Category Archives: Psychology

The Sound of Silence

“Come on, you too!” demanded the company nurse ” You have to set an example; you need to have your hearing tested like everyone else. ”  Protesting that in my role as MD I had never spent excessive amounts of time on the factory floor permitted me no escape; I was frog marched off for the test.  “You’ve got a bit of a problem,” was her response to the test results, “You’ll need to have your hearing looked into properly.”

Back in my office I sat pondering this situation. The news that I had been diagnosed with a hearing loss was indeed something of a shock. I wasn’t deaf, I protested to myself. I could hold normal conversations, listen to music and the radio. Then, a comment made a couple of months ago by one of my international colleagues came back to me, “You know that you come across as very aggressive at our management meetings.”

The context of this comment had related to what appeared to have been a habit of mine at our European management meetings.  These multi-day meetings usually took place in a huge hotel conference room with 20 or so executives seated in a horseshoe pattern with the particular country CEO, whose turn it was to present his results, at the open end talking with the aid of an overhead projector.  Ranged across the closed end of the horseshoe were the President and his team who would freely interrupt to fire off question after question. I hadn’t considered previously why I responded to many of the questions to me by walking the length of the horseshoe and then standing over whoever had asked the question. I could see how aggressive this behaviour might have appeared but then the initial questioning was often aggressive and I felt that I was merely standing my ground.

As I pondered the nurse’s unwelcome news I realised that the underlying reason for my ‘aggressive’ behaviour was that I was obviously struggling to hear questions from the other end of what were always very large rooms. Thinking further back, I knew I had previously had acute hearing. Working in the audio industry years before I could recall playing around in the lab with a signal generator with colleagues and finding that my hearing extended way beyond anyone else’s. As a consequence, many a night’s sleep when travelling had been ruined by some faint sound that kept me awake.

Referred to an ENT consultant shortly afterwards, I was tested once again and the results confirmed the findings of our company nurse. I was then taken through a complete medical history questionnaire. After responding to one question relating to drugs administered to treat Pulmonary Tuberculosis as a teenager, he sat back and roared

“Classic, delayed reaction! Still, you’d rather be deaf than dead, wouldn’t you?”

It seemed that the key drug (streptomycin) I had been injected for months had the known side effect of ototoxicity  leading to sensorineural hearing loss. I learnt that there was no known treatment and it was likely to worsen over time.

“You’d better look into a hearing aid.” Was the parting comment.

Shortly afterwards, at the age of 41, I received a small behind the ear aid for my right ear. This improved matters but I felt embarrassed wearing it. Crazy as it might seem, I would remove it before important meetings and would struggle as before to hear clearly what was being said and asked.

As predicted after a year or so I was back at my local audiology clinic and being prescribed an aid for my left ear.  Within a couple of years I was struggling to hear conversations clearly and returned to the clinic.  This time larger and more powerful aids were prescribed. These seemed to restore most of my hearing loss but the aids were large and cumbersome and, although they helped, I hated them. I hated that I had to wear the proof of my disability on display; it fought with my self-image.  But slowly I gave in and wore them every waking moment (except when swimming!) as my hearing deteriorated with every passing year.  I was managing (just) and hating the aids and their deficiencies more with every passing day.

The aids I was being prescribed at the time were old, analogue technology and very unsophisticated.  Chatting one day to the owner of a local business I had got to know quite well, he asked me how I was getting on with my aids.  Out poured all my frustrations.

“Let me give you the details of my audiologist.” Offered Ray who went on to describe in detail his similar experiences and joy at his new, digital aids.

“They’re expensive, mind,” Ray went on in his broad Yorkshire dialect “but worth every penny and more.”  From a Yorkshire man this was praise indeed.

So, I duly made the contact and, following further tests, was sitting some weeks later waiting for my new aids to be fitted and tested. These new aids were no longer behind the ear but were ‘completely in canal’ (CIC) fitting deep and snug into my ears.  With the aids in place a transfer of the programming took place and they were ready for use.

“Can you hear me now?” Enquired Colin, the elderly owner of the long established business. I was almost rendered speechless with amazement. Not only could I hear him clearly but could easy detect subtle nuances in his voice I hadn’t been aware of previously.  Even when Colin continued to speak as he moved behind me and then completely out of the room and down the corridor I could easy understand every word he spoke.

A short while later as I walked down the road to where my car was parked I was almost overwhelmed with the cacophony I noise I could hear. I couldn’t help grinning from the sheer pleasure of being able to hear clearly again and must have appeared somewhat idiotic to passers by.  Starting up my relatively new car at which I had previously marvelled at its near silence, I now discovered I could hear all manner of noises from under the bonnet! Back home I stood and listened to the noises of the car quietly cooling down whilst birds I had forgotten sang in the trees. Bliss!

My life had improved immeasurably, business meetings became easier and the telephone, television and radio less of a challenge. I was now no longer glued to watching people’s lips in an effort to supplement failing hearing.

Nevertheless, a year later I was once more conscious that my hearing had declined further. Back in Colin’s consulting rooms he tested me once more, showed me the frequencies where my hearing had declined again then made adjustments to the programming. I was almost as good as new again.

That was 15 years ago and a lot has happened in that time. My hearing continued to deteriorate as nerve endings died. Technology continued to improve and every two to three years I changed to the latest technology which would produce some improvement once more. This was proving to be an extremely expensive process (a pair of new aids is equivalent to a cheap new car) but without these continuing improvements I would simply not have been able to continue working in what were the very demanding roles I had.

Early on when the Pound was riding high against the European currencies (and then the Euro) I investigated prices in Germany and Scandinavia and seriously considered a trip abroad to purchase new aids. However, I was beginning to realise that what I was paying for was not just the aids but the continuing expert advice and skills of the audiologist and the relationship we had. It was becoming clear to me that yes, you can test hearing and then programme the aids to fill the shortfall across a wide range of frequencies. However, it seems that the brain doesn’t always agree with the analysis and implementation and throws up problems. It is then necessary to be able to articulate precisely what the problem is, the circumstances in which it is apparent and where in the frequency range it is occurring. All this takes time and skill on the part of the audiologist. And time is money.  It was this time and expertise that the NHS seemed unable to provide.

As time has passed, technology has continued to improve but my hearing loss in the mid~high frequencies has now moved into the range deemed ‘profound’. My old audiologist, Colin, decided that the demands of technology were becoming beyond what he wished to keep up with and so sold up. My luck is that Kevan who has bought the business is a technical genius, has great depth and breadth of knowledge of everything on the market and infinite patience. With Kevan’s help I have been able to test most of the major aids on the market. I have become, as a result and of necessity, somewhat of a connoisseur of hearing aids – a ‘petrolhead’ of hearing aids. I can’t identify a winner but at the moment my favourite and the manufacturer of my current aids is the Danish company Widex who produce a smooth and very natural sound.

The greatest problem with losing high frequencies is that one loses the ability to hear or distinguish between certain consonants – the sounds of F, S, H & T going first, soon joined by K and then S, C and H. The situation becomes one of being able to hear someone speaking but being largely incapable of deciphering what it is they are saying e.g. did they say sit, hit, fit or tit? One seeks to use context to provide the answer. However, once the brain has attempted to sort through the possibilities of each possibility, the speaker is two or three sentences further on each of which has raised fresh uncertainties. In one to one situations watching the speaker’s lips can provide vital clues. In many situations this is simply not possible. Female and children’s voices are particularly difficult as they are higher pitched.

The other critical problem is that of hearing a voice within a noisy environment. With normal hearing we seem to be able to focus upon a particular sound (or voice) in much the same way as our eyes can focus (and re-focus rapidly) upon objects far and near and anywhere in-between. Even with glasses we retain this ability. But once an element of technology has been placed between the outside world and our ear drum the ability to focus seems to be lost. Turning up the volume offers no solution and even makes matters worse.

Most manufacturers now offer programmes that transpose higher frequencies down into the wearer’s audible range. I find that this only works (for me) to a very limited extent. Of more use is a programme that greatly reduces background noise allowing one to concentrate on what, for instance, a partner is saying in a crowded restaurant. However, once more, I find this only offers a partial solution.

Technology has begun now to offer some real solutions. For example I now have a device that plugs into the television and transmits the broadcast sound (via a receiver device worn around the neck) directly into my aids. I can also switch off all ambient noise so that this is no distraction and my wife can listen at the volume she chooses. The only problem is that I only realise she is trying to communicate with me when her slipper hits me in the head!

Telephones remain a real challenge but here there are solutions. The first is simply to rely on the loudspeaker function on the handset and this can be supplemented by switching to a programme that boosts speech frequencies. This works not too badly when one is in a quiet environment but, again, not in noisy surroundings. However, I now have a device that allows my mobile phone to send the signal directly to both aids so I can hear the maximum content in both ears. Supplementing this again is the ability to eliminate all ambient sounds with one button.  I can also listen to music, streamed by Bluetooth directly to my aids. These advances are not always foolproof in operation but are a big step forward.

In a recent experiment (of sorts) sitting with a friend in a coffee shop that had become extremely noisy, I asked him to phone me. Using my Bluetooth device I was able to shut out all ambient sound and hear his voice clearly in both ears. This offered no solution for my friend, however, and we must have appeared an odd pair! One manufacturer does offer the possibility of a clip-on battery microphone that the hearing impaired can ask a friend to clip to their lapel. This may offer a limited solution but I would have to change my complete setup and might well lose certain other advantages that Widex offer me now.

Currently I’m in the situation where sounds above a certain frequency have gone forever and no technology can stimulate the dead nerves cells. Increasing the volume of these frequencies merely produces painful distortion in neighbouring frequencies. As nerve cells continue to die off my hearing will worsen. I have read that stem cell technology has reactivated hearing in rats and promises the possibility of a solution for humans at some stage but I have no idea if this is a real possibility nor if it would work for me (or even if I could afford it).

My life has been one of facing up to and overcoming challenges, something I have always learnt from even it not all of the challenges were sought or relished. I am aware that my previous, very extrovert behaviour has changed. Indulging in lively repartee is beyond me now as I struggle to work out the context of a word misunderstood three sentences ago. I hate answering the phone knowing that unless it’s someone I know well, I’m highly unlikely to be able to tune into their voice. I hate the trend that has caused companies to replace postal and email addresses with a call centre.

