THE FALSE START
Between the years 1993 and 2001, Simon Kirby and I started a business that ran mainly, but not wholly, pubs and clubs. We built up a series of 30 pubs – some of them branded – and sold them in 2001 for a sum of money that we could only have dreamt about in 1992. This book is about how we did it – including the bits we got right and the bits we got wrong. By reading our story you can learn from our lack of business nous and avoid some of the pain and heartache that we experienced on the road to entrepreneurial success. The fact that we survived the many ups and downs is a testament to our achievement and gives you the opportunity to learn from the fruits of our labour – from our triumphs and our setbacks. It all started with a fairly spectacular failure, a massive blow to our self-esteem as well as our wallets. But we sat down and worked out what we had done so catastrophically badly and this prologue passes on some of what we learned. It also passes on the change in attitude that the failure brought about – it’s not an exaggeration to say that it scarred us for life and strengthened our resolve never to make the same mistakes again.
In 1990 I was twenty-six. I liked bars and loved music and I thought I would like to own a bar of my own. That seemed the obvious way to create exactly the kind of place I enjoyed going into.
What experience did I bring to bear on the venture? Very little really. I had earned some pin money as a DJ in nightclubs, but apart from that I had the theoretical knowledge you get from doing a business degree and less than a year’s experience as a trainee with the multinational computer company IBM. I had no experience of running a business, but plenty of experience of drinking and partying. This meant that I had one big asset – I knew the kind of people I wanted the bar to appeal to and I knew what they liked. Simon and I also had enthusiasm, energy and the confidence of youth – vital if you’re going to get the world to come along with you and choose your bar to drink in rather than someone else’s. Did we have the talents of the entrepreneur at that time? I’m not sure, to be honest, and it’s a very interesting question that I’ll
come back to at various stages in the book. We raised the cash to get started from a combination of savings, bank loans and maxing out our credit cards. This gave us the .60,000 we needed to buy the lease of an existing bar – the Helsinki – fit it out the way we wanted it to look, buy stock and get into business. Neither of us had ever refurbished a property in any way so we did what most people would do in the circumstances and hired a building company as the experts to strip out the old and put in the new. We agreed a specification with them and a price for a complete refit. They took responsibility for everything; after all, we thought, they must have done this kind of job many, many times. This was, to say the least of it, naive. More than that, it defied common sense as well as good business practice. Think of it this way. If you undertake a building project you need expertise, skilled trades people and decent materials. Now, the first time you undertake such a project you may well need to buy in some expertise and employ some skilled trades people. But do you need to pay people to strip the old paper off the walls? And what about the materials – is there something smart you can do in that department? After all, if you put the whole project out to a third party, they buy in materials at a discount and sell them on to you, at least at the full retail price and possibly a bit more. Then they add in another amount for contingencies – the things that they cannot predict as they plan the project – and they’ll like as not still charge you that sum even if there are no extra costs. In fact, contractors rarely use the contingency money because when they encounter the unexpected they pass on the extra costs up front – to you! Now, our contract even included all the furnishings – right down to the tables and the chairs. We got the project done, but we paid through the nose for it and spent much more money that we needed to.
SUGGESTION BOX
Incidentally, if you buy the materials yourself you can probably get a discount too. Try it – ring up your local builders’ merchant and tell them you’re about to do up your house and that you’ll need about .30,000 worth of materials. They’ll almost certainly offer you a discount. They may not offer you credit terms, because they only do that when they are sure that they will be paid more or less on time; but it’s worth going for that too, you never know. In any case it’s a good exercise for finding out if you’ve got the boldness to speak to anyone who can help you learn what to do to get your business going. So, our expensive refit completed, we opened the doors with a triumphant flourish and the party animals of Brighton came flooding in. Within a few weeks we had a packed venue and the cash was rolling into the tills. To say we were cavalier in our approach to spending money is an understatement – we made the Beckhams look like penny-pinchers. Everything was top quality and no expense was spared. There were lots of customers; so we needed plenty of expensive doormen. People didn’t want to wait a moment for a drink – well I didn’t at least – so we had loads of staff. We had the top DJs, regular parties both for the customers and also for the staff after work. Best of all, while we knew what all this was costing, we didn’t know whether we were making a profit or not; the concept of profit and loss didn’t even occur to us. And we didn’t have a clue about profit margins either – our strategy was to pitch prices at what people would pay regardless of the cost of the drink to us. The fact was that our bank account was full of money; so we must be getting it right! Then, we started to spend money on ourselves. Our customers were quite well off, you see. They were a wealthy, yuppie crowd and we wanted to share their lifestyle. So we bought fast cars, houses we couldn’t really afford and got heavily into the gadgets of the day – mobile phones, and so on. We were extremely well dressed in expensive clothes. We were good at using credit to pay for all of this. We didn’t pay off the loans, which after all were not due; we put off paying bills for as long as possible and negotiated credit terms up as high as sixty days. After six months of being awash with money, the inevitable happened. The uncomfortable fact is that people will try out any new bar, particularly the trendy ones: bars come into fashion and go out of fashion, and people drift away. The competition host up too; after all, they’ve being passing your place and it’s heaving with folk who could be spending cash in theirs; so they change their premises and entice people away from you. It doesn’t kill you; it just means that, in the long term, you have to live with a lower