Pethick’s next feast
Tuesday, July 29, 2008/
Tim Pethick, serial entrepreneur, says there is not a traditional bone in his body, and he is proving it with his new business venture Sultry Sally – as well as keeping his eyes peeled for further opportunities. He talks to AMANDA GOME
By Amanda Gome
Tim Pethick, serial entrepreneur, says there is not a traditional bone in his body, and he is proving it with his new business venture Sultry Sally – as well as keeping his eyes peeled for further opportunities.
Tim Pethick, 46, went from pin-up wunderboy as creator of Nudie to fallen entrepreneur. He was kicked out of Nudie, accused of being a poor executor of strategy and then, as chief executive of the Australian arm of innovation consultant Whatif, had to close their doors early this year.
Now he is back with a new brand and some advice to entrepreneurs on building a company and retaining a large shareholding.
And he reveals that he believes Nudie could do with some attention from its creator. Does he want to buy it back?
He talks to Amanda Gome, and is happy to answer your questions. Email [email protected]
Amanda Gome: What is your main business now?
Tim Pethick: I put together a team to work on launching new brands.
You have been working on developing a new brand; a potato chip called Sultry Sally. Why?
The inventor of the product came to me 16 months ago. A lot of people knock on my door with new ideas but I see very few that I think ‘wow’. This is a 97% fat free potato chip at a time when we are concerned about obesity and diabetes. It fits into two mega trends – the move to more healthy eating, and environmental concerns. This is a product made from potatoes and olive oil. And it has 90% less fat than a normal potato chip.
There are many different types of chips…
Yes, but the chip space needed innovation. There has been no innovation since the chip was invented in 1853.
Large companies in that space were stuck in their ways. On chip packets you have a picture of a potato, a chip and a flavour symbol. All the brands are similar and there was an opportunity to create a brand that leapt out.
How do you create a brand that leaps out?
I am not a big fan of research. It is intuitive. What is missing for many brands is they don’t engage with the consumer. You have to focus on personalising the product.
Yes. At Nudie we created a couple of characters – images that people could relate to. Tall Tim was the person behind it all. You could engage with the personalities involved.
When you are creating a company, where do you start? With the branding?
Yes. It is a misnomer to create the business and products and then do branding at the end. The branding runs right through the offering. It should incorporate the values, promises and principles of the company. It influences the people you employ because they have to bring the brand to life and reinforce the values.
So who is Sultry Sally?
That came from the brief we were given. We wanted to create someone to engage with the target market – women under 35 – so we used an old fashioned image of post war glamorous Vargas Girls. It is aeroplane nose art from the 1940s.
There are a number of new products using images and art from that era. We just wrote about female hygiene product company Millie & More…
Yes, it’s a throwback to a less hassled time.
I bet the people who lived through the war wouldn’t think so. Isn’t that period being romanticised?
Yes. Young people who feel life is too fast are looking back to a different type of life.
So you are developing the brand. Who is running the business?
No one. We have a factory in Griffith which is doing the production side… and we have a sales and marketing team supporting Sultry Sally, but that is separate to the manufacturing team.
At Nudie there were problems around production and distribution. People said you were not good at executing strategy.
At Nudie I was the largest shareholder and the chief executive. One of the things I learnt from Nudie was not to distract myself worrying about manufacturing and distribution issues. My role at Sultry Sally is to create the brand and engage the consumers. The guy that’s running the factory worries about the other things.
So you are running your own business, which creates brands, and one of your customers is Sultry Sally?
Yes. But I have a small shareholding in it.
How much equity?
I have a dramatically smaller shareholding because I put in no cash.
So how big do you think the business will be?
About $9 million to $15 million revenue in the first 12 months. We are looking at overseas export markets and I would be disappointed if we didn’t get a contract of less than $5 million a year from Woolworths. They have been amazingly supportive as they see a healthy innovative product and they are very keen to get behind Australian innovation. We are also planning to roll it out through newsagents.
But traditionally you would run a business this size with a more formal management team. Who is the CEO?
There is no CEO. There is not a traditional bone in my body.
You took a battering at the end of Nudie and then having to close down Whatif. Do you think your reputation rides on this success?
Very much so. If it fails there will be reputational collateral. But one of the things I learnt from Nudie is to focus on doing what I do best.
What else did you learn from Nudie?
Too many entrepreneurs get too emotional about their business rather than seeing it as a bucket of cash. They take an emotional rather than a commercial perspective. I did that. It was my baby.
Your biggest flaw?
My biggest flaw is my biggest strength. I get incredibly enthusiastic about new ideas. A psychologist I know says I have a tendency to flee forward.
Is it an escape?
Yes. I escape forward. It is a tendency to see an idea and chase it.
I often see entrepreneurs pour everything into a business and then when they leave the business, they chase after many opportunities. They might become an investor in many small companies or start several companies at once.
Yes, you see them fleeing forward, scattering their energy instead of focusing on one thing.
But it doesn’t work?
As the founder of Nudie you now own less than 1%. And you got nothing financially from the business you created?
Yes. I put in just over $3 million cash but we kept on needing more capital and so I took on more investors, which kept on diluting my shareholding.
What should you have done?
I should have reined in the growth. Rapid growth when manufacturing products requires enormous capital. Slower, steady growth allows you to fund the business as you go. It is a slow burn and a slow build.
I was talking to the founder of Fantastic Furniture and he said the first eight years they didn’t make any money at all. Then at 10 years it was a great success.
I also think there should be a class of shares for founders, maybe 1% to 2%, or 5%, and it can’t be diluted. It can be performance based. So if say I build the company from here to here, I get a class of shares which carries undilutable rights. And I also have the right to a board position for as long as I am a shareholder.
I am often asked about the equity an entrepreneur should seek when negotiating with venture capitalists. What do you think? How much should the entrepreneur get?
It depends totally on the person. If they are 22 and single and got nothing to lose, I would grab as much equity as possible and live on as little as possible. Go and live in a boarding house! If you are older and get 20% of the business but put no cash in, that’s good. But everyone gets too greedy. The entrepreneur says I want 20%, will put in no cash and you put in $5 million. Then the investor says for my $5 million I want 90%.
You need to be strong, bargain hard and settle on a good compromise. I don’t want to typecast, but particularly Gen-Y want it all now. They want to start today and exit. But you can’t rush too hard and fast at 30.
On the other hand I sometimes see young people who don’t know how much power they do have. If they have a brilliant idea and they are smart and passionate, they present a good opportunity for investors.
Yes. You can have a great temptation as an entrepreneur to just grab money, any money, and run and get it all going. But it’s Aesop’s fable – slow and steady wins the race. They should be saying let’s not do any deals too quickly, let’s sit back and look for smart capital.
Are you angry you got nothing at the end of the Nudie journey?
I hit myself more because of what’s happening now. The ACCC has taken action for false and misleading advertising for Nudie’s Cranberry juice, which was 80% apple juice. It was deserved. There’s no use focusing on cost cutting instead of value and integrity.
I think keeping the integrity of a product is very important. In architecture there is a thing called moral rights. Harry Seidler designed a building and when at six or seven years they wanted to make modifications and change the integrity he took action and won. As a founder of a brand you understand its integrity. And the integrity should transcend ownership.
So if someone wanted to change a brand, the original owner could stop it? What a nightmare.
(Laughs.) I hear there are troubles at Nudie. I don’t have any inside knowledge, but it opens up opportunities to buy the business.
Would you want to buy the business back?
No comment. Put it this way. I do think the Nudie brand and business could benefit from a renewed loving touch from its creator.
But this time you would do it differently?
Yes. I would see it as buckets of cash and not get too emotionally involved.
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