26. Five ways to save the economy according to Luke Johnson, former Pizza Express Chairman

Summary

Podcast Summary: James Reed: All About Business – Episode 26 Title: Five Ways to Save the Economy According to Luke Johnson, Former Pizza Express Chairman
Host: James Reed CBE, Chairman and CEO of Reed Global
Release Date: May 5, 2025

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Introduction

In Episode 26 of "James Reed: All About Business," host James Reed engages in a comprehensive discussion with Luke Johnson, a seasoned entrepreneur renowned for his role in expanding prominent UK food brands, including Pizza Express and Gail's Bakery. The episode delves into Johnson's entrepreneurial journey, his insights on the current UK economic climate, and his strategic vision for revitalizing the economy.

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Luke Johnson's Entrepreneurial Beginnings

Timestamp: [01:05] – [05:02]

Johnson recounts his unexpected foray into entrepreneurship, which began during his university years. Initially set to pursue a career in medicine, his passion shifted when he and a friend started the Era Club, a nightclub that became a surprising success.

Notable Quote:

“I knew in that moment this was the most exciting thing I'd ever done and I wanted to do more of it.” — Luke Johnson [02:31]

He attributes his shift to business partly to his father's influence, a freelance writer and journalist who valued independence and self-employment.

Key Points:

• Accidental discovery of business through hosting successful college parties.
• The significance of self-discipline and stamina in entrepreneurial success.
• The impact of a self-employed family environment on fostering entrepreneurial spirit.

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Scaling Pizza Express

Timestamp: [05:48] – [09:59]

Johnson discusses his pivotal role in transforming Pizza Express from a modest chain into a national powerhouse. Partnering with Hugh Larkin at age 30, they focused on refining the business model and capitalizing on favorable economic conditions.

Notable Quote:

“If you manage to get a hold of one or invent one [a great business formula], then you need to go for it and not hang around.” — Luke Johnson [09:27]

Key Points:

• Acquisition of Pizza Express when it had 12 restaurants and growth to over 200 during their tenure.
• Emphasis on quality ingredients and creating an aspirational dining experience.
• Strategic decision to convert franchises into company-owned outlets, ensuring consistent quality and brand integrity.

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Vision for Revitalizing the UK Economy

Timestamp: [12:12] – [20:32]

Johnson expresses concern over declining entrepreneurial activity in the UK, attributing it to overregulation, excessive taxation, and a cultural shift away from risk-taking. He outlines five strategic actions to bolster the economy.

Notable Quotes:

“New ideas, new businesses that ultimately tend to create most of the jobs... are in decline.” — Luke Johnson [12:34]
“Scrap net zero completely... it's completely destroying our manufacturing.” — Luke Johnson [18:17]

Five Ways to Save the Economy:

1. Scrap the 300-Page Employment Rights Bill
   Timestamp: [14:14] – [15:32]
   Johnson argues that excessive regulations hinder job creation, especially for small and medium-sized enterprises (SMEs). Simplifying employment laws would encourage businesses to grow and hire more employees.

2. Implement Planning Reform
   Timestamp: [15:35] – [16:24]
   He advocates for streamlined planning permissions to accelerate property development, thereby boosting construction and related industries.

3. Abolish Net Zero Policies
   Timestamp: [16:40] – [20:32]
   Johnson criticizes the UK's net zero initiatives, claiming they increase energy costs and drive manufacturing jobs overseas. He warns that current policies jeopardize the nation's industrial independence.

4. Encourage Free Markets and Limited Government Intervention
   Timestamp: [37:42] – [38:19]
   Emphasizing the importance of free markets, property rights, and rule of law, Johnson believes that reducing government interference will foster a more dynamic and resilient economy.

5. Promote Entrepreneurial Culture and Education
   Timestamp: [30:45] – [34:36]
   He highlights the necessity of cultivating entrepreneurial mindsets from an early age, advocating for mentorship and cultural shifts to value risk-taking and innovation.

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Risk Capital Partners and Current Investments

Timestamp: [21:52] – [28:14]

Johnson elaborates on his venture, Risk Capital Partners, which primarily invests his own capital and collaborates with others in sectors like hospitality and entertainment.

Notable Quote:

“In hospitality, margins and returns are lower than they were... but that's true of lots of industries.” — Luke Johnson [22:33]

Key Points:

• Focus on UK consumer businesses with a preference for those he is familiar with.
• Discussion of Gail's Bakery, which expanded from six to 168 branches under his guidance.
• Strategies for selecting demographic-friendly locations, emphasizing neighborhood characteristics and property suitability.

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Involvement in Non-Profit and Cultural Organizations

Timestamp: [39:19] – [43:21]

Johnson shares his experiences chairing organizations like the Royal Society of Arts, the Almeida Theater, and the Institute of Cancer Research. He believes that involvement in non-profits enriches an entrepreneur’s perspective and fosters a well-rounded approach to business and societal contributions.

Notable Quote:

“Having non-profits and charities as part of your life is healthy... it helps balance out.” — Luke Johnson [39:36]

Key Points:

• The interplay between business acumen and non-profit management.
• Importance of bringing entrepreneurial skills to non-profits to enhance efficiency and impact.
• Personal fulfillment derived from contributing to diverse societal sectors.

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Encouraging Entrepreneurship Among Youth

Timestamp: [30:45] – [34:36]

Johnson emphasizes the need for fostering entrepreneurial spirit among young people, arguing that traditional educational systems often stifle creativity and risk-taking.

Notable Quote:

“Entrepreneurs of all different stripes... you can never tell a young man or woman... whether they may be the next James Dyson.” — Luke Johnson [35:10]

Key Points:

• Critique of conventional education systems that prioritize conformity over innovation.
• The role of mentorship and real-world exposure in nurturing future entrepreneurs.
• The necessity of cultural and legal support to create an enabling environment for new businesses.

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Future Outlook and Personal Reflections

Timestamp: [43:21] – [48:31]

Looking ahead, Johnson remains optimistic despite current economic challenges. He plans to continue investing in familiar sectors like hospitality, recognizing that tough times often present unique opportunities for growth and innovation.

