Funding issues for tech businesses are well documented in the North (even if investment levels are on the rise). This means that bootstrapping (entirely self-funding and growing with revenues) is a popular choice in the region.
These three businesses grew by knuckling down and taking that very approach. Here they tell us the benefits and pitfalls. Would go down that route again?
Red Ninja, Liverpool
Lee Omar worked a full-time job in the human rights sector to fund his then tech start-up, Liverpool-based Red Ninja, which he turned his attention to during evenings and weekends.
The business began in 2011 developing apps – including his first, a city tourism guide which received 22,000 downloads – and his wages and some savings went to pay developers and designers.
A year later he gave up his job to focus on Red Ninja, yet the business still cost more than it turned over.
“I was continually subsidising it with my own money for the first couple of years and I didn’t take a wage until 15 months in, so it was properly bootstrapped,” he says.
While his clear belief in his business could have led him to seek investment, a previous bad experience encouraged him to grow organically instead. In 2009, he pitched a separate tech startup to venture capitalists and angels, and received investment which saw him give away control of the organisation. The business, which was based around an app that was a cross between Facebook Live and WhatsApp, failed after about 18 months.
“They were controlling finances, setting targets and deciding strategies, and they were looking to monetise very quickly, which was too early for us,” says Omar. “That taught me that it’s not great to give away control because I didn’t agree with some of the decisions they were making.”
For that reason, bootstrapping has been the right decision for Red Ninja, allowing Omar to retain control and grow the business to a team of 16 in the way he prefers. The design-led tech company now works on a range of innovations using AI, internet of things, big data and app development, as well as smart cities, sensor technology and biomedical science.
Their Little Moments sensor is used in the incubators of premature babies at Alder Hey Children’s Hospital and takes data including a real-time video stream, which can be accessed by the mum via an app. It’s currently aimed at creating a bond between women who are separated from their babies and lowering the chances of post-natal depression. Red Ninja is working with the NHS on how the device could diagnose health problems in the future.
Another product, the LiFE project, uses sensors to control traffic flow in a city, to give members of the emergency services a clear route to an incident. It will be piloted in Liverpool.
Red Ninja’s range of work has been possible as Omar has retained control of his business, he says, though cashflow can be a worry in the early days.
“Sometimes it’s hard to retain staff because you can’t always pay high fees, and we’ve lost people in the past where we’ve known we probably could have doubled their wages in the next year as we’ve grown,” he says. “Sometimes it feels like you’re not growing fast enough but when you do have success it means more because you’ve put everything into it.”
NGC Networks, Wakefield
It took four years of running their business for Nikki Guest and her two business partners to begin taking salaries for their efforts. They had bought the business name of Wakefield-based NGC Networks for just a few thousand pounds in 2006 and started a network services division from scratch, a department of the business communications company that Guest took charge of.
Their decision to bootstrap came from a desire to retain a personal touch with their customers, which they believed could be lost if growth came too quickly.
“From day one we knew we had the right business model and we knew we had what it took to be successful,” Guest says. “We set out with a specific goal in mind, to provide the right solutions at the right price with the customer in mind. We wanted to be an ethical telecoms supplier and that was our reason for not wanting to grow too quickly.”
The three directors went without pay, but there were other personal challenges. While establishing the business, Guest gave birth to her first child. Taking just a week where she didn’t pick up the phone or answer emails; she then fell pregnant with her second baby when her first was six months old.
“At that point the business was just starting to get busy, so life got crazy,” she says, adding that her husband then became a stay-at-home dad so she could focus on NGC. “From a personal viewpoint, we all took a lot of risks, but the business didn’t suffer because we managed to carry on and by the time it had grown a bit we were able to take on a couple of members of staff, which helped with the workload.”
The business has gone from turning over £439,000 in 2006/2007 to £4.5 million in 2015/2016 and has 30 employees, many of whom have been with NGC since the early days. The same too can be said for its 800-strong client base. Many of the first customers remain with the business, which Guest believes is down to the decision to bootstrap.
“We set out to provide a personal service to the customers we deal with and we still have strong relationships with many of them, because we’ve had the time to nurture those relationships,” she says.
Today NGC provides business telephony, internet connectivity and video conferencing, among other services, and Guest believes its steady growth is down to a northern attitude of knuckling down to make something a success.
“There’s a lot to be said for hard work and for anyone thinking of starting something from scratch I would always recommend just going it alone and seeing how you get on,” she says. “You see people on Dragons’ Den and part of me thinks if they’re the kind of person to attract investment then they’re the kind of person that doesn’t need investment because they’ll do it anyway.”
The combination of a lack of funding in the North and a desire to expand in a precise way led Manchester-based Telcom to go down the bootstrapping route. Yet, this brought challenges for the ultrafast internet provider, which, by its very nature, required investment in hardware and infrastructure.
“Since we began in 2014 it’s been important to balance the growth of the network with the growth of customers to make sure we expand only where there’s demand for our services,” says Matt Sandrini, Head of Marketing. “We’ve had to make sure we’re strategic in the way we spend our funds because we wanted to keep the business lean and expand in a very precise way.”
The business, launched by chief executive Shaun Gibson to plug Britain’s connectivity problems, aims to offer wireless and fibre internet at reduced costs and with quicker installation times. It launched the UK’s first free superfast public Wi-Fi network in Manchester’s Northern Quarter in October 2014, as part of its scheme to support worthy organisations and the community. Despite the huge potential, bootstrapping meant the pace of growth was slow to start with, yet this meant the business was more focused, says Sandrini.
“We’ve been able to get to know our customers better and create new products around them, rather than creating the packages first and then finding there aren’t enough customers to justify them,” he says. “Now when we spend money on expanding our network we know that this would be a place where we’re sure we have customers. Bootstrapping has forced us to be in sync with our customers,”
The approach has also honed the team to ensure everyone is working towards the same goal and making the most of resources. The business currently operates in five cities, with Manchester, Liverpool and Leeds its largest networks, though expansion in each city has happened “block by block, where we’ve made sure businesses are interested before we’ve moved onto another block”.
Business has grown, but only at a pace Telcom can handle. “At the beginning it can be a challenge making sure you don’t have more customers than you can handle, in too many places,” Sandrini says. “If we’d spread to two places that were far from each other in the early days, it would have been a challenge for our maintenance teams to respond.
“We’ve made sure we grow at a speed we can manage, but that speed is increasing as we grow.”
If investment was freely available in the North, the tech scene could look a lot different, but it’s likely that Telcom would grow in the same way.
“I think we would probably bootstrap again,” Sandrini says. “It’s allowed us to target the kind of customers that we want to work with, and those customers have been quite vocal about how happy they are with the service. If we’d gone for a large investment we might not have had that freedom to be patient and create these strong bonds with our customers.”