Issue 45, December/January 2006
In her most revealing interview yet Rachel Elnaugh returns fire on her critics and gives her version of why it all went wrong for Red Letter Days
How is your business life moving on since leaving Red Letter Days?
After I left Red Letter Days I received the most public media bashing any female entrepreneur has ever had to endure in this country. So I was in no immediate hurry to jump back into the business world. I wanted to pick my moment.I was introduced to the easyart.com opportunity and it immediately seemed the perfect fit. I love art and it’s a business that has already enjoyed significant inward investment and the infrastructure is phenomenal. It just needs a marketer to drive its growth. To any entrepreneur, when your gut tells you something is right, that’s a very good sign.
What ventures are you involved in – including Dragons’ Den investments?
I am not actively involved in any Dragons’ Den investments at the moment. I am a great believer in focus in business – it’s vital. My focus right now is easyart.com. I will move the company toward a successful AIM flotation, then move on.
You’re planning a book – how keen have you been to put the record straight?
More than anything I believe it’s a fascinating story. I hope that entrepreneurs reading the book will learn a huge amount about what to do – and what not to do – in business.
When did you know Red Letter Days was in trouble?
On December 20 2002 to be precise. But it took a further six months to establish the extent of the trouble was a £4.7m loss.
What exactly were the things you feel went wrong?
Hiring a professional CEO to step change the business in March 2002. It is a mistake many entrepreneurs make. I did not put in sufficient reporting and controls and I also had a weak FD who did not alert the board to what was going on.
What action did you take?
I removed the CEO and the FD, returned to the business full-time and brought in an interim CFO to help me refinance the business.
In hindsight, what mistakes do you think you made and what would you have done differently?
By 2001 the company was generating £1m profit on £10m turnover. I should have just kept the business running at that level rather than being greedy and trying to go for gold. I had also allowed the board to become too big and unwieldy – at one point we had eight directors and it was costing over £1m a year. Yet most of them were ‘yes’ men and not adding any real value to the business. Small teams are far better.
You’ve publicly said the CEO you hired wasted £4m. Presumably you had too much faith in him. But as chairman, you sanctioned the spend and how the money would be allocated
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The £4m of exceptional one-off costs that year related to systems/infrastructure as well as the brand re-launch. There were budgets in place but not sufficient financial controls. When we eventually assessed the damage it was way more than anyone had anticipated. I gave far too much leeway and signing authority to too many people.
As a significant amount of the company’s cash reserves, didn’t you think there was too much risk?
When we set the budgets and sanctioned the spend it was on the basis of the draft accounts to July 31 2002 which showed a £1.8m profit. By the time Ernst & Young had been through the numbers in December 2002 they were showing a £400,000 loss. Had we known that the company was not making the profits we thought it was, we would never have sanctioned the spend.