She found fame as one of BBC2's original 'dragons' but paid the price in 2005 when her own company, Red Letter Days, collapsed and she was pilloried by the press. Today, Rachel Elnaugh is back—with a book about entrepreneurs and plans to build a 'transformation' brand. Amy Duff meets her

Rachel Elnaugh has every reason to feel antipathy for journalists. It was the media that, in her words, annihilated her when her experiential gift company Red Letter Days (RLD) went bust in 2005. But she doesn't arrive breathing fire. She's finally accepted that people want to hear about where her business went wrong and about what she's learned from the experience. She's put a lot of her own story into her new book, Business Nightmares, even though it's primarily about the ups and downs of other well known entrepreneurs. If anything rankles her, it's the assumption that she's "a real bitch" after her participation in the BBC's first series of Dragons' Den. "I've got this Dragon brand which, while it has been a great gift, is also something I've got to constantly overcome."

The Alpha female is not anathema to her, though. She worked at accountancy firm Arthur Andersen in the 1980s, a time she describes as the "rise of the power female". She cites as inspiration people such as Debbie Moore [founder of Pineapple Dance Studio] and Anita Roddick, who were floating companies at the time.

By the age of 24, and already a small-business director, she had toughened up in order to handle the City boys and bankers: "In my 20s, I was in an environment where I had to be hard and aggressive," she says.
These days, she prefers to talk about "creating opportunity through being in the flow", "vibrating at the right energy level" and "positive thinking". She believes there is real potential in what she calls the "transformation sector". "That old way of business, which is about money and greed, is subsiding in favour of a much more collaborative, ethical and honest way," she says. "There's a spiritual void in society that isn't being met by religion. The more I explore the idea of helping people discover what they stand for and who they are, the more I feel that if it's done right, it will be a big area for business."

The PR guru Lynne Franks believes that Elnaugh is in tune with the zeitgeist. "It's more about social change than a business opportunity, but it's certainly where things are going," she says. "I taught it while Rachel was probably still in her Alpha mode. My women's learning programme, Sustainable Enterprise and Empowerment Dynamics (SEED), is about energy, flow, relationship building and collaboration. It's different to traditional business coaching and enterprise support, but it is proven to be effective."

All this is a far cry from the career trajectory that Elnaugh was on at Andersen as a senior tax consultant. It was, she says, a good grounding for an entrepreneur. "I had accountancy training. I'd also seen business plans and the dreams that had never materialised, so I knew that it wasn't easy."

So why did she go it alone? "Business was in my blood because I grew up in my dad's [electrical] shop," she says. "At Andersen it was either up or out, and in my heart of hearts I knew taxation wasn't really for me. I was earning a lot of money, but it was a golden cage."

A "germ of an idea" began in 1989 when she bought her father tickets for a match at Lord's. "I started thinking about how you might wrap up something that's intangible. How do you package it and how do you give it to someone? You can have a voucher, but that's a bit crap," she says.

Her solution was Red Letter Days, a business that would provide adventure and activity gifts packaged in an iconic envelope. She says the momentum of turning an idea into reality was "quite powerful, like a star forming", but she quickly came down to earth with a bump. Having spent £25,000 of her own savings, turnover at the end of year one was only £10,000. Elnaugh recalls: "I was in the bottom of the pit. But I absolutely refused to allow the friends and family who'd put in £8,000 to lose their money. And, critically, I'd set it up as a business expansion scheme company. You got 100 per cent tax relief in those days, plus free capital gains tax."

She pinned her hopes on a redesigned "less clunky" experiences brochure that was to go into a couple of weekend newspaper supplements. It was a success and the money came flowing in. "Everything went crazy," she says. "In a three-week period, we took £30,000 and the viral marketing kicked in. When you get proof of concept, you know that it can work."

By 2001, turnover was £10m and RLD had made £1m in profit. By 2002, turnover was £14m. Says Elnaugh: "Dividends were flowing, everything was wonderful." So why, after trading for 16 years, did the business fall into administration? Elnaugh writes on her website that "over expansion" was the culprit. But she also suggests that her decision to bring in a CEO played a significant part. "It had got to the point where it was getting to be a headache, and I'd lost my passion for it," she says. "I was managing personalities and fire fighting, and it was becoming a pain in the arse. So I thought, 'why not bring in a CEO who'll know what he's doing and take a step back into a non-executive director role?'"

