There is a certain shame that accompanies early business success. That's because no one - not investors, not suppliers, not customers - likes dealing with a start-up company. Which means that the first rule of being a brand new business is to pretend that this is anything but the case. And that means telling lies.
As a result, despite having (just about) played within the rules, those that have enjoyed impressive results tend to be a bit embarrassed about admitting to some of the scams they had to pull to get them where they are today.
Take Andy Phillipps, CEO of Active Hotels, which recently won Ernst & Young's Emerging Entrepreneur of the Year award, and now lays claim to being Europe's largest online reservations provider for the hotel industry.
That he had to resort to a few underhand tactics in the interests of creating a credible image, while trying to get the business off the ground, is now a slightly uncomfortable subject. Phillipps is proud of his achievements, but is also concerned about giving customers and suppliers the wrong impression of the way he runs his business. Other start-ups will be enthralled, though.
"When you start out, you have no customers, no products and no money, so you need to bluff to potential clients, suppliers and investors all at once," Phillipps says. Although he had attracted a lot of initial interest from the investment community, getting the Þrst company to make a substantial commitment wasn't proving quite so easy. "Several were interested in coming in at the £25,000 mark, but we needed £400,000."
So Phillipps just happened to mention that he'd already secured the "Þrst hundred". He wasn't lying; a friend had written him a cheque. What he didn't mention was that this was for £100, not the £100,000 that the investors automatically assumed. "I was suddenly oversubscribed, with £1.25m on the table," he recalls guiltily.
Then there was the matter of office space. Like many new enterprises, Active Hotels kept its initial outgoings as low as possible, for as long as possible, its four staff operating from the co-founder's house for the Þrst eight months. Then the issue of credibility began to rear its ugly head again. "You can only get away with meeting people in Starbucks so many times," Phillipps says with a smile.
When the Þrst client expressed an interest in visiting Active Hotels' offices, Phillipps and his team borrowed a friend's offices in Cambridge and got another friend to phone every couple of minutes, to make the business look busy. "I think we got the idea off Richard Branson," he says. It worked.
When they later had the resources to secure their own premises, the team had to act quickly again, as a client was due to visit on the day they were due to take occupancy. "We crept in the night before to set up. We spread out newspapers and made it look as though we'd been there for ages."
Feeling devious suggests an over-active conscience, but Phillipps concedes there is a serious moral to his story. "People would be surprised at what you can do without when you Þrst set up. We signed two big contracts with nothing behind us - just suits and enthusiasm. One was for some major computer hardware, which we provide to hotels to manage their reservation systems, and the other was an exclusive UK distribution deal to sell hotels to US consumers - even though we had no hotels at the time."
This is exactly the sort of tale that gives Greg Gianforte, CEO of computer software company RightNow, renewed faith in the UK entrepreneurial spirit. Perhaps because he is American, Gianforte is less coy about the means by which he has conquered his market (he sold his previous business, Brightwork, to McAfee - now Network Associates - in 1994 for $10m). He is so proud of his penny-pinching exploits when founding companies that he now lectures on the virtues of "bootstrapping" and is writing a book on the subject.
A key thrust of his evangelistic message: "Don't confuse shipping with selling". His point is that it is wrong to assume you have to go out and develop a product before you can call yourself a business.
"Don't put any energy into the product until you know you can sell it," he urges, noting that RightNow's software (for managing companies' customer care activities) wouldn't be the product it is today if he'd developed it before trying to sell it to customers. "Selling the concept was the best form of market research we could have done," he recalls.
"We started out simply with a single sheet of paper which described the product we wanted to sell, and asked potential customers if they'd buy such a product if it existed. When they said no, we started with a fresh sheet of paper. We only built the product when we knew people wanted it."
Other tactics in the Gianforte handbook include piggybacking on the reputations of other, more established players. When he was founding Brightwork, a network management software company, he decided that a distribution deal with a large brand would be a good way of growing a reputation without investing himself.
He paid $200 (£118) a month for a 48-foot billboard opposite Novell's headquarters, with a simple ad that ran: "Don't just network - Brightwork". Within days, Gianforte received a call from Novell's head of corporate communications, asking for a press kit. He secured the desired master distribution agreement, which then gave the company the credibility to win further contracts.
Proby Patel, co-founder and managing director of north London-based Asian talent agency UK Talent Spot, has also done well from this strategy. The company, which started up in January with the help of its local enterprise support agency and BusinessLink, is already in profit and that's without any expenditure on marketing.
"We quickly established lots of contacts and have used these to promote us," Proby says. "When BusinessLink gets involved, they get you lots of press, and we've done a series of contra deals with big events - Asian gigs, fashion shows and beauty contests, and one mainstream event - which make us look bigger than we actually are. In return for the association, we put their logo on our website or promote their activities at our own gigs, which doesn't cost us anything."
By saving money on marketing, which can make a huge dent in any new business's start-up funds, UK Talent Spot has been able to keep its initial expenses relatively modest, and has not yet had to call on external investment. As a heavily web-driven business, the company's main expense has been a professionally designed internet site, which the company had done in India where IT talent is abundant yet prices remain low. "The site cost us about £2,500 to develop, whereas it would have cost more like £12,000 in the UK," Patel says.
