In 2005, Rachel Elnaugh shot to fame as one of the Dragons in the BBC’s cult business show Dragons’ Den. By the age of 24, Rachel had created day trip company Red Letter Days on a shoestring budget from her front room and went on to generate over £100 million in turnover.
The well-publicised crash of Red Letter Days meant that her days as a Dragon were over. SmallBusiness.co.uk caught up with Rachel, who now acts as mentor and consultant to small businesses, to ask what she has learned along the way.
So what happened to the company, where did it all go wrong?
The main problem was that we over-expanded the business. It ran successfully for over a decade, but I think we just tried to make it into something it wasn’t ready to be. In essence, we tried to go for a step change in growth and got it wrong. If I were to do it again, I would always go for organic growth over the longer term, it’s so much more stable.
I understand that you appointed a CEO to run the business. What did you learn from doing that?
That was part of the effort to grow quickly and also part of the problem. Entrepreneurs are often reluctant to relinquish control of their business and rightly so. An entrepreneur is a very different animal to an executive. Executives tend to think that they can make money but in reality are often better at spending it. I’m now of the opinion that if they could do so, they’d be doing it themselves. It’s far better to groom someone internally over a period of time and gradually hand over control of the business.
What about the other side of handing over control – giving away equity for investment for example, do you have any tips there?
Actually I think there are smarter ways to grow than bargaining with ownership of your business. It is possible to hold on to all of it. A good example is Felix Dennis, who has built up an incredibly successful business in Dennis Publishing but kept hold of 100 per cent of it.
Moreover, if you suddenly get a lot of money dropped on you, it can make you lazy. You tend to become focused on spending money rather than making it. The moment you lose that focus, things start to go wrong.
So what can you do instead of giving away equity?
It’s about being creative. If I dropped you at the side of the motorway with no cash and told you to meet me in Edinburgh, you’d have to get pretty inventive, pretty quickly. You’d have to think about what you have got, maybe negotiate or see if there were any contacts who could help you out. It’s the same in business.
If you’ve invented something and you have a prototype and a patent, it could be a valuable asset. You may find that you can make a deal with a manufacturer. Once you have that vote of confidence, think about distribution and then making an agreement with someone to sell it. If you’re clever about it, you’re in business and it has cost you very little.
Do you have a top tip for people thinking about going into business?
Firstly, the only person who is going to make your business work is you. There are no magic wands and nobody is going to come in and make everything work. It’s about taking personal responsibility and realising that your business success is absolutely in your hands. That might sound daunting, but it can also be empowering. It means that if any aspect of your business is holding you back, you have the power to do something about it.
Lastly, if you want to go into business, do it because you love what you do, follow a passion rather than thinking ‘I want to make money’. People who do something that they care about will naturally have the drive to make it work.