8 entrepreneurs and their biggest mistakes

Entrepreneurs reveal the biggest errors of judgements of their careers and how they dealt with the consequences

Even some of our most successful entrepreneurs are sometimes spoken of in terms of the mistakes they’ve made, the ill-judged things they’ve said or the market shifts they’ve failed to anticipate.

Sir Alan Sugar, for example, might be worth around £700m, but for some he’ll always be the man who could have been the next Bill Gates, but instead bought Tottenham Hotspur Football Club. For outspoken entrepreneurs – a description which must apply to a sizeable proportion of owner-managers – Gerald Ratner’s infamous indiscretion about the quality of his products is a cautionary tale to bear in mind. “We do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95,” he told an Institute of Directors dinner in 1991. “People say, ‘How can you sell this for such a low price?’ I say, ‘because it’s total crap’.” The Ratner’s group’s value duly plummeted by £500m.

The scale and stakes might vary, but miscalculations, mishaps and mistakes are inevitable in any business. The way entrepreneurs respond to them can be career defining.

Here, we’ve spoken to a handful of owner-managers to hear about their biggest errors – and, crucially, how they’ve informed their company’s subsequent success and their own personal development.

Nirmal Chhabria, founder and executive director of recycling and exporting firm Niva International:

“The first business venture I launched was a company providing food supplies. I wanted to create a whole host of different supply chains in this industry. I was fairly young and fresh out of business school. Already heavily drowning in debt with loans and an overdraft, I was still passionate about my idea. I even launched and registered the company, having invested £7,300 of my own savings, which I had accumulated through my day job and working at a bar in the evening. I imported samples worth £5,000, which would make my idea look more potent and viable when pitching to a potential venture capitalist.

“I presented this idea to the first VC, who was way more experienced in business than I was, and it was only later that I figured out that we shared some common interest in food processing. As I was young and naive, I didn’t really get any form of non-disclosure agreements signed up before sharing my idea with him. After pitching my idea, he kept hold of my business plan, and sent me away to conduct some more research for the next couple of months.

“After that I received a call from another VC, to whom I had also presented the idea, offering me a job in the food processing organisation he worked as an advisor to. The first VC had sold my concept to the firm, and today that particular food processing business turns over in excess of £80m a year.”

Lesson learnt: You can’t trust anyone in business. You have got to be doubly careful and always have a plan B.

Alex Cheatle, chief executive of concierge business Ten Lifestyle Management:

“In 2000, our lifestyle concierge business was raising money on a valuation of £10m, and everyone was patting us on the back. Privately, I felt less like a hero and more like a fool. We had a great idea, but we were losing money, and while we had a great vision, we had a weak plan. Many others had tried to set up lifestyle management businesses and not been able to scale them. I knew that proprietary technology, which would enable us to develop a ‘knowledge management’ database, was the only way we’d scale.

“We needed to be able to deliver quick, consistent and expert support. If a customer wanted an unbookable table at an exclusive restaurant in Cannes, we might spend £500 finding the restaurant and getting to know the maitre d’, but it would cost a fraction of that every time we were asked in future, because we’d have the knowledge in our database and a relationship that we could depend on.

“The problem with this approach was that there’s a killing ground between having an organiser looking after 10 people, which can work, and having a company full of talented people using knowledge management, dealing with 15,000 requests a month, which is when we started making money. In between, we lost £8m. The more requests from members we met, the more we grew, the more we lost. It was a race against time to get to a scale where we could reuse data and get the cost per request down to £30, at which point the business starts working.

“While we needed to keep investing, we also needed working capital to stop a large loan we’d taken on from converting. A major investor was the only option that provided enough cash for both the loan repayment and the required working capital. We found one, but they pulled out at the last minute and we ended up in a company voluntary arrangement in 2003. I think the business model of needing to invest was right, but we were under capitalised.

“We didn’t have a plan B on our investment strategy and we pushed ourselves into a corner with the convertible loan. We also expanded internationally too quickly – we were launching a model in 2001 in both Australia and Germany that wasn’t yet working in the UK. We were half a step away from going under, and I get vertigo when I look back on it.

“We slashed our headcount, cut the salary of everyone earning over £30,000 by 20% and aggressively managed costs across the business. By keeping the remaining employees motivated and making some strategic shifts, we gradually turned Ten into the business that we originally envisaged.

“We started making sustainable profits 18 months after the lowest point. We now provide the concierge services for the banks Coutts and Barclays in the UK and are the fastest growing, highest quality service of our kind in the world. Now we have our service right, we are expanding with the right model, and are growing quickly – and sustainably – across four continents.”

