This episode of the Serviced Accommodation podcast is all about Strategy, the episode is split into two parts and this first part covers what Chris and Ritchie learnt in strategising for their previous businesses and how it can apply to your serviced accommodation business. Making sure you are doing ‘the right things in the right way’ is fundamentally important for any business, and this episode can help with that.

Part Two is out on Friday with more Strategy Tips and a model you can apply to your business!

Show Notes:

The Serviced Accommodation Podcast is a show brought to you by Chris Poulter and Ritchie Mazivanhanga aimed at new and experienced property investors alike. With each show we help you Start, Systemise and Scale your Serviced Accommodation Business.

If you would like to ask us a question or discuss anything in this episode, please join our Facebook group and ask away. To listen to more episodes or get more information go to www.thesapodcast.com.

Transcription:

SA Ep 15

Hi I’m Chris. Hi I’m Ritchie.Welcome to the serviced accommodation podcast.

Today we’re going to be talking about strategy and our key learnings from previous businesses.

So we’re very excited to bring you today’s episode it’s actually going to be a part 1 of 2. And it’s about what I personally think is the most important area of any kind of business and that is strategy and making sure you’re doing the right thing in the right way. And when we were putting this episode together, we got so excited about the different stuff we wanted to do with it that we realized we probably had about an hour and a half’s worth of content so we thought no we need to be a bit more sensible about that.

So what we’ve done is we’ve split the episode into two. So for the first episode today we’re going to be talking to you about strategy and the key learnings from our previous businesses. And in part two we’re going to be talking to you about the model which has come about from that which is build, test and scale and specifically how we build a model which we can use for serviced accommodation.

I’ll kick us off then with the first business which I ever ran which believe it or not was actually at the age of 12. And those of you who do know me might not be very surprised to learn that actually I was a bit of a geeky kid. Yes, shocking I know. But was a bit of a geeky kid and I was always in and around computers and I think when you grow up with that it just becomes second nature to you. So around the age of 10 or 11 which was still very very early my dad actually got the internet which he needed because of his work and so we got connected to the World Wide Web which back then like I say not a lot of people were connected to it. It was still very new, people didn’t really understand it but they clearly understood it was going to be a big thing in the future. And so I kind of started getting geeky with the Internet and worked out how HTML worked and everything like that and essentially became one of the first web designers in Hampshire. So I pretty much had the market to myself because there weren’t a lot of other people doing it. And the only resistance really I had was that at first people, kind of well some people knew the Internet was there a lot of people didn’t but they didn’t necessarily know how it would apply to them yet.

So as a young web designer I was talking to the local businesses, helping them to understand how the Internet could work for their businesses and then putting together very basic, by today’s standards, websites for them. Now this is something which I kind of enjoy doing but it wasn’t really my passion and my passion actually at this point was for music and I love music and play quite a lot of different instruments but I was also very technical. So around that age I realized that what I actually wanted to do was go and be a sound engineer. And again at the age of 12 I realized that what I wanted to do was go off to university and do Tonmeister course at Surrey University. So I had a very clear goal for what I wanted to achieve.

And so what I saw the opportunity with the IT and the web design business wasn’t so much of building a business but it was getting to an end goal. I wanted to be doing recording. I didn’t have any way of doing that at the moment so I saw it as a means to an end. So essentially what I did is I set myself a goal, I wanted to accumulate X amount of money which I actually did and then I went and spent it all on recording equipment and immediately gave up the website business. So it meant I was very happy because I had a little converted garage and I put my equipment in there and I was able to record music day in day out. And so that business really allowed me to achieve what my greater goal was.

So in terms of early business lessons I think there were some real key learnings for me in that, of course the first one being that that business is not there for the sake of the business, it’s to provide towards your life goals so my life goal at that point was I wanted to be a recording engineer and I wanted to have a bit more experience in and around it. I wanted to be doing it before I went off to uni. So I saw that as the opportunity I’d put the goals in place so at the age of 15 I could then go and buy the equipment and focus on that and it was able to provide that. And I think that’s something it’s very easy to lose track when you’re in and around a business, it’s meant to be serving some kind of purpose in your life.

And if it’s not positive purpose, if it’s a negative purpose because it’s taking away from your family, it’s using up all your time, it’s not generating the money which you want it to be doing then it’s something that you need to look at very seriously.

The other things I think I’ve picked up from that business was that when you have a goal it’s much easier to be successful in what you’re doing. And in essence unless you have goals, how do you judge if you’re successful what you’re doing? Otherwise you just kind of end up getting dragged around by whatever the latest market opportunity is and rushed off your feet and not necessarily moving anywhere. So I think having those goals and objectives within the business is really important as well.

I think probably the final lesson I learned from that business is, well as one of the first web designers in Hampshire I essentially had the market to myself and so the kind of fundamental lesson of business it’s about supply and demand and of course when demand exceeds supply you’re going to have a lucrative business which is why I had done with my first business.

