Interview with Rachel Elnaugh
Former BBCTV Dragons’ Den ‘Dragon’, Rachel Elnaugh is the British entrepreneur who created the multi-million market leading ‘Red Letter Days’ experience brand. She is now a business speaker, published author and award winning business mentor and is CEO of the digital publishing and marketing platform for evolutionaries www.source.tv
Rachel has been invited to speak at many enterprise events about her experiences. She was also commissioned to write a book about the fine line between success and failure in her book ‘Business Nightmares‘ – not just her own story but the story of 20 other successful entrepreneurs who hit problems on their own journey.
Rachel has spoken at many enterprise events about her experiences and is now an accomplished professional speaker with experience of speaking at over three hundred events including Harvard University, TEDx, The Scottish Parliament, The Oxford Union Debating Society, The British Library, The National Library Singapore, the Opening of Global Entrepreneurship week in Holland (with Nick Clegg) and the Conservative Party Conference.
“Women in business have just got so much positive energy and determination. It’s almost scary because they know exactly where they are going and nothing can stop them. Almost having a no-holds barred approach, nothing can stop them achieving what they want.”
Did you have an entrepreneurial spirit when you were growing up?
Yes. I notice that with a lot of people who are entrepreneurs their mum and dad tend to have run businesses. We actually lived above my dad’s shop. I was always around business and down in the shop helping my dad. He had an electrical practice in retailers so I was sorting out batteries and light bulbs, and then when I was older I helped my mum with all the invoices and bookkeeping. And every Christmas we ran a sort of gift store in the shop. I think that really helped to give me a bit of a grounding.
How did you come up with the idea?
It was that just my dad was so difficult to buy for – and so many men that were difficult to buy for. I had four brothers and my dad and he had everything he needed really, so it was really difficult to know what presents to buy. So, I had this idea to give him tickets to a cricket match but the tickets weren’t issued until two weeks before the game and I think the match was in June or July – I had to find some sort of way of packaging this experience.It got me thinking actually on a wider scale: how do you put an experience in a box and give it to someone? That was the idea but it didn’t really crystallise until I got the name for the company.
At the time I was lodging with a guy and I told him about the idea, and he came back from work the next day and he had researched a list of thirty different names that I could call the business. Among them was ‘Red Letter Days’ and I thought ‘yes, I could put things in a red letter box’. So I instantly had the brand and packaging and everything came together. It was an interesting moment because all these ideas suddenly crystallised. When you get that then things can start happening very fast.
When you started did you have the support of the people around you or not?
I think my mum and dad were very supportive, but I think most parents would be supportive. I don’t think there was much support for me otherwise, no. Although I didn’t start in business until I was 24 so I certainly didn’t have any support for thinking I could do business when I left school, but when I finally decided to do it I think people tend to sit back and say ‘Well OK – show us then’.
There is always this thing where people are very encouraging but you can tell that they are thinking ‘Right – she is going to fail but we will just sit back and watch’. I think people almost resent the fact that you have broken away…
Everyone you speak to wants to run a business. It’s interesting, but everyone thinks ‘Yes, I could have done that’, or ‘One day I’m going to do that’, but not all people have got the guts to leave their job or put their savings in so it becomes a pipedream that they talk about, but you can tell they will never actually do it. So I think there is a little bit of resentment. All those people are secretly hoping that it will fail because it makes them feel better about the fact that they are still in their secure jobs.
Was it hard to find financial backing at the time?
Yes. I had a taxation background so I had a professional qualification, and I had six or seven years’ experience in taxation and I dealt with large business plans, but despite that I just had no glimmer of any sort of backing from any bank when I presented my business plan. I think it was because I was young and female and also I think with banks that unless you fall into a compartment in an industry sector which exists and is standard – so if I wanted to set up a gift shop, they probably have a hundred gift shops where they can look at the dynamics of the business and look at your business plan and say ‘Is it realistic? Is it in the right location?’ – but because Red Letter Days was a completely new industry it had no precedent so it was just a sort of laid-out risk really.
So there was nothing they could measure it against?
