Brent Hoberman co-founded Lastminute.com, the online travel and gift business that floated at the peak of the dotcom bubble and managed to survive the subsequent burst.
Mr Hoberman, Lastminute.com CEO, offers FT.com readers advice on how to pitch ideas to potential investors and set up a business.
This Q&A session is one of a series of events on FT.com to mark national Enterprise Week in the UK.
Did you change from being an employee to starting a business, and if so how tough was it to make the break?
Matthew Tondziel, London, UK
Brent Hoberman: Yes I was an employee for five years as a strategic consultant then for 10 months at two different internet start ups. The transition was exciting - and the best learning experience possible.
The key was a background that gave me a good overview of business (despite the modern languages degree) and a short attention span that led me to enjoy learning about all areas of the business.
It was obviously essential to then build a team with complementary skills and to have a mix of confidence with an understanding of my own weaknesses and compensate for those in the core team.
What was your smartest business move?
Tina Roberts, New Jersey, US
Brent Hoberman: My smartest business move was not taking no for an answer when trying five times to buy the domain name Lastminute.com and choosing a pretty savvy business partner in Martha Lane Fox. After that I think it was the initial focus we had on speed of execution and building credibility fast which lead to rapid adoption from suppliers and customers.
If you were starting out now, what sector would you go into and why?
Jason Knights, Horley, UK
Brent Hoberman: It still feels like we are only at the beginning of the disruption the internet will wreak upon many sectors. There are many industries that are still highly inefficient in their pricing structures, highly fragmented and only now beginning to use the internet in their businesses. Industries that have historically high margins are even more tempting. The growth of broadband is also enabling a wealth of new possibilities on the internet that were not possible before.
The areas that are deservedly getting a lot of enthusiasm are: local search, mobile, VOIP, vertical social networks, video content over IP, and emerging markets like like China and India.
What form of advertising do you think is most effective, the traditional print media or online, or do you recommend a blend of the two?
Stephan Bisse, Oxford, UK
Brent Hoberman: My feeling is the most effective thing you can do is get the product right and correctly priced so that people will shout about it on your behalf. Once you have done that clearly online media has is very measurable so it does form a very important part of the mix.
At Lastminute.com the key for us was using traditional media in unexpected ways and playing with the context of that media. We wanted both the form and content of the ads to be surprising, to create a wry smile, make the customer understand we thought like them and consequently get noticed and drive a call to action!
Implementations ranged from probably the first dotcom on london buses, the first on digital buses, contextual ads on the doors at Heathrow and Gatwick, plastic people, and interesting tag lines like “surprise your girlfriend - take her sister to Paris.”
How much did you need to get Lastminute.com started, what staff do you need for getting the content? And where did you look for in investors?
Simina Botar, Bucharest, Romania
Brent Hoberman: We initially raised £600,000 and launched the initial website within four months in 1998. We then needed a subsequent bridge loan of about £300,000 pounds a few months after launch.
The key staff were enthusiastic sales people to convince suppliers to get on board and obviously a few knowledgeable technical staff to help us manage the site. We also needed some help with data entry and customer service - although both Martha and I did some of this ourselves in our idle moments.
We found our initial investors by trawling any source we could for specialist venture capitalist who would invest in seed (pre product/ pre revenue businesses). I found Arts Alliance by trawling an early social network site ( a forerunner to friends reunited) called PlanetAll.
New media Investors were found when calling directory enquiries for a company called new media people - they gave us the wrong number - which turned out to be lucky. As in any business there is an element of making your own luck. We sent the initial plan to 20 people, 10 of which agreed to see us, and almost half of those agreed to invest.
Do you think people are born entrepreneurs or can entrepreneurship be taught?
Jason Li, Blackburn, UK
Brent Hoberman: Clearly, being an entrepreneur is not for everyone. Many people simply wouldn't enjoy or wouldn't find the sacrifices of starting their own company worthwhile. For some time the entrepreneur will be a prisoner of his business creation.
The determination, obsessiveness, tenacity, salesmanship - are skills that can be improved but some people will clearly be better suited to other vocations. I think entrepreneurship can be encouraged and nurtured but perhaps not taught.
Could you share your experience and advice on how to build from scratch a strong, trusted and dynamic consumer brand? What particular brand attributes should entrepreneurs focus on, when competing in a crowded market place?
Tom Martin, London, UK
Brent Hoberman: Differentiation and satisfying a true customer need would be the short answer. But to be less glib it really is about standing out from the crowd, doing things in a different way and being remarkable.
Be seen to be the customer champion, take on an industry as the underdog and do it better than anyone else. Don’t seek perfection as that's what the big companies do - the task of the entrepreneurial brand is just to do it better than anyone else. Trust is built by treating your customers with respect, delivering on the promise and in the early stages staying in touch with them and ideally corresponding with them directly.
Dynamism is critical as you identify, a culture of innovation internally and in all your corporate messaging will be critical. Also the whole team should be tasked with making some mistakes - as the fear of making mistakes can be the greatest threat to building and maintaining a great brand!
How important is PR in supporting online businesses in both driving people to the website and improving brand recognition, which in turn boosts sales, facilitates supplier relationships, and hopefully enhances your chances of getting a better deal from investors?
Penny Haywood, Edinburgh, UK
Brent Hoberman: Good PR can clearly give both investors and customers confidence in a business and increase positive word of mouth around a strong idea or customer proposition. For online businesses, online recommendations can spread amazingly fast - witness the success of Youtube, Skype, Myspace, and Bebo.
What are the most important things when pitching a business to potential investors?
Bryn Harries, UK
Brent Hoberman: Credibility and passion of the management team, the logic of the plan in terms of well thought through and ability to execute, a solid idea with a large addressable market or the potential to build significant barriers to entry
When starting out Lastminute.com, what did you most appreciate from a bank? And as you evolved into the large success story, how could a pro-active bank assist a rapidly growing business to expand?