So Ritchie, that was my first business as a geek, what was your first business?

 

Funnily enough Chris, my first business venture was also the age of 12 when I was in Zimbabwe at Junior School.

So I first started off when I won a Michael Jackson dancing competition and I figured you know I’m actually good at this. I come from a big family and we have lots of friends as well so we used to frequent parties regularly and every time we went to a party  a Michael Jackson song would come on and as soon as a Michael Jackson song came on I would just begin dancing non-stop. Moonwalking like there’s no tomorrow. Yeah I used to  love it. Around 4-5 o’clock when it’s finally the afternoon, the adults having had a few drinks, they’re happy, they’re merry, they’re enjoying themselves. They would start chucking money when I started dancing to Michael Jackson because I was that good. Well, I like to believe because I was that good. Yeah this happened a few times and I thought Hold on a sec, this is actually something that I can carry on doing. Every time I went to a party, a family do, I would just start dancing to Michael Jackson, moonwalking here there and everywhere and I would leave with about 20-30 dollars. The value of that money then was the equivalent of one Zimbabwean dollar to one British pound, so it was a lot of money then you know and I did this on a regular basis and yeah it was great. And my key learning from that was the focus of what people wanted, they didn’t need me dancing as Michael Jackson but they wanted that, that’s what they wanted and enjoyed. So if you focus on what people want, you get the results you want.

I think the key learning you missed there as well Ritchie is that when people have had a few more drinks they tend to be a bit more generous.

They definitely do but I don’t think it was about that. They loved my Michael Jackson dancing so I focused on what they wanted and it made me lots of money over time.

Absolutely.

And my cousins loved me for that because I started buying them stuff after so. Yes. Yeah. Fantastic. Moving on from there, five years after I moved to the UK and when I arrived in England it was winter and there was snow everywhere. Having left the Zimbabwean summer where it’s blazing hot, I move here and its winter, it’s freezing cold. Even though it was freezing cold I still found it very easy to settle in.

Had do you even seen snow in Africa?

No I’d never seen this. I think that’s what it might have you know, I was just like wow snow. I’d seen it on TV and I always wondered what it felt like and to be honest it was a bit of a letdown because it wasn’t as cold as I thought it was going to be. But however it was a lot colder than in Zim so yeah it was just completely different. But you think that because of the change in temperature, weather, everything, the cultural changes and everything else I’d find it very difficult to settle in having moved from the summer, coming straight to the winter but no I found it a doddle. The reason I found it so easy to settle in England was because I focused on people and when I talk about people, I’m talking about relationships with people.

So one of my strongest values is relationships, be it business people, work people. It’s just relationships with people and if you’re ever going to succeed in life you need to have relationships because you’re never going to do something alone, or you can do something alone but you do a lot better, a lot quicker if you have more people around you. So it’s about focusing on relationships so I’ve got great relationships with my family. I’ve got a big family like I said earlier, I’ve got fantastic relationships with the people in my family, my friends. Chris I met you after I’d been here for a few months and we’re still friends now.

That’s what 15 years later?

No it’s going to be 17 at the end of this year!

You’re making me feel old now.

We are old Chris! We’re older.

So yes it’s about focusing on relationships, be it friends, family, jobs, even in the home it’s all about relationships. They are very very important and I’ve kind of transferred those relationships into our business be it business relations with landlords, people we work with, be it business relationships with investors, relationships with when you’re building a strong team. Because you can build teams all day any day but building a strong and effective team which is going to be sustainable over long periods of time then you need to have the relationships with those people. So you have the communication you know and be it other fellow operators because we’ve got good relationships with other serviced accommodation operators not just around the country but even within Southampton where we are. So it’s all about relationships and it’s very very important to me because you can be a success if you do something alone but like I said before if you want it to be done better then it’s about having those relationships and you get a lot further in life with relationships.

Yeah and because with relationships, apart from that I don’t think you find it very funny or rewarding to have a business on your own really would you?

No I wouldn’t. I wouldn’t, not at all. Well I do wonder how other people do it because relationships is one of my values I just do it subconsciously when I enjoy what I do. You know like for instance what I did before which was the dancing, I enjoyed giving people what they wanted. And I love relationships with people, I love communicating, you know I’m an extrovert, I love talking to people, communicating, that’s it –that’s me in a nutshell really.

Yeah I like being on my computer but not as much as you Chris

Clearly not, I love that and I never found that out until today that you used to do the dancing.

I’ll get on the dancefloor later mate!

That pretty much sums us up doesn’t it? You know, me making money from being a geek and you making money from dancing.

You need to go to bigger parties Chris!

