Peter Cullum: Towergate International
The Towergate founder explains why success has more to do with learning the right skills than God-given talent
Insurance magnate Peter Cullum, a consummate deal maker and one of the UK’s most successful entrepreneurs, tells Growing Business why building a successful company is about learning the right skills, not God-given talent.
“You should read this,” says the executive chairman of Towergate Partnership, as he enters the boardroom of the company’s City headquarters. Peter Cullum, now 59, has been at the helm of Britain’s largest privately owned insurer since 1997. He’s holding a copy of Growing Business, with Peter Jones on the front, in one hand, and has a book in the other. As if by way of a handshake, he thrusts the latter, The Illusions of Entrepreneurship by American academic Scott Shane, into my hands, and gives me a five-minute synopsis.
“The TV pundits, including the Dragons, will talk about passion, determination and commitment. They’re all good qualities, but the one that’s often overlooked is skill. If you need triple bypass heart surgery, you don’t want to lie on a table with a guy who’s got loads of energy, commitment and the will to win if he can’t do the job,” he says.
For Cullum, who cites research from Shane to prove his point, the idea of the entrepreneur as “a genius who is born, not made”, as Shane puts it, is a myth. “You do get Richard Bransons, but they’re few and far between. In business, you can create skills,” Cullum says. “But developing them doesn’t happen overnight.”
Entrepreneurship is a remarkably common vocation. In the US (actually a fairly middling nation when it comes to business start-up rates), more than 10% of people of working age are engaged in entrepreneurial activity. Shane’s research also suggests the average entrepreneur is a relative failure, forming a business that will be gone in five years, while earning less money and working longer hours than if they had taken a traditional job.
By turning Towergate into a UK insurance giant, Cullum has become one of the UK’s most successful entrepreneurs, while an altruistic streak sees him referred to as a ‘billionaire philanthropist’. Surely then, he’s more Branson than workaday owner-manager artisan? “Many entrepreneurs might suggest they were born to do this,” he answers. “Well I wasn’t.”
Cullum places much stock in the value of a structured business education, perhaps one of the reasons he was such a late starter as an entrepreneur. He began his insurance career in 1969 with the Royal Insurance Group, became the youngest person to pass the industry body’s fellowship exam in 1973, and progressed to sales and marketing positions at Commercial Union and ITT in London and Edinburgh. He completed an MBA in 1974, at a time when they were still rare in the UK.
“Insurance was so traditional, so I thought I’d have to hang around for years before anyone took any notice,” he recalls. “The idea was to get an MBA, understand how business really works and use it as a springboard to do other things.”
The waiting game
The qualification didn’t do his corporate career any harm, but he had to wait almost 20 years to truly test his education. Headhunted from a senior position at ITT to run Economic Insurance, a small, Kent-based division of a Danish giant, Cullum cut his teeth by completing a management buyout (MBO), and returning the ailing company to profitability.
When the parent company ran into trouble, the only way he could see to keep the business going was to buy it. “I wore my kneepads out kneeling before private equity houses trying to persuade them it was worth investing in,” he recalls. “Insurance is seriously unattractive from an investment point of view.”
Cullum eventually persuaded investors to back him in 1993, and bought the firm for £6m. He then set about moving the company into niche areas, “the things the big insurance companies weren’t interested in, so there wasn’t an overcrowded marketplace. It had been a ‘me too’ of a big company,” he explains. “That’s nuts. You get absolutely slaughtered. As the only differentiator is price, you have to be cheap and everything becomes marginal. If you win on price, you lose on price.”
Cullum sold the company to Hiscox for £32m two-and-a-half years after the purchase was completed. “That was my entrepreneurial education. I made a load of mistakes, but I grew,” he says. Although he adds that he’d have negotiated “a far better deal” with the benefit of the trading skills he’s subsequently picked up, it was an impressive return on investment, and Cullum’s share would eventually help fund the birth of Towergate.
The Hiscox purchase saw Cullum join the giant as group marketing director. But despite decades of blue chip experience, the fledgling entrepreneur found that his MBO success had made him unemployable. “I couldn’t go back to being part of a corporate UK plc,” he says. “The owner-driver culture is so different.”
