The Perfect Storm – why my first business failed and what you can learn from it

The Perfect Storm – why my first business failed and what you can learn from it.

The easiest way for me to discuss this part of our journey is to offer a snippet from my book, “Feeding Johnny – how to build a business despite the roadblocks”.

Enjoy.

This short video tells the story or read the chapter below:

“The Perfect Storm

You’ve probably seen the movie with George Clooney of the same name, but if not, let me summarise it for you here. The movie tells the true story of a small fishing community in Gloucester, Massachusetts, devastated by the loss of a particular boat, the Andrea Gail and its entire crew of six men, on an ill-fated fishing trip to the Flemish Cap, an area of shallow waters in the north Atlantic Ocean centred roughly 350 miles (560 km) east of St. John’s, Newfoundland and Labrador.

Wikipedia records: 

The 1991 Perfect Storm…was a nor’easter that absorbed Hurricane Grace …. The initial area of low pressure developed off Atlantic Canada on October 28. Forced southward by a ridge to its north, it reached its peak intensity as a large and powerful cyclone. … Moving over warmer waters, the system transitioned into a subtropical cyclone before becoming a tropical storm. It executed a loop … and turned toward the northeast. On November 1 the system evolved into a full-fledged hurricane with peak winds of 75 miles per hour (120 km/h), tropical storm before dissipating.

The Andrea Gail [was a 72-foot (22 m) commercial fishing vessel] …bound for the Grand Banks…After poor fishing, Captain Frank W. “Billy” Tyne Jr. headed east to the Flemish Cap where he believed they would have better luck. Despite weather reports warning of dangerous conditions, the captain set course for home on October 26–27, 1991. It is known that the ship’s ice machine was malfunctioning and unable to maintain the catch for much longer. This is suggested as a key factor in the decision to head home on October 26.

The last reported transmission from the Andrea Gail was at about 6:00 p.m. on October 28, 1991. Captain Tyne radioed Linda Greenlaw, Captain of Andrea Gail’s sister ship, Hannah Boden, and gave his coordinates as… about 162 mi (261 km) east of Sable Island. He also gave a weather report indicating 30-foot (9.1 m) seas and wind gusts up to 80 knots (150 km/h (93 mph)). Tyne’s final recorded words were “She’s comin’ on, boys, and she’s comin’ on strong.” 

So here we have an experienced captain and crew who were working hard, doing the thing they knew best to earn a living and a series of events beyond their control, conspired against them, ultimately leading to their lives being lost. May they rest in peace.

Let’s look at those events that, individually, were not necessarily life threatening, but combined became fatal:

  1. a nor’easter absorbed Hurricane Grace – but this was Hurricane season – so no biggie
  2. It was forced southward and became a cyclone
  3. it moved over warmer waters and became a tropical storm
  4. it executed a loop and became a full-fledged hurricane
  5. Captain decided to go further than originally planned because of a poor catch
  6. Ice machine malfunctioned so despite weather reports Captain decides to head for home.

Remove any one of these separate incidents and perhaps the crew and the Andrea Gail would be fishing today?

That said the analogy of ‘the perfect storm’ is useful for what happened in this next stage of our lives. A whole series of events conspired outside our control to kill our café business. Despite the vast experience the team and I had, we were powerless to stop it, although for a while, much like in the movie, we thought we were going to make it through.

In the end we didn’t make it. We lost the café business. We lost a quarter million euro. We nearly lost our home. We lost our confidence for a while but there was no loss of life, thank God. And as a result of the experience, when we dusted ourselves off and rose somewhat battered and bruised to start again, we were stronger for it.

Let me take you through our Perfect Storm.

Bacon, egg and sausage and large mugs of white coffee

I love Bewley’s you may have gathered. And one of the staple elements of the Bewley’s café business over the years is its world famous breakfast. It is delicious. Not perhaps the healthiest fare on the planet it has to be said, not pc to have every day of the week, but my goodness, it tastes great! If you’re Irish and of a certain *ahem* vintage I bet you can taste it now? What’s your favourite? Simple bacon egg and sausage? With freshly baked brown bread? Scrambled eggs and bacon? Or how about a white pudding sandwich? You know what I’m talking about! And do you prefer tea or coffee with yours? For me it was bacon, egg (two actually!), sausage, hash brown and white pudding, white bread toast, real butter and I’d go back for an extra slice of toast for the white pudding sandwich as dessert, all washed down with a large mug of white coffee, which back in the day was a delicious blend of one third Bewley’s Café blend coffee and two thirds steamed milk. Oh yeah! *Homer Simpson drool*

Interestingly I’m writing this section on holiday on the Costa del Sol. It’s Friday and on Wednesday this week I was back in Ireland on Carambola Kidz business and enjoyed a Bewley’s breakfast at Bewley’s Hotel, Newlands Cross. Yesterday I had a café con leche – coffee with hot milk – in the Central Café on the Plaza de la Constitución in Malaga and the waiter placed a cup one third full of perfect dark coffee and proceeded to top it up at my table with hot milk from a stainless steel jug! The synchronicity of the universe at play methinks! Anyway on with the story.