Love it, love it. Yeah so I mean to continue my journey from there obviously I went to study music at university in a Tonmeister course like I wanted to since I was 12 years old. And then went off and did the industrial year. I mean the main reason why I chose that course because it had fantastic links with all the major London studios. I’m sure everyone has heard stories about you know sending a CV off to them and they get hundreds or even thousands a week and it’s impossible to get a job but really the main reason I’d go on to study at university, other than obviously get a lot of great knowledge was the ties with the industry. So I went and worked in a West London studio and got to work with a lot of famous people and see how a lot of the top producers were working and what they were doing. And the one thing which stands out I think the most from that time was going up to lunch and having two different groups of people say oh do you want to come sit with us and one of them was Coldplay, the other one was Sugarbabes.

I wonder which one you Chose Chris?!

Hey I was a 20 year old hot blooded male – of course I went and sat with the Sugarbabes!

You know it was a great, it was a fun time in my life for sure. I really enjoyed the music but I think there were a couple of real key learnings from it because as I went on I started to get bit more bored with it, started to hit the ceiling and I really realized that I didn’t have a business at all as a freelance producer, I kind of had a job which I owned. So even though I was doing work through my company, it wasn’t a business, it was self-employed and so in essence if you’re working in your business all the time, it’s not a business at all it’s a job. And if you really want a business you need to make sure that you’re that kind of top level when you’re not in and around the day to day activities in it, you’re keeping an eye on what’s actually going on.

The other thing which I learned from working in studios and then going off and being a music producer was that if you want to perform to the real highest level then you learn from the best. That’s absolutely what you do. You look at people who are out there, who are doing it, who are achieving and you copy what exactly what they do. So I was incredibly lucky in that I was able to work with people who were mixing records for people like Foo Fighters, with big producers who kind of worked with people like Phil Collins, put together their original sound and people who just had massive amounts of knowledge and experience and what they were doing.

And so I would have the opportunity to sit in and work on those sessions as an assistant engineer and see all the technical techniques in terms of what they were doing when they were recording all the musical techniques and how they were getting the best out of performers. And of course I was able to then take that knowledge and take it away, and then at the weekends when the studio was quiet I was able to go in and work with my own artists and put into all that stuff that I’d learned during those sessions and without any shadow of a doubt you know three quarters of my ability as a producer came from just looking at these people who were performing at the highest level and taking the aspects I liked about what they did and applying that to myself.

So I think that was a real critical learn that for me as well from that business.

Although like I said, it wasn’t really a business because it was just me working as a freelancer.

My next business venture was after I had enough of working in the banking industry as a mortgage adviser. I had done that for a fair amount of years and yeah I always used to come across people doing, in different industries of business in this and that, people shipping cars and trucks to Africa and it seemed a very lucrative market. And I decided, well I’d heard people speak about it, talk about it here, there and everywhere but I’d never taken it seriously up until I spoke to my brother-in-law’s friend and he was doing this and he kind of highlighted how great success he was having with that and the profit margins. Yeah the profit margins he was talking about were just something else. So I met up with a JV partner, or a potential JV partner, this is someone who was looking for an exciting opportunity abroad and I thought this might float his boat, he might be very interested in this and this might also give me an opportunity to leave the banking industry and my day to day work. So we’ve had a few meetings with the JV partner, so JV is joint venture. So the potential joint venture partner and yeah we decided to go for it. So we then also had meetings with my brother-in-law’s friend who’s based in England by the way I should say and we had a few meetings with him  and because it was in the industry he was doing and he was loving it, it was working well for him. He advised us not to go to Zimbabwe which was where we were originally going to take the vehicles because that’s the country I know. He advised us take them to Malawi instead because he had these contacts over there in Malawi, he had contracts there, he had accommodation, he knew the system and how it worked inside out. So we were at an advantage because we were jumping in and leveraging his knowledge and experience and his mistakes so we were just starting off on another level.

So the lorries were shipped to South Africa and there were two lorries and these two lorries had cars within them and at the South African docks we picked those up and we had some drivers drive the lorries. So we drove from South Africa, went straight through Zimbabwe, went to Mozambique, through Mozambique all the way to Malawi. And I’ve never been to Malawi, beautiful place, lovely people, and happy people over there. And actually the road trip was fantastic because we learned a lot about the different cultures.
I’m not very big in Africa but I’m guessing that that was quite a long journey.

It was a long journey but a lovely journey, very scenic. Different kind of, you know you leave Zimbabwe and it’s hot, Mozambique is just something else, it was just overly hot, as humid as you get. It was yeah but it was an amazing experience, amazing experience and lovely all the different cultures and different people over there you know, it’s just beautiful.

And how long was that journey? How long did it take you to get from where was it South Africa to Malawi?

It could have taken us about four or five days but we did it in about a week and a half because we were stopping over, enjoying the sights and everything else.

You’ve got to take your own experiences I guess.

Yeah. Well people don’t get that opportunity and the chance to do that so yeah made the most of it. And we got to Malawi and like everything which sounds too good to be true. We didn’t sell the truck straight away with the contacts we had. Everything took a bit longer.

