Keith Abel: 'We went from losing money to making £4.5m a year in 18 months'
Release Date: 11/12/2021
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We discuss the how he got the idea for Abel & Cole and what advice he has for entrepreneurs.
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Keith Abel podcast transcript
Hello. My name is Tim Adler and I am the editor of SmallBusiness.co.uk. On today's Small Business Snippets podcast, we're talking to Keith Abel, chairman of Freddie's Flowers and founder of Abel & Cole, the organic door-to-door vegetable box delivery business that became a phenomenon in the late 1990s and early 2000s.
He's going to be talking about how he began the business, literally as a one-man band, how it grew and the lessons he learned along the way and the advice that he would have for small business owners.
Keith, I know that for you this is a long story. Where did the idea for Abel & Cole come from?
Keith: So back in the days of Margaret Thatcher and the miners’ strike, I was at Leeds University and I went on a trip with a couple of people who you know, to Africa. And we missed our flight back and we had to get another one. So, I had to borrow some money. And that basically was my term’s grant cheque. So, I went up to Leeds with no money during the miners’ strike. I got a job selling potatoes door-to-door. I had sold fire extinguishers from the age of 16 and I was taught how to be a good door-to-door salesman.
So, I went to see this guy who's building up potato rounds, a bit like milk rounds. I said to him, ‘I’m the best salesman you've ever employed’. He went, ‘Right, lad. I know someone who can sell 85 bags of potatoes in a day. How many can you sell?’ I said I'll sell 100. He said, ‘You’re done. Get 100, I'll give you £50. You get 99, I'll give you nowt. You up for it?’ I said, ‘Yep, definitely.’ It was 10 o'clock at night, I was out there.
I'm very glad that I could sell a hundred bags and I get £50 – £13 rent, 50p a pint and fags were just 50p a packet. For a whole term, I lived on my Saturday job selling potatoes door-to-door. I left Leeds went to law school, passed my exams. I went to bar school. I fell in love, unrequited, concentrating a little bit too much on that and not enough on the exams. Failed my exams. Furious father. Kind of kicked me out and I thought, OK, those days, no minimum wage. I got £3.50 an hour price tagging Christmas cards in the basement of Selfridges. I couldn’t face it, so I thought ‘Sod it, no one's doing this in London.’ So I got together with my mate, Paul Cole, who was at uni with me. I nicked £2,000 off my brother because he'd been traveling for a year and he had that much left over in traveller's cheques. He was in IT. He was quite wealthy and had traveller's cheques. I forged his signature to cash them. I gave him a share in the business. I bought a ton of potatoes, a batch of plastic bags, a little clipping machine and a van for £300. And I rented the basement at someone's house in Catford. And that day, Paul and I bagged up 150 bags of potatoes and sold them.
Of course, by the end of Monday, we hadn't just sold £150 of potatoes at a mark-up of two times. We built up a potato round. So, the next Monday, Paul went to deliver the potatoes to the previous lot, I went and set up round two. By Christmas we had we had four vans on the road, each costing £300, so they were reliable.
When we moved to organic, I remember thinking, ‘What should we charge for them?’ If no one's asking, why don't we charge it at a price where we know we'd actually make some money? We were never making any money. We were living on £70 a week. So we whacked the prices up a bit. But customers really liked them talked about when we started writing about organic farming, they’re Soil Association certified. Soil Association was gathering some momentum. Suddenly, you know, Mr. And Mrs. Middle Class of Wandsworth say, ‘Any chance to some other vegetables? So, I turned around to the organic farmer said, ‘How would you feel about throwing a few vegetables in a box?’ I think, actually, he suggested it to me. And I went, ‘It's great idea. How much do we charge for it – £8?’ We called it the Essential Organic Veg Box.
What stage had the business got to when you thought, ‘If we're going to really grow, we need to bring in external investment’?
Keith: We didn't – this was the exceptional thing about this business. I'll explain to you why. We just started with our £2000. I got loans – my sister loaned me some money, my dad loaned me some money, but it was little small loans. What we discovered in about 2003, when the business was turning over about £1.5m, if we put out a leaflet, it was a multi-coloured leaflet. And it said ‘truly fresh organic produce straight from the grower to your table’ with an 0800 number underneath it. If we put 1000 of those out through letter boxes in broadly speaking better off areas, we would get three customers. And those three customers would have bought from us three times before we had to pay for the printing or the Royal Mail to distribute it. That was the equivalent of finding a fruit machine that you only had to put the money in after you'd had your winnings. When we discovered that, we decided to experiment small, and we put out 6m leaflets. We trebled in size in six months.
