Obtaining funding can be difficult for a start-up, so when an eager investor offers a good amount of cash, entrepreneurs can’t be blamed for taking the money deal. But Matthew Meszaros from 2it Consulting says their company’s attempt to obtain funding for a growth plan went horribly wrong.
“We centred in on one investor and had really strong interest, so then we had the financials prepared and an information memorandum. It really got far down the track but occupied a lot of our time and focus getting there.”
“Unfortunately that investor pulled out on us after giving us his commitment and quite a bit of run-around. When we looked up from the whole thing we had a financial iceberg looming in front of us, it was very hard to get out of.”
Meszaros says the company was forced to obtain cash quickly, and worked “extremely hard” in order to get back to their good standing. It’s a lesson for entrepreneurs to not put your company’s future on the line with a single customer.
Perrie Croshaw and Paul Baldwin wanted to start an accommodation booking agency (South Coast Holidays), but were told by the Office of Fair Trade they would need to contact a solicitor in order to find out what legal requirements they would need to fulfill.
The pair was subsequently told no license was required to trade. But nearly 10 months later as the business was just taking off, they were hit with a warning to shut down.
“The OFT sent officers to our home (where the business was based) and told us to stop trading immediately. We were faced with having our business shut down for an unknown period of time after which it would be next to impossible to start it up again.”
“Rather than be intimidated by these officers, we immediately lodged a complaint with various sections of the OFT, wrote to the minister, our local MP and generally kicked up a big fuss. They finally awarded us a “restricted” real estate agents licence which permitted us to work in the area of short-term holiday rental.”
Croshaw and Baldwin said the OFT was in the middle of a regulation reform and hadn’t informed businesses of their new requirements. The incident serves to prove that no matter how many times you do the right thing, SMEs should always be prepared for unforeseen consequences.
Many SMEs actually fail when their start-up becomes more successful, as the scale of the business becomes bigger than they can handle. Jacky Roberts and Franz Madlener from furniture company Villa & Hut Group said they had reached their limit, and the business was at risk.
“We reached a “tipping point” with our franchisees – a point where our ability to service and grow our existing network – and build new relationships – was no longer being serviced properly to the standard that everyone had grown used to and this nearly tipped us over the edge.”
“The final straw was a call one day from a prospective franchisee who said, ‘It has taken me five calls to track you down – if this is what it’s like for me to try and give you my money, I would hate to think what its like to try and get some help’.”
The pair’s near-death experience highlights a critical need for entrepreneurs to always plan for their company’s next step before they get caught out unprepared.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
