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November 16, 2006 3:51 pm
This is an edited and abbreviated transcript of the video interview with Mike Jatania by Jonathan Guthrie of the FT
FT: So, just to start off, Mr Jatania, how did you make your money?
Mike Jatania: Well, I actually joined my family business which was started back in 1978, so the company’s now been going for almost 28 years. It was a fledgling company that was started in consumer products - personal care, wines and spirits and food products - selling to many countries around the world, representing multinationals.
And then we progressed that to selling our own brands and developing our own brands, which was quite an entrepreneurial thing to do because it looks like a daunting task when you’re actually representing multinationals, selling their brands, and then suddenly you come up with the idea that you can actually do it.
And I think we were brave, and we started off with some brands from a concept, developed those, and then started to offer them to our distributors around the world. Then the final stage of that was in the mid-90s when we felt that there was a real opportunity to acquire brands from multinationals again, heritage brands as we call them, very well-known brands which are being under-exploited by multinational companies.
So I made a business of buying these brands and in the last five or six years we’ve made 36 acquisitions, and the company has grown through acquisitions.
FT: Just tell us a little bit about the scale of Lornamead now.
Mike Jatania: Lornamead now has got to an enviable stage where it is, I would say, certainly a key player within the personal care industry. What do I mean by the personal care industry? It’s cosmetics, skincare, hair care, bath luxuries and fragrances, and we have now got a company that probably our retail value sales are at around probably £600m. So it’s certainly grown in scale over the last six or eight years through a number of acquisitions of very well-known brand names, like Yardley, for example.
FT: What lessons do you think you’ve learned that might be useful to viewers in terms of brand management, because clearly you’ve taken some rather tired brands and you’ve given them new life?
Mike Jatania: With reference to brand management, I would say that brands have a wonderful capacity to be rejuvenated, revitalised, and we tend to buy brands which are very well known and have been well invested behind. For example a brand like Yardley has been in existence since the 1770s, one of the oldest brand names.
But, of course, brands have got to keep up with the times and often what happens is, as priorities change within the multinationals who own these brands, they tend to put less investment behind it in advertising and promotion, they tend to put less innovation in. So, to revitalise brands, what we do is we contemporise them again, we make them relevant to today’s consumer.
We talk to the consumer and we find out where they believe this brand needs to be. So for example with Harmony Hairspray which was a very famous brand in the 70s, originally launched in the 50s, infamous for its line, Is she or Isn’t She Wearing Harmony Hairspray. Over time, through lack of investment, lack of innovation, it became a heritage brand, and what we have done to it is revitalise it, the packaging, with purse-sized sprays, we’re putting styling products out there that are relevant to today’s consumer.
And so there are a number of ways you can revitalise brands, geographically stretching them, stretching the product group. So, taking a hairspray brand into styling products, into shampoos and conditioners, into hair colour, so that a brand name that’s known within the hair care category can be exploited by giving the full offering to the consumer that knows that name and trusts that name.
FT: What advice would you give to someone starting a business for the first time?
Mike Jatania: I’d say if you were starting a business for the first time, first of all you’ve got to be incredibly passionate, secondly you’ve got to keep your overheads down, and fortunately, in today’s world, you’ve got to embrace, I think, technology. You don’t need offices; you can operate from your bedroom. You have the internet, you have technology, you have voiceover telephony, so I think you’ve got to embrace all those things to keep the overheads low.
And then you’ve got to test your idea and not be discouraged because you will inevitably, like every entrepreneur has a great idea, and it’s often killed off before it’s had half a chance to be born. And I think what you’ve got to do is you’ve got to have belief in yourself and not let cynicism detract you from what you want to achieve. I think, for a young entrepreneur, you’ve got to be passionate. There’s nothing like passion and belief in the idea.
And also adaptability. I think you’ve got to be willing to listen to people who may have done it, who may have been out there, been in a similar situation, who will give you some advice, and I think you’ve got to judge how do I implement some of that advice and tweaking your idea.
I think one of the things you get into is if you get very rigid that I’ve got the best idea, nobody has got a better idea than me, and you have a monopoly of the idea. I think that’s the wrong culture. I think the right culture is to say I’ve talked to a few trusted people… don’t be afraid not to talk. Some young entrepreneurs are actually afraid to talk about their idea in case they think somebody will steal that idea.
think you’ve got to be careful; you’ve got to protect it. Use confidentiality agreements. Again, you don’t have to spend a lot of money with lawyers to get a confidentiality agreement because they are available on the Internet. You can actually then talk to a few people, canvass a few ideas, be open to tweaking your initial idea and, most importantly, think about cash flow and commercial, and what’s the minimum money you can actually start off with. That’s the advice I would give to young entrepreneurs setting out.