Notable Quotes:

“History of business is that many of the great businesses were started in recessions or even depressions.” — Luke Johnson [45:58]
“I'll be approaching 70, so I won't be a spring chicken, but I guess I will still be working.” — Luke Johnson [48:15]

Key Points:

• Persistence in investing within the UK market despite regulatory and economic headwinds.
• Belief in eventual economic recovery and the cyclical nature of business growth.
• Personal commitment to continued engagement in entrepreneurial activities and mentoring.

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Conclusion

Throughout the episode, Luke Johnson provides a candid and insightful perspective on entrepreneurship and economic policy. His firsthand experience in scaling businesses like Pizza Express offers valuable lessons on strategic growth, resilience, and the importance of fostering an entrepreneurial ecosystem. Johnson’s critiques of current UK economic policies and his actionable recommendations aim to inspire both current and aspiring business leaders to take initiative and drive meaningful change.

Notable Closing Quote:

“I would die of boredom if I didn't work. Keeping on, keeping on, I suppose.” — Luke Johnson [48:31]

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Final Thoughts:
Listeners gain a thorough understanding of the challenges and opportunities within the UK’s business landscape, enriched by Johnson’s personal anecdotes and strategic insights. This episode serves as a compelling call to action for fostering a more dynamic and supportive environment for entrepreneurs to thrive.

Transcript

[James Reed]

Welcome to All About Business with me, James Reed, the podcast that covers everything about business management and leadership. Every episode, I sit down with different guests who bootstrapped companies, masterminded investment models, or built a business empire. They're leaders in their field and they're here to give you top insights and actionable advice so that you can apply their ideas to your own career or business venture. How do you spot a business with the makings of a national phenomenon? And what does it take to turn that potential into business reality? Today's guest is Luke Johnson, a serial entrepreneur who's led the expansion of some of the UK's most popular food brands, including Pizza Express and Gail's Bakery. In this episode of All About Business, we discuss how to spot a winning investment, the key to running multiple enterprises, and what the UK should be doing to promote entrepreneurship. I thought it'd be interesting to start with your sort of foundation story. How did you become an entrepreneur? What flicked the switch that made you set out in that direction?

[Luke Johnson]

It wasn't part of a master plan at all. I went to university to study medicine and I was all set to be a medic. And I discovered business by accident because I was hosting parties in my college and the gentleman in charge of discipline there said if I carried on making a noise, etcetera, they'd kick me out. So. So my friend and I located a local nightclub. It was shut on a Monday evening and we persuaded them to open for us and our friends every Monday evening. And we hosted this club which we called the Era Club. And in theory, we meant to do a different era each week. So one night we'd have a Bowie night, the next night we'd have the next Monday we'd have a Motown night, et cetera. And there was a defining moment for me. We'd, you know, this is obviously pre Internet and so forth. We had done loads of work publicizing it by sort of putting stickers up and posters and word of mouth. And I arrived about half an hour off on the first Monday evening before we were due to open our doors, and there was already a queue of people outside. And I think I can honestly say that I knew in that moment this was the most exciting thing I'd ever done and I wanted to do more of it. And the whole idea that it was really just parties, you know, frankly, we wanted to meet girls. It wasn't about making money or business at all. It turned into a business because we agreed to take money on the door and keep it. And the nightclub took the bar Money. And it was a success and we went on to do it in two other university cities and did one one summer in Hollywood and it changed my life.

[James Reed]

Have you ever thanked that gentleman in charge of discipline for sort of encouraging you?

[Luke Johnson]

Yes. Dr. Ralph Walker.

[James Reed]

It's strange how some people have a pivotal effect on our lives.

[Luke Johnson]

Yes. By accident.

[James Reed]

By accident, yeah. Yeah. There's a story I read that you went to visit Richard Branson on his houseboat.

[Luke Johnson]

Yeah.

[James Reed]

So tell me about that.

[Luke Johnson]

That's my friend came up the idea, actually, that we should go and interview this bloke who, in 1980, I think it was, wasn't very well known, relatively speaking. The bloke being Richard Branson.

[James Reed]

Right.

[Luke Johnson]

Not sir, then. And he seemed to have it all in that he was running a very successful, fun business. He seemed to be leading a very glamorous life.

[James Reed]

So this was Virgin Records.

[Luke Johnson]

Yes.

[James Reed]

When you were doing your nightclubs.

[Luke Johnson]

Yes. Of a line.

[James Reed]

So you.

[Luke Johnson]

And he wasn't that much older than us and what he was doing looked to me incredible fun. In a way, it was inspirational. And I think seeing role models like that, or just knowing about them and their life stories, I think for would be entrepreneurs is very important. I remember meeting an expert on entrepreneurship once who said the single most important influence he felt in terms of breeding more entrepreneurs in the society is at the kitchen table. If you grow up in a house where either of your parents or both, or friends of theirs or relatives, siblings, whoever, are running their own business, then this will encourage you to think in terms of seeking that freedom and independence you get by being your own boss and seeing self employment as a completely valid alternative to just getting a job, which is what most people think about when they leave school or university. You know, who am I going to work for? Instead of thinking like that, you think in terms of I'm going to work for myself.

[James Reed]

Was your home environment like that?

[Luke Johnson]

Well, it was to an extent, in that although my father didn't employ anyone, he was for most of my life self employed. He was a writer and journalist freelance. And I think he realized, you know, probably in his 30s or 40s, perhaps early 40s, that he wasn't suited to having a boss and he wanted the flexibility and the luxury, but also was had the stamina and the self discipline to be self employed. I was talking to someone earlier who works themselves, who was saying they were chronically ill last week, but of course, you can't afford to be ill if you work for yourself. And so that's one of the downsides of being self employed, you don't get sick pay, but on the other hand you get the fulfillment of controlling your own destiny to a degree and building your own world, which is, I think, what entrepreneurs do.

[James Reed]

You use the word stamina and self discipline. I mean, is that something that's sort of possible to develop or is it something that's intrinsic in your view? I mean, where does that come from?

[Luke Johnson]

Well, I think good health you can cultivate through exercise and, you know, leading a healthy lifestyle. But if you are unfortunately unlucky enough to get ill, which, you know, obviously affects some people, that makes it much harder. I think willpower and self control is paramount. I don't think, just in terms of being your own boss. I think in terms of how successful your life is likely to be. I look at those people who've achieved things and those who have troubled lives, and the single defining characteristic that separates them more than anything, more than intelligence and many other personality traits, is self discipline.

