They’ve been called racist, sexist and homophobic, and you can’t deny they’re controversial. They’re also filthy stinking rich. With so much money in the bank, why do the Business Bakery boys even bother to keep building their empire? Intrepid writer Andy Kenworthy dons his tinfoil hat and takes a trip inside the Business Bakery.
Arriving at The Business Bakery in the recently swanked-up end of Auckland’s Britomart to meet the team behind some of New Zealand’s highest profile businesses, I was expecting all sorts of surprises, but ended up getting completely different ones.
First, it being 10am, I wondered whether they would offer me a Breakfast beer, perhaps, the engaging 5.5% ABV tipple from the recently NZX-listed Moa, which the team says was denounced by a director of the National Addiction Action Centre as ‘normalising pathological behaviour’.
Perhaps we could toast their successes. They include taking 42Below from what at times looked like a chaotic international cocktail party to a $138 million buy-out by Bacardi in 2006, a $10 million share issue for Ecoya, the home fragrance, candle, and bodycare company the team began buying into in 2008, and just recently, a massively oversubscribed $15 million Initial Public Offering on the NZX for Moa.
With that prospect in mind I couldn’t help picturing the three of them, Geoff Ross, Stephen Sinclair and Grant Baker, sitting on frat house couches stuffed with used notes and share certificates, idly wondering what to buy next and throwing darts at a picture of the head of the Advertising Standards Agency. Would they do something publicity-grabbing to me? Given some of their promotional material, I half expected them to jump out of a filing cabinet dressed only in slices of lemon.
My already heightened suspicions were further alerted when the rather attractive woman I had been walking behind since the train station turned out to be heading to the same door I was.
Perhaps a certain masculine feverishness was understandable. I had spent the previous days immersed in the glossy, glamorous, and somewhat self-aggrandising pages of Every Bastard Says No – The 42Below Story, and the pages of the Moa Investment Application document, complete with full-page spreads of sensuous office divas in slightly compromising poses with the team, beer bottles and cigars.
Geoff Ross. PHOTO: Tony Brownjohn
I took a moment to calm myself, and realised that in the large room beyond a dozen or so people were doing what looked like actual work on computers and phones, which I hadn’t expected. That said, instead of a reception desk, The Business Bakery has what looks like the entrance lobby of a hotel from Indiana Jones, complete with a stuffed crocodile, which was more where my head was at. Then suddenly Ross appeared, welcomed me to his seemingly screen-free office with some Porsche keys thrown nonchalantly on the desk, and did the most surprising thing of all: He acted like an extremely serious, slightly reticent and conscientious businessman.
What I surmise to be two key reasons for this joined us shortly afterwards. While Ross was cutting his business teeth in the late 90s as a buccaneering ad man for the likes of DDB and Saatchi & Saatchi, Baker and Sinclair were already building big businesses and selling them on for telephone number figures.
Baker had been chief executive of Blue Star Group during its transition into a billion-dollar company. He was chief executive of Ubix Business Machines and executive chairman of electricity retailer Empower, which was sold to Contact Energy for $23 million in 2000. He was also chairman and founding director of EFTPOS retailer Netco, which sold to Provenco Group the same year for a reported further $4 million.
Sinclair teamed up with Baker in 1999 after 13 years experience crunching numbers for PricewaterhouseCoopers, and was chief financial officer of both Empower and Netco. They gave me the impression that this might be a team that has earned a reputation for taking risks, such as entering the financial services market with Dorchester when everybody else was running away screaming, but they ensure every risk is an exceedingly well-calculated one.
Probably the most telling insight into what makes people like this tick came in the response to my very first question. When I suggested that these guys had enough money to never come to work again, and asked why they bothered, they looked at me like I had just pulled a juggling marmoset from under my jacket. The idea of not doing what they were doing was obviously so alien to them that they must have agreed to keep working together before the man from Bacardi had put his fountain pen away.
“It’s about the challenge in growing something and turning it into something really, really big,” Sinclair offered, finally. Then Ross chimed in.
“It’s rewarding, you can be sitting in a meeting talking about concepts for a new range of fragrances for Ecoya, and then a while later you see it on the shelves of Harrods. You get a buzz out of that.”
There was certainly a buzz over the recent Moa IPO, with Ross reckoning it generated well over double the applications required.
Runs on the board
“There was a mild surprise there,” he says. “This is the third IPO and fourth listing we have done now so we should be getting better at it. Beer is a pretty easy concept for New Zealanders to understand. Timing was important. If we had gone in six months earlier it may have been different. But there had been just enough of an uplift, the brokers were pretty hungry for something new and thanks to businesses like Ecoya, Xero and Diligent there is some confidence starting to emerge about growth equities and what they can return.
“When we listed 42Below nobody knew our credentials for a public company, people said we were too young and inexperienced, which was sort of true. But they know us now, we have got some runs on the board and hopefully there is a track record starting to emerge.”
