There is an old saying that failure is part of innovation, and perhaps the most important part. The birth of GTS certainly reflects this. Like a lot of success stories, it started with a failure. In fact, it started with two failures.
Back in 2009, RIG had looked at the traceability space. We started working with the Germany-based COO of a Norwegian traceability firm. The project ran into the hedge early on and we realised that the company’s business model was simply never going to work. We learnt a lot and became more interested in traceability. The company withdrew from the German market and invited their COO to become a reseller for them in Germany. The COO was knowledgeable and capable. We liked him. We sat in Frankfurt Airport and reviewed the situation. Not much value in being a reseller we concurred. Why don’t we start a traceability company and reinvent the traceability business model? And so we did and Global Traceability Solutions was born. And that is the truth about how you start a company. You start. There is great momentum in the start.
And that is where the second failure played its part. That failure played out in the boardroom of a client company, the place where strategy should be honed and debated with rigour. It was our failure too as we had representation on that board. Take a great little SaaS company that had niched the top end of its market and add a stellar client list and a fast growing recurring revenue base and you should have the makings of a £50m+ exit. Except that didn’t happen. The exit was less than £20m but more than £10m. Pay back the VCs, add in their rolled up quarterly fees, and their slice of the exit, and don’t forget those loans. If it wasn’t a failure, it was certainly a sub-optimal outcome. And it didn’t have to be that way. What attracted the VCs was that client list. The company got a million and then a few more. And that arguably is where it all started to go wrong.
We could have capitalised on our position, built out that client list further and secured our market position by investing in the product that had taken us to this point. But we didn’t. There was a new product vision that consumed a large part of the funds. Meanwhile the original product was starved of investment. It kept selling and though we got better, the selling got harder. The new product was late but that didn’t matter because it was going to sell for £100k per client, per year. Only it didn’t. The sales team, now charged with selling two products, didn’t want to sell it because they knew it was an overpriced lemon that the customers wouldn’t buy. And so all of that money got spent and the company headed to the exit door. But that wasn’t really the failure. The failure was at the point of inception, in not going to talk to the market with a piece paper and a pencil and a drawing of what we were proposing to build and then asking the question: Would you buy that? The answer would have been no. That reconnaissance might have cost £10k all in and would have saved several million.
This saga was being played out as GTS was being born and with it a determination to do things differently. So from the beginning, we sought to bring the customer into the room and to address the market and distribution challenge even before we started building product. Once we had a product we would avoid descending into that deep valley where costs exceed revenues from which many startups never emerge. From the moment we had product, we would have customers and distribution in place. That was lesson of that second failure.
The first big challenge was to identify a market in which we could carve out a position. We wanted a market with a specific emerging problem. That problem had to be one that companies had no choice but to address. It had to be a challenge that no other vendor had yet comprehensively addressed. We settled on the timber market where European timber importers and retailers would be required to comply with the requirement of the new European Timber Regulations (EUTR) which were due to come into force in March 2013. Having a compliance driver suited our home market as German companies are quicker to adopt new regulations than many of their EU partners.
The second challenge was to build a solution that was fit-for-purpose and to test out our thinking around a platform approach that would make on-boarding companies in a supply chain as easy as signing up for Facebook. What we grasped from the start was that compliance was a common problem shared by companies that were otherwise competitive. This insight made it possible for us to build a consortium of large timber retailers. The quid pro quo was simple enough: They would inform our development and ensure we built a product that was fit-for-purpose. In return, they would get free use of the platform as long as they pushed adoption of the platform down their large and overlapping supply-chains. This experience created what was to become our basic ‘thesis’. Forthwith, though with some profitably notable exceptions, we would be most attracted to markets that had an emerging data problem in their supply-chain, which no vendor had yet addressed, which industry players (with GTS acting as the catalyst) were willing to collaborate to resolve.
Alongside this initiative, we looked for an indirect distribution channel that could give us some early scale. We entered discussions with one of the large European certification service companies that we anticipated would become a monitoring organisation for the EUTR. While ultimately this collaboration was fruitless and we ended up partnering instead with a forestry certification body, we reached the point of signing a Letter of Intent (LOI) which lent support to our fundraising efforts.
We knew that our approach to solving the distribution challenge from the outset would help us raise funds and so it proved. Smart investors accept that technology risk is part of the deal. What really worries them is market risk. Our business plan sketched out our approach to nullifying this risk without mentioning how far down the road we already were to enacting it. Our business logic was favourably received and funding became contingent on formalising the commitment of our consortium members and an LOI from the certification services firm. These materialised shortly afterwards, and that is how we raised over €1m of seed capital before one line of code had been written.
Since its launch GTS has on-boarded more than 65,000 companies onto its platform.