Telling the truth about SME life today

Rachel Elnaugh: “I thought my life was over”

I set up Red Letter Days in 1989 but it wasn’t until December 1990 – with the help of great marketing – that it really took off. We literally went from under-trading to the phones ringing off the hook and taking lots and lots of money. It’s incredible when that happens to your business. It’s like you’ve been pushing at the door but it just won’t open and then suddenly, when you change the combinations on the dials, it opens effortlessly.

We were on a rollercoaster ride from that moment on. We didn’t have a proper business plan, we just rolled with every opportunity; we always said yes, and then figured out afterwards how we were going to deal with it. And that was how I built the business. We were the first company to offer a £20m trip into space. We never sold a single one, but it got us loads of publicity. Sprinkling that magic stardust across the brand brought it to life. After a decade of this, we got to the point where we were turning over £14m and making £1m in profit a year. Everything was really rosy.

But of course, it’s never enough. You always want to see how far can I push it. When you’re doing really well, you start to think you’ve got the Midas touch – and you start becoming very over-confident. I had started to win business awards for my success. The BBC were asking me to take part in television programmes, which ultimately led to Dragons’ Den. Life was wonderful. Money was flowing and fame was flowing. We’d helped Boots launch their gift experience range; we’d done a product range for Debenhams, which was bringing in purchase orders of £6m at a time; and we had offers from everyone from Homebase to Harrods.

It was at that point that I had a crisis of confidence. I simply couldn’t see the wood for the trees, and I knew that we just couldn’t keep saying yes to everything. I went to a networking lunch and sat next to a guy who was a management consultant. I told him my worries and he said, “I can help you”.

His PowerPoint presentation was fantastic. There was the great marketing strategy, the 30 different step-change projects. He also suggested to me that, as an entrepreneur who’d taken this business from nothing to £14m, now was the time to bring in a “proper” CEO. “Fair enough,” I thought. “I don’t actually know what I’m doing.” I’d just bluffed my way through – I’d gone on instinct. So, I parachuted this chief executive in from a big corporate, and I stepped back into a non-executive chairman role.

It’s a mistake that I have since learned that many other entrepreneurs before me have made – to their cost. It’s far better to groom someone from within. Just nine months later, I realised that I had to return to sort out the mess. I actually know what the “mess” was; I just instinctively knew things were going very badly wrong. Crucially, I didn’t have a strong enough finance director to control what was going on and that was one of my big downfalls. I was seven months pregnant at the time but I came back in, removed the chief executive and FD, and brought in an interim CFO.

It took six months to understand the extent of the problem – a £4.7m loss. It was like having a hole blown in the side of your ship. People said to me at that time, “Rachel, you’ve got no personal guarantees. You’ll never recover from this. Just let it go. Put it into administration.”

But, of course, when you’ve given birth to a company, you’re very emotionally attached to it, and I knew I would never forgive myself unless I did everything I possibly could to try and save that business. I spent the next two and a half years desperately trying to stop the cash haemorrhage, trying to get back the profitable company that I’d had before.

But our cash flow was hampered by a huge credit card bond put in place by our bank, Barclays. At the point we were forced into administration, we had £3.3m cash in the bank, but we couldn’t touch the money because Barclays said it was a contingent liability on the exposure for vouchers sold on credit card. There was another £1.5m worth of other security on top of that. So, essentially, there was a £4.5m bond in place.

I was bought out by my fellow dragons, Peter and Theo, for peanuts. Twelve months after that, the bond was unwound and all those vouchers were redeemed. The cost of fulfilling those vouchers was just over a £1m – so we’d been over-bonded by £3m. If we’ve been given the money, we could have traded through, secured our pre-IPO funding and floated on AIM. But it wasn’t to be.

There’s always a point in the process where you know that the plane is going to crash. That point came on July 28, 2005. I’d just had my fourth baby, and the newspapers had got hold of the story that the company was in trouble. When the media gets involved in anything, the pack of cards collapses very quickly. I went straight from an “Everything’s fine” interview with Sunday Times into an emergency meeting with our insolvency advisers to discuss what should be done. I had to leave the meeting twice to go and breastfeed my baby on the reception sofa. It was just totally exhausting and totally ridiculous.

We set the wheels in motion to put the company into administration. Interestingly, in the run up to that point, I thought that losing my business would be the worst possible thing that could ever happen to me. I had put everything into that company, every last piece of energy, money, passion.

But the moment that I decided to let go, what I actually felt was total liberation that the nightmare was finally over. And because I’d been on Dragons’ Den by this point, the media had an absolute field day. It was in every newspaper. It was on BBC Breakfast. It was on Channel 4 news. I was completely slated. Trevor MacDonald did a documentary about me called Exit the Dragon, which painted me as a complete conwoman. I remember watching that programme just thinking, “That’s it, my life is over; I’m never going to come back from this”.

I went into my home office and I switched on my computer. One by one, all these emails dropped into my inbox – some were from friends but many of them from complete strangers. They were messages of support. “Don’t let the bastards grind you down”. “We’re behind you.” “Don’t let this destroy you.”

I put a selection of those emails on my website as a reminder, as a thank you.

Despite all of that media bashing, a whole host of amazing new offers and opportunities started to flow through, one of which was an offer to write my first book. I didn’t have to trail around 17 publishers like JK Rowling or Jeffrey Archer. I was given a nice retainer and a deal to write my first book. I decided not just to write about my story, but the story of 20 other entrepreneurs – hugely successful people who had reached a critical turning point in their career, the knife-edge point where they could have succeeded or failed.

That led to a whole new business for me, which is around inspiring, motivating and empowering other people on their business journey. The past four years of my life have been spent going to events, giving speeches and helping other business people. I’ve just launched an events division.

Six months after Red Letter Days crashed, I found a life plan that I’d written back in 2002. A friend of mine had been training to be a life coach and she’d asked me to be her guinea-pig client. She’d asked me to write down how I wanted the rest of my life to be. I found the piece of paper, which had literally been torn out of an exercise book and scribbled on, and, with horror, I saw that I had written: “By 2006, get rid of Red Letter Days so I can spend more time with my family, be creative, and write.”

Isn’t it interesting how the universe delivers you exactly what you ask for, to the letter” I wonder why I hadn’t written: “Float Red Letter Days for £25m.”

I’d like to finish with an inspirational quote, which I love. It’s by Theodore Roosevelt and I think it perfectly sums up my own entrepreneurial journey: “It is not the critic who counts, nor the man who points out how the strong man stumbled, or whether the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes short again and again, who knows great enthusiasms, great devotions, who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly. So his place shall never be with those tenant souls who know neither victory nor defeat.”

The Inspirational Women’s Network, in partnership with Lloyds TSB, is an exclusive network of remarkable, high-potential and high-achieving UK women. Read about it here.

Photography: Rolfe Markham

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