8 Business lessons from $5.3bn Entrepreneur - Richard Harpin, Homeserve

0:00So you sold your business for 4.1 billion. For most entrepreneurs, that's an absolute pipe dream. You started with£50 ,000. Can you tell us what the business was and how you got to that scale? Yeah, this started as running a business on the side when I was a brand manager at Procter & Gamble and started doing up houses in Newcastle-upon-Tyne and letting them out to young professionals by the by the room, 40 quid a week. And do you know what the biggest problem was? all of those tenants would ring up me or my business partner and say, we've got water pouring out of a radiator or the boilers broken down or there's a block drain in the backyard and we could not get a Geordie plumber for love nor money on a Friday evening in Newcastle.

0:54And so that was the idea. Wow. Just Geordie plumbers. Yeah. We hired a couple of them We called the business A1 Fast Fix to get in the front of the plumbing and heating sections in Yellow Pages. Very good. Love that. Marketing that. And the work started to come in, but the problem was that the cost of running the business and the high cost of Yellow Pages at the time, and the fact that people only have a plumbing emergency every five years, meant that we didn't get repeat business and the economics of the business just didn't work. and we weren't prepared to overcharge customers for that one-off plumbing emergency.

1:36So we thought we've got to find a way for this business to work. We'd put our life savings of£50 ,000 into the business and it had run out. The bailiffs arrived from customs and excise to take away our office furniture. I had to borrow£10 ,000 from my mother without my dad finding out because he'd have been a bit worried about entrepreneurialism he was a in the civil service charter severe we borrowed 10 000 pounds from a friend and said we'll give you if if we make the business work we'll give you a 20 interest rate or 10 in the business he chose uh 20 interest rate has been regretting it ever since and um wow um thought isn't there a link between a plumbing service and water companies and so my business partner went around 15 uk water companies saying we've got this great business in newcastle will you invest and they all said no with one exception.

2:44And that was a little water company in north of Birmingham, South Staffs Water. And they said, oh, we've been looking at a plumbing service. We'll put in half a million pounds, but we want half of the business. And we got no option. We said, absolutely. Yeah, we'll do that deal. We'd run out of money. Our backs are up against the wall. Not the right time really to get an investor. And we did. And so I used that money. I was then working full-time in the business, started hiring more people, and the business grew. But fundamentally, I hadn't found the right business model. So all that we did was got into more yellow pages.

3:33We did get a bit of work referred from the water company customer base. But every month the business grew and the break-even line got further away. I thought, well, we'll get economies of scale, but no, that doesn't work. You said copying is good in business. So is this where copying really came into fruition for you? Yeah, we got to stage at the end of that first year after the water company the investment, I'd burned through the whole of that half million pounds. So the losses had gone up from 10 ,000 pounds a month to 50 ,000 pounds a month. There was 10 ,000 pounds left. My colleagues and friends, even my business partner was saying, Richard, your days in entrepreneur are over.

4:19Your dream that I had from the age of four, you better go back and work for Procter & Gamble. and you know what this was my final chance to make it big and i was determined to do it and i'd got to find a way through and i think sometimes on those those occasions you have a little bit of luck and i did somebody rang me and said have you seen this little water company in surrey they've developed like this plumbing insurance model and i went and found some of their customers that are joined up. I interviewed some of them in the Holiday Inn around a board table and said, why did you join up to this scheme and what do you like about it and what do you not like about it?

5:07And they said, well, it covers the underground water pipe in my garden, but they come out and inspect it every year. I don't need an inspection because if it's leaking, then either there won't be much pressure coming out of my tap or no water, or there'll be a great fountain coming out of my lawn. So we took out the expensive inspection. We built in plumbing emergency cover that they didn't have and block drain cover. And literally with the last£10 ,000 in the business, we sent out a mail shop branded as South Staffordshire Water to a thousand of their customers. And lo and behold, 38 customers signed up, a 3.8 % response rate, sending in their check for 50 pounds for our plumbing emergency cover.

5:58I remember getting on my office desk in front of the 23 people that thought they're about to be made redundant and saying, yes, we've made it. and almost the rest is history. We rolled out that business model, signed up all of the other water companies that had originally said, no, we're not going to invest in your business to a sort of what we would now call an affinity membership model. We paid them a commission for using their brand, for running fantastic customer service and we funded the marketing and they got the credit from their customers for the peace of mind it brought and the fantastic service when a customer would call a free phone number when they've got water pouring out of a radiator or pouring through the ceiling.