I’m now back with behind the ear aids once more but these are barely visible. However, in one way, I wish that they were more visible, vanity overtaken by practicality. Deafness is an invisible disability and anyone who doesn’t have this problem simply doesn’t understand what it means to the suffer. I’ve been thinking of having some badges made saying ‘Deaf but not stupid’. I’m fortunate that my time in the workplace has come to an end. But deafness afflicts one in six of the UK population with 3.7 million suffers aged between 16 & 64. These suffers in work have a sometimes terrible burden to bear. And the disco & iPod generation may unfortunately find that there has been a terrible price to pay for their musical & social enjoyment.

So now I shun large gatherings that I would once have sought out. I avoid using the phone unless it’s to someone I know well. I thank technology instead for providing Twitter where I can still meet people and enjoy a lively exchange of views.  It’s good, but it can’t replace face to face social and business interaction.

When I sold up and retired nearly four years ago I decided (and promised my wife) that I wouldn’t work again. After the novelty of having nothing to do wore off, I started voluntary work with a couple of schemes helping students and young people. I would now like to increase this work (as my brain hasn’t retired at the same pace as the rest of me) but I am finding it extremely difficulty to cope with the hearing challenges presented by a room full of students. Ideally, I would wish to increase the enterprise work with students and resume non-executive and mentoring work. But…

I well remember the days, many years ago, when I had hearing like a bat and could make out every instrument in an orchestra. But I also remember the sleepless nights because someone in the next hotel room was snoring loudly.

So, life may not be perfect now….but at least I have an ‘off’ button and can enjoy the sound of silence whenever I want.

Osborne’s employee rights sacrifice, equity for all scheme

Do politicians really think through the ideas they float?  Do they have any idea of the realities of business and especially the entrepreneur?  Come to think of it, do they have any idea of the complexities of business?Osborne's employee rights sacrifice, equity for all scheme

As a retired businessman who ran, bought, created and sold businesses, large and small in over a dozen industries, I have a reasonable knowledge of the problems facing business owners and the people who work in them.  I also spent many years in the layers below the top to have a fair understanding of the issues that face employees, what concerns them and what doesn’t.  Let’s start with the problem that Osborne is purporting to solve, the great employee rights and employment law burden.

Before the current edifice of employment law was created and forced onto business the policies that determined how employees were recruited, trained, paid, promoted, cared for, pensioned and fired were largely at the whim of the employer.  What this meant was that all of these factors were points of differentiation that clearly separated good employers from their bad competitors.  Working for Unilever in the 1960’s I enjoyed benefits and practices that would still be regarded as outstanding even today.  Has the welter of employment law really made things better for the average employee in the average company?

Consider first that small and medium businesses (SME) account for 99.9% of all enterprises and 58.8% of private sector employment.  To the vast majority of these businesses employment law brings little benefit over and above that which enlightened owners and managers strive to achieve without the aid of the law.  But it also brings huge compliance costs and the threat of many disgruntled employees running off to employment tribunals.  Today a malicious ex-employee can wreak havoc upon a good employer.  Maternity leave can also create a nightmare for small companies.  There will always be bad employers just as there will always be bad employees.  We must ask ourselves what we have really gained by forcing policies borrowed from some of the country’s (and the world’s) largest companies onto our SMEs.  And that is before we should ask ourselves what role corporation tax and employers national insurance contributions do for employments levels.

So, if Osborne is recognising at least part of the problems facing employers here in the UK with his equity for rights proposal, shouldn’t we be applauding his scheme?  Sadly, I don’t think we should.  I believe that it is another dose of borrowing concepts of best practice from the largest corporation that will do nothing for the 58.8% of private sector employees who work within the SME sector.  And nothing for the company owners of these businesses.  Let me explain why.

There are already employee share ownership schemes that are used by large companies.  Usually these shares encourage employees to save and should they leave or require the cash then there is a very liquid market waiting to buy their shares.  The risk, of course, is that the value of the equity falls (remember Northern Rock).  Overall these schemes do not represent more than a fraction of the total equity of the company and do not carry voting rights or eligibility for dividends.  Are they effective in engendering concepts of ownership amongst participating employees?  Or are they just a savings scheme?  Would such a scheme encourage employees of these large companies to give up their rights?  And would having two tiers of employees be of real benefit to the company?  You decide.

However, when we turn our attention to the SME sector the problems become significant.  In privately owned companies equity is usually guarded closely by owners or can be very limited in number (£100 companies are quite common).  The reason for this is quite simple.  For those owners who wish ultimately to sell the business to achieve a return, then they wish to retain the largest percentage of equity they can.  For those businesses that are run as family concerns then there is little intention to sell and equity is often held in a web of different generations of family members and trusts.

There could be attractions for an SME to set up such a scheme as a means of opting out of employment legislation.  Any benefit for the employee could be completely illusory.  Why?  The issued value of any shares provided in such a scheme is likely to be low and any return only available when (and if) the company is sold.  Given that there is no market in equity held in privately owned shares, any departing employee (for good or bad reasons) would be at the mercy of the company in deciding a price for buying them back.  The cost of setting up such a scheme would be quite high.  Would it raise meaningful sums for a startup or early growth business?  Not a chance.

Of course there are already businesses run as cooperatives but these are tiny in number.  There are also those businesses who run employee share ownership schemes, these usually being very large companies with differentiated cultures and attitudes towards employees.

In my view if Osborne really wishes to help both private employers and employees he should scrap swathes of employment legislation (as it frequently strangles employment opportunities in 99.9% of private enterprises).  He should also reduce or eliminate corporation tax and employers national insurance contributions both of which act as a tax on employment.

Time to scrap the idea, George.  conference season is over for another year.  Just go and talk to a few SMEs before the budget.

Image courtesy of guidetowomen.wordpress.com

The Business of Life Chapter 31 – the gathering storm

Having successfully acquired the Metal Spinners group of companies I was elated But the glow of post-deal euphoria was destined to be short-lived.  As I started the process of taking control of the businesses with Roger and Mark problems in the other companies were bubbling to the surface.   I shall be returning to the MSG experiences in due course but, meanwhile, there are other tales to tell. The Business of Life chapter 31 - the gathering storm   

 The failure rate of new businesses is high with around one third disappearing within their first three years.  But once through this initial period the rate of attrition falls and many businesses survive to have a long life, weathering even the odd recession.  Business risk is omnipresent but there is one circumstance where the greatest risk arises and that is when a new owner takes control.  Research has shown that the majority of acquisitions work to the benefit of the vendor’s shareholders.  There are many reasons for this phenomenon, including inappropriate strategy and culture being introduced and sometimes sheer incompetence on the part of the new management.  But the greatest problem for even the best new incoming owners, despite the most exhaustive due diligence, is that they simply don’t know where the bodies are buried.

Introduced by 3i to become investing chairman for the acquisition of the Bridgestream business (not its real name), I had become the third member of the buy-in team.  The impression I came away with my initial meetings was that the team leader (we’ll call him Richard) was a great guy; originally a chartered accountant from one of the major firms and well experienced in business.  Richard was charming & urbane and we hit it off at once.  The other team member, Tim, struck me as a solid and dependable man who would make a great operations director for the business.  There was the added advantage that they had both worked together previously on another 3i investment.

Bridgestream was, at the time, a privately owned service based business with a large distribution arm for the products it used.  I reserved judgement until I could carry out my own due diligence.  The following week I visited, met the owner and had a chance to look over the main premises.  Being after office hours I wasn’t able to meet any of the staff or get a feel for the atmosphere of the business while it was operating (confidentially concerns on the part of the owner had precluded a visit during normal hours).  I came away thinking, the premises are old, they had a neglected feel and I didn’t take to the owner (I’ll call him Offhand).

However, when I reported back to Mark T at 3i it seemed we shared the same view.  The business was not a particularly exciting one but the plan the team had tabled seemed realistic and we both shared a very favourable opinion of Richard.   Furthermore, it seemed that he came with a tremendous recommendation from the references that had been taken.  We agreed it would be a goer given a ceiling on the purchase price, a satisfactory funding package plus my role as chairman and the experience I could bring to the team.

Richard, Tim and I worked on a detailed reworking of the business plan whilst we awaited the financial due diligence from KPMG.  A series of meetings with banks and factoring companies resulted in finalisation of the funding package and my individual equity investment was settled.  I was surprised to learn just how large a cash stake Richard and Tim were putting up.  They had originally planned to complete the transaction without external equity participation but suffered when, being unable to finance the deal on that basis, they had revealed to 3i just how much they could scrape together (and that was then set in concrete).  The final element of the funding package was an element of vendor finance in the form of a deferred element of the total consideration.  The vendor haggled but finally conceded.

Shortly before completion, we met to receive the financial due diligence report.  There was good and bad news.  Whilst the overall level of company performance was confirmed, it seemed that the financial systems were not particularly robust.  There were two associated companies, only one of which we were purchasing (the distribution arm), the vendor retaining the service business.  The concern was that the accounting systems couldn’t be relied upon to always delineate between the two companies.  Richard undertook to work with the vendor to review the systems and finalise a working capital level for completion, which would then be guaranteed.

Negotiations over the sale and purchase agreement dragged on but we finally completed the transaction with everyone happy.  We were the new owners of Bridgestream (along with our VC equity partners 3i) of a distribution business with eight branches around the UK and two separate operating divisions.  For myself, I had made my first private equity investment.  However, even as we sipped our champagne and accepted the congratulations of our advisers, the storm clouds were gathering.

With the glow of success (or it might have been champagne) still infusing our faces the following morning, we took control of the business and set about reviewing our new company.  Bridgestream traded from eight warehouses across the Midlands and Southern England, supplying a wide range of chemical and consumable products into two discrete industrial markets.  The business was trading profitably (albeit on narrow margins) but had high overheads in terms of both premises and staff.  Our business plan included achieving major savings by consolidating down onto a single site; this would also have the advantage of operating with reduced inventory whilst improving customer service.  During the remainder of the first week, I visited most of the sites, which served to confirm the urgency of the plan.

The first bombshell came with my return to the office to find an extremely concerned looking Richard in his office with the management accountant.  “ We’ve been screwed.” Richard announced to me.  In contravention of the terms of the sale and purchase agreement the vendor had cancelled all of the previous month’s payments to creditors.  The effect of this was to deprive Bridgestream of the major portion of the working capital we had relied upon.  I agreed with Richard that an overhaul of the accounting systems was vital if we were to have accurate information.