It would have been easy because we had people approach us in one of the deals and then after a few days they would then turn their backs on us and were not interested at all.

So we figured there was some inside involvement from other outside elements you know what I mean, getting involved in in these deals and we were not wrong because it turns out that the gentleman who would advise us in the UK, my brother-in-law’s friend was basically trying to rob us and lo and behold he was successful because he had all the contacts, he had all the command whilst we were out there. We had no power whatsoever so he had sorted out our accommodation, he had got us the drivers that we were using to drive around, he had sorted the shipping company we were going to deliver the vehicles to, the clearance companies. He had all the contacts so we were at his mercy so to speak. We lost about £20000 due to that and the other thing as well was the language barriers, where you’re in a room with three people they speak to you in English and then they start speaking in their native tongue and you don’t know what they are saying. I learned a lot, I learned the local tongue after that, and I learned it whilst I was out there for three months. It was only meant to take about a month but we were out there for three months and we lost about £20k. But you live and you learn you know, you don’t give anyone that much control in your business and your life. That’s what it was really my JV partners and my lives were in his hands.

The good thing that I learned or picked up from this was that when building well building a joint venture partner relationship, building a solid foundation, you’ve got to know what you want. What are you doing this for? The end goal, what purpose is this serving like you said earlier. It’s got to be able to serve a purpose in the long term and because I had this amazing relationship with my joint venture partner, we stayed in good terms even though it was mainly his finance or money that had gone down in the deal was made in good books.

The other key learning from this was focus on one area, focus on an area that you know before you scale up, whilst you are building a model and refining it make sure it’s local. Make sure it’s very close. Make sure it’s a place that you know very well because we went all the way to different continents, south side of that continent and we didn’t even know the local tongue over there. I learned it while I was there but I didn’t even know the local tongue. And like I say just focus on an area you know and keep it local. If you are looking to refine the model, if you’re building a wider , refining before you scale up make sure it is close by so that any mistakes are not going to be as costly as mine was.

So if we think about how that might apply to serviced accommodation then I mean one key thing you said in there was that almost your entire business was dependent on this one guy who actually had all the contracts and everything like that in Malawi so if we’re thinking about that in serviced accommodation then if there’s someone outside your business who has that level of control over it then you need to be extremely careful. I guess that maybe also ties in with the area because it might be for instance you’ve got a sourcer who has sourced a property in a particular area for you and they’re telling you it’s going to perform well and they can manage it for you. But if without that person suddenly you’d be stuck and you wouldn’t know how to manage your property then you’d potentially be in a lot of problems and similar if you’re taking a word for it that that area is going to work then you don’t necessarily have the same knowledge yourself as to whether it’s a great deal or not.

That’s it, it’s just not letting your guard down, to always be protective of your business and to make sure that you don’t give that amount of control to anyone.

Yeah absolutely because that’s a risk factor, it’s a very big risk factor if you’ve got an external influence that big on your company that you can live without that really.

Because I know people, back to Malawi, I know people that are doing it successfully they’re thriving and their business is, doing the shipping business and that but we just gave the amount of control to someone else who had an ulterior motive so yeah you live and you learn.

Yeah yeah absolutely, do you think you scaled that business too quickly or do you think that the testing that you did was probably at the right level?

The testing that we did was not at the right level, it was a bit too much because like I said we didn’t just go with one car. We thought with right let’s just do it and just yeah we’re sorted for the next quarter after we do this, we had two lorries and two cars within those lorries So that’s four vehicles essentially, four vehicles straight away. And we managed to get money from three of them but the other one cost us money because it ended up being stolen while it was in the driver’s possession and the police would not investigate but I won’t go into the details, that’s a long story.

Okay so what I was trying to understand there was maybe because you jumped in at too high a level, you were kind of building a business when you didn’t already have the kind of foundations around it, the contacts and knowledge in the market meant that essentially you had big risks within your model and because you were testing it at that, essentially the losses were relatively high.

That’s it, yeah, we exposed ourselves too much before we were tested and refined the model which while testing – do it at a small level, small scale.

Yes it’s fine to say in retrospect but without that kind of knowledge and understanding, it’s hard to know exactly. But that’s kind of why we’ve developed this model of kind of build, test scale, which we’re going to talk about next episode.

So I guess about the time you were going off to Africa, shipping vehicles out there, that was probably about the time that I was fed up with the kind of music producing and having hit the ceiling and then realizing that really if I wanted a business and not a job that I needed to kind of try doing other things and start bringing other income streams in.

So for me again being a geek, I went back to what I knew and I went back to IT and started another IT business, this time with a friend called Al and it was again, it was doing something that we knew quite well in this case. So again being good geeks we played lots of games online and we knew that one thing that people needed when they played games online was voice servers so they could talk to each other and communicate, coordinate and that kind of thing. So we started building up this business called pulse gaming where we were we basically hosting voice servers for people and selling it on a kind of monthly subscription and it was a really interesting model, not just because it was quite easy to predict the profits of the company based on how many new customers you were getting each month compared to how many customers were leaving each month on a subscription based model but also because we could automate a lot of aspects of the business.

