The fun vs boring business

By on March 18, 2013

Fun businesses will always attract funding – but boring firms are a better bet. Luke Johnson tells us why gritty industries such as the building trade yield a better return than the likes of restaurants.

There is a lot to be said for owning boring, gritty companies such as chemical plants or makers of building materials. For a start, there tends to be limited competition, because being intrinsically less enjoyable, such unglamorous opportunities attract fewer entrepreneurs and less investment.

By contrast, ‘fun’ businesses, like football clubs, film production, high-end restaurants, boutique hotels and book publishing lure countless hopefuls and wealthy backers. Many such investors don’t really care if they make poor or even negative returns.

Meanwhile, plenty of these sorts of companies are run by the staff and stars for their own benefit – so football managers, movie producers and celebrity players, actors and writers sometimes get rich – but shareholders mostly lose money.

Moreover, managers in these types of business are always getting confused as to their priorities. Often they think they are involved in art, or some profound cultural activity, rather than a commercial enterprise. Pretension abounds compared with hard industry.

Anyone who argues about costs will be met with the stock defence: It’s creative – you wouldn’t understand. Frequently, the chief executives of such concerns see themselves as intellectuals rather than capitalists.

Another reason to own mundane businesses: wages at the top in the media and entertainment world are enormous, unlike pay in sectors such as industrial cleaning or undertaking.

Why is this? Because the talent in show business is so well rewarded, the executives feel they deserve lucrative packages too. This is why bosses in the television industry, for example, are paid perhaps three times as much as comparable leaders who work in the haulage sector.

Of course, I haven’t followed my own advice, so a fair proportion of my involvements are in areas such as restaurants and media.

Why? Well, I suppose money has never been my sole objective – having fun, and feeling empathy and pride in the output of my company’s matters to me. But in my next life I plan to be a petrochemical tycoon.

I recently invested in a marvellous retro confectionery company called Hope & Greenwood. It makes classics such as toffee, sherbets, gums, jellies and boiled sweets – but with a twist. I think its success represents another example of a couple of growing trends in the food industry and among its customers.

The first is a renewed enthusiasm for traditional British products – from piccalilli sauce to Eton mess. We are rediscovering recipes and products from our childhoods and even earlier, and have become excited by our culinary heritage. Just look at the many dozens of cookbooks and TV shows about cakes and baking. Hope & Greenwood is capitalising on this fashion.

Second, many consumers are willing to spend more on better quality ingredients and produce. From real coffee to high-quality chocolate, a growing portion of the public wants to buy premium items, and is happy to pay extra for quality. My artisan bakery business, Gail’s Bakery, is another beneficiary of this movement.

I predict people will become ever more concerned about what is in the foodstuffs they buy in supermarkets.

The horsemeat scandal is a reminder of how ignorant we are of the food chain, and how easily we turn a blind eye to standards as long as the price is right. Educated consumers should be prepared to pay more for decent food, and spend rather less on modern paraphernalia like mobile phones and subscription TV. We should reject ready meals unless we are confident of their provenance.

The rise of real coffee, chocolate, bread and suchlike is a sign of things to come.

** Luke Johnson is chairman of Risk Capital Partners.

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