Dharmesh Mistry: How to grow a technology business

Dharmesh Mistry has started, developed and successfully exited three technology businesses over his career including edge IPK, AskHomey and Entranet. He’s now an NED (non-exec director), adviser to several tech companies and an investor in new start-ups.

Our MD Chris Hopwood caught up with Dharmesh as he shared his views on what it takes to set up a successful technology company.

What do you think are the critical success factors when starting and growing a technology company?

I believe there are three important elements, and they are my three “Ts”.

First and foremost is the team. Most people, I think, would argue that it’s the idea, the business case and the vision that are the most crucial factors. I personally don’t think this is true.  If you’ve got the right team, you can achieve almost anything. It’s also important to recognise that the team you start off with isn’t necessarily what you end up with in the medium to long term. Just as we talk about customer lifecycle, companies have life cycles. With every single company that I’ve been involved in I’ve analysed the lifecycle and built a team according to the stages of development –it’s crucial to get the right people at the right time.

Can you talk us through the different stages?

For the ‘birth’ stage I get the “jack of all trades” – people that are willing to solve problems and burn the midnight oil. At this point, we might need content written one day, code the next day or whatever tasks are required to get the job done. At this point, the team need to have a real resilience and determination.

When you get to adolescence, you want to add people with tried and tested experience. They can bring some best practice. They may not have had the desire to do a startup themselves but feel the challenge of a scale up is motivating and they’re prepared to take some risks. These people are crucial to build the business and bring some maturity and perspective to it all.

The final stage, in terms of scaling up, is maturity. This is when you look to add a real specialist for pretty much every single role because now – if all has gone well – you’re at the size where you can afford  them.

T is for Team

So, the team is, without doubt, the most important thing. In the initial stages of your startup, you should prioritise finding the best jack-of-all -trades. Search for people who love being busy. Everyone knows the quote attributed to Benjamin Franklin, “If you want something done, ask a busy person.” Busy people are great at efficiency and prioritisation, and they’ll always find time to get their tasks done and that’s what you need right at the start when you’re trying to get established and need to anticipate and react to the unexpected.

The Second T is for Tenacity

Any growing company will have its ups and downs. Every startup is a roller coaster. You have the highs of the ideation phase and the lows of the reality, and, on top of it all, the realisation that you need to earn money – fast!  Then you have a high because you got some funding, followed by a low because suddenly the funding ran out and you’re about to hit some profitability issues. You’re going to encounter many rollercoaster rides like this and you need tenacity. Not only to ride the lows but to motivate you through any problem that you hit.

Again  – it’s not just about the idea. A startup is all about constant problem solving. Whether it’s making the software work, getting your first sale or managing your cash flow. You need the resilience, as a team, to attack all of the problems and keep moving forward.

The Third T – Total Focus

You have to be totally focused on the job. This can’t be a side hustle. This isn’t a passion project. You’re not doing this so that you can tell your mates, “I’m building a business, I’m in a startup!”

If you’re not in it to make money, then you need to look for something else because there’s no alternative. There is no in-between. If you’re not in it for the long-term then you’re doomed to fail because you need to generate income and quickly reach a point of profitability.

There’s a lot of people who believe they’re going to change the world. But you need to be commercially-minded and know the model for making money to make that happen. You need to have eyes like a hawk to spot those potential long and short-term problems and find the solution. It requires total focus.

People will say there’s more to life than working. I agree, but if you begin a start-up then you have to give it everything you have got. And more. You will find time, energy, strength that you never thought you had.

If you have got total focus, the chance of success exponentially increases. Lots of businesses die in the first three years. We know the stats and the facts are there. You must ensure you have the right team with the tenacity and the backbone to see it through properly.

It’s not a glamour game. It’s hard work!

What are some of the problems you’ve seen in tech companies looking to grow?

There are so many of those examples where people jet off in first class planes and spend money like water. There’s a reason these companies fail and it comes down to poor financial management and spending money in unnecessary places.

My favourite image was the warehouse in America that was full of pool tables, vending machines and all sorts of gadgets from startups when the dotcom bubble burst. These guys were sweeping this stuff up for a fraction of their value from the liquidators.

Crazy stuff.

What was the biggest challenge you think you faced when growing these companies and how did you overcome them?

I think the obvious one would be scaling growth. I like to start a business knowing who to employ at different times.  I’ve got people that I can bring in for specific deals so I can ensure I’m always ready to hit the ground running.

Sales and scaling goes way beyond personal network and it is definitely a challenge. But you can solve that when you find good people, at the right time, that are committed and see the vision. It’s extremely hard but it should be a priority.

The people part of it, for me, is the hardest thing. Not only finding the good ones but, at the appropriate times, letting go those that no longer fit the culture or are motivated to move things forward. It’s a challenge. The recruitment fees and other costs all add up so getting those appointments right is critical.

What tactics did you have in place to try and manage that process?

Don’t hire friends! Hire colleagues that you know are talented, committed and trustworthy. If you don’t know the person then find out about them from someone you trust.

There’s an element of due diligence that you can do, but you need to go well beyond the standard recruitment process. At the same time, you don’t want to over-engineer it like a lot of startups and have something ridiculous like seven interviews before they’re hired.

You’ve got to have a clear picture in mind of what you need them to deliver. Ask yourself if you can communicate what you need and be straight with them. I think honesty is the best policy.

Explain that this is a start-up and there’s an obvious risk. There’s no fancy package but you’re making up with it with other benefits. But first things first, ask people if they believe in what you do? Because if they don’t then it won’t work out – they need to understand that this is not just another job.

I think it’s possible to hire people fairly quickly. There’s a phase at the first part of the startup which I call shaking the trees. This is all about tapping up your network. Tell them what you’re doing without giving them the crown jewels and tell them what you need. Whether it’s a customer or a salesperson or whatever, just go around shaking trees and you’ll find it’s amazing what drops out of your own network.

That’s probably the best tactic to employ as a starting point.

What’s the biggest lesson you share with people that are developing a technology company?

It’s quite interesting now that I’m acting as an adviser. I’m back to interacting with a lot more startups because I’m invested in a few startups too. The main thing I advise against is to avoid building a company for exit.

I know I said money is important. But you don’t want a company that you need to sell. You want a company that somebody wants to buy and the two are very, very different. One is a great business because it’s making money driven by a motivated team. You’ve worked out the margins and it’s a successful operation. This applies whether it’s a fintech, climate tech business or a software business.

If you build a great business, somebody will be willing to take a look at buying.

Focus all of your effort on building the best possible business – highly efficient and running well. Then carefully consider how to scale it to the business that you want to build.

That would be my best advice. Build the best possible business you can and the rewards will follow.

What are the most popular mistakes you see when growing a business?

Passion projects. That’s always one.

I’ve talked to people and I’ve been honest and said “I don’t get it.”

The reply might be:

“You’re obviously not from the XYZ space, blah, blah, blah.”

I’ll say:

“I’m in the space where I like to make some money and you haven’t explained how that will happen. I don’t understand. How big is the market? Why that one and not this one? How do you know where you’re fishing is big enough? What percentage of that are you trying to really get?”

They don’t really have the answers because they are wrapped up in the idea and not in the business which is how to make a return from the idea. I see that loads…loads and loads and loads. Don’t let that be you.

If you want help developing your plans, or advice on scaling your tech business, contact Chris Hopwood at hello@tech-agency.com