Setting up a business near your old workplace

16 August 2007
Setting up a business near your old workplace

Successful entrepreneurs rely on more than just flair to build their businesses. Most do a lot of local research, while some even set up on their former employer's doorstep. Emma Allen investigates the benefits

Someone new to the area might have thought that the Lygon Arms had the market sewn up in Broadway, but his local knowledge meant that Barry Hancox could see the gap in the market that allowed him to open his own venture, Russell's

As any successful entrepreneur will tell you, one of the tricks to setting up a thriving business is to do your research first. However, no amount of investigation can beat having strong local knowledge built up by first-hand experience working in the area where you intend to buy. Knowing who your customers are, understanding trading patterns and, crucially, knowing whether there are any unfilled gaps in the local market will all give you a competitive edge.

For hotelier Barry Hancox, being able to take advantage of all of these helped to establish his new venture when he opened Russell's, a restaurant with seven rooms in the quaint Worcestershire village of Broadway, nearly three years ago.

The move was more a change of view than a relocation for Hancox. Before taking on Russell's, he had been general manager at the four-star Lygon Arms hotel, just 200 yards up the road, where he had worked for 16 years.

While Hancox hadn't planned it, having such a detailed understanding of the local market was, he says, invaluable. Not that the idea was to create a second Lygon Arms. He and his business partner, Andrew Riley - who previously owned the Broadway hotel, in the same village - had a clear vision of what they thought the market needed, and their focus was on a much more contemporary feel than the more traditional Lygon.

Hancox explains: "We knew the village needed a good restaurant, and that people were looking for decent food without the stuffiness - we got in just at the right time. And because we had this huge space up-stairs, we decided to add bedrooms. The concept just snowballed."

It hasn't all been plain sailing, though. Hancox left the Lygon under what he des­cribes as "difficult circumstances" after the hotel was sold to Furlong Hotels in 2003, and he admits that his departure was "more their decision than mine" after his relationship with the new owners didn't work out.

And although he remained on good terms with most of the staff - his wife still worked there as revenue manager, and his restaurant manager joined him at Russell's - he admits that the proximity was a strain at times.

Contracts were another complication. Restrictive covenants in his employment contract threatened to prevent him from operating near his former employer, until his solicitor was able to negotiate a solution.

Clear advantages

There have been clear advantages, however, such as being on the spot to secure the site - an old design workshop on the village high street. Hancox and Riley say that understanding seasonal fluctuations in a touristy area was enormously helpful in their early days, while having good corporate contacts has been useful for building midweek trade.

They both also feel that raising finance would have been much more difficult without their combined local knowledge. Total set-up costs were £1.5m, with £1.2m borrowed from the bank. Hancox points out: "The bank felt much more secure because of what we knew. We weren't seen as such a risk."

Hancox also reckons that in some respects he and Riley have a bit of an edge over the Lygon Arms. "The Lygon never got that involved with the local trade," he explains. "It was probably seen as a bit intimidating, a bit stuffy, but we've always had strong support, which you need in a small place like this."

Part of that has been down to well-pitched pricing, such as the restaurant's early-evening fixed-price dinner menu, which has drawn in the area's "silver" clientele. The accommodation is also doing well, with all seven rooms fully booked at weekends throughout the summer.

Average room rate is £110, and occupancy is a healthy 85%, which Hancox, with his experience, guesses is probably higher than that achieved at the 69-bedroom Lygon Arms. "Obviously, we're much smaller," he says, "but I'm sure their occupancy level wouldn't be anything like ours."

Sufficient trade

Is there much competition between the two businesses? Hancox stresses the differences between them, but he thinks that Russell's benefits more from his old workplace than vice versa. "If you're staying at the Lygon, you probably want an alternative place to eat, but there's unlikely to be much crossover in their direction," he says. However, he thinks there's enough room for everyone. "We knew there was sufficient trade, but if the Lygon does well, we tend to all do well," he says.

As with Hancox and Russell's, it was spotting a gap in the market that gave Laurence Beere the impetus to open the Queensberry hotel in Bath four-and-a-half years ago. He knew the city well, having worked for the Savoy Group as operations director and having had a two-and-a-half-year stint as general manager of Bath's five-star Royal Crescent hotel. But when the Savoy Group sold up to Von Essen hotels, he took redundancy and found himself thinking about opening his own hotel.

