Startup failures probably make for good reading with a headline like this. I suspect there are few stories that could capture attention like the words million and Ibiza. So here’s my story on how, in one Summer of 2019, I lost over a million pounds while losing myself on holiday and almost lost my business at the same time.
What’s the business?
So, from the beginning, in brief, I began a vape shop chain in 2014. Well more accurately, it was originally an ecig website. But after publishing the site and doing limited research (None) – bad news slapped me hard. I discovered that Facebook and Google had zero appetite to let you advertise these types of products on them. That pretty much nailed my entire marketing angle. So I sat on the website and did very little for a few months.
It wasn’t until some months later, my father suggested I open a brick and mortar store. In doing that, I thought of a new way to grow a retail brand and eventually the website. For a back-story, I’d discovered vaping in the US when trying to quit smoking myself. Where it wasn’t widely known in the UK, I thought it may be the next big thing. The first store was quickly profitable, we opened a second not long after and so it continued until 2019.
So what happened in 2019?
Full disclosure, I have a criminal record, which is long since spent. That means – if you ask me if I have a criminal record, I am legally allowed to say no. This is part of what is known in the UK as the Rehabilitation of Offenders Act. I’ll leave my tales of ‘Gangs, Drugs and other Legitimate Enterprise’, to another day. But suffice to say, the industry has it’s own barriers to rehabilitation that make it difficult for ex-offenders to do little more than survive after a spell at Her Majesty’s pleasure. From Google indexing of old news articles to secretive financial crime lists that banks use to shut your account years after your release from prison. Often for no reason other than ‘A business decision’. There are a plethora of things that punish a now law-abiding citizen after the fact.
We Startup’d on £5k
Having started the business on £5000, we were within 2 years turning over £1 million per year. This number would double each year until just shy of £5 million. We had our brand above the door in 30 locations, employing around 100 people and generating tons in tax receipts every month. Things were going well, they could be going better but I’d come to a crossroads for where I wanted to get to. In the previous 2 years, I had lost both my parents through protracted, energy-sapping battles with Cancer, while my wife too was diagnosed with a form of Cancer. There is little else that can change your perspective to work than the loss of loved ones.
Go big or go home
Like any business owner, work doesn’t stop at 5 each day, it carries on until 1 am 7 days a week. When I get stuck in, I go all in, but I had reached a point where it was time to make a decision to go big or get out. I didn’t want to be another startup failure statistic. During all this turmoil at home, we had begun exploring ways to raise capital, enabling that expansion. Despite tens of thousands of pounds spent on ‘advisors’ and corporate finance agencies, and solid numbers – we were met with the same replies:
“We don’t like the sector”, “We worry about vaping” or some other variation of a polite way to say, “We don’t like your criminal record.” Call me naive, I just believed it was best to be upfront about my past because I couldn’t handle the disappointment of a deal falling through at a later date when it was mentioned. Some were less polite, namely Seedrs – they straight up wouldn’t raise for us because of me. This was after every other step had been met. Good numbers, a good team (well all except me) and a good plan going forward.
It takes a toll…
This kind of knock-back and the others take a toll. You have to ask yourself where you are going to get to if your competition is getting growth capital and you can’t. The reality in any battle is that 99% of the time, the army with the best resources wins. I am positive in outlook, but it would only be a matter of time when a number of forces converge to erode your business. From online retail to alternative products, competitors on your doorstep and price wars. If I couldn’t grow, it was time to find a buyer.
The process wouldn’t be quick, it wouldn’t be cheap and with a company of our number of working parts, it probably wouldn’t be that simple either. Save the boring tome, we found a buyer that seemed a good fit and in July 2019 I got an offer emailed through just as I was boarding a flight to Ibiza. I got to my seat, stashed my case overhead, got all the usual necessities out, strapped myself in and clicked open on my emails.
Sun, Shots and Selling my business
It’s funny when you open an email that makes an offer for your business, something that has so many working parts, so many complexities, that one-pager, just seems so simple.
The email simply offered a deal value of £2.4 million and an upfront sum of £250,000. It’s not Facebook money but for an ordinary guy, from an ordinary family with a 2:2 from an average Uni in England, it was enough. Enough to spend the rest of my life doing what I wanted. Buy some property, live off the rent, spend the time travelling, sailing, whatever. Not bad for a lad who’s only previous retail experience was a summer in the shoe department at Next when 16. In fact, the most remarkable event that happened during that brief stint, was when I sh*t my pants in the stock cupboard on a warm day after a bad stomach the night before.
Out in Ibiza, my pal Lee and I spend time hitting the gym, doing some exploring in the parts that others ignore and of course drinking substantial sums of vodka in the parts that no-one ignores.
You seen the news mate?
Those were the words that popped up on my Whatsapp feed. “You seen the news mate from America?”. No was my immediate response, which led to a ton of links popping up in reply.
It seems that a few cases of ‘vape related’ deaths or serious injury had occurred in clustered parts of the US. What we didn’t know that sunny morning, was this would expand to hundreds of cases. While none would be related to the vaping of conventional e-liquids; the mere use of the word vaping, spawned thousands of click-bait news stories frightening millions.