Basically, we had negative cash flow – we didn't need cash to grow, it was the opposite. As we grew, the cash just piled up. We could buy a lot of our vans with cash, we bought our warehouse with cash, we were generating vast amounts of cash. As we got big, we were paying the Post Office later, the printers later. All the money was just pouring in. It was a brilliant business. We never took a penny of external investment. We built sales up to 35m and it had been unbelievably hard work.
What kind of hours had you been working at the start?
Keith: Right at the start, we would get to the market at three o'clock in the morning. We get back to the warehouse at 5:30am. We packed spuds until 8am, then we go out and have a big breakfast. We'd be door knocking and collecting money until 6pm and we get home at 7:30pm. We were doing that for months. I mean, it was really, really exhausting. You know, I was always getting into the warehouse for 6:30am to open up with Paul, it was it was very, very, very long hours and it was very stressful. A lot of the time we didn't know what we were doing. But we were just tenacious. You know, we were hustlers. We just kept going, whatever happened, and we kept going.
What do you think the most important quality of an entrepreneur is?
Keith: I've discussed this with loads of friends who run successful businesses. We're all in complete agreement: the number one thing is tenacity. If you've got a wall that you've got to get around, some people go to the right and they can't find a way around it to the right. Some people go to the left and they can't find a way around it. In fact, they find that it goes circular, this wall, and they try to climb over it. It's got barbed wire on the top and they can't get through it and a lot of people just go, ‘Okay, that's it. There's a wall, I'm stuck.’ But the entrepreneur tries to dig underneath it, and then he realises he can't quite dig underneath it. So he blows it up. And it's that sort of, ‘Well, I don't care, I'm going to find a way to do this.’ that I think it's the difference between people who survive, and it is about surviving. And those that don't. There have been lots of times where you just sort of thought, ‘Okay, that's it, we're done.’ I've always said no, I've always been prepared to ring up the supplier and say, ‘Can you give me another month?’ In fact, one supplier when we were bust, and the Inland Revenue put the house up for sale and we were completely against the wall. I just said, ‘I'm not going to pay you. But I'm going to keep trading and I will pay you back eventually.’
Was this pre-equity?
Keith: oh yeah, way before that.
So, there was a cash flow problem.
Keith: Absolutely. That was because we weren't being detailed enough with our accounting. So that's the second tip: know your numbers. Have a good bookkeeper or accountant, giving you month-end figures every month. Otherwise you're flying blind.
So, there you are, along comes Mr. Private Equity. Yeah, I can take this all off your hands, and you can walk off into the sunset with your Jacuzzi and your Porsche. Happy days. What happened?
Keith: In those days, that was called a leveraged buyout. Very simply, what they do is they come up to you, and they say, ‘Can we buy your house?’ And you go, ‘Yeah’, and they say, ‘Right, Mr. Bank, will you lend me the money to buy that house?’ And they go, ‘Yeah, sure. But if you don't pay the interest back, then we're going to take over the business.’ They did a lot of leverage, they put in £20m worth of debt. Obviously, you don't get all the money on day one, you get promise notes for the future. Then they take over running it, and they run it their way, not your way.
But surely you were integral to the business.
Keith: No, I brought in a team underneath me. So, they were the management buyout team. And they were inexperienced – didn't know how to deal with the investors. And it quite quickly unravelled. Lloyds Bank said, ‘Right, give me the keys, we'll take over the business.’ This was in 2008, when they were doing that to a lot of businesses in the financial crisis. And they needed people to run them.
I got a phone call one day when I was out skiing. You know, I was turning up once a month to board meetings, thinking they were all buffoons and carrying on with my life. The chap from Lloyds said, ‘Would you meet me for breakfast?’ And I said, ‘Look, I don't think I'm going anywhere near that business. But I'll certainly have breakfast with you.’ I was expecting him to say, you know, you give me half the money back and then you can have the whole business. I was thinking I'm not going to do that, they run it into the ground. But he just gave me an offer I couldn't refuse. He said, ‘I'll give you 40 per cent of the business for nothing, and I’ll reduce the debt’, which was at £28m to £10m. It was a no-brainer.
So, you go back in. How long did it take you to turn the business around?
Keith: 18 months. Best part of my life. Sales had gone back from £35m to £27m. In 18 months, with no investment, we took them from £27m to £45m.