The situation was compounded when we also discovered a few days later that in settling an intercompany debt pre-completion between Bridgestream and its sister company (remaining with Offhand), a large over-payment had been made.  The net effect was now a hole in our working capital of well over half a million pounds.  This was a situation that moved us from being seriously injured to virtually crippled.  Richard quickly spoke to Offhand who made soothing noises over the matter and promised to look into the situation.  We hastily re-ran our cashflow projections and calculated that, with changes to our payment terms and some savings we could make we might survive; but we needed that cash.  Now.  The next call was to our lawyers.

Despite many calls to Offhand, no payment was forthcoming, so on our lawyers’ advice, we instituted proceedings against him for breach of contract.  Offhand’s reaction was to issue a counterclaim claiming repayment of the deferred consideration.  As the months dragged on I attempted to engage Offhand in an Alternative Dispute Resolution (ADR) process but despite agreeing he never showed up for a meeting.  One of our managers still in contact with Offhand reported that he had no intention of paying as he believed we couldn’t afford the legal costs to win our action.  The legal processes rolled on and our costs duly rose.

Meanwhile, the cash situation was not improving.  We were surviving but barely and the prospects of a new loan to compensate were zero.  Towards the end of that first year, the directors all agreed to reduced salaries.  Richard had previously agreed to replace the management accountant (we had acquired with the business) as he was, in Richard’s own opinion, simply not up to the job.  The months dragged on but no change took place, Richard always having one excuse after another to delay making a change.  It also became apparent that our invoice financing company were reducing their advances to us, having the effect of stressing our finances still further.  A meeting with their management revealed their concerns over the credit worthiness of many of our customers.  Richard promised a major drive to improve debt collection.

Richard had started giving me growing cause for concern over this period.  He was increasingly absent from the office, ostensibly improving sales but instead he frequently met with one ‘snake oil salesman’ after another and came back full of his latest ideas for additional (and wholly inappropriate) new product lines.   The monthly accounts were increasingly late for our board meetings and appeared to be showing profits whilst we were bleeding cash.  After another board meeting when we were again without full accounts, I called off the meeting and met alone with Richard.  What followed were, hopefully, the most difficult couple of hours of his life.  I covered all of his shortcomings, his continued failings to take corrective action despite commitments, inappropriate sense of priorities and his duties as a director and informed him I required a programme of specific actions over the next month (through to our first year end).

Over the next couple of months we set about the site consolidation process.  We finally found suitable premises, close to the centre of the country and the motorway network and, after careful planning on Tim’s part, we made the move over one hectic, weekend.  The long awaited reduction in stock levels finally started showing benefits and along with the staffing reductions our overheads would come down (after the effects of the redundancy payments had fed through).

Yet another turn of the screw came when the financing company rewarded our stock reduction programme with a corresponding reduction in their advance.  The promised sales improvement failed to materialise and combined with our reduction in stock financing we were seeing no improvement in cashflow.  Richard was pleading the need to concentrate on finalising our year end accounts (which we were under pressure to produce) and had still not replaced the management accountant (saying now that he had great loyalty).  I was forced to give him additional time to achieve the commitments he had made to me.  Richard shortly afterwards produced management accounts showing a break-even position at the year end.  He also promised that the cash situation would quickly improve and that, now the move was complete, we would see real benefits.

Some weeks later my mobile rang with a devastating call from our major supplier.  I learnt in a very difficult conversation that Richard had reneged on a previously agreed payment schedule and was now avoiding calls.  He informed me that all confidence in Richard was exhausted and was going to close the account.  I promised immediate attention to the issue and asked, on my personal surety, for additional time to resolve matters.  By this time I had also gone many months without payment of salary and other business expenses I had incurred.  The following day I was due to meet with Richard and Tim at KPMG’s offices for the audit meeting, so I decided to delay any conversation until we could meet face to face.

The information from our audit partner was worse than I could have imagined.  The year-end break-even result Richard had reported (critical to the continued support of our financing company) was in fact a very large loss.  Furthermore, we were informed that the firm had never seen an accounting system in such a mess.  Richard bumbled on making a series of ludicrous excuses whilst I sat and tried to configure a plan.  The first step had to be to remove Richard; not only was he past the point at which he could recover any credibility, it was clear that he was utterly incompetent.  I made suitable excuses and left to start moving things forward.

 My first action was to meet with our VC partner to bring him up to speed and gain his agreement to the action I was proposing.  I then had a meeting with our lawyers to review the terms of Richard’s contract.  They agreed that the situation constituted a serious enough breech of his duties to warrant dismissal without compensation.  That left the issue of Richard’s equity, which was literally under water and without value.  Under the terms of his contract if he left the company he was required to sell the equity back to the company at an agreed valuation.  In an act of generosity I set a valuation at a nominal sum.  I called Richard and set up an extraordinary board meeting for a couple of day’s time.

What followed was the hardest task I have ever had to undertake in business.  It had fallen to me to fire more than a few people in my time but to take away someone’s dreams and their life’s savings at the same time was not something to relish.  In the event a usually verbose Richard was stunned into silence save for a few monosyllabic replies.  I escorted him whilst he cleared his office and saw him off the premises.  Later that night he returned blind drunk and hurled two pallets through the front office windows.  The exercise of power can be a sobering experience.

Could we save the business?  

 Image courtesy of viralblog.com

 

The Business of Life Chapter 30 – trust and integrity

With two management buy-ins (MBI) completed plus appointment as non-executive chairman of two other firms, it could reasonably be argued that I was more than fully occupied.  However, the two MBIs were not deals that I had initiated and I had only a minority equity stake in each.  So, my goal remained that of acquiring a substantial engineering business as head of my own MBI team.  Things were looking up with a heads of agreement signed and a period of exclusivity guaranteed to acquire the Metal Spinners group (MSG) of companies based in Newcastle upon Tyne.The Business of Life - Trust & Integrity

Mark and I set about the process of refining our business plan for the acquisition.  We now had a complete team of advisors with Phil and Ian (one of his senior managers) at KPMG providing corporate finance advice and Jonathan a partner at Pinsent Curtis on the legal side.  Paul and Mark T at 3i were working with us to ensure we could complete this transaction (following our three previous failures where we had been heavily outbid) and add another investment to their portfolio.

The original MSG company in Newcastle had been formed in 1953 by Clifford’s father and had grown steadily, supported by continuous investment in equipment from the leading German manufacturer of the CNC spinning lathes the business used.  This continuous investment had enabled the business to constantly expand its range of capabilities.  With its low level of exports and the possibility of offering solutions to a range of different industries I was excited by the development possibilities MSG offered.  I made time to visit the various Metal Spinners companies in Newcastle, Manchester and Birmingham to carry out a detailed review of the facilities.  There were five factories spread over these locations with a total production area in excess of 150,000 sq ft.  Whilst the range of equipment was of high quality it was clear that all of these factories were old.

Clifford was a curious character; slight of build and height he may have been but he seemed to posses a vitality that spoke of commitment to the business he had inherited.  The only other working shareholder was Mike, the finance director who had been with the company for many years.  I felt that I had established a good relationship with Clifford and this impression was reinforced when I called on one occasion to confirm a further meeting when he invited me to stay at his house the evening before.  Following a very pleasant dinner at a local hotel we retired back to what I discovered was Clifford’s holiday house (some 35 miles north of Newcastle) where a bottle of fine cognac settled us into a conversation that lasted long into the night.  Clifford, perhaps lubricated by the cognac, talked at great length of his life and his family. The following day the meeting went well and I drove back to Yorkshire convinced that our relationship was stronger than ever and that the deal was really going to happen.

A day later Mark T called me, “What on earth went on at your meeting? he enquired. “Clifford just called me to say that he can’t trust you and the deal is off!”  I was stunned.  Going back in my mind over the entire period we had been together I could recall nothing that I had said or implied that could have given Clifford any cause for concern.  In fact, during the entire time we had spent over dinner and back at his house that evening I had merely been an attentive listener to Clifford pouring his heart out over many very personal issues.  It made no sense and I called Clifford who finally agreed to meet me.

Seated together in a hotel just off the A1 a few days later, I attempted to get Clifford to share whatever concerns he felt he had with me.  His demeanour had changed significantly and he was evasive and imprecise speaking only in the vaguest of terms concerning his new-found lack of trust in me.  “OK,” I responded ” then I will call the acquisition off.  If you have no trust in me, and I really don’t know why, then there is absolutely no basis for trying to complete what will be the biggest transaction either of us has ever entered into.  If you do wish to complete the deal then I must know that you have no reason to mistrust me.”  Clifford stared away in the distance for what seemed an age and I could almost see the mechanics of his brain working.  Finally he turned to me and said he would withdraw the comment; no further explanation was offered.

This was the second time in a few years that someone very important to me in business had poured out the most intimate details of their personal life to me only subsequently to turn on me without warning.  I could only assume that both Swaanen  and now Clifford had, upon reflection, felt that they had let their guard down, revealed too much, felt weakened and decided to get their defence in first.

It was increasingly clear that I needed to supplement our team with the addition of an experienced engineer who would be destined to become managing director upon completion.  I started a process of trawling through contacts offered by our various advisers and other contacts.  With the deal community in full flow in 1997 (and destined to reach a peak of buy-in / buyout activity in 1999) and the business world still shedding senior executives, there was no apparent shortage of candidates to join our MBI team.  But when I had completed my essential selection criteria the list got very much shorter.  Finally, following many fruitless meetings and interviews, as a result of a 3i introduction, I met a seemingly perfect candidate I’ll call Pete.   Mark and Mark T both agreed and our team was complete.

My business life had become increasingly frenetic but was still hugely enjoyable with every day bringing fresh challenges (that I shall return to later).  So, it was with a mixture of surprise and regret that I faced the fresh question from Mark T “How much time are you intending to spend on the MSG business if we succeed in this acquisition?”  Given that three of the roles I held were as a result of their introductions, I was a little annoyed at the inference that I wouldn’t be able to cope.  I reasoned to him that with our new team member in place as MD designate all would be well in future.  It was clear from his reaction, however, that all was not well now and something had to give to maintain their support for the MSG deal.

The previous year I had agreed to become non-executive chairman of Jerrard Bros.  Working closely together we had refocused the business and the management team and profits had increased.  However, Steve the major shareholder (and son of one of the founders) was becoming increasingly visible as the major problem.  Previously unhappy in his role of MD and wishing to be freed from the demands of people management he had expressed a strong desire to simply concentrate on product design.  So, we had reshuffled and recruited and once again events were proving Steve to be the problem; his one responsibility, a new product, was woefully behind schedule and he was blaming everyone else.  With 3i’s implicit message that something had to give ringing in my ears, and knowing that the company was 90% owned by Steve, it was his train set and I knew that I was flogging a dead horse.  I resigned at the next board meeting.

