61. The email that saved HomeServe and sparked a £4bn business | Sir Richard Harpin

0:00Welcome to All About Business with me, James Reed, the podcast that covers everything about business, management and leadership. Every episode, I sit down with different guests who bootstrap companies, masterminded investment models or built a business empire. They're leaders in their field and they're here to give you top insights and actionable advice so that you can apply their ideas to your own career or business venture. What does it really take to build and scale a business worth a billion pounds? Today on All About Business, I'm joined by Richard Harpin, one of the UK's most successful business leaders and the founder of HomeServe, which he grew into a FTSE 100 company before selling it for£4.1 billion in 2022.

0:47We'll be exploring what it means to grow a company that lasts, from finding the right growth mindset to backing the next generation of entrepreneurs. and we'll be discussing his book how to make a billion in nine steps. Today on All About Business I'm really delighted to welcome Richard Harpin to the studio. Richard is the founder of Homeserve, a home emergency repairs and improvement company. Homeserve was founded in 1993 as a joint venture with South Staffordshire Water and the company offered subscription-based home emergency repairs. Under Richard's leadership HomeServe grew into a multinational business operating in the UK, Canada, France, the US and several other countries.

1:29It was listed on the London Stock Exchange and later became part of the FTSE 100. And in 2022, Richard agreed to sell HomeServe to Brookfield Asset Management for 4.1 billion pounds. So this is an amazing business journey. I'm looking forward to sort of asking about Richard. You eventually stepped down as chairman of Home Serve just earlier this year in January. Since then you've found time to publish a best-selling book and take on several other jobs which I'll also ask you about Richard. Firstly welcome I mean this Home Serve journey I mean you are you're amongst a few British people who've actually started and built billion pound businesses and I want to ask you how did that begin and what were the sort of key moments in your view that made that happen?

2:18Yeah, I'd always wanted to be an entrepreneur and trying to find the big idea that could work. And I'd been working at Procter & Gamble in marketing, buying houses in Newcastle. And the biggest problem was Friday night, tenants would ring saying, water pouring out of a radiator or block drain in the backyard. And you could not get a plumber for love and no money in Newcastle on Friday night they're all out drinking so you're so just clear to everyone you're from Newcastle that area or Northumberland originally a Yorkshireman born in Huddersfield but moved to Newcastle at age five right okay and that's where Procter & Gamble have a big base so you were working for them and you were doing a sort of side hustle doing rentals is that what you wanted to keep my entrepreneurial eye in and so property management and letting and buying houses and that was the opportunity a shortage of young professional shared accommodation in Newcastle at the time right now you reminded me of a sort of plumbing disaster that went that happened to us many years ago we had to ring and it was someone called emergency man came and did not do a good job but your home probably ripped you off with a big repair bill yeah it wasn't a happy experience I still remember it go on so you saw a space in this market So got into it, called it A1 Fast Fix.

3:40We'll be at the front of Yellow Pages section for plumbing and heating. Right. Put our life savings into the business,£50 ,000 at a time, and literally saw that money go down the drain in the space of six months. The issue is people only have a plumbing emergency every five years. So there's no repeat business. Cost of Yellow Pages was high. So the model didn't work. so yellow pages for younger listeners was like a great big thick book in which business listed listed itself and um that was where people turned to look for services of this sort and now web in the old days yeah now go on online and to um businesses like um checker trade that i'm involved in so a1 fast fix you burnt your money so what how did you sort of pivot i mean And that appears to be what happened next because HomeServe obviously was a slightly different proposition.

4:33Yeah, it was to try and find a winning business model determined to stick with the business and manage to secure half a million pounds of investment from a little water company north of Birmingham called South Staffs. But they wanted 52 % of the business. We'd run out of cash, so that was the only option. and then thought, great, I'll grow the business and grow it to profitability, get economies of scale. And guess what? Every month the business grew. And because we got the wrong business model, the break-even line got further and further away. So I ended up losing£50 ,000 a month and running out of money again, down to the last£10 ,000.

