Our P2P platform is running and has real borrowers and
real stories to tell. I hope the stories I tell here can encourage
good lending practices at other platforms and give P2P investors more
insight on how to select investments. I welcome comments and
suggestions, so please write to me at msonenshine@symfoniecapital.com.
Case Study - Tamsin
Last year Marcus O'Neil, co-owner of Tamsin, approached me and presented Tamsin to me as a potential investment for the Symfonie Angel Fund. He told me the story of how he and how wife Lenka O'Neil
developed an internet clothing business that had a growing base of
customers. He wanted to find extra capital to continue growing the
business.
As I listened to Marcus I became convinced that his
business would be an ideal candidate for a peer to peer loan. Marcus
left my office that day with more questions than answers. He's a
careful fellow and doesn't jump to conclusions. This is something I
especially appreciate as a creditor. I want to invest in businesses
that are run by practical people who put serious thought into their
businesses.
Over the next few months I got to know Marcus and
Tamsin better. We collected the usual financial data - balance sheet
and income statements. We looked at the Tamsin website. We looked at
the order flow and the the customer traffic. We collected personal
credit histories of Marcus and Lenka. Here's what we learned:
1. Tamsin is the brain-child of soft spoken Lenka.
She studied fashion in London. She worked for several years at
Burberry's as a merchandiser. There she learned how to understand the
needs of Burberry's customers, identify products the company could sell
and negotiate purchase terms that left a margin in Burberry's pocket.
2. Tamsin is a family business. The
family lives the business and the business feeds the family. This is a
double-edged sword, but fundamentally it means the owners and the
management care about the business and want to make it succeed.
3. Tamsin has found a profitable and growing niche in the on-line clothing market.
An increasingly prosperous community of women visit London, find
clothing they like at good prices on the high street. Upon return to
the Czech Republic and Slovakia they find it difficult to buy such
clothing in the local market. Few of the British retailers service the
on-line market and provide good delivery and return policies. Getting
the goods here takes a long time. Returning merchandise that doesn't
fit will or is defective takes a long time. There isn't much
flexibility around delivery either. Many consumers prefer to pickup the
goods at a local fulfillment center that offers more flexibility than
having to sit at home and wait for delivery.
4. Tamsin has a flexible and dynamic business model.
Lenka scours the UK market for clothing that would appeal to her
customers. When she finds interesting items she posts them on the
website. After her customers order the merchandise Tamsin buys the
items. Marcus manages the logistics of getting the clothing from the UK
delivered to the Czech Republic where a local logistics partner handles
final delivery.
5. Marcus and Lenka invested heavily in technology. They hired a smart IT specialist, Michal Dolezal,
who codes the website and develops the commercial tools. Michal has 18
years of experience and owns some equity in the business. This is no
easy feat. Tamsin have more than 6,000 SKUs on their website and this
list is continually changing.
6. Tamsin found its market. Over the
last year the number of unique visitors to its website has doubled,
from 33,000 monthly, to more than 60,000 monthly. Orders have increased
from 150 monthly to 630 monthly. The increased conversion rate is
means Tamsin is turning more of its visitors into paying customers.
Sales have tripled, from 360,000 CZK (about 13,000 EUR) per month to
more than 1,000,000 CZK (about 40,000 EUR) per month.
7. The business has plenty of growth opportunity.
Research suggests that in the Czech Republic 81% of internet users have
used on-line shopping, compared to just 59% elsewhere in Central
Europe. Electronics is the most popular, followed by clothing and
cosmetics. Many users wish to avoid giving their credit card details
on-line. Tamsin and many other on-line retailers in Central Europe
offer merchandise Cash on Delivery. Many international retailers don't
offer cash on delivery service, yet cash on delivery can represent upto
40% of sales, according to industry research.
8. Tamsin can expand across product lines as well as across markets.
They recently added men's clothing to the website and are looking at
opportunities to add children's clothing. Smart move! Women browsing
the website can find clothing not only for themselves but also for their
partners and their children. Tamsin are investigating the possibility
of expanding the site services into Hungary and Poland, where their
research indicates they can find a similar customer base. No firm
decision has been made yet. Marcus told me last year that cross border
expansion was an objective. However, he needs to ensure he can setup a
logistics infrastructure to support the business and of course, the
website needs to be translated. Marcus wants to ensure the business is
on a stable footing in the Czech Republic and Slovakia before he goes
into new countries. Marcus seems to share my view that adding men's and
children's lines to the website is less capital intensive and can
generate income faster launching in a new country.
9. Numbers and cash flow complete the story.
Sales have risen to nearly 1.5 mn CZK (EUR 60,000) per month. Tamsin
reported nearly EUR 18,000 in profits in the Czech Republic last year
and a further GBP 17,000 in the UK. The business is clearly profitable.
The major IT development of building and deploying the website is
complete, so the largest fixed costs already absorbed. The next level
of cost is incremental - translation of the website and addition of more
product lines. There is practically no long term debt in the
business. The company was funded largely from equity capital and
shareholder loans from Marcus and Lenka.
10. A P2P loan supports business expansion.
The rapid growth of the business means more working capital is required
to support sales in process. Many retailers require an inventory of
goods on the shelf. Tamsin requires little in terms of goods on the
shelf but still must finance the payment cycle. Customers order goods,
Tamsin purchases the goods and delivers them, Tamsin then collects the
cash. Last year the sales base was nearly EUR 12,500 per month. This
year the sales base is over EUR 60,000 per month.
11. Tamins' working capital need is counter cyclical.
If sales decline Tamsin needs less cash to support the sales cycle so
their cash so working capital would be freed up. Contrast that with
traditional bricks and mortar retailers, where a decline in sales
creates an inventory overhang and makes stock replenishment more
difficult.
12. The debt is sustainable. With
profits of nearly EUR 40,000 annually, Tamsin should have more than
enough free cash to pay interest and amortise down the P2P loan we
designed for them, which has a five year term.
Incidentally, I made a point above of describing Lenka as being soft spoken. Upon meeting Lenka I was reminded of Good to Great
,written by James Collins. It's a wonderful read. Collins finds a
common thread among the leaders who developed great companies. The
truly great people among us are high on performance, low on ego. This
doesn't mean they have no self-confidence. On the contrary, their
self-confidence is strong enough that they really feel no need to draw
attention to themselves. In the words of Collins:
“The good-to-great leaders never wanted to become
larger-than-life heroes. They never aspired to be put on a pedestal or
become unreachable icons. They were seemingly ordinary people quietly
producing extraordinary results.”
As with any investment, there is no
guarantee of success. We encourage investors in P2P loans to diversify
their portfolios and invest no more into any particular loan than they
would be willing to lose. We hope to be able to report in the coming
months and years good results from companies on our platform such as
Tamsin.
Special thanks to Marcus, Lenka and Michal for their inspiration.
Questions? Comments? e-mail me at msonenshine@symfoniecapital.com.
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