turnover on average than you had in the first flush of the new business. In our case turnover went down by 15% and, because we had spent the money straight from the till, we were immediately in trouble. The critical mistake that we made here is that we confused turnover – the money coming into the till – with profit – the proportion of turnover that actually belonged to us. We also failed to plan any cover in case of a downturn in business. We were spending money as though turnover would never drop. It’s essential to have some buffer of cash in the business otherwise you’re bound to have problems at some point paying your creditors. You also need to have enough financial knowledge and some sort of system that keeps you in close touch with your profitability and cash flow. I’ll discuss this in more depth later. Suffice to say that what happened in the business can be summed up by the term ‘working capital’ – a phrase, to be honest, that doesn’t feature much in my day-to-day vocabulary; but it’s one that bankers and accountants use frequently so it’s best to have a passing knowledge of what it is and then translate that into everyday practical terms that will help you run you business. So, if you’re not sure what working capital is, you may want to have a look at Item 1 in the Entrepreneur’s Toolkit – The General Business Model and Working Capital. You can do that now (and return here to read about the grisly end of the Helsinki) or read it later when you’re further into your own plan for building the business of your dreams. Back at the Helsinki, we hadn’t paid the National Insurance (NIC), we had no provision for VAT and we had fobbed the brewery off about the rent because we could – they were a soft touch – and because we were drawing out all the cash. We’d had a great year and we’d made no provision for the tax bill that would inevitably follow. We hadn’t taken any advice and we didn’t know there was anything more to running a business than taking money at the till and then taking it out again to spend. The chickens came home to roost one night when someone set fire to a pile of rubbish in the doorway of the bar. The fire brigade put it out but inevitably a lot of water got through to the floor of the pub and we simply did not have the money to repair it. (Self-employed carpenters understand business, so they don’t offer credit to twenty something bar owners.) The bar started to look a bit shabby and the business started to go down again, this time much further. The next thing we knew, there was a bailiff coming round to collect a bill for a spirits supplier and, after that, the phone started to ring and didn’t stop. Every time it rang it was the same story – someone wanted to get their bill paid. Sometimes it was a friendly, ‘This has probably slipped your mind,’ and sometimes it was much more serious. Do you know, I still sometimes give an involuntary shudder when my phone rings in memory of those times? I told you the whole experience scarred me for life. It was horrible to go to work and I felt
a combination of shame, fear and stress. So, in 1992 we handed over the keys to an insolvency company and tiptoed away. We were in debt to the tune of .90,000 and we were incredibly fortunate not to end up as a couple of bankrupts. Fortunately for us, we had given no personal guarantees and had the protection of a limited company. It was, nevertheless, a shocking collapse and a massive blow – we had gone from being rich young men about town to being penniless and trying to avoid the very people that we’d been drinking with only a few months previously. (A senior official in the Chinese government under Mao had watched many, many people being hauled off to prison in Mao’s frequent purges; but when it happened to him he said, ‘It was like an atom bomb landing on top of your head.’ I know what he means.) I’ve described this period of time graphically because I really want you to know how bad it feels when a company goes down. And remember, I didn’t have any dependants; think how much worse it might be if you got your family into financial problems as well as yourself. As I will describe, setting up your own business is a lifestyle choice as well as a career change. You have to think about the risk you are taking in those two different ways; it can be done but it is a risk and you need to make it as calculated a risk as you can. I’m not trying to put you off, believe me, but the first thing to do when you’re going on your own is to remove the rose-tinted spectacles and look at your situation with the clearest possible vision. I went back to being a DJ and got a daytime job in a promotions company. I sat down with Simon and we discussed what had gone wrong and what we had learned. Actually, with hindsight, it was glaringly obvious what had gone wrong. Whilst we discussed what went wrong we were already starting to plan how to start again. People sometimes ask me why on earth, after such a traumatic series of events, we decided to do it over again and I think there are two reasons. One is that, frankly, it never occurred to us not to do it over again. We knew how to make a pub successful and we wanted to own our own business and make a lot of money; there was no option really. I also think there was a determination there to prove that we could do it and repair the damage to our feelings: we were determined to get it right this time. If I sum up the main change in my attitude to running a business arising from the Helsinki, I think I’d say that it has made me quite tight. Don’t get me wrong – I still like to spend money, but only when it’s earned, the tax has been paid on it and the cash is available. No, what I mean is that I’m quite tight in terms of monitoring the progress of a business. I hate spending money unless it is really necessary, and if a business is not doing well I tend to look for ways of cutting costs immediately. I constantly monitor performance; and when it drops I don’t just hope that it will come right in the end, I look for things that we can do to cut costs and increase revenues. I am, by nature, an optimist, but like all entrepreneurs, and salespeople for that matter, I tend to take a gloomy view on business until I’m proved wrong. Maybe there’s a hint of paranoia in me, perhaps I do read too much into things; but I’d rather err on that side than ignore the warning signs and just hope for the best.
INTRODUCTION
You’re plainly interested in the topic of entrepreneurship, and I’m going to assume that you’re thinking of becoming one and starting up a business. In this chapter you’ll get my ideas on:
• What an entrepreneur is
• The real benefits of being an entrepreneur
• The main attributes of an entrepreneur and how to test if you’ve got them
• The downside of going on your own
• The fact that, if you really want to be an entrepreneur, you’ve got to do something about it now.
SO, WHAT IS AN ENTREPRENEUR?