So when it came to setting up the servers in the first place, we were able to kind of create sales pages on the website where people signed up and the servers were automatically created and the details were sent over to them and all those kind of things so that from an operational basis there was very little for us to actually do in the business so we thought it was a great model because it would allow us to remain on the top level and that we kind of thought it was going to be quite a passive income if you like.

How passive was it?

Not very. In fairness we kind of put a lot of effort into setting it up but there was there was a kind of fundamental issue with this I guess and this was probably the key, one of the key learnings, we’ll get onto the second one and the key learning really was that all our marketing was dependent on one source.

So the manufacturer or the writer of this software which we were using, they had a link to us on their website, we were one of their trusted partners that kind of thing. And when you looked at it, 90% of our sales were actually coming from that link. So while we were growing and we were growing and we were growing, at some point something changed on their website and they changed the way they did referrals and we stopped getting new customers in and so the business rotted quite early. And so it kept generating income but it really didn’t continue to grow.

So it’s actually probably a couple of learnings on that. First of all you need multiple marketing sources if you’re going to have a successful business. I once had a mentor who told me you need five different sources, reliable sources of leads and sales if you want to have a sustainable business.

And that sounds a bit crazy if for instance you’ve got an SA business and you’re getting 90% of booking through booking.com But this is a long term where you need to be getting towards, you want to be getting some from booking.com, some from Airbnb, some from direct booking, some from your corporate links etc. etc.

So that you can build up multiple marketing channels for your business because what we found is with one marketing channel if you cut that off, although it didn’t kill the business completely, then it completely stopped the growth of the business and we kept trying to find a marketing channel which could kind of replace that but because it was a free listing on a website, we couldn’t find anything which could replace it at that kind of cost. So I think that was one of the key learnings behind it in terms of marketing and how important that is.

The second learning was a bit more profound really. And what happened is I actually went to your house one Friday night because I was staying in Southampton and going off to a football match on Saturday and then I was going to go and see my business partner on the Saturday evening. I’d been trying to get hold of him to make arrangements of what time and where and everything like that and hadn’t been able to get hold of him all of Friday together. Finally he called me back about 10 o’clock on the Saturday morning, when the phone rings and I answered the phone. And what I heard wasn’t Al’s voice, it was his step dad voice and at that point I knew something must be seriously wrong. And as he started to talk I found out that Al had gone into a telehouse in London which is a big server place. He walked onto a lift with a bunch of servers and he’d collapsed and he never got up. And so at the age of 27 Al was never going to be able to grow the business or do any of the things which we’d talked about doing when we started that business in the first place. So for me that was a really big game changer if you like because obviously you know when your best friend dies at that age it has a very profound impact on me.

And you’d known Al for 27 years, his whole life really.

Yeah, our parents met in birthing classes. So really we knew each other from before he was, before we were even born, you know it’s that crazy. And obviously there was a personal impact there. But if you then relate that back to the business impact then essentially what happened was because he was a technical guy. Whenever there was a small issue with the servers, he’d deal with it himself and so basically when he wasn’t with us anymore there was no business because it was completely impossible for me to run on our own. You know I talked before about how when you have a job or a business then it’s not a business. But I found that with this as that although we thought it was passive and it was hands off but it actually wasn’t.  Without us there was no business anymore. It wasn’t sustainable we couldn’t keep it going.

So I think one of the key things I learned from that was around risk. And that’s obviously, there’s a lot of different risks and we’ve already talked about the different risks in business whether it’s giving someone too much control over your business and having it running away or any different areas. But one of the key risks really is being too dependent on one person or person’s focus. Again you know it’s something, a different side of it but similar to what you experience where you were reliant on one person and for whatever reason that ended up going wrong and it can kind of take your business down with you. Yeah absolutely.

So it was about that time that we started Choice Performance Cars. Choice Performance Cars were really just something we’d seen an opportunity in the market. I started getting interested in cars and I’d seen that when you get a car from a main dealer it can be expensive secondhand but you know if you get it from a secondhand market you’re kind of chancing it a bit. So we kind of looked at it and gone well there’s an opportunity here to kind of price in the middle, bang flat between them where you maybe don’t have to pay the high prices you would do at a dealer but you’ve also got some degree of security in terms of maybe a warranty, in mechanical checks and everything like that. That was the idea behind Choice Performance Cars wasn’t it?

Yes it was yeah we went out and we got a decent car. We had had quotes as well from the warranty companies and they were happy to give us warranty on certain cars and as you can tell from the name it wasn’t just your day-to day normal average, Chris took a fancy to cars and not the slow ones, the very fast ones. So yeah we went out and bought a performance vehicle and how long did we have that for Chris?