Yes, those Bank Managers want to play it safe don’t they?
How much did you start with?
I put £25,000 of my own money into it and I think I only wanted something like £10,000 or £12,000 from the Bank. It was a tiny amount but I couldn’t get it.
In the end what did you do?
I set up the company because I had had a tax background. I set it up as a business expansion scheme company and I sold shares to family and friends under the business expansion scheme, which meant that they got I think 40% tax relief on the investment. Also any gains are tax free even to this day, so ultimately when we sell the company, or float it or whatever, they won’t have to pay any tax at all. So it’s actually quite a good deal, it’s just taken fifteen years of investment to get to this point.
So it was handy having a tax background?
How long did it take you to get the business off the ground from the initial concept to when it was flowing as a business?
I started in July 1989 and we released our first brochure in the November of that year. That is when we thought ‘Great, we are going to launch this and everything is going to start flowing’, but actually it was very difficult. Even though we did quite a lot of advertising and tried to send as many brochures as possible, we just didn’t get any response. It wasn’t really until a year later – the following Christmas – when we tried a different approach to our marketing. That was when the business really started to take off.
What was the new approach?
After that first disastrous Christmas I knew I had a great idea but I didn’t really know how to launch it. Having failed with that first brochure, I basically asked for help from a guy called Barry Davis who was a designer and marketer – he was very sussed about these things – and so I just went to see him and showed him what I had done and he sat there saying ‘No, no, you’ve got this all wrong’. He took me under his wing and redesigned our logo and brochure and he gave me lots of marketing advice.
So the next Christmas we actually created a fold-out poster which we put as an insert into places like You magazine. It was much more cost effective and a better design and execution, and it was that that really triggered the company to take off. So it had taken a good eighteen months for the business to start. It was a very long and difficult first eighteen months and I could easily have gone out of business – you can see why so many businesses do.
Do you think what differentiated you from other businesses that say ‘OK I’m going to stop now?’ Is that you just didn’t, you had that attitude of ‘I’m not going to give up until it works’?
I did have a lot of determination. I think you can get to a point of say eighteen months old, or maybe a year – which I think is a real danger point, because that’s when you have spent all your money – and it’s not working and a lot of your initial enthusiasm and optimism has just been ground down. I am quite good at reinventing my energy, so whilst I can get very depressed, the next day I suddenly think ‘Right, I’m going to fight this and keep going’.
I’m quite good at managing my own motivation and I think that is what has really helped me and kept me going. Also, I think the fact that family and friends have put in that £10,000; I’m sort of prepared to lose my own money but I suppose it’s pride, I’m not going to lose that money. People have faith in me and I’ve got a duty to them to see it through.
It says on your website you were drawing a low salary at the beginning?
I took nothing for the first two years.
How long do you think people should draw a low salary before they stop putting everything back into the business?
When you are in a job as an employee you can take the job and take the salary no matter what, but when you are in business really you shouldn’t be taking any salary out of the business until it is making money – because where is the salary going to come from? Unless you have huge funding where you have actually built on that. When you are starting on a shoestring budget you shouldn’t be taking anything out.
One of the big things with my three businesses that I am mentoring through Dragons’ Den is that I am making them really sales focused. One of them is slightly different, but the other two basically I am saying ‘No, you can’t have anything but if you sell stuff you can take money – if you don’t there is no money to pay you’, and it makes people incredibly focused on sales. Without sales the business is nothing.
Should someone wait until they are really rolling with a substantial amount of sales before they start drawing?
I think you just need to be prudent about it. Business isn’t about profit it’s about cash flow, so when your cash flow can withstand you taking some money out of it then you can, but cash flow normally can only withstand that if you are getting some turnover into the business. So I think you have to be realistic, more mindful of cash flow needs than profitability. So for as long as it takes really.
Do you think you have made any major mistakes since you started?
I’ve made loads. When I was starting out no-one could really train you about business; the whole nature of business is trialling to see what happens – you may trial advertising, or trial contracts or schemes or partnerships or new products whatever – and so you are constantly doing stuff and then monitoring it. So if you say ‘That didn’t work so that’s a mistake’ – I don’t think that’s a very good way to describe it.
