Lessons from the Boardroom – What have I learned in 2 years at Naked Wines plc? 

Dear Partners, and Prospective Partners.  

Sam and I were recently in Omaha, and I was asked to give a talk to a group of investors and operators about what I have learned during 2 years on the board of a portfolio company. 

Thinking about what to say was a productive and enjoyable experience; sometimes it’s only by taking stock after several months or even years of frenetic activity that you can process things with proper perspective. I thought I would share some of the thoughts more widely. 

When I joined the board of Naked Wines plc in May 2023, it was one of those situations where it gets worse before it gets worse. 

We have owned Naked Wines in the portfolios that I manage since 2018 - it was my second investment as a professional investor. By mid-2023 I knew the business reasonably well and I knew that it was in a precarious position, with a large overstock position in the US and deteriorating KPIs across the business. 

When I joined the board, alongside the founder of the business, Rowan Gormley who came in as Chairman, we were thrust straight into a forecasting crisis, which led to a series of profit warnings while we tried to bottom out the behaviour of the large cohorts of customers that had been acquired during Covid and were not at that point behaving like the cohorts that had been used to build the company's forecasting models. 

That crisis led straight into solvency and liquidity concerns, as everyone from landlords to payment providers began to demand increased security. In the last 12 months, we have been through a CEO appointment process, a major refinancing, and a period of proposition and strategy testing. Only now, 2 years later, are we really coming up for air and able to think past the next few months into the future. A future which is looking increasingly optimistic, and I hope, finally, profitable. 

So, what have I learned from my experience so far? The frank answer to that question is more than I can possibly set out in a short memo - it has been the steepest learning curve I've ever been on and overall, the most rewarding experience of my professional life to date. But I’d like to draw out four lessons that I hope will be of interest: 

Lesson 1 – Seeing from the outside in 

As an outside investor in public equities, you see very little of a business, even if you are diligent and work very hard. BUT - you absolutely can figure out the important things, often more successfully than management and the board, whose vision and clarity can be muddled by the fog of war. 

When I joined the board of Naked, the big problems I expected to tackle were indeed the big problems that the business faced. Some of them were more nuanced or worse than I expected, but there were few surprises. 

The only surprise was that several senior members of staff still didn't seem to understand the scale and nature of the challenges the business faced. This was particularly surprising as I had spent months talking to various shareholders of the business and while there was of course a range of views of how to deal with them, there was consensus on what the important challenges to tackle were. 

Lesson 2 – Running a business is hard 

Running most businesses is much harder than most investors realise. While I would never claim to have had experience as an operator, my experience so far in a very involved NED role has given me an appreciation that most of the time, management and the wider team have thought about what you are suggesting as an easy solution to a difficult problem. Most people I have encountered at Naked have been intelligent and diligent. Mistakes were not made because they lacked the IQ points or energy to attack problems. 

The line that you want a business that an idiot can run because one day one will is a great line, but there are very few businesses that would succeed if run by an idiot. Most don’t succeed even when run by smart people. 

Lesson 3 – It’s nearly always people 

The third lesson, which flows from the first two, is that the most important thing is people nearly all the time. I have learned a version of this lesson at least twice over the 7 years I have been managing money professionally, and each time I realise you cannot overestimate the importance of people. 

  What do I mean by the important thing is 'people'? 

Well, first I mean the character, judgment and temperament of the senior leaders within the organisation are instrumental to their ability to navigate challenges and seize opportunities. Not just the traits of the CEO or Chairman, although I do believe that the tone at the top flows downward.    

Secondly, and this is another lesson I have relearned too many times, incentives are what drives behaviour over the long term. And incentives are not just financial - in fact many of the most important incentives driving behaviour at Naked Wines are not financial. Incentives go way beyond the LTIP.  

For example, at Naked, the seeds of our US overstock position were sewn by a desire of team members to be accepted and admired by the who's who of the Californian wine scene, whom they lived alongside and saw at their kids' soccer games. Yes, their compensation was important to them, but being seen as ‘one of us’ by the people in their industry was more important. 

Lesson 4 – Speaking the language 

The fourth lesson I have learned is how to read between the lines of company announcements. I’ve seen how the sausages are made - if something is ambiguously worded, that is intentional. If you think management are trying to gloss over something or downplay its significance, they are. I have had quite the battle to get Naked Wines investor communications to where they are now - still not great, but better than they were and with an emphasis on transparency and plain language.  

This lesson has also been helpful in other ways - in particular, when meeting with management teams, I feel that I am now able to engage with them more constructively and in a language that resonates with them, while before, I’m sure I sounded like just any other investor. I hope that the benefits will compound over time. 

 Yours 

Jack 

Colebrooke Partners 

www.colebrookepartners.com 

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