Investing in Companies – Prioritising the P’s !!

Posted by Chris on October 21st, 2009

We have talked about the use of the “ P “ words as an aide memoire to ensuring that a proposed investment has the right ingrediants.

The main P words that we are using are People, Proposition, Profit, Potential and Plan. After some considerable deliberation I have decided to prioritise them in this order. Let’s look at why and also add some meat to the bones of each of these points.

Certainly you could debate my ordering considerably. You could say, for example, that without the right Proposition, the right idea, nothing else matters. You could also say, especially in the light of Google, Facebook and Twitter, that Potential is more important than Profit. However I think that lots of people would agree with me that Profit is, generally speaking, more important than Potential.

I have put People at the top because I believe, and indeed I have seen, that People can make an average Proposition really work and that People can also really kill a good Proposition. In that sense People are more important than the Proposition. I think that it is also the case that a lot of business’s are similar to one another but the thing that differentiates one similar business model to another is the People that are running it. In addition, almost all Propositions will be challenged really hard during their business lifetime and it is the People that will recognise the challenge and fine tune it, rise above it, side step it, go around it or simply change the  original business model in order to succeed. This seems to me to be almost inevitable – that the original business Proposition will have to be changed in the light of experience to succeed.

If People are the most important aspect of the company that you are proposing to invest in then what are we looking for in those People ?? ( We don’t know how many People we are talking about here, or what roles they hold ). If you are talking about a number of People then it is great to see them working as a team, each with their own skills, but working together. It is also important that there is a leader. Ideally we would like to see experience. Experience of starting and growing a start-up or early stage company.

In no particular order we are looking for a number of characteristics in these People. These will include – passion, persistence, determination, professionalism, presentability, believability, likeability, honesty, loyalty and innovativeness.

The Proposition will be our second most important “ P “. Some people would say that the Proposition is the most important “ P “ but I have explained why it is not for me. The Proposition must be logical, understandable, researched, focussed and it must generally scream “ I have to buy one of those “ or “ I can see exactly why someone would have to buy one of those “. In my experience the original Proposition rarely stands the test of time fully intact. It is almost always “ not quite true in the light of experience “.

If the People and the Proposition look good then we come to the debate about Profit and Potential. We must also consider whether we are talking about Gross Profit  ( Transaction Profit ) or Net Profit ( Trading Profit ). Profit before all overheads are considered or profit after all overheads are considered.

What we know from, for example, the dotcom experience, is that companies that have relatively small transactional revenues and profits become hugely valuable when huge transaction numbers come into play. In other words if they are scalable and replicatable globally then small amounts of revenue and profit turn into massive overall revenues and then profits because of the huge numbers involved. ( Microsoft, Amazon, and eBay might be examples of this. )

Profitability ( It costs me this, I sell it for that and make a profit of whatever ) is clearly important but it might not lead to the company being as valuable as when it had huge Potential.

It is also one thing to be asking yourself whether you will achieve a highly valuable company by going for a low profit, high revenue model versus a high profit, low revenue model but entirely another to be asking whether you should go a virtually no profit ( or negative profit ), global transaction model !!! ( Google, Facebook and Twitter being examples of these ) The founders of Google could easily see how they could get millions of transactions ( well users anyway ) but not so easily how those millions of transactions would turn into revenues and profits.

Our assessment of Potential will include considering whether it is applicable globally and whether it is scalable and replicatable.

The final thing that we will look for is a Plan. A financial plan ( sales, costs, profits/losses,cashflow ) and a business plan ( How is it all going to happen ). This will be clear, simple, achievable ( at least on paper ) and concise. I put the Plan at the bottom because, inevitably, it will change !!       

 

 

No such thing as ‘bad soldiers’, only bad generals!

Posted by Chris on October 19th, 2009

Some hints ‘n’ tips on how to grow sales:-

 

  • Hiring the right sales person
  • Setting targets and objectives
  • Providing sales support
  • Managing and motivating
  • Share and prosper
  • Targeting your effort in the right place 


Hiring the right sales person:

 

One of the most important hires that you make will be your sales person(s).  Making the wrong choice could set you back months or years.  I have found finding someone by referral with a proven track record is by far the best option AND it saves money on recruitment fees.

