Lessons from my first year in business
Even the most successful entrepreneurs struggle in their first year in business. Indeed, many of the most innovative and profitable businesses in the world were built using the lessons learnt in those formative start-up days.
To help mark StartupSmart’s first birthday on Thursday, four of Australia’s leading business builders spoke to us about their own first year experiences.
They may now have combined revenues of more than $50 million, but respectively, the founders of Kikki K, Job Capital, RedBubble and Emma & Tom’s faced a variety of challenges in their start-up phases, ranging from bewilderment over financial terms to crashing delivery vans.
In their own words, each of them explain how they got through their first 12 months, as well as provide some invaluable tips for start-ups that are tackling their opening year.
Business: Kikki K
In a nutshell: Beautiful stationery sold in artily sophisticated stores.
Revenue: $35 million
I look back with fond memories. It was an exhilarating time of growth and learnings. While it feels like a lifetime ago, it also feels just like yesterday.
Even though we have come so far, we’ve just scratched the surface of where we are headed – which is, and always has been, global!
From the beginning I was very much focused on the big picture – with a vision to open beautiful stationery boutiques in my favourite cities across the world.
This vision carried us through the tough times. But in the first year our more immediate goal was just to survive – keep growing, keep developing products, meeting customers’ needs and building our business and our brand from the ground up.
We achieved this by being resourceful – leaning on friends, family and contacts where possible – and being really passionate about what we were doing.
It’s certainly not easy, so it’s important to stay focused and not get weighed down by all the hurdles that come your way.
I had no formal training, and English was my second language – so the hurdles were always going to be big!
Apart from not understanding some of the business terminology, I also had almost no skills in the areas of finance, accounting or bookkeeping, no idea about marketing, no idea how to run a retail store, no idea how to recruit employees and no idea what performance management was.
I’d never even heard of logistics or operations and had no idea how to put together a product development schedule, run a trade show, negotiate a lease, make a sales presentation, build a website or write a position description.
Having said all that, I had a great idea, a clear vision, boundless enthusiasm and I knew that I could always find a way to overcome challenges.
Like any start-up business we have made so many mistakes, but we welcome them all as learning experiences, and always have.
One of the mistakes that come to mind was when we expanded our store base quickly outside of our home base of Melbourne and into Sydney.
We didn’t realise at the time that when you set-up teams in new geographic areas a long way from your base, that you need to pay particular attention to ensuring the culture of the new team is aligned to the core business.
Because we had such a positive, fun, family style culture in Melbourne we just assumed that would evolve in Sydney without us needing to do anything extra – but of course it didn’t.
About a year after opening in Sydney we realised that our Sydney team had developed its own culture quite different to the wonderful culture we had in our home base.
In response to this we put in place a number of initiatives that helped us realign the culture of our team.
For example, we focused on more effective communication with our new teams, better processes for recruitment that meant we employed people who were a good cultural fit and better reporting processes.
We’ve now taken these learnings on board as we enter new geographic areas – and learning from this early mistake has brought the company great long-term benefits.
I think very little followed our expectations. In fact, being flexible and open was imperative as we were learning on the run.
Things never run as smoothly as you’d like – and as a start-up you really have to take every opportunity as it presents itself.
Being named Melbourne’s Most Innovative Store just six months after opening was a delightful surprise!
We always felt we were creating something unique and something special, but this recognition – and the media coverage that followed – really confirmed it for us.
Our first year was definitely the most challenging. Having limited financial resources was probably the hardest challenge I faced in my first year.
However, I overcame that by being creative, working hard and with “do it yourself” as my mantra in the early days.
It did not immediately get easier after the first year – but in the years that followed, the business grew and finally we were able to add resources to assist and help us grow – and that certainly made things easier.
If you’re a new start-up, definitely do something you’re really passionate about. You’re going to need to invest considerable energy and time into it, so make it something you really enjoy.
Having a crystal clear vision of what you want to achieve is essential.
Let it guide your decision-making and your team, and when times get tough (and they will), your vision has to be strong enough to pull you and everyone else though.
And most of all, have fun!
