Bringing your business back from the brink
How Ten Lifestyle Management chief executive Alex Cheatle brought his business back from insolvency
Ten Lifestyle Management chief executive Alex Cheatle brought his business back from insolvency. With the concierge firm now thriving, he reveals the invaluable lessons he salvaged from the experience.
In 2000, lifestyle concierge firm Ten Lifestyle Management was raising money on a valuation of £10m and most observers were patting founders Alex Cheatle and Andrew Long on the back for building an exciting, fast-growing business in a competitive space.
Privately though, all was not well with Cheatle, who had set the business up just two years earlier. “I felt 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,” he says.
Cheatle’s “great vision” was a private lifestyle management business that would do anything its wealthy clients don’t have the time, expertise or inclination to do themselves. This sometimes means fulfilling bizarre requests – sourcing an elephant for an Indian wedding, for example – but more frequently, it’s about meeting prosaic travel and leisure requests such as booking an exclusive hotel and restaurant for a city break, sourcing tickets for sold out gigs or simply assisting its members in finding tutors, nannies, dog-walkers or plumbers.
There’s nothing unique in any of this, of course, but Cheatle believed technology would allow him to differentiate his venture. “People tried to set up lifestyle management businesses in the 70s, 80s and 90s and couldn’t do it because they couldn’t get the technology right. If we hadn’t had the confidence that the technology was going to be available we would have set up a different business.”
The company also pledged to be almost obsessively focused on its customers, despite the temptation to take advantage of its wealthy members by making money from affiliates. “Some of our competitors are either focused on hitting corporate service level agreements they have with a sponsor or making money from their suppliers. We are not a marketing channel to our members for our suppliers. We are a service.”
Cheatle knew that proprietary technology which would enable ‘knowledge management’ was crucial if the business was to scale. “The business needed to be able to deliver quick, consistent, expert support. To do that, you’ve got to use knowledge management to be cost effective and to build a high quality service.”
If a customer asked for details of the best restaurant in Cannes, for example, at the first time of asking, Ten might invest £500 worth of effort in finding the restaurant, getting to know the maitre d’ and establishing what the best dishes are. When the same request was made in the future, it would cost the business a fraction of this because the information would exist on Ten’s system. While the model was fundamentally sound, it wasn’t one that could quickly deliver profitability.
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“The scalability only comes with volume,” Cheatle says. “There’s a killing ground between having a really talented organiser looking after 10 people, which can work as a business, and having a company full of talented people, using knowledge management, dealing with 15,000 requests a month, which is the point at which we started making money. In between, you lose millions of pounds. We lost £8m setting up our business. You can call it an investment, but they were losses because we had nothing on our balance sheet to show for it.”
By 2003, Ten was picking up loyal members quickly, but new requests were still costing it £150 as the firm continued to invest in its knowledge base. “The more requests we met, the more we grew, the more we lost,” Cheatle says. “It was a race against time to get to a scale where we could reuse the data and get the cost per request down to £30, at which point the business starts working. It was brutal.”
Cheatle knew that the business could not afford to abandon its knowledge management approach. Ten desperately needed a major investor to provide working capital and to stop a large loan the business had taken on from converting. “We could not, in good faith, accept smaller investments into the company from business angels, since there was a risk that this would be used for immediate working capital; the loan would then convert and dilute the equity value of those smaller investors. A major investor was the only option that provided enough cash for both the loan repayment and the required working capital.” Agonisingly, a major investor was found, but subsequently pulled out, and Ten was forced to enter a Company Voluntary Arrangement (CVA).
Ten’s founder was convinced that there was still value in the company’s vision, and that the business model of needing to invest was right, but he acknowledges making numerous mistakes that were to inform the firm’s second incarnation. “We were under capitalised,” Cheatle admits. “Also, we didn’t have a Plan B on our investment strategy and we pushed ourselves into a corner with the convertible loan.” He says the business expanded internationally too quickly, having established operations in Australia and Germany before being forced into the CVA. “We were expanding a business model that wasn’t ready for expansion, launching a model that wasn’t yet working in the UK.”
In their mitigation, Cheatle and Long had actually been accused of being too modest. “These were the crazy days of the early 2000s,” Cheatle says. “People were saying we should be launching in 20 countries. We weren’t that mad but we were wrong.”
Despite slashing the headcount (which had already been reduced from 100 to 65 before the CVA) to a base level of 33, cutting the salary of all employees earning over £30,000 by 20% and implementing aggressive cost management across the business, Cheatle says Ten came perilously close to closing its doors for good. “I never felt close to packing it in but if we’d just run out of money it would have been difficult. You can’t tell people to work for free. We were half a step away from going under which is why I get scared when I look back on it.”
At the time, however, Cheatle felt strangely exhilarated. “Professionally, crises are exciting. When you’re in a really difficult position and you know the vast majority of people would fold or break down and you’re not going to, you get high on it. I know I’m good in a crisis. I know I can think clearly, make decisions and carry people with me. But I’m absolutely terrified in retrospect. I can’t believe that we kept ourselves sane.”
