• Nick

It's not about the money, money,

I'm not an obsessive cyclist, but I know quite a few people who are.

Many of them go nuts for a brand called Rapha - who make all sorts of gear for 'proper' cyclists and also run club-type activities for them. Rapha is a brand that inspires near fanatical loyalty. For cycle fans it is the epitome of everything a brand should be. Great products with opportunities to get more involved - with very clear values that its customer base wholly identified with

Or it was, up until a moment last year when it suddenly went off the rails.

Rapha did something bewildering to its band of hyper-loyal fanatic customers. It hooked up with a (holds nose) low-rent e-shop called Wiggle, a brand that was wholly alien to everything the Rapha fan had thought Rapha was about.

This was so out of character, such an odd move, that to them it signalled that Rapha had sold out, and sold them out.

It came hard on the heels of taking a chunk of money from the Walton family (Wal-Mart) and clearly this dalliance with the muckier end of retail was a sign that Rapha was sacrificing some of its brand principles in a bid to grab some more customers.

With the Waltons as majority owners and the (inevitable) accompanying 5 year global domination plan Rapha started to do stuff good brands don't do. It started to discount its gear, it shut its travel business, it made people redundant. 

(That's a big deal -  staff are critical for a brand built by, for and with fans. The people who work in bike shops are a special breed)

Rapha has forgotten what had made it great in the first place.

The investment process blows good businesses off their growth path.

Before all this Rapha had been pretty successful - no matter how you measure it. It had grown a lot, but in tune with its customer base. It had some high profile partnerships that were brand enhancing. Everything looked rosy.

(BTW I say all of this from an untutored, non-expert, non-enthusiast cyclist perspective. To my eyes Wiggle looks like any other e-commerce venture, but judging from the extreme reactions of the (ex) Rapha fan club the two brands are oil and water).

But the Rapha story is wearily familiar. In recent weeks we've seen Patisserie Valerie implode on the back of over ambitious expansion - trashing its brand, the hard working people in the organisation and its finances.

(I'd urge you to keep an eye on Leon - what started out as a brand focused on doing food right now seems more interested in very rapid expansion into completely new markets - you don't need to be Mystic Meg to see that there is trouble ahead.)

In the past 5 years I've been deeply involved with a number of businesses seeking and getting investment. There is something about the investment process that blows businesses off (their true) track. I don't think it's anyone's fault, not the investors and not the founders - nobody means for it happen - but that 'drop everything let's grow like crazy' mentality is so baked in to the process of pitching for and getting funding that we need to unlearn it. There's a belief that the only way to prove you are worthy of investment is to get big quick. All the magic beanstalk needed was a bit of money...

Get big quick - see the cost in everything, the value of nothing

In neglecting everything else but getting big as quickly as possible a lot of harm is done - to brands, to customers, to staff, to supply chains, and ultimately to investors. In amongst the frenzy - more often than not - something special dies. The thing that made the business good in the first place gets snuffed out - the quality of the product, the spirit in the team, the intimacy of the customer relationship, the ingenuity: all sacrificed in the pursuit of rapid, rampant growth.

  • Running after new customers in new segments and often new geographies leaves your core customer group bewildered (and feeling a bit jilted).

  • Rushing to scale the organisation normally means hiring a bunch of people and putting in systems that industrialise what was previously human. Organisations that suddenly get big become less human and more rules based. Innovation and intimacy - previously the natural outcome of a close knit group - are now elusive goals that require OD and HR solutions. "Culture" becomes an issue.

  • A drive for efficiencies leads to minor tweaks to the product - making the pizza a bit smaller, dialling down the customer service, pre-cooking some of the food, using a cheaper bit of fabric, making a dodgy brand partnership - which not only narks loyal customers but also undermines the brand's ability to attract new ones. Do you remember when Toblerone put much more air between each chunk? It was an attempt to hold prices steady but keep costs down - and eventually backfired.

Scaling means looking for efficiencies - especially in supply chains, which get chopped up and disconnected as they get 'optimised' for cost efficiency. It's been a big wake up call for me this - to realise that in business nowadays the supply chain is regarded solely and myopically as a bunch of costs to be managed down rather than as a source of value creation. Volumes and price matter a whole lot more than origin - even for brands founded on their ethical sourcing like Green & Blacks.

What's even more worrying - as someone who comes from the 'brand' bit of business - is that every "brand valuation" metric out there does the same thing. Brand companies preach holistic, inclusive brands that value people and artisanship and all the good things - but when push comes to shove in the metrics bit, when brand tries to be all hard-nosed and business-y, producers are just another cost. So much BS from brandland.

Money alone is not enough. Money - on its own - is the problem.

Because agriculture suffers acutely from the ills of the dash for growth we're going to focus there first - on building and growing businesses that have a supply chain based in farming. Chopping up supply chains causes untold damage to farmer communities: where monocultural, single product industrialisation turns farmers into labourers; where process efficiency drives out artisanship and craft; and where unsurprisingly the sons and daughters of the farmers have low interest in continuing the family business.

There is great opportunity to build and grow businesses here that work for everyone: that deliver high quality products to customers that value them, both for what they are and how they are made; that create significant and sustainable social and environmental impact in the producer communities; and which deliver a sustainable and healthy long term return for investors.

In other words businesses that grow well - that do good whilst growing. But which aren't obsessed with getting bigger just for the sake of getting bigger.

In the car world we were always taught that size mattered, that - at an absolute minimum - a car business needed to be churning out at least 2m cars a year just to survive. In my day the big cheese execs were prone to saying things in public like "go big - or go home".

A cursory glance at today's automotive industry shows this is nonsense. But it's such orthodoxy in that world that a company like Morgan is seen as an outlier, as the carmaker that thrives by doing everything wrong.

Morgan is a success story - only 850 cars a year, pre-tax profits of £2m - because it doesn't follow the rules. Morgan is in many respects a good growth company - products that its customers love, tight supply chains, happy staff and healthy finances. If only it could be a bit more eco....

More than money - the Good Growth approach

The Good Growth approach recognises that just chucking money at a business is not sufficient for good, sustainable growth. They need much more than money. Money  - on its own - causes the 'get big quick' problem.

So our approach combines funding with the other resources that those businesses really need to grow well: brand development; access to top notch expertise in HR, finance, marketing, logistics, design; supply chain structuring for efficiency, customer intimacy and producer impact; and education and development programs for the people at the producer end.

We're super excited by this - not only because it feels so right but also because with all of these resources we're not just scaling good businesses - we can create new impact by working with businesses that have unrealised brand potential, and unrealised impact potential. 

And because these businesses need so much more than just money to grow - they don't even get near the radars of normal (or impact) investors. There's a big pool of unrealised potential, and unrealised value, that can only be discovered by a good growth approach.

Exciting stuff. More on how soon.


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