Facing challenges as a start-up

EidoSearch has come a long way since its co-founders developed the nugget of their technology four years ago, but the growing company still faces the same challenges that affect most early-stage companies. Many of these are around balance and staffing.

In May, EidoSearch co-founders Xiao-Ping (Steven) Zhang, CEO, and David Kedmey, president, took top prize in the Alpha Exchange Innovation Campaign, presented by Backbone. The partners beat out nine of the country’s brightest emerging entrepreneurs. Judges were not only impressed by EidoSearch’s solution to simplifying financial queries, but also its ability to execute against the trials start-ups face.

From academic beginnings

Co-founders Zhang, a professor at Toronto’s Ryerson University, and Kedmey, a former M&A investment banker, met when attending the University of Chicago’s Booth School of Business in 2006. Both were focused on developing a new business and meeting those who could help them do it.

“Steven already had a set of very interesting technologies. He’d worked in Silicon Valley. He had worked on the Human Genome Project,” Kedmey said. “He’d always been captivated by entrepreneurship and the idea of building a company.

“He was looking to basically expand his network and find a team, and learn some of the principals to commercialize, and I had the same mentality. My main goal was to meet people, and that worked out with us meeting very early on.”

What would become EidoSearch started to come together even before the pair left the university. While there, they applied for two patents and received their first grant funding from the National Science and Engineering Research Council (NSERC) through its Ideas to Innovation (I2I) program. In 2008, Zhang returned to Ryerson, MBA in hand, and started applying the grant money toward developing the proof of concept.

Meanwhile, Kedmey went back to working in investment banking, first at CIBC and then, through acquisition, at Oppenheimer & Co. in New York. He rejoined Zhang full time in 2010 to focus on business development and fundraising, after the team received another round of grant funding and public feedback.

Information bottlenecks

EidoSearch’s solution, leveraging Zhang’s expertise in signal processing and computational intelligence, allows financial professionals to ask sophisticated questions from historical financial data without technical skills and programming.

These types of queries are usually labour-intensive and require programming experience, so this data is often under-utilized or ignored altogether. Through EidoSearch, the answers are typically a few clicks away, allowing investors to quickly perform ad-hoc analysis and make predictions. This is especially important in turbulent economic times, and the financial events of 2012 have only increased interest, Kedmey said.

“In uncertain times, this kind of information is critical. So for people looking to answer one-off questions, EidoSearch becomes more important to help avoid risk and to take advantage of opportunities,” he said.

Beyond ad-hoc users, Kedmey said EidoSearch serves the needs of “the quants”—quantitative analysts who can use it to conduct research systematically. “For seasoned investors,” Kedmey said, “it’s especially important to have something that allows them to take advantage of data systematically.”

Tell your story

Kedmey said one of the biggest challenges over the past few years centred on telling EidoSearch’s rather complex story. Learning to explain the value of EidoSearch to investors was, he said, one of the biggest contributors to getting the company to where it is today with a number of paid customers.

“That made a big difference,” Kedmey said. “It was a huge unknown whether we could convince people to see our idea and our vision. And it took time to learn how to tell that story.

“We’re pretty good at it now.”

Similarly, getting their first customer was a huge leap forward, in particular given the conservative nature of financial investment firms. Plus, unlike some businesses that build customers by offering beta solutions for free, EidoSearch charges well for its solution. “In financial services, we’re working with people who are incredibly busy, their monitors are crowded, and [we’re] this new guy on the street, so that first customer made a huge difference.”

Their first customer also helped lead to their second, which came in a different segment of financial services. This told Zhang and Kedmey their solution had a more horizontal application, rather than just being a niche product. “There’s nothing wrong with being niche, but if you want to be a platform, like we do, you want to be horizontal.”

To help extend its reach, EidoSearch is developing partnerships with external organizations—one an independent sales firm, another a software company that may offer the solution through an OEM model—as well as trying to shore up its own business development team through recruitment.

Focus on balance

Kedmey said the biggest challenge for EidoSearch with its current resources is to balance today’s demands with building for tomorrow. As interest in and demand for the solution has grown, it’s easy to be pulled in different directions.

