Disruptor Rowan Gormley: From Boksburg via Branson to Majestic

LONDON — Rowan Gormley's journey of mentorship by two of world's best entrepreneurs through his own startups and running liquor retail industry disruptor Majestic Wine. – Alec Hogg.This is the Rational Perspective, I'm Alec Hogg. In this episode Rowan Gormley, the man who was transforming the world's wine retailing business. When I arrived for our interview at his farm near Bungay in Suffolk, Rowan Gormley was in shorts and a pink golf-shirt busy watering plants in a small greenhouse. A few hours later he'd be hosting 300 people in a marquee set between his homestead and the ruins of Mettingham Castle, which is also on his property. The castle was built by one Sir John de Norwich in 1342. But there's no airs and graces about the fellow who now lives on the property, as you'll hear from our conversation. That's Gormley's style – relaxed, informal, and engaging. We sat out in his garden during the height of a fairly hot English summer, mercifully cooled by a breeze from the Atlantic a few miles away. In person, his style reminded me a bit of Richard Branson, which is not really surprising considering that for some years Gormley actually worked with the famous founder of Virgin. His story starts though in the South African industrial town called Boksburg, a place better known for producing pugilists, like world heavyweight champion, Gerrie Coetzee, than professions who go on to change the world..___STEADY_PAYWALL___.It's where I'm from. If you can make it in Boksburg you can make it anywhere..But you've been described in the British media as a surfer boy, you came from East London..I grew-up in Boksburg of course, and we moved there at the age of 8, so I really spent most of my… In fact, I probably only spent 9-years in East London, which isn't a very long time, because I've been here a lot longer but I still really think of East London as my home..That's East London he's talking about, a coastal city in SA, and by 'here' he's referring to the UK, where he now lives. Gormley spent his formative years though at Selborne College, a famous male-only school in the place he still calls home..I feel like I was part of a generation that we were very lucky to get a very good education, at the expense of a lot of other people. So I've kept the relationship with Selborne going and I've setup a bursary there for, effectively, black kids who've got talent but wouldn't be able to afford to go. My tiny, little personal hypothesis on SA is that it badly needs a black middle class because people who've got houses and a future for their kids, careers and that kind of thing have got something to lose and to value and that's what the future of the country depends on. So my little contribution is sending one child per year to Selborne College..Have you met these kids?.No, I haven't. I did it a few years ago and I've never met that particular guy. I've literally just restarted it in the last year. I'm going out next year so hopefully I'll be able to see some of them, it will be fascinating..You must have loved your school though?.I think it was very good for me and I think it did a very good job. East London is a tiny, little back quarter town and the population of children was drawn from all kinds of backgrounds. But Selborne did a very good job of finding something in a lot of those kids that another school wouldn't have found. That's what I respect it for and I think it still does that..How did you end up in East London?.My dad always loved the beach and he worked in Johannesburg. We lived in Boksburg, if you've been to Boksburg it's a shithole, and really nothing to recommend. So my father was always desperate to move to the coast..Their move from Boksburg wasn't the best timing. A year after the Gormley's arrived in East London the 1973 oil crisis hit the world and this town, built around the local Mercedes Benz factory, went into deep recession but the family stayed and Rowan went off to the University of Cape Town, and after graduating he joined an accounting firm, Arthur Andersen. Soon afterwards, he was off to London and a new life in private equity..The draw was that the salary was three-times as high as working in accounting. But the real thing was you got an incredible amount of independence and autonomy, and the guy I worked for, his name is Michael Stoddard and he was just a buccaneer in those days. He still used to do business over several glasses of claret at lunchtime and write the deal on the back of a napkin. The contracts were two sides of A4, the financial analysis was done in his head, and he made an absolute fortune. He was a fantastic guy to work for because you learnt so much, and at a very young age I was given the authority to go and buy companies and change management teams and change strategies, and then sell the companies, which was an incredible amount of authority for someone who frankly knew nothing. I shudder to think what a pain in the ass I must have been because at 25, I think you know everything, don't you?.Of course..But it was a brilliant training ground and great fun, and I spent 7 years there..What was his background?.Michael came out of a merchant banking background, and there was this kind of sleep investment trust sitting there called 'Electra' and he