The Need for Seed
Daniel Smith, founder of social media marketing consultancy Propaganda House, joins us on the blog today. Daniel discusses the need for investment in a business idea and is keen to hear about your own experiences and thoughts. Welcome Daniel! Naomi 
When you look at Successful Big Businesses it’s easy to think that’s how they’ve always been. On the contrary, every successful big business starts its life as an idea inside the excited mind of an entrepreneur. The biographies of countless successful business people will tell you that the trek between ‘idea’ and ‘successful business’ is a long and arduous one, not dissimilar to the treks of the early explorers who opened up undiscovered regions of the globe for future generations.
Following this analogy – many of these early explorers wouldn’t have been successful in their treks without the backing of investors to who provided the much needed funds for equipment, supplies, and support personal. And the same applies for a business idea.
No matter how good the concept, most businesses at some stage require outside investment to fully conceive and take their earnings to the next level. Take Facebook for example; just 7 years ago this was an idea inside the head of a pimply university student – skip forward and it now has 500 million users and is valued at over $50 billion! BUT, without initial seed capital Facebook may never have become what it is today – and heaven forbid, we might all be using ‘MySpace’ or even worse having ‘face to face’ social interaction instead..
Having a great idea and finding someone who believes your idea is great enough to put their hard earned on the line for are completely different things though. Couple this with the need to find an investor whose experience, skills and attitude will align neatly with those of the business founders and you’ve got a real challenge on your hands! But if Columbus could convince Queen Isabella to invest in his ambitious (and at the time considered impossible) voyages then there’s no reason it can’t happen for a comparatively less ambitious business idea; and it does every day.
As the owner of a Social Media startup looking for funds to take it to the next level, I’m interested to hear how others have taken their business from idea to a thriving enterprise; where did you find your seed capital; angel investor, family, colleague? Or maybe you grew your business organically, without seed capital? Either way I’d love to hear your story!
Daniel Smith, founder of Propaganda House
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Many thanks, Dan, for covering this vital issue for us.
I used the slow-grow method to found The Feisty Empire. While fully employed, I started doing after-hours freelance work.
When I had enough clients to keep bread on the table, I left my employer, then (fortunately!) managed to secure them as my primary client.
Had they not come across, I would’ve been in deep trouble.
I then had a firm foundation on which to secure new business. But it took a lot of time and tears. And I very nearly went under. Twice.
A bit of seed capital would’ve been nice. Though I think I’d have obsessed about paying it back. Horses for courses, I guess. I wish you all the best in your quest. P.
Thanks for the comment Paul. Time and Tears seem to be staple ingredients for every successful business! As long as you’ve got that end goal in mind and you never let up I’m sure every business owner with any scrap of passion would agree it’s worth it in the long run..
Thanks Daniel, my benevolent business partner was a stern neighbour who lived atop a craggy mountain surrounded by thorny brambles and kept his fair long haired daughter just beyond my grasp – no seriously, there is no angelic benefactor out there – that’s why there are so many disgruntled could have beens driving taxis or holding clipboards in public service land, or pointing at whiteboards in team meetings.
Im not sure if it’s appropriate, but I’ll share it anyway (they toold me this one at the courier depot) – in the swinging scene they call a single, unattached female who is open and accepting to all forms of sexual indulgences a “unicorn” as in they simply do not exist!
So, whilst it is lovely to dream about the unfair advantage of your competitors having generous benefactors propping up their marketing campaigns with fistfuls of cabbage – it simply doesn’t happen, much like the unicorn, or the fair long haired beauty locked away in the tower.
Anyway, nice thought though, certainly got me typing…
Hi folks,
I can share my experience from both sides of the fence as someone who started a business which attracted investment and also as someone who is currently considering investing in a start up.
Around 5 years ago myself and two colleagues decided to start an IT consulting business to provide professional services to first and second tier corporate clients. We all had considerable experience in the industry and brought a good network and our strong reputations to the new business.
We wanted to grow our business quickly and fully devote ourselves to the task, but we also had to keep food on our tables. Do we take the big risk, quit our well paid day jobs, and go it alone or do we reduce our risk and find someone to back us?
Through our extended network we found a suitable backer who was prepared to loan us money as we required it in exchange for equity in the business. This money covered our own salaries, payroll for our staff and operating costs. It also ensured we didn’t run into cash flow problems. The loans amounted to several hundred thousand dollars over a number of months. They also provided us with office space and access to a good in-house accountant.
This situation gave us the freedom to really throw ourselves at the task of building the business, which we did with absolute gusto. And boy, did it grow! Within 18 months of starting up we had 60 staff and in our second year of operation our turnover was an 8 figure number. It would not have been possible to achieve this if we were constrained in the amount of time and energy we could put into the business and without the capital to fund the growth.
This story ends with a couple of ASX listed companies knocking on our door wishing to buy our business. To be frank we were not too keen to sell as our baby was still very young. But this was pre-GFC when merger and acquisition activity was strong and companies on the acquisition path were paying a premium. Eventually we received and offer that, as they say in the classics, was too good to refuse!
Fast forward to today. I couple of months ago I met someone with a business idea. His idea is sound but nothing particularly revolutionary as there are many businesses of the type he is suggesting already in a quite crowded and competitive market. It has nothing to do with IT, by the way.
