Six Lessons from Spending £250,000 in 18 Months
Have you raised, or are you seeking to raise a seed investment for your startup? Figuring out how to spend your money wisely to grow your business most effectively is no easy task.
I'm going to share some of the decisions we made on how to spend our seed round, and also some of the mistakes we made too.
In 2013, we sold part of our company for £175,000 in a venture capital deal. We augmented this figure with revenue and some government grants and spent £250,000 in the first 18 months of business.
Here's what we learnt:
1. You Can't Outsource Your Team
We invested over £140,000 on our team in this timeframe (CEO, CTO, Product Designer and a Marketing Manager) and it was our best investment.
You absolutely should not outsource your core team, especially the people building your product.
I've seen this happen so many times, where entrepreneurs have outsourced all of their product development to an agency and it creates so many problems, not to mention that it's ridiculously expensive.
£140k is obviously a lot of money too, but it's not a scratch on what we would have paid had we outsourced all of the work to agencies.
Why doesn't outsourcing work?
- You need to own your product vision and you need people who are passionate about delivering it. That kind of buy-in only comes from a carefully hired, internal team.
- You need to iterate with customer input. An agency will build a working product for launch, but once customers start using it, you're back to square one and you'll have a never-ending to-do list.
- You need to move fast. That means shipping new features that customers want and constantly improving them. Agencies don't move at the speed a startup needs to.
- Bug fixes are urgent. When something goes wrong, and it will, you need to fix it immediately or you'll lose customers. An agency isn't going to drop everything to fix your product. You're not the priority because they have other customers too. It could be days, or weeks before they can issue a bug fix.
I'm not saying that you shouldn't use agencies altogether. By all means, use agencies and consultants to augment your product development, but the fate of your product shouldn't be solely in the hands of someone outside of your company.
We used a local agency, Origin Digital, to develop our ticket scanning app, and this worked well because it was a feature that augmented our core product. Our whole business wasn't at the mercy of an agency.
Our in-house team worked on the designs for the app and also built the API, this kept the costs down and ensured that we had a crystal clear idea of what we needed. We communicated this to the team at Origin and they delivered to us exactly what we needed.
Without this, there would have been a lot of back and forth and iterations to get it right, having a team who understands your product and who can communicate the vision and brand is essential in ensuring you get what you want from an agency.
2. Travel is a Great Investment
The second best investment we made was travel. We spent £15,000 on
3 trips to the US (New York, San Francisco and San Diego) and multiple trips to London and Dublin. I would highly recommend that every entrepreneur spends time in all of these cities.
If you live outside of San Francisco, you are simply not going to find the same calibre of people anywhere else in the world. So getting on a plane and going to meet people is absolutely essential if you want to learn and open up new opportunities.
I met the marketer who took our billion dollar competitor from $0 - $100 million in sales. That was an extraordinary conversation. One that I was simply never going to have at home, because no-one in Northern Ireland has ever achieved anything like that in the internet software space.
If you're going to be selling outside of your home country, then you need to understand the culture of the people you will be selling to. You're not going to achieve this by sitting on the internet in your local coffee shop. You need to get off your ass and go and spend time in a foreign market and meet people face-to-face and understand their problems and how they do business.
You can be pretty certain that your customers on the other side of the world have very different problems to your domestic customers and you need to understand the problem your business solves from different perspectives.
You might also realise that you have bigger and better opportunities in foreign markets because those customers have a different perspective on the problem.
We had lots of great, innovative feature ideas that we showed to people at home, and no-one understood them or even cared.
We pitched the same ideas in San Francisco and the response was: "How soon can we have it?"
I was leaving meetings and phoning our CTO (forgetting the 8 hour time difference) and we were working on plans to ship features in under 48 hours so we could deliver them to our US customers, who just had to have them.
Validate Your Business Idea Elsewhere
So, you have an amazing business idea, you speak to 20 people in your own city and everyone tells you that you're crazy and your idea is ridiculous.
Jump on a plane to San Francisco, and you might realise you have a billion dollar business idea.
I live in Northern Ireland, and the general population are not that open to new ideas or technology. So would something like Getaround (rent out your car to strangers) work here? No way.
Yet, in San Francisco, they're a company worth $100 million.
3. Beware the Startup Fallacy
When your business has money, you will quickly begin to meet a lot of people who would like to have some of your money.
There is an entire industry built on extracting money from startups and it's very easy to get sucked in. The allure can be overpowering because it looks sexy, and you might even start to believe that it will provide a benefit to your business.
Startup Events and Conferences
There are now thousands of events catering to the startup community, and many of them are actually really cool places to hear inspirational talks and network with great people.
However, there are some that charge questionable sums of money to startups, either to simply attend or to demo.
They're like entrepreneur cattle-markets, with hundreds of startups crammed into tiny little spaces were they relentlessly pitch their products to a swarm of passers-by who haven't a clue what's going on.
This is great for the organisers, but what's in it for the startups?
Here's the thing; when you're exhibiting alongside hundreds of other people fighting for the same attention. You don't really have any visibility.
And most of these events are attended by – other startups – and guess what? Not a single one of them could care less about your business, they're there to promote themselves.
Now, if your customers are startups, let's say you have a software analytics tool, then you absolutely should be exhibiting at a startup conference because you will be surrounded by potential customers.
If your customers are restaurant owners, are you going to find them at a startup conference? No.
What about investors?
Yes, the big events attract top tier investors. Do you need to spend thousands of pounds on a demo to get in front of them? No. Is having a demo space going to fast-track your journey to investment? No.
