The word failure doesn’t belong in an entrepreneur’s vocabulary – which is why so many sterling start-ups have rallied from near bankruptcy instead of throwing in the towel
Comeback king: Charlie Mullins’ business Pimlico Plumbers was in hot water in the 1990s
Some of the world’s most successful start-ups have come very close to financial ruin only to spectacularly pull themselves back from the edge. A prime example is Evernote, the San Francisco software firm. The company found itself with just three weeks’ worth of cash left in 2008 when a key investor pulled out as the financial crisis struck. The painful decision was taken to close the company and save money for the legal costs involved in a shutdown. However, after an avid Evernote user in Sweden coughed up half a million dollars, the start-up got itself back on track, amassed 100 million users worldwide and was recently valued at $1bn.
Plugging a hole
Pimlico Plumbers can probably count itself among UK plc’s best comeback stories. When the recession struck in the early 1990s, founder Charlie Mullins ended up owing around £500,000 to debtors, including the bank, which had lent him money to fund two new premises in the London boroughs of Lambeth and Camberwell. Within the space of three months – as the downturn kicked in – the valuations of each property were slashed, leaving the entrepreneur in a sticky situation. “In March 1991, everything seemed to be going wrong and the bank was very dubious about the value of the properties,” says Mullins. “I must have been the only person who didn’t know about the recession.”
Pimlico was also owed a fair bit of money from its customers – many of whom were struggling to stay afloat. “We were owed upwards of about £80,000,” he says. “We used to invoice a lot of customers rather than collect payment. We had all this money outstanding, businesses were going bust, people weren’t paying us, the bank cut our overdraft and it wanted us to pay the loans back.”
It was obvious to Mullins that something had to be done – and quickly – if he was to drag himself out of the mire. The first thing he did was sack his accountant. “He’d referred me to a financial adviser who set me up with the loan from the bank, which was bad advice,” he explains.
Naturally, Mullins’s new accountant was confident that the entrepreneur could come out the other side alive and kicking. “We were turning over £1m at the time and he said, ‘I believe we’ve got a good business here.’” After visiting one liquidator who urged Mullins to apply for bankruptcy, his accountant took him to a second liquidator who offered some contrasting advice. “He said, ‘You’re going to lose your house, you’re going to lose everything, so you may as well try and fight through it.’”
Mullins took the second liquidator at his word and, 13 years later, Pimlico Plumbers is turning over £20m. Yet, were it not for three years of battening down the hatches, things could well have turned out differently. The company had to fundamentally change the way it did business and wave goodbye to some people in the process. “We lost some good staff, which was quite a knockback for us,” says Mullins. “I’ve only got one member of staff left at the company who was with me at that time – but everyone else either jumped ship or we got rid of them.”
Taking payment on completion became part and parcel of the Pimlico service, with credit card transactions proving a handy compromise for customers who had their own cashflow to take care of. “We stopped people owing us money and that immediately put us in a better cashflow situation, which meant we could work, we could pay wages and we could pay off our debts,” says Mullins. “We run a really tight ship now.”
Mullins certainly learned a lot from the experience – and it’s helped Pimlico come through the most recent recession unscathed. “We sailed through it,” he says. “We already had a safety net and everything else in place. We cut down on buying new vehicles but what we did increase was our advertising. If you cut back on your advertising, you are going to get less work in, and the time you really need the work coming in is when there’s a recession.”
A new direction
While Mullins had to transform his company’s modus operandi in order to survive, some businesses have no option but to totally reinvent themselves. In 2008, shortly before recession struck, Jon Ross was running four bars in the City of London with his Mothership Group co-founders Andy Maddocks and Heather Lawton. Despite being located in the traditionally trendy areas of Shoreditch and Clerkenwell, the trio had decided to target investment bankers instead of hipsters. As a result, the downturn hit them harder than most. “We were absolutely screwed,” says Ross. “Our revenues were down 40% year-on-year almost overnight and we were losing in the region of about £120,000 a month from September. It was pretty dramatic.”
Some serious soul-searching was in order for Ross and co, along with some tough business decisions. “We realised that we were really going to have to rethink the way we were going about our business,” says Ross. “We quickly put two of the sites on the market in order to try and shore up the losses and cut costs down.”
After seeking advice from some PR friends, it became clear that remodelling the business was essential if the company was to have any chance of turning things around. “It dawned on us that the people who were most likely to survive the recession were youngsters because they were always going to spend their money on going out, having a few drinks, and going on the pull,” says Ross.
Around the same time, Ross attended a street art exhibition in Shoreditch put on by an act called Mutate Britain. “It was visually absolutely astonishing. I’d never seen anything like it,” he says. “I phoned Andy and Heather and said, ‘Whatever you’re doing just drop it and get down here because it’s only on for one night.’ They came to have a look at this thing and we said, ‘This is absolutely brilliant. This is what we can do to reinvent ourselves.’”
Mothership convinced the event organisers to transform one of their sites – offering some healthy PR in return. “When we opened our first bar we spent £750,000 on it. This time around, we had a £40,000 budget to completely reinvent it,” explains Ross. “We spent half the budget on PR to help springboard the artists’ careers and the rest of it was spent on materials for the artists and curator.”
With the backing of local celebrities including Pixie Geldof, the Queen of Hoxton launched with a lot of fanfare and – to Ross’s delight – a lot of footfall. “We completely smashed it on the opening night,” he says. “In the first week, we’d taken more than we had in the preceding month trading as the other entity. We were breathing a massive sigh of relief.”
Working together with artists and event organisers has undeniably helped transform Mothership’s fortunes. Promoters were sharing their database of social media contacts with the company in exchange for the exposure they were getting from hosting an event at the now legendary Queen of Hoxton. “It was a really nice win-win situation,” says Ross. “Collaborative networks became integral to our business model. We wouldn’t be running a venue on our own ever again. We’d be doing it with other people whose livelihoods depended on how well we were doing.”
Two more venues have since been added to the Mothership Group portfolio – The Book Club and Stories – with turnover hovering around the £7m mark and profits surpassing £1m. While 2008 may have been, in Ross’s words, “an absolutely hellish year”, he admits the recession was “completely the best thing that ever happened to us”.
Suffice to say he has some handy advice for entrepreneurs on the edge. “Never give up, keep your costs as low as possible, take advice where you can and bloody listen to it.”