Business lessons- bouncing back from failure Gerald Ratner

Failure and coming back from it

One of the biggest fears of would-be entrepreneurs, and current business people is the risk of failure. It spears some on to achieve great things and also paralyzes other into doing nothing.
Failure is scary, though there is not better way to counter fears than to take steps to make sure you are not putting yourself at risks from failing. The following story is adapted from Gerald Ratner's autobiography- which is very readable and I recommend reading if you have the time and inclination.

Gerald Ratner's Story

This is a very condensed version of his book, though I hope to concentrate on the key issues, and lessons, I learned from reading the book.

Gerald started in his family business early on, becoming involved as early as he could. He didn't do well at school, but that didn't matter as his path was assured in his family business, which he went to work for full time when he was 16. He was/is very good at arithmetic and learned the business quickly, from the bottom up. Here comes the first lesson, immersion and focus.

Lesson- Immersion and focus meant that Gerald knew lots about business and his trade from an early age. This proved useful even after his name was ruined by the press.

During his twenties he grew his knowledge and before long was heading the company. During the buyout days of the 1980s Ratners did increasing well and the jewellery firm bought out successful rivals along the way. This stategy proved efficient for the late seventies and early to mid 80s, but things started changing during the 1987 stock market stuttered and shares plummeted. There are a number of lessons to be learnt from Gerald Ratner's story up until this point- both from his personal life and how he ran his businesses.

Lessons up until now worth noting

He didn't innovate much, though he looked at the best bits from his competition and re-thought and designed his products and displays to incorporate all the good points of his rivals.

As his business did well he bought out competitors, thus growing market share, reducing the risk of competitors and increasing economies of scale which had a positive impact on his bottom line.

During the heydays of his jewellery business Gerald seemed, and by his own admission, got a bit cocky. He overspent on acquisitions and led an extravagant lifestyle that had a negative impact on his shareholders (who didn't like what they saw) and didn't do much for his own well being. While his salary increased he made several errors along the way that would compound his worries once he was on the slippery slope downward.

Gerald's downfall came after a speech that captured the attention of journalists. In the speech Ratner talked about his products being cheap and fatefully called them 'crap'. Though, people who heard the speech knew the lines in the speech were jokes, the press saw the opportunity to get good copy and manipulated it.

Ratner had used the press on the way up with several warnings from outsiders. Building a business around a person can be useful, though one must be very careful about tying the fates of the two together, as the events that followed provide a start reminder of the risks involved.

The media was set up to bring down this overspending executive. While the UK was in the tight grip of recession, Ratner was doing well personally and his business was flourishing. The press knew this, and reported on how the man had labeled his own products cheap 'crap'. It didn't take long before the company was losing money, being a public company the shares dived and Ratner soon found that with little support from the board (it was no longer a family board) he was ousted from the company that he helped achieve so much success. With over 2000 shops, it had grown substanitally, and now the man that can be credited with most of its success was not left high and dry.

He got a small payment, but all the time that the business had been flourishing Ratner had never thought anything like this could happen, especially from a single event like a speech.

Lessons to be learnt

The public are fickle and match image with products. They are intertwined, thus reinforcing the need for positive PR. Be wary of the press.

Ratner didn't save money from his salary, and had sold shareholdings early on. He was left with no money, few shares and a massive mortagage. This proves that you can seem to be 'successful' from the outside, but Ratner knew- he was ruined. The lesson here is to save money no matter what situation you are in- a cleaner or CEO of an international company!

The comeback

It took Ratner quite a few years to come back, but the details are quite interesting.
He was quite shaken up and wasn't use to life without major luxuries (tip- don't be over reliant on staff- be self-reliant). He couldn't cook, clean or much by himself. With the realities of life on his doorstep and no job offers, he soon learned.

His career had been with the family business up until then. He had had no other jobs. He had no CV. TIP> keep your eyes open to other opportunities, try to diversify, be open-minded.

Luckily he got some offers to do consultancy in the jewellery business. Although it had taken time, a number of years, through contacts he'd landed some work, nice work at that (300k a year!).

Lesson- His knowledge of the trade paid off. It was risky to not have other skills though with social capital (contacts) he got another chance.

Unfortunately this didn't work out, though he'd spotted another business interest when he began taking a long held hobby more seriously. He'd got into cycling and had decided to search out premises and start a health club. Within a few years of starting this second business, he was doing well and eventually sold it for over 3 million pounds.

Lesson: never give in, failure is not permanent.

Surprisingly Gerald went back into the jewellery trade, trading online under the title- www. Even more surprisingly he used the press to launch it!

I find that learning about others successes and failures greatly increases my awareness of the possibilities out there in the world. My older posts have some interesting stories and lessons from other business and investing greats, feel free to go back to them. I'll also be adding more to this series as I enjoy writing it and feel you guys might enjoy it as well. That said, it is also worth buying the books to read the full stories in context.