5:19pounds. And we're taught at school that copying homework is bad. In business, I would say it's essential. Find somebody that's got a model that works, copy it, do it a bit better, and then think big. And I'm an optimist. And when we nearly run out of money, somebody called me and said, there's this little water company in Surrey, and they've developed like a plumbing insurance scheme. I got in my car and drove down from Birmingham down to Sutton in Surrey and interviewed some of their customers on the high street, got them into a focus group, said, what do you like about the product? What do you not like about it?

6:03And designed our own plumbing insurance cover. Right. And literally with the last£10 ,000 before the business was due to go bust. We sent out a thousand mail shots, branded as South Staff's Water. 38 customers sent in the check for£50. A 3.8 % take up from direct mail. I remember getting on my office desk in front of those 23 people that all thought they're about to be made redundant and said, yes, we've practiced. So you knew that 3.8 % was going to work. That was great for direct mail. Exactly, yeah. And almost the rest is history. We went back to all of the water companies that said no to investment, the bigger ones, and said, how about signing up on what we call today an affinity-branded model?

6:56We'll use your customer base. We'll use your brand. We'll run the plumbing service. We'll collect the membership fees. They'll be our customers. And that was the magic model. Went around and signed up most of the UK water companies. and that was how we cracked it. So that's an amazing turnaround. So you're advocating here, don't be too proud to plagiarise, copy other people if you can see that they're doing something successful. Absolutely. And that little water company, Sutton Water Plumbing Insurance, four or five years ago, we went and bought them. Right. So now part of your group. I think they'd gone from 30 ,000 customers at the time and it diminished down to 20 ,000 and we'd gone from zero to eight and a half million.

7:45So it's not about the idea, it's about making it happen. It's about the execution of the idea. Absolutely. So tell me what were the key elements of your approach to execution that made you get to eight and a half million when they did not? I mean, what did you actually focus on? I think a key milestone in the business was saying, I wonder whether this model would work in a foreign country. And first we went to France. And when people say, why France? Because it's notoriously difficult to employ people there, really difficult employment laws. And I joke and say, because if we make it work in France, it will work anywhere in the world.

8:26The reality was that South Staff's water was 30 % owned by, at the time, General Deso. They were the big water company in France. Still took a year to persuade them that we should do a deal with them. And it was a joint venture. And they said, oh, it won't work like you made it work in the UK. We don't need to use the General Deso brand. Come up with a new name. Domio. That sounds more like a pizza delivery business than a plumbing insurance business. and we want poster advertising and newspaper advertising, which of course didn't work. A year in, just when we're about to say we failed internationally, we better go back to being a UK business, we said let's just go back to that original model that we did in the UK several years earlier, direct mail, branded as the water company, as General Dizzo's service, and guess what?

9:29It worked. was it the same ratio 3.8 percent or something like that about a two percent take up but two percent anything over one percent is um is really really good for direct mail you know that's gonna that's gonna work and so you just you just scale up when you get that that information and then solve the problem of the new castle plumbers on friday night i mean how did you make sure you had the workforce available to deliver the service combination of in the early days it was really good subcontractors checked and vetted fixed prices for doing different types of work and then more latterly and in the UK to start with we then employed the plumbers and the heating engineers meant that we could have branded vehicles as home serve the red vans that are out there across the UK today and with a backup of subcontractors for periods when it was really really busy.

10:29So you were able to do that because by scaling up you had enough business for them? Exactly yes. To keep them busy so they went to do it. A lot of these plumbing emergencies were things that people could turn off the stopcock and we'd be around within an hour or two to do the full repair. right what if doing good was the smartest business move you'll ever make i'm james reed ceo of reed in my new book karma capitalism i reveal how being a filco that's a company where at least 10 of shares are owned by a charitable foundation has become our business superpower companies like lego ikea and novo nordisk share the same filco identity these businesses last longer, inspire loyalty and make a bigger impact on society.

