Diving back in: What second-time entrpreneurs learned from the first time around

At the tender age of 14, Ben Way struggled with his dyslexia so badly the local authority gave him a laptop to help him study. By the next year he was running one of the country’s fastest growing companies.

Barely a teenager before the boom and bust of the dotcom era, Way worked from his bedroom in his parents’ house, taking calls from local businesses seeking help from his start-up computer consultancy, Quad. His budget was tight, but the calls kept coming. And not only from clients, but also from journalists at national media organisations. Quad kept growing.

By his 16th birthday, Way moved Quad out from under his parents’ roof. At 17, he was approached by a venture capital company to start a new technology company, Pulsar, with a cool £25m. With his adult life still ahead of him, conquering the world seemed an afterthought. Lulled into a false sense of security, he couldn’t have foreseen the bombshell that was to drop four years later.

LOSING EVERYTHING

At 21, on the day he landed just below Robbie Williams on the Sunday Times ‘Rich List’, the Jersey-based venture capitalists ousted Way from the company, using restrictions in a shareholders’ agreement to dilute him. “I lost everything,” Gordon Brown’s Young Entrepreneur of the Year 2000 admits. “I couldn’t even afford a tube ticket. The sense of failure was unbelievably harrowing.”

Help was at hand in the form of Way’s business mentor, Chris Moss, the European chairman of 118 118. Moss invited Way to stay with his family through this difficult time, giving the young entrepreneur support and advice that helped him find his feet again.

“Pulling myself back up from the floor took a while and really was the hardest thing I have ever had to do,” Way explains. “At the time it was the end of the world for me, and I was embarrassed by what had happened. It’s only in the last few years I’ve felt comfortable talking about this.

“Now I actually see it as one of the defining moments in my life. If I had not made mistakes, I would by no means know what I know now. Losing everything has proved to be one of the best things that ever happened to me. I’d choose to do it again because I’m a great believer that you only learn from your mistakes.”

What Way learned from his first experience as an entrepreneur is that you need to have a measure of control over the basic aspects of your business. “When someone offers you £25m at the age of 17, you’re not going to ask too many questions,” he says.

Way stresses that he is not anti-venture capital now. He knows that cashflow is one of the biggest killers of businesses. But he believes entrepreneurs who take the venture route for funding should remember that an investor is taking a decision based on his or her capital, not your interests. Likewise, he says they should do a better job of looking after the person who runs the company they invest in.

With his successful Covent Garden-based innovations company, Rainmakers, Way no longer gets involved on projects with investors that he doesn’t want to work with.

WEATHERING THE STORM

Rainmakers, which specialises in venture creation, start-up acceleration and corporate venturing, charges a consultancy fee and an equity position for all companies it gets involved with, so cashflow isn’t too much of a problem.

Way admits he had no growth strategy the first time around. However, with Rainmakers he says he sees the company as a sort of ‘reverse incubator’ that grows through the businesses it is involved in, whether that’s taking his own ideas and building a team to make them happen, or acting as a technology ‘jargon buster’ for larger companies. His approach is that no one gets a 100% hit rate. He knows that if he works on five projects, two will fail, and he believes it is important for an entrepreneur to get into that mentality, which is perhaps what now makes it easier for him to talk about the past.

“I was certainly very worried about having a bad reputation after what happened with Pulsar,” Way reveals. “But I realised that people worked with me because of what I could do, not what happened in the past. When I was younger, it was quite scary, and I didn’t want to be splashed on the front pages, but now I think I’ve proved that it wasn’t just a fluke.”

FEELING THE PRESSURE

While Sahar Hashemi’s caffeine empire Coffee Republic certainly did not suffer the same fate as Pulsar, the entrepreneur-cum-author can identify with Way’s similar struggle with expectations. Looking back at the enormous early success, she recalls the pressure that came with it to play the big business role, accelerating growth, then making your exit.

She and her co-founder, brother Bobby, did just that, leaving the £30m-turnover business in 2001. But she now admits they were wrong, and feeling pressurised by her success, Hashemi says, was one of her biggest mistakes.

“The exit we made wasn’t at the right time,” she explains. “We left too early, and I’ve learned that you care about the companies you start. When we got bigger, the feeling was that I’m professional now, so my entrepreneurial behaviour had to go out of the window. But now I realise a company should never be in a state where it’s only professional.”

With the Skinny Candy sugar-free sweets range, her latest venture, Hashemi is determined not to make the same mistake. To ensure this, she has gone back to basics, bringing in her mother and old players from her Coffee Republic team.

To maintain that small, entrepreneurial feel to the business she believes Coffee Republic lost, she gives her small staff a great deal of autonomy – everyone from her sales and marketing manager to her mother, who handles logistics, works from home. “My PA even works from home,” she explains. “She’s a mother of two. There’s no need to have her commute an hour and a half to get to work. When you give people a lot of autonomy you get a lot in return, you get them at their best. Everyone is 100% engaged and they treat the company like it’s their own business.”

GETTING BORED

David Soskin, chief executive of Cheapfl ights.co.uk, knows all about the importance of keeping that entrepreneurial passion alight so that innovation thrives. As the founder of Asquith Court Schools Group in 1989, he created a highly successful business model, but one that he admits he became “slightly bored” with.

“Of course I loved the company, but it became a bit too much of a cookie cutter,” he recalls. “It was almost like a McDonald’s. You could open a school in Swindon and it would be exactly the same as the one in Bromley. One after another. It was a highly effective execution of operations, but not a sufficient use of imagination.”