[James Reed]

Well, that's very useful to hear, Luke. So your ERA nightclub obviously got going. You know, you were doing gigs in Hollywood and stuff, so pretty early on in your working life. And then as I understand it, I mean, you fill in the details, please. But you were, not long after that you bought into this company, Pizza Express.

[Luke Johnson]

That's right. I mean, it was a while I didn't after, was it, I suppose nine years. I graduated when I was 21 and I did Pizza Express with the same business partner, the same guy.

[James Reed]

You did?

[Luke Johnson]

Yeah, when I was 30. We were both 30.

[James Reed]

And had you been partners throughout that decade?

[Luke Johnson]

Yes.

[James Reed]

So what had you done between here?

[Luke Johnson]

Well, we'd pursued slightly different but parallel paths. So he had never worked for anyone? I did work for various people. I became a stockbroking analyst for a few years in the city and things like this. It was about when I was 27, I think I gave up working for the other people.

[James Reed]

Yeah.

[Luke Johnson]

And. But I was freelancing because my partner, then partner Hugh and I were running various businesses which were initially at least offshoots of our nightclubs from Oxford days. And then we broadened out and we got involved in some pubs and various other different businesses. But Pizza Express was the turning point. Through Larkin, we managed to, with partners, take control of that business and we took it public. It worked incredibly well and our timing was very fortuitous and that gave me the platform to do other things.

[James Reed]

As I understand it, when you bought into Pizza Express, it had 12 restaurants and from what I've read, it went.

[Luke Johnson]

To 200 or something it owned 12. It had about 40 franchises.

[James Reed]

Right.

[Luke Johnson]

Over time we bought in all the franchises. So the entire chain became company owned.

[James Reed]

Right.

[Luke Johnson]

Well, it's grown in the many years since to a hell of a lot more than 200. I think it has at least 600 now. But while I was involved through the 90s, we grew it to about 200. Yes.

[James Reed]

What was it about that company that you saw? Why did you see that as an opportunity? What? I mean, because you scaled that with spectacular success.

[Luke Johnson]

I mean, to be honest, what were you looking for? It was already there. The formula, my make of pizzas, it wasn't just good pizzas. They were better than the competition. A pizza restaurant is in some respects a very simple model. You have an oven, you don't do grilling or frying. So the kitchen is very simple. Compared to a lot of restaurants, Pizza is a universally popular product. It's quick to cook, the margins are good, the ingredients are generally pretty cheap. And the formula that Peter Boiseau, the founder, had hit on in Pizza Express was a sort of high, low formula in the sense that the fundamental product itself was not an expensive product. So it wasn't a fancy night out. But at the same time, Pizza Express had marbles tables. It had real flowers on the table. He played jazz music or classical music in the background. It was classier than the then competition, which the two other main players were Pizza Land and Deep Pan Pizza, Pizza Hut and Pizza Hut. And you know, they were closer to fast food, whereas Pizza Express was aspirational. We were more attractive, for example, to more educated people to come and work for us, which again helped. So, you know, we were popular with middle class customers always. As I say, I think we made a better, more authentic product in many respects.

[James Reed]

How did you do that? What was it about the pizza? Because they were, they were better. I mean, we had so many meals in Peter Express. And I agree with everything you said, but what is it about the pizza?

[Luke Johnson]

It was all there. It was all there. The ingredients were all there. It's simply that for various internal reasons as much as any others, the business hadn't expanded as much as it might have. And we were very fortunate in the early 1993 when we took control, the economy was on the up. Suddenly come out of a recession.

[James Reed]

Yes.

[Luke Johnson]

And so property available, demand was there and we had the right formula. I think great business formulas are rare. You know, if you manage to get a hold of one or invent one, then you need to go for it and not hang around.

[James Reed]

Great formulas are rare. So yeah, I remember the dough balls really good. I don't know who thought of them as genius. And, and you also had those really nice vanilla ice cream with chocolate sauce. So lots of sort of add ons around the edge that tempted customers spend a bit more money.

[Luke Johnson]

Yeah, and I think Peter was brilliant in that he didn't diversify or get carried away. You know, it was founded in 1965, was only three, he'd taken decades to perfect the business and all it needed was executing more. You know, the whole country was waiting for this proposition and we were happy to give it to them.

[James Reed]

And you rolled it out. You've described yourself as a projector. I mean the word entrepreneur is well known to us, but the word project is less common. But could you tell me what that is? Because I think it's quite useful to explain all the things you've done subsequently.

[Luke Johnson]

Well, I think projector derived from something like the 18th century and it's an English word that I guess means what we now of as an entrepreneur. And I suppose it's a man or woman who deals in projects and they start things, they make things happen. And fundamentally every business that's ever been invented, indeed arguably every organization had a founder or founders who started the thing, who created it. And these initiators are the bedrock of any civilization. They are not just the wealth creators, but they're the inventors, they're the experimenters, they're the risk takers. And without those vital people who have the ambition and the hunger and the get up and go and the ideas and the persuasive abilities to live out their dreams and create new products and services and you know, non profits and charities and other forms of ventures, projects, they are utterly paramount in the success of any society. To rely on government or to expect inventions and innovations to happen by themselves is foolish in the extreme. And I think one of the more disappointing aspects of the economics profession is that that these individuals who are the initiators of every form of business are more or less neglected. They are very rarely researched or written about. And when they do study them, I don't think economists get it right generally speaking. And yet without them there'd be nothing. They are, you know, the core of society. And any society that turns its back on the entrepreneurs by overtaxing them or over regulating them is or failing to encourage them and indeed capital to come together. The men and women who make things happen and then the money that allows them to make those things happen. Societies that don't do that don't Succeed.

[James Reed]

And you're a great advocate for that. The more projectors the better. And I would agree with what you've just said. Where do you think we are at the moment in the uk, in Britain as a society, in terms of that?

[Luke Johnson]

Well, I think there are some very worrying statistics. So, for example, for the first time in modern history, the number of companies incorporated is falling net, the number of startups is declining. I don't think that's happened for at least 15 years or longer.

[James Reed]

So these are new statistics.

[Luke Johnson]

I haven't heard this.

[James Reed]

Yeah, so there are fewer companies now.