We were operating our very own Bewley’s franchise and it was going well as the planet moved towards the dawn of a new millennium. Business was good but we began to sense change in the air.

The bacon, egg and sausage and mugs of white coffee that Bewley’s was famous for, for more than 150 years, was being called into question by an ever more discerning, more widely travelled, more health conscious emerging generation. Slowly, imperceptibly almost, but it was happening nonetheless.

And then all of a sudden or so it seemed people wanted bacon Panini’s instead of bacon butties and lattes and cappuccinos instead of mugs of white coffee. A plethora bespoke boutique coffee shops popped open like popping corn offering said fare in modern settings and attracted a whole swathe of customers from the emerging café generation. Bewley’s instead of being classic, quickly became old.

Interestingly I saw a great ad recently for a city centre shopping centre in Dublin citing it’s legacy, “Established back when Panini’s were hang sangwiches.” (hang sangwiches is a colloquial term for ham sandwiches) most often consumed from tin foil out of the boot – trunk – of the car, alongside copious cups of ‘tae’ – tea – by the side of the road as legions of fans descended on Croke Park the national stadium for Gaelic Games such as Gaelic football, and hurling.

Much like the Titanic, it takes a mammoth organization and brand, such as Bewley’s at the time, a long time to turn away from impending danger and it became obvious there were going to be casualties as the brand and all of the individual Bewley’s cafes, franchised or company run struggled to turn fast enough to a) offer the fare the public were clamouring for and b) to become credibly associated with said new fare.

This was going to be a tough battle and it was the first sign that a storm was brewing.

Dashboard dining

So the tide was beginning to turn. The younger generation wanted stuff that their parents and grand parents heretofore couldn’t have. They wanted modern. They wanted sexy. They wanted interesting. They wanted fast. They wanted convenient.

Bewley’s, a classic again now in 2013, was at the turn of the century an old brand, representing the 20th Century and it was no longer cool. It was a place that the new generations parents dragged them to when they were kids and now that they were independent they wanted none of it.

Coffee chains such as Perk – founded and run by my friend and former boss in Bewley’s and former Dragon on Dragon’s Den Ireland Bobby Kerr (Perk later became Insomnia) – and Mocha Beans established by another former Bewley’s colleague Cathal Keogh, and the entry into the Irish market of Costa and Starbucks began to give the emerging coffee drinking generation new flavours and tastes and new exciting coffee-flavoured drinks and the young flocked to them, as moths to a flame. Bewley’s market share was diminishing.

Then to add fuel to the fire, we as a nation became busier. The Celtic tiger was a cub, the future looked bright. Fortune appeared to be favouring the bold and so people began to work harder. Property prices were rising at staggering rates but the ‘cub generation’ wanted to get on the property ladder, encouraged by their elders and to do so meant moving farther and farther out from the city centres. A whole commuter belt generation was created within ten years, where people working in Dublin city for example were commuting daily from towns circa 100km out such as Wicklow, Carlow, Mullingar, Cavan, Navan and Drogheda. The net result of this was they were spending more time in the car, which meant less time at home and less time for ‘frivolous’ activities such as stopping for lunch or even a coffee break. “Time is money” was the ever loudening mantra and so came the question, how do you combine an ‘evil necessity’ such as staying alive by feeding yourself when you should be earning money? Well you eat on the run, that’s how. And so the once humble garage – petrol station -became a glorified mecca for all things convenient.

Deli counters serving hot and cold foods were prolific. Excellent fresh bean-to-cup coffee machines sprang up like nobody’s business in the most backward former garages. Bewley’s was among the brands that responded very well to this opportunity.

Savvy garage owners began to realize that while you didn’t have to stop to eat, you were forced to stop for fuel or you couldn’t – er – make money, so here was a perfect opportunity to offer you both. In other words, while you are forced to stop for petrol, why not treat yourself to a latte and a Panini to eat in traffic, oh and by the way, how about some sweets for the kids? A newspaper perhaps? And what about flowers for your significant other because you are going to be late home again?