Are entrepreneurs born, not made? To be honest, I’ve changed my mind on this. I used to think that it’s an innate talent and that if you hadn’t discovered it and done something about it by the time you left school you probably didn’t have it; but now I think that’s wrong. Why? Well, mostly because of all the people I’ve met during the Risking It All series. Many of these people have very good entrepreneurial skills, some of them far better than their basic business skills (a fact that can be a bit worrying), and yet many of these people didn’t make the decision to exploit these skills until they were 35 or older. Somehow we’re stifling a lot of entrepreneurial talent, and for us as consumers – who could be getting a better service – and as a country, we’re poorer as a result. However, the fact that over two million people a week watch Risking It All is a sign that there is a growing interest in people who want to start up their own business. So, here’s my new view – it is most unfortunate that entrepreneurialism is considered, in Britain at least, as being on the edge of respectability. Think about the archetypal entrepreneurs you get in many TV series, like Del Boy in Only Fools and Horses, Mike Baldwin in Coronation Street and Arthur in Minder and you’ll see what I mean. What they have in common is that they are looking for an easy way to make a lot of money and don’t really mind how far they stretch the truth or approach the limits of legality to get it. Now think about the image of real-life entrepreneurs. There’s the Richard Branson type. With very little formal education, he’s a highly colorful man, full of energy and loads of self-confidence. He’s extremely successful in business, building the image of his businesses round his terrific ability to attract publicity and come over very well in the media. Now, if that’s what it takes to be an entrepreneur then most of us couldn’t do it and, because of that, many of us are put off trying. Certainly, many of the people on Risking It All are not highly educated – and not shy of publicity, of course – but they couldn’t do it the Branson way. What’s more, they have perhaps discovered and developed entrepreneurial skills quite late in life. Now, take another stereotype – the dour, hard person keeping their underlings in fear, taking tough decisions and basically not caring a hoot if the whole world hates them as long as they are building successful enterprises. People literally tremble with fear when the see that person’s car in the car park and know that they’re in the office. You can hear it in the way these tough types speak. They use phrases like, ‘If you can’t identify the problem, then quite simply you are the problem’ and ‘If you f***up again, I’m going to get upset.’ They don’t really want talented people around them who can think for themselves and ignore what the ‘dear leader’ is telling them to do. Indeed, they tend to fire anyone who gets a bit too pushy or ambitious. (I could name some but the lawyers would prefer me to assume that you know who I mean.) I just cannot do it that way and neither can many other successful entrepreneurs. This hard-as-nails, hateful dictator is, however, just another popular stereotype that can put us off the entrepreneurial species and make us feel that we can’t do it ourselves. In fact, there is no model for an entrepreneur: we come in all shapes and sizes and, although we have some traits in common, how we go about building our businesses depends on our individual personality, education and, most importantly, the way we relate to people. In some ways it’s a pity that Branson’s lack of formal education is such a highly touted fact (however true or false it is), because again in my experience education is a great thing for entrepreneurs, as well as everyone else. As you’ll see, I believe in getting as much knowledge and experience of business as you possibly can before you jump off the high board of your first enterprise. Come to think of it, there’s another reason why so many people come to it late. I think the education system itself is partly to blame. Schools have little if anything to do with entrepreneurship training. There are no exams, because there are no courses in it. Unlike becoming a solicitor or an accountant, there is no career path for the entrepreneur; so the careers teachers don’t have it on their list. There’s just no reference at school to being the boss of your own business. So, basically, we’re not encouraged to become entrepreneurs at school and in many cases we’re discouraged by teachers – ‘Oh, it’s a terrible risk, don’t touch it, you’ll probably fail, you’ll never have a pension and you’ll end up a hard and nasty person.’ Attitudes like that can sap your energy and your confidence and, as we will see, you need the opposite of that: you need a very high level of confidence to make a new business work. All in all, I think most of us are conditioned by the time we leave school to believe that we can’t actually get out there, start up a business and be a successful entrepreneur. Mind you, there’s plenty of good advice around too. If you’re thinking of becoming an entrepreneur, it can be extremely useful to go and get a bit of experience in a big company, before you think about the great leap of setting up your own business. You can learn a lot by working in an established business, and it needn’t take a long time. In fact you should see getting some experience as part of the educational process of becoming an entrepreneur and I would advise you to do it. Even four or five months working in a restaurant kitchen will help you take a massive step forward in learn about logistics, the key health and safety rules, and so on. Try to spend time with more than one company and choose ones that you respect. If you’re going to open a coffee shop, get a serving job at Starbucks. You may not like the mega-chain if you’re going to set up an individual specialized shop yourself, but you can learn loads from Starbucks’ years of experience. Basically they’re paying you to train for the time when you start up your own business. One of the many surprises I’ve had when talking to new entrepreneurs is that they’re happy to jump into a new industry without finding out much about it. A bit of experience is absolutely crucial. In fact, it could be your first step towards setting up the business of your dreams – take a weekend job in any role at all in the sort of business you’re interested in starting; you’ll learn buckets – yes, even in McDonald’s. And there’s a second advantage to that plan. Weekends are the times when you spend money that you don’t have to spend, shopping and partying, for instance; so the evening and weekend job gets you to save money and live frugally, a very good habit to get into before you go it alone. SUGGESTION BOX You not only need experience in working in the type of business you’re going to set up, you also need knowledge of what it’s like to be an entrepreneur. Get into the habit of speaking to the people who run the businesses that you go into as a matter of course. Ask them how their business is going; most people are delighted to talk about their own business, and answer questions about how they set it up and what they’ve learned along the way. Now the strange paradox is this: in one important way the best time to set up a business is when you are young and don’t have any dependants. The risk of wrecking your life, or other peoples’ lives is at its lowest at that point. If you leave it until you’re in your mid-thirties, you’re doing it when you’ve got a mortgage and probably a partner. There will only be one income for a few years when the kids come along and this all adds to the lifestyle risk of starting a business; and when it’s a bigger risk, guess what? It’s easier to say no. The fear factor is the biggest stopper of budding entrepreneurs and in many cases that’s quite right too. You should be scared because it’s a big risk. We need to add entrepreneurship to the curriculum in schools and universities. Incidentally, there is some movement in this direction within the education system: at Brighton University there are entrepreneur workshops – which is, at least, a sign of progress (so I’ll get off my soap box now). I think there’s another reason why many people lack the confidence to have a go – and that’s the fact that some of us are rather reluctant to say that one of the biggest motivations in starting up in business is to make money. Most entrepreneurs are passionate about their businesses – they really feel that they are going to make a difference – but if you scratch the surface of this passion, they also want to make money. I discovered this on several occasions in the Risking It All series. A lot of couples expressed their dream of offering a service second to none; a step forward in the public’s awareness of the way ahead in eating experiences or hairdressing experience, and so on; but all of them eventually admit that money is the huge motivator. And why not? If it were not for the money motivation, we wouldn’t have half the innovative ideas that make modern life just that bit easier and more enjoyable. Look, I don’t want to put anyone off starting up a business; but I know some people are not going to like what I’m about to say. For some people setting out on their own is a dream that will always remain just that – a dream. ‘It’s better to travel than to arrive,’ is their slogan. You know that one of Bart Simpson’s catchphrases is ‘I’ll do it in the afternoon.’ Well the catchphrase of the entrepreneurial dreamer is ‘I’ll do it next year.’ They tell everyone that they are seriously thinking about starting a business. They can accept the fact that their career has stalled this year by promising themselves a new one in their own business next year. Next year is always so comfortably in the future that it lets you off the hook of doing anything now. And that’s why most people never achieve their dreams. I believe in the catchphrase ‘I’ll do it now.’ Here’s how it works. Everyone who is thinking about setting up a business is going to face a lot of problems, obstacles and barriers: fact. If you don’t start dealing with these barriers, you’re never going to get off the ground. ‘So,’ say the dreamers, ‘I’ve got a brilliant idea and I would go on my own if I had the money, and the kids had finished school and we hadn’t just moved into a new house, and we didn’t need a new stair carpet and the cat hadn’t died …’ So this chapter carries a challenge. After you’ve read it you’re going to decide what is the first step you need to take to start up your own business and you’re going to schedule doing it within the next twenty-four hours.
