He is a man with one big hairy audacious goal who has been sailing through the tough seas of bootstrapping. Gonçalo Fortes, co-founder of Prodsmart, was initially caught by the startup hype built around investments, competitions and awards but quickly realised the need to escape the vanity metrics and go for the real deal. In this pier-to-pier he spoke to the crew about how and why he fully bootstrapped Prodsmart and shared his predictions for the journey ahead.
Nominated by João Romão, Gonçalo Fortes is the co-founder of Prodsmart, a Portuguese based startup focused on providing a real-time analytics, management and optimisation system for factories to be more lean, productive and efficient. Prodsmart has been working mostly with Portuguese factories but their long-term plan is to take over the world’s supply chain. Of everything. Join us on deck for another pier-to-pier and tag along for an insightful story.
What was your motivation for starting Prodsmart?
I was born and raised within this industrial setting as my parents worked in the industry. So it was natural that as a kid I started helping out whenever I could. However, there was a breaking point in my life that I had to decide whether to continue the family business or do something else. And because I was pretty much an IT geek I took a different path at the time. So I created my own company, a software house called Crazydog.
“From all this experience there was one thing I learned for sure: you need to sell what you don’t have.”
Yet when this whole hype around startups in Portugal started, it made me think that instead of building custom software for others it would be more interesting to build my own product that would have a bigger impact in peoples lives. I then started wondering about a problem I was familiar with and if I could come up with a relevant solution. For obvious reasons I was pulled back into the industrial sector as it was the one I knew best. And it turns out that at Prodsmart we are solving a problem that the whole supply chain faces and that affects the entire planet, from the clothes you wear to the chair you’re sitting on to the hot chocolate you’re about to drink. So, the big drive behind Prodsmart is this major vision we have that will really affect the whole world.
So you got inspired by that initial startup hype and then shifted into bootstrapping. Why was that?
When this whole thing started it was all a big illusion and the only difference is that our product forced us to take less advantage of the hype. So we changed our way of working and pushed ourselves forward towards actually selling what we were building much earlier. Prodsmart was one the first SeedCamp finalists, together with CrowdProcess, Hole 19 and Codacy. And at Seedcamp they told us something which I kind of knew, which was: ‘you guys have an awesome product and a huge market but it scales very slowly and is difficult to sell’. This SeedCamp experience really brought us to the spotlight and took us for a spin under the startup hype that was created around competitions and awards. And after a few months I remember talking to Samuel, my co-founder and saying: ‘this is not it, we have a product that adds a lot of value, we have paying customers since the very first day so let’s get to work and do the math to see how much money we have in order to take this to the next level all by ourselves’. And thats what we did, Prodsmart was fully bootstrapped, we got some money from doing consultancy as we had the knowledge and background from Crazydog and really focused on building a great product and selling it immediately.
“Our product scales slowly but then again, we’re not here for the classic quick flip and exit, we’re here for the long game. We’re building a 100 year company and 1 million jobs.”
And what was the impact of that decision? What changed in your mindset?
From all this experience there was one thing I learned for sure: you need to sell what you don’t have. In 20 days we developed a second version of the product which was 100 times better, while the first version took us months. Another thing which was radically different was that in that first month we had already spoken to 16 different companies that could potentially use our product. Of course that this was our particular case and I’m not against the investment strategy. Sometimes it’s just a matter of timing. You either fund-raise when you have an idea in a piece of paper or you fund-raise in a much later stage. If you get funding in the very beginning the higher the risk for the investor, but if you get funded later on it minimises the risk for the investor and it allows you to grow as a business while giving up less equity. I guess that if we were building a marketplace it would make sense, we had to spend a lot of money in marketing for customer acquisition for instance and in two years we would start to make money with the transactions. But our case is completely different, our product is valuable and it adds a significant value to our customers in return. Our characteristics that were so negative when we tried to get investment turned out to be ideal for bootstrapping. So, after this first month with the new version of the product and with this changed mindset we already had several companies working with us. Our product scales slowly but then again, we’re not here for the classic quick flip and exit, we’re here for the long game. We’re building a 100 year company and 1 million jobs.
“If you don’t have any contact with your customers you’re highly inefficient, you’re not solving anything and you’re spending money on vanity metrics.”
How were you able to bootstrap your startup?
In our case we were already developing products for others with Crazydog so we took that as an advantage. We kept on doing it so that we could buy ourselves some time to work on Prodsmart. So we would go from developing products for others and consulting to building Prodsmart at the same time. This was during our first and second year, and in 2014, we were already fully focused on Prodsmart and getting revenue. We also focused pretty much on sales as soon as we had the MVP, for as simple as it was it added a lot of value to our customers. In fact, just the transition from paper to digital makes a huge difference, it saves precious time to people who can wisely spend it in important decisions, instead of getting them to access countless files. So the same characteristics that make our product scale slower get our customers to recognise the immediate value of our product, which is very interesting. We went from doing things without a particular focus to doing only things that kept us focused. And actually focus is one of the words I use to describe success, together with process and obsession.
