Ways to Make Excellence Pay
Financial Times
Bruce Hodgson, founder of Artichoke, a company that designs and makes bespoke fitted furniture for the very rich, has little ambition to be the biggest brand in is sector – but he would like to be the best. The same can be said of perfumer Linda Pilkington, creator of Ormonde Jayne, and Sean Dixon and Richard James, co-founders of Richard James, a Savile Row tailoring business whose turnover (something in “excess of £7m”) is less stellar than its reputation and celebrity-gilded client base might suggest.
Serving the super-wealthy has never been the preserve of brands with super-sized sales. Quite the reverse. What the super-rich long for are not luxury labels but one-off, superbly crafted goods. Serving such customers allows talented artisans to work at the pinnacle of their craft. With this opportunity, however, comes a challenge: finding a business model that rewards exceptional skill.
Mr Hodgson founded Artichoke in 1993, after leaving the army to retrain as a cabinetmaker – last year it turned over £3.1m. He began with moderately affluent customers, but “as a perfectionist” hankered after clients with unfettered budgets and higher expectations. The bread and butter of Artichoke's business is designing, making and installing unique kitchens, costing anything from £60,000 to £250,000. The more exotic commissions include libraries, gunrooms and fitting out a house embedded in a cliff face that is accessible only by sea. By mass market standards, Artichoke's sales, which Mr Hodgson expects to reach £5m by 2011, look modest. By the norms of artisan furniture makers, whose sales rarely reach £1m, they are impressive. Equally stretching, in a sector where most craftspeople struggle to make a margin of 10 per cent and many settle for less than 5 per cent, is his long-term ambition to achieve pre-tax profits of 15 per cent.
The business model emboldening Mr Hodgson to raise his commercial sights grew from a partnership, in 1998, with the late David Telling, founder of the entrepreneurial business services company Mitie Group. Invited to pitch for a contract to make a boardroom table, Mr Hodgson produced a quote that Mr Telling dismissed as “too expensive”. Something must have impressed him, however, as he personally invested £80,000 in Artichoke, donated land for a bigger workshop and became chairman.
Under Mr Telling's stringent tutelage, Mr Hodgson swapped hand-to-mouth bookkeeping for management accounting. Artichoke learnt to break down the cost of complex projects and value work in progress to a far higher degree of accuracy than most artisan businesses. Once certain of the numbers, Mr Hodgson developed a “contractually rigid approach” to payment. This gave him the confidence to tackle complicated projects, in which deviations from the customer's original specifications can leave small contractors facing big losses.
“The things that make you lose money are when builders alter the shape of the building. If you can control the project by detail at the outset, you have a much better chance (of achieving your margins).” he says.
As luxury businesses pursuing growth, each enterprise has an eye on the market. Tighter credit conditions will, of course, be unwelcome. But, although an increase in the cost of borrowing might delay some of their planned ventures, it would not derail them, they say.
On the demand front, all are relatively optimistic, commenting that while a drop in City bonuses might make some clients trim their spending, they expect the bulk of their custom – which spans wealthy expatriates from Russia and the Middle East, entrepreneurs and landed aristocrats - to hold up.
Mr Hodgson, a survivor of previous lean periods, also makes the point that downturns hold opportunities. “When house prices fall, people say: ‘We won't move, but we'll have a new kitchen.'”
Confident of Artichoke's business model, he is poised to gain from commercial failures. “In some ways, these cycles are quite helpful because they clear out the messes. It may be a way for us to recruit talented craftspeople for growth.”
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