[Luke Johnson]

This is not a thing that's been long running. This is in the last year or two.

[James Reed]

Right.

[Luke Johnson]

And I think that is a very worrying sign. And it suggests that what they call the animal spirits are in decline. New ideas, new businesses that ultimately tend to create most of the jobs and they also generate, obviously tax and exports and pay for the public services. And I do worry that there is a tendency now to crowd out the private sector, that is the entrepreneurs and the wealth creators, with more and more public spending, higher taxes, and if you listen to, for example, the BBC, then you would think the entire economy is composed exclusively of the public sector, there is nothing else. But in fact, it's all paid for by the private sector. And if you culturally neglect the private sector, if you demonize wealth creation, if you burden those risk takers who put their house on the line and their entire career to follow a mad idea of some interesting new product or service, and you tax them too heavily, and if you tax capital too heavily and if you wrap it all up with red tape, then eventually the talent will go and the wealthy will leave and tax collection will fall and obviously job creation will decline and unemployment will go up and we will all be poorer. That is the inevitable outcome of the politics of envy. And I do worry that that's what we are seeing in action and that is, you know, very unhealthy.

[James Reed]

What would be your sort of approach to sort of improving this ecosystem? You've mentioned the number of levers there. But if Luke Johnson was in charge, what would be the sort of top five things you'd do?

[Luke Johnson]

The very first thing I would do was completely scrap the 300 page employment rights Bill, which is in its final stages, which, given the precarious conditions of the UK economy, is not what the job creators and the wealth creators need. The very idea that small and medium sized businesses can afford biggish HR departments to make sure that a boss and a company are following every rule and scrutinizing a 300 page new bill with all sorts of extra employee rights and other conditions on creating a job. What it will mean is that fewer people want to start a business where they're creating jobs. People will outsource, they will automate or they won't bother and they won't bother growing either. You need to create the conditions that actually encourage growth. And this government talk a good game about growth, but the reality of what they are doing is the opposite. Unquestionably, this employment rights bill, and I've spoken at a select committee about it, will destroy jobs and will inhibit job creation and will lead to the reverse that Angela Rayner and Keir Starmer and the rest of the government are proclaiming is their principal objective.

[James Reed]

So that's number one.

[Luke Johnson]

That's number one.

[James Reed]

What else is on your list, Luke? I'm keen to hear the rest.

[Luke Johnson]

Well, I prove and agree with them as regards planning reform. I think as a single area of law that holds growth back more than any other, I would go much further than I think they are suggesting and I would do some sort of shorter term set of exemptions such that I would make compared to the current very heavily policed and very drawn out and very expensive set of bureaucracy that surrounds property planning. I would make a window of a few years at most and say we'll fast track planning permissions. You've got to use the planning within a few years or it will lapse and you can't just reapply and hope to get it straight back again. So in other words, this planning has to be used within say this parliament. You've got to start investing and building.

[James Reed]

I really agree with that. There's a sort of derelict piece of land opposite my home that's been like that for five or six years and the person's got planning position haven't done anything.

[Luke Johnson]

Yeah.

[James Reed]

And so no jobs are being created, no work is being done. I think that should go to auction or something so that someone else can come along and have a go because it's just sitting there not doing anything.

[Luke Johnson]

Well, I've been involved with some building projects. I'm not, you know, house builder or professional developer, but I've done enough to know that, you know, for a medium sized project you may well have to prepare 20 different specialist reports, including reports about newts and bats and water and access and all the rest of means. Only larger developers and builders can often afford to go through that drawn out, expensive bureaucratic process. It means that getting permission to build is possibly harder in this country than any comparable country. And I think that's a disaster for people who want to own their own home, but also for people who want to move a business, to want to grow a business, start a business. So space is too expensive and building construction in itself actually generates a lot of economic activity. And of course there are big challenges. For example, we lack, as you would know, all about the craft skills, the bricklayers and electricians and carpenters and, and so for roofers to build millions of new homes. And so we will also have to start training more people in those building skills. But I think, you know, you've got to start somewhere. And unquestionably, I believe that if the planning regime, which is very destructive, were significantly liberated, then I think it would unleash a lot of investment and create a lot of employment and create hopefully a lot more homes so young people can get a proper stake in society.

[James Reed]

Yes, well, I agree. Do you have any other things on your list? What would be number three?

[Luke Johnson]

Scrap net zero completely. So that's quite controversial all together. So tell us why all together? Why? Because Britain now has the most expensive energy costs of any developed nation. It's utterly destroying our manufacturing. Virtually all serious manufacturing is what they call energy intensive, with energy costs higher than anywhere else. Our energy costs, for example, on average are about four or five times higher than they are in America. Within five to 10 years, there will be no energy intensive manufacturing in this country. Already we're seeing the very last of the virgin steel works closing. We've lost a huge chunk of our chemical industry. We don't make fertilizers. These are bedrocks of any advanced economy. And you know, it's even more depressing that we initiated the industrial revolution in this country and invented the manufacture process as a foundation of virgin steel. And here we are thinking someone else can do it because it's too dirty and energy intensive. And that's one of the farces of this whole net zero policy, is that we're simply offshoring the activity to another country. So we are losing our industrial independence, we are offshoring jobs. But the idea that it's generating less carbon is a fantasy. And anyhow, we have less than 1% of the world's carbon production in this country. Whatever we do is going to make no difference whatsoever. The idea that the world looks to us to be a green environmental leader is delusional. And I'm sorry to say this is a policy that's been in law for some years now. But this government are doubling down on it. And interestingly, some of the blue collar unions are seriously opposed to the net zero policies because they see the job destruction it involves and they realize that the great green revolution of creating thousands of thousands, each one of these jobs costs, it's estimated quarter of a million pounds every year to subsidize, well, the new green jobs. Yes, yes. The math doesn't even begin to make sense. Virtually all the job production or job creation involved in green technologies is taking place in China.

[James Reed]

So listening to your list of three things, I mean, I wouldn't put, I wouldn't bet a lot of money on those things happening anytime soon.

[Luke Johnson]

Who knows, who knows?

[James Reed]

But I mean, a lot of people was going through net zeros. Ed Miliband seems to be doubling down on and the, well, the planning might improve.