 

Plan the interview, ask for evidence of activity, results and knowledge – take a measure of skill from the questions they ask and how they close for the (order) job.

 

I always ask for a written follow up to make sure they have understood my need and how they can meet/exceed my requirements.  I might get them to present a 90 day plan at their second interview if I am feeling particularly bullish and want them to work for the position and/or it’s a choice I have to make between two or more candidates.

 


Setting targets and objectives:

 

Base targets on what’s achievable and realistic.  There are 181 selling days in a year after weekends, bank holidays, annual leave, a day in the office a week for admin  - all need to be taken into account.

 

How many calls/visits can they make a day, how many calls on average to move a prospect to an order, what’s the average deal size, how many deals to do the target ?

 

With all this information it’s possible to calculate both individual and team targets and set commission schemes around achievement – remember to keep the carrot near enough to the donkey.

 

Set ‘SMART’ objectives around Activity, Skills and Knowledge  in order to improve competence.

 


 
Providing sufficient sales support:

 

  • Where appropriate buy and maintain a relevant data base of prospects.
  • Provide additional telephone support to fast start appointment making.
  • Maintain customer info on an appropriate CRM ie, Salesforce.com, ACT or MS-CRM Dynamics.
  • Arrange seminars, breakfast briefings, exhibitions, demo days and networking events to drive up customer interaction.
  • Provide all relevant off- line and on- line marketing support and lead generation activity.
  • Set quarterly activity targets.


 
Managing  & motivating:

 

If you can’t measure it you can’t manage it!  Don’t just manage the results, manage all the components that together work to achieve the results. Be prepared to invest in the right sort of training (avoid open courses) find a coach prepared to work hands on with your sales team as they grow in experience.

 

Focus on Activity, Skills, Knowledge :

 

  • Direct those with low competence
  • Coach those with some competence
  • Support those with medium competence
  • Delegate those with high competence.

 Motivation is a combination of commitment and confidence – build personal contracts with your people to develop both.

 

Never dish out a ‘rollicking’ when they make a mistake unless you have seen them do it correctly at least once!

 

Base your leadership style on the situation and where the follower is in terms of their development.

 

Management & motivation is something you do with someone, not to someone!

 


Share & prosper:


Many small companies I have worked with have chosen to introduce equity participation in one form or another.

 

Employees need to earn the right to participate in such schemes.

 

For sales people the one sure-fire way to drive up results and lasting commitment is to offer shares or share options. You don’t have to give the shop away.

 

I would always insist on at least 18 months over target performance before they become eligible. If they leave for some reason they forfeit their share options.

 


Targeting your effort in the right place:

 

Elephants, Deer and Rabbits

 Simple segmentation:

 Elephants:  

 

Denote the larger deals that you may get involved in if you sell to large corporates.

 

These are bigger in size but much more difficult to catch.  Long sales/buying cycle you may starve cash flow wise on route to catching an Elephant.

 

Ask yourself is it worth the effort and time – do they have a Preferred Supplier Listing? –  you may find you don’t qualify.


Deer:
 

 

Are your medium size opportunities typically from medium size enterprises.  It is ok to go deer hunting if you are suitably prepared. Beware of behind closed doors selling, competing budgets and the case for doing nothing.  On the positive side Deer are more likely to have the need for personalised service. You may need to up – skill your sales people in account management skills. Have a robust renewal and retention plan. Don’t expect hunters to become farmers and visa versa.

 

Rabbits: 

 

Small deal value, lots of them. You get to sell to the decision maker and handle any objections face to face.  High activity spreads your risk – you need many to survive. New business hunting skills and high activity is paramount. New products or services require case studies and testimonials. Build a beachhead in your market sector before moving onwards and upwards in the food chain.

 

 

 

by Richard Spooner – Sales Coach and Business Advisor

 

+44(0)7887-720006

 

N.B. From M & A Rainmaker – I have asked Richard – who I have known since working together at Memorex Telex – to contribute to this blog and there will be more from him. Richard is one of the best salespeople, sales managers/Directors and Business Development people that I know.

 

 

 

 

 

The Perfect Salesperson and the Perfect Sales Meeting Structure?