FT: In terms of finance, and we talked about that earlier, do you think there’s a finance gap there, and do you have any thoughts as to how that might be resolved?
Mike Jatania: One of the most challenging things young entrepreneurs have, in my opinion, is financing - there’s a need for what I would term microfinance. I believe that if there was some form of microfinance initiative, or business set up, even by one of the big banks, that could actually take some of the learnings from the way in which microfinance has been applied in developing countries to help farmers, and the way in which NGOs have used microfinance, and could actually tweak that microfinance model to young entrepreneurs who want to borrow £5,000 or £10,000. This is where they struggle.
I think microfinance is one of the ways in which we can help budding entrepreneurs who come up with new ideas. I think family and friends should also seek to invest small sums of money behind these young people as well, because that’s often the first call that people make, to their mum and dad, to their cousins, to their friends, and many people have made a lot of money in making that small advance.
The chap who invested behind Dame Anita Roddick in the Body Shop in the early days made a fortune out of it. So I think there are stories out there and, actually, if you do back some of these young entrepreneurs, a number of them will succeed.
FT: If you were setting up now, where would you go for advice?
Mike Jatania: I would try and go to banks. Some people may think, oh, banks are not the right… they may say no to you, most of them do, but I think that they do have some advice and they will set up some of the challenges.
I think the internet is a fantastic vehicle. I would say that is the number one place to go and seek advice. There are bloggers out there and blog groups that you can go into. Of course, the government has a number of initiatives to provide you with information.
The other place is trying to join networks. Now, I’m no longer on the board but I’m a charter member of an organisation called TIE which is the Indus Valley of Entrepreneurs, and it doesn’t just apply to Indus Valley, because it’s actually much broader now, and there, there is mentoring and things like that.
Another one of the ways to help young entrepreneurs, I believe, in advice is mentoring, and if we can get a good motivation for people who have done well in life, or in professional careers as well, to mentor some of the entrepreneurs, that is another helpful source of advice.
FT: What’s your view about the climate for small business at the moment in the UK and for start-ups? I’m thinking in terms of our culture and the general economy.
Mike Jatania: I think the climate for young businesses and new ventures at the moment could not be better, in my opinion. I think the culture has changed here in terms of being more encouraging and less sceptical towards new ideas. I think we’ve got an economy that’s pretty robust, we’ve got interest rates that are low, we’ve got Business Angels, and we’ve got a lot of money out there that needs to be put to work, so personally I believe that the climate could not be better for young entrepreneurs.
FT: Is there a red tape concern, do you think? Business bodies complain about that.
Mike Jatania: Sure. I think business bodies do, and I think, as our businesses mature and grow bigger, now the red tape is a big issue in certain parts of business, but I don’t think it’s an area that young entrepreneurs necessarily face as a big obstacle at the beginning. I’m sure that as their businesses succeed then they will face the red tape issues that we all talk about and clearly the government has a duty there to reduce that red tape.
FT: What attracted yourself and your family in terms of the consumer goods market? What did you like about its dynamics, and whether you’ve moved from a more general trading company into that?
Mike Jatania: Consumer goods, from my perspective, are one of the most exciting areas to be in because you are interacting with the most demanding consumers who are changing, who have got less time now, they’ve got more money to spend, and so you’re continuously trying to provide them with products that meet their requirements.
And for me, the attraction of the consumer industry, and especially personal care, was that, one, it’s a growing market. It’s a very significant sized industry around the globe, it is something which I think is a sustainable model because people will always need to use soaps, hair care products, skincare products, etc, and you’ve got this constant interaction with a demanding consumer. And I find that fascinating and quite challenging as well.
FT: If you were going into business from scratch again, what kind of sectors do you think you might look at this time?
Mike Jatania: If I was starting out again, I would probably look at the IT industry. I think there’re some really exciting things going on there. It is an industry that is changing at an incredibly fast pace. I find the media industry an interesting opportunity as well because old media is being challenged and I think Internet today has got to be looked at as a real platform for growth. I would look at ways in which we can service consumers through the new technologies, even e-tailing what ideas and opportunities exist.
FT: Just give us a little bit of a flavour of your family history because, as I understand it, having read interviews and so forth that you’ve done in the past, your family was based in East Africa. Is that right?
Mike Jatania: Yes.
FT: In Kenya, Tanzania?
Mike Jatania: Uganda, actually.
FT: Uganda? And then you came here. That must have been quite an abrupt transition. How did your business get back on its feet? Tell us about that process and also how your business got back on its feet.
Mike Jatania: Well, we originally came from Uganda, East Africa. We were fortunate that we were not part of Idi Amin’s problem. We came five or six years before that, and so we were able to move as a family in a planned manner, unlike some of the other East African Asians who had to react very quickly and leave their homeland within 90 days which was an enormous challenge. So we came over in the late 60s.
