Custos on their startup journey and catching pirates
Custos recently celebrated catching their first pirates using their patented blockchain technology. Since moving into the LaunchLab in 2016 they have expanded into the film and ebook industry in everywhere from Japan to Namibia, protecting over 170 000 copies to date. We spoke to founder and COO, Fred Lutz, about their journey in spinning out Custos from Stellenbosch University.
The idea spark that kicks off a new business can be so elusive, what was the initial “aha!” moment that fired for you?
I was a student in the MIH Media Lab in 2014, completing my Masters degree in economics. The Lab was designed by the two founders, G-J van Rooyen and Herman Engelbrecht, to encourage serendipitous encounters. The three of us had the spark exactly in such a serendipitous encounter around the coffee machine where we were discussing how Bitcoin could be used in digital content protection.
One of the core features of blockchain technology is the facilitation of digital scarcity, which makes it very tempting to apply to digital media. Unfortunately, media is different than cryptocurrency in that it needs to be consumed by humans. This creates what is called the ‘analogue hole’ where content can be pirated from once decrypted for consumption by humans.
We realised that an effective deterrent to piracy would need to firstly survive decryption, and secondly play on the human incentives to be effective. Hence the Custos technology that uses the greed of pirates against each other pirates. For a more detailed explanation of how we use blockchain technology, see our blog post.
How then did you practically identify the gap in the market and define your business idea?
The core concept was patented through the tech transfer office of the university, Innovus. The patent was kept very broad, applying to any cryptocurrency and any media. We can protect anything from film and ebooks to contracts and genetic material. We needed a beachhead market to pilot the technology before capturing all these markets.
Following extensive research we decided on film. The film industry – in particular the smaller producers – were facing an existential threat from piracy, and solutions were available to them. Our first hire was another student from the MIH Media Lab who happened to be a complete genius at video watermarking. Our newest patent is a cutting edge watermarking technology that has impressed even the big Hollywood studios.
So in short, we had a massive market facing a real and present threat, few competitors, and a team that could execute. We are now moving into other markets, having proved the technology in the film industry.
Can you please tell us more about the recent successes of Custos?
The biggest success of Custos is the team. We have been incredibly picky with the people we allow to join us, and as such we only have star players in the team. This means we can punch way above our weight in everything from governance (see the blog by our operations manager) to tech (see the blog by our CTO) to marketing (see the blog by our head of marketing).
This has allowed us to expand our market globally and service customer in everywhere from Japan to Canada, India, and Norway. We have protected over 170 000 films and ebooks. We recently caught our first pirates (see our recent blog).
In every success story, there seems to be an element of luck or ‘right place, right time’ involved, is this true for you?
Yes! The circumstellar habitable zone is infinitesimal on a universal scale. Getting a planet with the right mix of iron, carbon, water and in this zone to evolve into complex life is super rare, even with over 10^24 planets in the universe. There is some new research that we are not only in the goldilocks zone in terms of our position but also in the age of our solar system and relative position in our galaxy. What are the odds that someone on this little speck of dust that we call earth would get pissed enough at the global economic system at exactly the right time for news of Bitcoin to reach Stellenbosch at the same time as we were sitting around in a research lab drinking bean juice? In the end I think we can attribute our success to the law of large numbers and survivorship bias.
How did you hear about LaunchLab, and how did LaunchLab contribute to the success of your company?
We realised we had something big with the Custos idea, so we immediately took it to Innovus. Within a week we were talking to the amazing patent lawyers from Von Seidels. After we decided the best way to commercialise the technology was by spinning out, Innovus suggested we move into the LaunchLab.
This was great for us, as we could stay close to the university during the spinning out process, but get access to the amazing facilities (including the fastest internet in town) at a very reasonable price. Our LaunchLab mentor, Johnathan Smit, also helped us out a lot in thinking through some of the details of our business model, and even connected us with some early customers.
The LaunchLab is a focal point for innovation in Stellenbosch, and as such there’s a myriad of interesting people moving through there. We have met connectors, investors, and fellow entrepreneurs in the corridors of the LaunchLab.
How did you go about finding your investor(s)?
The Innovus and LaunchLab made some warm introductions for us to the local investors. More recently, we have started attending Silicon Valley events to get access to a broader investment market.
What advice were you given that has stuck, and become part of your business ethos?
“Get out the door.” One of the first lessons you learn in any startup book, but something we as South African entrepreneurs are exceptionally bad at. Your customers’ needs are more complex than are dreamt of in your philosophy. I can recommend the book “Talking to Humans” as a good place to start.
What advice would you pass on now to someone with a good business concept, in the start-up phase?
Read Zero to One, Lean Startup, Hard Thing About Hard Things, Good Strategy Bad Strategy, Impossible to Inevitable, Crossing the Chasm, Disciplined Entrepreneurship and Talking to Humans. Then go talk to some humans.
Then write a short business plan or set up a business model canvas. Then go talk to some more humans. Make sure you know what assumptions about your product and customer you are making before you move into the market, and then make sure you test these assumptions.
What personality trait has been most critical in taking your business from an idea to a success story?
Grit. Make sure you appreciate and maintain your support network, you cannot do this alone.
How do you conduct your market research? And what feedback mechanisms have you got in place to ensure that you remain operating in line with your core focus?
We gather qualitative data from the market through industry events and the media. More structured data we gather from our website and tools that we feed back into our development roadmap. We also make a point of chatting with our current customers often – frequently you are not even aware why exactly they chose your product without asking.
Where to from here?
Now that we have proven the technology in the film industry, we are raising funding to expand into the ebook and audio piracy, and sensitive document protection markets.