I‘m a great believer that the risk should reflect the reward. My whole business philosophy is based on a risk-reward ratio. But it’s got to stack up. If it doesn’t, don’t do it. You might as well go to a casino.
If you think you’ve come up with the business idea to end all business ideas, there are just two things you’ve got to ask yourself; what are the risks, and what are the rewards? I never take ridiculous risks. I am the most conservative person you will ever come across, and that’s because I’m good at reducing risks while leaving the potential rewards high.
You’ve got to make sure that you’ve got all the information and you know more about what’s happening than the next guy.
The way you buy a business can also give you an advantage. One of the reasons I’ve often bought businesses out of receivership is because you can automatically dispense with a lot of overheads. If you buy a business before it goes into receivership, you have to take on all its assets, all its liabilities, all its loss-making and then it’s very difficult to turn it around. You’ve got a lot more room to manoeuvre when you’re buying a company from receivership because all you buy are the assets, the goodwill and the equipment to carry on the business; you don’t take on the liabilities.
If you have a business idea, honesty is very important. I’m fed up hearing people say, “Everybody I have asked thinks my idea is fantastic”. People say they believe in their ideas. That’s because they have conditioned themselves to believe in them. You have to be honest with yourself about what you are doing.
Then you must ask yourself how commercial it is. ‘Everyone is going to want one,’ they tell me. Well, I don’t want one, so not everyone wants one. ‘I have given this to twenty people and they all said they would buy one.’ How much did they pay you for it? ‘Nothing.’ That’s why they took one. ‘I have done my market research,’ they say. No you haven’t, you’ve given things away. Beware of all these ways in which people delude themselves.
It’s very difficult for an entrepreneur to let go. It’s very hard to sell a successful business. People sometimes hold on until sometimes the business has no value at all.
You must be able to create something and then sell it at exactly the right time. That’s really hard. I still find it hard. You’ve put so much of your life, your body and soul, into something you have created and nurtured, and then you have to let go. And there is always a right time to sell, because any business goes through ups and downs. Admittedly, at times like now when there is not a great deal of cash around, you might prefer to wait and sit tight but the principle remains the same.
Cash flow is king. Profit is sanity. Turnover is vanity.
A lack of profit is like a cancer. If it carries on for a long time, it will eventually kill you. But a lack of cash is like a heart attack. If you can’t pay the rent, you shut down just like you would if your heart packed up. You’re finished. If you can’t pay the wages, it’s all over. Don’t be without cash. You can live without profit but not without cash. It’s very basic and simple advice.
The retail environment is changing very rapidly at the moment, partly because of the internet, which opens up a vast world at the touch of a button. Internet selling means that you don’t need to pay vast high street rents and employ lots of shop assistants. You can eBay trade. You can have a lock-up and keep your products there. It’s fantastic – everyone can be a shopkeeper. The amount of business being done on the web now is shifting the balance of power. The internet has unshackled the business world.
It might seem blindingly obvious but business is all about common sense. In fact, business is 90% common sense. I apply common sense in all my business dealings.
But common sense is not common. If it were, everyone would have it and everyone would be able to do what I do!
One of the things I preach to all my staff is never be frightened to make a decision. If one of those decisions turns out to be wrong, then identify it quickly. Deal with it if you can. Don’t let that bad decision cause the business to bleed to death. And if you can’t deal with it yourself, scream as loud as you can so that your colleagues can hear you and realise you’re in trouble and ride to your rescue. There’s no shame in asking others to help you. The shame is in keeping quiet, trying to cover up your bad decision. Rest assured, it will come back to haunt you. Helping each other is what teamwork is all about.
You must never underestimate the strength of the opposition. You only have to look around the high street, where some of the biggest names, household names at one time, are no longer with us. One of the problems for these high-street giants is the nature of their tiered system of management, where strategy and communication often get misinterpreted and lost en route to their rightful recipient – a bit like Chinese whispers.
If you’re an entrepreneur and want to start a business, start small. You can start a business on your own or just with a partner or assistant. It’s only when you take on your first member of staff that you’re more than likely to encounter other problems. All of a sudden you’re managing the people, as well as the businesses.
But remember, just because you have a good business idea that looks like it’s going to work, it doesn’t mean you’ve suddenly acquired staff-management skills. Legislation is now so watertight, as well as being complicated and restrictive, that you have to consider everybody’s feelings and requirements.
In any business I buy, I get as many of the staff together as soon possible. The first thing I ask store managers when addressing them at such an event is who they think is the most important person in the business.
I‘m never surprised by the answer, it’s always the same – the customer. Not so, I say. Then they point to me. Wrong again, I say. Eventually, I have to tell them the answer and I point to all of them, the workforce. They’re the most important people in the business.
Motivating staff is not just about making them feel wanted. Tangible rewards are equally important, if not more so. Incentives go a long way to help staff focus on the work they do.
I’ll let you into a little secret – despite having made a fantastic living from my business ventures, I’ve never had an original idea in my life.
Always remember that because something is innovative or uses leading-edge technology doesn’t necessarily mean it’s going to make pots of money. Many inventions that were thought to be technologically brilliant and ideas that seemed to have enormous merit never made their inventors a penny piece.
Just as the road to hell is paved with good intentions, so the road to bankruptcy is paved with good ideas. There are many good ideas put to us on Dragons’ Den that we don’t invest in purely because they ain’t going to make anyone any money.
I’m often collared in the street by people asking why I didn’t invest in such and such a project. I have to explain that while the idea was good it could not be translated into a money-making venture. There’s always the danger in business of making ourselves into what I call ‘busy fools’ – taking a project, devoting time and resources to it, and ending up with no financial reward. But when I do find an idea – always someone else’s – that I think will work, I get off my backside and do something about it. That’s the difference between me and so many other people.
There’s not much difference between a fantasist and a visionary. We all have dreams and without dreams in business, I don’t believe you can be successful. The trick is to turn them into reality.
You have to have passion for that dream. It’s got to be something you’re going to enjoy, or it’s highly unlikely that you’ll achieve your goal.
You mustn’t, however, fall into the trap of ignoring the facts and deficiencies in your idea. That’s where a lot of people trip up – they lose sight of the bigger picture and ignore the failings of the idea.
Making £100 million is easy. Making your first £1 million is the difficult part. You’ve got to be passionate about your idea. If you can go to the pub and bore your friends senseless about your dreams you’re halfway there. It is imperative that you have an idea you really believe in, and you also have to be absolutely determined you can make it work. But if you don’t attempt to do it, it will never happen. Don’t let your idea be the one that got away.