People who once stopped for an hour for lunch no longer had that luxury. Many millions of euro spent that once was the prevail of cafes and restaurants was now flooding in to the cash registers in these garages, now re-imagined as Service Stations. Dashboard dining was alive and flourishing.

The second ingredient needed for the storm was added to the cauldron.

Foot and Mouth Disease

Foot-and-mouth disease or hoof-and-mouth disease (Aphthae epizooticae) is an infectious and sometimes fatal viral disease that affects cloven-hoofed animals, including domestic and wild bovids. The virus causes a high fever for two or three days, followed by blisters inside the mouth and on the feet that may rupture and cause lameness. Foot-and-mouth disease (FMD) is a severe plague for animal farming, since it is highly infectious and can be spread by infected animals through aerosols, through contact with contaminated farming equipment, vehicles, clothing or feed, and by domestic and wild predators.[1] Its containment demands considerable efforts in vaccination, strict monitoring, trade restrictions and quarantines, and occasionally the elimination of millions of animals.

Source: Wikipedia

Colm, thanks for the veterinary lesson, but what has this got to do with your café business failing? I’m getting to that – patience…

You see the third ingredient facilitating the storm gathering a head was when Ireland experienced its first foot and mouth (FMD) outbreak in seventy years. A report, “Impact of the 2001 Foot and Mouth Outbreak on the Irish Economy” by Ronnie O’Toole, Trinity College Dublin, Alan Matthews, Trinity College Dublin and Michael Mulvey, DIT, Cathal Brugha Street states:

Ireland experienced its first foot and mouth (FMD) outbreak since 1941 in March 2001. For three months the entire country, …, held its breath while fearfully watching the course of the outbreak of the disease in the UK. Stringent control measures were put in place by the Irish Department of Agriculture, Food and Rural Development (DAFRD) to try to prevent transmission of the disease from the UK, to limit the extent of the outbreak which did occur and to prevent its spread. These measures … had their greatest knock-on effects on the tourist and service sectors, particularly in rural areas, as much of the countryside was placed off-limits for the three-month period…., the estimated negative impact on tourism revenues is €­200m.

The bottom line, people stopped moving. When people stop moving around, they can’t spend, simple. If they can’t spend, we –the retailers and café operators – can’t sell. If we can’t sell our volumes of purchases are down and the amount of staffing required to do the job is lessened, meaning fewer man hours being employed. And so the vicious cycle continues. In that period in early to mid 2001, according to the report rural areas were worst affected. Clearly Limerick City isn’t rural by any means, but it is situated in the mid west of Ireland and so much of its hinterland can be classified rural, ergo many of Limerick’s shoppers were stranded.

To exacerbate matters, the outbreak early in the year coupled with the Government-imposed movement ban from March through May played havoc with the summer travel plans of Irish residents. Some of them who may have been planning to holiday in Ireland were now going to travel abroad where it was ‘safer’. Worst of all for centres such as Limerick, located adjacent to Shannon International Airport, the expected influx of foreign visitors that summer was severely impacted. So the official non-movement policy from March through May was effectively a six month period including the whole summer where numbers of potential shoppers were significantly down.

Let’s look at the storm brewing, shall we? Consumer tastes are changing, their commuting and eating habits are changing, more locations are offering food and beverages than ever before…and then everybody is effectively told to stay at home.

This is not good.

9/11

Where were you when you heard?

I was in my office at Bewley’s on Cruises St in Limerick when a lovely man, Pat Mason, since deceased, RIP, rang me to ask had I heard about a plane hitting one of the twin towers in New York. Of course I hadn’t heard and, like everybody else I was stunned. I really couldn’t take it all in. I rang home and Aido not only confirmed it but said it was all over the news and that a second plane had struck the second tower! I left the office and drove home in a daze and sat, literally for the next few days, watching it over and over and over again almost as though by watching it enough it might not actually be real.

I was completely thrown by the sheer audacity, the pure evil evident in such a callous attack on innocent civilians, the realization that if the United States can be attacked like that in broad daylight, then there was no security anywhere anymore. I think I entered a brief period of depression, because I had no desire in me to move off the couch, no fight.

Perhaps behind it all was a deep dread of what was going to happen next to my business, already beginning to struggle after several profitable years. This could not have come at a worse time for us.

This was devastating news for the Midwest where with Shannon International Airport just ‘out the road’ we were virtually always guaranteed an annual American tourist market pre 9/11. Post 9/11 all bets were off.

