Why do entrepreneurs aspire to emulate flaky businesses?
There was a common response when we told people about Lashbrook Lassis..."oh, you can be the next Innocent!". And, to be fair, we started our business with that very thought in mind. There were many attributes to Innocent smoothies which we believed we could replicate or even improve upon. Positioning ourselves as “plucky entrepreneurs” was an obvious starting point and then promoting the health benefits of our drinks was again very Innocent-like. And while we tried to give the impression that we would never sell-out to Coca-Cola, deep down, that was exactly what we hoped for.
However, as our understanding of starting a business grew, so did our realisation that emulating Innocent was actually incredibly risky. Firstly, they started their business by raking up £15,000 of debt on credit cards and overdrafts. This, I would say, is pretty ill-advised – start-up businesses are much more likely to fail than succeed, so to stake your personal credit rating on such a venture should be a time to pause for thought. However, the three founders of Innocent were fortunate enough to receive a £250,000 investment, which they then used to aggressively expand throughout the UK and Europe.
Such expansion though was to almost become their undoing. Following their decision to expand internationally in 2007, they lost money for the following 5 years. Such losses peaked during the credit crunch in 2008, when every penny of profit they made since 1998 was wiped out. Again, they were fortunate enough to receive a cash boost of £30 million from Coca-Cola which kept them afloat.
This tale of risk and gamble is not the exception though in start-up businesses, but more the rule.
Another start-up business entrepreneurs are encouraged to emulate is Uber. Every time a new start-up breaks onto the scene, someone will write whether they are the new “Uber” of that particular sector. Yet, Uber is a company that has never made a profit. They currently subsidise each ride by as much as 59% according to some reports and has lost an estimated $4 billion in its first 7 years of business. How has this become a company which others are meant to emulate?
It seems that once you strip away the marketing and sycophants and look more closely at the books of “successful” start-ups, you see a very different side to these companies. I was once told to “chase profits, not turnover” with Lashbrook Lassis. The fact that such advice was uncommon, demonstrates how we are often transfixed by the hype rather than the reality of start-up businesses.