When Gillian Franklin left a highly paid position to start her own business, she found her connections and knowledge were enough to ensure financial success
| Entrepreneur |
Gillian Franklin |
| Company |
The Heat Group |
| Business type |
Brand development - cosmetics |
| Founded |
2000 |
| Head office |
Cheltenham, Victoria |
Key Learning Points |
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Funding
If you take external funding from shareholders, make sure you meet the rate of return of funds (usually between 15-25% a year). Ultimately the return on funds is all that matters to external shareholders, Franklin says.
Networking
To combat the isolation of running a small business - and to keep rubbing shoulders with people who can help your business - take external board positions in either profit or not-for-profit organisations. Make sure you keep up memberships of professional organisations.
Board members
Rather than approach venture capitalists for funding, make a list of people you want to have on your board and offer them a board position and a share of the company in return for equity. Make sure board members can contribute valuable skills which complement your own weaknesses and that they belong to networks which can be useful.
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The Heat Group Story
For the past 20 years Gillian Franklin felt very comfortable drawing a big salary and working in large businesses. Her salaried career included a five-year stint running one of Graham Smorgon’s companies, Creative Brands, which manufactures and distributes a range of brands including Australis cosmetics and toiletries.
Under her stewardship, Creative Brands grew to two and a half times in size and Franklin was always careful to meet the 15% return on funds that Smorgon demanded. But last year Smorgon appointed a new Chief Executive to oversee all his businesses, including Creative Brands. Franklin says: “Suddenly it mattered that I was not in control of my own destiny.”
In January 2000 Franklin, 43, decided to start her own business - The Heat Group. But she was nervous about stepping out on her own. Her two greatest fears were the financial risk and the isolation she would face. “To run any business you need to keep having ideas and doing new things,” she says. “You also need a lot of money to grow fast.”
All three knew Franklin when she was Managing Director of Creative Brands. Only a few weeks after approaching her targets she was notified that all three would join the board and take a 25% share for $1 million each, despite her projections of a $1 million loss for the first year.
By June Franklin had signed her first distribution deal with a United States-based company called Caboodles, which wants to sell its range of cosmetics - aimed at girls aged 12-18 - in Australia. By September, Franklin expects to have launched her second brand which will target women aged 25-40 with a lifestyle focus.
The originally projected $1 million loss is now expected to be a $1 million profit. Turnover in the first year is expected to be about $10 million.
Franklin estimated she needed about $3 million but did not want to invest her own savings or put her house on the line. In March she put together an information memorandum and drew up a list of three people she wanted to target as board members who would also take equity. These included Geoff Morgan, co-founder of recruitment company Morgan and Banks; Carol Schwartz of the Besen family, which owns retailing group Sussan; and Alan Chang, a Taiwanese manufacturer.