Trapped in my bubble in Ibiza, I knocked out a short video for our Facebook channel undermining the science behind it and went back to the pool for more daytime beer.
Why Facebook Videos over Youtube?
I remember checking the viewing stats for the video – I uploaded it to Facebook’s native platform rather than Youtube – but thought, I’m smashing this. I hadn’t really considered that wasn’t necessarily a good thing. Just on that, when I do videos that relate to current affairs, I think these are better for Facebook. Youtube sits on your channel forever and so they can look out of context quickly. Facebook wants to show it’s own video content so I think there is always going to be some underlying bias toward them, but also it’s so easy to share videos and re-share within it too.
16,000 and counting
Anyway, yes, my message was being seen quickly. I think it got to 16,000 people in the first 24 hours, not bad for a mobile phone film made in a gym after a workout. But this demand to view it was indicating something more worrying. People were hearing about this scare story, they were buying into the truth of it, and in the days to come customers were calling up the stores cancelling orders and suggested they may be better off just smoking again.
Can you imagine that? We live in a world where people look at smoking a burning stick of tar with proof of death, from stroke, heart attack and lung cancer; yet fear something that may help them over certain death? That said, we also live in a world where people attack paediatricians mistaking them for paedophiles. As if both carry business cards identifying their roles.
Customers who’d quit smoking, take up running, all while vaping, were now considering the certainty of lung cancer over the uncertainty of better health. That’s a risk-reward ratio I will never understand, but sales fell off a cliff. We saw a 20-30 % drop in revenues within days. This would carry on for 3 months, only saved by Christmas shopping. By then though, the buyer was no longer replying to my emails.
Dealing with Loss
I’m pragmatic, I’ve always been a realist. ambitious, hopeful but I can see when the writing is on the wall. In the time it took for me to land, unpack my case, deal with a solid hangover and some bad life choices, I had seen that offer of life-change, evaporate.
The guy who made the offer is a notorious ghost at the best of times, now he was the ghost of a ghost. A cautious operator he had been spooked, or he was hoping to change the terms of the deal at a later date. But like us, he too was seeing a catastrophic decline in sales. Worse than that, is an almost non-existent stream of NEW customers. There are still 7 million-plus smokers in the UK alone, and those switching to e-cigs would be an industry in itself. But now, that 7 million would remain that number and grow potentially more. As a growing business we invest in new stores, new product lines, marketing and our staff; losing 30% of your top-line revenues, is just a no-go.
Biggest mistakes? Go…
I’ve always tried to keep sufficient cash reserves to cover the rainy days, but this was a tsunami. Could I have been more able to deal with it – in hindsight, yes. But that kind of vision is always 2020. So where did we go wrong?
- Delayed interim management accounts
- Leading to overreach on new projects
- No internal reporting to state what we can afford to invest in new channels
- Not asking the right questions of those who may feel responsible for failure.
The Pareto Principle and the 80/20 approach
The Pareto principle is that 80% of your revenue comes from 20% of your customers. But the 80/20 approach has been adapted to include occasions when doing 80% of a task is better than not doing it at all. In short, we used to do weekly basic P and L reports, that wouldn’t pass muster to the Stock Exchange, but would tell us if we were roughly up or down.
These casual reports I used to do in the early days and then by management after, had been lost in the race to produce reports that investors would want to see. (Investors we could not even find!) While the more extensive reports required more time to put together and were well out of date by the time they were finished. They were in essence, utterly f**king useless for a high growth startup.
Would I have done these extensive reports a second time around? Yes, but they would take second place to the simple things that tell the current story. If a report that is published late blocks real-time intelligence that affects the now; then it’s not going to hurt if it’s another couple of months late. Commanders on the battlefield need a picture in the now, not old intelligence.
By the time we figured we couldn’t pay our VAT bill, the management accounts were already 3 months out of date. They still didn’t show up for 5 weeks after. All that time and energy paid to put together reports that told us nothing. What a waste of money in salaries.
Simple Financial Reports
So – the same simple sheets that helped you in the early days, need to be carried on in the latter days. I also used to have access to the bank account and could see the balance, I lost that log in years ago and with it, my window into the truth. Simply putting my head in the sand and left it to others. I wasn’t interested in those things, but nor would I get advice to cut back on things on that we couldn’t afford.
At the same time, we discovered that a franchise we had lent money to, was now £50,000 in the red. Our FD had listed the debt to us from them as an asset like it would ever be paid back! Again an overly complex financial tapestry that didn’t tell the real story. Even more ridiculous, was this ‘asset’ on the books led to us paying taxes we needn’t of. It was a shambles.
The moment you lose track of the sat nav or the map, don’t be surprised if you end up in a dead-end. Do NOT lose sight of the finances and the short term impacts of everything you do or spend on. It’s as simple as that. Had I been aware that the franchise was £20,000 in debt, we would have shut it then. Saving us £30,000 in cash that would have ensured we could meet our bills. Tough decisions can’t be made if you don’t know the question should be asked.