Posted by Chris on October 16th, 2009

I was talking to the Director of one of the companies that I mentor the other day and we were talking about the new ( their first ) salesperson that they had taken on. Starting and building a salesforce is no easy task.

We got down to 2 main areas of discussion:

  1. What does a good salesperson need to know and what qualities do they have ? ( If we know this then we can check to see how they measure up against this criteria ).

  2. What is an appropriate customer sales meeting structure ( for a company focussed on ICT sales to SMB’s )? N.B.  As we shall discuss later using an appropriate sales meeting structure is one of the skills that a good salesperson would have.

I think the first thing to understand is that a good salesperson is NOT someone who talks a lot! A good salesperson, similar to a good counsellor, listens a lot and observes carefully but they often don’t say much. This principle is enshrined in the saying “ You have 2 ears, 2 eyes and one mouth and you should use them in that proportion “. i.e. Listen a lot, observe everything and say very little.

Describing the perfect salesperson and the perfect sales meeting can take books or days of training and  presentations.  Here I will describe the main features of a good salesperson and then mention briefly how these areas might sub-divide:

  1. Personality/Likeability/The Beer or Glass of Wine Test

    Perhaps the first and most important trait of a good salesperson is “ Likeability “. It is not a pre-requisite for someone to sell you something but it sure helps ! If a salesperson is weak in other areas “ Likeability “ can be the key as to why you buy something from them. This may be particularly true in the SMB sale. Generally speaking small business people buy from people they know, trust and/or like.  One of my old bosses called this “ The Beer Test “ – would I like to have a beer with this person ??   



  2. Activity

    The second area is activity. It is often said that “ selling is a numbers game “. The more telephone calls, appointments, proposals etc that you do then the more likely it is that you will get some sales. Again, we can say that people who are likeable and very active can succeed even if they are weak in other areas. In fact people who are not particularly likeable but are very active can succeed. There are ( sales ) industry standard accepted conversion ratios for the number of appointments that can be expected from a number of phone calls and the number of proposals that can be expected from a number of appointments and the number of orders that can be expected from a number of proposals.  So called “ High Pressure Sales Teams “ set their standards for salespeople around these ratios. There are all sorts of phrases used to emphasize the fact that it is, to some extent,  a numbers game e.g. “The harder I work the luckier I get” and “ In 100% of the cases where you don’t put in a proposal/you don’t bid for it –  you don’t get the order “.


  3. Knowledge

    The next important aspect of a great salesperson is knowledge. i.e. Knowledge of their company, products and services, the competition and the market. Again, a not particularly likeable person with  high levels of knowledge and high levels of activity can succeed.

  4. Skills

    The final aspect that determines a good salesperson is their grasp of e.g. selling, meeting, presentation, proposal writing and interpersonal skills. These are things like, how to structure a customer sales meeting, proposal or presentation. How to deal with certain types ( psychometric profiles ) of people. How to handle “ objections “ or “ close “ sales.


We can take these four main areas – Personality, Activity, Knowledge and Skills and, for example, rate someone on a scale of 1 to 10 for each area. How likeable ( or not !! ) are they ? How active are they ? How much knowledge ( of our area ) do they have ? How good are their skills ? It is reasonable to believe that a salesperson who is likeable, active, knowledgeable and skilful is likely to succeed. Certainly in my experience the best salespeople are good in all these areas. It is also possible to sub-divide each area, e.g. Knowledge and look at the sub-areas of knowledge separately such as knowledge about products and services. To assess this you might accompany them on sales meetings or give them verbal or written tests. A low score in any particular area might mean that you need to give them training in that area.

I would also mention a couple of other areas that are important in a good salesperson ( there are a number ). Firstly “attitude” generally and towards the idea that Points 1 to 4 are relevant and important to them.  Good salespeople are generally speaking open to the idea that there are identifiable attributes of a salesperson and are happy to “ train “ to improve them. They think of themselves as being like “ soccer stars “ who train all the time generally and specifically to become top players. I would also mention “ focus “. Great salespeople focus on their roles, and gaining the necessary skills and knowledge to be the best at their jobs.



 

We are now going to take a specific part of the Skills section, the structure of a sales meeting, and look at that in some detail ( N.B. It is just one aspect of one of the four main attributes of a great salesperson that we have identified ).