11:21This book is part manifesto, part practical guide. Karma Capitalism is available now at karmacapitalism.org. Being a good business is good business. So this is a brilliant story. What I'm hearing though is you were several times close to sort of falling off the cliff, but you didn't quit. And what I'm also hearing is you kept looking for that little difference that would make it move from failing to succeeding. I mean, it seems like small differences can make very big differences. Is that what you're saying? And I think the key thing is sticking with the model. So as we grew internationally, the key bit was don't change the model.

12:06Keep it as similar to the UK as you possibly can. Otherwise, HomeServe today is in 10 countries, including Japan. If the model was 20 % different in every country, recipe for complexity and disaster. So I guess water is the same in every part of the world. I mean, it behaves in the same way. Ownership of the pipes can change a bit, the pipes and the wires. Yeah, but effectively, the jobs that you have to do are similar or the same. So the approach. And then how we sign up customers varies country to country. So direct mail works particularly well in the UK, even better in America, pretty well in France.

12:53It doesn't work in Southern Europe. So they're a telesales culture rather than direct mail. Well, they won't look at it. No. Interesting. And then the Germans, and we failed in Germany first time around, highly successful second time round. They want a very detailed direct mail pack because they read every word in the terms and conditions, the German sort of detailed culture. And where's Britain sit on that spectrum? Nearer Spain or nearer Germany? I'd say sort of in between the two. Interesting, interesting. Yeah, that's very interesting. So you built this business So it arrived in the FTSE 100, top 100 company in the UK.

13:40And then eventually you decided to, well, it was sold. Yeah, I mean, a key part of it was we were sitting under a bushel of Southstaff's Water, who were a listed company themselves. Right. And I was struggling to hire really good people in the early days. Why do we want to come and work for a subsidiary of a sleepy water company? Right. So I was determined that we needed to separate out from the parent water company. We'd outgrown their profits by about 2002, 2003. So you were bigger than the parent at this point. And so thought, how do we do that? And in the end, persuaded the board that we should demerge.

14:26So that was effectively doing an IPO in 2004 as HomeServe. the water company separated so it's two listed companies and I think with a market cap at the time capitalization of about 300 million that was then and then it went to 4.1 billion so from South Staffordshire Waters point of view this was an incredibly good investment so other companies should be thinking about this sort of thing I think anybody that had bought shares at the time of the IPO, the flotation, would have got, by the time we sold, a 14 times return on the money, excluding the dividends that we paid out each year as well. So taking your sort of mantra of copying, I mean, people listening with businesses should be thinking about how to repeat this type of model by their business having a few children, shouldn't they, in the sense of spawning other businesses?

15:23Yeah, I remember early days of HomeServe, somebody came frantically running into my office, James, and said, this is outrageous. There's a company in India that have completely copied our model. Let's sue them. I said, absolutely not. Let's help them. Because if they're really successful, then we'll buy them. Yes. And part of the model, particularly with HomeServe in America, is other utilities did copy us, but they never did it quite as well. So we'd knock on the door and say, we'll write you a big check to buy out your home assistance policy business. We'll then sign a 10-year marketing agreement.

16:05And it was win-win. So that's how you grew in part? Partly. It was mainly organic, but with about 40 smaller acquisitions that we bolted on to the organic growth. So you've sort of totally flipped the idea of copying here, from being at school where you're saying, oh, no, you mustn't do that, saying, actually, go and try it. And if someone copies you, say, that's great. How can we sort of embrace this? Yes. Lots of people call lawyers in at that point, which is interesting to me. So a totally new view on copying, which I like very much. Now, you've written a book, Richard, which I have here, How to Make a Billion in Nine Steps.