[Luke Johnson]

You've got to hope. I mean, look, there are two policies in life, aren't they? You can either sort of give up, walk away and, you know, defeatism, or you can hope that things will get better. And obviously the entrepreneurial mindset is you've got to be optimistic, you've got to think positive and you've got to believe that those in charge will come to their senses and realize that things like their energy policy are economic suicide, which they are. I, I do think, as it happens, for example, on net zero, more and more people, when they're facing now these massively higher energy bills and are being told of new technologies that they've got to use to heat their homes and all the rest of it, and it's just, it's all stupid and they're realizing that it's unaffordable and it's a, we're going to be colder and poorer. And is that what people want to be, virtue signalers?

[James Reed]

No, they don't want that, I'm sure. No, no. So you're sticking with the entrepreneurial optimism here? Well, I'm making the case strongly that's where we are. So, Luke, Risk Capital Partners, that's your business. Tell me a little bit about that. What is it? How does it work?

[Luke Johnson]

Well, Risk Capital Partners is really just a brand. At one point I had a fund, so I managed money on behalf of institutions. But that ended some years ago and now basically I only deploy my own capital. I do co invest with other people by general standards of private equity, venture capital industries that, you know, I'm a tiny player. I tend to specialize in UK consumer businesses, often areas like hospitality, leisure, entertainment, etc. Partly, I think that's because that's what I Know, and I've done in the past, I can't pretend they're the easiest sectors. You know, I think probably software and things like that.

[James Reed]

I was wondering about that because, I mean, you've done hospitality for a long time. I mean, actually very successfully. Have you done software?

[Luke Johnson]

Are you trying to decide that's before, Never done tech? I guess I've done things that I thought were enjoyable in the heyday. For example, the 90s, when Pizza Express was going, these were booming markets and the overall eating and drinking out market is a large market. In the UK, it's 100 billion a year, so it's not chicken feed. But it's facing its challenges now. You know, it's labor intensive. So things like the national living wage hike and national insurance increases are hitting the industry hard, obviously. Also it's, you know, energy costs and property costs and other things and it is, yeah, highly competitive. A lot more so than it used to be. So it's, you know, margins and returns are lower than they were. But then again, that's true of lots of industries. Recruitment, for example. This is a business I have been involved in a bit. Tiny amount compared to you. You would probably agree it's a lot harder business than it was 30 years ago.

[James Reed]

Yeah, I mean it's a lot harder business than it was three years ago, actually.

[Luke Johnson]

No, but surely that's the cycle rather than structural changes. Yeah, I think potentially, yeah, in hospitality there have been serious structural changes that have meant. Whereas I think you could have expected to make a return on capital of 35% and margins of 15 plus on revenue now could well be half that.

[James Reed]

Right. How many investments would risk capital have live at any one time?

[Luke Johnson]

Probably ten. Ten that are material.

[James Reed]

So one of the ones I'm aware of that is substantial is obviously Gales. Yes, there are some from when you were talking earlier about Pizza Express. There are some similarities in a way on there you took an idea that was. Seemed to be quite well established and. And then grew it rapidly. How many Gales are there now?

[Luke Johnson]

168.

[James Reed]

168. And was it just one when you started?

[Luke Johnson]

6.

[James Reed]

6. So quite similar, yes. I mean, I went to Gale's for breakfast because I thought. I knew I was meeting you, Luke. Nice.

[Luke Johnson]

Was it all right?

[James Reed]

It was very good in Portobello Road. Recommend it to our listeners. But yeah, so I. It was. I was sort of observing the concept. Lots of bakery. Yes, Lots of choice.

[Luke Johnson]

It's a heart and artisan bakery. Yes, you're right, we do have a lot of Choice. And we serve people all day. So from breakfast through elevenses, lunch, afternoon tea and then, you know, an evening snack. We don't serve alcohol and we shut generally at seven. We open mostly seven days a week from seven till seven.

[James Reed]

Seven. Seven, seven.

[Luke Johnson]

Yeah. And you know, many branches open almost every single day of the year. And we are a neighborhood staple. But we think we are high quality and we are premium and I think we try to be innovative, we try to come up with new and fresh recipes and you know, seasonal items.

[James Reed]

Is there something new you want to tell us about that's coming soon or you just launched it? Our mouths watering.

[Luke Johnson]

We're already, would you believe, working on ideas for. I was hearing today a Christmas cake coming up this Christmas.

[James Reed]

Right.

[Luke Johnson]

Because we have four launches a year.

[James Reed]

And it's Easter just we're talking now.

[Luke Johnson]

So we, we have both sweet and savory items obviously and we have bread and we have coffee and other hot drinks. People like the idea of something new and different. And I think it's important to develop your own interpretations of dishes and, and drinks and so forth. I mean, for example, we have this new popular Muscovado coffee. Cold coffee is proving very popular especially amongst younger people. You know, as tastes change, you try and move with those changing tastes.

[James Reed]

You've got a formula here once again that's sort of landed and is doing well. What are you looking for in terms of demographics, the type of location?

[Luke Johnson]

Well, it's partly science. So we do actually have quite a sophisticated in house developed program that looks for certain characteristics of a neighborhood.

[James Reed]

What would they be?

[Luke Johnson]

All sorts of things from whether there's nice schools nearby to is there a transport hub nearby, is there a park nearby, what sort of homes are there nearby, are there sort of customers? And then obviously there is no substitute for the local walking the streets. Looking at whether, you know, you think it's suitable in terms of the car and obviously it's also then about is there an available property, is it an interesting property? We like unusual buildings, we like classical period buildings often. And are the terms to rent that property, you know, appropriate? Can we agree a deal with the landlord?

[James Reed]

So it's again rather like the early 90s. The property market's quite suppressed. Is it?

[Luke Johnson]

In many respects a lot of things are not moving in our favor. You know, coffee prices are much higher than they were. Labor is obviously much higher. National insurance, energy. But property is probably on our side. Yes, I would say rents are if anything going down not rapidly, but they're certainly not, not inflating the way they were five, 10 years ago.

[James Reed]

So consequence of all the other things, you're just saying.

[Luke Johnson]

Yeah. And we all know that the high streets of Britain are embattled and a lot of retailers are downsizing, a lot of banks and others are shutting, and we are a newcomer in many of the places we open, and a lot of landlords and council see us as part of the solution to create a vibrant high street.

