david hieatt

I get asked this a lot. But I’ll be honest with you, I am no expert. I have had to learn a lot of this stuff the hard way. Mistakes are good teachers, if you don’t repeat them. I share this in the hope of it being of some use.

1, The shares you sell at the beginning will cost you the most.

The shares you sell at the beginning are the ones you get the least amount of money for, and yet cost you the most in terms of the percentage of equity you have to give away. You can understand why: You have no sales, no track record, but lots of unproven assumptions. You are a risky bet. Once you have gotten some sales, proved your idea can work in the real world, you are in a much better position to raise money. And, get a better deal.

2, How to build something without funding?

Well, you could use your savings. There’s your credit card. There’s your mum and dad. There are your friends.  There are even your suppliers. (Arrange 90 days credit with them and then do your best to sell your goods within 30 days).

Another way to get your company going is to keep your job, and start it part-time. This allows it time to find its feet. It keeps your overheads low while you get sales. As Wu Tang say: Sales is power.

This way of starting is called Bootstrapping. It’s the approach to starting your company with the minimum amount of investment. It is helpful in the early days to find out if there is anything in the idea, to prove that it will sell, to have your customer give feedback so you can iterate quickly.

The problem with failure is it can take a long time and be costly. This technique can help you to fail fast, and fail cheaply. So you can move on to your next, and better, idea.

3, A track record helps.

Raising money is helped if you have some success elsewhere. Especially when it is in a related field. You will be able negotiate a better deal than a total raw start-up. People back people who know how to succeed.

4, Being first helps.

If you have a digital idea that hasn’t been done before, it maybe better to raise as much money as you can. And launch fast. That way, you grab the audience before a rival does. That is valid too.

This is the counterpoint to this view and it is worth a read for sure: http://theleanstartup.com/

Y Combinator is teaching startups the value of their ideas. And that is a good thing. Don’t sell yourself cheap. It is also teaching them the importance of speed in a digital world.

5, What if you have lots of people wanting to invest.

It can happen. Maybe you have had some good press, maybe your circle that hang out in are very connected, maybe the idea has just captured peoples imagination, but for whatever reason, you have several people who want to invest. This is a good thing.

You will now be able to negotiate better terms as a result. So the normal set of valuation rules fly out of the window. Also, you want your investors to be able to give you more than just money. Who will be a great mentor? Pearls of wisdom are hard to come by.

6, Split the Share types.

One thing to consider when you are selling shares is to try and split them between voting and non-voting. So that way you get some capital, but no matter what, you keep control. Nike did it this way. And Phil Knight was an accountant.

7, Build a team.

Ideas are important. But it will be the team who makes that idea happen. People invest in people, even more than they invest in ideas. A great idea with an average team will not succeed. Find people who are as good as you, but with a different skill set, and make them a co-founder.

8, Do the numbers add up?

Are the margins good or great? As you scale the business, do your costs scale too? Are you selling gold for silver prices? What bit of the business model are you changing to allow you to offer something ‘better’, ‘cheaper’ or ‘faster’ to your customer?

As Warren Buffett says: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

Just make sure in the cold light of day that the economics are good. Don’t kid yourself.

9, Show growth.

Investors like to see that. They like things that can scale.

10, Can you protect your idea?

Trademarks? Patents? Secret Formulas? Copyrights? How can you put a moat around your idea? It can be just that you were first, or your idea is written in high-level code, which means you can move fast. Investors like something other people can’t copy, or can’t do it as well as you currently are.

11, Nobody likes doing business plans. But, you have to show that you have done the thinking.

Doing business plans is a pain. But not as painful as going out of business because you didn’t think it through.

12, Don’t ask people for money.

There are lots of rules about asking people for money for startups. The FCA is very particular about this. If you are raising fairly big money, you will need to be FCA registered. That can cost you a good deal of money. You will also have to ask people if they are high net worth investors, and they will have to put that in writing before you can approach them about it. You will also have to declare all the problems of the business. Tell them all the ugly stuff. Hide nothing from them. And be very measured about the upside.

In a perfect world, potential investors will approach you, and that is different. Then you can talk to them.

13, What are you changing?

The best businesses change something. What are you changing? Customers like to be part of a company that changes something, and investors like to invest in new business models.

My investment in The 25 Mile as an example.

http://www.the25mile.com/

 1, The shares you sell at the beginning will cost you the most.

The 25 Mile, which sources its main ingredients from a 25 Mile radius, is a Gastro Pub that I invested in. I had just sold my company and had a year before I could start my jeans company. I had some time on my hands.

I did it with a partner, but alas the partnership didn’t work out. So instead of me being a sleeping partner, I found myself being the boss of something I knew very little about.

I had a choice to either just walk away, or try and make it work. But I believed in the idea, in our town and the team, who work so darn hard. They have my full respect. So walking away, well, that wasn’t an option.

All the investment money came from the founding Partners. So that was good. The first thing I did was to get Scott Davis on board. Scott is one of Britain’s unsung hero’s. He has worked under Gordon Ramsey, Marco Pierre White and worked at the amazing Nobu Japanese restaurant. And I just told him this is your canvas, go paint.

http://www.dolectures.com/lectures/the-dark-art-of-running-a-small-gourmet-food-company-in-a-small-country-called-wales/

We gave him part of the company. For me, he was the talent, and without him, we didn’t have anything. Once the original founding partners are bought out, which they have agreed to, Scott will become an equal partner.