Absolute passion for his projects is important to Soskin, so much so that he leapt into an entirely new sector the second time around, having sold Asquith for $100m. Soskin joined Cheapflights in 2000, he says, because of the fast pace of the internet’s evolution, and he continues to find this intellectually stimulating. The competitive dynamic is so different online, he explains, as the market has become globalised. Like Ben Way, he understands that venture capitalists take only a short-term position because they must protect their investment, and that is why he has shunned them.

“My view was always of a global business,” Soskin admits. “I want Cheapflights to be the first British internet company to build a global brand.”

Having successfully moved into the US market, he says the next step is to expand the service into further global markets. As fond as he is of the success he developed with Asquith, he has found his niche, and when he rejoined the entrepreneurial world from a stint at ABN Amro Corporate Finance, he says he did so with his eyes wide open.

TOO MUCH SUCCESS?

But while successes like Coffee Republic and Asquith Court Schools Group opened doors for their founders that theoretically improved the odds for their subsequent ventures to follow suit, can too much success and little failure put entrepreneurs like you at risk? If you’ve only known rising turnover, do you have what it takes to weather a storm in your market – or even the potential loss of your market, as we are seeing in the online gambling sector?

Annrai O’Toole is another serial entrepreneur who, like Way, started his first business, Iona Technologies, when he was young. Iona was an “accidental empire”, he says, that started selling itself after he launched it in his university days. “It was organised chaos,” he admits. “Revenue covers an awful lot of mistakes that you get away with when a lot of money is coming in. But over-confidence is dangerous for you and your business. You develop this belief that you can do no wrong, but of course you can.”

It was this hubris that he had to “un-learn” before his next venture could become successful. After 10 years, O’Toole sold Iona and moved on, eventually starting up his software ‘enterprise service bus’, Cape Clear. Moving from an organisation with 1,500 people to one with just 15 was difficult, he says. Lacking the infrastructure he had at Iona highlighted how much he needed to learn about management, which was compounded by the stresses of starting up after the dotcom bubble had burst.

“We probably came in at the worst time for a software company,” he says. “We could have had the best product in the world, but no one was buying anything. I was also now trying to cope with not only managing all aspects of a business, but also doing it in really difficult times. When your first venture was so successful, to go back to this stage is a bit of a shock. I’ve learned a lot more from my second venture than my first.”

Failure, he says, teaches an entrepreneur more than any number of successes. “When everything is going well, you’re not learning many of the key lessons because you feel you can do no wrong.” he explains. “I’ve learned that you can’t control the external factors of your business. Yet, you must have no illusions about yourself and your skill set.”

LEARNING FROM FAILURE

Chris Philp, founder of the £100m-plus turnover, AIM-listed convenience store grocery supplier Blueheath, and subsequent founder of lorry driver training provider Clearstone and Pluto Capital, a property development company focused on the former Yugoslavia, says that from his experience a combination of both success and failure are essential for entrepreneurs.

“Both situations are equally valuable, and in a way it shows that you are a well-rounded and experienced entrepreneur because you have encountered a wider variety of experiences,” he explains.

Serial recruitment entrepreneur Adrian Hitchenor agrees with Philp. He claims it’s all part of the natural ebb and flow of business, and because it’s in your blood to be achievements-oriented, you are going to do splendidly well sometimes, while at others you will spectacularly fail – what’s important is to time it right.

“Success is vital early on with your first business as it helps you build confidence and get the company going,” he explains. “Yet, every entrepreneur with his hand on his heart is lying if he says he hasn’t failed at something. It’s the very nature of entrepreneurship, of risk-taking.”

Somewhat more succinctly, Hashemi adds: “Success makes monsters, and failure makes heroes. Yet failure can make you complacent. There are different sides to every coin.”

REPUTATION MATTERS

One way Hitchenor suggests ensuring you don’t make the same mistakes twice is to take on a nonexecutive chairman. His fi rst recruitment business, ECHM Group, made some mistakes he was keen not to repeat. He and his management team didn’t have tight fi nancial control over the company, he says. This, along with letting someone convince them to open a new office in York rather than their intended targets of Birmingham or Manchester, ended up hurting the business because they had to deviate from their core skills and ultimate growth strategy.

When he launched his latest venture, Hitchenor Wakeford Search & Selection, he hired an ex-fi nancial director and a non-executive chairman to serve as a sounding board for advice on such decisions. “A non-executive chairman can add a lot of value to a growing company in that he makes sure you don’t start manoeuvring away from the objectives of your business five or six months after your launch,” he explains. “Your non-exec will help make sure your management team stays the course. He’ll also act as an arbitrator and a devil’s advocate. I’ve also found that it adds credibility when you approach banks, as well as customers and potential employees.”

That said, the triumph of any venture ultimately comes down to the old adage that all you really have in life is your good name. There is no doubt that part of any second company’s success is down to who you have with you. For those of you like Hitchenor and Hashemi who carried over key players from their old management teams, you know the importance of working with someone you can trust and who shares your vision. You know it’s your track record that they value and share. Or if you’re like Philp, who secured funding for his latest venture in just three hours after pitching his idea to a bank, you know how much your reputation is worth.

But it is important not to let your reputation stand in the way of who you are. Success a second time isn’t just about growth, but about fi nding a momentum that works for your company.

“The second time around you find yourself more patient because you know things take more time,” says Hashemi. “Before you may have thought: ‘I’m nothing until I open that first shop,’ but the second time you’re enjoying the journey.”