Baker also admits that back in the 42 Below days they were naive about how capital markets work, but believes that was a plus, because if they had known more about what they were doing they probably wouldn’t have tried it.
Despite their success, they have still struggled to shake their ‘smoke and mirrors’ image, which apparently continues to irritate Baker.
Still a lot to lose
“In our combined businesses we did about $6.5 million in sales last month,” he says. “That actually takes quite a lot of managing. If you didn’t have good systems and processes in place you wouldn’t be in businesses.”
He adds as an aside that his firm now employs in excess of 200 staff, and particularly cites Sinclair as the ‘unsung hero’ of the trio, toiling away on the numbers and ensuring the team has never had any scrapes with regulatory authorities or serious cash flow problems.
“One thing people fail to recognise is that when we sold 42Below we had no debt and had $20 million in cash in the bank. We were actually in a very strong financial position.”
Which is not to say there weren’t a few ‘the house is on the line’ moments in the early years. This makes me wonder if the whole gig feels different now that the team’s collective financial necks are a little bit less exposed. Baker thinks not.
“There is still a lot to lose, so speaking for myself, I take it as seriously as ever,” he says. “We all work reasonable hours, and I don’t think we really think about much else, it’s the first thing I think about when I wake up in the morning ... and in the middle of the night.”
Part of what must keep them on edge is their strategy of growing companies fast, often while running at a loss.
This has provided more fuel for their detractors, but for Ross it’s quite simply the only way to build businesses big enough to make them worth the effort.
“It’s the fastest way to create the most value,” he says. “You can grow it slowly and deliver a profit, but it’s never going to be a lot of money. You are better off to grow the top line and build a big asset. As long as you have the confidence that it will turn a profit.”
Baker explains how the concept developed for him back in the Empower days, which had 23 customers when he became involved.
“We got it up to 1,000 customers, but a colleague who still does some consulting work with us said ‘Look, where are you going to end up? You need to have a goal of 100,000 customers to get some interest and value’. We ended up with 100 sales reps, 150,000 customers and the odd month where we even made a profit!
“We built up an asset and had 10 percent of the electricity customers in New Zealand. It made it interesting for a potential acquirer. If we had started smaller we would never have been on their radar.”
It seems to have worked for them, but to what extent is the process repeatable by others? Or are they just lucky buggers? Sinclair says he thinks about this quite a lot, and has concluded that it’s all about putting yourself in the right position for the luck to fall.
Baker takes up the thread.
“If you are not trying you are not in the position to take advantage of the luck. With the Moa IPO we may have been quite lucky that the Mighty River thing didn’t happen, which would have got all the press. But if you kept saying we will wait until the time is right, you would be waiting a long time. One of the big things is that when you start you have a plan and a process to achieve, and the way to get there is never like you think it is going to be. You have to roll with the punches and learn as you go along. And we have been very good at being adaptive.”
The long game
Baker reckons when they started selling vodka in the US, they didn’t understand it at all.
“We started going to liquor stores in LA and knocking on doors and they told us we had to find an importer first. Then there was FDA approval. We went through a big learning curve. We attacked the US in all sorts of different ways before we got a result. We tend to charge into things fairly aggressively, but fortune favours the brave. When we bought in to Dorchester we had a chance to buy 20 percent of the company for $400,000. On the face of it that looked cheap, but the accounts weren’t a great reflection of what life was like. But we said: ‘Hey, we are in here, let’s make the best of it.’”
Ross says he wishes there were more examples of what the Business Bakery is doing, but recognises that the particular blend of skillsets the team has may not be available to everyone.
“Others might go into the consumer retail space, but not have a really strong branding skillset, or a strong financial management or sales skillset. That is a potentially limiting factor.”
This is clearly not a one-size-fits-all cookie cutter approach, which makes sense. The fact is you can’t sell financial services, facial scrubs and alcohol in the same way. Ross, for example, is renowned for splashing on the branding materials, but even he knows when to hold the sauce.
“It depends on the business,” he explains. “Brand was a big part in 42Below, a part of Moa and Ecoya, but a lesser part in Dorchester. It’s still got to be a trusted and respected brand but it is a lesser component.
“With Moa and 42Below, origin is a bloody strong start point. There is no other craft beer on the market in the US with the provenance of somewhere like New Zealand. But that’s not enough, you can’t rely on it entirely. It’s got to look good, taste good, have a story behind the ingredients, it needs to be well groomed and dressed to get in to the top bars.”
Ross is also clear that not every business will be as fast a roller-coaster ride as 42Below.
“Because we built 42Below really quickly and sold it, people think that is the strategy with all our businesses, this kind of quick-flick deal,” he says. “It’s not the case at all. Especially not with Moa, Moa is a very long game.”
So what’s holding others back?
The team cites lack of aspiration, lack of willingness to take risks among the familiar issues, but also point to a lack of savvy in New Zealand’s financial and support set up.