had the insight before the private equity industry got going and before venture capital really existed in the UK. That you could make much better returns investing in unlisted companies and then floating them, then waiting for them to float and the people who made the money were the people who were in for the 2 or 3 years prior to floatation. So he wanted to get stuck in at that early stage and that was a great insight and he made an absolute fortune..Now, having one mentor, if you like, like that in a lifetime is, for many people would be enough. But you then went from him to someone even bigger..Yes absolutely. So Richard Branson, who you're talking about. He was fantastic actually, it was while I was in private equity. We worked on a deal with Virgin and the deal never happened but a couple of days later I got this phone call and a slightly hesitant voice on the other side, because Richard's phone voice is quite different to his personality. He's very quietly spoken, so he was like, 'Oh, hello. Is that Rowan?' I said, 'Yes, who's that?' He said, 'It's Richard.' I said, 'Oh, right, Richard who?' He said, 'Branson.' I went, 'Oh, f&#k-off, who are you really?' And it was him, so we had this very curious interview and he said, 'Do you want to come and work here?' I said, 'Well, what do you want me to do?' He said, 'I'm not really sure.' So I said to my wife that night, 'I think I've been offered a job.' She said, 'Did you discuss money?' I said, 'No.' So, she said, 'Well, you clearly haven't been offered a job. You had better phone him up.' So the next day I phoned him up and said, 'What about the money?' He said, 'What are you earning now?' Obviously, in private equity, it's stupendously well-paid, so I told him. He said, 'We can't afford that. I can pay you half that.' So, I said, 'All right, I'll take half that but I want to be able to within 2-years go and run one of the companies that we setup.' He said, 'Fine.' Literally within 6-weeks that promise came true..Six weeks, what was it?.Well, literally the day I arrived we all had lunch together with a bunch of these other very impressive people who formed the Virgin management team. The discussion was what should we do with the Virgin brand? Everyone was talking about rocket-ships, nightclubs, and boutique hotels and this kind of stuff. I went, 'financial services?' Everyone laughed, except Richard, who said, 'Why?' I said, 'No one trusts banks and everyone trusts Virgin, I'm just saying.' So, he said, 'Okay, let's do financial services.' He's got this big book and he writes everything in the book, so he wrote it in the book. So afterwards I hung back and I said to him, 'So, when you said do financial services, did you mean you want to report, or do some research, or what do you want?' He said, 'No, let's do financial services. Let's setup a financial services company.' I said, 'Do you mean banking, or insurance, or investment?' He said, 'I don't know. You suggested it. You go and do it.' That's how I got setup in the business..Where did you go from there? He said to you, 'Go into financial services.' Where do you even start?.Yes, well we had no money, so the first thing we needed was money. We also knew nothing about financial services, so we needed someone who knew all about financial services, who had money and had a business model that needed a new angle. Through a friend of a friend we got in touch with Norwich Union, which is why I'm in Suffolk now, just very near Norfolk..Just 10 weeks later Virgin Money was born. It had 100 employees, regulatory approval, and a new tax-driven product, but things didn't get off to a great start. Not much money flowed in and a day before the tax year ended, Gormley got the surprise of his life. A post office van arrived with £50m of deposits. Virgin Money was then off to the races. It was a lesson that was to serve him well in other start-ups, the ability to persevere, as long as there's a coal still glowing there's hope..Shareholders always panic much earlier because they expect you just chuck the match in and the whole thing goes up because that's how they read about what happens in Silicon Valley. People only read about these glorious success stories, so in general, you go through a cycle, which we call 'The Valley of Death' where everything looks terrible and cash is flowing out the door and your investors are panicking and your staff are looking around for new jobs because they think it's all going to end, and I'm blissfully happy because I can see enough coals glowing that I can feel that all we have to do is just stick to the knitting. See this thing through, just keep blowing on them, just keep nurturing them, keep adding a little bit of fuel to the fire, and eventually the whole thing will burst into flames. Then everyone will look back and say, 'Well, it was obvious.' The same people who were telling you, 'We're all doomed. We need to close this down, and stop spending money.' They'll be sitting there going, 'Yes, I always knew this.'