Lesson 2: know your risk

Winston Churchill once said, "Success is going from failure to failure without losing your enthusiasm." Fair enough, but it's not easy when people would rather bury you than be reminded that, sometimes, things don't work out as planned.

Brandon's analysis contains two startling admissions. Firstly, if she knew then what she knows now, Genetraks would never have been started. Secondly, and more disturbingly, some bright ideas are too expensive, too risky and too time-consuming for a start-up to commercialise (in Australia, in particular).

This second point is something that entrepreneurs are loathe to admit. It is poison to their sanguine conviction that anything and everything is possible. But Brandon's conclusions are very much anchored in reality - and she has the scars to prove it.

Given what Genetraks was trying to accomplish, it now seems remarkable that the company was able to convince investors to back it.

"I've never worked as hard as I did to try and get that first lot of funding in," says Brandon. "We spent most of our time on assisting the VCs to understand the risks associated with the business. And I must confess that I don't think we understood the risks of the business nearly as well as we should have at the beginning."

The risks were considerable. Genetraks needed to create an entirely new market rather than take a share of an existing one. It didn't help that the company also began to focus development on a diagnostic product for which the originally-funded technology was not suited. And perhaps most importantly, the performance horses market for which the technology was designed was too small in Australia (where the company based itself to save on costs) to sustain this kind of venture.

Lesson 3: passion will only take you so far

The pages of Anthill are filled with successful entrepreneurs touting the merits of passion as the commercial elixir. But it is worth noting that there is a word for passionate entrepreneurs who doggedly pursue folly: foolish.

Brandon believes that, while Genetraks's board lacked passion, its founders had it in droves. But that wasn't enough to save the company from its many missteps.

"I think that passion is essential, but it's only half the ingredients. Passion, connected with the right technology, connected with a large market is probably the best set of ingredients for success," says Brandon. "I know of a number of other ventures that have made exactly the same mistakes, if not more mistakes, but their technology was further advanced and their ultimate market was a lot bigger. A business can't be a success without commercial discipline."

Genetraks fell for the trap that catches many ambitious companies; it measured its success in terms of capital raised and spin-offs created rather than revenues, profitability and products in the market. "Business is business, and until we have products in the market with customers paying for those products, we don't have 'success'," Brandon writes in her case study.

It's fair to say that the Genetraks experience left Brandon with a complicated opinion of early stage Australian venture capitalists. She makes the point that VCs are extremely busy – often sitting on the boards of up to ten portfolio companies – which can mean that they are not able to contribute as much strategic input as a fledgling start-up requires.

"As CEO, I found that I had a dearth of real strategic input and the ability to devote time to the development of the business, which hit home when it started to run into problems," says Brandon. "The thing we need to keep in mind is that VCs are learning, just like entrepreneurs. They're getting in there and making mistakes – they have failures in their portfolios as well."

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