In proposing a meeting structure, a fairly generalised one, we should remind ourselves that we are using the “ 2 eyes,2 ears and 1 mouth principle “. This means that we are going to ask questions and then we are going to ( actively ) listen, observe and take notes ( to remind ourselves of the answers and the responses that we got to our questions when we are reviewing the meeting ). When asking questions we might remember what Rudyard Kipling said –  ” I keep six honest working men, they taught me all I know, their names are WHAT, WHY and WHEN, and HOW and WHERE and WHO “.

There would be a difference in the “scope” of the questions that we would ask depending on the stage of that meeting i.e. was it a first, second or final meeting ? There would be things that we covered at the first meeting that we probably would not need to cover at subsequent meetings e.g. our understanding of what the company does and it’s broad structure and general strategy.

In general terms our meeting structure seeks to identify the prospects ( business ) wants, needs and aspirations in order that we can provide them with a proposal to achieve those wants, needs and aspirations.

In the ICT world we are usually providing a combination of equipment ( hardware ), applications
( software ), network ( voice,data,WAN,LAN etc ) and services ( eg Project Management, Installation, Maintenance etc ) to help them to achieve their ( business ) aspirations.

The general structure of a first meeting is proposed to be:

  1. Opening the meeting/Introductions/Summary of how contact was made

    i.e. Thanks for meeting with me; We spoke about xyz on the phone; how long have you got

 

 

  1. Any specific issue(s) that you want to cover during the meeting today ?

     i.e. A catch all to make sure that we address what is important to the prospect; he might of thought of something since you last spoke; there may have been some changes


  2. Company Background and Structure ?

    Mainly a first meeting question. To understand more about them, their history, where they have premises ( single-site, multi-site? ). What departments are there – eg sales Finance, Manufacturing, Admin. Etc etc Also the reporting structure and decision makers.

  3. Objectives/Strategy of the company?

    Broadly, where is the company going? What areas do they want to grow/change? What do they want to achieve ? Are they trying to save money ? Are they expanding?

  4. Objectives/Strategy with respect to ICT?

    Do they have some particular ICT strategy/objectives? They want to change the phone system to achieve xyz ? They need to add servers because xyz ? They want to reduce costs ? They want to get better control or visibility of ?


  5. How is it done now/what using now/what is it like at the moment ?

    Here we are “ establishing the gap or needs “. It is a fundamental – “ Well we are here and we want to be here type question “.


  6. Summary of the areas for improvement

    This is really a check that we have understood the issues; we’ve got all the issues; we’ve got enough detail on the issues; we know who wants what within the organisation.


  7. So, if we could provide a proposal that would do this, solve that, reduce costs here etc etc would that be of interest??

    This is another check that we’ve got things understood and that if we can help them with these issues they are likely to progress discussions with us with a view to possibly giving us an order.

  8. Next steps and timescales?

    Having established what they want/need lets understand when they need to do this; when they need our proposals; how they need them; who is going to review them etc etc In some situations the next step would be a quote/proposal. In others ( eg larger opportunities ) it might be a step on the way to a proposal eg a presentation, demonstration etc

Subsequent meetings might change slightly because we are broadly checking the background things i.e. Questions 3,4,5,6 and 7. So, a second meeting might be:

  1. As before

  2. Check what you agreed to do at the last meeting ( We said I would come back to you with a proposal covering the areas we agreed . Is there anything else you want to cover during this meeting ? )

  3. ( 4, 5, 6, 7 ) Check that nothing significant has changed in these  areas.

8. So, you wanted a proposal that ( met your needs, wants, aspirations ) let me run through it with you. Is that broadly what you wanted ? ( Yes?Progress No? Address the issues until you get Yes ).

9. The next step might be that they make a decision on your proposal or you might need to do a presentation, demonstration etc before a final proposal and a decision. You are basically asking “ What else do I need to show you, prove to you, before you will give me an order ? “

 

 

Selling Businesses in good times is one thing, selling them in bad is entirely another – or is it ??

Posted by Chris on October 13th, 2009

The sale of Voyager at the height of the dotcom boom is sometimes dismissed as “ just lucky “. Clearly it was fortunate to have built just the right business to sell at just the right time.