16:44This is published this year, I believe. And I'd like to know how to do this. What would be the first step of this nine-step journey to a billion? Would be copy and pivot. Come up with your winning business model. Keep it really small. and the mistake that I made and many other entrepreneurs is think, I want to go really big too quickly before the model is proven out. If you keep it small, then ideally you're funding it through your own resources, bootstrapping friends and family. And only once you prove the model and then you want to go big, that's maybe when you want to take some investment. so make so make sure the model or the service really works before you scale up that's the first step yes see i'm interested in this because we're investing in an ai recruiter at the moment i don't know what small is i mean what what's small in your mind in terms of keeping it small how big an investment or how many people or what's a few people and trying to prove out the model with sort of tens of thousands of pounds ideally rather than hundreds of thousands or millions right and if you're copying a model and then making it better then at least you know it works so sometimes it's better to go second third or fourth rather than i mean they say pioneers are the people who get the arrows in their back don't they so but sometimes they're the ones who win so yeah no i'm a big believer in second mover advantage let somebody else take the risk I think that's particularly true with AI today, is that let others be bleeding edge and work out whether they're getting a return, wait until somebody's proved out a particular application of AI, and then jump on it and get the benefits.

18:35So we should all be looking very carefully at what's emerging and seeing what's succeeding and saying, well, there's going to be more than one company doing that. Let's get in there. Exactly right. So that's your message. So that's sort of step one. What about step two? What's the next step we should be thinking about? Would be about get some coachment. And what I mean by coachment is three things. One is everybody should have a paid business coach. Everybody should also have a unpaid mentor. And to be honest, I didn't know the difference between the two until I went and trained as a business coach after I'd sold home serve spent 10 days at INSEAD business school in France right and so the business coach is asking questions which tease out what's the problem or opportunity that you're trying to solve what are the different options that you could take but it's never coming to a solution never suggesting anything as the coach it's self-help So you now are practicing business coach as well, Richard?

19:46Yes, but with mentoring as well. Right. And I think that's the magic model is you understand the issue or opportunity somebody's trying to solve, go through the options, get a real understanding from listening, and then say, right, we've done the coaching session. What I'm now going to think about in my tiny little brain is, is there something that I've come across in my 40 years in business that would help you with what you're trying to achieve and that's the mentoring part and that's the mentoring bit have you thought about x y or z so that to me is the magic model of that of coachment so that's coach meant as in coaching and mentoring exactly that's where the word comes from okay so it's both so you're doing both so when you say everyone should have a coach and everyone should have a mentor that you're in In your view, that could be the same person in this case.

20:39And ideally, what we need is more coach mentors in this country. Right. People like you and I that have got the grey hairs that have made all the mistakes and can say, we want to help others get there. And ideally, by going and trading as a coach so that the mentee can get even more out of it. So you did that. So INSEAD outside Paris. I went there last weekend, weirdly. My son is a student there. But INSEAD outside Paris offer sort of support in this area, do they? 10 days spread over about eight months. 36 of us there learning on the course. I think it also helped me to be a better chairman when I stepped down as the chief exec of HomeServe to be able to step back and take a hands-off approach to helping the two guys that took over from me in HomeServe.

21:36Right. How interesting. Oh, I'll look into that. That sounds like a good course. So since HomeServe, you've got some new lines of business. You're not one to stop working. I can see that. So you mentioned earlier, business leader. You were looking at a rack of business magazines and you decided to do something. What was that, Richard? This is really linked to too many mistakes I made, James, in HomeServe over the years. And the nine things I know now that I wish I'd known at the start of my journey. And I think if we'd known those as a team, maybe we could have got there in half the time. So I was determined to get those messages out from writing and publishing my book.

22:24The key thing was also about how else could we get the messages out and thought, what about if I had a business magazine? And that would be a way of inspiring and telling other stories of successful entrepreneurs, the who, and then the how. So how can I do it if I'm running a smaller business and follow those role models? So I went to WH Smiths, bought all the business magazines, and they're all American. But you wanted to buy the business when you went to buy the magazine. Yeah. But they were all American. You didn't want an American one. Fortune, Time Magazine, Entrepreneur Inc., Harvard Business Review.