6:51It's interesting, though, on the surface, 38 customers is not a big deal. So 38 customers were£50. So that couldn't have saved your business from the£10 ,000 hole, but is it mostly about signal, like noticing that something has got a reaction? Well, I think the lesson I'm taking from, I mean, one, that hyped me up so much. That talk there. The idea of like punching the air and being like, we're still in fucking business. I love that. And I'm hyped now. I can feel it. But the lesson I would say for people from that is like, the business isn't working. You've gone to another business that's working.

7:24You've gone, I can see this thing is working over here. You've interviewed their customers. And then you found your model. I think to most entrepreneurs who are struggling, do that tomorrow. like go and look at a company that's working and go i can see how they make money here i'm just gonna go replicate that unbelievable lesson it's so it's so undervalued as well and so and it's probably more common in your day in our day people don't think about go in person yeah pick up the phone get a whole day 100 genuinely like that in-person thing's so important so that was about um copying pivoting testing learning and i knew that moment where we got those 38 people signed up that when we rolled it out, it was going to work.

8:08And it did. So we sent out a bigger mailing and then we went round and signed up all of those other water companies. And the business went from that losing half a million pounds in its first full year after the backing of South Staff's Water to making three quarters of a million pounds profit in that following year. I think one of the lessons here, people look for something viral, right? So today people are like, oh, you know i sent that mailer out i didn't get a hundred thousand customers or whatever i'm told on the internet is viral no no that's not what you're looking for you're looking for something that people uh meaningfully want back and if your previous number rate of a response was five or six and you're getting 38 that might not be 10 000 but it's it's significantly bigger to say focus on this problem do it again like just niche down there and do more of this i think that's really really interesting and actually in a digital world it is easier to copy things online and put up a website and measure the response and but the lesson here is don't go too big until you've proved out your model that that i think that is such a takeaway because uh vcs right now there's this like weird thing happening where you get a little bit of proof and in the environment we're especially in 2021 they just poured gasoline on every half good idea yeah and you have it now this is like a graveyard of these startups that got you know tens of millions of pounds and never had a business and i think that you're so right like you've got to find that underlying business model and margin where you think at scale this will actually work yes and that is also about that sort of constant evolution of how do we then develop the model further so having then rolled out signed up more water companies in the uk then we were thinking what about electrical wiring cover what if the lights go out what about boiler breakdown cover so we added in additional products and quite often businesses would ignore the upsell, the cross-selling.

10:19It is five times cheaper to sell the next product to your existing customer. So think a bit more about that. So again, that's sort of evolving the product range, but don't be tempted to do something that is two steps removed from the business. And a good example of that was we got into furniture warranties for retailers. How'd that go? Not very well. And so in the end, we sold off that business to focus back on just sticking to the core. Yeah. And obviously you did go on to expand this quite rapidly. HomeServe grew to 8.5 million members and 10 ,000 staff. What do you think, looking back now, was the single biggest challenge for scale?

11:15It was about, we're operating in, I think, in the UK market, is a great place to found a business. but we are a small country and therefore most businesses in order to create scale need to be thinking about will their model work in a foreign country so i was about eight years in and thinking i wonder whether our home serve product would work in a different country and actually went to France. And when people say, why did you go to France as your next country to check out the model? I say because it's notoriously difficult to run a business in France, very strict employment laws, and therefore it's a torture test.

12:12If we make it work in France, then we'll know that it's going to work in most countries around the world. Should you not have gone for the easier place? Well, actually, the reality was Southstaff's Water were a listed company. They were 30 % owned by General Dizot, now known as Veolia. So I thought, well, that's a really good link. Actually, even though they were an investor and the biggest water company in France, it still took a year to persuade them that we should do a joint venture with them in France. We eventually did do it. And the difference was we listened to them and they said, oh, your British model is not going to work in our country.

13:00You need to do above the line advertising, newspapers, posters, TV advertising. And that was all really expensive. And you need to come up with a name that is distinctive. And we call the business Domio. To me, it sounded more like a piece of delivery business than a plumbing assistance membership business. And that didn't work. Just as we're about to say, let's give up on our international dream. We went back to the original model in the uk and we tested that so direct mail we put the general deso name on their general deso services and a picture of the lawn and the um uh water pouring out of it and um that original product of underground water supply pipe cover and guess what it worked so back to that point around when you're going into internationally, don't be tempted to change the model.