By keeping the remaining employees motivated, aggressively reappraising the firm’s cost base and making some smart strategic shifts, Cheatle and Long were gradually able to turn Ten into the business they’d originally envisaged. “We knew it started getting better when we renegotiated everything and made the final round of cuts. By then we were losing 15% of our net revenues. That was manageable.
“Looking at the numbers, we had a strong sense that the cost per request was significantly decreasing and we were meeting requests to a higher standard. We knew the two would collide and we’d start making sustainable profits. That happened about 18 months after the lowest point.”
The subsequent turnaround has been remarkable. Ten Lifestyle Management’s 250 employees manage 30,000 requests a month for more than 300,000 members – private and corporate – across three divisions: lifestyle, green and educational. The firm’s £11.5m turnover is expected to double in 2010. “We’re profitable, debt free and cash positive – with no convertible loans,” Cheatle says.
So how did he do it? “Our staff and our members were loyal because we had the right vision and we were totally passionate about it. Our metaphor was Columbus: we think there’s land over there and we’re going to sail to it. If we’re wrong, we’re fucked. But I think we’re right.”
What doesn’t destroy you…
Alex Cheatle attributes Ten’s survival and subsequent successes to adhering to a number of core principles he gleaned from his company’s brush with insolvency
“I massively underestimated the importance of consistent service. When we first set up, sometimes we would be brilliant and sometimes we would be awful. We failed to realise how damaging it was to be inconsistent. We got consistent about three years ago and that’s all about deciding what’s important, measuring it and managing the business to those measures with an almost fanatical enthusiasm and attention to detail.”
“You need a mixture of transparency and discretion with your staff. We had the right level of transparency. We were very transparent about the risks and about what we needed to do to survive and thrive; normally people aren’t motivated by surviving, they’re motivated by thriving. The language of survival should only ever be short term language.”
Don’t be silent
“You have to communicate your own certainty of outcome. If you stop believing that outcome, communicate what you now believe will happen with total certainty. You don’t want to be silent to the people who rely on you to pay their mortgage. They’ll think that you’re stuck or you’re ashamed of a change in direction. They’ll interpret that as you not knowing what you’re doing, which means you’re not leading. Fill a silence with a confident strategy even if it’s subject to change.”
Keep costs flexible
“Don’t sign long term contracts in markets where costs are going to come down. We had a hosting contract before 2003 that was costing us £15,000 a month. Today that would cost us £1,000 a month. We signed a five year contract. That was really stupid. We also adjusted our people costs. Most staff are on a maximum 20% bonus. That gives us some flexibility on our biggest cost if the business ever hits a rough patch. We cut costs everywhere. On an over zealous day, we cut the milk. That was reinstated on the same day. You can’t ask people to work without a cup of tea. Thus far and no further. We’re also much more likely to lease things rather than buy them outright as I’d rather have the cash in the bank even though it’s a bit more expensive.”
Keep the trust
“Be decisive about what’s negotiable in the business and what’s not. Even when we were at our poorest, we never tried to make money by doing the wrong thing by our members. If a member said they’d pay £200 for Madonna tickets and we could get them for £100, we’d ask for £100. I gave all of our shareholders who lost out with the old business an equivalent shareholding for free in the new business. I’m poorer but happy with how I dealt with it. Our business is all about trust. We don’t give our clients any nasty surprises either. We tell them the story as it changes and develops. That means we can’t get away with taking massive margins though.”
Exploit opportunities in a crisis
“We thought most of our growth was going to come from being a value-add to credit cards, Instead, we’re a value-add with Coutts and Barclays Premier Life. In the good times, a credit card can make a lot of money. But a banking relationship is always valuable to a bank so we moved into that. We’ve taken a whole new class of graduate trainees because they’re available for £20,000 a year in the way the kind of quality graduate we need wasn’t three years ago. We’ve also built relationships with companies that didn’t want to do business with us a few years ago. We work with almost all of the Michelin-starred restaurants internationally because of the downturn. Before that, they were too busy packing out their restaurants to talk to people who could help them pack out their restaurants.”
Change the message
“We save people time, get them access and save them money. But we weren’t talking about saving money two years ago. Now, yes, we can get you that car that normally has a two year waiting list in two months but we can also save you £5,000 on it. We might talk about the £5,000 more than the waiting list today.”
“Keep your strong conviction, even if the facts don’t quite bear it out. In a downturn or a crisis, entrepreneurs lose their confidence. I’ve seen it happen to others and it nearly happened to us. When your business is suffering, there’s a risk you’ll downplay your vision. Instead of saying, “we want to be the most trusted personal service business in the world,” because that sounds silly when you’re close to going under, the temptation is to say, “We want to be a business that turns over £10m and makes £100,000 a year profit”. That isn’t motivating for you, your suppliers, or your staff. Stick with your vision. Get it together from somewhere and stick it together with spit and string and hope because if you dumb down your vision you’ll lose the motivation and loyalty of all the important stakeholders in your business.”