WARNING:
THINGS TO WATCH OUT FOR
I’ve learned not to allow stress in a difficult situation to swamp me and prevent me taking action quickly. I like the expression ‘If you have to eat an elephant, start by eating its tail.’ To me it suggests that when you are facing a big problem or a complex project, work out the first thing to be done and get on with it. I am a great user of lists. I have action lists for myself and a note of the activity lists for the key people in the whole business; indeed all my plans are based on action lists. If you don’t dither, you’ll probably make progress and even if you do the wrong thing first, being in action will almost certainly help you to know what to do next.
THE REAL BENEFITS OF PRACTICAL ENTREPRENEURSHIP
The first benefit is the immense enjoyment that all entrepreneurs experience through the process of spotting opportunities. It’s very exciting to have an idea, make a plan and then carry it through. Making something happen that would never have happened if you had not started the ball rolling and driven it along, is exciting and fulfilling. ‘I love it when a good plan comes together’ is the catchphrase of the A-Team and not a bad one for explaining the first benefit of being an entrepreneur. (That’s the end of the catchphrases, I promise.) The next benefit is definitely lifestyle. The owner of a business has to work very hard to make the business a success; but mainly it’s quite enjoyable hard work with the ultimate goal of making a lot of money – and that really does keep entrepreneurs going. You’re making money out of other peoples’ hard work as well, which is a whole lot nicer than someone making money out of yours. And when you’ve made the business a success you have a huge amount of freedom to do what you want. You can take a lump of time off to do the travelling that you’ve always dreamed of, spend more time with
your family or whatever turns you on. After all there’s no one to tell you when to work or what to do. And then there’s the benefit of the business itself. You said you could run a better bar/hairdressers/restaurant/consultancy than anyone else and you’ve proved it. Your passion for the business has spread to your customers and staff. I enjoy looking at lots of businesses and working out if I could improve on them. If I feel I can, I’ve got another potential opportunity.
Here’s another way of looking at it. The difference between an entrepreneur and a business manager can be illustrated in many ways, but I think the best illustration is that business managers tend to accept the world as it is, even when the current situation is complete madness. Here’s an example. A friend of mine is a business consultant. He works completely on his own and has done for many years. His forte is to go into businesses and get the senior management to go through a process whereby they themselves produce a strategy for their business. His unique selling proposition is that unlike other consultancies he doesn’t pretend to know what that strategy should be; he merely keeps the planning teams to a well-defined process that delivers a strategy that the team has totally bought into. He got a job with a European electricity supplier of the old school. It was a state-owned industry both generating and distributing electricity. The problem was for the two arms, generating and distribution, to come up with a strategic plan that would enable them eventually to be sold off. My mate took his process into the electricity generating side and helped produce plans for two of the generating stations. It was a big success and the senior managers decided they wanted to expand the process into the rest of the thirty or so power stations. They asked my friend for a quotation and he put in as high a quote as he thought he could justify – .100,000 – on the reasonable grounds that it made no sense whatever to use a different process for the rest of the stations. The quotation, however, hit a bureaucratic snag – a director could not sign off such a sum without having to go through a complex tendering process devised by the purchasing department. My friend and a major billion-pound-turnover consultancy were invited to bid. Again my friend put in his top-price quote. Later in the process, which had absorbed a lot of management time and expense, he got a call from his main contact who was in some distress. ‘You’ll have to do something about your price.’ My mate was taken aback thinking that he had overcooked his price through his certainty that he would get the business. ‘Well, I suppose I could have another look at it,’ he stumbled. ‘Yes, said the manager, couldn’t you make it more of a team effort and bring someone else in?’ ‘But that would make it even more expensive,’ said the consultant. ‘Exactly,’ said his contact, ‘Your competitor has come in with a price of .250,000 and if I try to go with your price the purchasing department will laugh at me saying that it’s not possible that a major consultancy had to charge that much when a one-man band could do it for .100,000.’ My mate accepted the challenge, introduced some more people, got close to the competitive price and got the business. This is straightforward madness. The large company had cost itself a huge amount of money by tendering and then paying much more than it needed to for the service. Why? Because the people dealing with the problem from the electricity side were business managers, not entrepreneurs. An entrepreneurial attitude would never have let this happen. They would never have accepted the tender process in the first place. Somehow they would have got round the purchasing department; but if they’d lost that battle, they would never had got the quotation raised in the way that occurred. On the contrary they would have got my mate’s quote down to a level that he still found satisfactory but was a good bit less than his first bid. The savings to the organization would have been in the region of .40,000 for the cost of the tendering exercise and the lower price. And things like this happen in large organizations every day. Here is the practical benefit of the entrepreneurial spirit – internal entrepreneurs would have relished taking on the purchasing department and winning, and they would have felt a sense of accomplishment when they got the final bid down by, say, ten per cent. The business manager on the other hand was under stress and being bullied by the purchasing department. He had neither the motivation nor the confidence to change the way the world was working. Here’s another angle on the same thing. A man who had risen to the top of a FTSE 100 company was asked the secret of his success. It’s interesting to note that he replied that he didn’t know, but that he had noticed that when he moved on in the organization, the job he had been doing was always abolished. This means that he never accepted the status quo. He changed the organization to meet its real needs as opposed to the out-of-date picture of the needs of years ago. The reason everything was out of kilter is that non-entrepreneurs had simply accepted how things were and had tried to change nothing. So, if you’re in a large organization right now, look around and see this type of bureaucratic nonsense and political infighting, and if it makes you feel that you’d rather be in an organization that is run for the maximum benefit of the customers, the staff and the owners, then you understand the benefit of being your own person. Lots of people want to start their own business because they hate the job they’re in and can’t stand the thought of still being there until they get their gold watch; and that’s not a bad reason; but it’s a negative reason. It’s more likely that you will succeed if, as well as wanting to move on, you appreciated the benefits of enjoying the challenge of new opportunities and taking risks. If you want to make a difference, there’s no better way than doing it yourself.