The sale of 5i earlier this year is also regarded by some people with something close to disbelief. When you realise that the sale process was underway at the time that the banking system was close to meltdown ( mid 2008 to mid 2009 ) and that the bank funding for the purchaser came from RBS – probably one of the first deals that they funded in 2009 after becoming largely owned by the government, the sale begins to rake on mythical qualities !!!

Actually there is no mystery to achieving the successful sale of a company but we might look at the sale of 5i as an example of how to maximise value in the worst of all times.

It has to be said that in 5i we have a company that ticks all the “ P “ boxes. It has, for many years, been a highly profitable, cash generative business.

It has superb People starting with the management tean headed by M.D. Peter Howells ( formerly Sales Director at Voyager Networks and M.D. at Spider Networks – who Voyager bought in 2006 ) and F.D. Clive Orchard.

It has massive Potential , being positioned in the high growth Unified Communications market, working with Cisco and Microsoft. It’s influence extends globally and it is regarded by Cisco as a “ market maker “ and a facilitator in moving it’s channel toward a more solutions orientated model.

It has a Plan to achieve that Potential in a Profitable way. It has established proven Processes that were initially developed in Spider, Shiva and Voyager and then further honed in the early years of 5i’s life.

So, one of the reasons why a sale could be achieved at a time of dire economic crisis was that it was and is a very great company. The other reason is that it adopted the company sale process that I have outlined in this blogsite, which was also used in the sale of Voyager.

5i selected M & A adviser, Nortons, after discussion with key shareholders and other advisers. Nortons came out of the “ beauty parade process “ as being the most suitable M & A partner. The selection of the right M & A partner was very key.

The other key decision was that most of the sale work would be done by Peter and Clive working with Nortons whilst the other Directors concentrated on running the business, providing input where and when required. Even so, Peter and Clive had to contribute to the running of the business alongside the sale activity.

The M & A team at Nortons, as we have mentioned elsewhere, was an excellent combination of an accountant who had become an M & A adviser and a lawyer who had been involved in an Internet buy and build.

So, the main team, comprising of 2 people from Nortons and 2 from 5i, was of the very highest calibre. It was, therefore, no real surprise that the Teaser and the business Sale Proposal were a very high standard, as were the presentations and discussions with potential suitors.

It is probably becoming clear that, apart from the economic backdrop, which nobody could do anything about , everything else was exactly right – almost perfect.

Again, as discussed in the Selling a Business section here, a dynamic potential buyer list was established and maintained throughout the process. The net was cast wide initially – and this meant globally – India, China, the Middle East and North America.

In some cases middlemen, local contacts in each country, were established. In the end the buyer came from the U.k. but useful discussions were held with people from other countries. ( Actually what emerged from the global investigations was the fact that 5i’s model and it’s relationship with Cisco in the U.K. and E.M.E.A. was ground breaking and leading edge. Whilst we sometimes think that what happens in the U.S. happens here 6-12 months later, this is not always true. Often the U.K. leads the world in establishing new thinking. In many ways the rest of the world was only just becoming ready for the 5i model a year ago. Without going into detail the list of potential buyers was whittled down to a few, very suitable partners and Impera Group Plc ( now renamed 365iT Plc ) emerged as the most appropriate partner.

It is not at all surprising that 365iT is itself run by a very experienced team headed by Peter McLean ( formerly of Guardian IT ). 5i has become part of a Buy and Build strategy. 5i adds key technical specialisation to the 365iT mix. 365iT is for example a “ Virtualisation “ and “ hosting “ specialist and this goes hand in hand with 5i’s Unified Communications expertise. Overall 365iT has a business capability that covers many of the fastest growing areas of ICT. Hence the final result of the sale process was to find a partner that was an excellent strategic fit. 365iT Plc will be a company to watch as we approach 2010.

  

Directory of Business Angel Investors, V.C.’s, P.E. Companies etc

Posted by Chris on October 11th, 2009

VCR Directory Online is a searchable database of information on 3,000 investors in unquoted businesses across Europe and Israel including business angels, venture capital firms, private equity houses, secondary fund managers and corporate venturers. Go to

https://www.vcrdirectory.co.uk/

for more information.