It’s simply constantly trimming your sales so to speak. So you are trying stuff and I don’t think you should be afraid of trying stuff and it not working. I wouldn’t call that a mistake or failure, I think it’s very good, because the minute you start saying ‘I’m going to play it safe and only do stuff that I 100% know is going to work’ you cut off testing a lot of other things which may be brilliant for your business. One may be brilliant and the other nine may fail – but I think unless you try to be innovative you are not going into business. I did make loads of mistakes because I didn’t know what would work and what wouldn’t, but I think that is an advantage because if you start saying ‘I know how to do it’, you put a box round yourself that you are working in. If you don’t know anything you will try things.
So is that one of the things that you attribute your success to?
What, trying things?
Yes – just being really open?
Yes, I think being receptive to opportunity and not having such a narrow business plan and marketing strategy that you say ‘This is all I will consider’. When a business takes off and you start becoming successful I think it’s very different – you then actually need to have discipline and focus and much more strategy, but certainly when you are starting out you need to be very receptive to everything that comes your way.
Is there anything else you feel that really helped you reach success?
I think a lot of it goes back to determination and just keeping going. And I think a relentless desire to keep taking the bosses on and keep pushing it. Businesses that say ‘We’ve reached a formula that works and we are going to park and turn the handle on the sausage machine’, I think that is very dangerous because if you are not growing you are going backward. It’s very unusual to have a business in a steady-state; it’s very difficult to keep a business on an even keel. Keep innovating and pushing the business forward because also as we found lots of competitors start cropping up and they just relentlessly copy everything you do without really bothering that they are not being different. If you just stayed the same then all of your work would be washed away so I think it’s important to keep innovating.
How do you cope with it? Because you were the first weren’t you?
Yes we created the industry.
Has that affected you and made you have to really push a lot harder to stay one step ahead?
When you start an industry, because by definition you have no one to copy, you have a culture which is very much about innovation. So when competitors started to appear, to me it was more an indication that the sector was starting to grow. If you look at any sector it is very difficult to own the entire sector, so we very much took the view that we would take one bit of the sector – the most profitable bit and inspirational bit – and focus on that. We let everyone else take everything else because you can’t grow an entire industry and a whole movement.
Everyone has got everything they need, so you simply can’t own the whole sector. I think it is a very greedy sort of approach to think ‘I want it all’. So we said ‘We want this bit and everything else we won’t touch’. I think it has changed from when we started out – now we are very focused. Not trying to be all things to all people.
Yes. As you get bigger you get tighter. Businesses that have tried to be all things to all people like WHSmith and M&S, they have a huge thing and want to appeal to everyone, and suddenly they lose all identity and personality. Whereas if you take a niche brand, like Agent Provocateur, where they know exactly what they are about, they are very much focused on that niche.
How much do you think your work experience as a tax consultant helped you with starting your own business?
It’s great to have a good numbers background. Women tend to be much more marketeers but when it comes to numbers they faze them. I found that on Dragons’ Den. I don’t think you can be successful in business unless you have a good commercial sense of what works and what doesn’t, so I am lucky. That stood me in really good stead. I think you probably can do it through partnerships but I don’t think there is any substitute for having that nous yourself, because the minute you cut off the financial bit and delegate it then you are not checking it.
Even a husband – it is dangerous to say ‘Here is my finance director and I’ve got nothing to do with numbers’. I think when you get to be a big multi-million pound business it’s very dangerous to take your eye off the financial ball and let someone else run that area. Don’t shy away from numbers.
Would you advise a young person to gain some commercial experience before starting their own business?
Yes. I’ve seen a lot of people who’ve just left university and will do their own thing. There are some success stories, but I think in school and college you are very positive, and when you go out in the world of work it’s really helpful to have had some time in a proper commercial environment. And my time at Andersons, I spent two and a half years there. It gave me a sense of vision and scale and I knew after I had worked there that whatever I did in business had to be big. Experience stretches your mind. I was dealing with entrepreneurs like Terrance Conran.