The next few months brought fresh frustrations and challenges not least of which was a growing concern over Pete.  Despite his qualifications and experience I was becoming concerned at how little he was contributing to the process.  Mark and I were working every conceivable hour to pull the ever increasing stream of due diligence information into our business plan and I called a meeting to review the latest iteration face to face.  Pete contributed nothing, instead spending the entire time attempting to massage a previously agreed package higher.  When he returned to ‘needing’ a Jaguar XJ6 once more, Mark and I looked at it each other and I decided it wasn’t going to work.  Pete was dropped.

Now some three weeks before a scheduled completion date, I had no managing director candidate on the team.  I had agreed with 3i that my role would be that of executive chairman spending a minimum of two weeks a month in the company but that was predicated on my having a full time MD in place.  Without an engineer as MD, it was simply not going to work.  I called Mark T and Phil and let them know what had happened in my best low key manner and assured them a replacement was no problem.   Except that it was a major one.  I saw more candidates but no-one was even close to being right.  Apart from the big company experience I wanted someone who would be at home in a hands-on role in a medium sized company.  No luck and time was running out.

The results of the KPMG financial due diligence were due and two weeks before scheduled completion I travelled to their Newcastle offices to receive the briefing.  All had gone well with their investigation and as I was leaving one of the local managers put his foot against the door of the lift to prevent it closing, “Are you still looking for an MD?” he enquired, “I played golf with a great guy yesterday whose also trying to do an MBI.”

When I met Roger two days later in the 3i offices in Leeds we found we had a very much aligned view of business.  A highly qualified and experienced engineer, his CV showed everything I was looking for and he was happy to join the team on what looked like a done deal.  After a brief meeting with Mark T, we shook hands on what we both hoped would be a mutually rewarding relationship.

The next couple of weeks flew by in a whirl of constant meetings to review the legal due diligence, environmental surveys, the latest version of our financial projections, obtain bank finance and to discuss the equity split with 3i.  This latter aspect gave rise to a ‘blood on the walls’ dispute with me fighting unsuccessfully for the team to retain more than 50%.  In the end I had no alternative but to settle for just less than this figure but I did manage to win some other very useful concessions.  In the last week there had also been a very frustrating meeting in the office of MSG’s lawyers in Newcastle.  Very late in the evening with a couple of key issues still to be resolved, the main partner stood and declared he was going home!

Finally, the morning of the day for the completion meeting found Roger, Mark and I gathered in the offices of Pinsent Curtis in Leeds.  Most of the day wore on with little happening initially.  Allied Irish, our debt funders, arrived during the day in  the company of a supercilious lawyer to agree the finer points of the banking agreement.  I won nothing from that negotiation.  Clifford and Mike arrived late afternoon and were shown into a separate room along the corridor.  It was only at this late hour that we got to see the disclosure letter they had brought, raising fresh queries over the warranties we required. The pace quickened with what seemed like a fair impression of shuttle diplomacy as lawyers from both sides hurried back and forth attempting to resolve one query or another.

Despite the seven months of painstaking work it had taken to get matters to this point fresh information seemed to be arising in a flood.  Newly discovered potential problems required perhaps a provision against the price we were paying with an amount held in escrow or a deduction in the price.  Each of these problems required a delicate negotiation with, by now, manifest mistrust between the parties. The evening wore on with a painfully slow resolution of one issue after another.  Then, at one o’clock in the morning, Clifford and Mike walked out and disappeared somewhere into night-time Leeds, pausing only to inform their lawyers that they had had enough and might be back or not.

Almost the last issue we had on the table at this point was our requirement for a deduction to cover repairs to the roof at the Manchester factory, something that had only come to light in the last day or so with a surveyors report.  The sum involved though relatively minor may well have been the last straw.  All we could do was sit and wait to see if they would return.  Time ticked by and then two extraordinary events took place, which to this day illustrate to me integrity and honesty and what happens when it is lacking.

Quietly sitting on my own in a corner of the maze-like, old building, trying to relax and remain positive while hoping that all these months of work for everyone had not been in vain, Jonathan the head of our legal team sat beside me.  “Look, don’t worry,” he said quietly and very precisely, “if there are any issues still remaining we can get these sorted out later.  The key thing is to get the agreement signed tonight.”  I couldn’t belief my ears.  I had gained enough experience to know that problems in legal agreements only got worse with time and involved huge additional fees.  I waved him away.

Some time later, Ian from KPMG, also sought me out, solicitously enquired how I was holding up and then counselled “Look, if everything isn’t right to your absolute satisfaction, walk away now.  They’ll be other deals but for God’s sake don’t sign an agreement you’ll live to regret.”  I looked up at him and could only nod and squeeze his shoulder.  KPMG in the shape of Phil, Ian and their whole corporate finance team had put a simply massive number of hours on the clock on my behalf and if this deal fell through they stood to wave goodbye to fees well into six figures (and probably very healthy personal bonuses).  Absolute integrity demonstrated.

Seeking out Roger and Mark I brought them up to date on the two conversations and asked their opinions.  The response was immediate and unanimous; get it right or we walk away.  Mark T was in agreement; he’d seen the results of too many bad agreements.  Shortly after Clifford and Mike reappeared and disappeared with their lawyers into their meeting room.

A few minutes later and the remaining issues were resolved (at least to our satisfaction).  We were then ushered into the main board room where a sea of documents was laid out for our signatures.  The formalities completed, champagne was poured, backs were slapped, thanks exchanged and words I cannot remember were uttered.  It was 4.00am on the morning of the 8th July 1997 and I had (with a simply huge amount of debt and VC finance) become the owner of a substantial engineering firm that was a leader in its sector.  I later learnt that our deal was one of only 54 MBI deals completed in the UK that year.  Not bad for a lad who’d left school at fifteen with no qualifications.

I crawled into bed at 5.00am, rose again two hours later and drove the 100 miles to Newcastle to take control of our business.  Life was about to get more complicated than I could ever have imagined.

The Business of Life Chapter 29 – and then three come along at once

The New Year of 1997 brought surprises that, for once, were something to celebrate.  Shortly after the world started work once more after the long Christmas break, I had one of my regular review meetings with Phil at KPMG’s offices in Leeds.  “We’ve had a positive response from the last batch of letters I sent out,” Phil informed me, “Metal Spinners up in Newcastle are prepared to meet you.  However, when I spoke with them they told me how much they wanted for the business and it’s more than a bit rich.”  I remembered the business well from the last batch we had discussed and when Phil let on the amount they wanted, I groaned inwardly.The business of life chapter 29

There are many ways of valuing a business but one of the simplest is that of a multiple of sustainable earnings.  Somewhere between 6 and 7 times profit before interest, tax, depreciation and amortisation would be a reasonable average for a privately owned manufacturing or engineering business at the time.  The problem was that the figure they had quoted Phil was way above that.  “Sod it,” I responded, “We haven’t had a nibble for a while and the pipeline is a bit depleted, I’ll go and see them.”  We fixed a date for a week or so later and Phil volunteered the services of Crevan, one of his managers, to accompany me.  Perhaps there was some reason not evident in the published accounts as to why they had such an apparently inflated view of the value of their business.  Time would tell.

Back in my office the phone rang a short time later and I had Mark T from 3i on the line.  “We’ve just concluded a management buy out (MBO) of an engineering business in Sheffield and we need a Chairman on the board.  No guarantees that they’ll pick you as we have provided them with the names of a few suitable candidates, but are you interested in having a talk with them?”  A few days later saw me seeking out the address on a small industrial estate on the south side of Sheffield.  The business was housed in old premises and specialised in the production of small batches of bespoke tungsten carbide components and was very profitable.  The business had been bought out by its management (the engineering director and finance director) who now shared the role of MD.  I was given a tour of the facilities and we then discussed the business plan they had used to support their bid.  The meeting seemed to go well and they said they’d let me know when the other candidates had been seen.

The next week Crevan and I made the journey up to Newcastle and met with Clifford the MD and Mike the finance director of Metal Spinners (Newcastle).  The business had been founded in 1953 by Clifford’s father and proved to be spread across numerous sites in Newcastle, Washington, Manchester and Birmingham.  The premises that we saw that first visit were old (like so many UK engineering firms I had seen over the last year or so) but there was something about them that gave off good vibes to me.  I liked the fact that their main process (metal spinning) was very much a niche one and that they had both a major blue chip industrial company as their main customer plus over a thousand others.  The incredibly welcome news was that the business was in fact a group of eight separate companies that were non-consolidated.  The combined turnover and profitability of the group was far higher than I had realised (having only seen one company’s accounts) and put the asking price right back in the realms of the feasible.

The other great news was that the business was not on the market and wouldn’t be if we could deliver a deal on their asking price.  Crevan and I came away with a complete set of books for the total company and pages of notes that we had made during our discussions.  Driving back to Yorkshire we summed up the opportunity; the shareholders seemed willing (although there was an absent shareholder and a family trust), the business was in a highly specialised niche, it was profitable, it had very limited exports and seemed to offer once more the opportunity to acquire smaller competitors and consolidate onto a smaller number of sites.  This was the best opportunity I had seen in a year and a half and it was exactly the type of company I had set out to buy.  Crevan and I agreed a split of the workload needed to assess the business and I headed back to my office to telephone Mark with a briefing on the day’s events.

The following day I received a call from one of the joint MDs in Sheffield.  They had completed their interviewing and wanted to appoint me as chairman if we could agree terms.  A few days later I formally became the non-executive chairman of Hallamshire Hardmetal Products with a requirement to chair monthly board meetings and be on hand to guide strategy, oversee the delivery of the business plan and provide whatever assistance they might require.  The company was run on a relaxed basis but I was pleased that their accounting systems were rigorous and Trevor H and Trevor S (the joint MDs) were easy enough to work with but had an all consuming passion in keeping things simple.  There isn’t a great story to tell but over the next ten years or so we formed a great working relationship, evaluated several businesses, bought a smaller competitor and then staged a further buy out from 3i.  The business never failed to make profits in all these years and was finally sold to a buy-in candidate in 2008.  Sadly, Trevor H never lived to realise the fruits of his labours, dying a short time prior to the sale.

