Small Business

Can a business come back from the brink?

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Without doubt a business can come back as long as it’s prepared to take on board the lessons learned from the failed strategy – and it has enough courage to face the market again. Let me give you an example of one company that came back with renewed energy.

David Harris was given a shock when he finished university and began working in his father's successful chicken business. The jolt came when he discovered the business had been sold.

“I said to my father, ‘Dad, what have you done?”' David remembers.

“Instead of an excuse, he gave me three bits of advice about starting a business. First, make it something the big fellas don't do well. Second, make it something you can get into with limited capital so I can help and third, make sure it is a cash business.”

His wife Cathy says after research David came and told her he had two options: a fruit and vegetable business or a funeral business. “I quickly told him that we had only one option,” she said.

Starting in 1971, by the mid-1980s they had 18 stores, which pioneered fruit and vegetable supermarkets that were self-service, computerised and filled with every conceivable ingredient for the most adventurous cook.

They had taken David's father's advice and were real players. This was the time of Alan Bond and other 1980s high-flyers, who later learnt the lesson that those who live by debt can also die by debt.

While many of those entrepreneurs were ultimately banished to the bankruptcy bins of business history, never to rise again, Cathy and David Harris plumbed the depths of business failure but came again.

Of course, they weren't high-flyers but hard workers who were victims of their own success with Harris Farm Markets.

“We simply grew too fast,” says Cathy. “And we relied too much on debt.”

However, it was not just a borrow and grow story; there was also a lot of innovation.

“Gough Whitlam helped our growth,” Cathy says. “Equal pay for women meant we had to find a new way and self-service was it.”

Success meant that in those early days the Harrises relied on bank funding and the ground rules for borrowing were a little easier than now. In fact, David believes it was too easy.

“I virtually had the keys to the bank's safe,” he says. “We were doing well and the bank was prepared to fund more growth.” However, there came a time when an alternative source of funding was needed.

“We had used debt and we knew it was time for equity,” David says. “That's where Panfida came in.”

These were heady times following deregulation of the Australian economy after 1983 and Panfida Foods was effectively a company collector. One of the companies it went after was Harris Farm Markets.

“We received $7 million for 50 per cent,” David says. “And we really grew.”

Within two years there were 37 stores, but Panfida had bigger plans, despite the fact the company was travelling well. “They bought something like 900 newsagencies in the UK and 150 Gas & Go businesses in the USA,” David says. “This was real 1980s stuff.”

Eventually it all went pear-shaped for Panfida, ending in bankruptcy, and the Harrises were back in serious conversation with the bank.

“They agreed I could buy the company, but day by day the economy got worse and the negotiations became harder,” David admits. “The bank told me: `You sell the thing' and I told them that I wanted to buy three of the shops.”

The bankers proved they had more heart than is often thought by agreeing, but there was a condition: it had to be the last three of the 35 stores that were left.

Like many enterprising business types, the Harrises fell back on one of the oldest forms of business finance: friends and family.

“My mum and father-in-law bought one of the three stores I wanted,” David says. “The largest creditor took Edgecliff and a mate bought Pennant Hills.” A fourth partner bought another store a couple of months later.

The deal was that David would run the stores and over time he would buy back into the operations, which he and Cathy did.

Strange times call for strange responses and Cathy went corporate for a time, which culminated in her being given the challenging task of being the first director of Equal Opportunities for Women in the Workplace. She later became the deputy chancellor at the University of NSW.

The business has come again and there are now 17 stores, but the experience has given the Harrises a more realistic perspective on growing a great business.

“I am now very careful about fast growth,” David says. “If we have been growing quickly, we now sit back and rest if necessary before going again.”

Cathy says entrepreneurs are often type-A personalities. “The very thing that makes things possible is what can stop them,” she says. “You have to have so much guts to open 37 stores -- that is really putting yourself on the line every single day and you have to have a certain personality to do that.”

But she has learnt a lesson too: “If we had an outside director we might not have got into a position where we were looking for a Panfida,” she says.

SECOND TIME AROUND

  • Harris Farm opened its first store in 1972 and by the mid-1980s it had a total of 18 stores
  • There were 37 stores by the late-1980s, after Panfida bought into the operation.
  • Panfida paid around $7 million for a 50 per cent share of Harris Farm Markets
  • After Panfida went bankrupt, the Harrises salvaged four stores and acquired four new partners
  • Today there are 17 stores and David Harris says the business is solid

Published on: Monday, July 20, 2009

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