SUGGESTION BOX
You can get a bit of practice at being an entrepreneur instead of a business manager by taking on the organization at any point where what is happening is actually damaging performance. For example, if you are running your own profit and loss account or budget, and are limited to buying a service from an internal department at prices determined centrally, challenge this. If, for example, you know that you could get a better service from an IT source different from your own in-house department, get a quotation and then make a fuss with your boss and the IT department. Aim either to go outside for the service or to get the internal price reduced. After all, you’ll make a better return on the increase in your budget than any IT department over-reliant on its captive customer base and getting fat on it.
THE MAIN ATTRIBUTES OF AN ENTREPRENEUR
A sure sign that you are a potential entrepreneur is shown in your attitude to businesses that you have dealings with, either as a customer or through your working life. I get really restless when I see something being done badly or even not as well as it could be done. Perhaps you go in to have your hair cut and simply become aware of the fact that the whole experience could be much better. Perhaps you notice the unsavory sight of cut hair lying unswept on the floor, or you are ignored by the person at reception even when the time for your appointment has passed. Perhaps your observations have a more positive slant. You feel that although there are grooming products and cosmetics on the shelves, no one ever asks you if you want to talk about them or explains their benefits or suggests you might like to buy them. Perhaps it’s the strategy and objectives in this hairdressing business that seem wrong – why are there still only two stylists when there have been four workstations for all the years you’ve been coming in? If, like me, you think frequently that you could do better than the people you’re dealing with, then you’ve got one vital attribute of the entrepreneur at least. Don’t be held back by feeling that it’s not your place to get on and turn your observations into a business reality. There’s a lot of selling to do. Entrepreneurs spend a lot of time persuading people to do things that they wouldn’t otherwise do. Apart from your customers you’re also selling to your bankers so that they come up with whatever facilities you think you need. You’re selling to your suppliers as well – why should they give you better discounts, what’s in it for them if you do a joint promotion, why should they lend you money to expand your business and give you sixty days to pay your bills? In a way you’re selling to your staff. You want them to do the job in a certain way, and you have to show what’s in it for them if they do. In fact, I’ve always found a close relationship between the attitude, skills and activities of salespeople and entrepreneurs. Now, you may not have much experience with entrepreneurs but all of you will have spent time talking to and being sold to by salespeople. You know the stereotypes: ‘What do you do when you’ve shaken hands with a salesperson? Count your fingers.’ From our experiences with poor salespeople many of us will take a skeptical attitude towards all of them. This puts up a barrier that the salesperson has to overcome if they are to make progress. Indeed, many organizations fear their own salespeople. They seem to be young for the money they can make, and often only come to the attention of the rest of the company if something has gone wrong and, for example, a company is spending time and money trying to deliver a salesperson’s promises. We need to remove this fear and replace it with a wary respect for the salespeople doing the front-line job, whether it’s a waiter in a restaurant, or a person involved in selling catering services to large organizations. There is a cultural point here – with the USA having gone further down the line in this regard than Europe; indeed my comparison with salespeople and entrepreneurs is born out by this phenomenon – the USA love entrepreneurs and salespeople, whilst we retain a massive suspicion. So, what can we entrepreneurs learn from the job of selling? Well, salespeople can be divided into ‘hunters’ and ‘farmers’. Hunting is about bringing in new customers, whereas farming is about increasing the amount and type of business you do with your existing customers. For hunters, the main requirements for success are persistence and the ability to take knocks. Their job demands that they make approaches – by telephone or in person – to complete strangers who may be unaware of the benefits on offer and who are frequently antagonistic to such unsolicited contact. You’ll certainly experience some of this hostility when you’re out on the street trying to interest people in your new enterprise. Hunters generally work quickly and have short attention spans. They will usually feel very dissatisfied if any complications arise – whether with the product they are selling, or with decision-making processes somewhere along the line – that interfere with closure of a sale. They are opportunists, and in most cases will need some kind of monitoring to make sure that the product they are selling is suitable for the purpose and fulfils the promises stated in their sales talk. Some would say that it is the hunters who give salespeople a bad name and there is some truth in that. But the flip side is that they are also the people who make innovation possible and en masse bear a lot of responsibility for driving the dollar round in a growth economy. The hunter is the salesperson that gets a high level of job satisfaction in getting a first order from a new customer. A seller of reprographics expressed it in this way: ‘You actually have to start by getting yourself invited into the buyer’s office. Then you must convince a probable skeptic that what you are offering has benefits over continuing with the people he or she has previously done business, perhaps for many years. ‘Then you have to find a project, bid for it and win it. The great feeling is that you made it happen, and if you hadn’t made the first move and then followed through, then that company would have remained loyal to its existing suppliers.’ The typical conversation of a hunter might go like this: ‘I thought I’d do one more door,’ ‘I stitched him up in no time fl at.’ If you’ve worked alongside these people, you’re likely to recall other phrases and sayings that you’ve overheard in coffee breaks, and so on. Many people find the prospect of doing the hunting job horrendous, but entrepreneurs who recognize the dependence of business on such people are themselves continuously selling, and encouraging their people to do the same. Farmers, on the other hand, develop different but complementary skills to the hunter. They forge long-term relationships, and build deep knowledge of their customers. A professional sales team selling computers, for example, might build such an extensive database of customer knowledge over the years that the customers themselves may envy it! The benefits to a company of professional farmers, comes in terms of predictable orders, competitive intelligence, market changes and much more. Once again the lesson for the entrepreneur is obvious. They study their customers and they keep studying them as habits and desires change over the years. Farmers need to know the results of market research and, of course, of actual sales. The more they know about how their market operates, the more able they are to make innovative proposals and achieve expanding sales targets. Every salesperson, however, has to have some of the hunter attributes. A good farmer who hates or claims to be bad at new business selling may be too slow to go for the order or not sufficiently assertive to win against the competition. Now let’s jump from the salesperson to the entrepreneur. As an entrepreneur there is a crucial balance of activity between hustling to get things done and farming for the long term. So, observe closely the salespeople you will talk to as you set up your business; you can learn a lot from them – how not to do it as well as how to do it. So, being a good salesperson is one attribute of the entrepreneur. What else is there?