Meanwhile, I was still in the midst of evaluating the Metal Spinners business when Mark T came on the phone once more.  “We have a buy-in deal we’re trying to complete but have a problem with their choice of chairman and are not sure about the business.  Would you like to have a look at the business for us and let us know your views?  If it looks good, we’d like you as investing chairman to lead the team.” There’s a long and tumultuous tale to tell here but suffice for the moment to record that I did approve and complete the deal and became investing chairman of Rothmere Ltd in the first half of 1997.

Over this hectic period I was burning the midnight oil with Mark and KPMG to pull together a heads of agreement with the owners of Metal Spinners.  Earlier that year we had managed to get Clifford and Mike down into the 3i offices in Leeds to thrash out an outline deal.  The sum that they had put on the table had transpired to still be far too expensive once Mark and I had put together a full 5 year projection.  I had discovered Clifford to be volatile and I was concerned as to how the meeting would go.  After an hour or so we had reached what seemed to be a significant hurdle and were well over seven figures apart.  We were also surprised to learn that they had appointed neither lawyers nor accountants to advise them; proving to be both advantageous in the short term and a near disaster later on.  Paul called a breakout and very quickly came up with a plan.

That morning we had received the first set of up to date management accounts and learnt that the business was rapidly building a substantial pile of surplus cash.  Going back into the meeting Paul spelt out (in the absence of any advice of their own) the net proceeds they were likely to walk away with after tax if we delivered the price they were asking.  This wasn’t enough to keep Clifford and Mike happy.  He then asked them what they thought they would be happy receiving after tax.  Having established this figure, Paul then laid out a formula whereby they took a combination of pre-sale dividend of the cash they had build up and took a substantial slice of the proceeds in the form of loan notes spread over the two years following a sale.

This formula of deferred consideration would give us a hefty contribution to our working capital requirements and lessened the upfront investment.  These loan notes together with the pre-sale dividend (their own money) produced a substantially lower overall tax bill that just brought the net proceeds up to the level Clifford and Mike had agreed they wanted to achieve.  In effect they were financing part of the transaction to achieve a lower tax bill.  They agreed and by lunchtime we had a signed copy of heads of agreement on this basis.  As part of the agreement they were giving us a period of exclusivity to enable us to complete the deal during which they would neither approach another prospective purchaser nor would they enter into negotiations with any other party.  The deal was on and it seemed achievable but a vast amount of work needed to be done in terms of due diligence.  A phrase was then uttered by Paul that was to come back to me time and again over the years in every transaction I was a part of,  “The devil’s in the detail.” he cautioned.

A couple of weeks later Mark T called me to ask what my time commitments were like.  By this stage I was chairman of one 3i investment and had recently completed my first MBI as investing chairman of another.  In addition, over the last couple of years I had continued my work with Jerrard Bros Plc and had been appointed chairman the previous year.  I responded that I still had some spare time and asked what he had in mind.  By this time it had become clear to me that, even if I couldn’t pull off the one big acquisition I had set my sights on, I could achieve a very nice portfolio of non-executive roles combined with equity participation.  We agreed to meet the following day.

Sat once more in the 3i offices (where I was beginning to feel at home) I listened to Mark T describe the problem he had.  They had backed the growth plans of a small technology products distributor that had grown extremely rapidly (by around 35% each year) and  had expanded into the USA and Germany.  Profits had been sacrificed for growth but the latest year’s results had produced an unexpected loss of £1m (largely as a result of the US investment).  The shareholders equity was now ‘below water’ and the bank was making ominous noises.  Would I go and meet the two director shareholders and, if they agreed, join the board as a non-executive?  I was subsequently appointed to the board and another rollercoaster ride was about to start.

Over and above my due diligence work on Metal Spinners and maintaining the research and analysis to keep the MBI target pipeline full, I was now working for various periods each month in businesses based in Croydon, Hull, Heathrow and Sheffield with various additional activities in London, Bristol & Birmingham.  I stopped all efforts to win new consulting clients and knew that something would have to give in these activities if I managed to pull off the major acquisition I had been seeking.  I was burning the candle at both ends and in the middle but was enjoying life more than I had for many years.  And any concern about money had disappeared over the previous few months as my portfolio of activities had grown.

My new life as a non-executive & chairman seemed to be the role my career had been building towards.  I was responsible to 3i to ensure that their investments in the companies I had joined produced the results they had planned.  However, this role was legally (and in practice) overridden by my responsibility to all of the shareholders (and in my mind to all of the stakeholders) of these businesses.  My broad experience had provided me with an ability to see these businesses in a wider context than their other directors (whose deep functional & specialist experience certainly exceeded mine).  Freed of the responsibility to manage a day to day role I was able to concentrate on direction, strategy & people (including customers).  These key aspects could only be achieved as a result of the closest working relationships with my fellow directors and their teams.  I was finding my business life to be immensely fulfilling.  Unfortunately, I was also going to find out that it would shortly become vastly more challenging than I could ever have imagined.

Meanwhile, alongside my work and responsibilities with these four companies, I was ploughing every once of energy and expertise I could muster into completing the acquisition of the Metal Spinners group of companies.  I was increasingly confident that I could pull this off but completely unaware of the scale and scope of the problems that were about to emerge in three of the other companies.

Image courtesy of en.wikipedia.org

The Business of Life Chapter 28 – when it’s so much harder than you imagined

Unlike many MBI candidates I had met or heard of who merely waited for a referral from an accountant, lawyer or VC (usually whilst they continued to job hunt) my strategy was concentrated on researching the market to find the hidden opportunities,  those businesses that had yet to be put up for sale that I could convince to sell to me.  So, I was pleased and surprised when I received a referral from KPMG to a business that they knew was being put up for sale.  My months of hard work were beginning to pay off  and it meant that I was being taken seriously as a buy-in candidate.Staying-the-Course (The Business of LIfe)

The company concerned, a paper processor, was housed in an old Yorkshire mill (yet another one) and, as the name suggested, it processed large rolls of paper into toilet rolls, kitchen paper, napkins and the like.  It also had a small trade recycling old clothing into cleaning cloths for the engineering businesses that had once been plentiful in the area (destined to become the legendary oily rags). I can’t now recall the name of the paper processing side but the rags were sold under the trade name of Hyman Wipes, something that has stayed in my memory.  Can’t think why.

My heart sank as I toured the old premises filled with machinery and employees that looked for all the world as if they were from the same vintage.  The finances were not disastrous but the business would struggle to stay healthy and there was no way that it would be able to repay the debt I would have to take on to buy the business, let alone any investment in new equipment.  However, if I could buy not just this business but one or more of its competitors then there would be considerable scope for rationalisation into a small group of businesses in the same sector (with increased profits flowing in due course).

After writing up the notes of my visit and sending these off to Phil, I set about researching competitors that would be likely targets.  I soon had a meeting organised with the owner of another paper processor that seemed a likely target.  He was wary and would not agree to my visiting his premises but instead met me at a nearby hotel.  We played cat and mouse for an hour or so but it became clear that there was not going to be a meeting of minds.  Back in my office I spent more time analysing the sector.  It was clear that the smaller companies in the paper processing industry were under attack from far larger players who would be completely out of my league as acquisition targets being mostly owned in turn by yet larger companies.  I met with Phil, took him through my findings and we agreed this was an area best left alone.

Shortly after I got a call from a partner at Grant Thornton inviting me to an event they were staging at their offices in Northampton.  The evening centred around presentations from a number of experienced representatives from corporate finance lawyers and banks.  This included some useful additional information.  But the real value of the evening was the opportunity to meet other MBI ‘wannabees’.  Many private businesses that came onto the market were retirement sales and it was not uncommon for two or more shareholding directors to be attempting to exit at the same time.  It was impossible at that stage to guess all of the possible functional skills I was going to need in a future business but it was almost certainly going to include a finance director.  So, I was delighted to meet Mark over a coffee during the mid evening break.

Mark was employed as a finance director and wished to become part of a successful MBI team.  He quickly impressed me both with his commitment and enthusiasm for our common goal and with his knowledge of corporate finance.  Some ten years my junior and with a young family, we formed an immediate bond.  With an accounting qualification and PLC experience, Mark seemed to have a good grasp of the challenges of running businesses.  Following a further meeting at which we explored each others values and beliefs in more detail we agreed to team up for the task ahead.  We were also realistic enough to agree that if either of us came across an opportunity that didn’t include the other then we would go our separate ways with no hard feelings.

Despite being based some 150 miles apart we soon fell into a productive working routine.  I continued my processes of identifying likely targets and an initial financial analysis and would send a batch of information to Mark who would challenge my assumptions and verify  (and correct, where necessary) my findings.  I was also heartened to find that Mark was able to offer pertinent comment and ask searching questions across the wider business spectrum.  Together I was convinced that we would make the core of a credible buy-in team.

Meanwhile, I had been having further meetings with 3i and formed an initial relationship and agreed a working methodology with Paul, an investment director and Mark T one of his managers.  The understanding was that I would continue my work in identifying likely targets and would bring to them a short investment proposal on short listed businesses we were intending to approach.  In this way we would know, in principle, if 3i were likely to back a serious bid.  There was a danger in this approach that had been put to me by other successful buy-in managers.  This was that there was a risk that 3i could take the opportunity and go with another (preferred) buy-in candidate leaving me empty handed. I put this possibility to one side, reasoning that I had to build a relationship with 3i that demonstrated my professionalism and commitment to them.  If I demonstrated I didn’t trust them (by floating potential deals around a selection of VCs in an effort to find the best deal as others had advised) how could I expect loyal backing from them?

Having been working on the basis that I would have to do all my own work in identifying targets, I was surprised when I received a call from Mark T.  Would I be interested in taking a look at a business (Halifax Fan) they knew was on the market?  There would be no commitment that they would either support a bid or that they would go with me in the event that they did.  We agreed to meet.  I had previously advised Mark T that, amongst a few other industries, I was specifically targeting the engineering sector.  It had already become apparent to me that many medium sized engineering companies lacked modern sales and marketing skills, often resulting in no or limited export markets.  My believe was that I would be able to bring these skills to such a business.  I was pleased to find that the company in question was an engineering business and it was based in Yorkshire.

We met at the premises of Halifax Fan for an introduction and an exploratory look at the business.  It was an interesting company that specialised in the design and manufacture of fans for a variety of industrial uses often employing unique designs for challenging applications.  It was profitable but what was really interesting was that the owner (who wished to retire) had deliberately constrained the growth of the company as he didn’t wish to have the bother of additional employees.  I could immediately see growth potential plus it also had the ability to grow via acquisition.  Having come away with a great deal of financial information I arranged a further visit to progress matters in a couple of weeks.  Meanwhile, Mark and I started work on our analysis of the financial situation and into the specialist market for industrial fans.  A further meeting with 3i soon followed where I presented our initial findings and plans and got a green light to submit a comprehensive business plan.  Following further adjustments our plan was accepted and we waited anxiously as it went to the investment committee for approval.  A week later I learned that approval had been gained and 3i submitted our joint bid to Halifax Fan.