.So, what did the lad from Boksburg get to learn from these two great entrepreneurial mentors, Mike Stoddard and Richard Branson?.Well, they're very similar people. What they've both got in common is neither of them did well academically. Richard never finished school. I don't know how Michael did, but not well. So they are both people who trust their instinct. Something Richard often said to me is, 'The problem with these very highly educated people is they're taught to think like everybody else.' They're taught to group think, and therefore they can never spot an opportunity to disrupt. Whereas, both Richard and Michael, are very good at looking at accepted wisdom and spotting the flaw, and going, 'Well that's bonkers. People have just missed something here' and they're prepared to trust their gut..Very much, Richard especially, is probably prepared to go, 'Well, let's not spend a lot of time talking about it. Let's just try setting up a little business and see if the public like it.' So, don't go wind it up. If they do, we'll build a proper company, and that's the philosophy we've kept going..In other words, entrepreneurs shouldn't be slavish about business plans or about the spreadsheets that usually take a long time to develop..That's right. I think one of the great dangers of Excel is that it encourages people to extrapolate straight lines, and it's very easy to build a plan that with a few very unheroic assumptions starts looking incredibly powerful. So it never turns out like that. We have a rule of thumb inside the business that for every three ideas we have two more dogs, and we're just as convinced about all three, there's no way of telling in advance, which are the dogs. You've just got to try them. We don't put out a 10-year plan. What we're always doing is, like an explorer, working a way through a swamp. You keep putting your foot down, if it sinks into the muck you pull it out again, and rotate 90 degrees and put your foot down there, and if it's solid you take the next step. So when you hear Elon Musk say, 'We're going to Mars.' We don't have a 'go to Mars plan.' We just have a, 'we're pretty sure what we're doing for the next year plan.'.In the mid-1990s Gormley sold his stake in Virgin Money and got himself a chunky £5m. Well, for many people that's enough to retire on, but not for him. Here's a story of how the wine industry disruption begins. So, I asked him, 'Why wine?'.Partly because I went to UCT, so I've always had an affection for the product..The Peg and Whistle, is that where it was born?.Also, just lots of kids in res their parents were farmers, so we spent a lot of time. So I've always had a soft spot for it but the thing I thought about wine was the internet was just starting to happen..When was this, what year?.This was in 1998/99, and Amazon was just getting going. You still fired up a modem and that kind of thing. The thing that I found myself using Amazon to do was finding new bands, and new music, new authors, and new books in a very reliable way, and if you like this, you should try that. I thought that this is what the internet does. I didn't really understand the internet any different to anyone else. I didn't know if Amazon was going to succeed or not, but the thing that was clear to me was the internet was a great way of finding out what was inside a book, and what was inside an album before you took it home. I thought well, what else is like that and wine is the obvious product. Most people are forced to look at a label and go, 'All you do is look at the label and the price.' Those are the only two bits of information you have to go on, so I thought wine is going to be one of the products that's going to win and because Amazon is an American company, and the American wine market is very tied up with horribly anti-competitive legislation..Enter Gormley's innovatively named start-up number two, Orgasmic Wine, what a cool name. But why did you drop it?.Then Virgin came in and bucked it..Okay..Anyway, that worked very well and the business got going very quickly, so we raised a pile of money and made every classic dot-com mistake. We spent too much on an advertising campaign. Setup a fancy office in London. Hired too many people and it was a big chunk of hubris on my part that I thought I had two successful companies behind me and I thought it was me, and of course, it was a lot to do with many other things. Not least of all, the team you have around you. Anyway, that completely bombed and we burnt our way through £20m in a very short space of time..Not usual for the dot-com era, hey..No, not unusual but again, there was a glowing coal..What were you doing right?.What we were doing right was we were selling lots of different wines, so we thought we should be like others and also have literally thousands of wines for sale. In amongst that were all the well-known brands, which weren't selling, but what was selling was we kept finding these little producers, who were just making amazing wine. We could get the wine very cost effectively because there was no other route to market for them. So you had these products that just completely outperformed the big brands and our assumption had been, people won't try them because they want to buy wines they recognise. The great thing with the wine business is that that assumption is false. The minute something becomes a big brand actually, people's perceived value in it drops and brands become commodities very quickly, and rarity has a value in the wine business. So we pretty quickly figured out that backing small winemakers was the way to go..When we first went out and started saying to people, 'Look, we've got a new model.' Instead of you making all the wine, taking all the risks, and then hoping you can sell it – we're going to fund your wine. You don't need to spend money or time selling it, and in exchange we want a significantly better price, but you're guaranteed your wine is sold and you're guaranteed to make a profit of your funding production. So, generally, in Europe people went, 'No, that's not how the business works.' Australia, New Zealand, and SA people were very much more, 'That makes a lot of sense. Yes, let's do business that way.' Then the message spread-out into the old world and then it changed from us having to try and convince people to work with us to people phoning us to say, 'Can I be one of your wine makers?'