You can read a full StartupSmart profile of Kikki K by clicking here.
In a nutshell: Global online art community that sells everything from t-shirts to wall art.
Revenue: $3.3 million
The first year in business is an unconstrained time as you are under less pressure than you subsequently are. It’s an undefined time where you don’t really know how the business will go and it’s about learning as much as possible.
In Australia, you really need momentum from the start. I often see companies profiled on StartupSmart and elsewhere that never have enough funding to endure.
In the tech space, there aren’t really any rolemodels here – if you take the US, you’ve got Tumblr that is raising $20 million or $30 million funding in chunks, that’s not possible here, so it’s challenging. There are so many variables you have to deal with.
We probably bit off more than we can chew in our first year, even though we were reasonably well funded, due to the complexity of the business.
It made us focus more on what we are doing, which has continued to be a challenge for us since the first year.
When you are building a website, you either build it extremely well and make it scalable, or not build it well but be quick. If you do it well, it will take time and be expensive, but you will have the foundations of a good business.
For example, do you want to spend $10,000 on legals straight away, or should you put the money towards something more immediately useful?
The challenge is to build the platform while investing in things that make you money.
There is no perfect answer – you need to make a judgement call. That said, Australian businesses often under-invest in their legals and pay the price. You’ve got to get that kind of structure in place early on.
You can’t just get out there to the marketplace straight away. You’ve got to think about GST or, if you employ people, superannuation plans.
These are all basic things you need to do, but you need to get them all done before you get out there. It can be frustrating.
We have very few people here who started with us. It’s quite normal to have a high turnover of staff from your first recruits. It’s hard to recruit people into a young start-up.
We may have been a bit more focused, but it’s a time of learning. I’d rather have learned those lessons than do anything too differently.
The first year is often about managing expectations – of you as well as investors. In our case, we were shipping out of Germany when the euro was very high, which meant it was costing us more than the sales we achieved. It was a mistake, yes, but you learn from it.
After a year, you should have the basics in place. You should have good corporate governance, a board with at least one independent person and you should be talking to customers.
You also need more than one good person in your company. There’s a reason why investors look for two founders or at least two good people in the business. It can be hard to get investment if it’s just you.
You need an idea of how you are going to make money. It’s not really viable to launch a business in Australia without a business model – maybe in the US, but not here.
I’m very sceptical of five-year forecasts, but you need some sort of business plan and an idea of the basic economics of your start-up and how it is defensible from competitors.
I don’t think starting up is necessarily fun. You should be excited about what you do, but it’s hard to have fun in a start-up!
You need a sense of purpose and passion, whether that’s to change the world for the better or become a billionaire.
You can have fun along the way, of course, but let’s not be delusional. It’s not like going to Luna Park. You can’t leave a high paying job and think that starting up will be a land of roses and cream.
You can read a full StartupSmart profile of RedBubble by clicking here.
Business: Job Capital
In a nutshell: StartupSmart Awards winner that handles the all-round tax affairs of independent contractors.
Revenue: $9.1 million
I started Job Capital knowing there were some pretty heavy hitters up against me from the get-go.
These businesses were turning over millions of dollars. Yet I still knew I would succeed.
As Job Capital was building market share, forming quality relationships and delivering outstanding customer service to gain some sales momentum, the big guys hit the GFC and started to scale down, strip and bleed.
So the competition barrier was softened substantially. I was hiring great people while they were letting go of them.
My biggest barrier in many ways was only myself. Working alone and with an investor that wanted sales reported yesterday, was on my back every other moment about where the next sale was coming from and the pressure was on from day one to deliver results and his return as fast as I could.
He stumped up a couple of hundred grand (unbelievable in this day and age), I took $100k of that in my first year as salary (I had come off a salary much, much higher in corporate and had a pretty huge mortgage).
I literally worked 24/7 to get as much done every day as I could. I pulled together all my own marketing, contracts, sales material, proposals and went off the sell it to the world.
There were several hundred times when I thought “what am I doing?” but then the ultimate optimist and my spirit was always kicking in and replying “because you love what you do and you are very good at it, now just get on with today because another challenge is only minutes away”.
