Patrick Knight: How I made millions from ringtones

Patrick Knight set up the 'almost perfect' business selling ringtones to mobile phone users. In its first year, it rang up £6.5m in revenue.

Shrill mobile-phone ringtones and premium-rate phone numbers rank high among most people's pet hates. But Patrick Knight, 31, has both to thank for his first million. Knight encountered the nascent ringtone industry in 2000 when he ran a startup that provided websites to niche sectors. While creating one for the early UK ringtone entrepreneur Alexander Amosu, Knight spotted an opportunity. "Amosu was using live operators to sell to customers, which meant he had to pay for extra staff and could only sell when operators were working." Knight realised that voice-recognition software could automate the process and cut costs.

But by then, he was fed up with working for himself. "I realised I was getting less money than I would working for a big firm". So he wound down his startup and joined premium-rate call carrier Telecom One as a webmaster. There Knight was approached by the brother of the firm's CEO and founder. "He had just come back from Australia and was keen to start his own business." Knight persuaded him to go with his ringtone idea. With his new partner providing the capital he assembled a catalogue of ringtones, built a website and commissioned the automatic sales system. The firm was "easy" to set up the expensive part was creating a brand. Knight and his partner picked the name "FunnyFone" and spent "around £15k a day" promoting it through advertising.

The business model was "almost perfect". The firm spent "practically nothing" on personnel. FunnyFone also struck it lucky with the Performing Right Society (PRS) the group that collects music royalties. "We were selling 12-second single-note representations of a song without any lyrics or melody. So the PRS did not ask for royalty payments." They only paid as ringtones became more sophisticated.

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The booming popularity of ringtones, aggressive marketing campaigns and the ability to sell 24-hours a day helped FunnyFone take a staggering £6.5m in revenue in its first year. But there was a problem. Knight had started FunnyFone in July 2001 while still working at Telecom One, so his partner had been fronting the business. The firm had even been using Telecom One to provide its premium phone calls. "I never thought it would be so successful, and after my last entrepreneurial experience I did not want to throw away a secure job." After six months Knight decided to tell his employers. "They were annoyed I had set up a company without them knowing, but they had to be nice to me because I was one of their most important customers." Telecom One now saw that Knight "was worth more as a customer than as a webmaster". He duly left.

However, with Knight now officially a member of the board and joint owner of FunnyFone, tensions began to grow with his partner. "He never really accepted me as an equal in the business and I began to lose trust in him." Just one year after FunnyFone began trading, Knight cashed up and left to travel the world. His latest venture is Inskin, a patented media player that allows advertisers to wrap their branding around internet videos. Since being founded in 2007 Inskin has grown steadily and sold £1m of advertising in 2009. Like FunnyFone, Knight believes Inskin's secret is simple. "Both use technology to improve the money-making potential of existing businesses."

James McKeigue

James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the London bureau. James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.