“You have to be very focused, given the size of the team and the resources,” he said. “And that means balancing between the demands of current customers and making sure you’re getting where you need to go.”

It’s ultimately a good problem to have. Kedmey said he and Zhang emphasize looking at problems and business holistically; a quick-and-dirty solution today might need to be eschewed in favour of a more time-consuming and costly solution that helps better build for the future.

It’s what Kedmey calls “an unbelievable balancing act,” and he suggests one never has all the answers, a feeling shared with the leaders of more established financial services software vendors.

“Established software vendors still feel that way, because you’re always trying to be on the cutting edge. It’s just that the consequences of being right or wrong are greatly magnified at this stage.”

When seeking this balance between the here and now and future, it’s important for start-ups to be clear on what they are trying to achieve, and to then measure their progress, said Peter Matutat, national emerging company practice leader at PwC.

“You have to really be thinking about what it’s going to take to be successful, what do you need to demonstrate two or three months down the road,” he said. “That kind of methodology is something for [EidoSearch] to make sure they stay focused on at this important time for them.”

So far, Matutat said the company has been taking the right steps: seeking counsel from mentors, building and leveraging a business network and getting in front of angel investors. “I think they’ve got a great company, and data analytics is a really hot area right now.”

Recruitment challenges

Kedmey said adding additional members to their team would help, and the company is currently searching for three or four new members for its technical team, as well as trying to expand its sales staff. Still, finding and retaining staff is one of the biggest challenges for any software company, let alone a start-up. Matutat said that in PwC’s annual survey of CEOs, human resource management was the highest concern for the first time this year.

He recommends start-ups use their investor pitches on employee prospects. It’s especially important for potential employees to understand the value of the company when start-up compensation might not compete with larger players.

In addition to cash constraints, recruitment for small businesses is harder, costs more and comes with greater risk, according to Elisa Arnold, recruitment solutions consultant at human resources company Ceridian. The issue is start-ups don’t have the recognition or cachet big businesses can use to recruit.

She advises EidoSearch and other start-ups to develop a plan for recruitment and retention, something she said is too often overlooked by small businesses. “Most have a business plan, one for financials, investments, a plan for cash flow… But very few small businesses have a plan around recruitment and talent.

“It’s key, since for a lot of start-ups, their talent is their business.”

Kedmey said the people EidoSearch hires will need to wear multiple hats, while at the same time have skills often found in employees of companies like Google. To find these people, Arnold said start-ups must leverage existing networks and communities. LinkedIn is a very powerful tool for ferretting out the perfect recruits, as are university alumni networks.

Partnering with a third-party to help with recruitment and retention can help, but she urges start-ups to avoid using headhunters who may also shop their candidates to larger competitors.

Looking forward: new digs

As champion of the Alpha Exchange Innovation Campaign, EidoSearch has received four months at Ryerson University’s Digital Media Zone (DMZ). Kedmey is hoping to make the DMZ a more long-term home base.

“We’re working out the specifics, but it really is a great solution for us. It’s right down the street from our lab in the (Ryerson) engineering building. It’s a wonderful location; it’s going to show well,” Kedmey said.

Located in downtown Toronto, the DMZ is a 16,530-sq.-ft. incubation facility, currently housing approximately 165 entrepreneurs with which EidoSearch can cross-pollinate and share lessons learned. According to its executive director, Valerie Fox, it will provide EidoSearch with many benefits at this pivotal time in its development, including: an open flexible workspace, equipment, utilities, business-plan counselling, mentoring, workshops, networks and industry showcases with resident teams. As well, the DMZ serves as host to tours by industry, government and thought leaders, which can expand EidoSearch’s network.

Importantly, Kedmey suggests that setting up in the DMZ may help EidoSearch better meet future needs by allowing it to build its own cloud infrastructure. To date, it has been hosting its technology on Amazon Web Services.

“It’s what we’ve been waiting for. As soon as we set up office there, a lot of things flow from there. We want to really plant our roots there.”


Also read:
EidoSearch wins top prize in innovation campaign
Backbone's Start-up Blog
Building an innovation ecosystem