Bootstrapping a Fun Social Business: Paint Nite CEO Dan Hermann (Part 5)

Sramana Mitra: All the online ticket processing happens through your central website?

Dan Hermann: Yes.

Sramana Mitra: Is this self-financed?

Dan Hermann: That’s one of the really great things about this business. We’re completely self-financed. Our financing engine is based on the fact that people purchase a ticket for a future event, but they don’t attend the event for quite some time – typically anywhere between 28 days to 2 months. That gives us a certain amount of cash that we leverage to grow the business. That has been a key part of why we’ve been able to grow so quickly. When licensees put up 10 events, we’re selling tickets already. Then, we can finance supplies with the ticket revenues that come in.

Sramana Mitra: There is not a lot of cash requirement, really.

Dan Hermann: Yes.

Sramana Mitra: But you maintain a small G&A team that runs the central operation. The other operational expenses are happening through the cash flow generated by the event.

Dan Hermann: That’s right. We’re paying that out to the licensees when the events run. We’re able to leverage cash in the short term to generate more sales.

Sramana Mitra: Anything else that’s interesting?

Dan Hermann: It might warrant mentioning that when we stumbled onto this business model, this was a model that wasn’t necessarily one that existed. We had a lot of advice that was contrary to what we wanted to do. When we were talking about expanding the company through the business model, most of the business advisors told us that we had to be hyper-critical of who we partnered with and be very careful of who you choose as the franchisee. Sean and I didn’t want to go that route. We felt that we needed to move as quickly as we could. We wanted to empower the local artists. That has made all the difference.

It’s a juggling match to know which pieces of advice to take and which pieces of advice you shouldn’t take. At this stage in our careers, we’ve been able to navigate that pretty well. I don’t think I did as well when I was younger. Also, it is important to understand what the opportunity is and believing in it.

Sramana Mitra: Absolutely. The points you made about contrarian assumptions and contrarian approaches are interesting. If you’re going completely with the grain of what’s happening out there, you’re likely to generate a lot of competitors, but if you’re doing something different and bold, that’s more likely to actually create a long-term defensible competitive advantage.

Dan Hermann: Absolutely. That’s what entrepreneurship is about. It’s creating something new that didn’t exist. Nobody is better suited to really understand and see that vision than the entrepreneurs themselves.

Sramana Mitra: Thank you for your time.

This segment is part 5 in the series : Bootstrapping a Fun Social Business: Paint Nite CEO Dan Hermann
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