16 roundtable: southern entrepreneurs ... continued from previous page
Sanger: “Always know in advance what the investment funding will actually be spent on. It should actively help grow the business.”
The Redwood Technologies Group founders “bootstrapped the business with their own money from day one”, Rees explained. Having become very successful through its organic growth within the fast-growing IT sector, “we get daily ‘knocking on the door’ from potential investors”.
John Rees
Richey: “Our growth to-date has been purely organic, but it’s been too hard, and it’s getting harder. At our next board meeting I will focus discussion on whether we sell a minority shareholding in the business to form a strategic alliance with a partner who can fuel our sales pipeline and reduce our business development expenditure. Or perhaps who can we look to acquire, to buy growth.
“As an independent, we’re solely responsible for fueling our pipeline which is an exhaustive and costly process, so we may sell a stake in order to get to the next level.”
With a sales pipeline so important, Sanger advised that new business development should be a boardroom agenda priority. “In my estimation something between 5-7% of turnover should be spent on business generation activities.”
Ponan mentioned that her company’s crowd-funding activities to support cashflow and marketing got undermined by adverse online comments. “I nearly threw in the towel. We needed to get a supportive big business contract, so spent the last of our marketing budget at a major show.
I
told everyone to pitch to visitors as if they were Tesco or Sainsbury’s, and we actually got Tesco.” Contacts in banking also helped her company’s finances through factoring arrangements, enabling the business to step up a level without external investment.
Ponan is looking at external investment now, however, since she wants to break into the US market. She might consider equity investment, but is currently seeking support through non-equity crowdfunding.
Anderson noted that there are many ways of funding a business. Equity investment can be a key enabler for many entrepreneurs where the business is at the stage that it needs a significant capital investment, or indeed where the entrepreneur is at the stage where they need to ‘de-risk’. “But, it is a big, big decision for an entrepreneur, particularly if there is any sense that there could be some loss of control or a change in the way in which business decisions will be made.”
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“We have considered growth by the investor route but any successful offer would be accepted on the consideration of additional value they can add, beyond just financial support. For us, growth will be all about gaining talent, experience or acquiring comparative technology.”
With initial experience in building a business through selling IT hardware, and then later through annuity ‘cloud’ services, Redwood now knows its likely core income from the year-start, which makes investment decisions easier and less risky.
NEDs: Do I choose by CV, contacts book, or chemistry?
Marsh: “I started off thinking I would grow the company organically, but I have now realised that I will not live long enough to benefit, so will have to do something else.” Having considered several potential NEDs, he was still not sure if they had innate business skill or just been lucky to grasp an opportunity at the right time. “Who do I go with?”
His concern was that the NED would not be able to replicate their success. His company need was not just money but proven expertise. “I have done the heavy lifting, secured the IP, got a high-margin saleable product range, and now just need help to drive sales and distribution.”
Sanger highlighted the importance of ‘working chemistry’ when appointing an NED. “Even if they have the best black-book of contacts in the world, if it’s someone you are not going to get on with on a regular basis, then just forget them.”
Anderson agreed that ‘chemistry’ was really important, particularly if the entrepreneur is going to open up their business to the ideas of others. “For an entrepreneur these things can be very personal.”
Do I want to go ‘back to the future’?
Anderson had earlier mentioned that external investment could help ‘de-risk’ the entrepreneur – enabling them to protect their and their family’s personal financial position. “Whichever way this is achieved it’s something which all entrepreneurs should consider at the right time”.
Edmunds highlighted the ‘back to the
future’ irony of entrepreneurial business growth. “You move from a seat of the pants environment, selling everything you own, taking out loans and so on to keep the business and cashflow going, to a stage where you are comfortable and actually making money. It becomes a growth tipping point, where you ask yourself ‘Do I want to go back into that risk environment again in order to grow bigger?’ Your appetite to ‘go for it’ may well have changed, but using investment to de-risk might introduce the wrong working tensions among key people.
“If you are going to take a business on a journey, you can’t do it from the sidelines. You won’t drive things hard enough, and the business can stall.”
David Murray: “Risk is an integral part of any business.”
Where’s the exit?
Edmunds: “You have to run the business in the moment and be focused on doing the right things for the business. Your personal view of what or when you get out of the business is not relevant and could be a huge distraction. Running a business to grow it, and running one to exit are two very different things.
“I do plan ahead, have taken advice on the shape and structure of the company going forward, but it is really just about good business practice. I don’t run it with an exit in mind.”
Sharon Richey
Anderson agreed, noting that simply doing ‘all the right things’ to create a well- run business, with a strong management structure, talented people, the right systems and good cash management, would inevitably have the added benefit of readying the business for exit and make it a more attractive prospect to potential buyers.
Richey, also an Academy for Chief Executives member at Cranfield, said ‘Me’ could become very important for an entrepreneur. “Your needs do change during the chapters of your life. We all work better with focus and vision, and one aspect should be ‘What does this business mean for me? How will I realise my return?’
She agreed with Anderson that, when possible, entrepreneurs should take some
THE BUSINESS MAGAZINE – THAMES VALLEY – MARCH 2016
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