This week our Entrepreneurship Columnist David Langer catches up with successful serial entrepreneur Michael Smith.
In 1998, less than a year after graduating from the University of Birmingham, Michael launched Hotbox.co.uk (now Firebox.com), an internet retailer which now turns over tens of millions of dollars each year and is responsible for inventing the Shot Glass Chess set and selling many other games and gadgets. Then in 2004 Michael launched Mind Candy, which after raising over $10 million in venture capital is now one of the world's leading developers of social multi-player games, helping kids around the world play and connect.
Which was the year that changed your life?
1998, the year I launched Hotbox.co.uk, invented the Shot Glass Chess set and subsequently realised that my first business was going to work.
What was your situation at the start of 1998?
After graduating in the June of 1997, I went travelling for a few months before taking a job with Goldman Sachs. However, it wasn't what I really wanted to be doing and my good friend from university Tom Boardman was in a similar position. Then in February 1998, we read a book called "Business on the Internet", made lots of notes and thought setting up an Internet business would be a cool thing to do.
What happened next?
We were both fans of men's and gadget magazines and noticed that while they regularly reviewed gadgets, they never promoted an online retailer that sold them. After doing some research and finding out that there actually weren't any, we wanted to capitalise on this opportunity. So we quit our respective jobs, and started Hotbox.co.uk.
We started off working from Tom's attic and both did some clinical drugs trials in order to earn a few hundred pounds to cover our living expenses. After my Mum heard about the trials, she gave us £1,000 to help keep us going without having to risk our health doing more trials!
By the summer, we had some friends buying gadgets from the website, but turnover was tiny. Then one night in a pub in Cardiff we came up with the idea for the Shot Glass Chess set. It's essentially a chess board but all the pieces are replaced with shot glasses. We described it as the Thinking Man's Drinking Game. Our friends all liked the idea when we explained it to them but to our surprise, we couldn't find anywhere that sold or manufactured it. So the next day we went into WHSmith, scribbled down the physical addresses of several magazine editors and journalists and sent them a press release we put together. Almost immediately we had a lot of interest in the concept - from BBC Wales to magazines such as Loaded and FHM.
So everyone liked your idea but you had no Shot Glass Chess sets to sell yet, no suppliers to buy some from and hardly any money. How did you overcome this situation?
We knew that we were going to receive a flurry of press in the lead up to Christmas so we spoke to some manufacturers, explained our predicament and ask if they would produce 100 sets on credit. To our delight, one agreed. Then in the lead up to Christmas we started receiving orders, the whole initial batch of sets were shipped and at this point we knew the business was going to work.
How did you proceed after gaining this early traction with the Shot Glass Chess sets?
By early 1999, we had already made tens of thousands of pounds and hired two more people into our team which allowed us to scale up our operation using this money
A few months later we were at a networking event called First Tuesday and we spoke to a venture capitalist (VC) about our ideas and early success. The VC was interested in finding out more and we needed to write a business plan. However, at 23 years old and with no knowledge of how to do this, it was far from straightforward. Anyway, we read as much as we could on the subject, made up some financial models that added up and put a plan down on paper. By the end of the year we had secured £500,000 from the venture capital firm New Media Spark.
What advice would you give to recent graduates raising money for their first business?
If you're trying to raise money for your first business today, I'd say the most important thing is to get out in front of as many investors as possible. Go to networking events, have coffee with angels, present at 'angel networks' and take advantage of any other ways you can get time with potential investors.
Given the current global economic climate, do you think now is a good time for new graduates to start a company?
I think it's always a good time to start a company - recession or not. We are in an economic downturn but bear in mind that Apple, Microsoft and many other hugely successful companies were founded in recessions. It's also tougher to get into traditional work, so starting a company might be a more appealing option for some people upon graduation.
How much help was it having a co-founder when starting up?
It is really tough to set up a business. Working with Tom made a huge difference - startups invariably have high highs and low lows and having a co-founder helps to keep the morale up during the difficult periods.
University is a great environment in which to find a co-founder because you get to work with people, get to know them as friends and therefore get to know their strengths, weaknesses and potential fit with you.
You've now started angel investing yourself. What do you look for from potential investments?
I've made about 6-8 investments and I like to invest in companies started up by friends, or friends of friends. The character and attitude of the person you're investing in is more important than the actual idea so it's a huge advantage to know a little about that individual before you invest.
I like consumer facing businesses, particularly ideas that I would use myself. The industries I tend to go for are online gaming and social networks.
Which entrepreneurs still inspire you?
Steve Jobs is my favourite entrepreneur. He made computers sexy. He's revolutionised four major industries in his career: personal computers, animation, music, and mobile.
One problem with the UK is that there are not as many role models as there are in the US. There are a few greats such as Richard Branson but we need more in the next generation.
Last question, what's next?
I'm currently spending 99% of my time on Mind Candy. We've just started generating revenue from our second product, Moshi Monsters, a social multi-player game aimed at kids of all ages. Over the next year we'll be looking to develop this aggressively - a similar game called Club Penguin was acquired by Disney for $700M in August 2007 which is evidence of the opportunity in this rapidly growing sector.
With Firebox.com, we've had a couple of conversations with potential acquirers but we haven't come to any agreements yet. We're a Venture Capital backed business so it's important that we are planning for an exit at some point.
While most of my time is spent developing Moshi Monsters, I have a few other projects on the go such as organising entrepreneur meet-ups, a music festival, and a possible book.
The life of entrepreneur is hectic, but the decision to launch my own business a decade ago remains the best thing I've ever done. I'd encourage anyone reading this to shake off the fear and give it a go. Life's too short to stand on the sidelines watching.