Bath, he says, was an obvious location, not simply because he and his family were based there, but because he reckoned he knew what sort of property the city lacked. What he had in mind was a boutique hotel, combining modern design with an affordable price tag to appeal to a slightly younger clientele. He explains: "I knew the market well and there wasn't much competition - and still isn't - as Bath tends to deliver that chintzy, traditional style. I felt there was a real opportunity for something young and fresh."

Getting finance from the bank proved trickier than he had imagined, though. Beere says: "I was quite naïve about what the banks wanted and, looking back, I'd advise using a broker, as it can save a lot of time."

Eventually, Beere and his wife bought the 29-bedroom Queensberry hotel for £3.8m, having raised £700,000 by remortgaging and raising funds themselves, with the remainder coming from the bank.

To make an impact on Bath's competitive dining scene, they decided to refurbish the hotel's restaurant first, updating the decor and adding a bar, rather than upgrading less visible areas such as bedrooms.

Doing this, he says, also earned the hotel valuable PR, which in turn paid off across the business. Occupancy is 83%, up from 69% when they bought the hotel, and the average room rate has risen to £137 from £91.

"Plenty of people didn't think we were doing the right thing," Beere admits. "Our older guests looked at us as if we were young whippersnappers, changing what they were used to, but we always knew that the market was there to support it."

That understanding of a changing marketplace was something that spurred on Wendy Bartlett and Ian Mitchell when they set up their contract catering firm, Bartlett Mitchell. Bartlett feels that, as former Compass employees with years in the industry, they were well placed to develop their own niche.

More personal

"Compass does a fantastic job, but because we'd worked there, we knew the things they weren't so good at," she explains. "They have to answer to shareholders, for example, which we don't, so we don't have to be just about making money. We can afford to be more personal and client-centred."

The company's growth has been steady and, while there was no animosity when they left - "everyone was actually very supportive," she says - she recognises that, seven years on and now with 54 contracts, it's starting to compete in the same pool as the bigger corporate players.

One advantage Bartlett feels the company offers as a smaller operator, however, is being able to adapt to new trends more readily than some of its competitors, keeping it ahead in the industry. "The sector has really changed in the past 10 years," she says.

"Nowadays, people look for added value and passion - whether it's boutique hotels, retail or contract catering - and that's a big challenge for some of the bigger, more cumbersome firms."

Setting up near your old workplace

Billy Couper, associate director at Christie & Co, offers some advice:

• Even if you know the area well, don't assume you know everything. Research the market. Do the usual planning checks to find out what's coming up in the area.

• Be honest. Is the area strong enough to support another successful business? Do you regularly turn custom away in your current role? What levels of trade would be possible if the existing business were bigger?

• If you have strong local knowledge, banks will look on you much more favourably for lending. If you need finance, consider bringing somebody in to the venture who can demonstrate this.

• Make sure you check your employment contract for any restrictive covenants that could prevent you from opening a business nearby. If necessary, consult a solicitor who can negotiate on your behalf.


Case study: Pierre Chevillard, Pebble Beach

For Pierre Chevillard, working as head chef at Chewton Glen, New Milton, Hampshire, for nearly 25 years, and earning a Michelin star there, gave him an invaluable head start when he moved to the Pebble Beach restaurant in nearby Barton-on-Sea.

"Because I'd worked in the area for so long, a lot of people knew me," he says. "I'd built up a name that has been beneficial for bringing in customers. Obviously, Chewton Glen was a prestigious name too, and that's been helpful. I still get a lot of old customers coming in."

While Chevillard points out that the two restaurants are not in competition with each other, he feels that there's a clear crossover in trade. "Our customers are mainly affluent locals," he says. "I didn't set out to copy Chewton Glen, so the menus are different, but I'd say the quality of the food is the same, and people probably pay about 25% less here."

Holding on to valuable supplier contacts was another big advantage to staying in the same area. "As a chef, when you get to know the right people over 15 or 20 years, you really don't want to lose that," he explains. "If you move, you're basically starting all over again."

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