It’s risky launching a start-up. And it’s extra risky when you’re doing it with funds sourced from friends and family.
Aaron Smith knows this first hand.
The founder and chief executive of KX Group started the fitness company in 2010. Since then, the firm has gone from strength to strength and now comprises over 30 studios across Australia, with an annual turnover of more than $12 million.
But rewind six years, and Smith was a 26 year old with no business experience kicking off his start-up after five years of globetrotting.
In need of capital, Smith turned to the one person he knew would back him - his dad, who guaranteed a $120,000 bank loan to get a studio off the ground.
Six years later, and helming a rapidly expanding enterprise, it’s no surprise Smith tells ShortPress he made the right call to lean on his father for start-up capital.
He also has a few words of advice for those mulling a similar move, with a big one being to present a solid business case, like you would to any other investor.
"My old man was always in business himself so he was positive about it - he knew owning a business was the fastest way to get ahead."
“I made sure I had a business plan and everything written up for him,” Smith says.
“My old man was always in business himself so he was positive about it - he knew owning a business was the fastest way to get ahead.
“He saw as well that he could guide me and advise me along the way … and a lot of his advice was needed in the early stages.”
Having his family taking a gamble on his venture was also a high-stakes way to boost motivation, Smith says.
In his case, Smith’s family put a family property up as security for the initial business loan, which acted as a big daily motivator for success.
"In the back of my mind, every single day when I got up the fear of failure was there but the option not to fail was really, really powerful..."
“In the back of my mind, every single day when I got up the fear of failure was there but the option not to fail was really, really powerful because I didn’t want to disappoint dad,” says Smith.
“I didn’t want him to potentially take over my loan, and it was pretty stressful in the early days because of that.”
With strong emotions in play, Smith says it could be tempting for loved ones or friends to stump up cash more easily than regular investors.
He said that’s what made it was so important to be “really solid” on his idea before he took it to a close connection.
“It needs to be a pretty sure thing for you to go to a loved one or parent because they’ve worked hard their whole life for what they have,” he says.
Sam McKeith is Sydney-based media professional. He has contributed to many leading publications including The Huffington Post, The Australian Financial Review, The Australian and BRW Magazine. He was previously a senior reporter at the Australian Associated Press where he covered national affairs.
Budding entrepreneur looking for tips and tricks on starting up? Check out ShortPress' guides on crowdsourcing, attracting investment and growing a start-up, and boosting your bottom line. And if you're still in need of more inspiration, learn how these three Aussie entrepreneurs founded their start-ups in three different ways.