Don't get me wrong, I'm not saying startup events in general are the problem, just a small minority of them. I've been to some incredible events that have provided enormous value to me and I also have friends who run great startup events.
The difference is, some people genuinely want to help startups and provide value to them and others just want to take their money.
The best events are usually free or low cost, because the organisers know that startups shouldn't really (or can't afford to) spend a huge price tag on a conference ticket. Instead, they make their money from sponsors, for whom it makes sense to pay for exposure because the people attending are their potential customers.
So, think carefully about what you're going to get out of a startup conference before you start spending four or five figure sums. Try and choose events with a limited number of exhibition spaces so you're not competing with hundreds of other businesses too.
Research who's going to be there and if it makes sense to pay for an expensive ticket or to pay a premium to demo, then do it. Just don't do it because it looks sexy and all the other startups are doing it.
That money would be much better utilised elsewhere. Forget all the glitz and glamour that these events portray and focus on sales and revenue. Building a company is anything but glamorous. It's dirty, it's tough and it's stressful.
Go to Industry Conferences
If you really want to maximise your investment in attending conferences, then attend and demo at events relevant to your industry. OK, they won't be as sexy as the big startup events, but you'll be in front of thousands of potential customers and the return on your investment will be more significant.
For us, we should be attending ticketing conferences, but we haven't been and that was a mistake.
In saying that, we have exhibited at events that did provide a return for us, but they weren't startup events – they were web design conferences (designers and developers typically run lots of events) so it made sense.
Beware of Consultants
Another thing to watch out for, are 'consultants'.
Not the type who actually have expertise and experience, and who can provide value to your business. I mean the type who've heard you've got some money and who will try their hand at selling you some advice.
When we closed our seed round, we suddenly met a lot of consultants. Many of whom wanted to sell us their services. After a little research, we discovered that some of them actually had no experience in what they were selling.
Be very wary of these people and always do your due diligence before you hire someone. Fortunately, they're easy to weed out with a little research. A genuine expert will have a website, with testimonials, they blog, write industry publications, give talks and a whole slew of other activities that give them credibility.
If you can find little information on someone, it's probably best to give them a miss.
A real consultant isn't just going to offer advice either, they will get their hands dirty in helping you solve your business problems and the value they're providing should be obvious to you pretty quickly.
4. Investment Shouldn't Be Your No.1 Priority
There is a lot of glamorisation around raising big investment rounds, which is fine, if it helps you to accelerate the process of building a real business.
However, that's not always the case. It's very easy to fall into the trap of building a business for investment and spending almost all of your time raising money.
We screwed this up massively by trying to go from investment round to investment round, and spending around 80% of the time in between working on building a business that looked attractive for investment.
For months, I didn't work on the business. I wrote business plans, gave pitches, talked to investors and fiddled with spreadsheets.
It was a massive waste of time. We literally sank 8 months of my time and when it started eating up the rest of the teams time as well, product development and sales ground to a halt.
After 8 months we made the decision to stop and focus on growing the business and reaching a point of sustainability where we were no longer dependant on outside forces. Any further investment would then help to expedite our growth.
We revised our sales strategy and started relentlessly focusing on getting new customers, increasing retention and driving revenue.
It's a slow and painful process but it's progress in the right direction. We're in control and we're not spending most of our time running around like headless chickens trying to do things to please other people.
Investment should never be your number one priority. Your number one priority should be building a sustainable business with revenue.
Then you can think about how investment will help you accelerate. If you're self-sustaining and an investor wants to come along for the ride – great! You're in control, you're under no pressure and you can do it on much better terms.
Getting to sustainable recurring revenue is starting to become much cooler than flaunting a massive burn rate.
5. Invest in Marketing
We spent just over £12k in paid marketing in the first 18 months and it was nowhere near enough. We ran small ad experiments on a number of platforms but we didn't invest enough to get an accurate data set, or see a sizeable return.
Don't be afraid to spend money on marketing and don't be afraid to lose it, initially. You're going to screw a lot of your campaigns up before you really hit on profitable channels and messaging.
Test every channel and try different variations of your messaging on each, constantly measure the results and figure out which channels are working and which aren't then move your spend from the poorly performing channels to the ones providing the biggest return.
Your only goal is to acquire enough users that generate more revenue than what you are spending on advertising.
Doing this effectively is going to require great insights and understanding about every step of what you're doing.
Which brings me to my next point.
6. Track Everything
I mean, absolutely everything to do with your business. Every single data point.
We left it too late to implement an off-the-shelf analytics tool because we thought it was a better idea to build our own internal metrics dashboard. We were very wrong.
From day one, you should implement a tool like Mixpanel or KISSmetrics. They're not cheap, but they provide immense value so it's worth it.
Your product team should be 100% focused on delivering more value to your customers, not building internal analytics tools when you can achieve the same thing with an off the shelf solution.
With a proper analytics tool in place you'll be able to properly understand what your users are doing, segment them and deliver targeted email notifications and figure out what's working/what isn't working within your product and adjust accordingly.
We spent months working 'blind' to what was going on inside Get Invited, relying mostly on customer feedback to guide us. Once we implemented an analytics tool (and went through the painful process of importing historical data) we started to discover lots of insights about what our users were actually doing.
We set up funnels for key tasks, like connecting a payment option and started tracking these every week while tweaking the design to optimise the funnel and guide more users to achieving the objectives that lead to increased revenue and retention.
Figuring out how to spend money effectively to grow your business is no easy task and you're never going to get it right first time. You have to make mistakes along the way to determine what isn't working, so you can move towards what will work.
If I was starting the whole process again from scratch, I'd do a lot of things differently but hindsight is a wonderful thing eh?