Baker Tom O’Toole made every mistake in the book when he bought and briefly owned his first business in the early 1970s – which is why his current one is so successful.
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Entrepreneur: Tom O’Toole
Company: Yarrawonga Bakery
Business type: Bread and cake manufacture and sales
Founded: Purchased in 1973; Sold in 1975
Head office: Yarrawonga, Victoria
Contact details: +61 3 5728 1132 (Beechworth Bakery)
The Yarrawonga Bakery Story
If ever a business had potential to make money, it was the Yarrawonga Bakery, located at a popular Victorian holiday town beside Lake Mulwala. Each summer, tourists swelled the population from 3,500 to 24,000.
Tom O’Toole had a burning desire to run his own business. In 1973, 21-year-old O’Toole was then working in Arnhem Land, so he asked a friend at a large wholesale bakery to check out the Yarrawonga Bakery business for him. The report looked good: the business had a prime location in the centre of town and it appeared to be making money, despite using basic equipment, little machinery and a wood-fired oven.
O’Toole took over the lease and purchased the goodwill for $10,000. He persuaded his friend at the wholesale bakery business to let him take a carload of redundant bakery equipment from a recently closed subsidiary in Albury, NSW. That solved one problem, but O’Toole had several others just as critical.
He says he was a loner who suffered incredible fears and found it almost impossible to mix socially. “Because I was a such loner,” he says, “I had no people skills. I ran the Yarrawonga business by yelling and screaming. I reckoned saying ‘please’ and ‘thank you’ was a bloody waste of time. I was a real seagull manager - come in, crap on everyone, then leave. I’d be fine, but my staff would be devastated.”
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Key learning points:
- Due diligence - Before buying a business - particularly your first business - do your homework. Fully understand the pricing structure, profitability, competition, contract commitments and overall viability of the target business.
- Management skills - To run a successful business, you must have management skills as well as a technical understanding of your trade or profession. Technicians can only work in the business; managers work on the business.
- Independent advice - When you are considering purchasing a business, don’t rely on the advice of its current financial and legal service providers. Spend the money to have the business evaluated by your own advisers - it may save you a lot more than it costs.
- Persevere - Mistakes teach you lessons - so stick with your dream even when getting there is proving tough.
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O’Toole’s inability to win the respect or loyalty of his staff soon hurt customer service. He vividly remembers his first Christmas Eve at the business when all his staff - due to various personal commitments - had to leave him alone with a shop full of impatient customers.
“I tried to serve them one at a time,” he says, “but there were so many [that] I couldn’t cope. I found myself trying to work out who had been waiting the longest, who to serve next, and then I started to panic. In the end, I just told them all to come behind the counter, help themselves and leave their money on the till. It was a terrible experience. I lost a lot of money that day.”
O’Toole also says he had no business skills - and he was not one to ask for help. He continued using the previous operator’s accountant and solicitor, but the relationships weren’t working. His bank manager suggested that O’Toole change his financial and legal advisers, which he did. Only then did he discover the real financial and legal situation of his new business.
The previous operator had sold to a wholesale bakery the rights to sell sliced bread in the bakery’s prescribed 50 km radium of Yarrawonga. Then, to remain competitive, the previous operator had cut all his prices in the bakery to a point at which the business was not financially viable.
O’Toole’s inability to control his own prices was compounded by the rapidly rising inflation of the early 1970s. He realised that no matter what he did, the business was never going to realise a reasonable profit. He says: “I only held the Yarrawonga business for two years before selling it - and I didn’t make any money on the sale.”
It was a personal disaster for the eager young baker, but he did not give up. He learnt some lessons, eventually developing the award-winning Beechworth Bakery.