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Wednesday 1st May 2002 |
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In 1989 Chris Castle did an extraordinary thing. Months after he'd lost millions of dollars of his own and other people's money in the collapse of his listed company Charter Corporation, Castle went back to the company's shareholders and asked them to invest in a new business.
His gall is surprising enough. But what's really extraordinary is that 40 of those shareholders agreed to hand over another $202,000 of their money. Castle pumped the cash into Widespread Portfolios, an investment company which 13 years later is quoted on the New Zealand Stock Exchange's unlisted board and worth $4.5 million.
Castle, a chartered accountant who also runs a consulting business and unlisted miner Asian Mineral Resources, belongs to a surprisingly common breed of Kiwi entrepreneur: survivors of failure.
He shares the label with people like the ex-chairman of collapsed property investor Chase, Colin Reynolds, who got back into the property business through Auckland's Symphony Group, and former All Black coach John Hart - often blamed for the team's last World Cup defeat - who sits on several listed company boards. Heck, even playing a part in Air New Zealand's Ansett Australia disaster didn't stop Ralph Norris being appointed as the Kiwi airline's boss.
Failure, it seems, isn't the career-inhibiting experience some might think it to be. In fact, the government's business hot-houser Industry New Zealand proudly employs two ex-failures and considers their experiences an asset. Being so afraid of failing that you won't take risks is a far more damaging trait, the agency says.
Fine sentiments, but just how do you do it? How do you lose money, social status, people's jobs, everything you've worked for, and still manage to face yourself in the mirror the next morning?
That experience is still fresh in the mind of Chris Jones, whose Telemedia telecommunications software empire became a victim of the dot-com crash last year. In August Wellington venture capitalist Jenny Morel plucked the eyes from the business and, with a handful of other shareholders, set up Argent Networks, installing Jones to run it. The company is said to be profitable.
Jones says he picked himself up from Telemedia's collapse by gritting his teeth, dragging his self-esteem up from his ankles and focusing on what he had created through the business. "We were a successful, profitable company doing multimillion-dollar deals around the world. If you've done that sort of thing once you can do it again," he says. Interestingly, while Jones and Castle both admit to making mistakes with their previous ventures, neither thinks the collapse was their fault. Their companies were just in the wrong place at the wrong time.
"Charter collapsed because of a tidal wave [the 1987 share market crash], not because I was a bad manager," Castle says. "Everybody was in receivership at the same time - about 200 of the 300 or so listed companies at the time went down the gurgler. If I was the only one who went bust I might have blamed myself, but I wasn't."
Jones says Telemedia was geographically in the wrong place to weather the 2000 dot-com crash. If the company had been based in the US it probably wouldn't have gone bust, he says. In his opinion, software companies are better understood in the US, and there's more capital and investment options around for a company that's hit a cash crisis. There's also a bigger pool of management and boardroom talent, something Telemedia was crying out for.
Bill Day, founder of Wellington marine contracting firm Seaworks, has another theory on why entrepreneurs can pick themselves up from the tarmac and go do it all again. Day lost his shirt on several property investments during the early 1980s before creating Seaworks, which now has an annual turnover of more than $30 million.
"The interesting thing about entrepreneurs is that failure can keep happening to them and it doesn't affect them," he says. "One reason is the time zone they live in, in their heads. Entrepreneurs are always living in the future, they're living tomorrow's dreams so failures in the past don't affect them. The other reason is that they're so driven by their goals that stuff doesn't affect them anyway."
The cheerful way Day recounts his past failures - "I was on first-name basis with the bailiff; he had milk and one sugar" - might suggest he now looks back on the experience as a bit of a lark. Unlike Castle, he has the luxury of knowing he never lost anyone else's money, and he is extremely successful now.
Still, when you talk to all three men it's clear that though the wounds of failure have healed, scars remain. "The worst thing about it was laying off the staff," says Castle. "We don't have a family; our family was the company, and I'd been personally involved in taking them on. They lost their jobs, they lost their investment in Charter, and because they'd all been given partly paid shares they got pursued by the liquidator for money owing. I hated that."
Though his partner Linda stood by him, Castle lost his best friend and was quietly dropped from the guest list of "society" events. Then there was the media publicity, which at times was personal and cruel.
Jones says telling suppliers was also hard, largely because Telemedia prided itself on treating people decently. Day regrets the toll his failures took on his family, who repeatedly had everything sold out from under them to pay his business debts. Another black memory is the way his relationship with the banks quickly turned nasty when things went wrong. Even after all these years, he says he couldn't deal with the same bank managers again.
Are you experienced?
Now it may come as little comfort to the three men - or the people whose money they lost - but according to some business gurus, they've all been through the best business crash course around. That's the view taken by Microsoft's Bill Gates, who likes to hire people who've made mistakes: "It shows they take risks. The way people deal with things that go wrong is an indicator of how they deal with change."