What impresses me about this person is the strong expertise and experience he brings to the table, some unique selling points that he has articulated, and the vision and drive he has to make a successful business happen. Also, very importantly, he is an ethical person and has an amiable personality.
With the experience and qualities that I bring into the equation, along with the desire to invest, I feel we may have the right mix create a great business together. We are currently in the planning stages and if all goes well we will launch the business in a couple of months from now.
We are yet to determine exactly what investment is required or the precise terms. This will become clear as the planning progresses. One major difference compared to the previous story is that I will be directly involved in the operation and management of the business. With the IT consulting business our backers provided mentoring and guidance but were no involved on a day-to day basis.
I will quickly add that the first business I ever started, which still exists today, was an SMB IT Services business. I grew this business without any investment and, given that it has never received 100% of my focus, it has achieved moderate success.
As they say in the superannuation adverts, everyone’s situation is different. The circumstances of the individual business and its operators will determine what is the most appropriate way to launch and grow the business. I hope my little anecdotes help expand the picture of possibilities.
Cheers,
Jas.
In response to Merewether Life…
Benevolent benefactors in business may indeed be unicorns, but people who want to invest in someone or something for a mutually benefcial outcome are common.
I don’t wish to cut Dan’s lunch, but that was a FAB comment, Jas. By gum it was good you sold BEFORE the GFC!
This blog post from @PenelopeTrunk sparked an interesting debate on funding:
http://blog.penelopetrunk.com/2011/05/06/im-starting-a-new-company/
It also happens to be THE finest blog post I’ve EVER read. Big thanks to Joanna @WorkInColour for flagging Penelope’s amazing work.
Merewether Life – Thanks for your vivid comment which I think illustrates in important point; your idea is doomed if you hinge it’s success on the input of others.
However, while I believe that anyone who has unerring persistence and seeks their goal with the right attitude will no doubt reach it – the speed with which they reach it and the level of success can definitely be enhanced with outside help.
Jason that’s an excellent (and inspirational) story, many thanks for sharing it.
The freedom to throw yourself at your task minus the other concerns and really explore the potential of your idea I think is probably the difference between those who succeed and those who don’t in many cases.
While there are many stories of those with iron wills who go through all sorts of dramas and catastrophes to reach success in their business, i’m sure there are many many more who probably had a good idea however succumbed to everyday pressures like supporting family and ended up back ‘driving taxis or holding clipboards in public service land’ (thanks merewether).
Do you still play a role in the business that you sold off?
Hi Daniel,
Our business became a division of the company that bought it and for some time I did continue to work there under contractual obligation. The corporate executive scene wasn’t really my cup of tea – too much politics and too little intergity to be found. Foolishly I tried to fight the powers that be and inevitably lost. So I edned up walking away. To the other rats on the corporate treadmill it probably appeared that I couldn’t hack it. In reality I didn’t want to play their game lest I lose my soul. So I left with my head held high and my integrity intact, albeit with a slightly bruised ego and some psychological baggage; baggage that was pretty easy to dispense once I was out of an environment I didn’t enjoy being in.
Overall it was a great experience and I would do it all again. After leaving the business I decided to do something totally different. Click on my web link above and you’ll see what it is. A definite change of pace!
But you can take the entrepeneur out of me. I have the whiff oin my nostrils again…
Cheers,
Jas.
“can” should read “can’t” in the last sentence
Quite a change of pace indeed, I’ll have to get down to the old colonial sometime to checkout a gig!
G’Day Dan,
I wont trouble you with a description of my vicissitudes about funding over 30 years. But I did want to reiterate the other point you make.
There’s a lot of waffle spoken about things such as “benchmarking” and “world’s best practice.”
It’s of little value to the manager of a small-medium business. Don’t worry about what Apple and Microsoft do now. Find out what Jobs and Wozniak and Bill Gates did when they were the same size as you that enabled them to grow into what they are today.
While funding’s a vital part of that story, all the funding in the world wont compensate for lousy marketing. Marketing isn’t everything, but everything is marketing.
Regards
Leon
Thanks for the wise words Leon – will definitely take this on board.
I’d LOVE you to trouble us with your 30-year vicissitudes, Leon!
(Did you want tomato in that sandwich, Dan?)
Sorry, Dan. You’ve chosen such a ripper topic, I can not help myself:
http://blog.penelopetrunk.com/2011/05/12/what-it-looks-like-to-start-a-new-business/
She sounds like someone who would be very fun to hang out with – love her response to the second comment..
I’ll be returning to that blog.
Maybe one step before you as the business owner consider bringing other partners on board is to look into bringing some type of Mentor on to assist you and the business to begin to prepare for new investors or other ways of delivering more growth.
I have seen in some businesses bringing on board a “board of sorts” that is there to advise and to watch over the next level of planning. It meets like a board, gets paid, is involved in planning and shares some responsibility for the successes that follow.
They can then also point you in the right direction of the Packer Family (or any other).
Obviously finding the right people is the key and it may not happen with the first go but it might be safer step as opposed to selling part of the business off before it really reaches potential.
Thanks for those tips carbonite, definitely makes sense to get some independent advice.
Your point about not selling any share of the business before it reaches full potential is a good one too – I’m pretty mindful of this and certainly won’t be jumping into bed with anyone who I don’t assess to be a good match.
..You can spend countless hours combing the internet for the right company to pitch your idea or seedling business to. ..You want your business to be successful and that success hinges on creating the right relationships.