By the end of 2002, she says the cracks had started to appear. Her board was bloated with 10 directors—"ridiculous for a company of that size," she says—and the sales team had missed their targets for Christmas. Elnaugh says she had also begun to feel alienated from her own business, a common concern among small business owners after a succession. She says: "On the board there was the 'old school' (Rachel's people) and the 'new school' (the CEO). You're the past and the CEO is the future. Fears and divisions start to creep in." By the time she came back full-time to instigate a cost-cutting exercise, the board was divided and she claims that RLD was "haemorrhaging cash".

Should taking a step back from your business be so perilous? Not according to Tony Sarin, a serial entrepreneur and current director at turnaround specialist, K2 Partners. If business owners install a good management team and maintain regular contact with their CEO, the business should run smoothly, he says. "Look at Stelios [Haji-Ioannou]: he built easyJet to a certain level and then stepped aside to allow other people to run the business. Or Lord Bilimoria at Cobra Beer, who built a tremendous business but now has a CEO running it for him," says Sarin. "Entrepreneurs also need to know their own strengths and weaknesses and where things can go wrong."

Elnaugh takes responsibility of sorts by admitting that her business was no longer her priority. "It brought lots of money, attention, awards and fame. But deep down, I knew my passion for RLD had gone and I was just managing a machine, just doing it for the money," she says. "I thought, 'I want to float this and sell out, make millions'. But we never quite got round to selling it."

By then, of course, she was an entrepreneur elevated to celebrity status. Her public profile became a hindrance when the media got on her tail: "Whatever you try to do you're out there," says Elnaugh. "When I started I was quietly making cock-ups, and nobody really knew about it. Dragons' Den was a double-edged sword because it gave me opportunities, but it also put me under the microscope."

By the time two of her fellow dragons (Peter Jones and Theo Paphitis) bought RLD out of administration, Elnaugh says she was physically and emotionally exhausted. She admits to feeling both liberated and sick when the end finally came. "I'd got my life back. But it's difficult when you lose a company. If you're a woman, it's like having a baby... There's bitterness and anger. They're all very negative emotions that you've just got to let go, otherwise you'll end up like some bitter old hag in a pub, saying 'I used to be...'"

So did anything good come from the experience? Reflecting upon this question, she briefly loses her composure: "I think the TV thing was sent, I think the book [Business Nightmares] was sent. The universe has an efficient, almost beautiful way of delivering you exactly what you ask for," she says. "I now work from home, I'm around my children all day, and I'm essentially an author. I learned that it's not the money that brings the joy, it's the joy that brings the money."

On a more practical note, she's learned some important business lessons, too. In advance of expanding, she suggests entrepreneurs raise finance when their company is doing well and not while they're trying to dig themselves out of a hole. "Don't try and expand out of cashflow," she warns. She also counsels care over succession planning: "If you're going to step back from the CEO role, have a really strong finance director. And if you bring in someone to replace you, groom someone in the business over a number of years rather than parachute someone in."

She'd like to change the perception that all successful entrepreneurs have a seamless journey. People should be able to ask for help without the fear of being ridiculed, she says. "If you feel you're getting into trouble, you need to get specialist advice as early as you can. There's no point if you're facing liquidation or meltdown. The reality is that every successful person has dealt with major issues on the journey. It's those experiences which harden your mettle and give you the toughness to get there."

Sarin agrees: "You do run the chance of sometimes getting it wrong, but that shouldn't be an excuse for negative judgement and ostracism."
But don't forget, reminds Franks, failure has repercussions that affect others. "There are lots of people starting businesses now, and you have to have a certain responsibility around that," she says. "It's easy to say that failure is a learning curve, but it's not as simple as that. We shouldn't be facile about it."

Elnaugh certainly isn't flippant about the fall-out from RLD's demise. The memory of her staff having to lock themselves in when the creditors started banging on the door is painful. But she's not one for dwelling on the past. "It's been a really interesting journey for me. Writing the book became quite cathartic and I've achieved closure on Red Letter Days. Now I'd like to create a brand that is synonymous with the transformation sector. It's about beautiful technology, collaboration, and a future with no 'stuff' there". And hopefully no dragons, either.