Katherine Sampson: It’s been hell

Katherine Sampson is the founder of Healthy Habits, the franchised chain that basically started life as a humble sandwich bar. Sampson has turned it into a successful and thriving business, and has just sold 80% of her share to Dymocks.  Katherine, 42, talks to Amanda Gome about the terrible financial strain of running the business and the lessons learnt, why she has sold, and the plans that Dymocks has for her business.

Amanda Gome: So why did you sell 80% of Healthy Habits to Dymocks?

Katherine Sampson: First, financial reasons. I have actually been growing the business out of my funding for the last four years. Unfortunately like any business person when you are learning, you make mistakes and those mistakes have cost me money. I have used up all my equity, I’ve sold assets, I’ve borrowed to the maximum that I have been able to – really I have just been limited in finding more money to be able to grow the business further. Part of it is to help clear debts, and the other part is to get a capital injection into the business to grow the brand further.

That sounds like hell.

It has been hell, and I always say if I knew then what I know now, I would never ever have started this journey. I don’t have any regrets, it’s just that it is 10 times harder than I could ever have imagined.

Would the banks have lent to you today? What is the story?

It was actually my first business 16 years ago where the banks wouldn’t lend me any money. For the last four years they wouldn’t lend me any money against the business equity. They would only lend to me against my physical assets. So even though I had an income stream though a franchise business they weren’t lending any money on anything other than on equity. They weren’t giving any credibility to the business whatsoever.

Even though it was very well-known and established and I presume profitable…

…absolutely. And they still wouldn’t lend anything because in their eyes I was high risk.

Why do you think you were high risk?

Well first of all I am a single mum with two children, I don’t have a partner to be able to back me.

Is there sexism involved?

I don’t think it is sexism, I think it is just being a single person with a family, supporting a family. I think if it were a single man who didn’t have a partner and two children, it would be exactly the same. I think there is a stigma attached to someone who is trying to be a mum, a housewife, a home owner and a business person. In most cases, a business man is supported by a wife who looks after the family and could go out and get an income if she needed to.

Why do you know that, have the banks asked you particular questions?

No, but they’ve always known what my security is and they have always known that I am a mum with two children. I am just high risk.

Have you tried all the banks?

I tried three banks and a finance company.

Over the time you have run the business, you have made money from it though…it hasn’t left you very behind in your financial position.

It has left me very behind. We still have to grow because at every stage of the business, as we reach critical mass, I take another step, which might be to put on another company store or to put on another person or to upgrade my computer systems or phone systems. So the business has not made any money in the last four years, in fact it has cost me money in the last four years. So I have sold off assets that have taken me 12 years to actually create through having the business initially.

So how much has it cost you?

A few million.

I presume you have worked incredibly long hours, plus all emotional stress attached to it. Does that leave you feeling pretty angry?

No, not all. Look I am really blessed. I am blessed that I have had this journey over the last four years, I am blessed that I have been thrown into a business and I have been forced to learn every aspect of my business because that has given me credibility with a group like Dymocks when they came on board.

They knew that I knew my business. They knew I knew what the shortcomings were of the business and they understood my vision for the brand and my confidence in delivering that vision if they were there to support me and help fund me.

So I am very blessed. I have learnt in four years what it takes others 15, 20 years to learn in business. I am grateful that it has been a short (but painful) journey.

Is there anything around the finances that you would do differently next time?

I would probably go into the business with other partners to share that financial burden initially. I think it was a mistake believing I could do it on my own. I did it, but you know at a price. I think that would be the biggest lesson. If you are going to invest millions of dollars, try and share that burden with other people as opposed to trying to do it on my own.

Now what has the downturn been like for you?

Some of our stores are a little bit down, but then some stores are a little bit up. Really it is no different to any February of any year really. We are always a little bit low in February because of the schools going back, we haven’t had any stores that have had a major fall. There are peaks and troughs in business, I have learnt after 16 years there are no rules, and you really can’t rely on what happened last year or the year before because there are always different things happening. Really nothing major, nothing critical.

How many franchises have you got now and how many are profitable?

There are 28, and 94% are profitable.

How did the conversation come about with Dymocks?

I was approached by a private equity firm about 12 months ago, and the private equity firm had heard through one of the press articles that I was looking for an investor, and they put me forward to quite a few groups that were their clients.

And how did you find that process?

It was difficult being put in front of a CEO or a major senior executive, and questions being fired at me; it was a bit daunting.

What were they looking for, what did you find hard to answer?

I didn’t find anything hard to answer because it was my business and I knew it through and through. I suppose it was the speed of questions and the intensity of the questions that they were asking. They were asking about why I wanted to sell the business and they wanted to know percentages and figures, and they wanted to know forecasts and they wanted to know what my plans were for growth.

It was very much like you hear the story of sitting in front of a big executive and you have 15 minutes to sell me and that was really what it was like. It was about, in a short period of time, I have to convince these people that I wasn’t wasting their time and they should look at the business further.