We knew that other interested parties might be bidding and Mark and I waited anxiously once more following weeks of work.  A phone call another week later dashed our hopes.  We had been significantly outbid.  I was disappointed but I was also heartened that we had been taken seriously by 3i who took the bad news with a shrug and the question, “What else are you looking at?”  Mark and I pushed on with our list of prospects.

I had given up on the lighting industry following many unproductive approaches over the previous months but a chance conversation with an old colleague reawakened my interest.  “Do you know Neville is dying?” was the question that took me by surprise.  Neville had been a customer of mine for many years,  running a well respected lighting distribution business.  I also knew Neville well as I had taken him on a study tour of a selection of US & Canadian electrical distributors some years previously.  Notwithstanding the sensitivity of the situation, I called Neville, conveyed my sorrow at his illness and best wishes and after a brief conversation said I would like to buy his business.  My approach was referred to his chairman who I met some days later and learnt that the business had already been put discretely on the market.  My pitch of venture capital backing, knowledge of the business and personal credentials succeeded in gaining me an acceptance into the process.

Over the next few weeks I met with the management team, collected information,  visited the retail operations they had and burned the midnight oil with Mark carrying out detailed analysis and pulling together our basic financial projections.  We then applied various sensitivity exercises to stress test the model before I wrote up a very detailed business plan which I submitted to 3i.  We agreed an offer, the plan went off to the investment committee and, once approved, our bid was submitted.  I knew that our price was realistic and our plans (including selling off the retail side and acquiring other distributors) were rational.  I had even found time to approach and have initial discussions with our first post acquisition target.  However, a few weeks later our hopes were dashed once more as we received the news that a trade competitor had outbid us by 100%!

During this period (mid 1996) I was still processing large numbers of potential acquisition targets through my financial and strategic appraisal model.  Following this latest setback, I stepped up the pace, extending my networking and research activities.  Over the next six months we worked on dozens more potential targets, analysing them and their markets and got down to the shortlist with several others only to miss out to trade buyers who, once more, heavily outbid us.  It was clear that although many trade buyers had no magic dust to sprinkle on a business they did have the ability to carry out immediate rationalisation and effect synergies with their existing operations.  I was confident that my development plans for our targets were sound and we also had a ‘Buy & Build’ post acquisition strategy to acquire other competitors.  The problem was that we couldn’t (and 3i weren’t prepared to support) pricing the benefits of a potential subsequent acquisition into our initial bid.  I knew this made sense as it would have raised the risk factor sky high.

As 1996 drew to a close I realised I had spent 18 months working to buy a substantial business using venture capital.  I had spent months in the most intensive efforts to locate and analysis targets, reviewing hundreds of businesses in the process.  I had become increasingly more creative in my approaches to extend my networking and increasingly more professional in my research, analysis techniques and business planning.  I had been almost to the altar on three occasions only to be heavily outbid.  Attempting to buy businesses from larger companies was also not working as, once more, competitors were willing and able to pay far higher prices.

So, at the end of my first full calendar year there had been no result.  Instead I was beginning to experience growing tension between the work necessary to bring a suitable target deal to completion & the mundane task of earning money.  To put matters in perspective I was earning at a rate that was acceptable but I knew I could be very much more successful at the role of consultant if I didn’t have to spend time chasing acquisition targets.  On the other hand, buying a business was my unwavering goal but I couldn’t spend the time at it that I needed because of the need to earn money.  This tension was made all the worse by my practice of doing whatever I attempted to the best of my ability.

Before Christmas closed the business world down for the holidays, I put together a detailed presentation for Paul at 3i laying out everything I had done with a detailed appraisal of what was working and what wasn’t and reconfirmation of my goal of acquiring an engineering business.  When we met I shared with him the frustration I had in being diverted from the task by needing to earn money but ended with a commitment to bring them a deal we could complete together in 1997.

The Christmas holiday was a welcome break with the family but it proved just too tempting to continue working as my goal was constantly at the front of my mind.  I couldn’t remember wanting anything in business as much as I wanted this.  I knew I could succeed as a consultant but, although I enjoyed the work and gave it everything I had in the time available, it really wasn’t what I wanted to do long term.  It was becoming brutally clear that I had entered a marathon not a quick sprint.  Could I stay the course in the year ahead?  Or was I chasing rainbows?

 Image courtesy of thebridgemaker.com

The Business of Life Chapter 27 – no way back

Some people would say that it was madness, but I found it liberating to know that I had blocked off an escape route and that the only way was forward.  Having withdrawn from the job search process and informed head hunters I was out of the game, I had but one goal and that was to achieve a management buy-in (MBI).  To facilitate this process I had to earn just enough to support the household and preserve my savings for the stake I would need for my share of equity.  As John Major resigned the leadership of the Conservative Party to trigger a leadership election in June 1995, thus burning bridges in the hope of winning party support, I made my own play for future success.  My bid was rather less exalted but it was critical to me and had a similar air of ‘do or die’.No Way Back

A corporate finance partner at Grant Thornton I had met during the due diligence process at Selmar was my initial port of call.  “Why do you want to do this?” he enquired when I had finished laying out my plans.  “Because I can be a whole lot more successful at running businesses than most of the clowns I’ve worked for!”  “Wrong!” he shot back at me, “You stand in front of a venture capitalist and tell him that and you’re finished.”  I felt perplexed and my look must have revealed my confusion.  “You’re doing it for the money, you want to make shedloads of money for yourself and for them.  That’s what they want to hear.”

My first task was to commence my own due diligence on the process of achieving an MBI.  I started this by talking to several contacts, eitherold or new, who had managed to get VC backing to either buy-out (MBO) or buy-in to business.  Their advice was interesting but the one phrase that struck me as invaluable given my own experience with cash was, “Never buy what you can borrow and never borrow what you can steal!”

An essential element I absolutely had to ensure was in place was a contingent fee arrangement with a firm of accountants and a lawyer firm.  To get a deal to completion meant accounts and lawyers putting a great deal of hours on the clock for both accounting and legal due diligence plus all the work on the finances, deal structure and the sale & purchase agreement.  These costs would run to hundreds of thousands of pounds and without this ‘no win, no fee’ arrangement in place, failure to complete a deal would ruin me.  In the deal-charged environment of the 90’s all of the major accounting and law firms realised that without such an arrangement the deals would simply never happen.  The quid pro quo was an acceptance by VCs that transaction fees would be inflated for success.  It was a feeding frenzy.

The combination of my approaches and CV got me meetings with the corporate finance partners of every major accounting and law firm I approached.  A vast amount of highly practical advice flowed from these meetings, which was adding to my rapidly growing knowledge of the intricacies of the MBI process.  All lost no time in telling me how difficult it was to achieve and how risky it was to buy a company as an outsider, “You just won’t know where the skeletons will fall out of the cupboards!”  Knowing that it was going to be a lengthy and fraught process, the key aspect both parties were assessing was the personal chemistry.  There had to be mutual respect and trust, something that I was well aware of, but something that would also be brought into a stark spotlight in the future.  The result of many meetings was an agreement of backing from KPMG and Pinsent Curtis both in Leeds.

With one vital building block in place I started contacting all of the major VC firms.  Again I succeeded in achieving meetings at director level with every firm I approached.  The choice of equity partner transcended almost every other consideration.  Yes, you would share equity in a deal but management equity was a very subordinate animal to that held by a VC.  I knew that all firms could and would be ruthless in the event of non-performance but there were other considerations that I knew to be critical.  Most of the firms I talked to had a strict policy of exiting from their investments within a set time period, being driven by the way they raised finance.  I had met one management team who had almost been sunk by being forced to refinance as a result when their business was going through an appalling difficult period.

The one exception to this almost cast iron rule was 3i whose policy was that management drove the timing of exit.  With its roots in the Industrial and Commercial Financial Corporation and the Finance Corporation for Industry going back to 1945, 3i had probably more experience and understanding of financing private businesses than any other VC.  I had had a welcome and very useful initial talk with the head of the Leeds office and, following all of my other meetings, I decided that I simply had to get 3i backing.  The head of the Leeds office was Jonathan Russell (who went on to become a main board director) and underlying his smooth and urbane appearance and warm welcome was a very shrewd businessman.  After I had filled him in on my success in getting contingent fee arrangements in place with KPMG & Pinsents, he leaned back in his chair, nodded and enquired, “Anyway, how’s your job search going?”

This wasn’t a trap I was ever in danger of falling into and took delight in firing back, “I don’t have a job hunt.  I’ve closed all the corporate doors and I’m going to succeed in achieving an MBI with you.  That is my future.”  I was then vetted by Patrick Dunne (who ran their MBO / MBI programme) in London and was then able to benefit from the vast knowledge 3i had gained in this sector.  From their research I was able to ascertain just how many MBI candidates there were in the country attempting to achieve the same goal as me.  Comparing this number (over 2,000 from memory) with the number of deals actually completed each year (210 in 1994) was, at face value, disheartening.  Of these only 28 were MBI transactions that had been completed!  When I considered the reasoning behind Jonathan’s question about my job search and added this to the knowledge I had gained so far I realised that the odds were better than the apparent 1.4%.  Clearly some of the c2000 executives seeking a deal would also form part of a team of 2 or more.  I also knew from my research so far that the majority of people who claimed they had a goal of an MBI merely waited for the deal community to throw up an introduction to a potential transaction.  I had already decided that I wasn’t going to sit around waiting for a deal to show up, I was going to make it happen.  When I added this self-sufficiency to my competitiveness and determination, I decided the odds were rather better at around 8~10% pa.  Good enough for me.

I started work on a methodology for searching for suitable targets.  The advice I had been given so far was to buy a dog.  What was meant by this was buying a failing business and turning it around would yield fantastic returns.  The problem I envisaged with this approach was that the margin for error narrowed to almost zero.  Problems come from all angles even in a good business that one knows well but buying into a failing business raised the stakes dramatically.  No, I decided, I would buy a profitable business even if the price was higher but it wouldn’t be balanced on a knife edge from day one.  The obvious approach would be to attempt to buy a business in a sector where I was experienced, so the lighting industry had to be on my target list and I started making approaches to all my contacts in this sector.

