Focus on running a real business by Mike Welch OBE

When I started I had to beg, borrow and occasionally steal milk from the next door neighbour. Fast forward 13 years and I'm told that I was 'boot strapped', aye ok I suppose I was boot strapped then. 

When we raised money it was because we needed to tough it out through a testing period and have enough cash to run the business before breaking even.  The ultimate goal was to break even and prove I was running a real business.  Fast forward 13 years and I'm told that that was my 'series A' round. 


When we brought in an investor group I focused on bringing on board people who could compliment my skills, people I could not have afforded to employ - guys like Graeme Bissett, Kevan Macdonald and Sir Terry Leahy. I am told that was 'shareholder mentoring’.  

So again, I guess that was shareholder mentioning then. En route to exit I was focused on how we positioned the business for the best chance of scaling whether that be with an industry or financial backer, but the ultimate goal was to be self sufficient and if an exit was the most appropriate option for the next stage at Blackcircles then we would take it. I've been told since that we achieved a 'trade exit on a strategic valuation’.  Aye, ok then.

So what's my point here? I have an issue with the number of businesses focused on endless fund raising and exits, using acronyms as their call signs for success and missing the good old fashioned focus on cash, break even and profit. Did I do all of that as well as I could have?  Absolutely not, but I was lucky enough to have people around me to help shape my vision, preserve my equity and focus my mind on running a real business. 

Fifteen years ago we felt the pain of a financial bubble precipitated by a dot com dawn, a time when any new business with a dot com after its name was almost guaranteed a funding round from a queue of slavering venture capital and private equity folk. What ensued was endless rounds of funding businesses that never stood a chance of breaking even let along making a profit, dilution after dilution for the founders whilst the funders filled their boots with dot com stock. Founders became professional fund raisers and forgot what they started out in business to do, some even jerking their total business models from one theme to another to fit preferred investor criteria. The money men where dictating the strategic direction of these founders’ businesses and, why not, they owned all of the stock now anyway! Fast forward 15 years and I see the same happening again. Don't get me wrong, the climate is different, we are more aware of what works and what doesn't and the memory of that first bubble still resonates with some so the risks aren't as great, are they?

In my opinion professional investors have a responsibility to advise and protect young business founders, educate them to preserve their stock and mentor their progress through to competent business operators with a focus on the core metrics. I would go as far as to encourage some form of legislation that protects a minimum amount of equity holding for founders.  And to protect those who frankly just don't need the money and who usually end up spending it on marketing, please save them from themselves. 

So founders here's my advice, for what it is worth: 

  • Carefully navigate the quagmire of funding and advisors, particularly the latter, I see so many self proclaimed experts of the internet and startup world who have never experienced either, beware the snake oil salesmen and women. 
  • Value your time, focus and equity.
  • Focus on running a real business and not on raising money to keep your business running.
  • Trust your gut.