14:07You obviously need to change it for local regulations, but stick to that model and that's what will work. And if it doesn't, then you're in the wrong country. So Richard, you're known for eight secrets to building a billion pound company. So can you tell us those secrets? Yeah, absolutely. Secret number one is copy and pivot. And we're taught at school that copying is bad. Copying homework, actually in business, I think it's really good. I'm a great believer in second mover advantage. So find a business that has a great idea, that's made it work pretty well and say, actually, how can we take that idea and improve it and make it work better?

14:54And one of the mistakes I made was trying to grow the business too big before we'd found that magic business model, which meant that we burned through a lot of capital. Don't do that. Try and just stick with your own money, with friends and family money until you prove the model. And then when you want to go bigger, then that's secret number two, find an investor. So that's two. What about number three? Yeah. Number three is get some coachment. And I actually did. I went to INSEAD last year and dedicated 12 days of my time to training and qualifying as a business coach. and I think before I went on the course I'd got no idea really what the difference was between a mentor and a coach and what I learned was that a coach is really in medical terms is like the the x-ray machine it's the the diagnostic working out whether you have broken your arm or not So a business coach will be trained to ask you lots of questions about your issue or opportunity, help you think about what are the options that you could consider, but will never ever give you the answer.

16:22A mentor is somebody with a lot of business experience stored up in their mind over 20 or 30 years and then will say, have you thought about this? Now, I don't think mentoring is good in its own right if you haven't done some coaching to tease out an understanding of that coachee's issue or opportunity. So as part of my dissertation in qualifying as a coach, I came up with coachment. That's a really careful balance. And I think it's really interesting what you've said, that concept of coachment sounds, as entrepreneurs listening to that, bang on. I waited too long to get a mentor. When I did, it was about how can I grow our American business in HomeServe quicker?

17:13And I sought out a guy called Nigel Morris, the co-founder of Capital One. He was a Brit, but he was Americanized, made his business model work in the US before he brought it to the UK. He said, you need to be between Boston and New York and Washington DC on the east coast for a um a uk um business trying to make it big in america and then who have you got running the u.s business i said oh fantastic brit uh shook his head violently and said no if you want to be taken seriously ultimately uh and seen as an american business you've got to have an american leader and this is go global with locals and uh yeah that takes us to what secret number six which is go uh go global with locals okay so so far we've got copy and copy and pivot coachment going global with locals um and you also had investment obviously as well so we're halfway through your eight points so at this point i think we've covered 500 million pound worth of value what's the next half billion how are we going to get there yeah the next one is may sound a bit strange in this digital world, but it's bricks and clicks and paper.

18:24And let me just give you a few examples of why. So one of the businesses that is part of HomeServe that I chose to reinvest in after Brookfield had bought the whole of HomeServe is a business called CheckerTrade. And guess what? 15 % of our nearly 60 million web visitors a year come from a folded bit of A4 paper that goes to 16 million households six times a year. And that's a different leaflet for every 50 ,000 households. There are 150 trades in there. We track telephone numbers. So we know how many calls those trades are getting, whether they answer the phone and how quickly but that bit of paper generates customers that don't all call the trade telephone number but they go online to the checker trade marketplace and look at the the digital part of the business so a great example of the importance of paper generating clicks the other one is there are loads of online businesses but i believe that most of them need to have a retail presence.

19:42What's the next secret you have for us? It's evolution, not revolution. Right. And you can have revolution at the start of the business. That's the revolutionary idea that transforms a customer need. But you definitely don't want revolution and reinvention once you've proven out your business model that is highly dangerous it is two steps removed from what you're currently doing and if we cast our minds back to apple and what were people thinking when steve jobs unfortunately died was oh i'm worried about whether Apple will go on and grow in terms of shareholder value because they're not going to come up with a revolutionary new product.

20:35And the answer is they didn't really. AirPods, Apple Watch, goggles. But actually it was evolution of Apple Pay, Apple Music, cloud storage. So those were evolutionary products rather than revolutionary ones. And yet the value of Apple went from a hundred billion dollars when Steve unfortunately died to two and a half trillion dollars today. The secret, according to Steve Jobs, of great product strategy is knowing what not to do. And that takes us nicely into your penultimate secret. Yeah, which is have a not-to-do list. See how smooth that transition was? So smooth. It took Richard by surprise.

21:29Yeah, it took me by surprise. And if I asked this secret leader audience to put the hand up and say, how many of us today have a to-do list? I think most listeners would say, of course I do, because success is about getting stuff done every day. It is about execution. But I have. But I found it very difficult to have the discipline of having a not-to-do list. But that's really, really important. Yeah. And if you just imagine how you come up with a not-to-do list. And what you need to do is just think about answering three questions. And the first one is, what's your purpose or what are you passionate about in business?

