Entrepreneur and angel investor Marcel Hollerbach’s recent talk at the Hertie School of Governance on the mistakes he made on the way to startup success in Berlin was that good, we’ve tried to reproduce it. Here are the words of wisdom we took away.
#1 Don’t outsource your software development
Hollerbach, a self-described “nerd turned CEO”, studied IT in Würzburg and also spent half a year at Stanford. He now runs leading speciality marketing agency Efamous, which works with the likes of Zalando and Groupon. Before that, though, came YouMix and HiClip…
Hollerbach started YouMix, a social network for unknown artists, back in the heady days when MySpace ruled and “everyone” thought they could build the next big social network in Germany. The young, inexperienced founding team (Hollerbach is third from the left in the great sweater) had no software expertise so outsourced their software development to an external agency – their first big mistake, Hollerbach says.
#2 Don’t get “diluted to hell”
Riding the hype, YouMix won Series A, B and C financing rounds. Revenue and users were less easy to find. Early buy-out talks with Viacom (MTV) collapsed and that more or less spelled “game over” for the startup.
“We got diluted to hell,” Hollerbach adds. “I think in the end, after all those financing rounds, I personally had four per cent left in the company.” He recommends founders keep dilution low or risk diluting their motivation along with their company stake.
#3 Get an experienced team – and keep it going
Hollerbach went back to university and met future co-founder Kai Seefeldt, who he’s still working with today. He and Seefeldt pulled a more experienced team together, got some decent technology and founded business-to-business video streaming service HiClip TV.
#4 Don’t forget the business case
To get traffic up, HiClip (backed by angel investor Oliver Jung and others) gave its video streaming service out free to blogs and publishing sites. “We were basically following the path of ‘let the company grow, get a lot of traffic, and then you find the business model later’,” Hollerbach says. Perhaps they were ahead of their time, perhaps the dubious user-generated content put buyers off, but the big advertising revenue never came in.
HiClip, as it turned out, had a happy ending. Global media group Adconion, which needed technology for its new video advertising business, stepped in to buy them out. While still working at Adconion to earn their way out (after burning through borrowed capital at HiClip under liquidation preference), Hollerbach and Seefeldt started work on what would later become success story Efamous.
This time, Hollerbach says, they had it all: the same, experienced team, good tech right from the start and a strong business case. “We’re still 100 per cent founders’ owned and a cash-flow positive company, and we’re also making great returns right now,” he says.
#5 Don’t get distracted
Efamous’ vision, basically, is to dominate the Google front page, with services ranging from data feed optimisation to backlink advertising to product re-targeting (matching ads to products you’ve previously searched for). If, like one audience member at Hertie, you’re wondering what the social value of all this is, Hollerbach points out Efamous helps companies such as Zalando and Groupon grow and create thousands of jobs.
His final piece of advice for founders? Focus on one thing at a time – “try to graduate fast” – and stay lean, both as a business and as an individual. “We would have died a few times if we drove fancy cars and had big apartments,” he jokes.
Above all, get your founding team right. “Then it doesn’t matter if your business fails or not, or the model you started with doesn’t work, you’ll always find a way to turn it around.”
Hollerbach spoke at the Hertie School of Governance as part of a mini-forum organised by masters candidate and Mernela founder Alexander Nelson, also featuring Android PIT founder Tobias Apel. It’s the first of a series, so keep an eye out.
For related reading, check out:
99 Problems but a Pitch Ain’t One – top VCs and investors on the secrets of a perfect pitch
99 Problems but a Pitch Ain’t One Part 2 – startup mentors on what gets their attention
99 Problems but a Pitch Ain’t One Part 3 – pitch secrets from CEOs and entrepreneurs