Growing a self-funded start up

The early stages

Edward was previously a small shareholder in a business designing and manufacturing bathroom products. After working in the same business for 15 years, he decided it was time for a change. Having always had an interest in food, Edward sold his shares and began looking for new opportunities in the food and beverage industry.

“Spending the last 15 years sitting in an office, I wasn’t in the best shape of my life. I decided to start using personal trainers and nutritionists, and the overarching professional advice I got was the need to change my diet, and concentrate on real food ingredients, not refined ingredients found in many meal replacement and protein shakes.”

This gave Edward and his co-founder Phillipa Garner an idea – combining real, nutritious ingredients without the added extra flavours and gums to create a natural protein source.

They hired a very small commercial kitchen space for start-ups at a local agricultural college and began developing a recipe for the natural protein powder fit for the UK market. The first flavour created was almond. Chocolate followed soon after.

With the product tested and created, the next aim was to launch Purition in retail outlets. However, struggling to secure retail listings due to the unique positioning of the products, Edward and Phillipa decided to take Purition online.

At first success was slow to achieve, but gradually through customer word of mouth, sales began to steadily increase. This online success meant that retailers were more willing to take the time to listen.

“We’re now stocked in 300 Boots stores nationwide as well as around 100 Holland & Barrett stores in Holland and Benelux. However, we still get most of our sales through online orders.”

Financing the idea

Unlike many early stage businesses, Edward and Phillipa were able to self-fund the business. Edward used the money from selling his shares in his previous business and invested it in his new venture.

Edward and Phillipa considered seeking external finance but were reluctant to put their house up as security, and decided to stick to mainly being self-funded, with some equipment on lease finance.

Edward does nevertheless agree that “there have been times in the last 5 years where an extra injection of cash would have been nice”.

However, running the business with a demand-led strategy meant the team were only manufacturing the products on a per-order basis. This meant they had money upfront from customers, allowing them to continue self-funding. “We probably ended up putting in about £200,000 of cash to self-fund the business.

Slow but steady growth

Purition has grown into a £2m business with a team of 10 people and has moved into a council owned enterprise facility set up to nurture food-based businesses. Edward recently employed a Senior Commercial Director to further grow the retail footprint, helping target the retail spaces they previously struggled to reach.

The range now boasts 10 flavours including new arrivals such as raspberry and chai latte, as well as a seven-strong vegan range that launched two years ago.

“What’s interesting is that most of our customers aren’t actually vegans but are interested in eating fewer animal products. Lots of customers order both of our products – so I think they are making their decisions based on flavour.”

Edward describes Purition’s growth as slow and steady, with 75% of monthly income coming from repeat customers.

Whilst slow growth can be frustrating for Edward on a personal level, it was important in the first few years to limit borrowing as much as possible.

“The fact that we can continue to self-fund is great, but it does have its limitations when it comes to growth. I think that with the right kind of investments, we could grow the business quicker in the future, but need to ensure we have the expertise first.”

What’s next for Purition?

Over the last 12 months there has been a real shift in the industry. Big retailers are now moving away from protein shakes and diet products to promote natural wellness instead.

Edward believes this shift is an important one that will support his plans for growth. He is currently working on a plan to take Purition from a £2 million business to a £20 million one.

“The market is there, so the next step for us is to develop our messaging and expertise through our management team. Part of this is looking at different finance options and understanding which type of finance we will need to support that growth. 

“If half of our business becomes a trade business where we have to give retail stores 100-days credit, it will change the dynamics of the business in terms of cash flow.”

Edward and Phillipa have spoken to a number of organisations including their regional LEP and a finance initiative group about business support. They are also looking further afield for the support and advice they will need to help them scale the business to the next level.

Edward’s three top tips for businesses starting out and self-funding

1. Get advice. I think that it’s sensible to get some really good advice early on – unlike us! We’ve just been lucky going with our gut, but it would have been more beneficial getting more advice early on.
2. Be aware of the challenges of self-funding your business. Although with self-funding you don’t have to use your house as security for a loan (or other types of finance) you are operating with very finite resources, so it does have its own limitations.
3. Keep the customer front of mind. We’ve always tried to do the very best for the consumer. We’re not in it for a quick buck and are carving out our own niche by producing a really great product and not compromising those values for the sake of quicker sales or a bigger profit margin. For example, 2-3 years into starting the business we launched vanilla and we used (and still use) real Madagascan vanilla, which went up from £150 per kilo to £700 per kilo because of global demand and poor harvest. Despite this we chose to not use vanilla flavourings, but to absorb the cost and just ride it out.

I think always doing the best by the consumer is the way forward so you can rest easy at night.

Not in a position to self-fund your business venture?

There are a number of options to consider:

• Seed finance: Usually comes from the company founders’ personal assets, personal borrowings, or from friends and family.
• Corporate venture capital: Often provided by non-financial companies with a specific focus. They make a financial investment in return for an equity stake in the business and offer non-financial support and sector expertise.
• Start-up loan: A government-backed personal loan for those starting or growing a business venture. Successful applicants also receive 12 months of mentoring.

External finance can give you more than just money

For businesses growing steadily with a clear idea on next steps, finding an investor with the right type of experience will give you much more than just money, for example angel finance or venture capital:

Angel finance: Angel investors make equity investments in businesses with growth potential. They often offer multiple rounds of finance, provide valuable first-hand experience of growing a business and share their network of contacts. 

Venture capital: Venture capital (VC) is often used by established businesses looking to support growth. Venture capital firms typically invest more than just money. They expect representation on the board and in return will offer beneficial strategic advice to support plans for growth.