That Art Site, an online business selling paintings and sculptures, lasted only nine months before it collapsed in debt. But for Peter Rankin, one of the three founders, the experience felt like years.
“The awful thing about it is that lots of other people get hurt,” he says. “The family gets involved. The suppliers are owed money. We had artists who took it very personally with us.”
That Art Site had many fundamental failings, Mr Rankin now admits, not least that its basic premise of making art collecting more accessible proved as flawed as so many other dotcom failures.
The final nail in the coffin came when the company spent thousands of pounds on a show based on the promise of money from an investor. The cheque was cashed but promptly bounced, leaving That Art Site seriously in the red.
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“He led us up the garden path. I vowed I would never do this again without a financial person who I trusted 100 per cent,” says Mr Rankin.
He had to sell his house to clear the debts and it was six months before he felt capable of doing anything new, let alone take another job.
“You hear of these people who go under and start another business the next day. But in my experience it takes a long time to get over a business closure.”
His relationship with his two former business partners took a hammering. He remained close to the art expert in the team for six months after the business closed, but they no longer talk. “It was just too hard. There was a lot of blame going on.”
Business failure is a remarkably common occurrence that often gets missed in the growing enthusiasm in the UK about running your own company.
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The government has made much of the official figures, which show that there are 4.3m businesses employing 250 or fewer people today, compared with 3.7m in 1997.
However, almost half of all businesses that started during a 12-month period between 2001 and 2002 are not around today, according to measurement of business banking customers by Barclays.
The bank has tracked the closure rates of its business accounts over the past 13 years and found that about 12 per cent of year-old businesses have disappeared six months later. The closure rate plateaus after a business has survived five years, dropping to 6 per cent at the seventh year of operation.
This level of “churn” is a concern to employers’ groups such as the Federation of Small Businesses, which says the government should focus on encouraging new enterprises to grow as well as raising the level of start-up activity.
Start-ups usually fail either because of the quality of the business proposition or the qualities of the entrepreneur, according to David Molean, co-director of Credo, Cranfield Management School’s centre for small-business growth and development.
However, he stresses that business closures are vital to allow the strong entrepreneurial ideas to flourish. “I am a bit of a fan of natural selection,” he says. “The early stages of new businesses are incredibly volatile. Some will wither because it is like that.”
What is of greater concern is the negative attitude to failure in UK society, which undermines risk taking.
Rebecca Harding, director of the UK Global Entrepreneurship Monitor, an annual report on start-up activity, believes a widespread fear of failure holds back the country’s latent entrepreneurship. GEM’s latest research finds that people in the UK see more good opportunities to start businesses than their counterparts in the US, but show significantly greater fear of failure.
Yet many business closures may not represent an entrepreneur’s failure as much as their desire to return to the security of a salaried post in an established company.
Ben Richardson’s corporate video business, Hoxton Productions, lasted three years before he ceased operating in favour of a job in the communications department of one of his clients.
He had originally jumped at the chance to be his own boss, accepting voluntary redundancy at Orange, the mobile phone operator, to finance his new enterprise.
“To me, the chance to take redundancy and try something completely different was an opportunity too good to miss,” he says. “I had a lot of experience under my belt and I wanted to seeif I could put it to good use and do something that I had control over.”
The first 18 months were especially fun, Mr Richardson says, although he had to forgo a salary. “The business was growing and revenue was coming in and we had some high-profile projects under our belt.”
Because the company did not have to be based in a particular location, he could move to Nottingham, where his wife was studying for an MBA. However, like a lot of small business owners, Mr Richardson found he was too reliant on a few customers. This was made painfully obvious when one client, which accounted for 40 per cent of revenues, closed.
Hoxton Productions had grown through Mr Richardson’s personal contacts and he realised that to expand further he would have to commit to “a serious amount of money” for a marketing campaign.
Moreover, he found that he valued the stability that a salaried job gave to his home life. “At age 32 I realised that running my own business would not allow me to make any changes in my family life easily.”
Both Mr Rankin and Mr Richardson feel they have learnt from their experiences. Mr Richardson says: “If I did it again I would rely less on my instinct and more on rigorous planning and financial controls.”
Mr Rankin completed an MBA at Cranfield Management School before starting his second business. He is again selling over the internet but this time focusing on CCTV equipment for the home and small businesses.
The new company, Iviewcameras, is now in its third year, employing 12 people in a 2,000 sq ft office in Fulham, London, and is making a 5 to 6 per cent profit margin on a turnover of £2m.
“We consider ourselves just past the survival phase,” he says. Although Mr Rankin says he does not believe in luck, Iviewcameras got a significant break from a six-and-a-half minute slot on a feature about CCTV on daytime television’s This Morning. “The phones have not stopped ringing since then,” Mr Rankin says. “We were still getting sales from that programme a year later.”
One of the most important lessons he learnt from the failure of That Art Site was to surround himself with a network of experienced advisers and managers. Non-executive directors of the new company include his father, Christopher Rankin, who is a former president of P&O North America, and Mike Denchfield, a former finance director of P&O UK. He also gets advice from a former head of marketing at Allied Carpets and the former operations and personnel director at a big electronics retailer.
“It has been hard work, but we now have the right financial people on board,” says Mr Rankin.
He says he is now much more considered about the decisions he makes. “I would never put myself through that experience again. I certainly benefited from it but I am not sure whether it was the best way to learn.”
Having had his lesson in business failure, however, Mr Rankin is unsure about whether he would employ someone who had a similar experience: “I would have to explore with them very carefully why they had failed.”
KEY REASONS FOR FAILING TO MAKE IT
■ Poor credit management practices, such as paying bills before the last date that they need to be settled.
■ Lack of access to finance to fund expansion.
■ Lack of cash in the bank to support the business when the unexpected happens, such as a key customer going out of business.
■ Relying too much on a single supplier or customer.
■ Lack of focus on selling a product or service.
■ Failure to bring key people in from the start: namely, experts in finance, sales, operations and technical innovation. A good mentor can often make the difference between success and failure.
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