Sydney Web startup incubator Pollenizer has secured more than $10 million in funding and successful exists for companies it advises. My Business learned what makes it tick in this exlusive profile.
"A business partnership is like a marriage," says Mick Liubinskas. "But without the sex. And with more pressure."
Liubinskas should know – he's in 15 partnerships at present and is trying to consummate them all with successful exists for the entrepreneurs involved, as this is the goal of Pollenizer, the business incubation company he founded with partner Phil Morle in 2008.
The Pollenizer story starts in 2002 inside one of Australia's most controversial businesses – Sharman Networks, owner of online file distribution service Kazaa. Widely reviled as a platform for piracy, Kazaa fought a protracted and ultimately futile legal battle with the copyright cops.
Liubsinskas says the company had a legitimate content distribution business and proved it by becoming a player in the paid distribution of Bollywood movies. But as Sharman Networks unravelled, Liubinskas and Morle began to contemplate their options.
"Phil was hired to run product engineering and I was hired to do run marketing and business development. Phil is an ex theatre director and me as a frustrated actor worked well together.
Kazaa was a ridiculously crazy tornado of a business and we learned a lot."
Once the legal action got nasty, Liubinskas and Morle bailed, running startups around the world before returning to Australia. Liubinskas found himself helping social media startup Tangler, and Morle was doing similar work. The pair reconnected, asked themselves how they could help Australian Web startups realise their potential, saw value in a partnership, and each put $500 into a bank account to start the company.
The pair considered adopting models from overseas incubators, including the very successful San Francisco-based Y Combinator and its model of funding and mentoring startups for three months. As their discussions progressed, the pair decided they wanted a deeper involvement "because that's what we love doing". Liubinskas says. "Just being an advisor is not enough for me.
I don't just want to get my hands dirty. I want to get mud all over me from head to toe. I want to be filthy dirty in the trenches."
"So what we set about doing was building an infrastructure which would be a machine that builds startups."
Why startups fail As the pair developed Pollenizer, they decided that strong company founders with ideas capable of reaching 1 million customers were their ideal clientele. During the incubator's first year of operation, they worked with around 60 such individuals, and a pattern emerged that explained their collective failure to get traction.
"They all had exactly the same problem – they lacked the ability to get focused and to move fast." Noting those issues helped Liubinskas and Morle learn how to help startups .
"No-one quits their job for a small idea," Liubinskas says. "By the time people think about an idea, they have put it together and it is so huge.
There are 10 moving parts and they all have to work together. They get a dotcom [Web address] and try to do it all at once. "The reality is you have no resources, no momentum ... nothing."
The low level of resources on offer to a startup has led Pollenizer to ground entrepreneurs, so they quickly test their ideas to see if it is possible to recruit real, paying customers and prove their ideas are valid.
"You have got to go and get one customer and make them happy," Liubinskas says. "Then you can think about the millionth customer."
The company has therefore devised a series of tactics that helps startups to test their ideas.
For one recent project, a pet food delivery service called Dog Food Fairy, the company arranged for a colleague to dress in a dog suit and visit popular off-leash dog walking areas around Sydney to hand out fliers about the new service.
The stunt quickly drew dog-walkers' attention, but also proved that they had little interest in finding a pre-delivered slab of Chum or Pal waiting on their doorsteps once a month.
The company also tests business ideas online.
"If you have a single Google ad with a single page and a PayPal button, there are 80 variations you can test," Liubinskas says. Pollenizer happily tries many of those combinations to test a business idea, even though the team has to process incoming orders manually.
"We call it the Wizard of Oz approach – the customer sees an ad, clicks a page, but they don't know we are all running around madly fulfilling an order."
Pollenizer does so happily, because testing a business is about flexibility, not scalability.
One company that helped the Pollenizers to develop this methodology was 3eep, a company that provided online tools to help community sports clubs connect with members and organise their affairs. When the Pollenizers found the company, it appeared successful, having lined up global partners and built a service with many features, but was nonetheless struggling.