How did you do that?
Keith: We were pretty brutal. We did a massive cost-cutting exercise. We had a marketing team of about 20 people in it. Or, as far as I was concerned, they were a non-marketing team because sales were going backwards. We just got rid of all of them. It was much easier just everybody went. We got rid of layers of middle management.
We printed one leaflet – remember I told you that leaflet worked? – they stopped leafleting so I printed a leaflet. It had one of the corniest straplines I've ever come up with. I'm so proud of it. Awesome campaign. It said ‘Abel & Cole have turned over a new leaf’ because our reputation had gone downhill. The boxes were crap.
We put all the savings from all these employees into the boxes and made sure they were the best. We spoke to the growers and said, ‘Look, you don't want us to go bust. We need deals. I know you've never charged me less than 50p for cauliflower. I need it for 40p, and I promise you, I'll be buying from you next year. He charged me 55p. We went around and did deals with everyone we could. We put together, I can honestly say, the best organic vegetable box that has ever been delivered. We also did this massive boxing campaign, again paid for six weeks hence. It was due to go and be delivered on a Tuesday, it was our final throw of the dice. If it worked, happy days. If it didn't work, we were going to go bust. But at least if we were going to go bust, I said to everyone, that it would be with a bloody good product that we were proud of. We've given it our best shot and we were taking over a really knackered business. Phones rang off the hook. Customers got a fabulous product. We let that go for about three months, then we did quite a significant price rise, because the customers were happy and we needed to make some money. So, prices went up, sales carried on climbing through the ceiling, we went from losing money to making £4.5m a year in 18 months.
When you were there, during your second phase, you employed a young guy called Freddie Garland.
Keith: That's right.
When I left the business, and was having my time out, temps still running it. He rang me up and said, ‘Keith, you know, my parents were florists and I’d quite like to do what you did with veg boxes but with flowers’. I remember I immediately thought that is a brilliant idea.
He said, ‘How do I get started?’ And I said, ‘Well, you're going to need a van. Why not have a bit of fun and get a milk float? You're going to need to move back in with your parents because you're going to be broke for a couple of years. You need to buy a tent where you can turn it into a warehouse. I'll lend you some money and we'll give it a go. And if it works, I might invest in it. I'll help you, you know, because that's how I started.’
So, dear old Freddie is very hardworking. We worked out he needed about £10,000. I wrote to some lawyers and asked what they would charge for this agreement. They said £10,000 pounds plus VAT. We ended up doing the agreement, with Freddy sending me an email saying, ‘Dear Keith, Thanks for lending me £10,000, I'll try and pay you back.’ There was no investment agreement because there wasn't an investment. I was just saying, ‘You're a nice young lad. I think this is a great idea. I bet it will work.’ Two months later, he was doing about 75-80 deliveries a day. Again, up at four in the morning, packing the flowers in the sitting room, going out on the milk float, bashing on doors in the evening, getting more customers, bringing a couple of friends in.
What was the timeline here? When are we talking?
Keith: That was September 2014. We’ve just had our seventh anniversary. It was between September, October and November. Yeah, Freddie marked down every door he knocked on, what the response was, how many customers he got, how often they wanted to order and when they stopped ordering. Ted and I went and put that into a great big model that we use for our subscription business before and worked out roughly how much money we think we needed to build the business up.
The arrangement we came to was that I would put the money in, largely by loan note, Ted would put the time in and Freddie would do all of the work. That was in April of that year, we put the money in – April 2015. And off we went. For the first year, we didn't even have a website. Slowly, we built a website and got going.
So, the business is growing and growing and growing and everything's going well. And then Covid hits. If you've got a door to door business…
Keith: Yep. We thought, well, you know, what should we do, we're going to go bust or we're going to double down. We’d just started digital marketing. At the beginning of Covid, every other company in the planet just went and stopped marketing. So marketing digitally became very cheap. We thought, ‘Okay, we're currently spending X amount of money per week on our face-to-face team. We don't have to spend money on them. We'll spend all of that money on digital marketing.’ In a period of six weeks, the business went from run rate sales of around about 20m to 44m in six weeks.
What are run rates?
Keith: The weekly sales multiplied by 52. We basically doubled in size in six weeks.
What were you trying to do through the social media marketing? Was it brand awareness, was it sales?
Keith: No, it was very much customer acquisition. It was, ‘Sign up today and get your first two boxes at half price’ or it was, ‘Sign up today and we’ll send you a free vase’.