Fused Group gets High Net Worth Investment.

Posted by Chris on October 10th, 2009

A few months ago I was at The Comms Business Gala Dinner in London sharing a table with the guys from Fused Group, the Manchester based converged solutions provider, Nortons, the High Tech M & A boutique and Solution 1, a Siemens focussed solutions provider.

Let’s just say that there are some strong personalities at Fused Group !! The guys were having fun and were clearly a very strong and united team. In common with many small to medium sized businesses they were having some “ interesting “ conversations with their bankers and other potential bankers.

Of course around that time some banks staff were running around like headless chickens, half trying to carry out the latest instructions of their failed and bailed out masters – de-risk, de-leverage ?? – and half watching out for their own jobs and alternative places to work. It really depended on which bank you were with as to how much headless chickening you got.

Apparently Fused Group was a financially strong business and a model that was working well so they were looking to expand.

It was great to hear that they secured investment from High Net Worth Individuals ( HNWI’s ) recently enabling them to continue their growth and development.

They have moved into new/larger premises, added demonstration facilities and plan to add departmental management. We will keep in contact with Fused Group and see how they progress in the future.

Banks have never been a great source of funding to the ICT industry – I always think that this stems from an attitude of some bankers thinking that there are no assets to seize if things go wrong. ICT companies are basically people, processes and maybe some Intellectual Property – no really valuable fixed assets like buildings, machinery and equipment.

The current economic crisis has further emphasized that the only people with the balls to invest in ICT companies are, generally speaking, HNWI’s i.e. successful entrepreneurs and not banks.

Banks are not prepared to risk ( unless we are talking about investing is sub prime derivatives which they seem to love !! ) and will therefore not reap any rewards either. It would seem that some banks are destined to become low risk, low growth, money handlers and as such they themselves are not worth investing in !!    

Chris Evans leveraged £2 Million to get to a £225 Million Exit.

Posted by Chris on October 10th, 2009

I have always been a Chris Evans fan. I loved TFI Friday and pretty well everything else he’s done aswell. It’s funny to think of him on Radio 2 and just about to take over from Terry Wogan though!

Whilst being interviewed on the Jonathan Ross show last night he talked about the time when he borrowed £85 Million to buy Virgin Radio. Probably this deal will be explained in greater detail in his new book.

What caught my attention was the fact that when he was holed up in a room in London, within a taxi ride of all the potential lenders, dressed in a black suit and black polar neck, he had to come up with a business plan and an exit route or strategy for the banks and investors. In essence I guess it was that he would buy Virgin Radio for £85 Million and in 5 years time it would be worth somewhere between £150 Million and £300 Million and he would sell out ( trade sale ) then.

To close the deal the banks asked how much he had – apparently about £2 Million at the time – and that had to go into the pot as the “ junior debt “ to get the £ 85 Million he needed. So, here is a classic case of “ leverage “ using bank funding. £2 Million of Chris’s own money attracted the other £83 Million of bank and other investors money. Within 18 months or so Virgin Radio was bought by SMG for around £220 Million – ahead of plan for the exit and within the range that he predicted – in fact about mid-way between £150 Million and £300 Million. So, he and the banks and investors got their money back – and some !!

Somebody had obviously worked with Chris on the business plan and the financials to back up the strategy which was basically that Chris would take a radio station, add some of that old Chris Evans magic ( Chris had already massively increased listening ratings ), make it worth much more money and then sell it. All within a 5 year timeframe.

Of course whoever bought it probably expected that Chris would stick around for a while. No doubt there was some sort of earn-out and lock-in period. As we know, and Chris admits, he then went
“ off the rails “ a bit and left the purchasers holding the baby.

He then got into a bit of a legal spat with Virgin and SMG and ended up worst off. I think this was also when he started buying Billie Piper Ferrari’s and holed up in Spain !!!

 

 

Is Ariadne Capital selling Ecademy ??

Posted by Chris on October 6th, 2009

According to The Independant ( April 2009 ) , Julie Meyer, of Dragons Den and Ariadne Capital, has been retained to sell Ecademy as it is looking for a parent or partner to help it grow to the next stage. If true, as this report is now a few months old, this seems a very logical move to me.  These things take time though and particularly with the economic backdrop as it is.

