How to bet responsibly.

Today's blog is brought to you by our sponsors Paddy Pow...

Only kidding. No big name sponsor for the FounderON blog yet. But we are going to be talking about making money by betting.

To be quite frank, lots of people have an aspiration to sell their business one day. Lots of people get good early traction when they launch. Maybe pinch a client or two from their former employer, and then grow a bit more with a referral. But to build a business that you can sell for big money one day, you need to be far, far beyond the £10k, £100k, maybe even £500k months.

And to get that kind of growth in revenue, you're going to need to take some risks. Just working harder stops moving the needle eventually. You're going to need to invest some money on things that might not work.

These far-from-certain investments were called bets in my business.

I reckon we placed about 25 of them during the 4 years between starting my business and selling it.

Probably half of them failed. Another 7 or 8 just about broke even. And the handful that worked took the business to the next level.

There is absolutely no chance that I would have built a business worth buying without placing the bets. In fact, I see many of the same companies we were competing with, 4 or 5 years ago, all at the same size now.

Placing the bets allowed us to make big jumps in revenue and headcount. And the resulting huge leaps in contract and client size.

But it would probably be irresponsible for me to simply encourage you to spend money recklessly. Back to the title of this blog. How to bet responsibly...

It's a fine line between not spending more than you can afford, but also making sure the size of the bets grows as you do. What gets you from £50k/m to £100k/m won't get you from £100k/m to £500k/m.

We used a very simple strategy called the bet budget.

It was a % of our revenue, that sat as a row in our costs section of the P&L. Ours was 10% of revenue, which is pretty chunky, but we wanted fast growth.

So whenever I looked at our forecasted P&L, the EBITDA it reported was always assuming the 10% pot had been fully spent. In that sense, it was free money (as long as the EBITDA still worked for our goals of course).

The bet budget was used for all sorts of growth levers. Most commonly senior hires that unlocked a new service offering, or region. But sometimes it was a marketing activity or another above-the-line investment.

As the cost of the 'bets' hit our P&L, we then removed them from the bet budget, so the number was always showing us what we had left to spend. And crucially, once a 'bet' started to work, we removed them from the bet budget and they just became business as usual. That would then free up money for the next project.

Revenue started to grow rapidly, which then unlocked even more budget, as it was tied to a % of revenue. It forced us to keep thinking of new growth levers, and make sure that our ambition levels kept growing as our revenue did.

Your own bet budget could be much smaller than ours was. But try modelling it out in your forecast. You might have more free EBITDA than you realise. And after all, when bets don't work, you can always cut them and release the funds back into the pot.