Lesson learnt: Don’t let your passion for a vision, no matter how compelling, blind you to the flaws in the plans that will get you there.

Stephen Archer, co-founder of consultancy Spring Partnerships:

“It’s bad enough to hire the wrong staff, but to hire the wrong managers, senior or middle, is a potential catastrophe and can destroy a company if left uncorrected. I can think of two people that I hired as senior managers. One was the wrong fit, the other had what is euphemistically known as ‘baggage’ or ‘issues’, which were not the sort that could be tolerated, nor was it the company’s job to fix them. In that person’s case, they were asked to leave after four months of increasing difficulty – and one might add equal unhappiness on their part, because they did not fit in. We should have acted sooner – it was going nowhere and was starting to disrupt the business.

“The other person was very capable and well grounded, but simply did not fit. I am all for mixing it up and avoiding too much homogeneity in the team, but this one was wrong. This person also tried to change the company culture to their way of doing things. This was neither correct nor acceptable and would have been very damaging. This person was let go after six months. Again, we should have acted sooner. “I feel rather foolish to have made these mistakes, but I see these scenarios take place in nearly every organisation I have consulted for. The mistake is easy to make, no matter how thorough the recruitment process. The unforgivable mistake is to let it drift. It damages culture and performance – I once saw the mistake cost $100m in 12 months.

“The authority of the leadership is also damaged if the team can see the error going uncorrected. How do you prevent the mistake? Make sure your receptionist or PA and some other staff meet the candidates before they are hired. Ask their views – it can be illuminating and a life saver. I have seen the technique done on me and it worked well.”

Lesson learnt: Correct recruitment mistakes swiftly.

Jos White, co-founder of email management and security business Message Labs and partner at investment and advisory vehicle Notion Capital:

“We had our eyes on the US market from an early stage. We started trading in 2000 and as early as 2001 we set up a small office in the States and hired some salespeople. We felt it would be a good way to test the market and get some momentum before making a big investment. It really didn’t work. They didn’t have the support, the resources or the marketing cover. Some markets are more used to having a satellite sales operation, which feeds back to a mothership in another country. In the US, it’s so different. They are used to being served by a US business or a company that is prepared to make a big investment in the American market.

“I moved out here towards the end of 2002, having seen our initial US market bobble along and not do very much. I had a much more ambitious plan. I proposed that we had headquarters in New York, because it was closest to the UK in terms of time zone and travel time. I agreed with the board that I should choose three people from across the organisation to take with me.

“I got the whole business to sign up to a major investment – we needed to have a fairly self sufficient, pretty heavyweight management team in place and, while we’d always fall back on the UK for certain things, I got everyone to agree to the fact that we needed to build a pretty full organisation out here. We took a big space in Manhattan, signed up with a headhunter and spent a lot of time finding the right people to fill the key management positions.

“The US market also relies on scale. You can’t charge as much out here as you can in Europe. We used to charge approximately £1 per user per month. When we set up in Manhattan, we just applied the exchange rate, so $2. That didn’t work. This is a market where they expect you to rely on scale and make smaller margins. We had to revert to $1 per user per month. That was a learning curve. Pricing is generally 60% to 75% of what it is in Europe. It was a risky move, because we wouldn’t be profitable until we’d developed our user base out here.

“Over time we got it right, portraying ourselves as a global company, making sure we had a mixture of Americans and Brits in key meetings, while stressing that customer service and support would be in the US until the last point of escalation. We could talk about an investment we were making in the US market of tens of millions of pounds. With a strong management team and some early customer wins, very quickly our credibility was strengthened.

“The US became our largest market in terms of users in 2006. We had 10 million when we sold the business in 2008, and almost half were in the US. We were one of the few UK technology companies that went out to the States and were successful. All the things that you expect of it as a market are true. It’s more demanding and more competitive, but ultimately makes you a better company.”

Lesson learnt: If you are going to try and break America, make sure that you do it properly or not at all.

Michael Welch, founder of tyre retailer Blackcircles.com:

“I made my biggest mistake in 2002, during the early days of the business, when I brought in an investment partner without making a formal agreement. It was someone who had been referred to me and who had a wealth of industry experience. I have to admit I was a little bit in awe of him and failed to put the legal agreement in place, against my better instincts.

“Quickly, it became apparent that his motivation was to squeeze more and more equity from the business. That was a difficult period for me. Not only was I trying to set up a business, but I was also under pressure from this shareholder, who I’d imagined was there to help me, but who actually had a totally different agenda. In order to buy him out I effectively had to restructure my entire business and find a whole new team of investors.