What are the advantages and disadvantages of bootstrapping?
Advantages and disadvantages sometimes overlap. The lack of money makes you focus and learn how and where to spend your money. Honestly, I think money can be an excuse to do nothing as it gives you a false notion of comfort and if you add it to all this hype regarding startups it can be dangerous. Some people think that all it takes is to attend the startup events and that you’ll have a guaranteed salary for 2 years. Not having investment keeps you focused on going after revenue from day one and it makes you think of the problem you are trying to solve and focus on what you’re good at. The disadvantage is that it’s slower in terms of growth. However, sometimes growing too fast can be dangerous too. For example hiring too fast and too many people can be a huge mistake. It’s very common to see companies that grow really fast and then people don’t even know what their job is and it becomes super difficult to manage. The fact of not having too much money makes you go after sales and talk to more people. There was a time when we thought: our product is digital, it’s an app so our job is to sit in the office all day and look at the metrics and if you build it they will come. If we had investment at that stage we would probably think that was it and spend money on ads while staring at the computer hoping to see some changes in numbers. If you don’t have any contact with your customers you’re highly inefficient, you’re not solving anything and you’re spending money on vanity metrics. So later when you get this out of your way, talked to customers, defined processes and discovered the product market fit, maybe it’s the right time to get investment so that it grows and scales. Therefore, these disadvantages turned out to be beneficial to us in the long run, because when the time comes we’ll be ready for investment in order to scale our product efficiently.
You keep talking about slow scalability and it’s definitely something Prodsmart needs to tackle. So how are you planning to minimise it?
As time goes by the product gets better and our sales processes quicker. In the beginning our sales processes were much slower as we were just two. So as the team grows the product gets better, we get more credibility and our customers realise the added value we’re giving them much sooner, we’re providing them a good solution. We’ve had two great victories: everyone can use our product at first, regardless of age or literacy level, and we have a set up process that lasts hours while the traditional systems usually take months or even years to be implemented. This helps us in the sales process of course as it becomes shorter, however it is still very old school sales. So how do we solve this? We can grow the team, we can establish distribution partnerships, where companies sell our product for us, but the main goal is for all of this to be digital. We live in a digital world so for us we need to have someone clicking the button and buying the product on-line.
“When you look for investment it shouldn’t just be for the money but for the people who can also help you take your business to the next level.”
To distribute your product digitally and decrease human interaction in the whole process is very challenging. How will you be able to do that?
The first challenge for that to happen is to optimise the product in that sense. We don’t want to open this whole process on-line and struggle with retention because this is a complex problem, not the product itself but the problem it solves. So we need a great on-boarding that helps people understand their own processes before setting up the product we’ve built. We want to replicate what we’ve accomplished today in terms of product usability when the process is conducted by a human being, for the whole set up without human interaction in the future. And there is the second and biggest challenge which is to make people believe that it is possible to implement our product without human interaction. Of course that we can have customer support and make a phone call to make the on-boarding easier but our goal is to distribute it digitally. However, for now this is not our main goal, we know that currently this human interaction and distribution is working well. We want to scale it through partnerships but then little by little have less human interaction involved in the process.
What’s your strategy for the future? Raise money in 2 or 3 years or keep bootstrapping?
I think that for us to grow in a relevant way we’ll always need money. So in my opinion there should be always that moment where you set up a strategy and start looking for investment. We want our product to scale and we’re looking to surround ourselves with the right people who can teach us something, who can be our advisors. When you look for investment it shouldn’t just be for the money but for the people who can also help you take your business to the next level with their knowledge and expertise.
What is your long-term vision for Prodsmart?
What Prodsmart is today is a provider of efficiency for each individual factory. Efficiency as a service, if you can call it that. What we want to be is a global company that links entire supply-chains and provides huge network effects. We want to minimise product stock and warehouses, maybe even end them in some cases, we want everything that is a physical product to have a download bar. You’re here drinking this coffee and the factory which provides for this coffee knows that they need to produce it in order to fulfil your current and future needs. You buy a real product on-line and spark the production process acting pretty much like a download. This is a huge goal but we feel that if we help optimise one factory, ten factories, a hundred factories, we know that they’ll interact with each other. The product is always connected between factories, it’s all integrated, so if you optimise the production in each stage you’ll have a network effect that will eventually end the need to stock huge amounts of product that you don’t know if someone will ever buy.
Who would you invite aboard the ship next for a pier-to-pier?
Like where this is heading? Did Gonçalo Fortes give us the right coordinates for the next interviews? Then, stay tuned for the following pier-to-pier with the fellow adventurers.