“A senior broker said you should not be able to value a company on multiples of revenue,” says Ross. “There is still a huge segment of the investment community in New Zealand that really doesn’t get this.”
Baker agrees: “The US see the stock market as the place to put high-risk high-yield capital, whereas here it is more like, ‘Is it better than putting it in the bank?’ This makes some of the funding rounds very conservative: ‘If you are loss making, we won’t invest in you.’”
Ross and the gang also still have a, shall we say equivocal, relationship with New Zealand Trade and Enterprise. While talking about it they are at their most animated in the entire interview. Ross, for his part, can’t help rehashing his old tales from the early days of 42Below.
Firstly, he paid $500 for an NZTE report into the opportunity for a vodka from New Zealand, which he says basically told him not to bother. Secondly a UK sales rep for 42Below took a bunch of enquiries on New Zealand wines from upmarket city bars to the local NZTE rep to be told they weren’t recommending New Zealand wine makers tackling the UK market, because it was ‘too hard’.
Baker is also a little bitter that Ross spoke at several NZTE gatherings and was almost a ‘poster boy’ for the organisation, but received no funds to help the business.
“It’s kind of a flawed model,” says Ross. “Say you wanted to send pohutukawa flowers to Japan. Nobody at NZTE will know anything about it or be able to give you advice on getting that business going. When we started sending vodka to the UK there was nobody at NZTE who knew about that market, about that segment, about cocktails or high-end bars or anything. Because most new New Zealand business are entrepreneurial, whereas NZTE’s experience tends to be with relatively old, established businesses.”
Sinclair is more diplomatic, saying that Ecoya and Trilogy have recently had good support, especially on a recent trip to Asia, but adds: “They are just not set up to deal with the way that we operate. To get funding you have to do
a massive business plan, go through a process, present to NZTE locally, it goes to a committee, then to a board. We have gone and done it by then.”
Baker sticks his boot in. “I bet they spend a lot of that money on arse protection. If they went out and had a go and made some mistakes, they would more than likely get somewhere.”
And all the love seems to leak out of the room. Ross attempts to bring it back in with reference to the New Zealand Venture Investment Fund, which has a $200 million fund it invests alongside approved angel investors after completing its own due diligence analysis.
“I think that is a better model, and they are helping people,” he says. But clearly, the team remains to be convinced, and moves on. But to what?
Now they have acquired enough businesses to run one each, the team is not as hungry to take on anything else in the short term, and also reckons they are now ready to play with the really big boys.
Ross says he wants to take a stab at primary produce, maybe agriculture or fisheries.
Baker also reckons they should be getting into more mature business now.
“We’ve been in the start-up space and we understand it pretty well, but it’s bloody hard work. One of the reasons we were in it is that when you don’t have much money you can’t really do anything else. We have enough capital behind us now to start acquiring bigger businesses and have more of a private equity model. I think we’re unlikely to do another start-up.”
And with that, they let me leave, unmolested and sober. I am not sure whether to be disappointed or not.
Making enemies and influencing people: The Geoff Ross Guide to Marketing
Over the years the print, viral marketing stunts, radio and TV ads and produced by the Business Bakery, many of which were driven by ad guru Darryl Parsons, have been labelled racist, sexist and homophobic (see examples, right). But according to them, it’s all part of the plan.
Baker says they don’t do focus groups, but it is definitely not shooting from the hip.
“What people might see as some random thing, we will have thought about it a lot.”
Ross, who must have the most ‘form’ in this area, admits that some people think that their approach is irresponsible.
“But people forget that advertising and PR is bloody expensive, and all the consumers don’t care. They are trying to avoid you and your messages and they are getting better and better at it. So it’s not irresponsible, it is responsible use of very valuable dollars. If it goes unnoticed, all that strategy, work and spend is a complete waste of investment. So getting talk and notoriety is an important part of growing a brand.”
That doesn’t mean he’s completely unrepentant.
“We have probably stepped over the line from time to time and you get some consumer feedback, and then you realise you have probably made the wrong call there,” he says. “But I don’t think it’s that damaging. Brands have more stretch in them than people realise.”
Baker notes with satisfaction that when they get a lot of complaints, sales still go up, so he puts the moaning down to a vocal minority. That leaves me wondering if, to some extent, we have all become victims of their success, with marketing degenerating to a game of who can be the quirkiest Kiwi, like a nation of overgrown students stuck in a perpetual Freshers’ Week.
In response, Ross employs an analogy he should be fairly familiar with: “A lot of New Zealand brands that set themselves up as New Zealand or Kiwi have nothing else to them. It’s like going to
a cocktail party and meeting someone. You ask where they are from and they say ‘New Zealand!’ Then you ask them what they do, and they say, ‘I am from New Zealand’ ... it’s all they have got.”
He also notes that although other businesses might ape some of the success of the brands he has helped develop, each fad won’t last long, and his focus is on maintaining first mover advantage by pushing the boundaries still further. Which should be interesting.