HAVE YOU GOT WHAT IT TAKES?
As an entrepreneur you will need to be self-critical and a good listener, even when you’re listening to bad news. You need to be able to evaluate feedback and act on activities that you need to change. You also need to be self-confident so that you can survive the knocks and persevere. For example, we were turned down for a licensing application for a particular club, but had to persevere to keep on the plan. We had to be prepared to lobby the right councilors, reinstate the application and reapply. In the end we not only got the license but recovered the costs of the original application as well. You need the sort of self-belief that makes you certain, not fairly sure, that you will do the job better than anyone else. In decision-making, for example, I know that you’re weighing up options and there is uncertainty in your mind about what you’re going to do; but once you’ve made the decision, go for it like a demon, or an entrepreneur, possessed. So how do you work out if you’ve got what it takes? ‘Know thyself’ was the motto above the oracle at Delphi and it’s good advice. From the attributes people have discussed with me as important, and from my own experience, I have put together this simple self-assessment scheme to give a clear indication whether or not you are a suitable case for joining the ranks of the small businessperson or entrepreneur. How well do the following attributes describe you? Analysis – add up your score by totaling the numbers in the boxes you have marked.
• Score 70–80: You are not by your own estimation the type to go plunging in to a small entrepreneurial business.
• Score 50–70: Hmm. You have some of the traits of a plunger-in at the deep end but have another look at the areas where you scored 3 or 4 and ask yourself if you could improve with practice. If the answer to that is yes, then have a go by all means but be prepared for a few sleepless nights.
• Score 30–50: Go on, go for it. You don’t enjoy the big company that much, so think of the benefits of being an entrepreneur.
• Score 20–30: What are you waiting for, stupid? You are a natural.
You should have done it years ago so come on in, the water’s terrifying. Hang on, you have only done the easy part of ‘Know thyself.’ Now ask your nearest and dearest and then some trustworthy colleagues to agree or disagree with your own assessment. I can’t leave the topic of the attributes of an entrepreneur without emphasizing a point that feels like stating the bleeding obvious – use your common sense. When I look at some of the decisions that business people make, I’m sorry, but some of them are just plain stupid. I can’t believe that anyone could have an expensive mid-town café premises with a passing trade of office workers going to work from 7.30 am, and not open it up until 10.00 am. But I’ve seen it done, cleverly, or stupidly, losing lucrative breakfast sales in premises that are already paid for. So, much of it comes down to using your common sense.
WILL IT MAKE A MILLION?
Look, let’s be realistic. If you’re ambition is to buy a village post office, go through the training to become a postmaster or mistress and run the shop yourself, you aren’t going to make a million. It still may be a good idea, and it may give you the lifestyle you’re looking for but it is not a huge money spinner that you can sell to the likes of Wal-Mart for the thick edge of a billion pounds. An idea that’s going to make you a million is a bit different and, if that is your goal, you need to check out in the first place whether the idea is likely to really fl y. The technical term is expandability. One retail outlet is unlikely to make you a million, so you need an idea that will expand into other outlets or, for example, into a franchise. Think again of the hunter/farmer analogy. The hunter part of you is going to be dedicated to getting the business starting and managing the first outlet. The farmer side of you is thinking ahead to what can happen once the first business is a success, and even as far as the exit strategy – how are you going to cash in? Who or what type of company are you going to sell the business to? How many outlets will you need to make an interesting proposition for another entrepreneur to buy into? You don’t need to have a lot of detail at this time but it needs to be in the back of your mind – the objective is the first million!
TAKE THE FIRST STEP
OK, it’s time to get down to brass tacks. You’ve got a good business idea that you think could beat its competitors if it was implemented in the way that you envisage. That’s a great start. Now make a list of what you would have to do in order to get this business started. Include problems like having no money but put the problems down as challenges rather than problems – don’t write ‘I haven’t got the money,’ write ‘I would have to raise a substantial sum of money to get started.’ The list will be long:
• I’ve got to find premises
• I’ve got to find and negotiate with suppliers
• I need a business plan
• I’ve got to refurbish the premises
• I’ve got to learn about VAT and other administrative issues
• I’ve got to get the family on side
• And so on …
Now ask yourself what is the first step that you could take immediately to start the ball rolling. By all means identify more than one thing that you could start now, but make absolutely certain that you have recognized the first step. When you have finished your list and decided on this first step, do it now, before you read on. If that isn’t possible, like if you’re on a train, then schedule when in the next 24 hours you’re going to do it; because in my experience, if you can’t find time to start the first step in the next 24 hours you don’t really want to do it at all. By the way, why haven’t you done it already? (A mate of mine was thinking about moving out of a house he and his family had lived in for fourteen years. You can imagine what had gathered in his attic after bringing up a couple of kids during those years. It was an absolute nightmare that he solved by doing twenty minutes every day tidying, throwing out and making the problem manageable. There’s a lesson there – start early on a difficult task and don’t try and do it in one huge blitz.) When you are an entrepreneur lots of people come up to you and tell you of their dream for starting a business. Some of them are really wild and you get the idea that they’re dreamers; so I use the first-step challenge as a simple test of their real intentions. The first time I used it was with a man I knew who kept talking to me about his ideas for going on his own. He was going to start a copying shop, or a launderette or whatever. He always had a good reason why the idea was better than its competitors at the time and I honestly thought that he was going to make the decision at some point and do it. Then he came to me with his latest idea – making kayaks in his garage. He had found an overseas supplier who supplied kayaks in kit form. It was quite tricky but my pal had good do-it-yourself skills and was confident that he could supply a good product and certainly a much better product than an individual without his skills. I remembered that his garage was, like most garages, completely full of the flotsam and jetsam of normal life and you could hardly get into it let alone build a kayak in it. So I suggested that he should immediately take the first step and clear the garage that weekend. The garage is still chockablock and that was ten years ago; but there’s no harm in dreaming, unless you want to have fun and make money. To do that, you have to move on to Chapter 2.
