My First Business Failed When I was 22. I Lost £50,000.
For a long time now, I’ve had a favourite saying; “It’s not a failure as long as you’ve learnt something”.
Well, I’m now thirty-five, and I’ve already learnt a lot. I’m going to share some of what I’ve learnt with you. I’m not doing this to preach, or even instruct. I’m doing it for myself, and for anyone that might come across this article on the back of a recent setback. I need to give you a bit of background first, so I'm sorry if this goes on a bit!
In 2002, after completing a two-year programming course at college, I took a year out from education and started working in a local art gallery. I’d work all week, mostly in sales, enjoying the feeling of having money in my pocket and being able to go out at the weekends. The twelve months passed quickly, and it was soon time to leave for university.
I lasted three months.
The course was dull and in no way challenging. I kept thinking about how much I missed my girlfriend, and how much I’d enjoyed my job. Making a big sale gave me such a rush, and here I was, sitting through stuffy old lectures. I jacked it all in and returned home, to my old job. But it wasn’t going to last, I’d woken a powerful desire for finding new challenges.
Six months after returning home, in May 2002, I decided to start my own business. Having experience in an art gallery, it seemed like the ideal industry to start in. It was the easiest option.
I found a tatty old shop in a neighbouring town and set about renovating it myself. We covered everything in wallpaper and filler, and it didn’t look too bad when we’d finished. I’d already managed to get a £6,000 loan from the bank which I spent on stock and a few shop fittings.
I’d opened the doors by the end of May, but I didn’t really know what I was doing. I had no business plan, marketing plan, cash flow forecast or operational budget. I didn’t have any staff and was working seven days a week.
Despite this, I had a reasonably successful first year’s trading. My best month was about £6500, and our margin was over 50% so this was good for a new business being run by an inexperienced, ill-prepared and over-confident twenty-year-old. But it didn’t last, many of my customers started buying from online galleries. My quiet months starting eating all the money I made in the busy months. I was earning a lot less than minimum wage, and it was impossible to take time off.
It was around this time that I decided I wanted the enterprise to be larger. I wanted to up my game, to start selling art for thousands instead of hundreds. I needed more. I would be able to pay myself more money, take on staff and not have to be hands on all the time.
I started talking to my suppliers about my plans and they thought it was a marvellous idea. I found a space I liked, and despite expert advice that it was in a low footfall area, I signed the lease. Somehow, I managed to convince the bank to lend me another £20,000 (still without a business plan!).
Eighteen months after opening my first gallery, I opened my second. It was four times the size of the first one, with overheads to match. It makes me cringe to think about it now. I had a grand opening with bubbly and nibbles, the week before Christmas. Almost immediately, it became apparent that I should have taken the expert’s advice. I was only a few metres from the high street but it might as well have been miles. I started ordering ridiculously priced full-page ads in glossy magazines and advertising on bus stops trying to raise awareness of my gallery. I dropped 10,000 leaflets to newly built houses and advertised on local radio.
To be fair, I had some awesome weeks. I’d sell thousands of pounds worth of art to just a handful of customers. But then I wouldn’t make another sale for days. It was depressing.
Six months later, I closed my first gallery (just two years after opening), to concentrate on the new one. I hadn’t made enough money to cover my third quarter rent payment, so I went back to the bank, but they turned me down for another loan. To be fair, I was already into them for £31,000 at this point. Seeing the fix I was in, my father offered to lend my £20,000, which I gladly accepted (he didn’t have this money, he took out a loan to cover it).
I know what you’re thinking. Why did you pour more money into the hole? I can’t really answer that, I just felt I had already committed so much that I couldn’t walk away. Also, I was twenty-one and thought I knew better than everyone else.
This is where things get crazy. I didn’t change anything; I just carried on as before, hoping against hope that the situation would resolve itself.
The money lasted six months; I managed to stay open until Christmas, hoping that a decent festive season would allow me to hang on a bit longer. But I failed to make nearly enough sales and closed my doors for the last time on Christmas Eve (just over a year after opening).
I was 21, with over £50,000 of debt, £20,000 of that was owed to my father. I had four years left on my lease, at a cost of £15,000 a year. I hadn’t made any plans for this outcome and I didn’t have any idea about what to do.
So, what did I learn from this whole fiasco? Remember this cost me over £50,000 so it taught me a lot!
1. Don’t take the easy option. I didn’t open an art gallery because I saw a gap in the market; I did because it was the easiest way to start a business.
2. Make a plan. I came unstuck because I’d spent no time thinking about my business plan. I just did it and hoped for the best. Remember, build it and they will come is not a good plan.
3. Start small and test the water. I did this to a certain extent, but one of my biggest mistakes was trying to be something greater than I was. I should have experimented more. I could have traded from a market stall or tried to share a space with a complimentary business.
4. Listen to the experts. Someone with experience told me that my gallery was too far from the high street and had too little footfall. I didn’t listen, and it cost me my business. I should have taken a smaller space in a busier location.
5. It’s NEVER too late to walk away. If I’d admitted to making a mistake earlier, I could have saved myself a lot of money. If you try something and it’s not working, then either change what you’re doing or drop it. Don’t just keep pouring money and time into something that you know is never really going to work.
6. Limit your liability. Make sure that if everything goes wrong, you don’t end up saddled with debt. I should have been trading as a limited company and I should have insisted on a 1 year break clause in my lease. I should have tried to get as much of my stock on consignment.