Oh we had it for a couple of weeks. We were just doing all the mechanical checks so that we could get the warranty in place.

Yes that’s it and whilst Chris was between driving from one office on his way home, the car tried to kill him so he says.

I was driving very carefully as well. Seriously I was.

Because he was driving very carefully the car just tried to kill him. He thought it was a minor bump and he got out the car. What did you see Chris when you got out of the car?

Oh yeah, the entire front end was missing and the entire back end was missing.

 

And that’s the protective thing with these expensive cars, because they are there to protect your life. They know that accidents are prone to happen or bound to happen at some point or might happen. But they need to protect your life and that’s why they are overpriced.

So yeah, key learning from that was that all our capital was in that one car you know so one asset you want to call it or call it a liability but yes all our money was in there and understanding of risk. It was very risky putting all our eggs in one basket and then that basket just falls over, all eggs are broken.

 

Absolutely and I think with business you start to get more of an understanding of risk the more experience you get and obviously I’ve just come from a business where the risk being people and obviously that went from there. So to kind of go into another business with another big risk in it and not necessarily know and identify that was then a problem.

Now you could have say oh yeah we covered off the risk with insurance but what then happened with the insurance company started to try to play silly buggers with us about something completely unrelated basically, you know not to not to go into it too much but three, four years later we finally won that battle. But insurance companies when they want to drag their feet they can and they do and they do take the time.

 

So even though the risk was theoretically covered off, in reality yeah again, I guess key learning around that would be with insurances that you might think you’ve got the right insurance in place. But unless you actually know the attitudes and the behaviour of the insurance company in question then it might not be worth much and that’s one reason as we go through a broker isn’t it. The broker is not looking at the premium and what the cover is but they’re also looking at the company itself and whether they’ll do everything to kind of get out of paying or whether they’re actually quite reasonable and the small print and all those things.

 

Yes you know we’ve got our broker Heather from AGI Insurance. And our listeners know that, we’ve interviewed her.

Yes that’s the whole point where you working with someone you trust that can actually look out for your needs and what you actually need, not just an insurance policy that you’ve been told to take care of someone else. So it’s worth getting people with knowledge and experience in the industry to advise you accordingly.

And because all our capital went down with that lovely car, we had no capital and we had to get some income from somewhere – we started a car sourcing business. So the company was still Choice Performance Cars but we would effectively go out to people to find out what cars they need and we’ll do all the legwork, get a decent car for them at a lower or fraction of the price that dealers would charge because we don’t have a dealer’s overheads and we would also offer some kind of warranty as well with those purchases. But we learned a lot from that business, yes we learnt a lot from that business.

First and foremost there were some people who didn’t pay us on time because we didn’t have clear terms and conditions and yeah is that what people really needed?

 

Well yeah. I think the main issue around that business was marketing wasn’t it? We were trying to sell something to people which they didn’t know they needed. So it’s not like you know people are hungry so you’re going to sell a loaf of bread, you’ve got to explain what eating is to them and that’s not an enviable task. So what we found is that we really really struggled. Could people be like well why do I need someone to source a car for me why don’t I just go to the main dealer or go to the secondhand so because we didn’t have a ready-made market of people who were looking for our product, marketing was an absolute nightmare.

We tried lots of different stuff but our conclusion really was that unless you’re Apple and you’ve got a multi-million marketing budget and you go okay let’s invent the smartwatch and everyone will go and buy one and create your own market then never ever try to create your own market because it’s you know going uphill, it’s going against the grain, whatever phrase you want to use. It’s really really hard work within a business.

And from then on we, well because we didn’t have any capital and we were waiting on other payments from people from this new business we effectively started Choice Mobile Mechanics.

Yeah and that was something which really came about, I think it was an idea we’d been kicking around for about six months within the kind of car business is that in the process of being in and around what we would do, we were struggling a little bit with mechanics and reliability and communication, it just got to the point where we go why don’t we do this ourselves? You know as consumers we know exactly what we want. We want good communication, we want good quality, we want good warranties on all the work and yet no one’s actually able to do that very simple triangle to us. So why don’t we actually go and do it ourselves.

You might get one from this person or two from that person but yeah you wouldn’t have that whole triangle would you?

No exactly and like I said, in essence it’s very simple. I couldn’t believe that no one could really offer it so we went and did it and we?

Yes yeah we did and how did we start that Chris?

Well I’m a big fan of lean methodology and if you’re not familiar with it, go and google it it’s very very interesting stuff. The Lean Start-Up you want to look for by Eric Reis, I believe it is.

But he talks about basically a concept called MVPs which is a minimum viable product. And so what we did with Choice Mobile Mechanics is we tried to have the absolute minimum viable product which is essentially how can we fix this problem, in the kind of easiest way if you like?

So the idea behind the mobiles mechanics was it would be nice and convenient for people right? So the minimum viable product for that business was a website, a telephone line and a mechanic who we could call once a week when we actually had a job for them to do.