This book is in two parts:
Part 1 is the story of C-Side. It describes my experience in setting up and selling that business over a period of ten years. I will share what I learned that worked and, just as importantly, what I learned not to do. I’ll also illustrate my points from stories from the experiences of the Risking It All contributors and other entrepreneurs that I’ve worked with.
Part 2 is called The Entrepreneur’s Toolkit. It’s a collection of the theories and processes needed to run a business properly. I’ve put links to the toolkit in Part 1; so, for example, the C-Side story includes my fascination with cash flow so there are cross references to items in the toolkit that show you how to create and keep company cash flow up to date. You may choose to read it while you’re still on Part 1, or come to it in due course as you go through the whole book. The toolkit will act as a reference section that you can continue to use as you build the business of your dreams.
PAPER TALK
These are some extracts from articles I’ve written in the Daily Telegraph. I’ve put them in at points in the book that seem to make sense. Whatever you do, don’t set up a small business. Stop reading this now, pop the kettle on and make a nice cup of tea. Stick to your day job, knuckle down, and give up the silly dream of being your own boss. You probably wouldn’t like it and who wants to give up a regular salary and the 5 Series anyway? Still reading? Well, that’s the first small test passed. Becoming an entrepreneur requires balls of steel, regardless of gender, and a pumped-up ego that’s not going to be easily deflated by the doom-mongering failure merchants who will emerge from amongst your friends, family and colleagues as soon as you mention you’re considering the dash to financial freedom. They do have a point though – just because you think importing and flogging those lovely Balinese beds you saw on holiday last year is going to cover little Jack’s school fees and the weekly Waitrose bill doesn’t mean that a whole hoard of others haven’t had exactly the same idea.
STARTING AGAIN
Right, you have the germ of a business idea and you’re ready to make some decisions on how you’re going to set up the new business. In this chapter you’ll look at:
• Defining the lifestyle change you’re about to take
• The risks of setting up your first business
• Preparing to change lifestyles
• Defining what you’re going to sell and to whom you are going to sell it
• Evaluating the feasibility of the idea
• Getting the start-up money.
DECIDE WHAT YOU’RE GOING TO DO AND WEIGH UP THE RISKS
In 1993 I got together with three people, each of us put in .5000, and we took on the lease of a derelict licensed bar in the centre of Brighton. Interestingly, and quite by chance, we started in a recession. If you start a business in a recession some people think you’re mad because everyone is tightening their belts and all that; but there are benefits as well. In this case, the landlord couldn’t rent the property so we got it premium-free – that is, we didn’t have to pay an upfront sum for the goodwill of the business. We also got a rent-free period. Next, we employed our youthful enthusiasm and managed to persuade a brewer to lend us .20,000 without any security. We used the money to do the place up. During the next month, the four of us stripped and tiled walls, painted everything and fitted it out in a way that we knew would attract the customer base we were looking for: students (there are lots of those in Brighton) and other young people. We did it all ourselves and were thus able to do a reasonable job at the lowest possible cost. We named it the Squid and Starfish – at the time, a quirky title that set ourselves apart from the competition. Most businesses need a certain amount of cash to get started and it’s very important to put some of your own money into it. Doing this is very helpful when it comes to borrowing the rest of the money from banks or whoever: they are highly unimpressed by owners who want them to do the entire funding. So, save and do without for as long as it takes to get together your own start-up finance. We lived as frugally as possible. The natural party animal in us made it quite hard to stop going out, but it had to be done. There is another benefit to going through this hair-shirt existence. You get used to how you’re going to live for the first few years of being in business. We had learned our lesson from the Helsinki and were determined to take as little money out of the business in the early stages as we possibly could. Ever wondered about who buys the dented tins in the reduced baskets in supermarkets? It’s would-be entrepreneurs keeping their costs down to save for their first few businesses. You and your family are going to do without holidays for some time, so it makes sense too to do that before you start. If nothing else, it ensures that your family properly understand the sacrifices they are going to have to make. This is a good time to talk about the risk you are about to take and its impact on your friends and family. Look at the risk issue in two ways: the risk to your lifestyle and the risk inherent in the business you are going to set up – then ask yourself what is the likelihood of success. Don’t delude yourself in any way: be very honest as you think the thing through. Ask yourself some hard questions. If at the moment you’re doing a job that involves managing a team of twenty-five people with a budget of millions, will you still enjoy owning and working in a restaurant or hairdresser’s in two years’ time? Or, will you be bored stiff? If you know you will be bored then you must work out an exit strategy at the start to make sure that every decision you make for the business leads towards selling the business, putting a manager in, or whatever your plan is for getting out of running the day-to-day operation of the business.
