How to make a start-up out of nothing
Forget funding. For Perini’s Paul Squires, investment begins at home
It’s easy to forget that most start-ups have nothing to do with technology. These stable businesses do very well without glamorous magazine photoshoots or gambling with investors’ cash, and were paving the way for start-ups way before a start-up was even a thing. A few key actions can help you to be more like them – and force you to look again at your motives for being in the game.
Closing the loopWhether we admit it or not, the tech press and start-ups are a pretty good team. Publicity helps products to grow, and growing products create more stories. With the oxygen of publicity generating nascent interest in a product, it acquires market value. And for many, those first few months of announcements and growth can be a rather lovely, virtuous circle.
In fact, perhaps the only time when the press will take this much interest again is when the company is acquired. If they’re lucky enough to bag a blockbuster sum, the announcement will spread beyond the tech press, with people in offices up and down the country reading about it at lunchtime on BBC News while trying to avoid getting crumbs in their keyboard.
Most start-ups aren’t like you
While this is all lovely, it’s also something of a sealed unit. Not all start-ups are technology-focussed, and not all tech start-ups are covered by the tech press. The ones with the big numbers get the most attention – either in their valuation at acquisition stage or in the VC funding that they receive – but that’s just one part of what I will (wankily) call the “start-up ecosystem”.
You see, most start-ups are not based in London and most don't work in tech. They are hairdressers in Worksop, dog groomers in Abergavenny or delivery franchisees in Stranraer. Very few of these have access to the same types of funding as tech start-ups in the city, and yet it's often these which become long-lasting, sustainable family businesses – resilient to downturns, and supplied with a near-infinite stream of local, repeat customers.
Most start-ups are hairdressers in Worksop, dog groomers in
Abergavenny or delivery franchisees in Stranraer
I'm not saying that there is an either/or, and London tech start-ups are somehow different, or (ugh) better than others. I'm saying that digital media and tech startups might have something to understand – to re-acquaint themselves with – from these small but highly stable businesses across the country. These businesses are what I call hard startups – built from nothing but the ground up, and yet highly stable. The US has a term for them: ramen startups. Given that ramen has become a fairly fashionable and rather expensive food of late, it's a term that I won't choose to bring to the UK.
Spend less at work
Can your business be created out of nothing? Your only fixed cost when starting up is the fee to create a limited company (and if you don't create it as a limited company, then you're insane). What other costs are there? Yes, there are the running costs, but by how much can they be reduced to? Nice offices and smooth, fast laptops are very attractive, but they eat up money (I'll expand on this point later).
Working out of a chain cafe of your choice on a laptop from Cash Converters simply isn't as glamorous, but if it means that you can afford your salary next month, then its advantage is clear. Since Perini started in 2010, we have bought nothing but refurbished kit on eBay and we thank the twin gods of open source and cloud-based subscriptions for dramatically lowering our software costs.
As hardware becomes cheaper by the day, the case for buying brand-new kit is less and less obvious. It's like buying a new car – the moment that you buy it, you kiss goodbye to half its equity.
We thank the twin gods of
open source and cloud-based subscriptions for dramatically lowering our software costs
Spend less at homeInevitably, founders will tie their personal life up with their business life, and this is where careful planning really becomes necessary. If you can save money at home, then it will help in the leaner times – times when you can't afford to pay yourself, or you have no money in the business account because of that Pesky Client Who Takes Ages To Pay Their Invoices.
Can you reduce your personal outgoings – bills, loans, and the like? The cheaper you’re able to run your own life, the less of a headache running a business will be. Put it this way: if you can't bring yourself to shop at Aldi because Waitrose is just so much nicer, then you might want to reconsider your ability to see a business through the leaner times. Even after three years, as my colleague Helena ribs me every so often, I still stick to my £2 lunch budget.
By cutting out the fat from your personal outgoings, you'll find the business easier to run. Being able to pay your own bills is one less thing to worry about and, despite what you may have heard, by no means an inevitable concern.
Put people before stuff
The same goes for running costs in the business itself. You won't find your ideal office in the first few months, so don't spend too much time looking. You'll need to get to know people and build new contacts first. Under no circumstances should you commit to a minimum tenancy, and if you find two (or more) offices which you love at the same time, then play them off against each other: which one will give you the cheapest price (inclusive of bills)? Which gives the most flexibility? And forget about “exclusive of bills” nonsense – you're going to want to fix your costs as much as possible. Your desk or office rental has to be inclusive.
Prepare for painNow, this method is not easy. I bear a multitude of worry lines on my forehead, looking like a set of mass irrigation canals for a paddy field. It isn't easy because less money means less money. If you're starting up with your own funds, then you'll probably not want – or be able – to spend money on days out or nice furniture. You'll be the one who leaves just before it's your round in the pub. You'll look to the heavens and wonder why you have no money when everyone around you has new clothes, furniture, and a tan from a jaunt around South America.
I bear a multitude of worry lines on my forehead, looking like a set of mass irrigation canals for a paddy field
Test and dropBuilding a start-up in this way means that you're more prepared to get rid of stuff which is no longer necessary. Getting rid of a product which is no longer viable is easier if there are no other investors – you won't need to manage their disappointments or expectations. Sure, you might have to manage the reactions of the users, but you're already totally customer-focussed, right?
Similarly, starting new products can end up being faster, as you'll want to find new income streams as quickly as possible. We have introduced and retired a fair few products in the past few years; I think that the Imperica job board had a lifespan of about 2 weeks before we gave up on it and moved on. While your business requires perseverance, your products require a gut feeling.
Build a case for yourselfSo, let's take move this on to a scenario where you have started your business with no cash, you've penny-pinched as much as you can, money is coming in, and you think that you're ready for some investment – a bank loan, a grant, or funding from VC or angel sources. If your business was presented as an investment case to me, then I'd be impressed by your cost control. And, if I'm impressed by that, then I know that you won't piss my money up the wall.
In other words, your commitment to reducing cost in your business and (to an extent) personal life is evident of someone that knows where to allocate funds in the most frugal and efficient way possible.
Impress an investor with your personal finances to give them confidence you won't piss their money up the wall
Keep it realVery few startups have enjoyed the good fortune of seed investment and funding rounds. The good news is that most (not all) startups can get going and survive on limited funds. It takes hard work and hard thinking to do it this way. But, the rewards can be considerable, and you'll find yourself running your business how you want to – what you always wanted, right?
Be the shadowAt the start, I gave three examples of local, self-starting businesses. If you're considering starting a digital business, then it's wise not to think that you're different to them. You run a business as much as the butcher, baker or candlestick maker. In fact, if you know a business of that type – self-starting, efficiently-run – then shadow them for a week. They might provide more insight into how customers are acquired and retained than weeks of formalised training. Get out there with them and learn the basics. It's something that, in hindsight, I wish I had done – but I learned the hard way.
Because I come from a corporate background, my business planning was mainly theoretical. When I was asked by my Business Link adviser to write a business plan, I spent hours getting it right. When his response during the following meeting was “Paul, I have no idea what this is about, but I'm sure that it's fine.” I knew that I had to learn how to run a business – and quickly. I also wondered why my business adviser was in a job at all, but that was a moot point.
Start-ups are hard and in many cases require less thinking and more doing. In many cases, “doing” is disproportionate to funding – in other words, the less money you have, the quicker you need to get your thumb out of your arse and get on with it. If that applies to you, then I hope that the above was useful. Get going, and good luck.
Do you have any tried and tested tips for growing a start-up the hard way? Let us know – send an email to firstname.lastname@example.org.