I wonder what the selection process was to get to Julie Meyer and what the selection process is to get to the right buyer ??

It should broadly follow the Sales Process that I have outlined here at M & A Rainmaker.

http://www.independent.co.uk/news/business/news/networking-site-ecademy-looks-for-new-owner-1667406.html

We don’t trust banks anymore.

Posted by Chris on October 4th, 2009

Yesterday I was talking to a business contact of mine who is building a chain of hairdressing salons across the U.K. ( I visited his latest fabulous new salon earlier in the week ). He told me that he only used his bank for some general financial activities – no loan account and no overdraft facility. He managed his business within his available cash and “ was an expert financial juggler “. ( even though it caused a few sleepless nights !! ). Why ??? Because, he said, banks cannot be trusted !! In good times they lent money and in bad times they took it away ( often leading to a crisis for the business ). There was no point building a relationship with your “relationship manager”  because when push came to shove the “ credit control department “ ruled ( That faceless, nameless, locationless department ! ).

Having said that I have one relationship manager who is always fighting my corner and is always being told off for what I call his “ Nelsonic attitude “. i.e. He shows initiative and boldness and does not always do things “ the way that they have always been done “ or “ exactly by the rules “.   ( It will not be lost on historians amongst us that Nelson did not follow the rules but won major victorys ).

Clearly, one of the reasons why we don’t trust banks in recent times is that some of them clearly forgot all they supposedly knew about “ risk management “, “ appropriate leverage “, “ security “ and “ serviceability “ when they decided to invest in “ derivatives “ of sub-prime loans. Most of them were bailed out of their mistakes by the government using our money. So, nobody pulled the plug on THEM then !!! The inescapable conclusion is that there is one set of rules for their own investments and another set of rules for their “ investment “ in our businesses. To add insult to injury having been bailed out of their multi-billion pound or dollar mistakes they then proceed to try and recover their profits and cash through cancellations of business loans and increasing service charges.

So, going back to my salon friend it is better off not to put yourself in a position where the banks can destroy your business because the likelihood is that they will. The recent “ recession “ is just a very extreme example of what has typically been going on for years – somebody decides to “ re-balance the bank’s loan book “ back in central office somewhere and the relationship manager is the last to hear about it.

Talking to my salon friend reminded me of two things that happened at Voyager. ( Where, by the way, we rarely were at the mercy of the banks ).

Firstly, the reason that we started Voyager’s forerunner, LanSwitch, on our credit cards was that we took our business plan to 3 different banks in Kenilworth ( ok, it’s a long story why Kenilworth !! ) who all said NO !!. Without writing a book on this you need to know that we had negotiated an amazing deal with our main supplier of the time, 3Com. Essentially we did not have to pay them until we got paid by the customer. Since most of our business revolved around 3Com this meant that there were essentially no cashflow issues.

I think that we were asking the banks for something like a £10,000 overdraft facility. Every one of them rejected our request for this facility and they basically did not believe our business plan. ( In hindsight it might not have been a good idea  to float an IT company business plan past bank managers who were more used to the car manufacturing industry – which was, of course, dying – and farming !! ).

So we got started ( using our cards ) anyway and like my friend the hair salon man, we just used the bank for basic financial transactions. After a couple of deals won and months we had something like £100K in the bank and a years or so later we had £500K – half a million !!!

Jonny, our Financial Director, called us one day and said that the bank manager had called and asked for a meeting with us. Despite the fact that we had nothing to worry about and they had no control over us we still sort of worried about it. Anyway, when they came over to see us they basically said that the reason that they wanted to meet us was that we had £500K in our bank account, we had gone through a number of their “ business turnover levels “ and they did not know who we were. We just looked at one another and grinned !!

Someone who bought one of my companies has a pretty sanguine approach to banks. Having been given a rough ride over the provision of funding he said that he would put up with banks as long as, at the end of the day, they enabled him to “ leverage “ his money. i.e. if he could get £100K for committing £30-40K that was ok. He accepted all the risks that went with borrowing money from banks  for that reason alone.

