Starting Over

Once you’ve spotted an opportunity in a given sector, having the confidence to follow your dream and raise that first crucial bit of financing is often the hardest problem facing a budding entrepreneur. The following two questions reminded me of how I established some of my first businesses, and how I’d begin again if I had the chance.

Q: If you were 24 today, and you were given a budget of $3,000 to start a business, what kind of business would you choose? What if the budget were around $25,000?
Alex Bodislav, Bucharest, Romania

A: That’s an easy one. It would definitely be some kind of Web-based business, and I’m not sure it would make a difference if I had $3,000 or $25,000 to start out.

I began my career in the late '60s with my first business venture, Student magazine. I started by selling it one issue at a time, and soon moved to selling records from a phone booth. The publishing and music industries are struggling today due to the changes brought about by the Internet – but where there’s upheaval, there’s opportunity.

Look at how Apple has revolutionized the music industry with iTunes, its online music store, and the iPod, its digital music player. Such is the genius of Apple’s designs and their hold on the consumer that the company has taken the mobile phone market by storm with its “you gotta get one of these” iPhones. Then it tackled the publishing world with the iPad.

A whole industry is growing up around designing applications – games, magazines and booking engines – for these Apple devices. Successful application designers and publishers are already making a fortune, the way publishing and music moguls did in the '60s and '70s.

I have always been fascinated by all forms of content – music, books, television and film. Virgin has invested in all of these industries, with mixed success. If I were reborn as a 24-year-old, I would look at this area for an “app-gap” – a gap in the market or an opportunity to shake up the leading players.

And today I would also think big: These days an entrepreneur faces few geographical boundaries to success. When I started Virgin, our projects were limited to the U.K. because of financial limitations and cultural differences. With the development of the Internet, the world shrunk rapidly, and is now a far more cosmopolitan and connected place.

Q: What are the top three ways to find funding for a new business?
Pavlina Stoyanova, Canada

A: The first, and probably most obvious, is to borrow from your family and friends. It is high-risk, for if things go wrong, you can lose not only a business but also a friend or the friendship of a family member. However, for many entrepreneurs this is the fastest and only way to raise start-up funding.

Over the years I have been lucky in that my family has been able on a few occasions to bail me out or provide some early money. In 1967 I was living in my friend Jonny Gems’ parents’ basement off Edgware Road in London. We were broke and struggling to get Student magazine off the ground.

But one day my mum, Eve, brought us 100 pounds in cash. She had found a necklace on the roadside and taken it to the police. When nobody had claimed it after three months, the police told her she could have it. She knew we were out of funds, so she sold the necklace and gave us the money. That 100 pounds paid our bills and kept us going for months. The business would have collapsed without it.

The second option is to apply for a bank loan. From the beginning I tried to build my businesses by relying on my own resources and some bank debt. This allowed me to control the lion’s share of the equity until I felt we had the stable platform we needed before we could bring in outside investors. In Virgin’s early expansion days we would sometimes lurch close to collapse because I was so reluctant to bring in outside equity. I felt our limited capital kept us focused on finding the next great act, and ultimately this was a real contributing factor to our success.

Lastly, if the bank won’t lend you the money on the strength of your idea alone, you have to have the faith and conviction to borrow against your existing assets, such as your house – or, if you are lucky as I was, a friend’s or relative’s assets.

In the early '70s, I was looking to purchase the Manor, the country house that would become our first recording studio, for 30,000 pounds. I had put up the only 2,500 pounds I had in the world and managed to persuade the bank to lend me 20,000 pounds, but I was still 7,500 pounds short. That is, until my Aunt Joyce stepped in and said she would lend me the difference.

It was an amazingly generous and risky gesture, and one that I may not have accepted, had I known that she had mortgaged her own house to provide the capital. I did accept it and bought the Manor, which soon became home to our first hit, “Tubular Bells.” Virgin grew quickly from those shaky beginnings to become a successful business, and I made sure I paid back Aunt Joyce her 7,500 pounds – with interest – as soon as I could!

Another risk of taking the friends and family route is of course what they may ask for in return. In my case, had she really wanted to push it, people could today be flying on “Aunty Joyce Airways.”