22:20Second one, and imagine these are overlapping concentric circles. The second question is, what's your unique selling proposition? Why are you better and different to your competitors? How can you be the best in the world at that? or just the best in the UK or just the best in the part of the UK where you operate. But you need to be the best and you need to be different. And then thirdly, what's your monetization model? What's your economic engine? How are you going to make money? I'm a Yorkshireman. That's really, really important. So how about answering those three questions, if you haven't already, with your senior management team?

23:05and your answer needs to be one sentence of no more than 20 words. And that would become your mission and strategy. And then that is distributed and communicated every day, every week to every member of your business. And they read that and then they think, what am I doing today? And if they're doing things that don't fit with that mission and strategy, then they should stop doing it and that should be on the not to do list. So give us the last of the eight secrets. Yeah, and this is character. And that's the one that I originally sort of forgot about in terms of the eight secrets. So that is sort of the secret that comes free, whether it's secret nine or secret zero.

23:59but it's thinking about the characteristics of an entrepreneur that helps in making a business successful. So it is that persistence just to keep going, the determination. It's about curiosity, learning every day, and that's about listening and reading and taking learning from elsewhere. It's a bit about that copying. It's about being low ego, being able to say, oh, my original idea didn't quite work. So I had to copy somebody else's and then I needed to sort of change it a bit and pivot it and test and learn and being able to say, I made a mistake, I got it wrong, but now we've got it right and change direction.

24:50So it's those sort of low ego things it's about being non-political it's about being focused on the good of the business not our own careers those are the things that a leader whether they're the CEO of the business whether they're the founder those are the things that are truly important so Richard we've just heard your eight secrets to building a billion pound company and from someone who has done it looking at the UK, looking at the US, looking at startups in general, what is the major mistake that you see founders and CEOs making that prevents them from hitting the type of scale that we're talking about?

25:30I think it's around trying to do too much, trying to expand the business model, not staying focused enough and thinking that they need to keep reinventing. and it's not reinvention but it is constant evolution and so if you look at um one of the businesses that i admire is next and they have constantly evolved the model so if you think back to men's clothing business that then became the next uh the paper directory that they printed And then they've evolved that model into more stores, to the total platform, to having other people's brands and not just the next brand and international development.

26:23So constant evolution. And if you look back to some of those well-known brand names that didn't evolve, like Nokia, like Yellow Pages, HMV, all of those, they left it too late. So constant evolution, but not revolution, not things that are two stages removed from what you're currently doing. We just spoke to Herman Hauser. So he's the founder of Arm. Two interesting things here. Unusually, Hermann Hauser was the founder of Acorn Computers. And at a point, Acorn Computers was the biggest startup in the UK. And he did something that's actually completely antithetical to what you've just said. They were the biggest computer company, biggest startup in the UK.

27:10And they created a subset, they siphoned off this IP called Arm, which was a computer chip, which is now the world's most valuable IP. so like speaking today is 180 billion dollar value um so that's a very unusual story of course but something else he said which i think resonates completely with you is that the uk doesn't have a startup problem there's loads of great entrepreneurs here and we start many companies we have a scale-up problem we struggle to build big companies like home serve like arm why is that Um, because, uh, medium companies are the forgotten medium and they need investment.

27:51They need coaching and mentoring and, um, peer groups and all those things that I look back on and say, uh, I could have done with a bit more of that. And, um, so that's why we need to help those businesses because, uh, we do need twice the number of, um, large companies in the UK, like, uh, like home surf. What do you think that the obsession that we have with young founders who raise a couple million, they get so much press versus good size, predictable business growth in the UK? We struggle to understand it, but why do you think there is an obsession with young founders now? I think it is. It sounds more glamorous.

28:39Startups and I'm a big believer in startups, but we've got to help those maybe less glamorous, some of the medium sized companies to grow through investment, through following the right models on how you develop internationally. And that's really, really important. Yeah, we had an interview with Daniel Priestley recently. And remember, he was saying that almost all of the successful founders building valuable companies, etc, actually start in their 40s. Yeah, it's wild. That's the decade really where you're building meaningful size companies. And it's exciting for us. You're nearly there. I knew you were going to get that.