It was really that simple so it didn’t take a lot of time or money to put together, practically zero. But it was an MVP and that allowed us to go to market, allowed us to start generating work. It allowed us to start talking to people and kind of start to understand the market and what it looked like. And it took probably six to 12 months of testing and doing different types of job and feeling around for what worked and what didn’t and then eventually we kind of hit upon a niche which worked really well.

And again I think like before the key learning around this was with marketing and that if you manage to find a niche which you can market to really well then that’s going to be a big driver for your business. So for instance when we were advertising for general car repairs then we had had a steady trickle probably of inquiries coming in whereas as soon as we specialized in clutch replacements that because we were advertising for one thing specifically we had lots and lots come in didn’t we?

 

It was great and we had a fantastic website where people could actually just go there and put their number plate in and they would get a fixed price and they’d know exactly what it was going to cost them so yeah people gained trust in us straightaway and they knew the price wasn’t going to go up.

 

So we had specialists and that gave them trust and confidence as well and like you say we were able to do innovations like be the only company in the U.K. where you put your number plate in and instantly get a fixed price quote.

 

Yeah, if you’re a jack of all trades, you’re not going to be renowned for that particular thing which is clutch replacement so we focused on one particular thing and did fantastically well.

 

Yeah so I think the niching was really important in that, it was really niching which allowed us to kind of scale and systemize the business. I think that business is probably where we learned the most about how to build teams, how to build a system and everything like that.

 

Yes certainly and Internet Marketing.

 

Internet marketing, of course! Yeah I mean at the end of the day when we started the business obviously I’d had various other businesses along the line but nothing where we really had to do a lot of marketing for whereas we started this business and obviously literally a website and a telephone and not really having done the technical side of stuff but not necessarily the marketing side of stuff. And by the time we shut the business down we’d have generated a couple of million pounds worth of sales from online marketing. So obviously the journey from knowing nothing to be able to put campaigns in place to do that is quite significant.

Now I’ll talk about scaling and systemizing the business but there was one fundamental issue with this business wasn’t it? And that was that the model wasn’t profitable enough essentially, now it appeared to be profitable enough on paper because we were operating at a 20% gross margin. So that that meant that if we had a £500 job we’d be making £100 on it for instance. So on paper it was great. But what we found the problem to be was that we were operating on a 20% gross margin but then we had to pay all our overheads out of that and so we were always kind of chasing the breakeven point where our overheads were just slightly over the amount of money which we were making. So we’d spend a bit more money on marketing and the gross profit would go up because we spent more money on marketing we weren’t quite there and we were always one little step away from making the business profitable.

So eventually we kind of got to the point where we went well there’s a lot of money sunk into this business. We hit a bit of a cash flow low as well and we were not straight away but we were looking three to six months down the line and going, it’s going to be really really hard to pull the business around to actually be able to pay all the bills at that point. And so we made the decision to shut that business down to focus on the property side of things which we’d been doing for a year or so anyway and had some great results on and focus on that.

So we have massive amounts of learnings from Choice Mobile Mechanics around scaling, systemizing, putting teams in place, niching all those kind of things but I think one of the most important ones for us and one which I think is probably the one which applies most to serviced accommodation is make sure that you’re scaling up a profitable model and that you know what the figures look like once you’ve scaled up. Because I think if we’d sat down and looked at our business overheads and what levels they need to be at when we were operating at £50, £60, £70, £100000 a month we’d have realized that it’s a bit more challenging than we thought to turn into profit and the equivalent is that, I know I talk about guaranteed rent a lot but so many people do come to us saying I want to scale this guaranteed rent business and then you look at it and look at where they’re going to be with 10-15 units and it’s just not profitable because the VAT takes away so much of profit or there’s not enough overheads to pay for a team to manage it for them. But it’s a very very common thing that you’re not actually scaling up a model which is going to be fundamentally profitable at scale. And time and time again it’s the issue that we see and that’s certainly a lesson that we learned from that business is that if you’re going to scale something, make sure it’s definitely going to be profitable at the level you want to scale to.

 

Yes and this is what we’re going to be discussing in the next episode as well isn’t it? The build, test, scale, you know so you make sure you build a model and refine your model, make sure it’s going to be sustainable, profitable and scalable.

 

Exactly, exactly and I think that will be really useful for people as well.

 

Definitely will. So as we closed down Choice Mobile Mechanics, we had to replace our income. We met up with a couple of people who we’d known, for a while we’d be meeting up with each other and seeing each other meetings, property meetings and this was Wayne and Nigel and yeah they became our business partners and Chris, Wayne, Nigel and I started up UK Serviced Accommodation which focused on, low and behold, serviced accommodation!

The main, the first focus that we had when we started up UK Serviced Accommodation was to replace our income, as I just said we had four directors in there so we had no other option but to scale. So yeah Wayne and I just went and bought a massive site which was a 22 bed hotel with seven flats on the back so 29 beds in total.