.So this was the strategy. Then you were at £25m. Business looking good. Someone comes along and buys you out..Yes, so we sold the business to a competitor..Why?.Well, Virgin went through a phase of, 'We only want to be in businesses that are worth half-a-billion, or more.' So, Virgin Wines was earmarked, and we were still struggling at this stage, and losing money, even though it was clear it was going to make money. Virgin Wines was earmarked, and 'We should get out of this business. It's not going to be a £500m business.' So the business was put up for sale and then the guys who bought us signed me up for 5 years to stick around with the business and about 3 years in, they ran out of money. I tried to buy the business back. We had a bit of a fallout and in the end, they fired me. I was thinking that it was a way to avoid paying out the rest of my shares. But they hadn't read the contract properly and by firing me, they triggered the whole deal..So, now you had capital with which to start a competitor?.Now I had a bit of capital. I literally walked out the meeting where I got fired. They had excommunicated my phone..Now that's really… I read that story, and I couldn't believe it, seriously?.So I went and bought a new phone..Did you ask them about that afterwards?.We've never spoken since. .So, you bought a new phone, and…?.I bought a new phone. I phoned somebody to say, 'Look, I'm going to setup a new wine business, do you want to back us to do so?' He said, 'How much do you need?' I said, 'Three.' He said, 'Three what?' I said, '£3m.' He went, 'Okay, fine.' I phoned the office and said to one of the guys, 'Tell these 17 people not to agree to anything. We're going to setup a new company.'.Why 17? .I just wrote the list of if I was going to setup a new company, these are the people that I wanted, and that was it..Did they all join you?.They all joined, and because of the legal ramifications we had to tread on eggshells to avoid getting into complications..What happened to the company that you left?.It merged with another company and 10-years on, it's about the same size, making about the same amount of money..But doing the same kind of thing?.Yes, it's still there..Gormley, and his 17 new colleagues got disrupting from the get-go and by 2015, this internet-only focussed, Naked Wine, was big enough to attract the attention of its industry's gorilla, Majestic Wine, which traded through 200 High Street stores..So, two things happened. One was I ran out of money and it started by saying to us, 'Look, we can't invest the last tranche.' Then, 'In fact we need to get some money back.' Then, 'We need to get all our money back.' Then eventually, we've got to sell out completely. So, they landed up in an unfortunate situation for them. At the same time, Majestic, who dominated the UK retail space, their sales – they had a model, which worked brilliantly for 20 years and it ran out of steam. The market was changing and the management team's strength was sticking to the model and when the model no longer worked I think they were at a bit of a loss as to well, where do you go from here?.So, the chairman, at the time, is a guy called Phil Wrigley wanted to buy Naked for two reasons. One is, it just instantly gave Majestic an online and an international angle. Secondly, he wanted a management team who are used to working in an agile environment because it was clear that we needed to try a bunch of different things to navigate our way out of the train smash that is UK retail. That was in 2015, and the deal got done very quickly. So, at the time, Naked was a £70m business. It's now a £160m business 3 years later. So, Naked's promises had come through. It was a £70m business losing, I think £4m or £5m. Now, it makes £8m or £9m, and Majestic was going south and we've got it growing again, even despite the fact that this is a very tough market with the currency going against us and consumer confidence going against us..And they appointed you to run the place?.Yes..That's unusual..Where a gorilla buys a chimpanzee and then says to the person, who's looking after the chimpanzee, 'Please come and look after the gorilla too.'