In the US business failure is widely viewed as an asset because of the valuable lessons it teaches. It toughens people up and teaches them they're fallible. Next time around they'll spot the warning signs earlier, and will have the skills and experience to deal with a crisis.
Jones has experienced first-hand the respect that failure commands in the US, particularly when someone comes out of it well. "You only have to look at the number of companies in the US that want me to run their businesses. I'm more valuable now than I was a year ago."
Two Kiwis who've also got their head around that concept are Morel and Neil Mackay, chief executive of Industry New Zealand. Morel had the choice of buying Telemedia's assets, then inserting a new manager to run the business. Instead, she gave Jones the job - after conducting "due diligence" on him. You only had to look at what Jones built up at Telemedia to realise he is an impressive individual, she says. "I had a feeling Telemedia's success was to do with Chris, rather than the company's intellectual property."
Jones came through the experience with integrity - he didn't try to protect his own financial position during the collapse - and has clearly learnt from the experience. "Chris is an impressive operator and he's more impressive now. He's a seasoned entrepreneur and we trust him."
Mackay has also employed two senior executives who've been through a business failure, before going on to run successful enterprises. Their experiences are invaluable at an economic development agency like Industry New Zealand, which is trying to help small and medium-sized businesses grow, Mackay says.
"They are able to talk, not about a text-book situation, but about their own experience, what they did and what they did wrong," he says. "They're also able to talk about how they took those learnings and used them in a new business that was successful." The badge of rebounding from failure gives these executives real credibility with clients, he says. Interestingly, though, he won't give Unlimited their names.
Lessons learned
In 1982 Castle's business was a one-man show. By 1987 Charter had 23 people in its head office and its subsidiaries employed 600 people. Castle, then 37, went to 30 board meetings a month and spent half his life on planes. Now he runs Widespread and Asian Mineral Resources by himself, using a laptop, a cellphone and a briefcase. In his Charter days, like most entrepreneurs, Castle concentrated on doing the deals and left someone else in charge of the numbers. Now he tracks the money almost obsessively - he even knows how much he spent at the supermarket last year.
"Every entrepreneur has a numbers person, or a broom behind them. I'm my own broom." Also, his new companies don't borrow money, "so if we get it wrong we don't go down the gurgler".
Going bust doesn't mean a business has to close, says Mackay. There are ways to keep it alive, such as bringing in new partners. About 2800 Kiwis went bankrupt last year; a quarter of them were previously self-employed or running a business.
Mackay says a common cause of business failure is when fast-growing enterprises start to outstrip their own expertise, he says. "Managers start to out-distance their own general understanding of marketing or finance and instead of seeking expert help they try to tough it out. They end up losing business and go into a downward spiral."
Kiwis have almost no tolerance to failure and there's a real stigma attached to bankruptcy, he says. "In America you go into Chapter 11 and it's seen as a way of dealing with the issue -properly."
This intolerance to failure is linked to the fact that we don't celebrate success, says Day. "It's only in the last 10 years that when an All Black has scored a try he's been able to raise his head when jogging back to the half-way line."
Castle agrees: "We are a conservative nation. People expect you to go to work and pay off your mortgage. Entrepreneurs are seen as wideboys and new money is scorned."
Of course, attitudes towards failure aren't helped by suspicions - sometimes founded, often not - that entrepreneurs hide assets overseas or in family trusts, so they come out of the experience financially okay, while suppliers and contractors get little.
But really, failure is just a fact of life in business, Morel says. Companies go bust and new ones start up. It's all part of the economic eco-system. "As venture capitalists we accept it is possible we will lose money on one of our investments, though we try terribly hard not to," she says. As a rule of thumb, venture capitalists expect that out of 10 investments, one will fail, two will go nowhere, a few will hold their own or do well, and a couple will turn out to be gang-busters.
According to Mackay, fear of failure poses as big a threat to our economic well-being as failure itself. "There are risks around every business opportunity. If you restrict yourself to safe business activities you'll never go anywhere."
The Science and Innovation Advisory Council has picked up this theme in a recent report to the prime minister. New Zealanders must learn to take risks and tolerate failure if the country wants to lift its economic performance, the think tank says. "Often we're quick to cut people down to size if they fail. Yet failure offers an unparalleled opportunity to reflect, learn and succeed on the next attempt."
Perhaps the last word on the value of failure should go to former Coca-Cola chief executive Roberto Goizueta. In 1993 Goizueta re-hired Sergio Zyman, the marketing man behind one of the world's biggest product failures, New Coke. Zyman had left the company after New Coke bombed with consumers.
So why did Goizueta bring him back as global marketeer?
"We became uncompetitive by not being tolerant of mistakes. The moment you let avoiding failure become your motivator, you're down the path of inactivity. You only can stumble if you're moving."
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