ideal customer was. The point of that exercise was that once we had answered the question it was so clear in our mind who we were targeting, we could walk into a meeting and within the first two or three minutes we’d know if the customer was right for us. From that point on we could tailor our marketing mix and our communications in a much more precise fashion than the generic shotgun approach we applied before, where we’d put an ad here and then maybe we’d do a press release there. When we did those things, we weren’t speaking to our clients and saying, “We understand you – this is the need that you have and this is why we are the people to be able to fulfill that need.” So by spending time focusing on and answering that question, the rest of the marketing questions became so much easier to answer in terms of which channels to use, how to use them and how frequently, and what message to put out. And so I’d suggest that before you spend money on marketing, you should spend time answering the question of who your ideal customer is. Otherwise you’ll just be putting out a campaign where you don’t really know who you’re talking to.
• It is very important to understand who your real customer is before you spend money on marketing.
• Once you have identified your target audience it becomes clearer and easier to tailor your marketing mix.
• Once you have a focused target audience, your communication to your customer becomes so much more precise than a generic shotgun approach.
• Once you have identified your target audience, you’ll have a better understanding of what your customers needs really are.
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