The pains of being a startup
The pains of being a startup
Everyone knows the statistics around startup failures and we are well aware that the chances of a company getting a business up-and-running and thriving in any industry are sometimes vanishingly small. As a recent blog posting from Graham Carrick, the founder at Dublin-based social gambling company RunLastMan, pointed out, the chances of failure for a business-to-consumer (B2C) startup in the gambling sector are even more pronounced.
Seeing as Carrick’s own company is a relative success story – three years and counting now – he makes the point when he spoke to TotallyGaming.com that he doesn’t want to come across as “all doom and gloom”.
But he does think the failure rate should be discussed, and in particular, the role of the regulators. “Regulation has become a total nightmare, especially in the UK,” he says. “The introduction of betting taxes, the requirement for security audits, quarterly returns, and to age verify every single UK player has made business mind-numbing and difficult.”
The requirement to gain a licence is, he insists, a “significant hurdle” as it forces startups to “jump in at the deep end” without being able to even test the market as would be the case with other sectors.
This is happening at the same time that technology should be making life easier for new enterprises as the costs for services are falling significantly. But when Carrick runs through the numbers, you can see why the hurdle is so high.
“In other spaces it's possible to do a hell of a lot of damage with £250,000; however, in the betting space this doesn't go a long way as licensing, product development, age verification, payments setup, etc. eats a considerable amount of capital. And that’s before you’ve even acquired your first player for £70.”
The difficulties encountered has affect throughout the sector when it comes to innovation and what can be viewed as the risk-aversion of the major players. It makes exit strategies difficult when the larger operators have large-scale M&A in their sights and have very little track record of buying out and acquiring a smaller B2C provider.
“The senior echelons of the betting companies are very comfortable and often deem anything that's innovative as too risky if it diverts away from the affiliate/Facebook/Google Adwords player acquisition strategy,” says Carrick. “This is stifling innovation.”
That said, Carrick admits that often there are faults with the entrepreneurs that have taken to launching ideas which can be classed as being half-baked. In this sense the industry resembles the restaurant trade. “A lot of ideas are not fully thought out as you tend to get a lot of men with an interest in sports and betting creating fantasy or pools betting sites and apps whilst still working in another company.
“The sector definitely attracts people to set up as does the restaurant sector; however, unfortunately like a restaurant experience in running a gambling based operation is extremely valuable. Many people also fail to commit full time to their new venture, instead moonlighting whilst they toil away for another company to pay the bills. I have come across this time and time again.”
Carrick is of course talking from experience and one of his key tips is that it’s an “absolute must” that a B2C business should have a complimentary B2B arm. “This is especially true for a fantasy or pools betting product where many players are only depositing a few times per year with low life time values. A complimenting B2B version of your B2C game can bring in thousands a month in affiliate betting revenue.”
Totally Gaming says: While it is not the job of gambling watchdogs globally to ensure the success of startups, particularly when it comes to consumer-facing ones, it clearly remains the case that the red tape involved in gaining a licence can stifle entrepreneurship. That said, Carrick’s other complaints about founders not spending enough time on their business would certainly be equally, if not more, detrimental.