[James Reed]

You're not having to face sort of planning appeals and things like that.

[Luke Johnson]

We would normally go to appeal because if we can't get planning first time around, then, you know, we won't bother. I mean, we almost never build something from scratch, though. We take on existing premises, they frequently don't have permission for what we want to do, which is baking and so forth. But normally the sort of properties we pursue, there's a very high likelihood of us getting permission.

[James Reed]

So I also believe, Luke, correct me if I'm wrong, that you're quite big in Brighton. So Brighton Pier. Is that yours, are you?

[Luke Johnson]

It's part of a group that I'm chair of and part own, yes. Called Brighton Pier Group. Group.

[James Reed]

Right. And then you have other businesses, one.

[Luke Johnson]

Or two other interests.

[James Reed]

What's the thinking around Brighton?

[Luke Johnson]

It's always a city I've loved. I've got a sort of great affection for it and its accessibility from London. The fact that I think it is, in my opinion, the best seaside resort in the country. So I think it has a great deal of charm. Like a lot of holiday places, it has two seasons because it has Christmas and it has the summer, so I think that's an attraction.

[James Reed]

So it's busy at Christmas, is it?

[Luke Johnson]

Yeah. I mean, most places, you know, all enjoy higher consumer spending at Christmas, but Brighton gets that as well as, obviously, the summer months.

[James Reed]

So it's the pit. I mean, is it still the sort of slot machines and stuff, is that.

[Luke Johnson]

It's more than that.

[James Reed]

So what is there on the pier?

[Luke Johnson]

There are three elements to it. It has rides, it has arcades and it has food and drink. So it's about a third. A third or third. And it's been going since 1899.

[James Reed]

So that's when it opened, 1899. I mean, how do you innovate there? Or do you not worry too much?

[Luke Johnson]

Yeah, and. And to a degree, I think you are partly selling nostalgia, you're partly selling tradition. But no, I think one of the challenges for us going forwards is how do we get people to come back to the pier, Come to the pier more often, come to the pier in the off season. The pier has suffered very badly from example, you know, our insurance costs have trebled in the last seven years. They're enormous.

[James Reed]

Why is that?

[Luke Johnson]

Well, because there's almost no one that ensures peers. Because there are only 60 seaside peers left.

[James Reed]

Right.

[Luke Johnson]

And quite a lot of the others burnt down.

[James Reed]

Well, there's one in Brighton that burnt down. Is it?

[Luke Johnson]

Yeah, that's true. So insurers, there are very few insurers that cover them at all. So it's difficult to get cover at all.

[James Reed]

Right.

[Luke Johnson]

And so that is a cost. And also the health and safety as regards things like rides is higher than ever and that's, you know, labor and so that's expensive too.

[James Reed]

You talk very passionately about the importance of more projectors, you know, more entrepreneurs, why they're so crucial to society. And then, and then you sort of express some concern that that was going in the wrong direction. What, what could we do at the sort of earlier stage in terms of education? Young people to encourage entrepreneurship more. To give people a sense of what the opportunities might be so that more young people think of this as an option rather than other alternatives.

[Luke Johnson]

Yes, it's a good question and I don't think there's a simple or easy answer. I don't think you can teach entrepreneurship personally, least of all in a sort of classroom setting. I think bluntly, classic school teachers are not the ideal people to teach someone how to be an entrepreneur. Because teachers by their nature tend to work in a highly structured public sector setting. Mostly.

[James Reed]

Yes.

[Luke Johnson]

So it's almost the opposite from the entrepreneurial, freewheeling world.

[James Reed]

Quite a lot of the entrepreneurs I've spoken to on this podcast series have not done well at school.

[Luke Johnson]

Exactly.

[James Reed]

Struggle with the conformity. Yeah.

[Luke Johnson]

The hierarchy and the.

[James Reed]

Yeah. And they've sort of flourished afterwards.

[Luke Johnson]

Yes. Well, they're taking orders, you know, they don't like it. No, I think it's about mentors, it's about the culture. I do think organizations, for example, like the BBC are not, not great at encouraging business and self employment and entrepreneurship generally. I don't think they see it as a priority or as. Or something they are interested in. An awful lot of the brightest and best go into the classic high status professions like the law and banking and accountancy and so forth. And I think in a way that's a shame because those very clever people should be out there building things, real businesses. No one can pretend that being your own boss is the easy option and I wouldn't necessarily encourage everyone to do it. And of course, many, many entrepreneurs either fail or they never grow beyond first base, which is no tragedy. But there is this belief amongst economists who do write about entrepreneurship that there's a sort of magic 7% who are the ones who are responsible for the bigger, higher growth businesses, a lot of them who do then attract, you know, institutional venture capital. And those are the ones that are really innovative and generate the tax and exports and make the economic difference. And so it's particular the most talented, most ambitious, most innovative entrepreneurs that I think are the game changers. And so in a wider societal sense, those are the ones we must try and encourage. Of course, we need entrepreneurs of all different stripes. And you can never tell a young man or woman of 21 who decides to start a business whether they may be the next James Dyson. You don't need a thousand James Dysons to completely transform our living standards. And you look at Silicon Valley and other successful parts of the world where they produce outsized success stories and the difference it makes is astonishing. It is capital, partly it is very much the environment, but it's also the individuals and it's, you know, are the role models. Is there a legal and cultural background that promotes entrepreneurship and sees it as a desirable thing and a possible thing? As I say, I think learning at the kitchen table that this is you too can start a company and make it work and have the satisfaction that goes with building something is utterly crucial. And of course you can't manufacture that. And government in of themselves aren't in a positive way going to create more businesses or more entrepreneurs. I think they can get in the way and they can inhibit it. And that's probably what in recent times, I think we've seen governments do more often than not.

[James Reed]

So in a sense, it's up to the sort of entrepreneurial community to sort of do all we can. I mean, behind you is your book started up. I mean, you've been doing this for a long time, encouraging entrepreneurship.

[Luke Johnson]

I wrote a weekly column in first the Sunday Telegraph, then this, the Financial Times and then the Sunday Times for 20 years, every single week. Yeah, a million words. I reckon essentially every single column was saying the same thing, which is, we need more entrepreneurs and entrepreneurs. The answer, of course, I exaggerate, but that was the single theme. And I'm still saying it, I'm still saying. And I used to feel that my audience were the entrepreneurs, right? I didn't want to address the financiers, I didn't want to dress public servants, I wanted to talk to the entrepreneurs. Because I.