I had drawn up a list of ideal criteria for a target company and this included:

  • Privately owned
  • No more than 3 shareholders and ideally same as directors
  • In business for between 15~30 years (potential retirement sale)
  • Turnover between £3m~£25m
  • Profitable and cash generative
  • Engineering, industrial manufacturing or distribution
  • Were differentiated in some way (or could be)
  • Had growth potential.

Obviously businesses in declining sectors were out and I also decided that I would have nothing to do with those selling consumer products into high street retailers.  I new that Companies House had all the information required to ascertain if the first 6 criteria could be fulfilled for a small fee.  However, there is no way one can carry out a criteria based search from this source (needles and haystacks).  However, I knew that there were many credit agencies and other research companies who bought the entire information from Companies House and compiled databases that could be searched by criteria.  Their fees were beyond me though.

Leeds business library proved to be an excellent halfway house for the information I required.  It had research reports on a vast number of UK business sectors and it had searchable databases that would give me a snapshot of likely companies.  In addition, the cost of information was only £0.10 a page.  I would blitz a business and geographic sector and come away with a single page on each of around 200 companies.  Returning to my office at home I would wade through this information refining it down into a short list of 20 to 30.  I would then arrange a meeting with Phil, the corporate finance partner at KPMG and we would then discuss each one and agree a final list of 10 to15.  Phil would then get one of his team to run off a complete financial history for the last 5~10 years in great detail for each one.

Back in my office I would then input all of the resulting data into a large spreadsheet model I had developed that would produce key ratios, further analysis and graphs.  The resulting report I produced for each company showed at a glance a clear picture of the health of each business plus all of the relevant trends.  I would put together any further information I could gather as desk research and then get together with Phil to review the results.  These reports together with our discussions enabled us to whittle the list down to 5 to 8 key targets.  Having discussed the various ways of approaching these targets Phil counselled that we would get a better response if he approached each company saying that he had a client with funding in place who was interested in a purchase.

Whilst carrying out this research I had been working my way through all of the potential businesses I knew in the lighting industry that were worth an approach.  I had meetings with a number of potential targets but despite serious interest from the owners there was really nothing worth pursuing.  I was waiting to hear of the results from the initial batch of letters Phil had sent out when he gave me a call and suggested we meet.  He explained he had information on a paper processing business that was for sale and he could introduce me if I was interested?

Was I interested!  After months of work I was off running with a lead on a business that was for sale.  Would it shape up?  Could I pull off a deal?

 Image courtesy of http://www.virtualdjradio

The Business of Life Chapter 26 – casting off the chains

On my first morning at Selmar Industries I arrived early.  After a quick word with the few managers and office staff who were in at that time, I went on a tour of inspection.  The company was housed in an old textile mill on the outskirts of Brighouse in West Yorkshire almost at the end of a tightly wooded valley.  The buildings were a veritable rabbit warren with both offices and production facilities spread across different levels connected by tight and twisting passageways.  A new warehouse had been added to the rear of the site some years before and the yard outside appeared to be a dumping ground for disused HGV trailers.The Business of LIfe Chpater 26

Following a brief session with the management I held a series of meetings for both office and production staff.  After laying out the realities of the present situation, I went on to share my personal values and inform them that we would be working together to turn around the fortunes of the company.  I then held a series of individual meetings with all of the board and management team.  The highlights of my new team were Jeff and Neil (not my group MD), sales & finance directors respectively, professionally capable, enthusiastic, committed and nice guys.  They also proved to be extremely loyal.

The rest of the board and management were way below the level of competence I had been used to and, to be honest, made my heart sink.  They offered a veneer of support but it was barely masking an underlying denial of the dire situation the company was in and any personal responsibility for their role in it.  To say that I sensed a potential resistance to change would be a vast understatement.  Quite the saddest situation I found I had inherited was that of the administration director (who I’ll call ‘P’).  How he ever came to be promoted to this level was a mystery.  It would transpire that whatever hour I arrived in the office or left, he was always there.  Though supportive and loyal, I found that he was way out of his depth and was working 18 hour days in an effort to survive.  Knowing the urgent task I had on my hands to stem the haemorrhaging of cash, I decided to make no immediate personnel changes, there would be time later.  I knew ‘P’ was out of his depth and tried to protect him as best I could but he ultimately resigned.  A couple of years later I discovered from an HR consultant that my predecessor had engaged her to carry out an assessment of the board.  She had found ‘P’ to be so far below average intelligence, she simply didn’t know how he could even hold down a clerical role.  Nothing had been done.

The product ranges of the three companies in my group included domestic and commercial battery chargers, cable reels and power cords.  The business also produced small transformers on a sub-contract basis for another company in the wider group.  The battery charger business had been a market leader (and perhaps still was) but it suffered from a number of problems that were at the heart of the group’s problems.  Sales were highly seasonal with winter producing a demand at least five times that of the rest of the year (more in an exceptionally cold year – and one of those was about to strike).  Production had to run flat out throughout the remainder of the year to build stock as it was impossible to produce sufficient to meet demand as it occurred.  Thus this major division of the business consumed cash for nine months of an average year.  Selling through high street multiples and producing own brand for some of the major retailers it was subject to intense price pressures.  With its many export markets it also had significant foreign exchange risk.  These problems were serious enough but they proved to be compounded by sheer internal incompetence as I was to find out.  The other two companies demand patterns were not as seasonal but were also subject to severe price competition especially the cable business.

Having been intrigued by the trailers in the yard I requested that they be opened for my inspection.  This revealed a horror story of incompetence and connivance.  Each trailer (and there were five or six) was crammed to capacity with components and the largest single category was injection moulded casings for battery chargers.  These casings were either for obsolete lines or had retailers’ own brands moulded into them.  The own brand versions were for current production models but we had lost the business and they could not be used because of the branding.  This was in addition to the warehouse that was also stocked to the rafters with raw materials.  Upon further investigation I found that this stock was sitting in the balance sheet at full value!  This meant the true losses of the company (£3m in the previous financial year) were even higher than the accounts showed.

Horrified, I summoned the members of the management team who were connected directly or indirectly to forecasting or ordering stock to the yard and asked for explanations.  Unsurprisingly, the excuses flowed with much finger pointing but mostly in the direction of my predecessor.  When I raised the subject with Neil (my boss), stating that we had to write these off he growled, “Make some profits first to write them off against!”  After continued investigation the causes became clear with system disconnects and plain incompetence at the root of most.  Many issues could be rectified without delay but others took much longer to uncover and put right.

If the stock situation was bad then the production processes were at least the equal and arguably much worse.  The main production floor housed five production lines for battery chargers, transformers and cable reels.  Two separate facilities existed on different levels for cables and commercial battery chargers.  The first impression of the main production floor was of a state of chaos with people, components and finished goods everywhere.

As an example the cable reel line had fifteen people who seemed merely to be getting in each other’s way.  Finding that one member of the technical department was a trained production engineer I took him down to the production floor and showed him the line.  His response was to tell me that he had done the original line balancing and that it called for only eight operatives.  When I asked him what had happened he claimed that my predecessor, when output needed to be raised, had simply thrown people at the line.  This time the excuse sounded true and I agreed to strip the line down to its original eight members.  The very next shift the slimmed down team increased output and kept it rising over the following weeks.  We started work on the other lines.

I turned my attention to the cable line that produced relatively simple standard products with moulded plugs and sockets at each end.  The process had a history of problems and never seemed to run to plan.  The production supervisor was Marion, a lady who seemed to carry the problems of the world, not least of which were related to her personal life.  I asked her to join me in her small office and asked her what she felt could be done to improve quality and output.  She looked wordlessly at me with world-weary eyes that were deep set, spoke of little sleep and many problems and shrugged.  It was clear that she had once been if not beautiful then perhaps at least pretty.  But a broken nose, black ringed eyes and poor skin had long since robbed her of any claim to looks.  I asked her again. She stared at me with those dark eyes showing a mixture of  suspicion and confusion and murmured, “I dunno.”  It was Friday and I suggested she had a think over the weekend and if anything came to mind to let me know the following week.  She walked off back to the line.  I went home that night despairing.

Arriving shortly after 7.30 the following Monday morning I found Marion waiting outside my office.  “You serious what you said on Friday?” she blurted out, “You really want to know what I think?”  We went into my office and I sat her down and assured her that I was, indeed, really interested in any views she might have to improve the line’s performance.  “No-one’s ever asked my opinion of anything, ” was her response, “but I’ve been thinking all over the weekend and this is what I think.” What followed was a succession of ideas that sounded sensible and easy to implement.  “Go ahead then.” I replied.  Her eyes came alive, “What?  Can I?”  Improvements followed quite quickly and were maintained.

An intractable problem was the night shift that was required to meet demand for the sub-contract transformer work.  Due to uncertainty concerning its future my predecessor had made a not unreasonable decision to use contract labour.  A contract had been signed with a local firm who recruited and bussed in the required labour from neighbouring towns each night.  The assembly tasks were relatively straightforward and the day shift was reasonable in its output and quality.  But the calibre of the people we were getting to work the night shift was dire.  I arrived in one morning to find that an entire night’s production had been lost to ‘an incident’.  It transpired that two of the crew assembled the previous night had been rival drug pushers who had decided to set about each other with machetes!

Output and cost of production slowly improved and the end of the financial year showed a reduction in the losses.  However, as soon as one problem was solved continued investigatory work revealed yet more.  We were by then winning more distribution but price competition was eroding any benefits gained from the lower production costs we were then achieving.  Component quality problems continued to be a problem especially the injection moulded components that came from another company in the wider group.  Attempting to resolve these problems always led to counter allegations of constantly changing demand, which I would invariably find had some substance.

Quite apart from the challenges of solving the cash drain problems of the battery charger business, we also had an unacceptably high level of product returns for damaged and faulty goods.  Carrying out a detailed inspection of our product packaging I found that the quality of the board used had been reduced to something that was totally inadequate for such a heavy product and many products were arriving at retailers damaged.  I then decided to test a number of our products myself taking a different model home each evening and attempting to follow the instructions.  My experience quickly proved that the instructions (even in English) were simply ambiguous at best.  God only knows what the myriad additional translations had turned them into but an unacceptable quantity was being returned as faulty purely because the instructions were unintelligible. .

