Dotcom survivor Karen Hanton on holding her nerve, celebrity shareholders and identifying new growth areas for restaurant booking website Toptable
“We didn’t realise when we started that we would have to do such a lot of education,” says Karen Hanton, as she discusses the pros and cons of being a pioneer. On the one hand, life’s never dull. But while she never expected it to be easy, the founder of Europe’s largest restaurant booking site stresses that gaining support for a brand new concept is actually even harder than you think.

She certainly hadn’t anticipated how difficult it would be to convince consumers, used to picking up the phone to book tables in restaurants, to move online, even though she could see compelling reasons for doing so.
 
That said, since its launch in 1999, Toptable has made impressive headway. Sales rose from £1.6m in 2005 to £5.5m in 2008, while pre-tax profits grew by 187% in the year to June 2009, rising to £1.2m (from £442,000 in 2008) on sales up 20% year-on-year, prompting a debut in The Sunday Times Tech Track 100. Customers can now find restaurants in 15 countries, book tables and review their dining experience.

Meanwhile, Hanton’s team has risen to 60 and the business has generated over £100m worth of revenue for the restaurant industry. But there’s still a lot of work to do (and scope for growth). Even today, she believes that only around 5% of restaurant bookings are made on the web.
 
Old habits

Originally from Aberdeen, Hanton moved to London in the 1970s. In 1997, she sold Mortimer Spinks, the recruitment company she built from scratch, to FTSE 250 firm Harvey Nash, but it was her success as a property developer that gave her the idea for Toptable.

Having bought a building to split into flats, she opened a café on the ground floor (The Green at Parsons Green in London, which still exists) with the aim of filing for planning permission for a restaurant. The experience opened her eyes to the limited marketing tools available to restaurateurs. “You have a blackboard outside and you do a local leaflet drop, but that really is it,” she says.

Meanwhile, newspaper advertising was “too scattergun and costly” and it was difficult to get an effective call to action. This was in 1998, and everyone was starting to talk about the internet. With her trademark pragmatism, she anticipated an equal marketing challenge in getting people to come to a website, but saw real potential for a one-stop-shop, where a consumer who fancied eating Greek in Hampstead would be able to find a suitable venue. And so Toptable was born.

Hanton describes the business as a marketing tool for the fragmented restaurant industry. Even so, as well as battling to change ingrained consumer habits, she had to convince restaurant owners that using a third party to book tables was a good thing. “They were naturally sceptical,” she says. “Many of them couldn’t see that technology played a part in what they were there to do.”

Not only did she have to hold her nerve for a long time (a prerequisite of pioneering), but  she also quickly learnt that talking about the technical side was a major turn off. With nothing to show them but storyboards and an idea, she had to construct a model that was simple and results based – no one was willing to pay upfront for an unproven concept.

“We said to restaurants: ‘You don’t have to do anything,’” Hanton explains. “‘We’ll create a microsite, get a lifestyle writer to vet your restaurant, take pictures and post up some tables. Then for every person we send to you, you give us £1.’” These days, the fee is £2, but other than that the booking proposition is the same. Toptable launched with 500 restaurants on board, today it has more than 5,000.

Hanton believes this results-based model is what enabled the company to stay afloat while many web businesses were scuppered by the dotcom crash. “There were a lot of businesses at the time that had no idea how they would generate money,” she says. “We didn’t make a profit until we were five years old. We had to have a lot of faith for a long time, but there were other businesses that never managed to make a revenue stream. We were really grateful even to get £1.”

Although she has noticed the same “rather optimistic approach” from some web companies creeping back in, Hanton is more hopeful about the outlook for web advertising post-recession, which she believes has driven more brands to the measurable return offered by the medium. “If there’s ever going to be a time when a net business can be supported by advertising, it probably is from now on,” she says.

Sporting chance

High-profile shareholders in the form of Manchester United manager Sir Alex Ferguson and celebrity chef Gary Rhodes (both of whom have been on board since launch) has undoubtedly helped Hanton on her mission to champion online restaurant booking. The appeal of a celebrity chef’s endorsement is pretty clear, but why did Hanton approach a football manager? “Alex Ferguson is a fantastic businessman,” she replies – and Hanton is not the first to draw parallels between sport and business.

His work might take him more to the locker room than the boardroom, but his leadership skills are unquestionable. “He has to manage very difficult raw material, and gets exceptionally good results. He is the classic motivational manager,” she continues.

Likewise, Ferguson was attracted by her proposition, and it was his idea to get an industry insider (Rhodes) to look over the business plan and help them devise a reasonable pricing strategy. Not only did Rhodes think it would work, he wanted in.

Their involvement has unsurprisingly garnered some valuable column inches, despite Ferguson’s turbulent relationship with the press. If anything, this has helped. When he vowed never to speak to another journalist again, Hanton didn’t hold out much hope when a reporter from The Sun made her a deal in the early days. If she could get him a coveted interview, he would write a double-page spread on Ferguson’s association with the business.

