If at First You Don’t Succeed
Declaring bankruptcy may feel like losing a limb — but for some hardy souls it’s a mere flesh wound. Sophie McBain talks to a trio of entrepreneurs who have bounced back into the black
DAVID MURRAY-HUNDLEY was 25 when he became a multimillionaire overnight, and 29 when he went bankrupt. He had been working for software firm Commerce One at the height of the dotcom boom. ‘It was like winning the lottery without even entering,’ he says. Like many an actual lottery winner, with no guidance on how to manage his windfall, Murray-Hundley quickly spiralled out of control.
‘Believe it or not, it’s actually quite easy to get through a lot of cash,’ he says. I look sceptical. He describes crashing a yacht into a jetty and writing off a Ferrari — in one month — and how, when dotcom markets sky-dived, he lost £400,000 in a bad stock market bet in the time it took to fly from San Francisco to London.
When he declared bankruptcy, the Department of Trade and Industry went through his personal bank accounts for the past three years. ‘I had this poor chap who was probably earning £20,000 a year, who had to go through piles of statements and ask me, “Is it really possible to spend £60,000 in one weekend in Monte Carlo?” And I’d just have to go, “Yes.”’
His credit cards were cut up, his bank account closed, gone were his fleet of ten cars to be replaced with a £500 old banger, a laptop and a rented flat.
Murray-Hundley was able to extract a few positives from this bleak period, however. ‘It was a bit like being eighteen again,’ he says. ‘You suddenly find yourself planning your life again, you’re not just riding a wave… But I think because you’ve done it all before, it’s not as scary.’
Murray-Hundley became a consultant and eased himself back into business by working with his old chairman on an intellectual property rights buyout for a tech company. In 2001 he founded AdaroRed, a healthcare consultancy, which last year had a turnover of £10 million.
IN 2011, 41,876 individuals were declared bankrupt in England and Wales, down from a peak of 74,670 in 2009. In the same period, 16,886 companies became insolvent, down from a 2009 peak of 19,077, according to the Insolvency Service.
Bankruptcy, whether it’s corporate or personal, is a deeply stressful, harrowing and often humiliating experience, so it’s not easy to bounce back. But Murray-Hundley is in good company: Walt Disney and Henry Ford’s first businesses failed, Donald Trump has faced corporate bankruptcy three times and in the late-19th-century HJ Heinz (yes, of ketchup fame) went bust trying to sell horseradish to America before stumbling on his winning tomato recipe.
It’s probably no surprise that these high-profile examples are American: ‘If you talk to American investors and technology people, they almost won’t deal with people who haven’t failed,’ says Murray-Hundley. Over the pond, there’s a belief that those who are going to make it super-sized are natural risk-takers, and an understanding that not every ballsy gamble will pay off, while UK investors are dry old sticks more likely to take past failure as a sign of recklessness.
So the stereotype goes — and there’s some truth to it, as shown by the US’s more lenient bankruptcy laws, which are based around the idea of the ‘fresh start’ and give some protection to a bankrupt’s personal property. Indeed, a 2005 US report correlated states having greater protection for the bankrupt with those having more business start-ups.
Illustration by Phil Wong
I SPOKE TO two entrepreneurs who faced bankruptcy of a different kind: while Murray-Hundley faced personal bankruptcy caused largely by recklessness, Rachel Elnaugh and Penny Streeter’s businesses went bust.
When Red Letter Days, a business that sold experience-based gifts founded by Elnaugh, a former investor on Dragons’ Den, went bankrupt, Elnaugh said the subsequent ‘media meltdown’ was ‘very humiliating’. ‘I was painted as a complete failure and a monster,’ she says. She believes her high media profile sped up the company’s downfall when unfavourable media coverage caused her suppliers to panic.
Streeter, CEO of healthcare recruitment firm Ambition, also recalls the shame she experienced after her first recruitment business went bust. Far from encouraging her to start afresh, the general advice was that ‘you need to pull yourself together and get a “proper job”’, she says. ‘And you do feel small and embarrassed about it.’
Streeter rebelled against this counsel, however. Newly divorced, and having lost all her money in her failed business, she moved into a homeless shelter with her three children and from there launched Ambition with her mother, Marion. Reluctant — and indeed unable — to take out a start-up loan, she and her mother initially worked as children’s entertainers to cover Ambition’s costs and borrowed desk space from a friend. Fifteen years later, the company turned over £56 million in 2011.
