So how many businesses do you have at the moment?
So we’ve got the St. Ali, Sensory Lab, Plantation, My Mexican Cousin, outside of that I’ve got a couple of other interesting food and beverage venues that I deliberately keep my association with low-profile. And then I’ve got an architectural practice called Barbara and Fellows, and I’ve got a social media business called Anchor and Twist, and then the Salvatore Ink brand. I guess a good way of referring to Salvatore Ink is a seed funding – I don’t like the word venture capital. I’m involved in a number of things like a social media business called Digidoor. That’s not a start-up blog site, it’s actually run out of University of Technology Studies in Sydney; it’s partnered up with two PhD students working on augmented reality and it’s got $500,000 in government funding. That’s the kind of thing that’d be worth zero or a hundred million dollars. And I do a lot of that stuff because I enjoy it.
You’ve got a lot of different partners involved with your different businesses, how do you find your business partners?
Okay, so, that’s a good question because I’ve tried everything. I think actually now I’ve got one business partner and Ross Quail has got a 10% shareholding in Sensory Lab, I’ve got no other business partners anywhere, I’m done.
What about Grant Smillie?
Good point, yes he’s a partner as well. The idea of partnerships generally for me is a useful tool as what you want to do is to partner up with skillsets and workers. That’s more important than money. Money’s easy to find. There are lots of people with money who have investments in things, but they don’t actually evaluate it. If you can underwrite the investment yourself or get the money cheaply you’re better off doing it that way than having partners. So, in my experience, if you’ve got partners who are driven, that’s the key. Grant Smillie is a good example of someone who I’d open a club with, who’d understand the space – that’s a great partnership.
My partner at St Ali is Ross [Quail] and he has been involved in coffee roasting for 15 years, so he understands that space and the people in the space better than anyone else. So partnerships for me generally are a way of securing talent. Matt Perger, who’s the current brewer’s world champion and who won the world title in May, has been offered a partnership on an employee share scheme basis, so a percentage for him converts to shares at the end of five years. The reason why someone like me would do that would be to secure the best pedigree talent and that’s handy. However, what I’ve learned is that sometimes partnerships don’t actually make a difference and now it’s a two-part process for me. I think you need to identify entrepreneurial traits and partnership agreement. Because sometimes, and it’s happened to me with chefs, you have a partnership but it doesn’t make a difference, they still work exactly the same. They don’t actually understand the connection between their labour and profit distribution, so you’ve essentially given away money for no reason.
How did your background help create these businesses?
I’ve got a natural business acumen. Nobody taught me that, as my father and mother are not business people. I don’t know why, but I do. The parents gave me the best gift of all when I was a child, they gave me poverty. That was a handy way of learning how to do business as being poor was not fun. Money doesn’t buy happiness but it does buy a better class of unhappiness. If you are an unhappy person it does not matter if you are rich or poor.
I did an arts/law degree at Melbourne University and the law was mainly to keep my mother happy who wanted me to be a doctor, lawyer or priest. I wasn’t going to be a doctor or priest but in hindsight that legal training was useful. Often lawyers are not commercial, they argue the point and that is expensive and it’s not commercial. But, for example advocacy, that cross-examination technique and looking at individual facts, helps me decide whether someone is lying and whether they are the real deal or not. It’s been handy in that way and also handy as I don’t find legal contracts challenging or difficult. There’s a whole bunch of them in business and I feel sorry for small business operators who run one venue but need to understand occupational health and safety, GST reporting, BAS, inputs and outputs. That’s fairly intense.
I started off my first venue when I was at Melbourne University and I think I had $17,000. When you are young and you are poor you don’t have anything to lose. It was not like I was losing family money. It was just one big fun trip and I wouldn’t change anything.
What’s your most significant contract and how did you get it?
I’m a firm believer of the principle of infinite return. I think in business or in life, the most important decision is to decide when not to act. It’s really easy, you go “Yay, woo-hoo” and it’s much harder and much more mature and insightful to say no and look for the genuine gem in the deal.
I’m courted often by developers and those developers sometimes are well intentioned and sometimes aren’t. A lot of people are going around at the moment and signing up leases and getting contributions but the leases are unsustainable; they might be $300,000 a week but they are silly deals. They look good because you are getting a $1 million contribution but they are actually a shit deal. For me, if you can pull off a deal with your occupancy costs low and a contribution cost, so the site is free, hence my infinite return principle, that’s the best deal.
That sounds ridiculous but I’ve done it lots of times. One of the times was with Monash University 10 years ago and I secured a tenancy of 280 square metres. The proposal was for Artichoke and Whitebait and it was going to be a coffee focused deli and a fish and chipper; hence the name. The rent was $60,000 and the lease term was 15 years, so it was a good deal to start with. But because I was not interested in doing fish and chips I thought I would look for a specialised operator in that space. That operator provided capital contribution which essentially ended up paying for my entire fit out and that operator took up 80 square metres and paid $45,000 a year rent so I got the bulk of the tenancy for $15,000 and had a capital contribution of pretty much zero. It was hard to go wrong. We sold that business a year-and-a-half later for $1.5 million.
What’s the most valuable marketing you have done in the last year?
We are a little bit privileged as we don’t ever pay for advertising. We have a good story so we are naturally in the press. I do brand interviews that are coffee-related. I have learnt from TV, radio and press that when you do interviews that you have to do key media messages and I have those embedded in my mind and it is all I ever talk about. So, every opportunity I have, I talk about speciality coffee so every interview is a way of breaking away or chipping away that the hold that mainstream coffee brands have on the market. I think I have created a market.
A parallel example of that is the iPad; nobody thinks they need an iPad, it is an intermediary tool, but now everyone has an iPad. I actually think the specialty coffee market needs to educate its end user market. Traditional marketing just doesn’t work unless you have massive budgets.
Cara Waters is the editor of SmartCompany. Cara was previously a senior reporter at the Financial Times website FT Adviser in London and has also worked for The Sunday Times.
