How to make your first 1m

1
How to make your first 1m

• Four lectures on the real world of computing.
• Martyn Thomas

2
Who am I?

• Founder of Praxis - grew from 2 staff to around
  200, sold to Deloitte Touche
• Partner in Deloitte Consulting for 5 years
• Now independent consultant, non-executive Chair
  of startup FirstEarth Ltd.
• Council member of EPSRC, Exec member of UKCRC ...

3
Overview

• Four lectures about the real world the poor
  state of software and systems engineering - and
  the opportunities this creates for business and
  for research!
• The state of the art in safety-critical and other
  dependable systems.
• Grand Challenges in research and in novel
  applications.
• feel free to interrupt ...

4
Software engineering- giving you what you want?

• Fame?
• Software engineering is still in its infancy.
  There are still key principles to be discovered,
  and reputations to be built on research.
• Fortune?
• Software will change the world more in the next
  50 years than in the past 50 The founders of the
  leading companies will be the next Gates/Ellison
  ...
• Fun?
• Software is still one of the best places to be ...

5
Simple arithmeticwhy its hard to make 1m as
an employee

• You earn 50K, tax 10K, spend 30K, save 10K
• Company makes 50K profit, tax lt10K, retained
  profit gt40K, PE ratio 10, company value 400K.
• As an entrepreneur, you draw a salary for the
  work you do and you own the profits on all
  services/products, or you can sell the company
  for (earnings PE)
• It is much easier to create a company making
  100K annual profit, and to sell it for 1m, than
  to save 10 annually for 100 years.

6
The software industry

• Products
• Sage accounts
• Oracle
• IBM
• Most product companies move into services. (Some
  even give the product away.)

• Services
• Praxis
• Logica/CMG
• Xansa
• Most services companies move into products, to
  add credibility to their services

7
Sage

• 1981 Graham Wylie wrote the first Sage
  accounting software whilst at university.
• 1984 Amstrad launches the PCW - the first really
  affordable computing system for business and
  personal use. Sage accounting software is adapted
  for the PCW, and sales escalate from 30 copies a
  month to 300. 1986 DOS version.
• 1999 Sage joins FTSE 100
• T/o 550m. Profit 130m. Value 1.75B

8
Praxis

• Set up in 1983 2 people
• Grew to 24, 47, 74, 103 about 25/year
• Funded by 25K capital, 75K loan.
• gt 50 sales to one customer for 5 years
• After 3 years we had made enough profit to pay
  for the furniture!
• After 9 years, sold for 6.5m.

9
Example Praxis projects

• Unix for VME (ICL)
• CDIS
• NEA GCSE system
• Cable TV channel head
• Consultancy for MS, Harrods, Government ...
• Radiotherapy motion/safety kernel

10
The software industry

• Products
• High risk, high reward
• Need lots of working capital
• Marketing and sales more important than
  technology
• Must keep running costs low!

• Services
• Lower risk, lower potential reward
• Lower capital needs, because better cash flow
• Marketing and sales still very important
• Higher monthly costs

11
Company structures

• Ltd/plc
• Limited liability
• owned by share-holders
• financed by share-holders/bank loans
• annual income from salary/dividends
• main gain from selling company ( PE ratio)

• Partnership
• unlimited liability
• owned by partners
• financed by partners/ bank loans
• annual income from profit sharing (can be high in
  a good year)
• main gain from annual profits

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Capital

• Investment capital pays for equipment, property,
  start-up costs.
• Working capital covers timing differences
  between costs and sales income.
• Risk capital shareholders cover capital needs
  that may be lost if things go wrong.
• Bank loans provide working capital, but should
  not be at risk. Secured on assets and personal
  guarantees.

13
Why start-ups fail

• Over-optimism about the market demand.
• Insufficient capital to withstand delays in
  product development, or winning projects, or
  receiving payment.
• Insufficient management expertise, in any area.
• Economic downturn
• Problems with a key customer or market

14
Why start-ups succeed

• Competitive product/service
• market demand
• competitive pricing
• high barrier to competition
• Professional selling
• Professional delivery - follow on sales
• Conservative financial planning/ management
• Rarely if ever best technical solution!

15
21st CenturyMarket opportunities/ GCs

• Safety critical systems
• air traffic control, avionics, driverless
  vehicles, signalling, medical systems
• Dependable Systems, more generally
• security, trustworthiness, reliability,
  availability, crime prevention.
• New technology platforms TCG, LaGrande,
  Palladium/NGSCB, embedded/pervasive systems,
  autonomic systems ...

16
Summary

• Company owners can get rich, employees rarely do.
• Products are riskier than services. The financing
  and company cultures differ too.
• Safety and dependability are two large market
  opportunities for the next decade or two more
  detail in future talks.
• also research Grand Challenges.