SUGGESTION BOX
You need two visions clearly in your head. The first is the vision of your business – what it will look like to customers, why it is different from the competition, and so on. You also need a financial vision. As good as any is to work out what the business will need to be making for you to exit with a million pounds. A rough way to do this – and that’s all you need at this stage – is to make a simple calculation as to the value of the business to someone interested in buying it. Look at it on the gloomy side as always and assume that a buyer will pay two and a half times last year’s annual profits for the business. (This is called the ‘multiple’ and hugely depends on the industry you’re in and the size of your business.) That’s quite gloomy because you may do a bit better than that. This means that the profits would have to be one million divided by two and a half or .400,000. Later on you’ll find out from experience how much one outlet can earn in profits and that will tell you how many outlets you will need to get to the magic number. The next hard question to ask yourself is whether you really have got support from your whole family, or have you just conned them by not explaining the real implications of what you are about to do? Will your kids really be all right about not going on the school skiing trip when the event actually comes round? And will your partner still back you up when a cash flow crisis means selling their car? In one business I worked with, two couples got together to run their dream hotel. They were best friends but they needed to think about the fact that the women would get fed up if the men didn’t pull their weight with the cleaning and other housework type chores. Would they still be best friends if one couple felt the other couple were spending too much time away from the business? Once again use your common sense to work out the potential problems that might crop up with your new lifestyle. Assess what you’re giving up – your home life, possibly your home if that is how you’re going to get your starting capital, almost certainly holidays and that’s just what you’re certain to go through. If your children are at private schools you are taking a risk with that as well. If the business needs even more money to grow, putting them into a state school would be a considerable saving – but are you prepared to tell the kids that that’s going to happen? What else? Well, there’s your pension and your healthcare plan and the company car that feels as though it’s free. You know what’s at stake; I just want to make sure you have gone through the list comprehensively. I’ve come to the view that our business lives are fairly fragile, the line between success and failure very thin so don’t ignore anything that makes you vulnerable – some marriages will not survive when a business goes under. Now, take the worst-case scenario. What would happen if the business, despite your hard work and enthusiasm simply didn’t fl y? Could you and your family cope with downsizing the house, for instance, if that were the only way you get out of personal debt? I’m a great believer in worst-case scenarios. Thinking them through really makes you assess the lifestyle risk properly, or professionally you might say. In the end, if you feel that the worst-case scenario would make you suicidal, then drop the idea and don’t jump in. Right! That’s the end of the gloomy stuff and you’re still reading so you must have decided that the lifestyle will suit you and that you could handle the changes to your lifestyle if all doesn’t go according to plan. Let’s move on and think about the business risk. The biggest risk to any new business is lack of customers. How sure are you that people will warm to your idea as much as you so passionately do? There’s only one way to find out – ask them. Speak to representatives of your target market and make sure that if your services were available to them they would use them. When you’re looking for your premises, think about how many of your target market actually walk past on any one day. We’ll get to the nitty gritty of all this when we talk about filling the forms that banks make you do before they’ll lend you money. At the moment you’re just looking at the overall strategy and the risk that it might not work out. Then there’s competition – how much is there at the moment and how much might there be later on? It’s important to think about the future as well as the present situation – how might the market develop? This is particularly true if technology is involved in what you’re offering. Technology changes incredibly quickly – imagine if you stock your brand new Computer Cafe with technology and within days something comes along that’s bigger, brighter, cheaper and two keystrokes faster. It could be a recipe for disaster. I got my fingers burnt to some degree in a business that bought some leading-edge technology that handled print jobs, except it couldn’t compete with simpler printer technologies on small jobs. So despite the sophistication of the technology we couldn’t make the idea work and I got out of that business. (It’s not leading-edge technology, someone has said, it should be called bleeding-edge technology.) As a result of that experience I tend to go for technology whose teething problems someone else has already solved. Think about the risk to your costs as well. Projects, particularly building and fitting-out projects are notorious for going over budget. Make sure you know what you’ll do if it happens to you. It just doesn’t make sense to chuck in your job without thinking through what it is you’re going to do instead – and how likely it is that your new enterprise will result in a lifestyle that is, at the very least, acceptable to you and your family. I tend to do risk assessment very thoroughly (normally talking – or rather listening – to any expert I can find on any element of my plan) but I do it rather informally. I make sure I’ve thought about as many things that could go wrong as I could and then make a rather gut-based decision. But entrepreneurs, as I’ve said, come in all shapes and sizes, so I’ve created a more formal process, which is Item 2 in the Entrepreneur’s Toolkit, Risk Assessment Process. If it suits you to do so, you can use the process to assess both the lifestyle and the business risk you are thinking about taking.
WHAT IS A GREAT IDEA?
Let’s take a check here and think about the different kinds of ideas that make the first million. What is a great business idea? I’m going to describe here the attributes of a great idea and also how you might come up with one. I’ll use a couple of examples to explain the process of having and evaluating a business idea. Let me try to give an overview, though. A successful business is one that meets customers’ needs better than they’re met elsewhere. It doesn’t have to offer something completely new; it just has to have an element that makes people think ‘That’s a good idea, I’ll try it.’ One of the most common ways of finding your big idea is through the simple observation of everyday life, and by listening to people who you come into contact with. One good example of this that I came across is of a thirty-something woman with three children. Her experience of motherhood gave her an acute awareness of her children’s needs and wants. If the kids saw a toy advertised on television, they wanted it; if they played with a toy round at a friend’s
house, they wanted it; and they nagged and nagged until they got it. However, once this object of desire was home and unwrapped it would lose its appeal – often in a very short space of time. Our mother-of-three confirmed that this was a common trait by talking to other parents. Interestingly, the kids wanted special toys at party-time, so that their friends could all enjoy something a bit out of the ordinary for the duration of the party – bouncy castles were about the only thing to cover this eventuality. Our thirty-something woman heard other mothers complaining about the price of buying big, expensive toys that they only needed for a one-off occasion. What’s more, although she really liked to give her firstborn new, shiny toys straight from the toyshop, her second and third children were frequently just as happy with the hand-me-downs they got from their elder siblings (not for everything – they liked to have some things that were new to them; but for major items, like a tricycle, hand-me-downs were just fi ne). She saw that other mothers did exactly the same thing. Her children often grew out of toys very quickly – the tricycle, so joyously unwrapped, only lasted for six months before it became too small. And she heard similar stories from the women at the school gate. She understood the frustrations that she and other mothers were facing, and this gave her the germ of an idea – a toy-hire shop that would specialize in larger toys. She would do business from a shop as well as a catalogue and website. She got another mother interested and the two of them started to evaluate the idea. Another common way of finding your big idea is to take an existing idea that is successful in one culture – a country overseas perhaps – and import it, suitably tailored for the new location. An example of this is Coffee Republic, a major chain of coffee shops started by the brother-and-sister team, Bobby and Sahar Hashem. Sahar was used to the products and service she could get when she was in New York and missed them when she was in England. In fact, she missed the skinny cappuccinos and fat-free muffins so much that she knew that there had to be a market for them. She knew that other people would love them if they were introduced to them – and the rest is the history of Coffee Republic. Now evaluate y
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