As part of our ongoing Kiwi Founders Series, we are chatting to successful New Zealand founders who are ‘doing it’, as we learn what has and hasn’t worked for them as they’ve built successful international businesses. This post is adapted from a crowdcast with Sam Gribben, former CEO of Serato and current Founder and CEO of Melodics.
Founded by Stephen West and AJ Bertenshaw in 1998, Serato is a software company that creates professional DJ software. Sam joined Serato in 2004 as employee number 4 and stayed until 2014, by which time Serato has grown into a team of more than 85 and a product that is used by DJ’s the world over.
Sam’s new company, Melodics, is a software that helps people learn to play musical instruments, using “persuasive technology”. Currently with a team of six, Melodics has raised a small seed round in late 2014 and released a product to the market in October 2015. They currently have more than 50,000 registered users.
What is Persuasive Technology?
While you can find literally millions of videos on YouTube that teach you how to play musical instruments, the mechanics of playing a video, using pause and rewind features to slowly learn your way around an instrument is “not substantially different from using a VHS tape to learn an instrument, like you might have done in the 1980’s.” Melodics was founded on the idea that the process could be improved substantially if you could plug your instrument into the computer, where it listens to the sounds you are making and then give you feedback on your performance as well as tips on how to get better.
Melodics fits into a category of companies like Duolingo, FitBit, Nike Fuelband and Headspace that use a combination of gamification, social interaction, data visualisation and psychology “to help motivate people to do the things they want to do.” At the moment Melodics focuses on teaching people to play “pad controllers” which are similar to drum machines, and are used extensively by DJs.
Building Strong Brands
Sam sees the potential for Melodics to become the “brand name” in the space of learning to play music online. He explains that Serato “is well known by the industry” with everyone from Kanye West to Eminem (and more than a few others) name dropping the software in their songs.
The biggest competitor that Serato faced off against was Native Instruments, the developers of Traktor. Founded in Berlin and with a large presence in Los Angeles, Native Instruments had substantially deeper products. Sam explains that Serato competed by “sticking to their roots and focusing all their effort on the product and customer success. Rather than the bells and whistles we focused on the core stuff. For a long time we had far less features than our competition, but we focused on really nailing what customers liked and used the most. With DJ tools there is a massive gap between being first and second – everyone wants to be using the industry standard, so if you install yourself as the #1 product in the market, you’ve got an enormous advantage over the competition”.
While an influencer strategy was really important for Serato, it wasn’t the typical cash for access situation, with Sam explaining “we really built the brand by working with artists and getting them involved in the product development, asking them for their feedback / opinions. I’m not big on endorsements – we want people to use the product if it’s right for them. If it isn’t, tell us why it isn’t right for you and we will make it better. Some of the biggest successes at Serato came from artists who went to the competition, and we focused on making our product essential for them to win them back. Endorsements often feel fake if they are paid for, whereas authentic endorsements drive word of mouth in other spaces, which is really the best form of marketing.”
Bootstrapping vs. raising investment money
Serato was grown organically the entire way – with no outside investment. Melodics has raised a small seed round, which is probably the biggest difference from Sam’s point of view, and he’s found he “underestimated the clichés – it takes a long time and a lot of effort to raise money.” While raising money does mean you’re on a tight schedule before you run out of runway, bootstrapping comes with the risk that someone else might come in and overtake you, going on to dominate the market. Initially Sam took meetings with any investor who seemed interested, whereas he’s now learnt to be much more specific – are investors B2C friendly? Are they ok with Melodics staying in NZ? Are they scared of music tech? Do they invest in the stage that Melodics are at right now?
Getting Started & Tools Used
One of the biggest differences in startups today is the ability to get started very quickly – Sam notes that when he started at Serato they used a homemade accounting system, homemade forum etc. Businesses starting today have the ability to plugin to a range of tools for a relatively minimal expense that expands as you grow.
- Talk to founders about what tools they use, why they use them and the strengths and limitations of each tool
- Phone up vendors and ask for discounts (it works quite often)
- Evaluate if you need the tools six months after signing up
- Find the simplest tool you can possibly use for your problem – there is a common tendency to over engineer the solution before you fully understand the problem. While you run the risk of higher switching costs down the road, it saves you an enormous amount of time starting out
The stack that Melodics currently use includes:
- Slack for all internal communications (they don’t use email at all internally)
- Trello for almost everything including CRM and bug tracking
- Intercom for support and messaging
- Xero for accounting
- Chargify/Payment Express/BNZ for managing payments (although he recommends investigating Braintree and Stripe as they enter the NZ market).
Getting Out of the Drivers Seat
For founders, there is a lot of social pressure to remain; “I started this thing so I should be best at running it” which leads a lot of founders to hang on too long because they think there is a real loss of face if they hand over the reins. The fact is that there is a massive difference between running a tiny organisation that runs from payday to payday than there is with running a massive organisation that has hundreds of employees. It’s important to think about succession from an early stage because one day when it all goes really well you might want someone to take it all over. It’s good to mentally prepare for it and instill that attitude into the company culture.
While it’s still early days for Melodics, they’ve got big plans of building a large, international company from New Zealand. Founders who want to base their businesses in New Zealand can remain competitive by staying laser focused on what users want and developing an excellent product that focuses on the essentials, rather than getting into a feature war. Raising money rather than bootstrapping does come with additional stresses, but both approaches to building businesses have advantages (and disadvantages), although founders should be fully aware of the time costs associated with pursuing investment funding.
Catch the recap here: