James Caan’s 9 constituents of value

At 18, James Caan saw an ad for a “trainee interviewer”, thinking it was for a job in television, but upon arrival found out it was instead a job for an employment agency.

“I spent the bus fare getting there so I thought now I’m here I might as well go for the interview and see what it’s about. At the time I was working as a sales assistant making £34 a week working six days, and this was five days a week making £36 so I thought, why not give it a shot,” explained James.

By the age of 19, the entrepreneur, investor and television personality decided to give failure a wide berth and aim for success on the first attempt.

Hidden away in a “broom cupboard” in Pall Mall, and armed only with a copy of the Yellow Pages and a telephone, the young James launched his own recruitment business, Alexander Mann.  

Today that company is now the largest talent solutions company in the world, with revenues north of £1.8bn, operating in 22 countries, employing 8000 people and managing the entire talent of large FTSE 100 and Fortune 500 corporations.

After founding Alexander Mann, in 1993, James co-founded the executive headhunting firm Humana International with recruitment entrepreneur Doug Bugie, eventually growing the business to more than 147 offices in 30 countries. 

In the same year, he launched the trade magazine Recruitment International, and in 1996, James co-founded AMS with Rosaleen Blair, CBE. Subsequently selling his interests in 2002. In 1999, James sold Humana International to CDI International, a New York listed company. Later that year, James sold a minority stake in Alexander Mann Group to private equity firm Advent International.

James’ business skills and shrewdness are undisputed, and that alone would have granted him access to the wider public consciousness. He carried on, however, to leave his mark on the public’s imagination with his appearance on Dragon’s Den, the reality television business programme.

During his time on the show, James made 18 investments, including a company making ‘Toastabags’, an easy-to-install blind business called Blindsinabox and a dog treadmill business, Fit Fur Life.

Leaving the Den

As if being a serial investor, a business success story and a television star weren’t enough, in 2012 James became chairman of the Start Up Loans programme – the government-backed scheme designed to provide loans and mentoring to people looking to start a business – and he remained in this role until 2015 when he ‘stepped down’.

“When I left Dragon’s Den I thought about my experience there and realised that I had met around 1000 entrepreneurs. Of the 1000 entrepreneurs, 900 would never make it,” says James. Leaving Dragon’s Den inspired him to write a book, effectively about “how not to start a business”.

The next chapter

Titled, Start Your Business in 7 Days: Turn Your Idea Into a Life-Changing Success, James wrote the book from the working principle that God had created the world in seven days, “and I wanted to show people how to start their own business within the same amount of time”.

The book became a bestseller. James was then summoned to meet with the Prime Minister David Cameron after a 20-year forecast revealed that Britain needed to become a more entrepreneurial society or else there would be a serious shortfall in jobs. However, one very real job was on offer in the here and now – to be the mandarin of the Start-up Loans programme.

What followed hovered between a Grand-Guignol drama, and Whitehall farce. With no salary, no office, and no expenses, yet with a £1bn budget on offer for new businesses, James was offered the role of leading the scheme. He was expected to interview thousands of people, build a support network and galvanise entrepreneurship across the British Isles. Of course, he accepted the role. And with 100,000 British small businesses having benefited from government-backed Start-Up Loans, it has been an evident success.

James recently spoke here at London Business School, as part of IEPC’s Entrepreneur’s Journey series, on building a business empire, sharing his nine “Constituents of value” – the key principles he looks for before investing in a business. His nine steps include strategic, operation and financial guidance. He doesn’t buy any business unless it reaches all of these, as it’s otherwise “way too tricky.”

Here are some of James’ key takeaway points for aspiring entrepreneurs: 

• Stick to what you know – ask yourself what can I really do? How do I add value to a particular industry or organisation? If you’re starting your own business, only start in a sector you know well. “If you don’t know how to fix things when they go wrong, chances are you’ll lose money.” James cited his own example of when he bought failing Benjy’s sandwich shop chain in 2006 and thought he could turn it around. Six months later, he had to admit it was a lost cause. His key lesson: stick to proper due diligence and analyse every deal thoroughly.
• Have a solid marketing plan. Ideas do not build businesses. How are you going to market it? If you haven’t worked that out, the rest is irrelevant.
• Embrace failure: “All of the mistakes I made were fundamental to my learning...if you avoid mistakes, you can’t do it.” James believes passionately that failure is a component of the journey of success. “Without it, I don’t think I would be successful. When we get something wrong, we fight it and we learn… So, if you’re not going to make a mistake, how do you learn?” You can learn as much from your successes as you can from your failures. When it comes to business, fear and complacency are both equally harmful approaches to take, says James.
• Retaining good people is more important than backing a good idea. Bring good people on board and provide them with equity. "If they’re going to build the business, it’s going to make your equity grow more, too. I call it a 'growth share', by giving them 5% of whatever they grow the business by. This costs me nothing, and it motivates employees. It gives them something more than just a higher salary. We built an incredible team on the back of that (growth share),” said James.
• Selling the business? Make sure you have a three-year plan. Savvy buyers will ask you to show your last three years, your budgets and your forecasts. If you don’t have this, the credibility of your three-year plan goes out the window. The valuation will drop massively (by 30% or more) if you don’t have this, says James. “We are incredibly careful to show the buyer the past three years – it will get the multiple you want for the business.”
• Know your numbers and evaluate your risk; what is the position of management before we sign the agreement and how aligned are you with them? “We run the numbers to see if we’ll make enough and if not, we’d rather walk. Be very detailed in your due diligence and investing process.”
• Know when to stop. It’s perfectly okay to know when to quit. Keep going often means keep going until you run out of money. Crystalise the loss and have the self-awareness to know when to quit. James advises that once you realise things aren’t going to get any better, get out while you can rather than continue just to try and save face.

Watch James Caan's recent talk at London Business School for his further insight and advice