Almost 7 Years ago we were already running our property business successfully although at a lower scale, we were now sure we had good business sense and ready to take a new venture. Me and my business partner got into a seemingly exciting and very lucrative business venture which turned out to be a very expensive lesson that we still remember until now. That lesson, thankfully taught us to be more vigilant in our further deals but it would have been avoided had we an experienced mentor at the time
It was a successful wraps brand with about 7 branches around London City which my business partner used to have lunch at while he was working nearby. He was attracted by the great taste of their food, long queues and the potential amazing franchising opportunity they began to offer.
We visited the owners, looked at all the paperwork and financials. All that was confirmed by the queues in front of each of their locations. The owners looked confident and happy that the business is working well.
We found finance from a private individual for a high percentage from where we already taken before and paid back form our property ventures the we well understood. So the funds were available for us we should only ask.
Now it was the time to fine a location. Here we were lucky again, in one of the busiest hotspots of London, the London Trocadero at Piccadilly Circus, have only moved an escalator releasing a prominent space just the right size for us. It was a God given space as it looked perfect. It was the most prominent space now as it was facing the entry. Every shop from inside the Trocadero wanted it but as they had a contract for their place, they couldn’t take it. And here we come, just at the right time.
After a week of negotiations we managed to take it even at a lower price than it was advertised – we were genius!
Now even the owners of the franchise was jealous, almost negotiating with us to take the space himself.
Everything was playing perfectly. We had a feeling that we caught a lucky wave for business. We found and negotiated the best location at the exact time when it was released, we spent to build the best kiosk design and quality. We had a great product that lots of people already love. The location is the most visited spot in Central London – nothing seamed to stay in the way and it all smelled a success.
We went to survey businesses and workers in the area to find out what options they have in the area for food and if they would like to have great quality wraps for lunch. People were excited about the opportunity as there weren’t many options in the area. It was freaking awesome! We even negotiated for a free storage witching the premises!
We took the maximum we could take form our lender and were sure that in a short time it will be paid back as we would have already two profitable businesses.
It was exciting from the first day starting, all our work seam to come all together. Tired but excited we finally opened doors, with smiles we were ready for customers.
But there were no customers…
First day we had 20-30 customers comparing with estimated 200. Every day past we did not see any increase and in some of the days we had even less customers.
The rent was expensive and we were losing massive amounts of money every day including food and wages. Although we did not have the wages because we worked ourselves taking turns one being in the office and the other one in the kiosk, working for 13h day, 7 days week, we calculated them for our accountancy.
Things went nasty really fast – we started worrying from the third day as we seen the numbers were so low then the ones expected.
We started promoting, waking outside and calling people in to try our food.
Although it was great healthy and tasty food, people in that area were tourists and mostly looking for junk.
Now it all seamed a scam and it was hurting. We started looking for reasons why this doesn’t work and in parallel for ways to escape the situation.
Money we’re running low and now just to get the kiosk out of the premises we need another £12k and two weeks which should be paid for by us.
Things got rather slow on all ends. Company who built our kiosk were slow to move and gave a price we could not afford. The franchisor was a bit slow because they realised that we are falling.
There was no money to pay so we decided to abandon the whole thing and to close the company to avoid going into a deeper whole….
Although all the details showed a lucrative outcome of the venture, there are still hidden factors that only are seen by those with a long experience in the given business. Like I see a lot of property deals circulating on the market that are portrayed as lucrative where due to my long experience in property I see many holes and a great failure to whoever takes them.
We later found that there were a number of clauses that we would question otherwise and also few flaws in the spreadsheets initially provided. Always look at the contracts and check the spreadsheets. It could be either a mistake or a purposeful manipulation of the facts so we learned the hard way to check all the details scrupulously.
We knew very little about the food business and were attracted by the good profitable predictions and data currently in other locations. Next time we would go into something we know or have tried. Or…
…Start with a minimum investment or trial basis in order to have a taste of the business and its insights. You can negotiate a short contract or a early break clause if the business doesn’t go well. Also build a temporary or cheap option of the set up (a kiosk in our case) while still providing a high customer service and good product before building a permanent/expensive set up. This would apply to any online or offline business.
The survey don’t always (more than they do) work. Even if people say yes they will by or they want to buy, until they actually bought from you, that is not a proof that the will purchase when the ready product is placed in front of him.
Don’t start two businesses at once. As we started two businesses at the same time (our estate agency and the wrap franchise) we had spread our resources and focus which I presume played a role in the effect.
Never invest more than you can loose in a new venture. The funds were relatively easy given to us due to our previous good track record with paying back - if there were a bank, they would have seen the wholes in the business and would have not given us the money and we would not enter into a business as large as this until we would have had our own money to invest. That would have definitely played a different outcome in our decision. But since the money were relatively easily available, we have taken it with less of the due diligence that were required. We had a thought that should we had more money to extend our venture, it could have turned up but we could not afford as all our money were already invested in the expensive kiosk and lease.
You can never be overqualified for a new venture and if you are successful in one type of business/industry, you should always enter into the new one as a student.
Act quick. We were lucky to make a quick decision to exit from the quickly deepening financial whole which saved our arses of even a larger debt.
Although things might look great in theory often could be completely different in practice.
Work yourself from the stat and see how the business performs. Good thing we didn’t have employees as this would take us deeper. Also we able to react quickly to the changes or
It is important to meticulupoiusly look at the details of the contract and matter of the venture. Although those would give main details, it is still a risky venture (well as everything is). The best thing is to learn from similar historical deals and even better consult with someone who runs a similar business, or has a good experience/qualification.
Another reason to have a mentor and not to go through the mistakes yourself.
Check online in my previous blog (link) for tools and mentorship or try mentorship with Vadim
See You Soon!
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This post was written by Vadim Turcanu