“Fortunately, I was able to bring in the right people with the right kind of experience, whose strengths lay in areas different to mine, particularly in financial and legal matters. I was able to emerge successfully from those problems, and it was a valuable lesson that I think any entrepreneur can learn from. It taught me that the best way to avoid conflict or ambiguity is to make sure that everything is documented and you have proper formal agreements in place.”

Lesson learnt: When bringing in early investors, do everything you can to ensure your interests are aligned and that the necessary legal agreements are in place.

Christian Arno, managing director of translation business, Lingo24:

“We were approached quite early on, about five years ago, by an Egyptian multimillionaire. He thought the world was going to end, and he wanted to launch a website in 57 languages, telling people about the forthcoming disaster. He originally approached us about the translation aspect. We got to know him, and it became clear he was going to need a lot of content on his site to drive traffic. “We ended up agreeing to do this content development project, which isn’t our focus. We’re a translation company and we focus on the technology and service to do that really well, but because this contract was going to be worth hundreds of thousands of pounds, which at that time would have doubled our turnover, we took it on.

“The guy was pleasant and really believed in what he was doing, and we thought that if we could make it work for one person, it might grow into a useful and profitable part of the business – we didn’t know of anyone else doing anything similar at the time. Sometimes, it’s useful to allow yourself to be led in a slightly different direction. It can work, but in this instance, it didn’t.

“In fact, it was a disaster. We took on five people to do the project, which fundamentally wasn’t sustainable. He didn’t understand fully what he was getting into, neither did we. You had this one maverick individual, and if he changed his mind, that was it. After a while, that’s what happened.

“There were no problems financially. He was very good at paying his bills, but we spent a lot of time cultivating this relationship, building up the capacity to do something that wasn’t our core business. That time lost had meant that we weren’t developing our technology and our translation business.

“We let it go on for too long – for about a year and a half. We’re still on friendly terms, it wasn’t bitter, but it was wrong. It wasn’t delivering the goals he wanted. We weren’t able to drive enough traffic by developing the content quickly enough. I think we’d done an overly good sales job – well actually, a poor sales job in the sense that we were selling something we couldn’t really deliver.

“Having said that, when the project went down the tube, two of the people we’d taken on joined the company and they’re both in pretty senior roles now. So at least there was a silver lining to that particularly cloud.”

Lesson learnt: Stick to your core competencies and to what you know you can do better than the competition. Once you’ve made a mistake, don’t be afraid to recognise it and then nip it in the bud.

Xavier Adam, founder and managing director of marketing and strategy organisation AMC Network:

“Having run AMC Network over the last 10 years, I’ve made many mistakes. No single one has been too detrimental, but as an aggregation they’re significant.

“One of the key areas we have addressed more recently is business expansion. In the past, the market has been buoyant and we had ample chance to grow exponentially, but we were too cautious. Having been burned a couple of times previously, we should have parked those bad experiences and got on with the latest task in hand. Instead, we took slow steps, haunted by the past, not wanting to risk what we had achieved so far.

“In one way, however, such caution has now proved to be beneficial. In a significant downturn for our sector, we carry reduced overheads and are cash positive. This would be hard if we were bigger and had gone for faster growth. But then again, controlled risk would have seen us competing in a wider spectrum, in more countries (we are currently on the ground in six) and with potentially a much larger business.”

Lesson learnt: Take advantage of a buoyant market and don’t let past mistakes weigh you down.

Jake Allen, founding partner of bespoke tailor King & Allen:

“In January 2007, we saw our sales more or less double overnight. Being the victim of your own success can be a nice problem to have, but taking more orders than we could fulfil created critical business issues. We’re built entirely on the quality of the product and the customer experience, so to have that threatened was serious.

“As our infrastructure became overloaded we got sucked into a vicious cycle; as customers began chasing us to see where their suits were, we were spending more time on the phone than getting orders met.

“The first thing we did was bring in more staff, in fact, a new person every month for 10 months. We also built spare capacity into the system, from a spare office, to extra telephone lines, dual suppliers, whatever it takes. Forecasting seasonal shifts and contingency planning also makes a huge difference when the proverbial hits the fan.

“Staying one step ahead of the customer is crucial too; getting someone to focus on communicating proactively will buy you breathing space. In a similar situation, don’t be tempted by short-term solutions. We have a saying: ‘Fix it and fix it forever’.”

Lesson learnt: Be prepared for dramatic shifts in demand. And keep calm and carry on.

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