With the passing of leverage, writes James Perry, Cook has embarked upon a new growth strategy - franchising
Cook was born into the ‘age of irresponsibility’. We had big plans, a capital-intensive strategy and pretty much no capital. But that didn’t matter, because there was a new alchemy. Yes, we could square the circle with the magical promise of leverage.
And so we grew, and we continued to grow. We funded our growth through debt, which was lent to us against our promise of future earnings – on a multiple of projected EBITDA. We leveraged our future profits for debt to pay for the investment required to make those profits. How very clever! Everything would be fine, the debt was cheap versus risk capital, the banks would get their return and we would get our business to critical mass while retaining control.
Now, we breathe a gargantuan sign of relief. We moved to maximum leverage in September 2007 when we moved into our new kitchen. The ‘real economy’ was not hit by the shocks of the credit earthquake until a year later. The intervening year was when we were growing like crazy to establish critical mass for our new asset and thus reach viability. Had it all happened 12 months earlier, we would not have made it. We are now in the happy position of being a ‘good business’ with strong underlying earnings. Phew.
But once we have sighed with relief, we are left staring at the smoking ruins of a business strategy based on the concept of leverage.
Our core business value is authenticity. And we have always believed that the only way to retain authenticity is to retain independence. This relied on two critical factors.
The first was to resist becoming dependent on any single customer or key accounts. We saw the best way to achieve this as being to retail ourselves and own the relationship with the customer.
The second key was to retain our independent ownership, and we were going to achieve this by capitalising the business through leveraging future earnings, rather than selling ownership to investors who did not share our objectives.
But leverage will not be open to us in the foreseeable future. Banks are having a nervous breakdown. There is the mother of all bust-ups going on in their boardrooms as the financially motivated shareholders fight with the socially motivated new shareholder (the state). The former seeks only to safeguard shareholder interests, while the latter seeks primarily to keep the flow of credit pumping through the arteries of the economy.
They’re not going to align these conflicting objectives in a hurry. Whatever the outcome, leverage is now a dead strategy. We must find a new strategy without compromising authenticity or independence.
If only there were a way of involving independents – people as passionate as we are about authenticity and customer experience – in selling our entire, fabulous brand proposition in a successful business that they own. And having them capitalise the demand-side growth would ensure our ability to remain financially independent without the need for leverage – which should please the banks and their new shareholder. A win/win.
Well, it turns out, there is. Franchising. I hope we’re right to embrace this strategy. Success will depend on the quality of independent businesspeople we can persuade to join us on the journey.
James Perry is managing director of Cook.
Cook was born into the ‘age of irresponsibility’. We had big plans, a capital-intensive strategy and pretty much no capital. But that didn’t matter, because there was a new alchemy. Yes, we could square the circle with the magical promise of leverage.
And so we grew, and we continued to grow. We funded our growth through debt, which was lent to us against our promise of future earnings – on a multiple of projected EBITDA. We leveraged our future profits for debt to pay for the investment required to make those profits. How very clever! Everything would be fine, the debt was cheap versus risk capital, the banks would get their return and we would get our business to critical mass while retaining control.
Now, we breathe a gargantuan sign of relief. We moved to maximum leverage in September 2007 when we moved into our new kitchen. The ‘real economy’ was not hit by the shocks of the credit earthquake until a year later. The intervening year was when we were growing like crazy to establish critical mass for our new asset and thus reach viability. Had it all happened 12 months earlier, we would not have made it. We are now in the happy position of being a ‘good business’ with strong underlying earnings. Phew.
But once we have sighed with relief, we are left staring at the smoking ruins of a business strategy based on the concept of leverage.
Our core business value is authenticity. And we have always believed that the only way to retain authenticity is to retain independence. This relied on two critical factors.
The first was to resist becoming dependent on any single customer or key accounts. We saw the best way to achieve this as being to retail ourselves and own the relationship with the customer.
The second key was to retain our independent ownership, and we were going to achieve this by capitalising the business through leveraging future earnings, rather than selling ownership to investors who did not share our objectives.
But leverage will not be open to us in the foreseeable future. Banks are having a nervous breakdown. There is the mother of all bust-ups going on in their boardrooms as the financially motivated shareholders fight with the socially motivated new shareholder (the state). The former seeks only to safeguard shareholder interests, while the latter seeks primarily to keep the flow of credit pumping through the arteries of the economy.
They’re not going to align these conflicting objectives in a hurry. Whatever the outcome, leverage is now a dead strategy. We must find a new strategy without compromising authenticity or independence.
If only there were a way of involving independents – people as passionate as we are about authenticity and customer experience – in selling our entire, fabulous brand proposition in a successful business that they own. And having them capitalise the demand-side growth would ensure our ability to remain financially independent without the need for leverage – which should please the banks and their new shareholder. A win/win.
Well, it turns out, there is. Franchising. I hope we’re right to embrace this strategy. Success will depend on the quality of independent businesspeople we can persuade to join us on the journey.
James Perry is managing director of Cook.
No comments yet