23:07And then there was this British magazine called Business Leader that didn't have the right content, but I knew the owner. So I rang him up and said, can I buy your business magazine? And agreed the deal. then thought we need a business podcast, we need a newsletter, and then back to copying and pivoting. We need a peer group business like Good American Organizations, YPO and Vistage. Yes. Putting together 10 founder CEOs and they learn from each other. They meet up eight times a year. we thought that we should do it with a facilitator coach that is trained that will help those tend to get the most out of those meetings and that sort of became the business leader offer so you know so you're now creating these founder groups for people so if someone wanted to join that yeah we've got loads of them up and running and we are we're signing up new members to business leader to our nine steps growth program at the rate of one a day.

24:24Fantastic. So where do you find business? I mean, apart from WHSmiths on the shelf, where do you find Business Leader if you want to sign up for one of those? Go to our website, businessleader.co.uk. You will find Business Leader magazine in WHSmiths and most news agents, but all the information is there online. And there's a very good podcast as well. So that's a really good contribution to the entrepreneurial ecosystem in the UK. You said the content wasn't right when you bought it in the magazine. What was wrong with it and what did you change? It reported on mergers and acquisition deals that had happened and some things in the business news that was out of date.

25:07So we wanted to do it so it was more unique content, role models on who's done it and then how did they do it and one of the the lists that we publish each year we did it for the first time this year we'll do it again next year is how many people in the UK built a business from scratch that's worth more than a billion pounds and are still involved in some way and there were 56 of those people we've signed up 12 of those as business leader ambassadors and said to them, please will you give us one or two days of your time a year to help our members to come and talk at our annual conference taking place in Central Hall, Westminster on March the 26th.

25:58750 founders and CEOs of mid-sized businesses all together, networking opportunity, learning opportunity, some of those other billion pound business entrepreneurs on stage. Fantastic. Well, that sounds like a… when's the date again? Tell us again. March the 26th. March the 26th. Fantastic. So is that the first time you've done that? No, we did it. I did it this year. We had about 400 entrepreneurs, founders, chief execs. We want to make it even bigger and better. We did have five of those billion-pound entrepreneurs on stage across the day sharing their learnings. So we want to do even more of that.

26:40So what stands out in your memory as a learning from that first session? Was there someone who said something you think, oh, I'm full of that. Oh, that's interesting. I think it was about one of the biggest opportunities for mid-sized businesses is how we access more finance and more advice. Right. So you're really focusing on what you call the mid-sized, so you're not startups, that people have got going? Yes. So we would define that in Business Leader as any business that's turning over more than£3 million and up to about£100 million. With the Mid-Market Council, which is an initiative that I sit on, which is backed by NatWest and helping engage with government and come up with policies that can help mid-market businesses to scale.

27:35The definition there is a business turning over between 10 and 100 million or employing between 49 and 749 people. So above that, you're a big business, are you? Yes. Right. Okay. You've obviously decided to focus on this group for a particular reason. I mean, you see potential there, I'm guessing. And you see that they maybe have been underserved in the UK. Is that where you're coming from? Yeah, I think the issue is that as a country, we've focused on startups. And if you did a review of the media, there are six times more mentions of startups and small businesses compared to scale-ups. There is a lot more support for startup businesses.

28:24The startup loan scheme, over a billion pounds lent to 100 ,000 businesses over the last 10 years. There is not scale-up financing. Right. That is an obvious gap. I mean, why do you think that is? because um i think we uh we think short term in the uk compared to our american counterparts where it's longer term investment bigger companies uh prepared to take uh patient capital and longer term return and we're just looking at those well how many new businesses have been set up in the UK. The stats that I have back for 2023, 316 ,000 startups and 309 ,000 closures. Not really. So actually, we've got to be focusing on the 100 ,000 mid-sized businesses and helping them to become the next large companies.