FT: Sorry to interrupt, but was it partly because you could see the way that the wind was blowing?
Mike Jatania: It was really driven more by… coming to UK for us was driven, really, more for education. My father was very keen that his kids got educated in England, and England had one of the premier reputations for good education, and so that’s why we came over initially. We were all, or I was a toddler at that time, but my brothers were in their early teens and so he felt that the one thing he wanted to give his family was good education.
FT: Did the business change? Did you broadly go on and do… was your father continuing with the trading activity?
Mike Jatania: No. When we came to the UK, my father was actually semi retired due to health reasons, and the Lornamead business, which is our company, was actually started off by my brother George, and then gradually the remaining three brothers, Vin, Danny and myself, joined.
And in 1984 the four of us were starting out with big plans and big ideas for Lornamead, and certainly faced challenges and frustrations and disappointments, as you do. When you’re trying to do something that is entrepreneurial, I think you have to be ready to face challenges, there’s no doubt about it, but we were fortunate and we got a few things right and that allowed us to get over that initial phase.
I think probably one of the most challenging phases that entrepreneurs face is their first couple of years - how do you overcome all the challenges and get yourself to a scale where you know you can pay the bills, you can hire a few people and you’ve got a business model and some customers.
Once you’re passed that stage… because I think statistics have it that a lot of new businesses fail within the first year, and so I think it’s really important that you actually are tenacious and are an out-of-the-box thinker and keep your overheads low in that initial year, just overcome that.
FT: What were your biggest frustrations at that time in terms of starting up and running a business? What were the toughest things?
Mike Jatania: Fortunately, in terms of starting up the business, when I joined the business it was already into its first couple of years, but the frustrations there were that we were trying to do too many things, trying to grab every opportunity that was out there.
And so there was a lack of focus, I believe, that I think was quite frustrating, because you’ve got to think about the short term, about the week. Almost you’re working on a week to week basis. And people talk about three-year plans. I think entrepreneurs find three year plans quite frustrating, and I think they can be quite academic when you’re just setting off.
I don’t think entrepreneurs necessarily need to have a three-year plan or a business plan to start off. I think what they’ve got to have is a good product or a good idea that they can go out there and get the customers for. So initially when we started up the business, the frustrations were trying to do too many things, trying to survive.
FT: What was your best decision, do you think?
Mike Jatania: The best decision we made was to actually develop our own brands and then evolve it into owning our own brands through acquisitions. I think I would say though that I have scepticisms about representing brands that you don’t own, because you tend to put an enormous amount of passion behind growing a brand that belongs to somebody else, only to have that brand often taken away from you. So I think the best decision we made as a company, and I was quite a driving force behind it, was let’s own the brands that we’re going to distribute.
FT: Where do you think you’ve got to in terms of Lornamead’s lifecycle, because you’ve talked in broad terms in interviews about potentially floating or refinancing.
Mike Jatania: The scale that we’ve reached now in Lornamead, I believe, is one where we have a platform for significant growth going forward. The appetite, I believe, is there, and the commercial rationale is there for Lornamead to grow, I think, not in terms of incrementalism but in transformational terms.
There are, I think, some significant opportunities to acquire larger brands as well as some businesses which are currently owned by private equity groups or maybe in the public market.
So what I’m seeking to do at the moment is to use the scale and the track record that we’ve built to be the launching pad of a transformational acquisition. That transformational acquisition will then I think occupy us for at least a couple of years, to create value through that, further value through that, and at the end of that period, in the next three to five years, what we want to do for our shareholders, which is principally the family at the moment, is actually to give them strategic options, whether it’s an IPO if the market conditions are right, or a trade sell, or them partnering again with a private equity group just to increase the scale again.
I’m 41 and I have a huge passion for business, and I’m in no hurry to retire. So I think, for us, we’ve got a very clear strategy to grow through further acquisitions, but equally to give options at the end of that.
FT: Private equity obviously interests you, but what do you think owner managers of their own businesses can learn from private equity? They’re often quite sceptical about private equity people and they think the approach is usually people trying to buy out their business, usually rather cheaply, but do you think there are things at managerial level that might be useful for owner managers in terms of extracting more value from what they do?
Mike Jatania: I think from an owner manager’s perspective there are a number of lessons that you can learn from private equity, and one of them is to recognise the great returns that private equity have made by buying owner managed business, or private businesses.
Secondly, I think it’s to learn that you’ve actually got to constantly think, in any decisions that you make about your strategy, of what is the value creation that I’m actually delivering to the owners of the business. Also, how do I strengthen the management team, because private equity groups tend to come in and add strong management teams? I think that’s another key lesson to be learned from private equity by owner managers.