What were they ultimately looking for? Growth potential? Your passion, your brand?

Dymocks in particular were not interested in my business initially. They thought we didn’t fit their criteria and were way too small. But it was about the passion that I had for the business and the vision that I had for the business; that was what they were really excited about.

I think as they investigated the business more they realised the incredible potential that this business has, not only in Australia but internationally. With Dymocks it was a non-negotiable for me to sell the business. I had to stay as part of the business, they were not prepared to take it on without me. That is good, it means that they see I add value to the business and that I can have the vision for the business.

If someone came along and said we’ll take it but not with you, would you have sold?

I had to accept that there were some groups, a couple of very big franchise groups in particular that wanted to buy it 100%, and they wanted to lock me in for a period of two years or three years. However Dymocks did not want to buy 100% – they would only buy if I stayed on as a shareholder. The others; it wasn’t that they didn’t want me, they didn’t want me to have a share in the business. They wanted to own it 100%.

So what is the deal, how much have you sold it for?

Well… that is a big secret.

Your revenue is about $18 million or 19 million?

The thing is that John Forsyth, the owner of Dymocks, is a very private man so we won’t be disclosing any figures at all, even for the turnover of the business at all from now on. Where we have entered competitions over the years where we have submitted data and so on, that won’t be happening any more. I have to respect that that is what they prefer.

You were turning over about 18 million…

It was $24.5 million the last financial.

So have you come out of this ahead?

Look I think the way to answer that is, I believe I have sold at the right price knowing or believing that the bonus is going to come in the future growth of the business.

What are your plans now, what are you going to do?

Well I am moving to Sydney in April. I am relocating my family to Sydney because the Dymocks head office is there and they have 45 people in head office.

So you will get a lot of support?

Absolutely; they have numerous people in each department so I think it made business sense to close the Melbourne operation. It has been difficult, it has been a hard decision. I come from a very close-knit big fat Greek family, and that is going to be really hard to step away from them for three years, but I think first of all it is an adventure for me and secondly I really think it makes business sense to consolidate the business and have the support of 45 people up there in their head office team.

It will be hard leaving your support structures.

Very much, very much. It will be a very difficult decision but I am really looking forward to it and I really get along with the Dymocks management team extremely well. It is just a really easy fit and I am just really excited about having peers.

I mean I have been in my business for 16 years and I have never had peers around me. I have always been the one who has had to be responsible and the one who has had to make the decisions at each stage, so it is going to be exciting to be able to share in making those decisions and in some cases not have to make them and rely on senior executives to be able to do that for you.

And it is an entrepreneurial group which makes a huge difference.

People are questioning how I am going to find it, and they say you are a control freak you are going to find it difficult. But I have actually been craving it for so long that I am actually really excited about it.

They absolutely want me to run the business exactly how I have run it with the same vision that I have planned for the business, they are there purely as a support and purely to help fund the business, and they are certainly going to help with their expertise in terms of franchising and retailing.

You know they haven’t employed me as a staff member, they have employed me as a managing director and I am free to continue to do that.

Now you have plans to extend the brand into regional areas and mass transit sites. How has that gone? How has the store at Melbourne airport gone?

It is fabulous. I am actually opening another store at Melbourne airport in April.  I am opening a new express model. You can call it an express, ready-to-go model.

Is this the same model you were developing last year?

Yes, everything is ready to go. Basically it is a kiosk in a very prominent position in the Qantas domestic terminal, and it is opening in April so I am very excited about that.

Plus in April we are also have the new upmarket Healthy Habits Café Bar, which the first one, is opening in the Virgin Blue headquarters in Brisbane in Breakfast Creek, and I have a second Healthy Habits Café Bar opening at a convention centre in Nerang.

So by May we’ll have three models on the ground so we’ll have the normal inline food court model, the express model and the upmarket café bar.

The big fast food giants are repositioning their brands to be healthy. How is that affecting the business?

Not at all. I think it is assisting us because more people are being made more aware of the need to make healthy choices.

How much room in Australia is there for Healthy Habits franchises?

For growth? There are 30 stores currently with another 10 just being rolled out this year. The plans that Dymocks have is for 150 sites on the ground. Now that may not be stores, but sites that may include airports, shopping centres, food courts, strip models, kiosks; and looking at universities, schools and hospitals,

What else are they planning to do?

That’s pretty much it at this stage. There is a lot of opportunity. We are also moving into New Zealand mid year, into the airports in New Zealand.

What did you learn through the sales process?

Just how consuming it is. It has been a real strain on the business. It is difficult to be able to continue to run a business and go through the entire sales process. I’ve completely underestimated the additional costs involved in selling the business, I am talking about accounting fees and legal fees, and the amount of man hours that you require to get all the information together. I have learnt that just because you set a settlement date, doesn’t mean it will happen on that day. I learnt a lot out of it, I really did. It has been a great experience.