74 roundtable: economic recovery ... continued from previous page
Seeking external professional help can be vital for growth added lawyer Garden: “People who set up successful businesses are generally great entrepreneurs but don’t necessarily have the skills to be expert at finance, commercial contracts, corporate governance etc…”
Taylor revealed that he had worked with programmers whose business was acquired by a major US search engine company. “There was no strategy that search engines would dominate and earn billions. It was just that the Information Super Highway was interesting and might become more important. We look at Google now, but need to remember how a Google or Apple really begins."
who can afford to do it, but I think chasing turnover is a mug’s game.
“It’s been hard not to get sucked into this competitive arena, but we haven’t and things are coming around. Value is prevailing over cost and former clients are coming back to us who went to our competitors for a while.”
Accountant Wills added. “There is a perception among smaller SMEs that turnover is the headline objective. Turnover is seen as the thing that makes the company feel good and a lot of people don’t understand the inter- relationship between the control of margin and overheads. Cash and overheads can get out of control easily if you don’t look at them regularly.”
Taylor: “Turnover is a measure – after all, it’s what people ask to assess how big you are – and we can’t escape from that. In 5-6 years within the IT sector, we have grown from £5m to £20m turnover. But, we have always ensured we make a profit, since it is our own invested money, and we obviously don’t want to run at a loss.”
. . . cashflow is reality Fred Edwards Seek profit, not turnover
growth . . . Smith said his telephone solutions company (a main provider for L2012C at the London 2012 Olympic Games) steadfastly focused on profitability as a main KPI.
High turnover was a false and potentially dangerous target for a growing business, he added, and quoted the old management adage: “Turnover is vanity, profit is sanity….
“It is too easy to chase turnover by going for public sector tenders, but you really want to be doing work at a higher profit than they actually provide. If you start at a low profit margin, you don’t have much room to go lower when the market or clients demand it, which is where a lot of people get into trouble.”
Singh-Barmi’s company supplies winter risk gritting services for six months of the year, and has achieved Fast Track 100 status over the past two years, through organic growth. Last year GRITIT maintained strong profitability and grew 50%, he revealed.
“We do things differently, bringing much more added value for the client. We’ve gained market share quickly, which frankly has put a few noses out of joint.”
He admitted that times had got tougher, as competitors targeted his young company undercutting tenders and squeezing his profit margins. “These businesses are just chasing turnover. They are often the bigger players, offering wider facilities than our specialist field,
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Edwards completed Smith’s management adage: “Turnover is vanity, profit is sanity, …. but the third point is ‘cashflow is reality’. I am on the board of three businesses (as a non- executive director) and I have encouraged them all to put ‘cash’ as the number one item on their agendas. So many businesses don’t consider cashflow enough.”
Wills: “Throughout the recession, cash has almost become more important than profitability, because if you have positive cashflow, then, by default, you will have profit. The cash position of businesses will also become even more important as we come out of recession, into fresh markets where funding from other sources may be difficult.”
Murray highlighted the cashflow risk of overtrading, as companies try to grow out of the recession – the ‘running before learning to walk’ scenario.
The cream will rise to the
top Singh-Barmi felt the recession was not over yet. “Everyone is waiting for the curve to turn up, but I think it’s still a fairly level market. That‘s not necessarily a bad thing. As entrepreneurs we should embrace any adversity or dysfunctional change because it gets rid of a lot of dross. If you seek excellence in what you do then you will prevail.”
Smith: “There is too much focus, especially in the public sector, about price and cost. They don’t consider value sufficiently. They produce tender documents and 80% of the scoring is based on cost, which is a total myth. They think they are buying cheap but they need add-ons or things don’t work properly, and they end up paying more.”
Singh-Barmi agreed: “In any business, from Jane Wills
Houston had taken that risk, having started both his businesses during the recession. Funds from his successful website development agency, helped start his second business renting office space to SMEs in central Reading.
He spotted that business opportunity while looking for office space for his website business. “Reading has lots of empty offices but it is all large overpriced space, driven by the need to maintain high property values to satisfy bank mortgage criteria.”
Having found a private landlord offering sensible terms, he ensured, through Field Seymour Parkes, that his contractual obligations were ‘bullet-proof’, and then invested in a refurbishment of the space. “We are now getting constant inquiries from startups and SMEs.”
THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2013
corner dry-cleaner to multi-national, the simple tenets of value, integrity, good service, and so on, will stand up in the end. If you are ticking those quality boxes then your business will come round, although there are times when you have to hold your breath until it does.”
Manufacturer Edwards said GTK had focused on bringing added-value to certain products, encouraging companies to outsource part of their process to GTK. “Through automation, we can dramatically reduce the manufacturing cost per component for clients, while still maintaining a reasonable margin for ourselves.”
Even when benchmarked against Chinese manufacturers, GTK’s production quality and true costs had won over clients. “Successful businesses are definitely focusing on value rather than cost.”
Taylor highlighted added-value as many people’s differentiator within their sector, but each sector might define ‘value’ differently. In a commodity market, control of production costs might be of great value; in other markets innovation and R&D might provide added-value. “The entrepreneur’s trick is to find something that brings a high-value difference to a market.”
The rewards of risk-taking
A downturn provided great opportunities for growth Taylor argued, since ‘Necessity is the mother of invention.’ “It forces people to rethink the way they do things. People are more eager to look for a competitive edge, take a risk on new technology, and seek difference.”
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