To Hanton’s amazement, Ferguson agreed, and the resulting piece sparked a flurry of interest in Toptable. However, she is adamant that her celebrity shareholders bring more than just good PR to the table. “I can’t deny that it has been helpful to have high-profile people involved, and it’s probably easier than you think if you’ve got a good proposition,” she says. “But make sure they’re relevant. Then you can get something more than just PR. We’re very lucky to have two people who contribute.”

Team player

Hanton recalls asking Ferguson what the secret was for picking a winning team. “Look at it as a football team,” he told her. “Look at all the positions you’ve got to cover – head of IT, head of marketing, etc. You’ve got to get excellent people in all of those key positions. Your business will perform in direct relation to how good your people are.’”

She already had her own ideas about how to get the most out of your staff, following her 10-year career in HR prior to setting up Mortimer Spinks. The most important thing, she found, is to make sure your working environment is fun. “If people are enjoying themselves, they will be more relaxed and they will do better. If I don’t hear laughter, I have a feeling there’s something wrong,” she says.

While Hanton has dished out a sizeable chunk of equity to staff, she strongly believes in paying people a decent wage. She also waited for the business to reach profitability before she issued any shares. “I saw so many people in the dotcom boom get recruited, paid a pittance, given shares and told: ‘Don’t worry, you’re going to be a millionaire,’” she recalls. “Shares shouldn’t be a substitute for paying people properly.”

Hanton is proud that 30% of staff have been in her business since the early days, but she insists that natural turnover is a good thing. “The people who do start-ups are seldom the people who can then scale the business later – myself included,” she says. “It does become far more about process. As much as you want to hang on to some aspects of the start-up culture, you’ve also got to ditch some of them. You can’t have 60 mavericks.”

The long-hours culture was something she was happy to see the back of. She doesn’t believe it’s a good management practice to perpetuate, although she concedes that you do have to be willing to devote your life to a start-up in the first few years. “But I don’t believe in martyrdom either,” she adds quickly. “I definitely don’t live to work, although I love what I do. I do spend a lot of my life thinking about it, though.”

Hungry for change

The biggest barrier to online bookings is still a lack of trust, and the introduction of a booking guarantee has helped to change this. A reward scheme, where diners get a free dinner for every six bookings, has also encouraged repeat business, while the restaurant stable, which includes many Michelin-starred eateries, has heightened credibility.

Promotions also play their part, although convincing the high-end establishments of the merits of doing this isn’t always easy. Hanton says Tobtable acts like a marketing consultant to restaurants, studying their booking patterns and constructing deals that help to fill tables in quiet periods, ensuring promotions are effective and don’t damage the brand. For instance, rather than a leading restaurant offering 50% off, they might recommend providing a small tasting menu, minus the most expensive ingredients.

The model has evolved over time, and Hanton has been keen to introduce new revenue streams. A small events team was established in the early days, when it was taking longer than anticipated for people to come round to online booking. Additionally, while a listing is free and search results are generated depending on a user’s criteria, restaurants can upgrade to be featured more prominently on the site, in a similar model to Google’s sponsored links.

The website sells external advertisements, too, while users can rate their dining experience. Any publisher of a web 2.0 site will sympathise with the challenges of incorporating user-generated content. So how do restaurateurs react to bad reviews? “The great thing is you can prove that the customer has eaten there,” says Hanton. For the most part, instead of succumbing to requests to take down unforgiving reviews, she encourages restaurants to respond. Sometimes not only will this salvage the relationship with the customer, but the transparency it shows can work wonders for the brand’s reputation.

Hanton believes the hard work she has put into changing consumer behaviour is paying off, and the online booking market is gaining momentum. The two key focuses for 2010 will be mobile and international, with a particular focus on France. However, she warns that it’s easy to underestimate the amount of research needed for a successful overseas launch. For instance, unlike in the UK, she’s learned that it’s extremely rare for a French employee to use their work computer for personal use. Sending out consumer emails in the evening gets a far better open rate.

As surfing the internet on handheld devices becomes less frustrating, Hanton believes that mobile holds many opportunities for brands too. She’s expecting Toptable’s new iPhone app, launched in February, to drive growth in online bookings even faster. “I don’t have the same hero worship for Apple that some evangelists do, but I’ve a huge amount of admiration. I can see how the iPhone is changing the way people use the web,” she says.

Although some have criticised the Toptable app’s lack of coverage outside London, more than 100,000 people have already downloaded the free mobile booking tool. “It’s a no-brainer really that the app has to be free, because we get booking revenue,” she says.

While developing it didn’t come cheap, the app offers some impressive functions. You can search for local restaurants; find offers, menus and reviews; book tables; and use a tip calculator and My Sommelier, which tells you which wine complements your meal. ‘Table reality’ even shows you your nearest eateries using your camera and the iPhone’s GPS.

With 2.3 million visitors to the Toptable site a month, online booking remains the core revenue stream. And there is still a big prize to go for, Hanton says. But won’t the new app merely cannibalise existing business? “I don’t think so, because before, unless you were sitting at your PC, you couldn’t book through us,” she says. “This location-based,
book-it-minutes-before-you’re-looking thing is going to be amazing for growth.”