Capital Efficient Entrepreneurship: Voices.com CEO David Ciccarelli (Part 7)

Sramana Mitra: How does the professional services group work? Do you have your own in-house voice people, or once you get the project, you figure it out and use the platform to recruit them?

David Ciccarelli: The latter. It’s the same platform and the same talent. The clients either don’t have the time or it’s the first time they’ve ever done this, or they might be a curriculum designer that has a hundred other moving parts. They need the extra support and bandwidth.

In the end, they’re looking for the same thing which is a professional quality recording delivered to them as an MP3. How they get that is they can do it themselves or have us get it for them? It’ll be slightly more expensive having us contribute to that. That’s how we satisfy those needs.

Sramana Mitra: I assume that you’re doing everything self-financed? There’s no outside financing in the business, right?

David Ciccarelli: There’re three ways that you can fund a startup – debt, equity, and cash from customers. You think you’re going to burn money for the first year. At some point, you need to be charging for your service. If people aren’t willing to pay for it, you’re never going to have a long-term sustainable company. We actually started with the cash from customers, which was the subscriptions.

Then we rolled in those transactions fees. Along the way, we acquired some debts. That first loan was $15,000. Then there was $20,000, $25,000, and $50,000. The year before last, we did acquire a $2 million loan from the Business Development Bank of Canada. At each of these stages, it was a matter of paying off the previous lender. I either pay them off early or it was part of the deal to restructure. It’s really been a debt-financed growth story.

Sramana Mitra: Which is perfect. For small businesses that are growing at a reasonable pace, this is the perfect way to grow. This is what small business banks are supposed to be doing to support small businesses. Is the small business bank of Canada a friendly institution to work with for you?

David Ciccarelli: It’s the Business Development Bank of Canada. In fact, they provided the first $30,000 loan to us and all of the subsequent ones along the way. Particularly in Canada, there are some very favorable financing terms. One of them, in fact, was zero percent financing repayable in five years. The principal didn’t even start for five years. The opportunities are out there. Even if it was at market rates in terms of interest, you need to determine what your cost of capital is and factor that in. The benefit is that you do maintain control over your own destiny.

Sramana Mitra: Absolutely.

David Ciccarelli: It’s so often forgotten that as soon as you involve outside shareholders, you’re beholden to a board and quarterly meetings. There’s a time and a place for that. As a company, we’re evaluating that process now because we see some new opportunities in the market that we can pursue.

Sramana Mitra: At the same time, your ability to attract debt at this point is very high because you have a profitable concern going on for many years. You could very well be financing your growth through that process.

David Ciccarelli: Exactly. As Noam Wasserman talks about in the Founder’s Dilemma, do you want to be king or do you want to be famous? You could be powerful but not have all the finances because you have control. However, if you give up some control, you may be more financially well-off but don’t have the power you had before. That’s what’s referred to as the Founder’s Dilemma.

Sramana Mitra: It’s a very complex topic. It’s something that we deal with all the time. That decision is not just up to you. There’s a whole concept of whether you’re fundable or not. A company that goes, in five years, from zero to $100 million is the kind of companies that VCs are interested in funding. If you’re an organic, linear growth company, that’s not VC fundable. There’s no option.

Most entrepreneurs do not grow at that kind of pace. They’re just not fundable companies. The whole media has created such a fuss around funding. They believe that success equals financing so they’re all chasing financing, and putting themselves out of business by not doing the right thing, which is chasing customers and monetization. It’s a very complicated mental shift for people to make.

It was great talking to you. Thank you for your time.

This segment is part 7 in the series : Capital Efficient Entrepreneurship: Voices.com CEO David Ciccarelli
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