Paul Webster, Sydney, Australia
Brent Hoberman: Our biggest issue was actually getting a bank to give us a an account that would let us process customer credit cards. All of the major banks at the time refused us so we found a workaround using a payment processing company called Datacash that lets us use there account.
Our business was a high risk one so in the early days the traditional bank relationship with borrowing etc didn’t play a large role. As we evolved we were able to for example negotiate overdraft facilities to cope with the highly seasonal nature of our business.
Do you think the rise of private equity is a fad or a structural shift?
Charles Dolan, Los Angeles, US
Brent Hoberman: I’m not best placed to answer this one but can comment from having run a public for five years. This experience did enlighten me as to some of the benefits of private equity when running a fast growing company in a dramatically changing industry.
The ability to focus on the longer term horizon and not be subject to hedge fund mood swings based on quarterly reporting can be a positive for many companies. The other area that has clearly helped fuel private equity growth has been the low interest rates and ready access to the debt markets. There does seem to be a view that this benign environment will continue for a while.
However, the risk is as there is now so much money in private equity funds – will someone one day be tempted into overpaying on a deal and default… causing some in the debt markets to fall out of love with private equity?
What was the spur that took you from having a great idea to making it happen? I have many bad, some good, and possibly a few great ideas but I fail to pursue them because many questions that I ask myself often show up failings or pitfalls (barriers to entry, competition, replication, regulation). Does there come a point when you simply say to yourself - just go for it?
Mark McGillion, Gloucester, UK
Brent Hoberman: Yes! And discounting the not so good ideas is a critical part of the process of starting a business. I discounted loads along the way – including film specific magazines to be distributed in cinemas and a London guide to be distributed in taxis.
I felt both would be operationally too hard and didn’t have the potential to be big enough. For Lastminute.com it was when I first described the idea to potential online partners that I knew I had to do it – as there reaction was I would use a service like that myself!
The other test is it something you really want to do and would enjoy doing – are you really passionate about it? As obviously starting a business is an obsessive business
Did your original idea change or evolve significantly from the time of conception to the time you got through the process of pitching your idea to various investors? Did what you think you were all about turn out to be something completely different (hence making the exercise enriching) or, was the original idea spot on right from the start?
Shola Alli, Surrey, UK
Brent Hoberman: We actually pitched the idea very quickly – it actually took between 4-6 weeks to go through the process with investors. We did get the tyres kicked and the assumptions tested on the initial plan – and that process can be stimulating and thought provoking.
We didn’t however change our plan very much – we were really raising money for a proof of concept based on an anticipated customer need – and there was no need to change the view of that need, although we knew we would need to prove a lot over the next few months.
One change we made during the short process was to increase the amount raised from £500,000 to £600,000 as the quotes to build the website came in higher than expected as we thrashed it out with the suppliers. This was to a pattern that alas was sadly became very predictable.
What are the different ways of raising money without losing the control of your newly created company? Venture capitalists or business angels that you see on Dragons Den usually ask for large proportion of the business.
Adar, London, UK
Brent Hoberman: There are different views on how much equity control is important. The main thing is how to increase the probability that your business is a huge success. To do this the credibility, industry knowledge, network and brand stamp of a credible VC or angel may well outweigh a higher dilution than from a less smart investor. There are also small business loans available from the government or from some of the more enterprising banks!
One other structure that may be possible if the company is about to go through a dramatic positive transformation is a bridge loan that converts into equity at a discount to the next fundraising – we did this at Lastminute.com for our second round of investment.
What are your top tip for small businesses trying to impress larger companies? Does size really matter? And how important are personal contacts and networking in growing a business? You founded a household name online but did personal contacts give you access to cheaper start-up funds and other support?
Tricia Fox, Perth, Scotland
Brent Hoberman: For small businesses to impress large companies – credibility is all important and can be gained by things other than scale. A credible board, brand name investors, corporate partners, growth momentum etc are all signals that send signs to larger corporates that yours is a business that is built to last.
Personal contacts definitely don’t help – in our case though we really want external backing for the Lastminute.com idea so we didn’t want funding from friends and family – so we found early stage venture capitalists who specialised in our sector (artsalliance.co.uk and newmediainvest.com)
Networking is as you highlight another way of finding business partners and building credibility. But it does depend on the business clearly as in some businesses it is much more important than in others
Did you have a business mentor or someone that you used to ask questions when you founded Lastminute.com? If not, do you feel that mentors are relevant and helpful to entrepreneurs starting out? And if so what is their main use?
Emma Heslop, Palma de Mallorca, Spain
Brent Hoberman: Mentors are great if you can find the right ones who have got the time and relevant experience. Martha and I really gathered to advice from a range of people, our fathers, friends, investors and some helpful people in the industry.
But broadly, when starting out you want as much input as you can on the industry which you are planning to enter and feedback about regular start up pitfalls – ie when to recruit who, establishing the early dna of the company, watching cashflow, how to present the business case and how to sell the idea to potential employees and partners. In essence if one mentor can get you this great – if not an informal series of advisors is useful too!
I’m assuming you looked into where best to incorporate when you set-up shop. I’m thinking of incorporating offshore, since my products will be offered online only. Is this a good way of saving on taxes and red-tape?
Brent Hoberman: We did look into this where to incorporate but actually went for simplicity in the end – and opted for a UK based company. We wanted to make both potential investors and partners see the company as very transparent – so a UK based registration was one other clue to them. However on taxes and red tape you do raise a valid point and it’s obviously a balancing act with VAT, corporation tax and red tape and I suspect the answer will vary by type of business.