He may be the brains behind the upmarket franchise Fine & Country and have negotiated himself a directorship at LSL Property Services, but Jon Cooke is happier remaining behind the agency market’s scenes than shouting about his success, as Clare Bettelley discovers.
The Negotiator: Why a career in agency?
Jon Cooke: It was that or secondhand car sales. Property seemed more appealing.
N: Your first agency business was Hertfordshire-based Intercounty. Tell me about the launch.
JC: I used money that I had saved from running a mobile disco; people used to have to pay to go there and I was quite a saver.
N: What topped your playlist?
JC: Oops upside your head [by The Gap Band].
N: What a classic. So, either the agency launch was a bargain, or you were making a killing from the discos.
JC: I didn’t actually need to invest a great deal to start the business. It was in a recession and I got a reverse premium for my first premises from General Accident for £20,000. The company just wanted me to take the premises. I ran the first office in Bishop’s Stortford and two further partners ran our Saffron Walden office.
N: You left the Prudential to start Intercounty. What lessons did you learn from corporate life?
JC: In my early days there, I saw where they made a mess of agency. They got rid of all the partners and tried to run the businesses they acquired centrally. There was a huge lack of support and lack of understanding about the agency market. The biggest mistake was the uniformity of operations, which failed to take into account the regional differences that define agency. I remember the huge head office in Godmanchester where the directors used to sit and have lunch by the river; it was classic corporate agency.
N: And then along came Fine & Country, which was also your brainchild. How did that come about?
JC: It was around the time that Primelocation launched. We had grown Intercounty to six offices, and I was invited to a seminar by a colleague who worked for Savills where a company called Fastcrop was planning to launch a property internet site. It wanted everyone in the room to invest £10,000 in shares, and then once we’d all signed on the dotted line, they were going to tell us what the upmarket website was going to be called. I just thought if I was going to spend £10,000, I might as well start my own site. So, I went back on the internet and bought the domain name fineandcountry.com. It was also at that time that I lost a sale to a client who didn’t consider Intercounty to have the right image for his property sale. He sold his property that night to the buyer I’d had lined up, but with another agent whose brand he thought had more prestige.
N: Why couldn’t you have developed Intercounty to bridge the market gap into highend property sales?
JC: At the time, I felt it was better to position ourself as a mainstream agent of choice for mid to upper market property sales. So, I invested £10,000 in building the Fine & Country site and then sold it to The Guild [of Professional Estate Agents] in 2001.
N: How much did you make from the sale?
JC: It was a share-based deal. I got a 10% stake in The Guild and a seat on its board in return for the concept.
N: Why didn’t you develop the network yourself alongside Intercounty?
JC: It was a choice of it remaining as a local business or growing it internationally as it has been, and the latter route was the right one. The brand needed to be taken to a different level and The Guild was in a position to do that. It was just about to open a London office [on Park Lane], and the team there had the network and contacts to develop it, plus the investment needed for expansion.
N: Four years later you created LSLi. Why?
JC: In late 2005, I realised that the city was interested in agency. It was 15 years since the last round of corporate buyouts and I realised that there weren’t any real exit routes for agents, apart from selling their businesses to their staff or a competitor in the next town who might change their brand. I did a tour of estate agents and met one London agency that was doing exactly what the Pru did by buying a load of really good quality agents, changing the brand, completely disenfranchising the owners and then getting to a situation where everybody who’d sold their business wasn’t interested in them anymore. You can’t go around closing businesses like that; corporates need to bring to the table an element of cost savings and volume discount on services, such as human resources, marketing and portals – all the things that really hold the entrepreneurial agent back. Most agents outside of London tend to get to five or six offices and then stop because there’s a motorway, but with the internet that’s changed. We simply provide the financial backing to overcome those hurdles; none of the brands change unless there’s a strategic reason that the management thinks they should change.
N: But why, if I’ve weathered the downturn until now, would I consider selling my independent business to a corporate, even if I was able to retain my brand? I just can’t see how I could avoid relinquishing my independence.