It is a sad fact that we don’t trust banks anymore or have any confidence in them. This will cost them dear one day as people do not forget this sort of thing. As the Governor of the Bank of England said the other day on the programme “ The Love of Money “, “ The essence of a bank is confidence “. Without confidence and trust in banks what is there ??

    

 

 

Adding to the P’s – Passion, Persistence, Professionalism and More

Posted by Chris on October 4th, 2009

What is the quote from that film – Cool Runnings  ?? “ I see Pride, I see Power, I see a bad arsed mother who don’t take no crap from nobody “ !!

Well  in addition to Pride and Power we should really add Passion, Persistence and Professionalism to the other P’s like Proposition, People, Plan, Profit and Potential that are important to see when investing in a business.

I was watching Dragon’s Den on the Road the other night when Duncan Bannatyne was following up his investment in UK Commercial Cleaning, which was run by two very professional looking guys who had started the company with a few hundred pounds.

Duncan admitted that it was a plus that they “ reminded him of himself “ but most of all he pointed to the obvious passion and determination of one of the founders of the company.

Speaking personally I have always been passionate and enthusiastic about every business I have either worked for, started or invested in. There is another word that is important in this context  too – not a “ P “ word but an “F” word – Focus !!

The first business that I was ever involved in, as a 15 year old, was a chain of Spar Supermarkets in South Wales owned by Philip Jones (   http://www.filco.co.uk/about.html   ). Whilst I did not take too much notice of it at the time, looking back I think of the passion, professionalism, pride, enthusiasm and commitment of Mr Jones. I did not know anything about his ( business ) plan, or how profitable his business was or what potential it had however I could have guessed, had I thought about it, that there was a plan and that the business was profitable and had considerable potential.

However his Philosophy was clear from what he did, said and asked for. He demanded hard working professional, passionate and enthusiastic  people. Everything in his shops was well presented – shelves were cleaned ( you had to carry a rag in your pocket for this job ), tins were continuously lined up and faced out, meat and cheese counters were tidy and looked fresh and wholesome. Customers were “ served “  whether from behind a counter, in the aisle or at the check-out.

Only in later years did it become clear how formative the principles that Philip Jones ingrained in me were. He didn’t make it into the “big league” of supermarkets – Tesco, Sainsbury, Asda/Walmart and Morrisons all overtook  him while we seemed to be locked in a battle with the Co-op stores.

So, maybe there was something in the bigger picture that was not quite right – e.g. the overall profitability, the willingness to borrow or the buying strategy ( Spar was a franchise which Mr Jones left to set up Nisa – the National Independant Supermarket Association or Not in Spar Anymore !!! ). However Nisa remains a thriving,  independant, 8 store supermarket chain in South Wales.

Later, at Memorex-Telex and Fibernet I experienced again Passion, Professionalism, Persistence and Focus. Certainly Pride was also there and we had Power in the market because we “ knew “ that we were good people, with good products and we represented great companies.

Focus was something that I learnt at Memorex Telex and continued in Fibernet. Focus is a powerful thing. In many ways the market and Memorex’s proposition allowed it and us to focus. We had a very clear target market, vertically, horizontally and geographically. We only sold to the IBM user base. These tended to be a certain size of company depending on the size of the computer system
( mainframe or mini-computer ). We only sold to a certain territory ( selected counties or postcodes ). We only sold certain products into our target market. We only needed to speak to certain people
( The IT Manager or Director ). The focus made things relatively simple. The simplicity allowed you to concentrate on Presentation and  Professionalism and you added Passion, Pride and Persistence to the overall mix. A virtuous circle is established whereby when you focus and concentrate on selling selected products to selected people you become more proficient and more efficient.

Fibernet’s business model and market was slightly more complicated than Memorex’s ( Fibernet operated in a multi-computer vendor, multi-protocol environment versus Memorex’s almost single computer, single protocol environment ). Nevertheless selected products were sold to selected companies in selected territories and therefore targeting was possible and achievable and once again you could add Presentation, Passion, Pride and Persistence to the mix to become Powerful within your sector.

When you looked at UK Cleanings product offerings (  http://www.ukcommercialcleaning.co.uk/ ) and heard them talk about their products and customers you could tell that there was a considerable degree of focus and selectivity being added to the Passion and Presentation ability of the two founders.

        


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