How we built a business out of recession - chapter 12 - seeking early investors
The story of CitNOW*
This is the 12th chapter about CitNOW, the company started from a kitchen table in Winnersh, Berkshire. If you’d like to read from the beginning, here’s a link to chpt 1. Each chapter is a 5-minute read, it’s an early draft of a book.
CitNOW was founded by Andrew Howells and Donna Barradale in 2005, although the company was only registered in 2008. In February 2018, we sold the company to Tenzing, a UK private equity company. It has been sold again since.
I think you need a certain attitude to start a business - start meaning you were there from day one. It’s ruleless and chaotic and needs to be fuelled by lots of self-belief. You have to be comfortable with that, happy to rely on yourself, whatever gets thrown your way. For me, at least, it meant a lot of time alone, which is not for everyone.
I was going to say a certain type of person, which might be true, but then I’ve met plenty of business owners, entrepreneurs if you prefer, who I didn’t like much. The feeling was, I’m sure, entirely mutual. They weren’t my type, usually because they struggled to control their fragile egos, having achieved a modicum of success.
By now, the business was generating some income with version 1 of the product, definitely a positive first step. It was also clear that there were a number of issues to be faced. If we couldn’t solve them, it was unlikely that we’d have much of a future.
What were the issues?
Not enough dealers who signed up to try stayed beyond their ninety-day pilots. Getting them to this point was a lot of work and effort, with the scant reward of £750 for using our software. We also made a small profit on the hardware needed, but that’s just because we were scrabbling around for cash. We didn’t want to be in the retail electronics business, but like many start-ups, we struggled with working capital, the bank being careful, constraining our overdraft to £15,000.
Product development was proceeding at a snail’s pace because we couldn’t afford more programming days. Berrie was now doing two days per week, a big step up from the one day a fortnight, but it was still nowhere near enough, even though he was being quite generous with his overtime.
We needed more cash. Either I sold more, we magically managed to retain more dealers, the bank was persuaded to improve our overdraft facility significantly, or we found an investor. The easiest seemed to be the last option.
Alastair, my university friend, who worked for the NHS and us part-time in the evenings and weekends, helped with the business plan, at least the financial logic needed to pass an investor's examination. He was reeling off phrases like net present value and discounted cash flows, but then he had the MBA.
This is all complete bunkum for a small company, for any start-up in the first few years. Even when we finally sold to Tenzing, the private equity house, with our monthly turnover of just under a million pounds, the real focus for the investor was sales revenue and what would happen in the next 12 months after they put their money in. Could they see a healthy growth story?
Early meetings
Two early meetings were held with others to discuss CitNOW and whether they were interested in buying into our business.
Our first was arranged by Peter (Budgen Motors), an extraordinarily kind gesture. He loved what we were doing but was smart enough to know that an investment from another third-party supplier might get us over our current growth bump.
Like others, his workshop had stopped using pen and paper years ago, opting to use software, often referred to as a vehicle health check (eVHC). He thought it would be a good marriage as he could see technicians using video in the workshop, a valuable addition to support the selling-up process.
Not only did he pick up the phone with Guy at BTC in Crewe, but he also attended the meeting.
My first impressions of BTC were cramped offices with people sitting on top of one another. The only place you could swing a cat was in Guy’s office, which housed a more extensive desk with a fat executive chair behind it.
Guy’s collared shirt was an expensive, brightly coloured crisp stripe, freshly laundered and pressed. There was no tie and at least one button too many undone. He greeted us warmly enough, and after the usual round of hot drinks had been dispensed by one of his team players, Peter explained why he thought the meeting was a good idea.
After Alistair and I explained CitNOW in more detail and reaffirmed why there might be a good fit, Guy told us about BTC’s history and how he’d started the business. The final five-minute conclusion was really a thanks, but no thanks. The business was growing topsy, mostly picking up competitor dealers for their eVHC system software and the training programmes, which everybody loved.
They were too busy. I think Guy was also struggling to see how video could be anything but an incidental extra, not worth the effort, especially with all the other low-hanging fruit he was about to harvest.
Peter was much more irritated than we were as we discussed the meeting's outcome on our drive back to Shrewsbury. He had a clear picture of how the integration would work and was surprised by the lukewarm response we’d received. He also knew that Guy was probably overstating his position, preferring to overblow all the potential opportunities he had to deal with rather than just saying no. People often prefer to find an excuse for bad news.
I discovered a lot later that BTC could never have been a good fit. Guy was very comfortable running a lifestyle business, which suited him perfectly.
They also released their own video solution for the workshop about 12 months after we launched CitNOW Workshop. Pressure gradually built from some of their own customer base, who were now using CitNOW in Sales and the Workshop and wanted an integration between BTC and CitNOW. It was promised a long time before it was ever delivered. Dealers who didn’t like our monthly subscription patiently waited until BTC released their own cheaper alternative.
*CitNOW was our company’s trade name before we sold it in 2018.