In 1997, after a year at Hiscox, Cullum launched Towergate Group, applying the same niche principle he’d employed at his first company, aiming to achieve rapid scale through an aggressive buy-and-build strategy. He had a five-year plan to grow the business to a £100m turnover, make £30m gross profit, £10m net profit “and flog it for £100m”. But things didn’t quite work out like that. Some 12 years on, and despite at least one aborted exit plan, Cullum still leads the company, which now has 5,000 staff, a turnover of £400m and earnings of around £190m. “We still talk about owner-driver culture as what makes us different,” he says. “And we’re bigger than some of the corporates now.”
True to Cullum’s word, Towergate has made its name by developing specialist businesses, from underwriting the British Army’s equipment, to arranging insurance for Formula One teams, niche consumer and business markets, such as holiday homes and private helicopters, and cover for doctors, dentists and alternative therapists. He also made sure the company’s financial model allows it to buy and quickly integrate acquired companies, which tend to be small, niche-focused regional businesses. Cullum has completed 150 acquisitions to date, allowing Towergate to scale with ruthless efficiency. “Buying small companies is where the gold is,” he says.
The business, now one of the largest independent broking and underwriting firms in the world, might have dramatically outperformed its founder’s first five-year plan, but Cullum says the potential to gain a leading position was a crucial tenet in its establishment, and remains a factor in buying decisions.
“We want to dominate the spaces we’re in,” he explains, “so we’re very selective about where we go. I was always a great fan of Jack Welch [who adopted a strategic ultimatum of achieving a dominant market position]. If you can’t be number one or two in a field, don’t go there.
“We haven’t had the successes of GE, but we believe that if we’re serious about going into a particular field, we want to be able to have a major influence and not just take a minor role. Small players struggle because they’re at the mercy of what the big guys do. If you’re not the lead dog, the view never changes.”
Paradoxically, Cullum’s philosophy necessitates simultaneously thinking big and being ultra cautious. The same company that was willing to pay £276m for software firm OpenGI (which Cullum promises will “change how brokers and buyers purchase insurance”) has conspicuously avoided significant expansion beyond the UK “because of the risk”.
“People assume that you go across the pond and the world will be your oyster,” he says, “but we saw so many opportunities in the UK. Concentrated, focused energy in your own backyard is more comfortable.” At this point he pauses, then adds: “But perhaps that was partly my cop out.”
In any case, Cullum’s reputation as a prodigious deal maker is assured. With its in-house M&A team, the company is arguably analogous to a private equity house in its own right. When I suggest this, Cullum bristles: “Some people say: ‘All he does is buy businesses, integrate them and move on to the next.’ That’s a little unfair, but if that’s the perception, I’ve got to show that I can grow a business not just by virtue of acquisitions. Organic growth is what we’re about at the moment. I want to be able to demonstrate to the market that we’re not just a one-trick pony.”
One of the reasons Cullum’s not keen on being called a deal junkie, he says, is that it suggests “you buy everything you see because you believe you can make anything a great business and integrate it”. He claims Towergate has “deliberately avoided hospital passes”. Instead, he insists that target companies are high quality and have a culture similar to the one he’s worked hard to cultivate at Towergate. “We’ve walked away from a number of transactions that looked good financially, because we felt they’d struggle to integrate with the way we did things,” he says. “If there’s any secret to acquisitions, it’s knowing the deals not to do. Organisations have often struggled because they’ve done poor deals.”
So what is the Towergate culture? “The people who joined me had to go through a process of being moved away from corporate expense accounts to behaving as if they’re spending their own money,” he explains. “We’re much more demanding of how we spend and what we expect in return. That was a culture shock for some.”
Cullum walks the talk, staying in Premier Lodges when he’s away on business. “Everyone thinks I must be mad,” he says, “but I go to bed at 12 and get up at six. I’ll never use the five-star facilities, so why pay for them?”