 

That’s right and of course when we took it over, there were LHA tenants in the seven studio flats.

Definitely, yes and what was the first thing that we did Chris?

 

Noticed the tenants.

 

Noticed the tenants, exactly. We had to transition from LHA to serviced accommodation.

And after that, because we had to scale, our main focus was well we spent the whole year trying to take kind on more and more hotels.

 

Yeah so with that business we’ve spent most of 2016 trying to take on more sites didn’t we? We had a lot of negotiations going on while at the same time it’s a bit funny but by accident we accumulated half a dozen sites in Southampton and just kind of two to three bedroom properties which we were actually managing for other people.

 

By accident yeah, it wasn’t what we set out to do was it?

 

No no no, it was you know, we’d never gone out with the intention to do that. People kept coming to us, going oh yeah we know you’re doing that kind of thing, we’ve got this property and can you manage it for us and share the profits or the percentage, whatever it might be and we’re like yeah fine, no problems. And so when we kind of got to the end of last year or we looked back at what we’d done, we realized that well we were really struggling with adding more hotel sites online but at the same time, we completely by accident added these sites which we’re essentially managing other people.

 

Yeah and they turned out to be quite profitable.

 

Yeah and they were very profitable as well so we said you know if we’re going to focus on this instead then how much we could we actually achieve from that? You know if we’ve done six by accident then if we actually build a business around managing it for other people then how much can we achieve from there?

So that was the point where we very amicably decided that that me and Ritchie would focus on growing the management business and Wayne and Nigel were going to focus on what they were doing already which is as well as the UK Serviced Accommodation they had the rent to rent portfolio which they do have a hundred twenty or so rooms in Southampton.

In terms of key learnings then from UK Serviced Accommodation again I think there is some real key ones isn’t there Ritchie?

Although because we needed the income, we had to jump in at scale didn’t we and it was done by necessity, I wouldn’t necessarily do it differently if we had to do it all over again. But systemizing before you scale will always give you the best results because what we found is that operationally there was a lot of kind of running around, being reactive rather than proactive. We didn’t have the time to kind of get everything running smoothly and get all the systems in place and everything like that.

 

Okay. And the other key learning we took from that was listening to the market; listen to what the market wants and what they need, adapt and be flexible. You can’t just be rigid, you’ve got to be flexible and you adaptable to market changes.

 

And for us that market wasn’t necessarily the guests who were coming in and staying in the properties but the people who we were working with, the relationships we were working with whether that might be taking over hotels, managing properties and that we felt that the market, the path of least resistance if you like, was managing properties for other people. So again listening, adapting to the market and going for the path of least resistance.

 

Don’t go against the grain.

 

No now don’t try and have to explain to people why they should be paying you to source a car for them right?

 

You live and you learn yeah.

 

Yeah definitely, I think the other thing with UK Serviced Accommodation which was key, was about overheads is that yeah we had we had this 29 bed hotel site which was generating a lot of money. It’s a typical social media thing you know you could go and say woo we made a 17 grand profit this month but the problem is that’s a gross profit. You still got all your bills to pay, your overheads to pay out of that. Now if I think about, I believe it was September when we made the £17k profit in that company, in the same month our overheads were £15k. So because we jumped in at scale, we had to have very high overheads. You know we had a number of staff working for us, we had offices, lots of insurances in place. We had a very high overhead to that business and it meant that when we didn’t scale as quickly as we hoped to, it was very hard on cash flow because you’d got such a high overhead and it means that you’re not very flexible when you’re tied down to a particular strategy.

So again I think one key lesson that we learned from that as well as from Choice really is that where you have the opportunity to keep your overheads low because it will make you much more agile and much more able to adapt to the market. Yeah because if you look at how we’ve adapted now and this management business that we started back in January well we were able to be a lot more flexible because we could come in and just have one full time member of staff who is property manager and that’s not something that we could have feasibly done in UK Serviced Accommodation with any.

So yeah what we’ve done is taken all the learnings from all these businesses over the years and kind of brought it together into a model which we’re applying within our new businesses, the management business started in January. And that’s all those learnings you know particularly around things like risk and how to minimize risk hence that management model, keeping the overheads low and making sure that we don’t have massive outgoings at the start.

But also I think the real key thing around this is the build, test, scale model which we are using and that is building a model, testing it to make sure it works and at the same time building the infrastructure and the systems and the teams around that and then going out and scaling. Because I think a lot of people are maybe scaling before they’ve done the testing and what that does is that increases the risk within their business substantially and it means that they’re exposing themselves to risk which they never would have to otherwise. And in the long run they’re going to build up their business slower because what we’ve found is that if you can systemize and build teams while you’re testing the model then you’ll be able to scale up a lot quicker than if you were kind of doing it slowly as you go along. So I think this is an incredibly powerful model and we’re going to be talking to you about it on the next episode.

 

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