When you have had that exposure you don’t want to be a little shopkeeper – you want to be big. So I think it’s quite dangerous to go directly from school; I think you either go down a financial route or marketing route, but getting that experience is really good.
Do you think marketing and advertising is something people should borrow extra money to invest in when they are starting a business?
Advertising can completely swallow up all of your resources quickly. We spent about £25,000 in that first year in advertising and it was wasted. I think marketing is much more important to get proper advice or skill or experience. The best form of marketing is to build marketing into your product. I find people say ‘We are doing all this and marketing is over here, and down the line we will do some ads and PR,’ but what I am trying to do in our business is actually bring marketing completely to the heart of the business and build it into product development and into the service whilst thinking about what service we offer.
Have you read the book ‘Purple Cow’? It’s brilliant. It’s building marketing into your business at the core, so making products which wow people and providing services that people talk about. I think it’s impossible to start a business on a shoestring budget and do lots of advertising. You have got to utilise word of mouth, referrals, recommendation, PR, joint promotions – and you can’t do that if you are just a bland boring offering. You have got to have something unique and that’s how Inoson did it. To build something by being different and unique.
So you can advertise and market yourself without taking huge funds to do so and going through the normal channels, adverts and stuff?
Yes. I don’t think they are the normal channels anymore, the whole marketing thing, particularly on the web as well. Friends Reunited was literally started through word of mouth. It’s actually the norm now.
What channels did you use?
The second big thing we did was a poster. I suppose you could call that advertising but it is slightly different from a marketing spend. That helped kick start the business. It helped with cash flow to get a lot of money flowing into the business quickly but it probably wasn’t very profitable in terms of the cost of doing direct marketing, but it gave us the impetus to be able to then move to the next stage. This was to develop a much bigger product range in a better designed brochure and also take on a PR consultant. During the next year she managed to get us into virtually every glossy women’s magazine in the Christmas of 1991 and the whole thing took off. We were lucky.
In the first two years were you targeting corporate more than the general public?
No, we started completely as a personal gift company. The corporate business started to come in naturally. Our first corporate order came from AEG for £25,000, it was like ‘Wow!’ They were doing a big sales promotion every month, for shops to sell AEG products. The winning shop got a £250 voucher. At the end of the year the top shop won a Mercedes. I thought there was a big market there so we started to exhibit in corporate shows and got lots of interest. That’s now a third of our business.
Is corporate more lucrative?
Yes, but there is more competition – it’s much more difficult business to get. In that market it’s not just experiences – you are up against all incentive products, store vouchers, leisure vouchers. I don’t think any sector is particularly easy. High profit sectors tend to be more sought after and more marketed to, so it’s harder, but it is doing very well.
What is your attitude to what some people refer to as failure?
I think it still has a huge stigma in the UK. If you see people who have a string of failed companies it is eternal because you want people with the Midas touch. It’s different in America – I think to be a successful entrepreneur you have to have three bankruptcies or whatever. It’s how you define failure really. I think people are far too willing at the first sign of adversity to just give up. I think determination is really key. I suppose you have to look behind the word failure, what people have done and why they gave up really.
Is that the attitude you have?
Yes. I could have failed at many stages. You work your way through them and try not to be fazed by them and I think there is this vision that you launch into business and it’s a beautiful journey, but it’s the tough times that challenge you.
Were there ever any points where you thought it’s not going to work?
Yes loads – you have very dark days when you think this is never going to work but the next day you get up and start fighting again, so motivation is a really key thing. You need to be a self starter in business.
Is there anything you would advise a young person who wanted to start their own business, anything you feel they should know before they start?
I think just don’t underestimate how tough it is. There is a utopian vision that there is some sort of tap you turn on, you go into business and turn this tap on and money starts coming out of it, and I don’t think people realise how difficult it is. You see all these iconic business people worth millions and you don’t realise just what struggles they went through. I think going into it with an understanding of how tough it is. I do think getting experience and advice is key. You do need to be very receptive to help and advice all the way through. I still take advice after fifteen years.
