One of the challenges of setting up a new business for expert users is finding a market which is the right size and the right level of specialism, said Aristos Doxiadis of OpenFund
When setting up a start-up in the ‘software for domain experts’ space, one challenge is targeting the right size market, said Aristos Doxiadis, partner of OpenFund, a company based in Athens which invests seed capital in software start-ups.
He was speaking at the Oct 29 Athens conference “Software for Domain Experts” download the full report
If your market is too small, such as pharmacies in Greece, you might not raise enough revenue to satisfy investors, he said. “If you solve a problem that applies to all pharmacies in Europe then it’s different,” he said.”
But conversely, if your market is too general, then it might be too easy for someone else to copy if you succeed. If your target industry is a large industry where many people work in the same way, “then it’s likely that the workflow can be standardised and monitored with generic systems,” he says.
One advantage of specialist software is that domain experts are more willing (or comfortable) paying for tools which solve specific challenges in their business, than they are paying for more general productivity tools, which they can often get for free in the cloud.
To be successful, you probably need to have deep domain knowledge within your software company. “I have never seen a start-up trying to solve problems like the ones I outlined, who have not had at least one of the team with direct experience of what they are trying to do,” he said.
“You need to have experience as a user, or a vendor of services or products to the user for a long time. You need deep domain knowledge
You need to understand the crucial issues and the secondary issues. You need to be providing tools which address the most important things these people do every day, not nice to have features.”
If you develop a specialist business serving domain experts, “it is easier to defend your business from bigger competitors,” he says. “Domain experts understand you will probably serve better than a big generic competitor.”
Also, as a specialist software company, “you can become a leader in that field without having to spend huge amounts on marketing and sales,” he says.
Examples of software for experts
Mr Doxiadis characterises ‘experts’ (in the context of making software for them) as people who have a “very messy workflow.” Or in other words, “they don’t work in a standardised way every time, which you can copy into a flowchart, or they don’t do things in the same order. Or if they do things in the same order, it isn’t suitable for the conventional way of entering data.”
Experts typically “gather data and analyse data in a very particular way that is usually not compatible with enterprise software,” he said. Also, “what they want to optimise is not obvious to an outsider, and not obvious to someone not doing the job with them,” he said.
Mr Doxiadis would characterise software being for ‘domain experts’ if it was designed to serve a particular industry (sometimes called an ‘industry vertical’).
He suggested four examples of ‘software for domain experts’.
In aquaculture (fish farming), when employees feed fish in tanks, it is critical that they record a number of observations, including at what level of the tank the fish are swimming in. If they are swimming close to the surface they are probably not being fed enough food.
Beekeepers have to record data when they open beehives, but are wearing heavy gloves at the time, so need a computer interface which can be used with gloves on.
Vineyard operators sometimes plant roses because they are an early indicator of some types of fungi, which may develop on the rose before affecting the vines. The data about fungi can be gathered to make plans to remove the fungi.
Jewellers might make a bracelet with precious stones, where each one has a different weight and shape. “It is not easy using any sort of Enterprise Resource Planning (ERP) software to classify, tabulate the material they buy or the combinations they use,” he said. The measurements of the stones come with tolerances (error bars) which need to be included with the data. The data also needs to record when the stones are purchased and then they are included in a bracelet.
OpenFund has not invested in any of the above examples, but it has invested in three companies which could count as “Software for Domain Experts”, Discoveroom, Workable and Intellicent, he said.
Discoveroom is a system for owners of small rental properties to keep track of their reservations using smart phones, for property owners who do not have a dedicated office.
Many lodging owners are not working full time in their properties. They might be farmers, have winter jobs as lawyers, or run a café. With Discoveroom, any time the owner receives a request, he can see if the room is available on his phone and tabulate the booking. The user interface “is the best in the world,” he said.
Workable is a tool for small companies, who have no HR department, to manage the staff hiring process. For small companies, hiring “is a pretty complicated process,” he said. “You have to put out the ad, get out the CVs, compare the CVs, talk to people in the company so you see the same people, exchange notes”.
“They found ways to make this very user friendly and they are doing extremely well.”
Workable also makes it easier to compare CVs, even if they are in different formats, such as a LinkedIn CV, a specially made pdf file, or from filling in a form on a job board.
The software can tabulate key data about candidates, such as how many years’ experience they have, what type of jobs they were in. “Workable found a way to parse the data in the various formats of the CV to make it easier to compare,” he said.
This is a specific function which can be very messy, and so hard to manage on non-specialised software, he said.
OpenFund has also invested in Incelligent, a company which makes software for mobile phone network operators to optimise the energy supplied to the network.
It can make predictions of how much transmitter power will be required, based on history and future events.
This enables operators to (for example) decrease the power to the transmitters at times of low demand, and have higher power available at times of high demand (for example if there is a football match happening nearby).
“They gather data from diverse sources, about the weather, or sports events, as well as from the network itself, and developed a model for predictive analytics,” he said.
OpenFund typically invests between Euro 100,000 and Euro 750,000 in a company. It is one of four funds which are active in Athens at the moment “working more or less the same way,” he said.
So far OpenFund has seen more than 3,000 ideas sent by e-mail, and had face to face discussions on about 300 of them. Some of these ideas could count as “Software for Domain Experts”, he said.
Different investors are looking to make investments of different sizes. For example, some Silicon Valley investors will only invest in business they think could be worth a billion dollars, known in the jargon as a ‘Unicorn’.
“They will not invest in businesses where the maximum likely valuation is $50m or $100m. They think, they will have to spend a lot of money in the later stages of growth of the company,” he said.
It may might make sense to look for people who understand the specific industry sector, for example people or companies in the telecom, farming or aerospace industry, who have money to invest.
You might find ‘Angel investors’ who can inject the first Euro 100,000 or Euro 500,000. “If you need more than a million in funding you will probably not solve the problem with angels.”
If you need larger amounts, there are venture capitalists outside Silicon Valley who are interested in ideas which could be valued at $100m. “There are VCs like that in Europe. You can get funding in the range of a few $m,” he said.
If you can get loyal clients for your business after a “few million dollars” investment you can be self-sustaining.
Investors will usually be looking for an exit path, because investors are unlikely to be satisfied with dividends alone, he said. This means there must ultimately be someone willing to acquire the company for “tens of millions of dollars” as a trade sale.
However, “you don’t necessary need to build a business that is attractive to investors,” he said. “You can build a business which can employ 10-20 engineers and build a good business out of that and everybody will be happy.”
“We in VC tend to call these businesses ‘lifestyle’ businesses.
This is not a derogatory term, it is a perfectly legitimate way to do business. If you have software ideas which are not very scalable, you should still try them.”
On the question of Greece, Mr Doxiadis said that software engineers in Athens are a third of the cost in London, or a fifth of the cost of Silicon Valley.
An advantage to setting up a company in Greece is that teams tend to stay together for longer. “One of the problems Silicon Valley has is that it’s an open market. The very best engineers are shopping around all the time and moving. In a mid-size company, they don’t have loyalty.”
A disadvantage of Greece is that “the graduates of good Greek universities have got no practise in software engineering, although they are very bright and well trained in theory,” he said.
Graduates haven’t had experience producing software modules within a certain time frame, or in how to develop software so that it is easy for someone else to take over the work, he said.
Consequently there is a shortage of experienced software engineers in Athens, meaning people with over 5 years of experience. Start-up companies typically look for the brightest people in schools such as Athens University of Economics and Business (AUEB) and teach them the practical skills on the job.