One industry executive suggested to me recently that a note of bravado had entered sector reporting of late. I understood what he meant. With many companies firmly in expansion mode, confidence has returned with a vengeance – and there is a danger of this tipping over into unqualified bullishness.
An antidote has been a series of presentations at the Propel Multi Club Conference series, where a host of entrepreneurs have returned to a similar theme: starting and growing a business is subject to endless setbacks. Resilience in the face of adversity is the key quality required to side-step the multiple elephant traps that beset any growing business.
At a conference a year ago, JD Wetherspoon’s founder, Tim Martin, joined me on stage to go through his first decade’s figures. They are testament to the challenge of making decent early-years profits and generally gaining traction, with the problem of insufficient cashflow an ever-present threat. The early years of Wetherspoon are a story of its founder gingerly finding his way, beset, in Martin’s own admission, by the struggle to overcome an incomplete skill-set.
In the formative years of a business, every opening represents a mortal threat. No matter how carefully a company budgets for a new opening, there comes a stage where money has to be thrown at a site to get it finished.
Personal credit cards and “alternative” short-term financing in the form of family and friends often comes into play. The bank account will inevitably look depleted at opening and the future of the business will hang on a new site’s performance. The scenario is likely to repeat itself over and over through the single-digit openings. Oakman Inns’ founder, Peter Borg-Neal, told a recent Propel conference that his main building contractor converted the bill into an equity stake at his first site in Tring, when a funding gap became apparent. My brother, Kevin Charity, told our last conference that a loyal member of his office staff lent his business £65,000 to get it through one funding gap.
At last week’s Propel conference, Morgan Davies, the founder of Barburrito, described the life of an entrepreneur as “Live, Die, Repeat”. He meant that entrepreneurs need the courage and stamina to innovate on a constant basis in the sure knowledge that many ideas will not work. Other ideas will work for a while – and then won’t. He compared the life of an entrepreneur to the fairground game Whack-A-Mole, where moles pop their heads up, and have to be firmly hit with a mallet. And, of course, that game only speeds up as it progresses: problems and challenges tend to increase in number and speed-of-arrival the larger a business gets. There is a stage where a company founder may have grown a business dramatically, but cannot yet afford the in-house personnel required to cover the ground. The trick here will be to pick up new skills slightly faster than the rate at which they will be called upon, like studying for a higher degree on a self-imposed fast-track. Successful entrepreneurs overcome obstacles by drawing on every ounce of inner resource, like those Grand Design subjects who build Tuscan villas out of a pile of rubble by working endless hours with a demonic glint in their eye.
There will be moments of crisis when a funder needs to hold his nerve. Alex Reilley, the founder of Loungers, told the recent Arena lunch that like-for-like sales began to drop across his embryonic estate when the credit crunch arrived. Fortunately, the company had the confidence to avoid the obvious knee-jerk response of discounting.
It is not just start-ups that are subject to endless travails as they navigate their businesses through choppy waters. Our recent conferences have had wonderful presentation from mature businesses that have found themselves in high seas. TGI Friday’s Karen Forrester gave an electric presentation on how her key resource, her staff, were galvanised to engage with customers and transform the performance of the business. La Tasca’s chief executive, Simon Wilkinson, told last week’s Propel conference how his business, beset by a number of year of double-digit sales declines, was being transformed through a cathartic focus on staff and customers. It is little short of incredible how quickly a company culture can be overhauled. La Tasca now has a staff turnover of just 5% and is climbing month by month, site by site up the TripAdvisor rankings. Nigel Wright, chief operating officer of the under-rated TCG pub group, who also made a presentation last week, underscored the point that it is not just formative businesses that can be short of capital expenditure. Innovation and product development have kept TCG’s like-for-likes moving forward.
At the far end of the sector spectrum are those businesses that are publicly listed. Scrutiny levels here are, by definition, at their most intense. But the challenge remains the same as for start-ups: the application of entrepreneurial spirit to out-perform the competition and to do the things that are right for the long-term health of the business. Last week’s Propel conference heard a tour de force presentation from Luminar’s current chief executive, Peter Marks, on how the company had succumbed to the temptations of self-defeating financial engineering as it became ex-growth. I wonder whether we will ever see another publicly quoted nightclub company, given the unique challenges of a business where the tide comes so far in and goes so far out. In Luminar’s case, the business has returned to private ownership where it is can be run according to the fundamentals without distraction: a supreme attention to operational standards, with every day fought like it might be the last.
Paul Charity is managing director of Propel Info