For today’s crop of entrepreneurs the question of start-up funding is a big one, given the reluctance of banks to loan money to new businesses. The founder of fast-growing gaming website SportGuru explains how he managed it.
James Hutchison, co-founder of online sport prediction game SportGuru, says his firm didn’t want to rely on a bank loan when it began last summer.
“Making a big commitment like that puts a great deal of pressure on your new company to succeed, so we went with a more cautious approach,” he says.
“We had people with the skills to build the website, so the primary investment was our time rather than capital, and then we set aside a small amount of budget for marketing and promotions.”
Since its launch in August last year, SportGuru has amassed over 12,000 registered users.
“I’m sure that if we had a bank loan to spend, we wouldn’t have been quite so careful with our money,” he adds. “That could have caused problems further down the line.”
Hutchison’s team looked for partnerships with similar sites to help grow the website’s audience, identifying opportunities to work with them without money changing hands.
SportGuru used Facebook and Google advertising to target the demographic they wanted to go after: 10p spent on a click-through was money well spent if the person decided to register.
Hutchison also explains how they organised a big launch event, knowing that a small amount of spending here was vital to kick-start the business.
“On the first day of the rugby season, we organised a huge prediction competition in a pub in Twickenham, offering a small prize and signing people up to the website as they drank their beer before the game,” he says.
“We had a giant banner made which was hung outside the pub, and I remember there being some debate over whether this was a worthwhile use of funds, or whether the targeted online advertising was more appropriate.”
The event was a success, and the banner was left outside the pub for several weeks afterwards. A few months later a big US media company contacted SportGuru interested in a partnership. When asked how they had come across the start-up, the Digital Director for Europe explained that he lived in Twickenham and that he’d seen the banner outside the pub.
SportGuru has become an attractive prospect for advertisers looking to engage with its users, who are a high-spending group. The game is free to play, and the business model relies on advertising revenues.
After some initial promotional activity, viral marketing has taken over as the main way to promote the site.
“The key is to maintain strict control over the budget and ensure that every spending decision is carefully considered on an ROI basis,” says Hutchison.
“The barriers to entry are lower than ever in most sectors,” he adds. “That lower risk means it’s worth giving something a go if you have the belief and determination to see it through.”
But it’s certainly easier to start some companies with no investment than others. For those business dreams that involve prototype generation or costly overheads, it’s worth considering your funding options.
According to a recent report by the Global Entrepreneurship Monitor: “The likelihood of raising venture capital is extremely remote. To illustrate, in the US a person has a higher chance of winning a million dollars or more in a state lottery than getting venture capital to launch a new venture.”