I had to ensure my mind frame was always positive and optimistic and that meant not looking at the competition very often, instead sticking to my knitting and making my own decisions about how I would effect change in my industry and business.
Within 2.5 years I had repaid my investor and bought back all of the company equity. I knew I wanted to own the company and have total control.
To start it I had to give a lot away, including control, strategy decisions, location of the business (I was from Sydney starting in Melbourne) and in a lot of ways the ultimate decisions.
However, over time my investor realised my potential and could see after making lots of errors in judgment that was capable of running the entire business.
Within the second year I grew the company by 50%, year three by 181% and last year another 171%. Having that pressure to return for an investor from day one proved my biggest challenge and also my greatest strength in the long run because my self-expectation was so incredibly high.
It still is today and I instil that very culture to my team.
I didn’t know how to read a balance sheet or a P/L properly when I started the business. I was sales-focused – all I ever cared about was top line as I was traditionally remunerated by this.
I spent hours learning to not just read the sheet, but read the book and worked out the value of this skill when I needed it most.
Cash was the focus for me and I knew without plenty of it running through the machines the cogs wouldn’t work.
I knew the BS, sales; collections and cash were the fundamentals. Now I know my financial story off the top of my head. I can’t imagine not knowing it.
My biggest surprises were bad news or threats out of my control. My Dad was diagnosed as terminally ill in my first year of business.
This challenge became my biggest inspiration and I still refer to his words of wisdom to make fair, logical decisions with compassion and generosity of spirit when required.
- Always know who your first customer is – I have started four companies now and all were started because I knew who my first customer was going to be.
- If you can’t read and understand financials and you don’t know how to interpret a balance sheet – learn today.
- Find a mentor you respect and trust – my mentor was my investor. I felt like I did the best hands on MBA possible by experiencing every part of business from the ground up in my start-up.
- Surround yourself with positive people – your support structure is valuable and necessary.
- I don’t think you can truly learn how to make money until you have lost money – I have done both and I understand and respect money, but not as much as I respect my people and customers.
- Hire people around you that are far better at what you do than you are – then empower them to do things they have never done before and let them own the wins.
You can read a full StartupSmart profile of Job Capital by clicking here.
Business: Emma & Tom’s
In a nutshell: A tasty range of healthy fruit juices.
Revenue: $5 million
My main lesson for start-ups in their first year is to do it yourself. You should outsource as little as possible when you’re in the early stages.
When you are small, people are generally nice to you, which allows you to focus on your customer.
The first few problems that we experienced were a big shock. You realise that starting a business is all about problems, whether that is issues with our bottling or our vans getting involved in car crashes by driving into lamp posts.
They are lots of issues that aren’t huge things, but Emma calls it “stuff that gets in the way”. Getting to the customer is easy, so it’s better if you do it yourself.
We both came from a corporate background and one of our biggest mistakes was not being on the road more and seeing the customer. If we were selling the product ourselves, rather than via distributors, we would own the relationship with customers.
We didn’t do too badly to start with. Around 400 to 500 traders took us into their stores and they liked the product. The challenge, because orange juice only has a limited shelf life, was getting it to them again and again and again.
Things actually got harder three years down the track, when we suffered operational problems. We had much more stuff in the hands of others and I was looking at five Emma & Tom’s vans that weren’t going anywhere.
We had to do a turnaround and it took awhile to change the model. We took finance and distribution in-house. We even did the Christmas party ourselves.
It took awhile before things got better because we got a bit complacent about letting costs spiral a bit. We were a bit stuck in our corporate ways and a bit naïve.
It’s taken two or three times longer to do, and cost two or three times more, than we expected, but not having angels and VCs backing our business has made us present a superior offering. We’ve had to preserve cash, which has built a better business.
You can’t do too much preparation in your first year. Do as much as you can yourself – it’s your baby, after all.
People say that you should work on your business, not in it. But in the first year it’s the other way around. You need to know your business and how it operates.
You can read a full StartupSmart profile of Emma and Tom’s by clicking here.