The company has also had to work hard to attract the right staff. “The real talent didn’t find its way into insurance,” says Cullum. “The bright young graduates went into investment banking or became M&A lawyers. We tried to change that with a value system that sounds corny: make money, have fun, do good. They’re not mutually exclusive. If maximisation of profit is your sole goal, you’ll become a very sad person and I question its sustainability.”
The firm has set up the Towergate Business School, which identifies talented young staff and grooms them for leadership positions. “We don’t own anything,” says Cullum. “We just rent the intellectual capability of the people who work with us. You have to invest in that.”
Passing it on
Cullum is confident enough in the leadership talent he’s cultivated to contemplate an exit. In 2008, after the collapse of talks with private equity firm Candover over selling a 25% stake in his company for £800m, he instead sold a £100m stake to US-based hedge fund Och-Ziff, just before the capital gains tax deadline. “Sadly, Candover were unable to deliver on what we’d agreed. When I shake hands with someone, that’s the deal I do,” says Cullum.
An IPO within three years is still a possibility, and while he’s evidently excited by his immediate plans for the business, he’s likely to set a departure date soon. That will allow him to focus all his time on a philanthropic passion he’s been developing in tandem with Towergate. The company raises £1m for four partner charities every year, and in 2007, Cullum paid half of his £9.2m bonus into his own charitable trust, which focuses on children’s charities. He has pledged to give away hundreds of millions because his “children don’t need it”. He has also donated cash to support Branson’s Unite Foundation and its work to help HIV and AIDS sufferers, and recently joined the Virgin founder on a fact-finding trip in South Africa. “It was a life-changing few days,” he says. “It put everything into perspective. We saw people who had to walk 26km each way in 103-degree heat to get treatment. But these people had hope rather a feeling of being dealt a bad hand.”
Cullum is supporting a fledgling business school that will help young, black South Africans to start companies. “The theory is that this creates sustainability,” he explains. “They’re creating small businesses, empowering local people.” Having sat on a Dragons’ Den-style panel during the trip, he invited the winners to attend Cass Business School for two weeks, where he has launched a centre for entrepreneurship. A £10m personal investment for a start-up fund affiliated with the school will be supported by a network of entrepreneurs acting as mentors. “Some great ideas come out of universities and business schools, but securing funding can be virtually impossible,” he says. “But this isn’t a numpty fund. I’m not squandering £10m. It’s about hard-nosed investment criteria to ensure ideas have legs.”
As for a Cullum-less Towergate, its founder believes it might be a more ambitious company. “I’ve got some young colleagues waiting for me to get out of the way so they can conquer the rest of the world,” he says. If the Towergate Business School proves effective in passing on the kind of education Cullum has sought throughout his career, the firm should remain in safe hands. “We all have to keep learning,” he says. “The day you stop is the day you’re ready to go to the other place.”
In his own words
On a failed bid for Norwich City Football Club
“It’s disappointing, but my wife thought it was brilliant news. The idea of going to watch Norwich City every other week didn’t appeal to her. It’s a bitch of a place to get to”
On his proudest moment
“I played for Norwich City boys once against Arsenal. One Charlie George played against me. His language was a bit rich and he spat quite a lot, but football-wise he was on a different planet. It turns out that his daughter works for us, and he has very kindly offered to take me on a tour of the Emirates Stadium [Arsenal’s home ground]”
On tax-dodging entrepreneurs
“Although I won’t win many friends saying this, I actually think that we should stand tall and pay our taxes. I believe successful businesses and successful entrepreneurs have a responsibility to do this. We’re all made differently, but if money becomes your god, you’ve lost the plot”
On the credit crunch
“Everyone beats up the bankers because it’s good sport. I think the plight of the banking sector was down to relatively few individuals who thought they could walk on water and found they couldn’t. But a lot of capable people suffered in terms of income, confidence or losing their jobs”
On private equity
“The image of [private equity practitioners as] thugs is incorrect. The industry took advantage of soft market conditions for debt. Do we blame them? I don’t. But the world has moved on and the model has got to change”
On Richard Branson
“I used to think his image was a corporate myth – that everything looks cool and fun from a distance, but then when you get close to it, it’s just all a bit ugly. However, I went away with him this year and found out that actually he walks the talk, and I’m an admirer of what he does”