Arm your team with the ability to shoot down your pie in the sky dreams. If you’re like me, you love the startup phase, the discovery etc. It’s exciting. Adventure is always more pleasing to an entrepreneur than settling down. But it’s fundamental the two mindsets coexist. If you stop looking at the road, you’re going to crash at some stage. The only factor is how bad is that crash.
I don’t beat myself up about this whole episode, which I haven’t really finished explaining, but I don’t want to zonk you to sleep. I don’t beat myself up because it was my fault, I let it happen. It wasn’t the FD’s numbers approach, it wasn’t management who didn’t have the stomach to tell me something, it was none of those. I chose to stop looking at the numbers. I chose to not push for weekly P&L sheets, put into monthly reports. It was me who invested without being able to ensure that there wasn’t scenario prep. All of these decisions at a higher level created an environment where contagion could happen. With that in mind, it’s a whole lot easier to pick yourself up and get to work fixing what can be fixed.
I don’t beat myself up about it, but I am only too aware that I f*cked up. Would the deal have been on the table had we been better prepared? Yes. But the company’s circumstances changed and we could no longer hope that a deal like that would happen again for us.
Gotta love Audible
I had listened to an audiobook around this time, it was called ‘Leadership’ or some such by Ex Seal, Jocko Willink. It was probably the best thing I could have had in my mind at the time. Likely it staved off me going totally bat-shit crazy. It teaches you to understand that everything that ever happens to your business, is ultimately your fault.
There is obviously a lot more to it than that, but it’s a great listen and I recommend it to any small business owner as a great piece of retail advice. In fact, it’s probably the ultimate self-help book I’ve stumbled across. That being said, I am not sure it’s trying to be a self-help book.
So how did we fix it – or did we?
By November 2019 we had put our heads together to find a solution for everyone. I couldn’t stomach the idea of sacking tens of staff for my own mistakes. To some this is a weakness, that’s their view, my view it’s a weakness of character to put them in the mincer selfishly. These guys and girls have bills to pay, families to support; they rely on my decision making. Decision making that had let them down. I sat down with my senior team and told them all – we fall on our swords first. But before that, we plan our grand strategy.
The plan was to find a company that would take the stores and the staff. This would leave me with the website and the IP, with a small team. From that IP we would continue with our franchise, focus on wholesale and build up online retail. I figured that a buyer would change pricing and products, such that it would send some to us online. And if they didn’t change products, then we would continue to generate revenue from wholesale.
Startup Failures saved by Coronavirus?
Call what happened next luck, call it patience. But weeks after striking the deal, while our name still sat on the old stores we sold, COVID-19 happened. Leading to a national lockdown of non-essential shops, sent the entire market shopping online. Sales grew by close to 1000% for us – I am writing this while the lockdown is still in place. What will happen after – will we retain some of those online shoppers? Who knows, but it has come at the perfect time. They say it takes between 4-8 weeks for a new habit to form – here’s hoping that’s online shopping with us.
Startup failing, or business starting?
I’m going to leave this post as the end of this story of failure. Patience is so under-rated. There’s a famous Chinese proverb in the 600BC Book, Tao Te Ching – that states:
“Stillness preserves us for action when necessary.”
Do you ever rashly reply to an email in a negative way when you see red? Do you say things without thinking the consequences of your words? Have you ever rushed to do things without testing if it could hurt more doing it? This is the essence of the proverb. For me, it tells me to take things a little slower sometimes. 6 years ago this is what we did in a month on our website:
6 years later April 2020, things look a little different for the online business. On the cusp of being another failed startup story, to a glimmer of hope. When you hear about a company winning, don’t think it hasn’t taken years of preparation to get them there, or had the backing of retail consultancy advice in the beginning.
It takes patience, perseverance and google algorithm updates that mess your site up to get here. Our sales and conversion rate has gone through the roof, that’s in huge part to the absence of open shops. But had our site been so difficult to use, or too slow; the sales wouldn’t have happened. For that, we had to make ourselves ready. By not throwing our staff under the bus when our business went south, we created an opportunity.
Inaction is an action…sometimes its failure
By being decisively patient, by buying time, we were able to make a deal that landed favourably at this time. Favour changes like the wind, but there is a lesson here. STAY IN THE GAME IF YOU CAN. If there is ever an example of why never going ‘all-in’ is wise, for us it’s this. Sometimes your business is not worth the effort. It will give you less than you ever give it and that’s a failure from day 1. You back the wrong horse, or the wrong idea at the wrong time. But for others, the reason for failure is that they didn’t even start. The deal to keep the IP, means we need to do £30,000 a month online to stay afloat. In our first month we have done 3 of those.
Startup Failures are all too common, 90% fail in the first year. 123,000 every day, 423 in 5 minutes. I don’t plan on walking away just yet.
So how much was the deal worth we did do?
Well, that we can’t say. Safe to say I won’t be retiring any time soon. The real win for me? Easy, I can look every member of staff in the face and know there are no hard feelings. Some people see this as life, others in the startup failures pile; for me, it’s just education. If I continue doing what I do well and avoid what I didn’t – maybe next time eh?