Thirdly, I would say, is actually to align your interest with your management whereby giving options of some form of long-term incentives so that you can recruit a talented management team, but, more importantly, once you’ve recruited them, you retain them for that longer term because you’re sharing some of the upside and some of the value creation with them. I think those are the lessons you can learn from private equity.
FT: You’ve essentially had as sort of family business model which has worked very well for you, but for other businesses it can be up and down. I’ve found the family structure gives huge strength but it can also create some conflicts. How have you managed it within your own family to make the relationship a productive one?
Mike Jatania: Family businesses and the family ownership can be as much of a strength as it can often be a weakness, and I think we’ve all read a lot of stories about high-profile families that get into problems. The way in which we’ve managed the business from the family ownership perspective is actually to change from being a family business to being a business family.
What do I mean by that? I mean that as a business family now, the primary objective is actually good governance, is to give opinions and advice on strategy to the management team, but it is to recognise that there is a difference between the management team who are running the day-to-day operations of the business and family members.
And both often have different motivations and different objectives. The family business and ownership often wants long-term value creation and dividends, and management often are trying to retain as much of the cash flow of the business to grow that business themselves, and so they’re much more about reinvesting the profits back into the business. From our family perspective, we actually have a board that is a family board which is quite distinct from a business board.
I’m the chief executive of the Group and I’m the only family member involved in the day-to-day consumer business, and then I report in to a family board. So it also gives the management team and all of my senior executives a very clear accountability. They don’t have four bosses, they just have one boss, and I think making that separation is very, very helpful. Then I think communicating with family members is another important thing, and you can avoid conflicts by actually treating family shareholders no differently than institutional shareholders.
FT: What in business really bugs you?
Mike Jatania: Pet hates from my perspective are really technology. When technology goes wrong it can be incredibly frustrating and often we don’t realise, I think, how much dependent we’ve become on technology, and simply the server going down or telephone lines being disrupted, for example, can cause you enormous frustration. The other thing is, I think, it’s just as you grow - processes. I like to cut through processes and it’s incredibly frustrating to get involved in processes, and some of the red tape we’ve talked about often brings those processes which are incredibly frustrating.
FT: Just one or two thoughts have occurred to me, having heard what you said about the growth of Lornamead; in a way what you foresee is that Lornamead is slowly turning itself potentially into one of those very big consumer goods companies in that it’s brought orphan brands on.
Mike Jatania: I think Lornamead has the challenge of not becoming one of the big consumer goods companies that we’re buying these brands from and to retain the entrepreneurial spirit of fast decision-making, of sensible risk-taking, and passion that is there, where individuals are still encouraged to act as the owner manager of the business and not an employee of the business. I think that’s what we’re really trying to… how we’re trying to differentiate from some of the multinationals.
FT: Just as a point of interest, what was the first brand that you launched yourself? What was it called and when did you go with it?
Mike Jatania: The first brand we launched was in fact a brand in the personal care sector called Tura and that was a range of medicated soaps and skin cream, antiseptic soaps, effectively, for the African markets.
It was very frustrating because we thought we had the best design, the best product, at the best price, and when we took it to the market, initially we had the buyers but the sell-through didn’t take place, and so we learned the lessons or the importance of marketing.
It’s one thing selling a product into the shop or to the retailers, but the responsibility as brand owner is to make sure that the consumer buys that product, not once, but continues to buy it on a repeated basis. And when you can get a consumer to buy your product on a repeated basis, that’s when you’ve created a brand, in my opinion.
FT: And how is Yardley doing - very famous brand, lots of Royal Warrants.
Mike Jatania: Yes, Yardley has three Royal Warrants and an incredible history, and we have just had it in our ownership for the last 12 months and, really, the objective for me is to put luxury back into Yardley.
I think it’s a brand that, over the years, has suffered through ownership changes, lack of focus, but I think it has a great heritage, it has great loyalty, and I think it’s a luxury brand that has a real reason to exist. And we’re doing a lot of things with new products and new packaging and exciting advertising that hopefully can continue Yardley for hundreds of years to come.
FT: Finally, how do you feel about the way the media treats you, because you’re often written about as Britain’s, or one of Britain’s, leading Asian entrepreneurs or businessmen. What do you feel about that kind of label that you get?
Mike Jatania: Well, the media label is, sort of, one of the leading members of the community and the business community, not just Asian, and it’s something that I think as the business grows and your profile grows, you’ve got to accept that and I think you’ve got to be sensible about the time that you give to media, and taking a positive engagement there rather than sort of hiding behind some veil.
I think it’s a very transparent world we live in, the media have a great role to play in that, and I look at it from a positive perspective. How can I get my message out to as many people out there that are relevant to what I’m trying to do both from a consumer products’ perspective as well from future financial backers and industry executives, and the media has been good to me.
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