JC: The culture if to leave everyone ownership and incentivise them to grow the value of the business, whereas the prior corporate mentality, which I went through with the Pru, was to buy everything up and get rid of everybody as quickly as you possibly can.
N: So, it’s about powering independents to continue running their businesses on a more cost-effective basis?
N: But the irony of such a concept backed by a corporate - which for you in the past has been to all intents and purposes the epitome of evil, judging by your scathing comments of the Pru - can’t be lost on you.
JC: It’s simply a case of having the backing of a bigger organisation and access to the business mentoring of a bigger organisation. It gives you the ability to look at things more objectively, because you haven’t got the financial strains that you had before.
N: Talk me through the numbers.
JC: LSLi will typically own a percentage of the businesses with the the respective owner. This creates an incentive to grow the business and keep delivering profit. The equity’s then bought out in the future.
N: What’s the formula for the stake you buy?
JC: For those wishing to grow their business, there’ll be an initial payment and then deferred payments based on the success of the business. The initial payment is based on a multiplier - what we call normalised profits.
N: What does that mean?
JC: We’re aware that people will be looking and us and thinking we’re just trying to cash in at the bottom of the cycle, but that is just not the case. We base the payment on an average of the firm’s profits over a set period of time, which reflects the market’s highs and lows. We deduct any debt incurred in expansion from future payments. In the event that a business owner wants to leave, usually in the case of retirement, there obviously won’t be expansion costs, so we focus instead on incentivising their key staff. A lot of people build independent estate agents with a strong team around them, but these individuals can’t buy the business off the owners if they don’t have the funds. We will incentivise that team to grow the business with equity.
N: So, LSLi provides growth capital for owners to expand their businesses or the funds for teams to undertake a management buy-out?
JC: Exactly that.
N: What’s the criteria to secure LSLi backing? Is profitability essential?
JC: Not at all. We’re talking to businesses from three to 15 offices, so you can’t standardise criteria. Geographically it’s different as well, and of course target markets differ for agencies. At the moment, we’ve got 21 offices under four brands.
N: But what happens in the event that a retired agent’s team doesn’t want to take over the business and you’re left with 100% of the firm?
JC: We would have had that conversation by that stage. But if the team decides not to take the business over, we will retain 100% of it while we recruit from within the industry.
N: You put your money where your mouth is with Intercounty, and added it to the LSLi network. I’m sensing a theme here, but why couldn’t you have grown Intercounty without LSLi backing?
JC: We just didn’t have the money to do what we wanted.
N: What have been the main benefits of the deal for Intercounty?
JC: We were able to expand from six to nine offices over two years and we’ve been able to trial new ideas within the business, which we hope to launch on a national scale at some point in the future. And we’ve picked up the good parts out of the LSL structure, such as a very good forecasting model. Its sounds pathetic because you’d expect most quality independent agents to have a good forecasting model to run your business by.
N: But you don’t need the likes of LSL just for that.
JC: But this is exactly drilled down to the nth degree of estate agency. Like most agents, I was absolutely on my numbers, but I never forecast what I was going to do.
N: Intercounty’s also got a franchising model. What are the merits of the LSLi route over franchising, which as our special last month showed, is proving hugely popular for agents attempting to ride the market recovery wave?
JC: I think they are two different things. You franchise your business out because you want to expand it on a lower cost base.
N: But isn’t that what you’ve said the LSLi concept is based on?
JC: I think the LSLi model brings knowledge to the table. Plus, we’re developing the franchise model. We’re getting some things right and we’re getting some things wrong, so we’re working on that.
N: Such as?
JC: We’ve got the licensed associate model, which we launched in 2007. Field agents work from a hub office, though I don’t know if there’s a future in people working from bedrooms as estate agents. I think the future of agency’s a mixture of lots of different things, on a different pay structures, from commission to salary to the licensed associate model.
N: Which areas of the franchise business needed trouble shooting?