29:31And we only have 7 ,500 large companies in the UK, like Homeserve, like REED. That's interesting. So you're saying from your gathering conference that access to finance was a very obvious issue that was shared. Do you see any new developments that give you hope or reason to hope in that space? I do, but the availability of finance compared to the year 2000 is there's£15 billion a year less in term loans and£15 billion less in overdraft facilities. They've diminished down to only£3 billion a year. So we've got to get more money lent. That's a big drop. That is a big, big drop. So what gives you hope there?

30:23I mean, are people paying? This must be a change in the sort of appetite in banks, surely. There's also the growth guarantee scheme. Right. And that means that banks can lend money. And if it goes wrong, then they can reclaim 70 % of the cost of that from the government. That's a scheme that works really, really well in America, Germany and France. but we do only a tiny bit of that. Since the scheme began, there have only been 13 ,000 loans under that guarantee scheme and only 2 billion of lending. So we need to expand that. The maximum lending is 2 million pounds and you can only be part of the scheme if you're running a business that's turning over less than 45 million a year.

31:15Right. But that growth guarantee scheme is underutilized you'll say yes so maybe we need a we need to remove the caps so it apply to the whole of those mid-market companies yeah and who would have to make the decision to remove the cap uh that would be government it's a government scheme right so we are engaged with um department of business and trade talking about that the other area is only 21 percent of businesses that are looking to get finance, engage a financial advisor. So that needs to be much higher. The reason why they don't is they say, well, where do I get one from? Who should I use?

31:59So if we were able to put together an advisory network, make it more prominent, then we would get more advice out to those businesses so they can root out different sources of finance. it's a fair question though where do you go how do I get one I mean what happens at the moment so you are you creating this network we're hoping to work with Department of Business and Trade to put together a an advisory network of these people are out there yes but it's they work for some of the smaller accountancy practices there are self-employed business finance advisors there are a couple of networks, but nobody knows about them.

32:45That would be very helpful, wouldn't it? So it seems like there's capital there, but it's not being accessed or it's not clear how to get to it. That's part of the problem. So we need to signpost better. I think the other thing, James, is we need to celebrate entrepreneurship more. Yes. I think it's still a bit of a dirty word in the UK compared with America. People that fail in business over here, well, that's terrible. You better go and do something else. In America, it's a stepping stone to learning and eventual success. It's almost a badge of honor. I mean, you're not a real entrepreneur who haven't had a couple of failures in America.

33:26Yes. Whereas here, it doesn't feel quite the same. So let's have more conferences. Let's get the messages out in books and business magazines and celebrate those successes and role models. How do you think we can sort of make entrepreneurship more interesting to younger people? You know, I'm thinking kids at school. Because a lot of people who come on the podcast started doing things or trading in some way or other when they're sort of still at school, which is really interesting. I was selling white rabbits age six, running a rabbit kennels age eight, became a children's magician age 10. So you really did take the rabbit out of the hat.

34:08So yeah, so how do we encourage that perhaps? Because it seems that that begins a trajectory that leads to what you did. There's some really encouraging statistics. 62 % of secondary school pupils would be interested in running their own business. Only 16 % ever do it. And that's because only in 34 % of the 4 ,200 secondary schools in the UK, do we talk about enterprise and entrepreneurship. So there's a big opportunity there. The career and enterprise company, entrepreneurship is not a career. so we're actively engaged with them in hoping to do a pilot in the northeast of england with 15 schools and that would make entrepreneurship a career and it would be put on the career hub we would test out the program if it works we then roll it out across every school in the uk so it's not defined as a career entrepreneurship like medicine might be but you're going to change that hopefully and it's very good yeah applaud that richard so is that is that on the cards quite soon is that because if that was in every school i think that would make a real difference uh pretty confident that that's going to happen as a pilot in the northeast next year fantastic so i mean the government talks a lot about growth and the importance of some entrepreneurs in the economy that's one thing that might be happening are there other things that you would urge them to do or not do as the case may be to get the economy moving and to get more people starting businesses?