The success of a business is heavily influenced by the initial ‘start-up’ stages. This is a period in which a business is able to determine the key factors which help its growth and success. This stage is a learning curve and any decisions made are a means of establishing what does and doesn’t work for the business. If a company is successful as a ‘start-up’, it is then considered a ‘small business’. But what methods can be applied to ensure your company transitions from a ‘start-up’ to a ‘small business?’
We spoke to two business owners to find out the entrepreneurial journey they experienced in becoming a small business. The questions asked gave valid insight about the passions that are deep rooted within these business, their financial entities and some tip top advice for other business seekers. The interviewees are Ryan Shaw, founder of Vape Shoreditch, a London-based e-cigarette start-up company (RS), and Jayne Carmichael Norrie, founder of Aberdeen-based Forte Music School, which offers singing, piano and theory classes (JCN).
What made you decide to start the business?
RS: I was tired of overpriced e-liquid (the solution that goes inside e-cigarettes), complex product offerings and the never-ending struggle to stay stocked up with my favourite brand. Unlike the same cigarettes being available everywhere, e-liquid brands vary greatly from shop to shop. So starting from my garage, I set out to offer great-tasting UK made e-liquid that is easily available and offered at fair prices.
The benefits of vaping have been confirmed by Public Health England and Cancer Research UK but people have been misled by false health claims and confused by a fragmented market. We are here to make vaping simple, affordable, convenient and great tasting. User experience was the priority from day one, so I teamed up with co-founders Andy Kirby and Paul Tarr to develop a monthly subscription platform that prioritises convenience and flexibility. With the aim of providing everything a new vaper needs, vapers can also choose from a number of our own brand e-cigarette devices such as the Shoreditch One & Two.
JCN: I graduated with my BMus Music Performance as a mature student. Back in 2005 I was working in a really boring admin job at the local council. One day I was in the middle of all the admin of the job, when I had a morbid thought: ‘If I’m still here in 20 years’ time, I might as well just shoot myself’. That was when I decided to apply for a university course and try to do the things I have always wanted to do. My heart was always in music, but I didn’t have the confidence to pursue it. Working a boring job made me realise I’m not getting any younger, so I might as well give it a try.
How did you finance the business?
RS: We bootstrapped our initial growth by quickly building our customer base and keeping costs as low as possible. We were fortunate to be operating in a booming market so the customer demand was very high. The global ecigarette market is now valued at $6 billion with reports of over 2.6 million e-cigarette consumers in the UK. Researchers expect the ecigarette market to hit $50 billion by 2025. In addition to our product revenue, we also relied on friends and families for small grants to bridge gaps for key supply chain purchases.
Once we had acquired enough data to prove our business model we began networking across the London start-up scene to make connections and tell our story. After building relationships with leading investors, we raised our first seed round securing £235,000 to scale our business. Some notable investors include Startup Funding Club who invested in Emoov, RCP Invest who invested in Pavegen, Danvers Baillieu, COO of Hide My Ass and new seed investors, Sweet Startup. We are confident that we can continue producing double digit percentage growth figures over the coming months and we plan on raising a Series A round towards the end of 2016.
JCN: I kept overheads really low by working at home. A lot of tutors teach at their pupil’s houses, but I think that’s a recipe for disaster. There is the high cost of travel, and the travel time is also eating into your time available to teach. Plus, there is never any guarantee the pupil is going to be able to provide an appropriate learning space. When I first started my business, I was teaching in my bedroom. Now, I have a home studio at the bottom of the garden. It takes time to develop a business this way. You slowly build up your reputation as a musician. Little by little, you re-invest in your business with improvements. In my case, it was buying a better piano, purchasing sheet music, ipads, etc. You might not make much profit this way, as what profit you make gets put back into your business via improvements, purchases, etc. Growth is slow and steady, but I think that’s a good thing. It’s not good to push for quick growth and then you let people down when you can’t cope with it, or you aren’t organised enough.
What methods do you use for your internal finances?
RS: We used cloud-based Xero to manage all of our bookkeeping. It is a great service to access your financial tracking from wherever you are and as a start-up we are drawn to the SaaS model. We also use a highly effective accountant to assist with payroll, VAT and all other aspects of running a high-growth start-up. Paypal is our payment processor of choice and a great service to quickly pay ad hoc freelancers without the hassle of complicated invoicing or bank payments. Another piece of software which is invaluable to our management is Charlie. While not strictly finance, Charlie is a free HR platform for startups that manages our time off, employee information and benefits. A great example of how you must be creative with your management choices to support a lean financial model.
JCN: We are a small business so there isn’t much in terms of internal finances. I use FreeAgent to sort out my accounts. I use a document folder and put sticky labels on each one eg. Jan/Feb/March. I put all of my receipts into the relevant folder. It helps to keep things tidier for when I do my accounts. When I am processing the receipts, I put them into a polypocket with a sticky label e.g. April 2015. When the accounts are finished, I use a Really Useful box to put all my expenses and papers forms in one place. They are great because they are cheap and stackable. I prefer them to folders as they work better with my storage at home. You have the option to file them horizontally or vertically, whichever is easiest for you.
What financial advice do you have for new start-ups?
RS: Be focused. There will be many ways that you can develop your business but you must focus on the avenues that provide the most ROI and the least financial outlay or risk.
Negotiate. There is always room for negotiation in vendor pricing so never accept the first or even second price you secure. Keep pushing until you find their final price and constantly recalculate your ROI based on the cost of service or product. Watching your projected ROI increase as you secure better pricing provides a great incentive to keep pushing.
Prepare for the long haul. Start with a financial cushion knowing that you may not draw a salary for the first 12 months. Discuss this with loved ones as your family must also be prepared for a tough year.
Build your network. In order to scale your business you will need external investment and strategic advisers. Being involved in your local start-up scene is the best way to make these invaluable connections.
Prove your model. Quickly build data that shows high-growth potential and proves your position within the market. This data will allow you to convince people to get involved in your business, and will allow you to secure more funding for less equity.
JCN: Overheads are evil. Avoid them at all costs. Don’t be afraid to buy small amounts. It’s better to use smaller amounts that are more expensive, than having a huge pile of things you will never use; it is demotivating. There is no point in buying 1,000 business cards, even if they are cheaper per unit, if you don’t use them. I like the phrase ‘You can always add, it’s harder to take away’.
You should do things a little at a time. Thinking of making a change? Do a survey to see what people think. Want to open a restaurant? Try a market stall first and ask for feedback. Before you pay a lot of money for something expense, see if you can have a trial first. People who have a high-quality product or who are genuinely trying to help you, will usually let you try before you buy. For example, free trials of computer software. If someone is trying to make you spend quickly, it’s usually because they don’t’ have any faith in what they are selling.
So while running a business faces a number of challenges, viewing these as mere obstacles can ensure positive growth for a company. These obstacles can be used as lessons to establish what methods work or don’t work for a business. A driven and motivated attitude is key in this sector and these factors combined with a real passion for the business are most important in reaching a positive result. Running a business isn’t a walk in the park and these entrepreneurs shared some interesting advice to anybody who seeks to do a similar thing in making their dream become a reality. Offering up personal insight and financial advice to beginners of this sector enables other like-minded individuals to stay hopeful in climbing the ladder to success.
David Taylor is the Brand Manager for iCount.
Further reading on entrepreneurship