Streeter says her early business failure taught her two things. ‘Firstly, I developed a big fear of failure, and that drove me to work even harder.’ Secondly, she says she learnt that she didn’t need to borrow money to make the business work. Ambition has never sought loans or outside investment, and it never takes out leases or mortgages.
Murray-Hundley’s experiences gave him a similar perspective. ‘One of the lessons bankruptcy has really taught me in the last ten years is you don’t need money to drive a business forward. I meet a lot of technology start-ups and when they say they need £500,000, my reaction is, “Do you really? What would you do if you didn’t have £500,000?” and there’s a right and a wrong answer.’
He also now believes that money should never be a motivator, either on a personal level (‘To be honest, I was probably unhappiest when I was at my richest’) or in business (‘It’s about the long term, and creating value, you can’t just be focused on money’).
When Elnaugh’s business collapsed, a flurry of requests came her way to speak at enterprise events. She soon saw a new opportunity in business self-help, and in 2008 she published a book on her experiences, Business Nightmares — no prizes for guessing the subject matter.
Her change of career taught her that her experiences were far from uncommon. ‘Immediately after the business crashed, so many successful people — particularly business women who I thought had amazing business lives and had no problems whatsoever, contacted me and confided in me about what they’d gone through, that no one had known.’
IN 2010, SHIKHAR Ghosh, a senior lecturer at Harvard Business School, estimated that around 30 to 40 per cent of businesses fail. Little wonder that there are plenty of swaggering, but secretly stressed, entrepreneurs, all desperately concealing their business problems — no one wants to spook investors, creditors or suppliers, after all.
Tempting as it might be to remain quiet when it comes to failures, Elnaugh says this culture of secrecy is damaging for entrepreneurship. The stigma surrounding bankruptcy can in fact hasten it. ‘If you’re not telling anyone about your challenges, that means you’re not going out and getting advice. And I’d say to people that as soon as you have a problem — and you always have less time than you think — you really have to be going out and getting the best advisers.’
Streeter agrees that there should be a more honest, open conversation around business failures. ‘Otherwise you get people like me starting up businesses in the first instance as naïve as anything, thinking that nothing can really fail, and then it’s such a major shock to the system when things go wrong.’
Streeter, Elnaugh and Murray-Hundley all attribute their ability to recover from major setbacks to a combination of necessity and certain shared character traits. ‘I’m very independent, I don’t take no for an answer,’ says Murray-Hundley. ‘I believe in myself,’ is how Streeter puts it, admitting she’s ‘a bit of a rebel, I don’t like being told what to do’.
According to a Barclays Wealth Insights report, 34 per cent of entrepreneurs say that failure encouraged them to try again, compared to only 19 per cent of ‘non-entrepreneurs’. It’s a slightly bizarre statistic, but it does help lend weight to the instinctive idea that entrepreneurs, who as a group tend to be persistent, original thinkers and natural risk-takers, are well adapted to overcoming adversity.
OF COURSE, THE barriers following bankruptcy are not purely psychological but practical, too. Generally, the period of bankruptcy lasts one year, and during this time restrictions include a cap on borrowing over £500 and bars on running a company and taking up a directorship. There are little humiliations, too: Murray-Hundley wincingly recalls not being able to use a credit card to book hotel rooms.
The standard period of bankruptcy was reduced from three years to one in 2004, reflecting a growing belief that a bankrupt is often a ‘victim of misfortune’, says a senior QC with extensive experience in insolvency. There are also moves afoot to make it easier to petition for bankruptcy by allowing it to be performed by civil servants, rather than the courts. ‘A lot of the people in the profession would be unhappy about that, because it waters down the effect of bankruptcy,’ says the QC.
Murray-Hundley says that he needed three years to fully ‘learn my lesson’, but Streeter — who doesn’t attribute her bankruptcy to going off the rails — would approve of making bankruptcy laws more lenient: ‘Most people, before they’re successful in business, will run two or three failures first of all, so the likelihood of bankruptcy is quite high. To be able to extract yourself from that relatively quickly is very important.’
Spear’s QC has a more sobering perspective: ‘In my opinion the period of bankruptcy should have been kept at three years, but it’s probably academic, because economically, things are so bad.’
If we don’t want to adopt the same bankruptcy laws as the US, we can still learn from them when it comes to our attitude towards it. In any other sphere of life we acknowledge that it’s possible to learn from mistakes; these entrepreneurs who’ve bounced back from bankruptcy would argue that business is no exception.
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