"We said to them you would have been better off starting with women's netball teams in Parramatta and all you offer them is a training notification tool," Liubinskas says. "There's no business in that alone. But once you get the netballers, you get the soccer players and once you get Parramatta, you get another suburb. And once you get them using notifications, then you can get them using another feature."
Another company the Pollenizers recently worked with went through 45 iterations of its business model in four weeks, at a cost of $4,500, and failed.
"We had a lady come in and she had a quote from a Web design company for $100,000.
We said you would be crazy to spend that money, because you don't know if anyone wants your idea."
"When it failed, she was happy. She said 'You have just saved me $95,000'. At the end of that, one of our team members celebrated the failure.
Fast cheap failure is what we celebrate."
Confusing duality For some entrepreneurs, this 'start small and test' methodology is confronting.
"The duality is hard," Liubinskas says.
"Founders have this big vision for a business that they want to get out of bed to work on every day, but to do it they have to go and work in a very small business."
But the Pollenizers stick by their methodology because "a lot of people underestimate how many things you have to get right, or they think you just get a Web development company to build you a Web site and Tweet about it a lot.
But when you think about it, most people build a brand new business that no-one has ever built before and they think they are going to get it right the first time. To be honest, it takes 10 significant iterations to get it right. The only way you can do that on a budget is to start ridiculously small.
Because founders don't think about 10 steps, they spend all their money on the first version and blow it and have no room to try again. This is the beauty of going after just netball players in Parramatta. If you get it wrong, you can go and do something else! "But typically people go an spend a million dollars and take a year to do it. Our principles are to start with a small group and make them phenomenally satisfied. Then you can grow from there. We do want a significant market with potential for a million customers, but you have to start with 200."
Liubinskas says some founders don't like this idea and feel like Pollenizer is diluting their ideas. "We say 'Your dream is still there, but let's start here and make sure you have something to build from'."
Shared risk and reward Another important element of the Pollenizer model is sharing risk and reward with company founders.
Pollenizer usually starts with a strong founder who is not a technologist, and insists on businesses that won't make money through advertising. The founder and Pollenizer each put in some money, which covers costs of a small team to work on the company. The founder leaves their job, gets a small salary and works full time on their idea, and Pollenizer takes 50 per cent equity in the new company.
"It's not the same with a service provider," Liubinskas insists. "You need skin in the game.
It cannot be about just consultancy. It has to be about the upside, because everyone is aligned."
This approach means that Pollenizer's people are 'everything' for a startup, because they need a cando attitude, a willingness to constantly develop their skills, and above all, a certain fearlessness.
"Pollenizer attracts people who don't want big salaries," Liubinskas says. "People say they work here because of the team, the challenge, the impact they can make. Everyone is working on two businesses at once and the speed of learning is great."
Most employees come from personal networks, and those with formal business training often don't make the cut.
"MBAs have not worked for us at all," Liubinskas says. "They do not think fast enough. We are 1 per cent strategy and 99% implementation.
The people who struggle here are those who are fearful of trying because it suffocates the business if you do not get it out there."
Building for the future Pollenizer is now building for the future. The company has brought in Tony Faure, a former CEO of ninemsn, and numerous other experienced staff for a total local headcount of 25.
Now working on its a wholly-owned venture, a staff feedback tool called Wooboard, Pollenizer is also expanding its role as a source of funding. The company has already run one fund, with $500,000 in the kitty, and is working on another.
Previous investors in Pollenizer companies are the source of these funds and Liubinskas says they were happy to chip in, because they have seen the company's methodology works.
"For Wooboard, we are about to close a $100,00 round of funding, because the investors know us," he says. "Fast access to capital is the key. If [Spreets founder] Dean McEvoy had to go through a 12-week due diligence cycle, it would have been over before it started."
These activities have not gone unnoticed and the company has considered franchising its model, with Liubinskas confident the world could support Pollenizers in two or three other locations.
But that growth won't be automatic.
"Post-Spreets, people have come to us and said you are a very efficient incubator. But we want to get better at starting businesses. We want stronger teams, stronger founders and stronger businesses."
"The same 80 people we have now can produce another 30 businesses in the next two years."