[James Reed]

Which is what you're doing right now.

[Luke Johnson]

Yeah, I was an am practicing entrepreneur but I could also write and was interested in writing about it, which very few other entrepreneurs are. And I felt there is a lot to say about it and I think there still is. I think this is a never ending journey. I think societies lapse, I'm afraid to say I think things like lockdown were dreadful for the economy and our culture and I think policies like furlough were a catastrophe. They didn't just help rack up hundreds of billions of debt, but they encouraged people to stay at home and do nothing. And they're the sort of opposite of the whole entrepreneurial mentality. And this very idea that you can sort of depend on the government, that no one needs to take the initiative and create their own entity and their own fortune. I think that's part of the reason why we are seeing this decline in people working for themselves, taking risks. And you know, safetyism I think is a very negative impulse and I think it's powerful in society now of risk aversion. We want people who embrace measured risks and take the plunge and go for it and see what they can do with their lives.

[James Reed]

You call it safetyism?

[Luke Johnson]

Yes, it's a sort of culture of safety first, the precautionary principle. That's a sort of core element of that.

[James Reed]

I wouldn't do that. It might not work sort of thing.

[Luke Johnson]

Yes, yes. Best not risky.

[James Reed]

Well, that's the avert. Yeah.

[Luke Johnson]

You know, there's never an entrepreneur in the world who's taken that approach to life and their. Their business. No, of course mistakes happen. There are ups. I've had many failures and many mistakes. You hope you learn and you try again, but you know, failure is very much part of the journey of life and embracing adventure and seizing the day. This to me is the essence. A society that is overly focused on safety, which is what happened during COVID massively exaggerated threat to everyone except the elderly and the ill produces a sort of cowardly inhibited mindset. It's not a progressive advancing society that has new inventions that solve our problems. It's one that's in retreat. And I suspect that at the root of all great civilizations that have fallen apart, a lack of that the spirit of adventure is possibly at the root.

[James Reed]

Is that reversible? I mean, do you think that's going to correct itself?

[Luke Johnson]

Anything's reversible, yeah. You know, it's going to take some doing, isn't it? Of course, yes. I don't think we've you know, made any form of progress in the last five to 10 years. I think, I'm afraid the same on many measures. Things have been going backwards and unquestionably socialism is not the answer. Socialism is definitely the wrong solution. What we need are free markets, strong property rights, rule of law, proportionate taxes, limited government, the encouragement of the entrepreneurial spirit and embracing change and encouraging effort and encouraging people to take the plunge.

[James Reed]

It still feels to me that there are a lot of opportunities.

[Luke Johnson]

Of course, there are always opportunities and.

[James Reed]

For those that are prepared to do that.

[Luke Johnson]

Yes. And you know, in a sense of.

[James Reed]

Adventure and are prepared to take the plunge.

[Luke Johnson]

A billion plus people in the world.

[James Reed]

You'Re doing really well.

[Luke Johnson]

Markets are bigger than ever. Of course it isn't easy. If it were, everyone would do it and it's not for everyone. But at the same time I do think that we have a tremendous heritage of brilliant inventors and innovators and exporters and entrepreneurs. And as I say, we originated the industrial revolution here in this country and so we have the ability. It's down to us. And you look at tiny countries like Singapore and how they've succeeded in the last 60, 70 years, nowhere. Yes, they were one of the poorest countries in the world. They now have almost the highest GDP per capita in the world, higher than.

[James Reed]

Us, as has the Republic of Ireland.

[Luke Johnson]

Well, that's distorted because of particular.

[James Reed]

That's a bit of an accounting trick.

[Luke Johnson]

I don't think that's comparable. I'm not sure the standard of living reflects their GDP per capita, but it's.

[James Reed]

Interesting that they do. So you've also sort of done things more widely in your career. You know, you were the chair of Channel 4, the chair of the Royal Society of Arts and chair of the Almeida Theater, which I happen to know is a fabulous theater in North London. What took you in those directions?

[Luke Johnson]

Firstly, I was asked and flattered and thought it'd be interesting and educational. Secondly, they were all things I was interested in and believed were useful elements of Saharati. Thirdly, I think having non profits charities as part of your life is healthy and you know, you learn how different organizations do things differently. I think it helps balance out. If you think only about business all day every day, I think you become very dull. So I think it makes you a more rounded person. For example, for nine years I was the chair of the Institute of Cancer Research which is the leading such laboratory in the whole of Europe. It's the sister organization to the Royal Marsden Hospital.

[James Reed]

So it goes back to your Medic? Yeah, sort of.

[Luke Johnson]

And, you know, I learned a certain amount about how we're gonna cure cancer and so forth. And I think that was very interesting for me and very educational and you hope you do some good. And I think many of these sorts of organizations, from, you know, schools, universities, to hospitals, you name it, require more entrepreneurs and more business people on their boards to make sure that they are running in a commercial fashion as far as they can as a, as a non profit and to bring that experience that those people have to bear to help that side of society.

[James Reed]

You would urge people to consider that.

[Luke Johnson]

Yeah, definitely. It's a different pace and there are in some respects frustrations, I think, different cultures. Yeah, definitely. And for entrepreneurs who are used to just sort of, you know, a sense of urgency in doing things promptly, charities and so forth don't always react on the same timescale, but nevertheless, I think to achieve variety is more satisfying, isn't it? So that's partly what it's about.

[James Reed]

Could you tell me a little bit about your time at Channel 4? And Channel 4 has an unusual remit, doesn't it? It's got a sort of, yes, status.

[Luke Johnson]

It's a public corporation which is essentially owned by the government, slash the taxpayer. However, it doesn't receive any tax directly.

[James Reed]

So it doesn't benefit from the license.

