Business growing pains

A company's early days can be fraught with problems around cash flow, staffing and winning new sales. GrowthBusiness looks at how established entrepreneurs have overcome some of those initial obstacles to growth.

A company’s early days can be fraught with problems around cash flow, staffing and winning new sales. GrowthBusiness looks at how established entrepreneurs have overcome some of those initial obstacles to growth.

A company’s early days can be fraught with problems around cash flow, staffing and winning new sales. GrowthBusiness looks at how established entrepreneurs have coped.

Liz Jackson was 25 when she started Great Guns Marketing. Six months into the business and working from home, she decided to hire a woman whom she liked and felt nobody else had given a chance.

‘It was the worst mistake of my life,’ says Jackson. ‘She was a heavy drug user, couldn’t read or write and I ended up fearful of being in my own house with her.’

Jackson can laugh about it now, admitting that she let her heart rule her head. Besides, this did happen 12 years ago and she says the company today has ‘amazing people’. Nevertheless, when it comes to recruitment, she now has an HR person to help make those difficult decisions.

Mistakes are part of running a business, especially in the initial stages when an owner is often trying to establish a company’s identity. The process of hiring staff will always throw up its challenges, but the more familiar obstacles to growth for start-ups will revolve around winning customers and managing cash flow.

New model
Richard Anson, co-founder of Reevoo, left his job in the corporate world five years ago to set up what he describes as a ‘crowd-commerce business’. In layman’s terms, it’s a product review website with a twist, as any reviews that lead to actual sales generate revenue for Reevoo.

‘The reviews are written by people who have bought the products, and we will publish what is written whether it is good or bad,’ says Anson. The company has sales of ‘between £1 million and £5 million’, and Anson admits that it was initially hard work to explain the business model. ‘We had to create the market by sheer perseverance and belief by seeing as many potential customers as we could.’

Anson’s faith has led to household names such as Dixons and Sony using the service, but he feels that the company has achieved only 20 per cent of its potential, since up to now the products reviewed have been purely electrical goods. ‘We’re also live in Russia, Spain, Germany, Poland and France, and there is lots of demand from manufacturers across Europe,’ he says.

The company is moving forward and has raised £7 million from private investors and through venture capital, which included a substantial series B funding round in the summer. With the benefit of hindsight, he notes that the drive to win new business in the beginning took priority over investing back into the company. ‘If you are growing quickly, you can end up cutting corners in terms of software development, and then you have to go back and upgrade the technology.’

Ironically, when Anson finally made the necessary investment to cope with an anticipated surge in customer demand, the bottom fell out of the market as the recession hit. In the long term, however, there is no reason for regret as now sales have improved and the company is pushing aggressively for growth. ‘When Lehman [went bust] it probably helped us all round, as we conserved cash and had to bootstrap and manage the business, which is no bad thing,’ he says.

Shrewd spender

Tristan Rogers, the founder and CEO of Concrete, a web-based brand and management platform for retailers, made a similar move with his company, investing in technology for an anticipated upturn that took a lot longer coming than expected.

He says, ‘You have to believe in what you’re doing, but also constantly triangulate with others to verify whether your gut feelings about the market are right. Entrepreneurs tend to be their own worst enemies, which is why VCs often get rid of the founders.’

The company had never needed to borrow additional funds and only accessed its overdraft facility last year after a slightly ill-judged period of expansion. ‘We were up 25 per cent on the year before, but what I got wrong, I suppose, was that the sharp increase in growth I was expecting didn’t happen. It’s easy to have a knee-jerk response where you try to predict the market before the demand is actually there.

‘We put a lot into the business, scaled up with staff and equipment and wrote a lot of code, but the sales didn’t come. So we went into the red and had to scale back, getting rid of staff. Then it picked up at the end of the year.’

Like Anson, Rogers has no regrets about investing in the company as it’s starting to pay off, but as the economy hit the skids it did create additional pressures.

Fuelling growth

For Rik Alexander, the chief executive of Nottingham-based computer gaming company Monumental Games, managing growth has been a real challenge. The company is expected to post sales of £6 million this year and has recently received funding of £2 million from a venture capital firm.

‘Every year to date bar this one we’ve been profitable, and last November we took the extra funding to help us accelerate our growth. If we’d just strived for profits then we’d have been profitable this year too, but we’ve put money back into the business to keep pushing us forward,’ he says.

Alexander says the company has always been in the fortunate position of having contracts to work on. But the tension has come from staffing, since in the gaming industry teams are hired and put together on a temporary basis to create the games. ‘Teams are difficult to find, and as you move on to multiple teams it becomes much harder to control,’ he states.

The biggest issue for Alexander was trying to find the right “game directors”, who act like divisional MDs, to project manage every element of a game’s production. He explains that there are 20 full-time employees at Monumental, with five teams running simultaneously, which means an extra 80 staff can be working for the company at any one time. ‘It’s been tough stretching from one team to multiple teams and hiring the people at the senior management level. I call the latter introducing “politics” into the business, but it’s crucial to get it right as the channels of communication have to be professional.’

It’s a point taken up by Chris Whitelaw, CEO of digital marketing company I Spy. ‘You need to recruit the right senior people and try to pick the best in the field every time. It’s definitely the toughest thing, especially if you’re in an area where there is a relatively small pool to choose from.’

Bridging the gap
Aside from the familiar refrains from CEOs about winning new business and hiring suitable staff, the clear problem during the past 18 months has been how to achieve growth when customers have slashed their budgets. Finding additional finance, where necessary, has not been a walk in the park.

Rogers says that the recurring revenue model of “software as a service” has certainly been a benefit during this time and it undoubtedly garners favour from banks, which like to see a pattern of predictable, steady income streams. Reevoo’s Anson admits that trying to find a second round of funding was tough, and hammering out the terms of the financing was noticeably harder than it was four years ago.

Alexander merely sighs when asked about the attitude of his bank when he needed additional headroom in 2009. ‘We spoke to the bank and they weren’t doing anything. We even moved banks, but the big institutions, which we met, had shut up shop – it was ludicrous. They all wanted you to put in big personal guarantees, which nobody wants to do anyway.’

Through persistence, these CEOs have each found a solution and prove that finance is available if you can demonstrate that your business is worthy of backing.

Jackson admits that last year was hard, particularly as the company had some clients in the financial services sector.

She says, ‘We decided to spend on marketing and do lots of PR, which included me appearing on the TV show Secret Millionaire. We invested in the business when we were losing money, and the gamble has paid off as the figures have doubled month-on-month compared with last year.’

The pressures of doing business may have cranked up, but Jackson has a refreshing attitude to running a company. ‘If it all went tomorrow, I’d go out and get a job,’ she says. ‘It’s important to keep a sense of perspective, after all.’

Nick Britton

Lexus Ernser

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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