.Yes, but it was clear the trajectory of the two companies, I think the big change in thinking that we brought along was the two aren't competing with one another. The same customers, one day they'll walk into a store because they have a specific requirement. Their daughter's 18th birthday is coming up and they want to have a party, and a week later they just need a case of white burgundy, so just go online and buy it. So I think the thing we brought was the same customers who use all of these channels, and it's not a multi-channel strategy, it's a channel blind strategy, but the channel is irrelevant. You've just got to have all of the options available that suit the customer..After taking over as the CEO of this enlarged group, Gormley put Majestic onto a three-year plan. The business is now two-and-a-half years in, and the fruits are beginning to be seen. Initially though, investors were sceptical. The Majestic share price falling from around £4.00, at the time of the deal, to £2.80 at its trough in November 2016. But since then the progress has been steady and the share price is now above that April 2015 level. As for implementing the plan…?.From the beginning, don't decide what you want to do. Before you do anything, you have to ask the guys on the ground what they think and normally there's a 70% overlap with what you think. But always, there are some things you didn't think of before and you've got to reflect that back to them. Then you go, 'Great, I've assembled all this and now, based on what everybody's told me, this is what I think we should do.' That moves it from one-third will do it, to two-thirds will do it, and to get the last third to do it you have to them go and report back to them how much better the people who are following the new plan are doing. Then some of them go along, and then eventually some of the others you've just got to go, 'Look, if you are one of our top performers – you do whatever you like, but as long as you are underperforming, you've got to do it our way.' And you've got to force them to do it. Then they do it, and then their numbers improve, and then they buy it..What do you like doing? What would you like to have 100% of your time investing in?.Just focussed on innovation and whenever we are able to devote energy to is there a smarter way of doing something? The company is still, and I'm talking about both companies here, sufficiently immature that anything you choose to focus energy on, you land up getting double-digit improvements from and therefore, the shareholders will be happy anyway. So, we are moving from a situation where we had a lot of communicating to do. To one where I think we've got the right shareholders who are buying the company for the right reasons, and we are now able to put the focus into the areas where we get the traction, which is finding better winemakers, finding ways to grow the customer-base, and finding better ways of interacting with those customers and giving them value to build further loyalty..Before we finish off, another one of these stories that sounds almost too good to be true was when the deal was done between Naked and Majestic, there was £7m of shares that you could have had and gave away to your team. How so? Is that true? Is that what happened?.Yes. So when you say, there was £7m. It is a number that might be worth £7m, under certain circumstances. So I didn't give away £7m in hard cash. It was the entitlement to a bunch of shares, which are going to be worth whatever they're going to be worth. The reason I did it was because, completely selfishly, I'm a 7% shareholder in the business, so I want everyone to be thinking about shareholder interests, and the best way to do that is to make everybody into shareholders..So, it was your share options or share option allocation that you spread, in essence?.That could, one day, be worth £70m maybe?.Exactly, who knows. We can hope..The last question is America. When the news came out that it hadn't been a rip-roaring success the share price, in this case, dipped..What's going on there and why do you need to go to America?.Well, our sector of the wine market is seven-times the size of the UK. The margins are growing, and the competitors are hamstrung by legislation, which is designed to stifle competition, which came as a big shock to me. I always thought America was the home of free-market and all the rest, but it's not. So, there is more potential in America than the rest of the world put together, so we needed to go there. We did stub our toe, but that was two-and-a-bit years ago. Since then, we've changed the team, we've changed a couple of things about the model. This year it is heading towards being a $100m business, making several million dollars. It made, I think, $4m or $5m profit last year. It's a hell of a business, and going back to the beginning, there was a bit of bad news, but there were lots of glowing embers. It was absolutely obvious that that business was going to make a pile of money. So, when we stubbed our toe, like I said, there was never a question of us pulling back or pulling out. It was just a case of being patient, sticking to the plan, and it will come and it has done so..That was Rowan Gormley, CEO and 7% owner of the £300m market-cap retailer, Majestic Wine, which is disrupting its industry at home and abroad. In the process, opening up the production side, to talent, long excluded by a barrier of needing substantial capital to even get into the game. This has been the Rational Perspective. Until the next time, cheerio.

Disruptor Rowan Gormley: From Boksburg via Branson to Majestic

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