04/02/2011

Martyn Dawes, founder of Coffee Nation and a committed serial entrepreneur, talks to Hatty Stafford Charles of AngelNews about looking for ideas and choosing the right project.

Martyn Dawes was probably always destined to do things his own way. The early years of his career amply illustrate his drive to keep moving, and his ability to make a success of whatever he attempted, despite leaving college before completing his A Levels. He began by joining his father at a local foundry servicing contracts to the aerospace and auto industry in a junior management capacity. At the tender age of 19 he was given the job of trying to salvage a contract the firm was about to lose with an aircraft manufacturer. Martyn promptly turned the situation around and the foundry became the preferred supplier to the firm shortly afterwards. This precocious ability was not universally popular with Martyn’s (older) colleagues and in due course he moved to Massey Ferguson (one of the world’s largest producers of agricultural machinery) where he repeated his earlier success, showing how supplier performance could be improved.

Again, not all his senior colleagues found this young man’s ability easy to accept, but he was offered a fast track towards a Director role. This offer, however, made Martyn realise that corporate life was not for him. Martyn had become engaged to his future wife who was based in London and so in 1991, at the tender age of 23, he decided to set up a quality assurance consultancy. This was a successful project and in due course he was joined by his wife, an HR Director, and together they grew the business. But the limits of such an operation were becoming apparent.

Martyn still wanted to be his own boss, but he wanted to leave the comfort zone of a “lifestyle business” and instead develop his own ideas, so in 1996 he took a blank sheet of paper and £50k from the consultancy with a view to finding a suitable project — any project.

“Really successful entrepreneurs are often sector agnostic,” he says, “They are looking for a gap or model which will work. There is a risk but it need not be a high risk if the idea really does fill a gap and you can demonstrate that it works.” The idea that had been fermenting in his mind was based on two concepts. A trip to New York had given him an insight into the importance of take away coffee to convenience stores. The second inspiration was an article about a photocopier company operating on a shared revenue model in retail premises. He figured that given the growing trend of food on-the-go in the UK, a self serve coffee offer that operated on that revenue share model could be a winning concept.

He realised he was creating a new market category. He spotted opportunity in the gap between coffee bar chains, with the high street rents and staffing costs inherent in that model, and the poor quality vending machines in office corridors producing brown sludge that would not form an attractive retail offer. A self serve machine delivering gourmet coffee that was easy to use would fit nicely between the two. He saw that this combined with the revenue share model would remove the financing risk for the retailer and would be the way to get the machines into prime locations and scale up quickly. The enthusiasm of these trials and commitment from a group of business angel investors gave Martyn enormous confidence.

“From there I never really looked back. Based on our trials I knew I was on to something that could be big and it was huge fun and a real thrill,” he says. “It was not a risk as such because we’d proven the concept albeit on a small scale.”

The seed capital of £100k and a small business loan of £90k enabled Martyn to undertake a bigger market test to prove the concept in the kind of outlets the machines needed to be located in. These trials were hugely successful and meant a new business and investment plan had to be constructed. By this time, Martyn had a Chairman and Operations Director — a team of three who worked very well together — and they put together this business plan with the aid of one of the big four business advisors/accountants which came in on a contingent basis they liked the idea and the team so much. They successfully raised £4m of VC funding in June 2000.

“Raising that money felt terrific. It was a Friday and we went out to celebrate. My Chairman then said ‘and now the hard work really begins’, which was a bit of a shock as I felt we had been working pretty hard already, but he was right and on Monday I was back out, looking for customers.

“Our advantage was that it was a really compelling proposition. I knew the concept worked, we understood our market category and I could take people out to see the machine working, so I was able to get in to see the boards of all sorts of companies.”

Coffee Nation’s first contracts were with Welcome Break and Texaco, with Tesco coming on board at the end of 2003. Post funding, the growth of the business took a little longer than Martyn had expected but by the end of 2006 they had also secured long term contracts with Moto, Somerfield, Sainsbury, Esso and others, and by the time the company was sold in 2008 sales were £20m with an EBITDA of £3m generated from 560 sites in the UK.

Coffee Nation was often the number one selling product in stores and the company won numerous awards. Martyn explains they made few mistakes along the way, one example being to invest heavily in product development which proved to be too visionary and developed in response to a competitive threat that didn’t really materialise. Eventually the VC wanted to achieve their exit and the company was sold for £23m.

“Exiting can be a challenge for entrepreneurs. There can be options, such as a trade sale but this invariably means a lack of independence and being part of a much bigger organisation that you are not in control of.”

A challenge of VC funding from start-up is that the founder and management team of the company are not really in control of the exit process or choosing when it will happen or who the company is sold to. The culture in the UK is ‘build and sell’ but that may not always be in the best interests of the company or the entrepreneur. “It’s a bit of a blind spot for many entrepreneurs and they need to think carefully about their funding roadmap beforehand — that is certainly the biggest lesson for me and next time I will do things a little differently.”

‘Next time’ is already underway, although Martyn stresses this is at an early stage. Martyn found his first idea travelling to New York and so decided to pack his bag and get back on a plane. He visited cities all over the world, making contacts through the Young Presidents’ Organisation - www.ypo.org - of which he is a member (a global network of 17000 CEOs and entrepreneurs from companies with a minimum £8m turnover) — “an awesome network” as Martyn describes it. The consequence of this networking was a Eureka moment in a meeting with a successful fund manager from the YPO Mumbai chapter. “He likened India now to the USA in 1900 and set out the scale of the opportunity in the country”. Martyn added “I went looking for an idea to bring back to the UK and instead got excited about an entire country”. He explains, “by 2025, India is expected to be the world’s 5th largest consumer economy; there is a huge growth in middle class households underway from some 50m people today to an expected 580m+ in the next 15 years; this will drive enormous growth in consumer demand and therefore the potential to scale a business considerably to serve this domestic market.”

He makes the point that there are considerable challenges to entering a high growth emerging market like India but with meticulous planning, research and the right local partners he believes huge success could be achieved, with patience and over the next 10 years or so. He adds “what an amazing opportunity this could be to build something in such a high growth market; this doesn’t happen in most people’s lives even once.”

Martyn is looking at ideas to develop a disruptive, consumer-facing business (sounds familiar?) and is researching the opportunities. “Whatever it is, it will serve a real need. There will be a large, addressable market that I can define, it will be scaleable and will play to a long-term trend. Vitally, there will be some element which will create a barrier to entry — these were all key elements in the Coffee Nation plan.”

Martyn will be travelling back and forth to India on his search and will ultimately need to spend most of his time there. “The journey is often the goal, not simply selling the business at some point. I want to build another high growth venture but for the longer term, creating wealth along the way.”

His final word on India “It’s either genius or madness but then the best stories of achievement are the ones about being told you’re mad and proving everyone wrong.”

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