When TrustedPlaces was bought by Yell, David Soskin’s Howzat Media realised an exit on the investment made in 2006. He shares the lessons of taking a business through to sale
Sokratis Papafloratos, a Growing Business Young Gun in 2009, has just achieved something close to the heart of most entrepreneurs: the successful sale of his internet business, TrustedPlaces, to Yell.
Papafloratos grew up in Thessalonica and came to the UK to take a degree in electronic engineering at York University. Following a postgraduate stint at King’s College London, he joined Vodafone. After nearly four years at the telecoms giant, he left to join a well-financed US mobile start-up – but he yearned to have his own business.
Why did Papafloratos want to leave a comfortable, well-paid job at one of Britain’s largest and most prestigious companies for the chillier atmosphere of an early stage venture? He sought the creativity and autonomy that goes with it. And his subsequent journey from start-up to sale provides some key lessons for all entrepreneurs.
“Of course the odds of success are stacked against you,” he says. “But you’ve got to have a shot, and you do have a chance. It’s a small one, but the more of yourself you put into it, the more chance you have.” Lesson One: Understand the risk of a start-up and be comfortable with that risk.
In 2006, Papafloratos had a business idea to set up a mobile-based network for local companies to communicate with their customers. He found a business partner, Walid Al Saqqaf, with complementary skills, including finance. Together they changed the concept to create the TrustedPlaces of today – a website that lists local places (restaurants, clubs, bars and so on) with local reviews drawn from a community of reviewers. Lesson Two: Don’t be afraid to adjust your ideas.
So how did Papafloratos get started? First, he raised £35,000 from friends and family. Then in August 2006, he called his old boss Chris Burke (the legendary Vodafone chief technology officer) saying he had some important news. Burke asked: “Are you getting married?” “No,” replied Papafloratos, “I’m launching a new company.” Burke suggested meeting up, and after hearing Papafloratos’ plans, he provided a further £25,000. Lesson Three: Do not be shy about asking for funding.
Then in December, Papafloratos pitched TrustedPlaces to Hugo Burge, my partner at Howzat Media, whom he had met at a networking function, and then to me. As a result, Howzat became TrustedPlaces’ major external shareholder when the company had only 11,000 monthly unique users and zero income.
Fast forward to 2009 when TrustedPlaces was achieving nearly one million monthly unique users. It was also making money and generating cash. But the market was by now becoming very crowded with well-funded competitors from Germany and the US, as well as smaller start-ups.
TrustedPlaces needed to be part of a larger organisation to continue to expand. Papafloratos received several approaches, but Yell offered the best fit, strategy, assets and market position. So in May 2010, he signed the deal with the directories giant. Lesson Four: Know when to exit.
Papafloratos took a big risk. He worked unbelievably hard. He lived modestly, took very little out of the business (far less than he would have earned on the open market) and kept a tight rein on costs. Lesson Five: To maximise the value of your equity, look after the pennies.
Lesson Six isn’t for entrepreneurs, but for government: If the British economy is to recover, it will be small businesses like TrustedPlaces and entrepreneurs like Papafloratos struggling against great odds that will make it possible. Our political masters would do well to remember that.