[Luke Johnson]

No, it generates its entire income through spot TV advertising, essentially and other forms of sponsorship, commercial income. So it's got many respects of a business and it competes very directly with businesses like itv. It's a traditional television broadcaster which obviously is in recent years under threat from streamers and in certain genres, like, for example, drama, it's really tough. The numbers are mind blowing. So for the very top series I saw the other day, the biggest US streaming drama series now spend between 20 and $50 million per hour severance, for example, on Apple TV, $20 million an hour each episode costs. That's more significantly more than historically the BBC or ITV or Channel 4 would spend on an entire series. They might spend half that or less. So competing for talent and ultimately eyeballs in categories like drama, which is very and very competitive now, is really tough. I don't agree with the request that I've seen for more subsidy because the BBC already gets £3.6 billion a year. And I don't think Channel 4 should be subsidized because I think it's very raison d'etre is the fact that it's self sustaining. But they're going to have to be very fleet footed to remain Relevant and prosper.

[James Reed]

There was talk, I think, about it being sold.

[Luke Johnson]

Yes, I think it should be sold actually, because I think it would get more freedom that way. I think it's shackled by being owned by the government, but I'm afraid government's been too cowardly. There are vested interests.

[James Reed]

I want the money either.

[Luke Johnson]

It's not that there are vested interests that are opposed to privatizing it and so they will be hard to keep it state owned.

[James Reed]

You've been quite critical about the BBC's sort of take on business, especially. What do you think? How should the BBC be run in the future? Do you have any views on that, as you've worked in television?

[Luke Johnson]

Well, a lot of experts think it should be a subscription basis. I do think it's sort of monstrous that through the license fee which only ever goes up, there are an awful lot of people who are pursued who don't pay the license fee and these end up in the courts and people get fined and some people go to jail for non payment of those fines. I think that's wickedness in the extreme and I don't think it should be happening ever. It is a regressive tax and I think ideally it shouldn't exist. I see that the 3.6 billion would be very hard to obtain from elsewhere from general taxation savings. So I guess it will have to remain, but I would almost certainly not allow it to increase. And I would insist that the BBC somehow devises a subscription model that means that those people who want various different services have to pay for it, like you do for Netflix or Apple.

[James Reed]

People seem to pay quite happily.

[Luke Johnson]

Yeah, yeah, sure. Look how much they pay every month for Sky.

[James Reed]

So you think the BBC could evolve into a subscription?

[Luke Johnson]

I think so, yeah.

[James Reed]

Type service. Luke, what about the future for you? I mean, you said, you know, you, you like going on adventures. Have you, have you, have you got anything in mind for your risk capital partners next step?

[Luke Johnson]

Well, I'm forever looking at projects here. I'll be frank. It's very tough at the moment to get hugely enthused about the prospects in the UK in the immediate future. As I mentioned earlier, you know, you've got this blockbuster employment rights bill and so forth and so on and net zero, all the rest of it. It's an expensive place to do business here. It's highly regulated. Growth is proving elusive, unsurprisingly, so I can't pretend the prospects are amazing. However, this is where I've spent my life, this is where I've built my business career. It's harder to say, oh, I'll go off and, you know, invest in Asia. It's a long way off and I don't know how I go about it. And at my age it's tough to start all over, so. So I'm not sure is the answer. I will probably continue to do what I've done for the last few decades and carry on trying to find interesting opportunities here like Gale's and others that I think still offer expansion possibilities and are not too expensive.

[James Reed]

Well, Gail seems to be going great guns.

[Luke Johnson]

Yes, it is. And despite the climate, actually trading is pretty strong. It has great team running it and I'm very lucky to be a part of it.

[James Reed]

This is a tough period for business. I completely concur. That's what I see. But often, if people are able to start businesses in these tough periods, do really well later on.

[Luke Johnson]

The history of business is that many of the great businesses were started in recessions or even depressions.

[James Reed]

Yes.

[Luke Johnson]

And of course it may feel tougher than it did five or even 10 years ago now, but this is nothing compared to countries that go through war or the depression of the 1930s or whatever it may be. And I suspect there will be a recovery at some point. You know, I dare say that if there's a recession this year, it'll end next year. So, you know, most recessions only last about 18 months. And as you say, often recession's a great time to pick up assets or hire talent or launch something new. I hope that's right. And I think we have nothing to fear but fear itself, I guess.

[James Reed]

Yeah, no, I'd agree. I mean, there are always opportunities.

[Luke Johnson]

Yeah, yeah.

[James Reed]

Tough times throw up different types of opportunities to boom times.

[Luke Johnson]

Yes. I mean, I think what you had until a few years ago was money that was almost free, you know, with zero or close to zero interest rates for over a decade. Capital was cheap, so you could borrow money, you could raise equity and assets got very expensive. We're now what's happening is, is part of the unfolding of all that, which is capital's got a hell of a lot more expensive. The risk premium is up. Asset prices in some respects are probably falling. Business is getting more difficult. So growth is proving very hard to come by. And as you say, there are still consumers out there and there are still opportunities. And it's a question of finding the technologies or the business models that make sense.

[James Reed]

I mean, it sounds self serving for me to say this, but it's a great time to recruit people.

[Luke Johnson]

It is. And I'VE found that too, in that, you know, there's a lot of talent looking for work. Work.

[James Reed]

There is. And, and that's something we really focus on at this sort of, in this sort of economic environment. Luke, thanks so much for coming here to talk to me. I will ask you two questions that I ask everyone at the end. The first one is I stand a question, there's a clue on the wall. And, and that is what gets you up on a Monday morning.

[Luke Johnson]

I suppose two things. One is my first cup of coffee, which I look forward to relish and is always delicious. And then second, whatever's in my diary, first, I've got to psych myself up for that meeting or that call or whatever it may be with a sense of enthusiasm and alertness and try and give it my best.

[James Reed]

And the last question, which is from my interview book, why you, which is also behind you up there somewhere, is where do you see yourself in 5 years time?

[Luke Johnson]

5 years time, I'll be approaching 70, so I won't be a spring chicken, but I guess I will still be working. My father worked till he was well into his 80s. I'd like to think I'd do the same. I think I would. I would die of boredom if I didn't work. Keeping on, keeping on, I suppose.

[James Reed]

Keep going strong, Luke and I look forward to more of your projects becoming public news. Thanks for coming in to talk to me. Thank you, Luke, for joining me on all about business. I'm your host, James Reid, chairman and CEO of Reid, a family run recruitment and philanthropy company. If you'd like to find out more about Reid, Luke and Risk Capital Partners, all links are in the show notes. See you next time.