My landlord took pity on me, and let me walk out of the lease, but the repayments on my loans were close to £900 a month. The day after I closed my business, I rang an employment agency and landed a shift job in a local factory. Within a week, I’d gone from art gallery entrepreneur to working on a production line in a factory. I started doing a lot of overtime, often doing six twelve-hours in a row, have one off, and then do another six days. It was mind numbing work, but I was overpaying my loans and keeping my head above water.
I also had a side-hustle with a little online venture, it was something that I had been doing while still running the gallery. It was nice while it lasted, but it soon came to an end. My confidence had taken a serious hit and my credit rating was in the toilet. I did two years in the factory, always doing overtime and odd jobs on the side. It was a pretty grim part of my life. I drank too much and was smoking twenty cigarettes a day. Nearly everything I earned was using to repay my debts, and I was constantly exhausted. I blamed everyone but myself for my situation. It was pitiful.
The pain of my failure gradually started to recede, and my confidence gradually began to return. I felt that old desire for a challenge. I thought about starting several different ventures, but I was still a shadow of my former self, and still had a fair bit of debt. I was quite lost for a while until one day I walked into an Armed Forces Careers Office.
The recruiting staff can spot lost souls a mile off, they’re trained for it. I’d already decided I wasn’t a good fit for the Army, and I didn’t fancy long spells at sea, so the RAF seemed like the natural choice. I breezed through the application process, and at twenty-four, I left for basic training.
Basic training and technical training were a challenge, both mentally and physically. After completing nearly 18 months of training, The RAF had given me my confidence back, and made me fit and healthy in the process. I was ready for my first posting.
It didn’t go to plan. After all the training, I was given a job answering a phone and watching a screen for three years. I stuck it out, paying off the last of my debts and starting to experiment with entrepreneurial ideas. A lot of ideas came and went, most of them nothing more than dreams. The one that came closest was a game app that I built with my brother.
We spent hundreds of hours, learning how to build it, testing and improving it. It even ran on my iPhone, buggy as hell but it still ran. Every part of the process was a struggle, but we almost got a finished product out of it. Eventually, the app was mothballed as we both moved onto other things. The point is, it showed I had come full circle back to the idea of making my own way in the world.
It was about this time that my father and uncle decided it was time to retire, and they put their bakery on the market.
This was it, the opportunity I’d been looking for. You can read more about our bakery here, but for now let’s just say we returned to Devon and became bakers.
I tried to put my earlier experiences into practice when deciding to take on the bakery. Here was my rationale.
1. Limited Downside. The value of the deal was equal to freehold on the building. As the business was in decline, no value had been attached to goodwill. Even the equipment was being thrown in as a sweetener. This was the same deal that had been offered to other prospective buyers.
2. Expert Advice. I convinced my father to stay on at the bakery. I knew that I would need his expertise and experience if I was to make the business work.
3. Liability. We insured ourselves against the business failing by creating limited companies as vehicles for the business. Should the worst happen, and the business failed. Any equity we’d built up in the freehold would be protected.
4. Potential. The business held a large amount of untapped potential. There were empty flats above the bakery, and possible property development opportunities. We immediately starting renting out part of the building that we weren’t using.
5. Planning. We spent hours analysing sales figures, fixed and variable costs, cash flow forecasting and building a business plan. Things didn’t always go to plan, but when that happened we had some idea of what to do next.
If you’ve read our Q & A (you can read it here) then you’ll know that we’ve been running the business for six years and it’s still going strong. Our turnover is growing, and we have a variety of projects in the pipeline to grow our business further. We’ve diversified and added complimentary income streams. We’ve built up some equity and improved the freehold building a lot over the time we’ve owned it. We’ve made it work. But that doesn’t mean there haven’t been more lessons to learn.
Here are a couple of them;
Children’s Baking Workshops and Parties–I didn’t get the pricing/offering quite right with this one. We had hundreds of children attend our events and it was great fun. The only problem was that I didn’t make enough money out of it. I tried to squeeze too much value into each session, while keeping the price low. As soon as a better opportunity came along, I took it and closed down my baking workshops. Make sure you get your prices right, and there is enough profit to make it worthwhile!
Niche Product–A few years ago, I bought a little business that was making edible gifts in a neighbouring county. It really seemed like a sure thing, it was an easy to manufacture, long-life product. I was certain that it had huge potential so I had it rebranded by a marketing company and started trying to grow the business. Unfortunately, I’d overestimated its appeal as an artisan food product. It struggled from the outset. Not only was I struggling to sell the rebranded product, but I was losing customers that I had inherited from the previous owner. I had underestimated how important it was for the product to be manufactured locally.
Whenever I tried to approach new customers I was turned away for not being local. Make sure there is enough demand for your product or service.
Over the years I’ve also tried subscription boxes, being an Amazon seller, self-publishing a novel, three separate e-commerce stores and a host of other weird and wonderful ideas, including farming oyster mushrooms (what was I thinking??).
So what’s the point of all of this?
I wanted to let you know that I’ve taken some pretty big knocks on my entrepreneurial journey. But they’ve all taught me something, and I try to apply those lessons to my next venture. So if your first, or tenth, business isn't successful, don't give up. Learn what you can from the experience and move on.
I won’t stop testing out new business ideas, and I don’t think I could even if I wanted to. I’m certain at least some of these ideas will turn into more “lessons” but that’s how we grow.
And besides, I’m a slow learner...