29:21I knew it. I set myself up too much. What do you think? Have you seen that? Have you seen that kind of data? Have you seen that in your own life that actually your 40s tends to be when you're building businesses of meaningful scale and meaningful value, not just the ones that get the money, build the big valuations and then fall off a cliff and die. Yeah, I think that I'm a big believer in second and third time entrepreneurs, people that have done it once and may have failed on the first or second time or it didn't quite go according to plan and then go again and, um, uh, and it can, um, it can work.

29:54So, um, uh, those are, um, really important. And it's, I think because they've got that sort of confidence to say, I want to go again and, um, build the next business. So, um, good example would be, uh, Craig Waddington. Um, he's an entrepreneur from, uh, Yorkshire and, um, his first business, uh, didn't work, which was bathroom showrooms on the high street, very expensive rents. And he then said, I want to go again, and I'm going to copy the Howden's model, which is have the showrooms on an industrial park, sell to both bathroom fitters and to homeowners. And he did that. And, um, I was introduced to him when he'd got, uh, 40 showrooms open and, um, backed him with my own money.

30:49Today we're up to 141 showrooms, uh, the business that's turning over, um, over a million pounds of, um, of revenue and, um, uh, can go much further. So he was effectively sort of a second time entrepreneur, went at it again, and, um, it's working really, really well. And one of the big things that he learned coming from me was Craig is great with going and doing the buying in China, opening the new branches, but needed somebody that could run the day-to-day business, a proven chief exec that he could bring in. and he's now got that person, a guy called Adrian Bolton, who had built a big business in Eastern Europe.

31:41And so Easy Bathrooms is now going to go on and become hopefully a business that can triple in revenue. And what is the difference between mid-size and large, in your opinion? Over 250 employees would then be a large company. so um it's getting that from i'm employing 15 people to getting to over 250 people do you think that's it's interesting like do you think that that is the right metric like philosophically there's a nice angle to that which is like you're employing people people need employment in the uk that's important and another i failed a business personally in the past where we had too many people and one of the main reasons we failed is i actually thought that it It was a big glamorizing, awesome look at me.

32:30I'm employing almost 100 people. I'm fucking awesome. It's also how people identify their company size, isn't it? 100%. And I thought I was running a much bigger company, but we were losing money. We had too many people. And I really, maybe because I was younger, but I think I overemphasized the wrong metric. And now at Heights, we're trying to target 25 million pounds with 19 people as our glamour target. I mean, that is cool. Yeah, but they're so different. And I wouldn't be personally looking to hire 250 people if I could avoid it. Yeah, I think that's a sort of an official measure for large company.

33:07But I agree. It is about, particularly in this digital world, is to say, how can we all scale businesses where we do it through automation? And clearly AI is going to have a big role in that. As we automate call centers, then we'll have smaller call centers because they'll be run by voice bots. And I think that's really good news because as people who are currently call center operators will say, I've got an opportunity to take a new job, learn a new skill. in checker trade today we're setting up trade schools and that will be training people looking for a new career in some of the the basic things that we do ourselves but we'd rather not like oven cleaning and handyman how many people today on a bank holiday monday don't really want to assemble our ikea furniture the only reason they do is because we can't get a handyman within the hour that's going to show up and charge a reasonable price to assemble that furniture so the the magic model of training people to do garden tidy ups handyman all of those lower skilled trades and then we can put them on an app in the way that we all use uber checker trade will We'll be Uberized and we'll be having those smaller jobs, making them easier for reluctant DIYers like all of us.

34:54We spoke earlier a little bit about Ben Francis and what he did with hiring a CEO super early in his journey. And I haven't shared this yet on the podcast, but I started a new business 100 days ago. I think it's my fourth business now. I've had some great successes and so forth. and my second hire is effectively my seat my managing director and i think people people sort of obsess about their own brilliance in running the company but i actually think that you're so right like ben stepped back because he knew he couldn't do the day-to-day it doesn't mean that he didn't do the work that helped the company get to where it was going so like do you think that's something that all of us should focus on is like splitting out our skills as it were Yeah, I think the earlier the better.

35:41I think nobody better than the entrepreneur, I think, to identify the opportunity, the consumer need, the unique product proposition or service proposition, and make sure that that is figured out. Yeah, what you're referring to really is product market fit. And actually your business specifically, uniquely, you've quickly found product market fit. I don't think hiring a CEO or MD without that is a good idea. Because actually, as the entrepreneur, you are the person figuring out what the market wants. You just happen to have figured that out really early. Yeah. And to your point, I think business has changed so much recently, right?