Do you think that what social media is good for sign ups?
Keith: I think that when you're small and you're hustling, you've got to really focus on methods of acquiring customers where you can measure the payback in the lifetime value, the return on investment. It's only when you're much bigger, and you've got bigger investment (which is where we're at now) that you can start really spending the significant budgets that are needed to build brand awareness.
You’ve said elsewhere that another thing you realise that it’s only when you really start paying the social media companies the big money, the algorithm starts getting behind you.
Keith: Yeah, that is the case. But if you're clever, if you use the right influencers, if you hustle. If you if you've got a small budget, you've got to hustle a bit. If social media is too expensive, you’ve got to find other ways of getting your message out there.
Okay, so, we've moved now we're moving away from the pandemic. In July, you had a $60m vote of confidence in Freddie's Flowers through this new investment. What do you want to do with that money?
Keith: It's interesting, we're really blessed. We've got a fantastic new investor, they're not a PE fund. They're not a fund. They are entrepreneurs, the money’s from entrepreneurial families, and they call themselves The Craftory, because they're a factory of crafters, people with specific skills. What they're doing is they're teaching us the skills that we don't have and they're explaining to me where they feel, it’s entirely up to us, but where they feel that money should be invested.
The strategy really is a few-fold it is to make sure that we've got the best people in the most senior positions where we have weaknesses. We had a capability study. We know we're very capable there and we need more capability there. And the particular area we need it is brand and brand building, so we are looking to recruit some senior people who've done that before, in what's called CPG (consumer packaged goods) and a significant amount of budget over the next few years will be built in the different geographies, is just building brand awareness. The other way we're investing in is geographic expansion. We're in Germany, we're about to open a big warehouse in Germany, in southern Germany, doing on distribution on electric bikes. Then in November, we're going to launch in Los Angeles.
I mean, it's interesting, you're saying that one of the things that you're aware of is weaknesses in the team. I think even at a micro-level or small business level, something I've noticed, is that entrepreneurs, when they're looking to recruit, they recruit people looking in their own image. And that seems to be such a mistake – it’s exactly what you don't want to do.
Keith: There's a great thing called Myers-Briggs, or Belbin is another one.
Let me put it simply, I think the easiest way to describe a successful business is like a rugby team. Much more than a football team, because in a rugby team, the prop forward is a totally different shape to the guy on the wing. He's got a totally different script, a different set of skills. If you're a prop forward in your business and you go and recruit another prop forward because you like him and you're both big beer drinkers and that’s what you do and you’ve got the same sense of humour. You’re the same type, you’re just never going to get anywhere.
My blessing at Abel & Cole was recruiting a woman called Ella Hicks. I was in my late 30s. She was in her early 20s. She was a she and I was he. She had all the skills about being detailed, about following things through, about taking notes furiously. I had all the madness of firing out 50 ideas a minute. She would know which ones to capture and which ones we would do. At the same point, she may say, ‘No, I'm not going to do that.’ So those are the two big skills that any business needs to have to start off with.
Looking back when – you're still in the middle of your career – do you have a personal business philosophy? Or a piece of advice that somebody told you that you think, ‘Yeah, that's true.’
Keith: Very early on, when things weren't going well, and I was thoroughly depressed, and all my friends were being frightfully successful in their careers and I was absolutely broke. I got advised by a man who explained to me that my unhappiness was spreading to everyone else in the business was toxic. That I was a nice guy, and people liked working with me, but I needed to basically cheer up. I needed to look after how they were feeling. If everyone was in a good mood, then they do brilliantly.
For the last 30 years that I've been doing business – and I’ve not always got it right, but I always take it very seriously – is how to make sure it's a great place to work. A great place to work is making sure that the team all know what's going on within the business, that they sign up to it, that they enjoy, that people are promoted internally, that people feel that it's a fair place to work, where they're treated with respect, that they're looked after, they know what's going on. They know what the next steps are. That happy environment or culture, as it's called, really makes a difference.
You know this – when a new restaurant opens up, if it's got a stress-y owner, and a stressed-out checkout girl, who doesn't know quite what she's doing, you just think, ‘Oh God, this is a nightmare.’ If it's got some fantastic flamboyant smiley person and the food's 20 minutes late and it's their opening night, you want to go back there, don't you? And I think that's what it's like for a small business.
Thanks to Keith for joining us today. Remember, you can always follow us @smallbusinessuk on Twitter or at @SmallBusinessExperts on Facebook, and we'll see you next time.