Small business secrets...

How did a company with no customers secure $38m in funding?

Posted by Anthony Karibian on Aug 16, 2013 11:33:05 AM

As someone who keeps one ear to the ground in the small business industry, I’ve recently heard a lot of noise about small business solution provider NumberFour. The company most recently hit the headlines after securing $38m in investments, despite apparently having no product or customers.

So what have well-known investors including Index Ventures, Allen&Co, T-Venture/Deutsche Telekom, Andreas von Bechtolsheim, Jerry Yang/AME Cloud Ventures, Klaus Hommels and Lars Hinrichs actually invested in? It seems NumberFour’s main selling point is its founder, Marco Boerries, who previously set up Star Division, Star Finanz, and Verdisoft.

Based on a presumably strong business plan and a well-known Founder, NumberFour’s success up to this point has been founded on hype. This latest investment announcement brings to mind the early days of the web, where new ventures secured big investments on the strength of buzz around their new business concepts.

Back in 1999 when I started Euroffice, now Europe’s leading online office products company, there were around 10 other B2B e-retailers such as eZoka, Mondus, and Grouptrade, which had each raised from £5m to £30m each from investors in their early stages. At Euroffice, our investment was a fraction of that amount at less than a £1m and it came from the founders, as well as friends and family. Yet, we were the only company to survive.

These failed ventures all had great business plans but lacked the entrepreneurial experience to carry the plans through. They were all first time entrepreneurs. Of course, NumberFour’s founder is an experienced entrepreneur, and it’s fair to assume he has plenty of his own cash to invest in the company. This makes me wonder whether securing such a large investment was really necessary financially, or if it was partly intended to create a buzz around the company.

NumberFour is targeting the small business market, which is notoriously difficult to crack. This was something I experienced when I founded XLN Telecom. It really took 3-5 years to fine-tune our business model - i.e. product, pricing and service - before we were able to grow the business to 120k small business customers.

This is a lesson I’ve taken into my current business -- the bOnline product has only been around for two years, but it looks completely different to the prototype version, as we’re constantly learning what our customers want and implementing at least 20 sales and customer-driven improvements each week.

It’s true that NumberFour is taking its time to hone its product. A statement on its website says “an announcement will follow at an appropriate time”, which is vague enough to keep everyone guessing. Another interesting quote from the website is NumberFour’s claim that it is “helping 200m+ run their business”. A customer base of over 200m sounds very impressive, yet we know they have no product yet and therefore no customers -- they’re actually just stating how many small business owners exist.

So what will NumberFour actually offer once it launches? Other than some jargon on its website about helping small businesses, it’s not entirely clear. However, the fact the company has raised so much without a product has thrown them into the spotlight. What better way to promote your product than to build up hype about it? The investment news has etched the name NumberFour into people’s minds, so the brand recognition will already be there when the product is finally launched. If the final product really is ready to dominate this packed marketplace, I would be very interested to see it.


Topics: CEO's blog

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