How important do you think education is for someone with entrepreneurial ambitions? Would you advise people to go to college to further their education or should someone with a business mind just get in the business world and work?
Well I think the problem with all education is by definition you are teaching people to think in a certain way. For example, a marketing qualification – you are being given guidelines and boundaries and actually the most successful entrepreneurs are the ones who break the rules. Because if you don’t know anything, sometimes you try things which are outside of the norm because you don’t know they are, so there is no barrier to stop you trying things, and that’s how you can reinvent and recreate industries.
A good example is airlines where the standard model was British Airways, then suddenly easyJet and Ryanair come along and completely reinvent the business. Everyone thought British Airways knew how to run airlines and their business model was the ultimate. So I think an entrepreneur has to be able to be different and diverse, and that’s why you find that people who are eccentric or drop out of school or who are unconventional can actually shine in business, because those are exactly the qualities you need to succeed.
Is further education not necessarily a prerequisite?
No. I do think you need to have input and get advice and understand how business works and how people do it, but I don’t think you should swallow that advice whole. You need to pick up little bits of things as you go along rather than take everything as gospel.
What would you say to a young person who feels that their working future is too far away to think about while they are still at school or college, and they think ‘I’ll think about it later, I’m young now’?
I think most people who are in business are actually showing signs from very early on – I don’t think it is something you suddenly switch on to. I was always involved in projects and enterprises so I think if you are not showing signs of it it is not something you’ll suddenly decide one day you want to be. It’s a state of mind. It’s a type of personality who wants to be doing things, organising stuff. They are the ones who get energy moving. People who can motivate people and make things happen and that doesn’t just switch on when you are eighteen, it is usually something that is there.
You have obviously met very successful people in business, do you think there are any commonalities between successful people in their personalities? Is there something you can see?
Women in business have just got so much positive energy and determination. It’s almost scary because they know exactly where they are going and nothing can stop them. Almost having a no-holds barred approach, nothing can stop them achieving what they want.
Do you think that is because women haven’t had it so easy in the past that now there are more successful business women they really want to make it?
I think it’s heightened the business woman because there are more barriers to go through to be a successful woman than there are if you are a man, so I think it’s that determination and energy – it’s much more pronounced. There’s a whole group of really switched-on people, most successful people just know exactly what they want, and go for it, and any barriers just get ploughed down.
Women tend as well to share their experiences with other business people and they seem far more accommodating to get together and share, as opposed to men who keep their distance.
I don’t know about sharing. Pontificating opinions is probably better. Everyone has very strong views and opinions and is very vocal if you go to one of the events. Lots of strong women together – they all want to express very strong opinions. I suppose they are more collaborative.
Is the business world really still a sexist place?
Definitely yes. When I go to meetings people automatically think I’m an assistant or secretary. They will always think the woman in the meeting is secondary to the man. It’s a natural instinct and reaction.
Do you think when you have been at important meetings when you need backing or anything like that that you have been taken less seriously as a woman?
You certainly have to project yourself quite strongly I would say. Probably that’s why most business women are so strong – because they have to overcompensate for this.
What motivates you and drives you?
When you are doing something that you enjoy so much and you are so passionate about you just naturally want to do more, because it doesn’t feel like work. When you run a business and you are really into it the more you can do – it’s a never ending desire to keep moving it forward. I think that in itself is a natural self-perpetuating motivator and the fact that when things come off or projects come together they constantly feed that whole…You are on a journey and everything is feeding towards pushing on even further so everything you do and every success you have propels the business forward a bit more.
Is there anything I haven’t asked you that you feel that you would like to get across to young people who are still at school and doing business plans?
I think I have said the importance of going and getting experience. I think taking the plunge first straight off from school is probably quite a dangerous thing, although people do pull it off, but I think getting lots of experience and getting under the wing of an entrepreneur or a small entrepreneurial business is the key. Also experience to become much more business savvy as well as basic training about financial stuff, how to read accounts, basics of marketing – you do maths and there’s no practical application towards business scenarios. I think that education needs to review the way it teaches subjects so it makes them more relevant.