William Reeve Serial entrepreneur and investor Apr 2009 TechCrunch Geek’n’Rolla Bootstrapping, Scaling and Cashflow

About me More details: see www.wreeve.com or www.twitter.com/wreeve

A brief history of LOVEFiLM (1)

A brief history of LOVEFiLM (2) £££ subs

Three questions this poses 1: How boot-strapping beat cash 2: How cashflow beat money 3: How to scale

Bootstrapping in action SS vs VI Paying Subs +57% Trials DVDs rented Revenues +55% Cost of Sales Gross Profit Margin Free trial cost Marketing costs -2% Contribution to Overheads Overheads -38% E(loss) BITDA -60% DVD CapEx Cash Burn -49%

Bootstrapping – VI vs SS Cost centre VI approach SS approach Hiring Hire ahead of curve ‘ Have done it’ Hire behind the curve ‘ Could do it’ Technology Outsource for speed / credibility 12 months later – lagging platform run by 7 FTEs Build inhouse £10k bonus to key developer 12 months later: UK-class platform w 3 FTEs Prof svcs ‘ Do everything properly’. PwC, Lathams, Russell Reynolds £20k pm excl one-offs ‘ Get it done’. £3k pm excl one-offs Finance team 1x £1000pd, 1 mid, 1 jnr FTE 1x £400pd, 0 mid/jr FTEs Marketing ‘ Do cheaply via White Label’. Target SAC: £20 Albion ‘ Do inhouse’. Target SAC: £15 Performance-only Exec team 3x 2x

Hire ahead of curve

‘ Have done it’

Hire behind the curve

‘ Could do it’

Outsource for speed / credibility

12 months later – lagging platform run by 7 FTEs

Build inhouse

£10k bonus to key developer

12 months later: UK-class platform w 3 FTEs

‘ Do everything properly’. PwC, Lathams, Russell Reynolds

£20k pm excl one-offs

‘ Get it done’.

£3k pm excl one-offs

1x £1000pd, 1 mid, 1 jnr FTE

1x £400pd, 0 mid/jr FTEs

‘ Do cheaply via White Label’. Target SAC: £20

Albion

‘ Do inhouse’. Target SAC: £15

Performance-only

3x

2x

How not do to it

How we were doing it 9 months later

Expert advice, collated “ Re-negotiate all contracts (especially landlord) - suppliers will bend over backwards not to lose you” Review inhousing vs outsourcing “ When it comes to spending on something (e.g. hiring another body) if in any doubt - say 'no‘” “ Try going to some of your potential customers very early and getting them to pay in advance and financially support the development of the product in return for a steep discount” “ Avoid Reed & similar for temp tasks - use hourly freelancers from e.g. peopleperhour.com” “ Apply for R&D tax credit for development expenses - in XXX’s case £37k last year, £50k this (if we get it) of cash funding from HMRC” “ Investigate fully what ‘free’ money you might qualify for – tax credits, subsidies, loans, etc.” Watch solvency of your creditors and be careful who you extend credit to Avoid physical automation like the plague Source: CEO/COOs running my portfolio’s (internet) businesses

“ Re-negotiate all contracts (especially landlord) - suppliers will bend over backwards not to lose you”

Review inhousing vs outsourcing

“ When it comes to spending on something (e.g. hiring another body) if in any doubt - say 'no‘”

“ Try going to some of your potential customers very early and getting them to pay in advance and financially support the development of the product in return for a steep discount”

“ Avoid Reed & similar for temp tasks - use hourly freelancers from e.g. peopleperhour.com”

“ Apply for R&D tax credit for development expenses - in XXX’s case £37k last year, £50k this (if we get it) of cash funding from HMRC”

“ Investigate fully what ‘free’ money you might qualify for – tax credits, subsidies, loans, etc.”

Watch solvency of your creditors and be careful who you extend credit to

Avoid physical automation like the plague

How cashflow beat money

Our original thinking re cashflows

The reality: pro-forma cash flow per net new customer

We obtained £4.5m of funding by managing our cash conversion cycle + +

Cash conversion tips “ My only tip is to establish personal relationships with all the people in the accounts dept - those who will chase you for money. Call them by name, and always return their calls promptly. Don't hide. Also pay the first bill on time. Once you establish that of course you will pay but that it is all a bit of a game, then this buys you a lot of credibility and time.” CEO of a 2 year old profitable startup

“ My only tip is to establish personal relationships with all the people in the accounts dept - those who will chase you for money. Call them by name, and always return their calls promptly. Don't hide. Also pay the first bill on time.

Once you establish that of course you will pay but that it is all a bit of a game, then this buys you a lot of credibility and time.”

CEO of a 2 year old profitable startup

Centralise cash conversion process on Finance Make sure you have the right person in Finance New account creation Credit limits / payment terms Lower the ‘double signature’ limit and use CEO as excuse Payment timings +1 day per month Payment run timings Clear KPIs to the whole finance team

Make sure you have the right person in Finance

New account creation

Credit limits / payment terms

Lower the ‘double signature’ limit and use CEO as excuse

Payment timings

+1 day per month

Payment run timings

Clear KPIs to the whole finance team

Customers can help too Re-examine your proposition Cf PAYG phones Breakage Free trials Deposits Offer deals for cash-flow-friendly offers Pre-paid discounts Gifts

Re-examine your proposition

Cf PAYG phones

Breakage

Free trials

Deposits

Offer deals for cash-flow-friendly offers

Pre-paid discounts

Gifts

Supplier credit Payment partners Deposit negotiations Growing businesses want ‘ £X’ Flat/falling businesses want ‘X days’ Exploit internal tensions at your partner Marketing partners Performance-linking is a form of credit Run via monthly/quarterly statements Use minimums creatively

Payment partners

Deposit negotiations

Growing businesses want ‘ £X’

Flat/falling businesses want ‘X days’

Exploit internal tensions at your partner

Marketing partners

Performance-linking is a form of credit

Run via monthly/quarterly statements

Use minimums creatively

How to scale

How to scale? Culture There is no ‘Scaling Director’ CEO must own scaling Scaling is like blonde hair. Communications Keep business simple Focus focus focus Scaling beats revenue and profit Important beats urgent

Culture

There is no ‘Scaling Director’

CEO must own scaling

Scaling is like blonde hair.

Communications

Keep business simple

Focus focus focus

Scaling beats revenue and profit

Important beats urgent

Questions? William Reeve [email_address] www.twitter.com/wreeve www.wreeve.com +44 7970 290 690

William Reeve

[email_address]

www.twitter.com/wreeve

www.wreeve.com

+44 7970 290 690