JC: The people. We got the wrong people in some cases. I think we were probably too keen to get bums on seats in the beginning, although we have changed our process. We’re making people more aware of the pitfalls and exactly what we’ve understood from the model, plus how hard it is. This industry is hard work; it’s not easy and anyone who thinks they can waft in and be a franchisee- and I’m talking about people for outside the industry – will be sadly mistaken. The general perception of our industry is that it’s an easy way of making money, and that couldn’t be further from the truth.
N: That’s one of the key points that was raised in our franchise special – the extent to which new entrants underestimated the work involved in launching their business and the fact that it’s a lifestyle choice, and not necessarily in the positive way that people may think at the outset.
JC: That’s what we got wrong. We sold it as a lifestyle choice initially and that was a mistake. Intercounty did a presentation in front of 70 potential franhcisees, and one of the slides said you can work from the office, you can work from home, you can work from the beach; I’ve never worked from the beach in my life. Why did I say that? We built a picture that needed defining. The problem is that you don’t know people’s glass ceiling. You could be happy with two sales a month and the rest of the month you spend on the golf course, which is why there needs to be some controls in place.
N: Talking of control, what’s the ceiling for agents’ shareholding in their business with LSLi?
JC: It’s not set in stone, it depends on the individual, but typically, we would want to be buying at least 50%. That said, we don’t want complete control. If we started to tell some of our network members what to do when they’ve run their businesses successfully and profitability through thick and thin for 10 or 20 years, what are they going to think?
N: So, let’s get this straight - there’s Malcolm [Lindley, managing director of The Guild] earning from Fine & Country, then Simon [Embley, chief executive officer at LSL] and his team earning nicely from LSLi, and you in the middle as simply the ideas man?
JC: LSL bought the city nous to the deal and I bought what I think is right for the independent agency business. LSL is a strong business and the guy [Embley] is an inspiration to be around; you learn a lot, and that’s what it’s about for me.
N: So, you fancy yourself as the agency market’s Robin Hood?
JC: What, take from the rich corporates and deliver to the poor?
N: You certainly seem to be good at making other people money.
JC: Quite possibly, you could argue that.
N: Why share the fruits of your labour? J
C: I enjoy what I do. I’m not massively moneymotivated; I don’t think you have to be in life. I’ve got a nice life.
N: Seriously, what’s the financial incentive for you? Shares in return for a business concept?
JC: Yes. Everything I do is about allowing people to have equity in their business, and this also applies to my own deals, so yes, I have a stake in LSL as well as The Guild.
N: What’s your long-term goal?
JC: To continue working with businesses with LSLi; to assist them to become more profitable. I’d like to grow the business to be one of the most profitable centres at LSL and in UK estate agency, with a number of quality people involved. It’s all about the people; it’s not about dots on maps, which was the case with the Pru. Of course, the LSLi model doesn’t work for everybody.
N: What are your targets for LSLi?
JC: There’s no target; it depends very much on the businesses. There has been a lot of talk about consolidation in the industry over the last 18 months, but that’s old news now since everyone seems to be doing better. That said, we could make businesses more valuable by getting them to work together within the LSLi network. It’s one of the things I’m looking at – my job is to create ideas for the future of the business.
N: How do you generate your ideas?
JC: Running. I have a meeting with myself when I go running at 5.45am most mornings.
N: How has the downturn changed way you approach the business, particularly in terms of target agencies?
JC: It’s about understanding the fact that we’re all going to have to work a lot harder than we thought because of what’s happened in the last 12-18 months. In terms of acquisitions, gone are the days when someone’s just going to give you a big cheque; they’re still out there, but you’ve got to plan for them. I could be wrong, but I believe that it’s going to take quite some time for the market to come back round.
2006-present: Founder and director, LSLi
1999: Created Fine & Country
1993: Launched Intercounty
1987-1993: Trainee negotiator, Mullucks; manager for Prudential [Prudential acquired Mullucks in 1989]
On the side
Status: Married with six-year old twins
First property: A repossession in Clavering in Essex in 1993 for £62,000
Last property: A five-bedroom vicarage in Clavering for £850,000 in 2005
Last holiday: Camping in Southwold
Favourite tipple: Red wine and Adam’s Ale
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