If the talent, and the driving force of the company don’t have ownership, the chances of success are much slimmer.

2, How to build something without funding?

The 25 Mile was ‘Bootstrapped’ from day one. And there have been days, weeks, and even months when you think is this ever going to work. But against all the odds, The 25 Mile is still here. The team has never been stronger. And the business, and its reputation, is growing.

The thing I knew before I got involved in this business, I believe in even more now: If you build a team, you can build a business. If you trust the team, they will trust you. If you gather a team around something worth fighting for, they will fight till the end for it.

3, A track record helps.

I have never done a food business before. But, that is why Scott Davis is the driving force of it. And that is why he was given part of the company.

Ultimately, investors will be investing in his vision, his skill, and his ability to replicate simple.

4, Being first helps.

It does.And we are the first of our kind to set up our business with such a defined aim. We called it ‘The 25 Mile’ because it would source its main ingredients from a 25 Mile radius.

It would not be an easy thing to do. But restrictions can be a powerful thing. (It hasn’t hurt Twitter: 140 characters was a restriction forced on it because that was how many characters a text message could send).

Our restriction was we wanted to use the best ingredients on our doorstep. We wanted to make a stand for great local food.

The good thing is more and more people want to know where their food comes from, they love food that is fresh and that it supports a community of growers.

5, What if you have lots of people wanting to invest.

We have tried our best to stay under the radar while we get good at being The 25 Mile. So, not many people know that it exists, so this hasn’t been an issue for us.

6, Split the Share types.

We didn’t do this. We should have. And, once the original partners are bought out, we will.

7, Build a team.

In the early days, lots of people were leaving. And I didn’t get it. But the problem was that we hadn’t built a team. The best teams are built around two things: An idea that matters to the team; and trust.

The good thing is Scott has built a great young team who trust him. They believe in each other, in the idea, and in themselves. And the team has never been stronger, and happier, than it is right now. Kudos to Scott, for that.

8, Do the numbers add up?

It’s a tough sector. But the food side of the pub business is growing. And the ‘affordable premium’ side of the business is growing very nicely. By ‘affordable premium’ I mean doing simple but well. And pricing it so it doesn’t become a place when you only go to for special occasions.

For the 25 Mile, doing more of them will make the numbers add up. The management costs will be spread across multiple locations. And at that point it becomes a great little business.

9, Show growth.

The business grew last year by 20%. And, the team are forecasting, it will grow another 20% this year. And, it will turn its first profit.

So can we scale it? Yes, I think we can. We took a pub that was empty for 3 years, and it has become alive again. There are lots of empty pubs that we could bring back to life.

I can see them in locations up and down the west coast of Wales. But right now, the team are just focused on getting better at being The 25 Mile.

So it has potential for growth. That begs the question, where do we go from here? Well, we have hired a full-time manager.  And we are now telling the world we exist. Our new website went up last month. Our new blog launches this month too. And I am sure the day will come when one day the team will have to decide if they want to go and do more of them. But the team know, if we can make it in our small, humble town, then it could do very well in much bigger towns.

If we do more then it will be their decision, and not mine. The team must want to go and do it.

10, Can you protect your idea?

We have trademarked the name, of course. But the best protection will be our consistency of great local and simple food. Consistency comes from an understanding of our way of keeping things as simple and as fresh as they possibly can be.

The 25 Mile also wants to become part of the community. So we are open 7 days a week because the growers are out there, come rain or shine, 7 days a week. And we want our customers to use us to push their cause forward. So once a month, we are doing a ‘cause night’ where people can bring people to come and eat with us, and 25% of their food bill goes to the cause their raising money for.

Also, our long-term aim is to have a microbrewery with each pub, brewing its own ale. That would be cool. It also makes it costly to copy. That is good, too.

11, Nobody likes doing business plans. But, you have to show that you have done the thinking.

There was no business plan for The 25 Mile. And much of the stress of the startup was because of that. It was a mistake. Every other business I have done, we have always done a business plan. I don’t like them. But I like failing even less.

12, Don’t ask people for money.

We said to ourselves it would take 3 years to get good at being The 25 Mile. So we had a strategy of not telling anyone about it. Not a single press release has been written in 3 years. I have avoided getting any publicity, we even had a website for 2 years that never changed. I just think sometimes, the team’s best use of their time is just to get good at what they’re doing.

We have talked to breweries about the idea, we even had a whisky company interested in what we are doing, but we have not gone out and talked to anyone.

13, What are you changing?

Local food matters. Local isn’t a trend or a fashion. It is something that will always be important. Because food is important. And knowing where it comes from is important too. And keeping growers growing is what we are fighting for.

The first thing I did was to tell the team why what they were doing was important: We believe in local food and the hard working growers; and we believe in them as a team, in their work ethic, and their talent. And we believe in our town, and some of those great ingredients should stay here.

The most passionate teams gather around a cause that is important to them. That is why David can beat Goliath. It just matters to David more.

The 25 Mile is here to fight for great local food. We called it The 25 Mile because it would source its main ingredients from a 25 Mile radius. We made it hard for ourselves to succeed. But restrictions can be a powerful thing.

It hasn’t hurt Twitter: 140 characters was a restriction forced on it because that was how many characters a text message could be. 
Our restriction was a 25 mile radius. As the crow flies.