Revisiting the list of gathering storm clouds from the previous section, have a look at what happened to that list on Tuesday 11th September 2001 at 1.46pm GMT:

  1. Consumer tastes had changed, they were looking elsewhere.
  2. Their commuting and eating habits had changed, they were eating on the move
  3. More locations were offering food than ever before, coffee was no longer the preserve of a café environment; every ‘garage’ in the country had it.
  4. For the previous six months there has been no internal movement in Ireland and no foreign visitors to the Midwest. Our already declining market dropped to a new low.
  5. And now, the Americans aren’t coming back! They didn’t come in summer 2001 because of foot and mouth and now because of the awful attacks on their very sovereignty, using of all things passenger airlines, they are not going to fly in 2002 either! There was going to be no early recovery of our fallen market.

Part of what affected me on that dreadful day and for the days and weeks afterwards was the slow realization that our business might not survive this litany of complications.

And the problem was we had burned the boats! There was no going back, only forward. We were nervous.

The feckin’ Celtic Tiger.

Feck is an ‘Irish-English’ or more correctly ‘Hiberno-English’ variation on the obvious. The oracle that is Wikipedia says that feck is a

Slang expletive employed as an attenuated alternative (minced oath) to … express disbelief, pain, anger, or contempt in a given situation, … those aware of this use consider it a lesser expletive than f***.

Well I want to tell you about the feckin’ Celtic Tiger using feck …as an attenuated alternative (minced oath) to express my disbelief, pain, anger, not to mention contempt at the complete feck-up made of the Irish economy at the turn of the century when vested interests, with assistance from a blind eye being turned at regulatory and governmental level, allowed an unconscionable situation arise that basically said the ‘paper value’ of all Irish properties was rising and rising and rising and it looked like it was never going to stop thus effectively granting licence to investors to hike up the rents on properties they owned in line with said ‘market values’.

A man whom I never met, and his wife, resident at the time, and perhaps still, in Ballsbridge, D4, owned our property on Cruises St. They sought a rent increase as was their wont, us having as sole traders taken over in 1998 a 25 year lease which commenced in 1992 with 5 year upward only rent reviews. At the time we took it over, the rent, based on the market value of the property was circa €110,000 per annum (IR£87,000) and it went to circa €146,000 (IR£115,000) in a review that was backdated to 1997. We could live with that. But by 2002, the 10th anniversary of the establishment of the café on Cruises St the feckin’ Celtic Tiger had caught the country in its tail and everybody lost the run of themselves. Our landlords were seeking their second upwards only rent review and were looking at telephone numbers as far as we were concerned. We objected. And as is proper order in these circumstances our case went to arbitration in 2003.

“Arbitration, a form of alternative dispute resolution (ADR), is a technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal“), by whose decision (the “award“) they agree to be bound.”

The arbiter awarded our landlords a rent of €313,000 per annum, €6,000 per week, €1,000 per trading day! Rates added another €48,000 to the mix, in other words Rent and Rates bill of €361,000 per annum virtually €1,000 for every day of the year! The greed and stupidity brought on by the feckin’ Celtic Tiger had not only sounded the death knell on our business but in doing so, by taking the premier café out of the shopping street that is Cruises St, it effectively killed the street. Interestingly we had received a call a year or so earlier from somebody offering €500,000 for the lease which we never followed up on. The reason: €500,000 was nothing once we would clear our debts on the business; this was our livelihood; what else were we going to do? We never discussed it openly but at arbitration it was obvious our landlords knew of it. Interesting. Was it a bona fide offer? We’ll never know, will we? At time of writing 30% of premises on Cruises St are vacant.

So, on top of declining sales brought on by a combination of consumer tastes changing, their commuting and eating habits changing, more locations offering food, foot and mouth disease, the after effects of 9/11, our rent increased by 285%. This was the final 30ft wave in our Perfect Storm.

We were fecked!”

Epilogue

We survived – the business didn’t. The business failed – we didn’t. No one died. As a direct result of the failure, I met The Man on the Train which led to the founding of Carambola Kidz – a €multi-million business supplying school lunches and employing more than 100 people.

That journey led to me writing my first book, “Feeding Johnny” and that process led to the founding of Colm O’Brien Motivation and ultimately to you reading this today.

The Perfect Storm was a blessing after all.

END.

MORE: If you enjoyed that and would like to watch last week’s vlog on People: the third secret of building a successful business, click here

FREE BOOK: If would like a complimentary copy of the book in audio, narrated by yours truly so you get all the nuances, feel free to grab one here

STAY CONNECTED: If this is your thing, consider joining in the conversation here

Thanks for thinking with me.

Yours truly,

Colm

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