It’s often said that the first twelve months can be make or break for many new businesses. But why do so many startups fail? There are many reasons, from a lack of planning to poor management, but one of the recurring factors that entrepreneurs cite revolves around finances.
In order to get actionable advice on handling startup finances, we have spoken to successful entrepreneurs in order to get their insights on how they started and finances their business, tips on how to handle internal finances as well as guidance for new startups.
First, we spoke to David Hellard, the Founder of Zip Cube. Zip Cube provides an easy platform that enables people to instantly book or hire meeting rooms, offices, events rooms and unique venues. David opened up about his experience in the business world and the steps he took to get to where he is now.
What made you decide to start the business?
Zipcube.com was a result of creative application rather than a eureka moment. Airbnb was flavour of the month, so we tried to come up with a new industry that the model could be applied to – meeting rooms was our answer. Meeting rooms tend to be an afterthought for hotels or serviced offices and the industry still functioned in the large part as if the internet had never happened or using enquiry forms at best. It was ready for a revolution and on-demand meeting rooms was the answer.
How did you finance the business?
We bootstrapped for a long time; the website was built with our own money and the three co-founders lived off savings. We have always had a policy of applying for everything – competitions, grants, incubators, anything that could potentially help us. It’s often quicker to cut and paste stock answers needed to apply than read through what the terms, so we’ve ended up with a huge amount of support. We received a grant from UKTI through the Sirius program for £30,000, pairing us with Ignite 100 in Newcastle. We’ve won £25,000 through the Mass Challenge, all without having to give up equity. It gave us the time to develop the website and prove our model, which helped us raise funding from business angels and a VC.
What methods do you use for your internal finances?
As a marketplace we process bookings on behalf of the venues, so it’s been important that we can automate as much as possible, as we didn’t want to turn into an accounting company. We have integrated Braintree into our website, so we can take all credit card payments and PayPal, we use Zero for our accounting and are currently with Barclays bank. We are currently assessing which bank is more efficient for remitting payments to multiple accounts, as the costs are very high when you have as many transactions a day as we do. There is Braintree marketplace software in the US which would be perfect, but it’s not scheduled to be in Europe and it’s a solution which is desperately needed in Europe given the number of marketplaces that exist.
What financial advice do you have for new startups?
Assume that you can get everything free. We are now two years old and have never had to pay for desks – Ignite hosted us in Newcastle, the Siruis program in London, we were given 4 desks by StartTank before winning 12 desks with the Mass Challenge in Tobacco Docks. It’s true of most things you need – Rackspace gave us 6 months of free hosting, Braintree had a free introductory offer on transactions….. Repeat to everyone ‘we’re a startup, can we have an introductory rate.’ Know how much you need to raise and then make sure you’re talking to the right investors for your size. We wasted a lot of time being courted by the VCs, but our business was still at the seed stage, so we didn’t have the traction they expected. If we had started with the business angel community we would have saved ourselves several months raising.
We then spoke to Kyle Brennan. He is the Head of Finance/Analytics at Air Sorted, an airBnB website giving people the chance to rent out their property on their own terms. He speaks of how he got his business up on its feet, his financial tips and what methods he implemented to to ensure business growth.
What made you decide to start the business?
Our company was founded by people who love travel and who love Airbnb. Airbnb offers a great way for people to share their world. Share their experiences. Share their city. Share their culture. But not everyone has the time or knowledge needed to manage everything that comes along with being an Airbnb host. Between cleaning, greeting guests and optimising your listing, managing an Airbnb can be a second job, not a second income. We strip away all the hassles associated with managing an Airbnb. Essentially a homeowner gives us their keys and collects their earnings. Then through our expertise in hospitality and technology, we offer a 5-star experience to our guests, at an affordable cost to our clients. It’s a pretty great feeling because we’re not only offering freedom to travel for our guests, but freedom for our hosts as well.
How did you finance the business?
Like most startups we financed the business through equity offerings. We were fortunate enough to be accepted to the PiLabs accelerator before we launched. Being in an accelerator offers you things like free rent and a lot of advisement that would otherwise cost quite a bit. The first several months were very much bootstrapped. If we turned a profit in one month that would go right back into the company. We didn’t pay ourselves salaries and we saved everywhere we could. After about 6 months we were able to secure our first round of financing through angel investment, once again selling equity in the company.
What methods do you use for your internal finances?
There’s really only a few ways to finance a startup. Investment, loan or cashflow. The second two are often impossible for startups because they have no operating history and an idea that doesn’t yet make money. Additionally financing a startup is very much about speed. Because our business is in services we’re able to generate cashflows that could sustain our operations. However, to grow quickly we really have to front load a lot of our plans. For example our seed funding was used to expand our tech team and launch in new cities. Without that injection of capital it would likely be a year or so until we could follow through with those plans.
What financial advice do you have for new startups?
Cash is king. We keep a very close eye on our spending and make sure not to overextend ourselves. Prioritising where are money is going is the most important aspect of our finances. While it’s great to have an all-star developer that you pay 6 figures, the business doesn’t run if you can’t pay your suppliers or keep the lights on. My advice to startups is to expect the unexpected. Just because you’re profitable in a given month doesn’t necessarily mean you’ll be profitable the next. If you have a good enough idea that people want to invest in it, be smart with their money. You’ll always want to be looking 12-18 months ahead. It can be a scary feeling not knowing if you’re going to run out of money. So plan accordingly.
Take on board this insightful advice from these successful business owners, and don’t let finances stand in the way of realising your business aspirations.
Author Bio: David Taylor is the Brand Manager for iCount.
