Why losing one pub cost me three

If one of your sites pays for the others, your group has a single point of failure, and you may not see it until it fails. I learned that the expensive way. One lease clause closed three of mine: the Sun Inn, and the two pubs it had been quietly carrying. Before you open a second or third site, ask which one, if it closed tomorrow, would take the rest with it.

Three pubs, three counties, one circuit

For seven years I built Radhost, a small pub group across London and the counties around it. At its height it was three very different places: the Sun Inn on Bethnal Green Road, a high-volume London pub; the Half Moon at Cuxham in Oxfordshire, a small fine-dining pub; and the Dew Drop Inn, a destination pub in the woods at Hurley, between Henley and Marlow.

My week was a circuit. Friday nights on the pass at the Sun. Saturday to Oxfordshire for an early dinner service at the Half Moon, because Cuxham ate early, and I learned to like it. Sunday to Berkshire for the roasts at the Dew Drop. Each pub had its own manager and its own accounts. I was the quality control, in the right place at the moment each one needed me most.

It worked, until the day it didn't.

The engine nobody could see

To understand why the whole group failed, you have to understand what the Sun was doing.

I took it on in 2007, as its seventeenth tenant in two years. Within thirty months it was turning over about £800,000 a year, and at its peak close to £1 million. That volume did more than pay the rent in Bethnal Green. It won supplier terms for the whole group, terms a single small pub could never have had. And its cash steadied everything else.

The Half Moon, with high labour costs and limited covers, ran on the thin margins of fine dining. It was a beautiful, respected pub, and it could not have stood on its own. The Dew Drop was closer to paying its way, but it too was buying on the Sun's terms.

I knew all this, in a vague way. I thought of the group as a balance, the strengths of one offsetting the weaknesses of another. What I had actually built was a structure with only one truly load-bearing wall.

When the wall came down

In late 2013 the Sun was sold to a developer. A clause in the lease, one I had signed at 26 without fully understanding it, meant the new terms made trading impossible. I walked away from a pub still turning over about £800,000 a year, not for lack of guests or a failure of service, but because of a few lines I had not read properly.

The turnover went first. The leverage went next.

Almost at once, the supplier terms that had kept the other two viable were withdrawn. Suppliers happy to give credit to a group doing close to a million pounds became cautious with a business doing a fraction of that. The credit went, the prices rose, and two balance sheets set up for a bigger business began to buckle.

I gave notice on the Half Moon almost immediately. It was painful: the team was exceptional, and its reputation was earned. I fought to keep the Dew Drop, which had loyal locals and a strong weekend trade, but the debt and the lost credit were too much for one pub to carry. Within a short time, I had lost all three.

Had I not lost the Sun, Radhost would very likely still be trading.

The question to ask

The obvious lesson is to read your lease, and to have it read by someone who has been caught by one. The deeper lesson is about structure.

Most owners see a group as a set of separate profit and loss accounts. That is right for running each site week to week, and dangerous for planning the group. A group is a system, and some parts of it are doing far more than their share of the work.

So ask yourself: which site, if it failed tomorrow, would take the others with it? If the answer is your best site, your success is hiding a risk.

How to grow without the single wall

Make sure every site could, in the worst case, stand on its own:

• Supplier terms site by site. If your prices at one site depend on the volume at another, those terms can be withdrawn from both at once.
• Cash for six months without your best site. If the group cannot survive half a year without its strongest venue, the next site is extra risk, not extra income.
• Managers who do not need you. A system that relies on one owner covering three counties in three days is a system with a second single point of failure.
• A stress test before you sign. Run the numbers on what happens to the whole group if your best site disappears. If the plan only works with it, the plan is not ready yet.

A smaller business that can take a blow is worth more than a bigger one that cannot. In this trade, the blows always come in the end.

Build the architecture first. The rest is just service.

The full story of the Sun Inn is in the Radhost case study. If you are about to open another site, Grow starts with exactly this stress test.