A recent study, published by the Daily Telegraph, examined 150 technology, media and telecommunications (TMT) companies that had started up within the last six years to try and discover what the common aspects of the successful ones were and, conversely, what the ones that had failed had in common.
Since starting, of the 150 studied, 100 had proven successful with the remaining 50 failing. Here are some magic ingredients that go up to make a successful TMT business.
- Small Teams Trump Individual Entrepreneurs
The benefit of starting with a small team is that you have a ready-made pool of creative thinkers who can then “feed” off each other and also enable the business to react more proactively.
- Minimise External Investment
Most had an external investor from the outset and had gone on to sell more than 50% of their equity within six years as part of the process of raising additional funds to generate growth. Trying to “plough your own furrow” is much less likely to generate success than bringing in external funds and expertise. I work with a number of tech clients who are on their second or third funding rounds within five years of start up.
- Equity = Motivation
Clearly your business is your business and if you give too much of it away on the journey for success it will eventually be someone else’s business. The study concluded that 40% was the magic number. You need to remember though that this 40% may be split amongst all of the team who started the business with you and so your personal share may be a lot less.
- Get Investments From Like Minded Individuals
Funding for the successful companies was provided mainly by business angels and other sources of private equity funding rather than through bank borrowing. Typically investment into a new technology base is seen as higher risk than most banks credit committees are comfortable with. Your best avenue for funding is via individuals who already understand your product. A number of business ventures are turning to crowdfunding as a potential source of investment especially if they are unable to get interest from the banks.
- Get An Accountant On The Board
The study concluded that having expert advice from an accountant helped them to “push their foot hard on the growth accelerator to increase sales while using less cash and making the investment funding work harder.”
As an experienced accountant in the technology sector, I know that if businesses are given the right financial advice right from the start, they are likely to succeed where others fail. I work with technology, media and communications businesses all the time and I see how vital it is to understand your figures and to seek expert advice when you need it.