Lessons of an entrepreneur: ‘the first rule of business is to stay in business’

At our second confessions event, startup entrepreneurs discussed the challenges they have faced in business and overcoming adversity

Over Christmas 2006, while sitting in a Tokyo cafe, Efe Çakarel decided he would like to watch a movie on his laptop – and discovered there wasn’t a single online platform that would enable him to do so.

Çakarel, who was speaking at the Guardian’s Confessions of a Startup seminar, was already a high-flyer. Born in Turkey, he studied electrical engineering at Massachusetts Institute of Technology before joining Goldman Sachs and later the software giant SAP. But on his flight from Tokyo back to San Francisco, he began writing a business plan for a new subscriber website where users could stream films.

So convinced was he of the idea’s potential that Çakarel gave up his job to pursue it. But he soon hit a major stumbling block: “For the first two years I couldn’t sign a single content deal,” he said.

Not one to give up easily, he raised starting capital of $750,000 (£617,000), and after two years of badgering studios and rights holders, he launched Mubi in 2009. Soon after, a promising deal with Sony to provide films for PlayStation 3 users boosted the subscriber base, but subscriptions fell sharply after the launch. “This is the moment when you realise that almost four or five years into what you’re doing you don’t have a business,” Çakarel said.

It was a turning point. He was two weeks away from running out of money. Should he abandon the business? He felt the market was big enough and he had the enthusiasm for it, so he took the advice of one of his board members, who said “the number one rule of business is to stay in business”. After letting some staff go, forgoing his own salary and asking other employees to take a pay cut, he rethought the business model. Instead of using the same “all you can eat” approach as Netflix, Mubi became a constantly-refreshed platform for independent, arthouse films. For £5.99 a month, a subscriber would always have access to 30 films, with one replaced every day.

The conversion rate of registered users to subscribers has risen since from 0.8% to 22%. These days, Mubi is available in 200 territories, has deals with more than 700 distributors and has offices in New York and London. After six difficult years, Çakarel said, he was “finally having fun”.

Çakarel’s keynote speech about bouncing back from imminent failure was followed by a panel discussion with three entrepreneurs: Isabella Lane, who co-founded Smarter with her husbandand invented the first wifi kettle; Emily Forbes, founder of Seenit, a video collaboration app and platform; and Rich Pleeth, who closed his investor-backed social app SUP in 2016.

Lane’s moment of near-disaster came after the company’s first shipment of wifi-enabled kettles was being brought over from China for delivery to the online retailer Firebox. She and her husband were patting themselves on the back when they took a phone call from their engineer, who’d realised that a design fault meant that the wifi wouldn’t work. They intercepted the shipment and, with the help of friends and family, unpacked the kettles, fixed them and loaded them back on to the delivery truck: a process that took a day and a half of constant work. It was, Lane said, “a fight or flight moment, and I’m really pleased we fought”.

The story illustrated the evening’s big theme: the importance of having people around you who support the business, whether it’s co-founders who share your vision, investors who understand your proposition or family members who are prepared to drop everything to help when the chips are down.

Pleeth’s turning point was the realisation that his startup company Sup, a highly-publicised social media app that had won the praise of Apple co-founder Steve Wozniak, wasn’t going to be a success. Multiple focus groups had delivered the reassuring message that Sup was “the best idea, and they were going to use it every day”. The reality was different: growth was steady but slow, and the app wasn’t attracting enough users to make it viable. Pleeth fell out with his co-founders and pulled the plug. His new company, polling app Curious, is a solo venture, and he is now more cautious about where he seeks advice. Fellow entrepreneurs, he has found, are often more honest than friends, who tend to be instinctively supportive.

Forbes set up her first business, a production company, with a friend, but the pair clashed and the business folded. “I was completely gutted and my confidence was gone,” she said. Setting up Seenit as sole founder, her biggest challenge was recruiting a team, which means “finding people who are as motivated as you, as dedicated as you. It’s something that has been a challenge and I have made mistakes”.

Most growing businesses want to expand overseas, but Brexit and recent events in the US have brought about fresh challenges: Lane woke up the morning of the Brexit vote to discover that Smarter’s potential investor (who was backed by a French bank) had pulled out. Later, the election of Donald Trump had a knock-on effect in terms of currency fluctuations. The company has delayed their US expansion plans until later this year: “Like the Beatles and One Direction, you get one shot at America,” Lane said. They have used the yearly Consumer Electronics Show in Las Vegas to launch products and meet retailers, distributors and agents. But cracking the US market, she admitted, has been a process of “trial and error”.

The difficulties of moving into international markets were echoed elsewhere. Audience member Rick Kothari founded T-Sticks, a company that sells tea in stick form, providing a more even flavour than tea bags. In 2016, the company opened an office in China, but in February this year found that a newly-formed rival company was approaching its clients and offering a cheaper (though as yet non-existent) product.

Another audience member, Andrew Taylor, a lawyer and founder of Covert Clip, a secure wallet, had tips for expanding into China. “You can get a design patent in China but you can’t publish anything first about the product. If you’ve got a really innovative product, it’s important to get your IP locked down first.” He also advised building one factory rather than two, so you know where the counterfeiting has come from if there is an issue: “If you use two factories, you have no basis of the truth.”

If there was one lesson to draw from the evening, it was that setbacks are an inevitable part of running a business – and it’s how you respond to them that’s important. As Pleeth said, reflecting on his early experience with Sup: “I’m a sole founder now, which is very scary but also exciting. You learn so much from failure.”

This article was first published in the Guardian’s small business network.

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