Anatomy of a startup - the DesignCrowd story
DesignCrowd founder Alex Lynch. "A year after I founded the business, I was still living at home with my mum." Photo: Jim Rice
These days, it seems that everyone wants to found a startup. However, it takes more than just a smart idea to become the next Facebook or Airbnb. For every Instagram success story there are thousands of failures or entrepreneurial tales that involve struggle, conflict and drama. Startup entrepreneur Alec Lynch, 29, is a typical protagonist on a journey that has all these elements.
Lynch is the founder of DesignCrowd, an online marketplace that connects businesses looking for graphic designers with a talent pool from all over the world. Business owners can crowdsource graphic design projects – ranging from logo creation to ebook design. Last month, Sydney-based Lynch announced a milestone when DesignCrowd hit over 100,000 designers using his service. Over the last year, Lynch experienced a tipping point in his business and says that the demand for crowdsourcing from small businesses has doubled since late 2012. According to Lynch, DesignCrowd has seen more than 50 per cent growth in posted projects already in 2013 and has processed close to $10 million worth of projects since it was founded in January 2008.
While these numbers may seem impressive, they are the result of sheer hard work, blind faith and the occasional lucky break thrown in.
The entrepreneurial seizure
Lynch first dipped his toes into entrepreneurial waters straight after he finished uni. Buoyed with an idea to create online customer relationship management software, he and a friend started their first business. "It didn't work but we learnt a lot of business lessons," says Lynch, who then decided to join the corporate world as a consultant at management consulting firm Booz & Company.
"I went to work at Booz to learn more about the world of business and to do an MBA because I knew that one day I would start another business," he says. "While working at Booz I had the idea for DesignCrowd."
Surprisingly, a pivotal factor in the creation of DesignCrowd was the logo created for the London Olympics, released in 2007. "I had already thought of the idea of DesignCrowd but the reaction to the London Olympics logo reaffirmed it," he says. "The logo cost £400,000 and took a year to make. It was widely criticised by the media and the public. I thought: imagine if the London Olympic Committee had run a global design contest and instead of paying £400,000, they could have offered £40,000. I knew they would have got tens of thousands of entries, they would have saved half a million dollars, achieved a quicker result and got a better outcome in terms of design."
Taking the plunge
Lynch eventually left the comfort of his job at Booz & Company to give in to another entrepreneurial seizure. By now, he had a few years business experience under his belt and didn't want a failure on his hands. "I resigned, moved back home with my mum and launched the business," he says. "I had $10,000 in savings and used three credit cards to bootstrap my business."
Getting it off the ground
Although Lynch knew he had a great idea, he also knew that it would only work if he could get a critical mass of designers and businesses to use the service. Otherwise, the site would be a marketplace without any merchants or customers. To get his first lot of designers on board, Lynch posted his own project – calling for designers to create the DesignCrowd logo. This gave him his first group of designers signing up to the service.
Keeping the faith
Lynch says the first two years were the most difficult. "A year after I founded the business, I was still living at home with my mum. I was riding a scooter around because I didn't have a car. And I was $30,000 in debt." On top of that Lynch also borrowed another $30,000 from family and friends to help him fulfil his entrepreneurial dream. "That was the most challenging period. And during that time I had to be as optimistic and positive as possible. I had to be my own boss, and coach and motivator all at the same time."
The fork in the road
Then a chance phone call with a Swiss investor provoked Lynch to consider alternative options to bootstrapping. "In 2009, an entrepreneur from Switzerland, who used our service, reached out to me and set up a call where he introduced me to the concept of angel investing, which I wasn't familiar with," says Lynch.
"On the call, he said: 'Alec, what would you do with €200,000?' I went away and created a plan based on this. As a result, I realised that capital was what the business needed to grow more quickly and to achieve what I wanted, especially if I expected to keep pace or beat emerging competitors. One of our competitors, that started four or five months after we did, had a $3 million investment. Whereas I only had three credit cards and support from my mum. So I realised that capital could really help."
Send me an angel
Lynch decided to find angel investors for DesignCrowd, ultimately finding four in Australia (he didn't end up working with the Swiss entrepreneur) who collectively invested $300,000. From there Lynch could afford to hire staff, rent an office and focus on scaling his business. Around that time, in October 2009, Lynch's partner in his original online CRM business joined the company as co-founder and chief technology officer. "We grew the business about 13- or 14-fold in two years."
DesignCrowd needs to court two very distinct markets with entirely different needs. First, Lynch needs a multitude of designers to offer their services. With over 100,000 now on the site, it seems that he has no problem in this department with word-of-mouth being the most effective marketing tool.
The biggest challenge is in convincing small business owners to try the crowd-sourcing service. Lynch says his three most effective strategies for this are:
- Search engine marketing (such as pay-per-click advertising)
- Resellers and partners. "About a quarter of our business comes from design agencies and other companies that are selling their services to their clients, but discreetly outsource to DesignCrowd in the back end."
- Word-of-mouth referrals. "Fifty per cent of our business comes through word of mouth."
Venture capital investment
Of course, bringing in angel investors meant that Lynch had to part with some of his company. He felt this was a small price to pay for the opportunity to take his company global. But $300,000 only goes so far.
By mid-2011, Lynch knew he needed more cash, and started looking for venture capital (VC) investment. "In July 2011, I pitched to Starfish Ventures which is a Melbourne-based VC," he says. "And in October 12011, they invested $3 million."
Since that investment, DesignCrowd has grown from three to 20 people. "We've more than tripled the revenues of the business. The US has become our biggest source of sales. And we've launched the business in the UK, Canada, Singapore, India and the Philippines."
Needless to say, securing $3 million of investment meant that Lynch had to dilute his shareholding even further. However, he is philosophical about it. "I'd rather have a small slice of something large, than a large slice of something small. So that's what you're buying into when you raise capital."
The next stage
Lynch has now launched BrandCrowd, a site for ready-made logos and brands. Many of these are the non-winning entries from projects in DesignCrowd. It currently constitutes about five to 10 per cent of the overall business.
While the business is tracking in the right direction, Lynch is aware that there isn't time to rest on his laurels. He's currently in San Francisco meeting with potential partners, journalists and prospective employees for what he hopes will be a new US office.
"The challenges in business are always changing, depending on the phase of the business. When it's early, and it's just yourself, the challenges include isolation, ensuring you stay positive and being able to grow while handling administrative tasks. When you're looking for capital, it's a lot of hard work.
"Once you have a team and a larger business, you need to prioritise all the different opportunities in front of you. Should you expand to this country? Should you hire this person? These challenges are a much nicer set of problems to deal with compared to the ones you face in the first year."
Lynch admits that hard work underpins everything. "But that's one of the attractions of starting your own business," he says. "Your reward is linked to the hours and the amount of hard work you put in."