 Into the second financial year it was becoming clear that with increased competition and the power of major retailers driving prices ever lower our efforts to improve UK production efficiency were never going to be sufficient.  With the greatest of reluctance I decided that the only future for the brand was to outsource production to the Far East.   Having made contact with several potential manufacturers, I headed out to Hong Kong with Jeff our technical director.  During that trip we visited many factories in mainland China, all were dispiriting places and, which combined with the fledgling infrastructure and teeming population, produced a hellish vision of a dystopian future.  Yes, it seemed we could achieve lower invoiced prices but quality and the lengthy supply line troubled me.  By the time we returned to the office the decision had made itself.  We had already received, via another route, a leaflet from an unknown Chinese manufacturer offering their products to us.  ‘Their’ products shown on their full colour leaflet were the samples we had left in China with our brand names carefully concealed!  It was just too risky to take the chance but events overtook me anyway.

By this time we had managed to pull the losses back to a break even position but added to the pressures within my business, our parent company was struggling to survive.  Neil my boss, with whom I had established a super working relationship, arrived early one Monday morning a few weeks later with bad news.  The group had decided, without reference to me and despite our elimination of £3m of losses, to close our operation in Yorkshire and merge with another group company.  I was informed I was to be made redundant but first had to oversee the sale of our cable business, again something that had been arranged by the main board.

For the next month or so I worked with the accountants sent in by the purchaser in the due diligence information gathering process they were conducting.  The sale concluded Neil informed me that I would have to work out the remainder of my contract (in some capacity) but ‘could take reasonable time off to seek other employment’.  The conversation turned into one of those blood on the walls events as I fought to achieve a clean financial settlement instead of working for another 10  months in some spurious role.  Not being able to reverse what was clearly a decision forced upon Neil by a cash-strapped main board, I engaged the services of a law firm specialising in employment matters.  A few weeks later I walked away with a cheque having compromised on a slightly lower sum.

This time there was neither rage nor sadness but simply the realisation that I needed to take stock afresh.  I had proved once more that I could achieve what required but to no avail.  Seeing the writing on the wall over the previous few months I had been quietly testing the market once more and had got to offer stage with a small US corporation.  However, my research on the company told me that I might well be going from frying pan to fire.  I was now 49 and had begun to feel that my corporate days were over and it might be better to draw a line than suffer the same fate again in a few years time.  My mind went back to Norman and his CVC backed purchase of GTE Sylvania and the decision wasn’t hard to make.  Reviewing my knowledge and experience I decided I could achieve a management buy-in (MBI) and I would.  I phoned the Americans and informed them I was withdrawing.  I then called all of my head hunter contacts to let them know that my time as an employee had come to an end.

I had barred and shuttered the route back into employment and, with my mind clear of distractions, I could concentrate on achieving this major new goal.  Could I do it though?  Could I really convince the venture capital community to back me with the millions it would take?

 Image courtesy of businesspundit.com

The Business of Life Chapter 25 – when it’s time to pick yourself up

The flight back from Geneva that evening gave me some time and space to get my thoughts together.  There was none of the rage I had felt when I had been fired from Akai 13 years previously.  Instead, what I felt was a mix of great relief and sadness.  The sense of relief had been something I expected, as working for Norman and Eddie would have filled me with horror.  This feeling was vindicated later that same year when a friendly head hunter shared his experience of dealing with Norman  But more of that in due course.

The sadness was an unexpected sensation.  I had spent all those years working for a company in roles that had provided me with enormous challenges, to which I had usually been able to rise.  The company had given me a superb business education, which I have since come to realise was peerless.  It had also provided me with rich and complex problems on which to apply my new found knowledge.  I still count some of the solutions I arrived at to be amongst the greatest successes of my career.  It was sad that middle management had not always been able to step back from their personal positions and embrace a new reality.  Strategic thinking had been subordinated to the protection of personal gain in many cases.  Nevertheless, I knew I was going to miss the company, the challenges it had provided and the people; even the ones who had frustrated the hell out of me.

One worry luckily I didn’t have was financial.  At least I was confident that I would find the next position before money became a problem.  With the savings I had accumulated and the severance pay I had received life wouldn’t be too bad.  I was under no illusions though as the UK was still recovering from a nasty recession.  For the moment I put that from my mind as I had more immediate matters to deal with.  I had an apartment in Geneva with more stuff accumulated over the previous year than would fit into a suitcase and I had to get it back home.  I made plans to drive over in a few days.  Speaking to a couple of my old team I discovered that they had already had a farewell lunch together but on hearing I was returning for a couple of days they decided to do it all over again – with me.

So, after a few days catching up on my sleep and delighting in being back home with Denise, I headed back over the Channel and through France to Geneva for the last time.  The lunch was bitter-sweet.  I was touched that they were all prepared to give up their time to meet with me once more.  It was apparent though that a number felt a lot less philosophical about the situation than me and it was clear that at least a couple were going to find it very tough to get another position as good as the one they had lost.  One saving grace for them was that Swiss welfare payments were a whole lot more generous than the UK but only for a time.  When the hugs and kisses were over we went our individual ways and I began the long drive back.

Back home in Yorkshire my first priority was to shake off the excesses of too many meals and probably too much to drink.  So, Tilly our Rottweiler joined me for long jogs across the moors around our home and gradually I began to feel good both physically and mentally.  Without a break I started work full time on the hunt for the next position.  In the following 6 months I travelled 20,000 miles attending interviews, networking and researching the market.  Contacts I had made were unstinting with their time and advice and the many head hunters I either approached afresh or renewed acquaintance with were generally extremely helpful.  Together with the advice I had previously received from Max, I was becoming more focussed and more professional in my approach.

Discussing the very exact profile a client had drawn up for a position I was reviewing with an extremely helpful recruitment consultant he suddenly enquired, “It was the same Norman that had run FKI that bought your old company, wasn’t it?”  When I nodded he went on, “God you had a lucky escape!  I had a brush with him a few years back.  He contacted me and said he was looking for half a dozen MDs.  Well”, he went on, “I thought Christmas had come early, so I asked Norman to let me have candidate profiles and I’d get back to him with a plan and an invoice for the amount we charge upfront.”  It seems Norman had responded, “Don’t waste my time with stuff like that, just get me the candidates and I’ll see if I like any of them.”

Things were certainly a lot tougher than they had been the last time I was ‘between positions’.  I was that much older, that much more senior and the number of openings higher up the greasy pole were that much fewer.  It became clear quite quickly that, despite my extensive contacts, I wasn’t going to walk into a senior role in the industry I had just left.  I think I was known as someone with strong views and a different perspective on things and that didn’t appeal to many.  In any case longevity in position was a hallmark of the industry I had been in and there was no game of musical chairs to join in.  Moving industries once again looked the most likely route back into gainful employment.  This bothered me not one jot as I had already worked in 6 diverse sectors and had found problems were invariably generic.

Drawing on the experiences I had accrued in my role in Geneva I reflected on the behavioural skill set that my role had really needed.  When I compared this with the psychometric feedback I had received over the previous few years, I realised that I had really been a square peg trying to fit a round whole.  Whilst the experience and knowledge I possessed had been more than sufficient for the role, my behavioural profile lacked the key political skills required.  I had the influencing skill alright but I clearly lacked what Phil Thurston at Harvard had referred to as ‘rat like cunning’.  My first approach to a problem or resistance was usually to summon the power of logic and rationality.  If that didn’t work I rarely shied away from a full blown, full frontal attack.  I could build and receive the loyalty and support of a team, I could understand the biggest of pictures and what was required to solve the underlying problems.  Yes, there was much I could learn of politics but, as I saw things, I was far more suited to leading than being led.

But my mind was beginning to move in a different direction.  During the final months in Geneva I had started to think of working alone as a consultant and had sounded out a few people I knew who had created successful careers in this way.  The advice had been to specialise rather than risk being known as a jack of all trades.  The obvious specialism was marketing strategy and I was pondering the prospect of setting up and promoting my own business when, in one of those amazingly serendipitous moments, my phone rang.

The call was from Gerard, the finance director of an old customer I had known for many years whilst with SylvaniaUK.  He explained that they had a problem he felt I might be able to assist with.  Was I interested in meeting to discuss the situation?  A few days later I travelled down to Croydon to meet Gerard and Steve, the MD of Jerrard Bros PLC.  The company had been founded by Steve’s father and uncle, had done well for many years but now required a new supplier of a key product.  Would I help them?  I said I would let them have a proposal.  During the visit it became clear that the company had reached a plateau over the previous few years and I probed for reasons.  I said I would also let them have some thoughts on working with them to address this issue also.  A couple of weeks later and after some good natured negotiation we had a business relationship based on two projects.

Almost straightaway I received two more approaches for significant projects and following discussions, proposals and more negotiations I found myself engaged to complete both.  One was a feasibility study for a foreign manufacturer looking to enter the UK market and the other was assisting a company looking to acquire one of my old, major competitors.  Very quickly I became extremely busy and drew a halt to any idea of seeking a new employed role.  I revelled in the freedom of working on projects that interested me at my own pace (although to agreed deadlines).   By now it was summer and I fell into a routine that, when I wasn’t travelling, I often cycled long distances in the Dales.  I would start early and return by midday and then work through until mid evening.  I had always found cycling conducive to thought and now I could actually keep fit whilst doing something I really enjoyed and apply my mind to various problems at the same time.

During my job hunting process I had followed a highly targeted approach seeking opportunities that had not even been advertised.  Each day I would scour the business press looking for news items concerning major companies that were either contemplating or had made major investments or acquisitions.  Whenever I came across a situation where I felt I could add value I would write to the chairman or chief executive (often to their home address so my letter wouldn’t be screened by a secretary).  I would either compliment them on their success or wish them luck with their plans and then spell a short but precisely targeted couple of sentences laying out how my experience could assist.  I would follow these letters up with a call aiming to achieve a meeting.  Several of these approaches got me in front of senior people.  I hadn’t succeeded in getting a new job from this approach but I decided I could use the experience to win new clients.

Another opportunity for creativity had arisen when I lost out after being down to the final two for a position running a national chain of builders’ merchants.  Having invested the time to carry out a great deal of background research on the firm and its competitors I thought it would be foolish to waste it.  I called the new MD, introduced myself as the guy who came second, congratulated him and suggested we meet as I had a proposition.  He was sufficiently intrigued to agree to meet me.  When we met I made the suggestion that as he was busy getting to grips with a big new role there was a way I could help.  He listened very carefully to what I had to say about the industry, the position of his company and the issues I had identified.  He considered for what seemed an age and then said he would be pleased to receive a proposal.  I went away and submitted a detailed proposal for a very focussed consultancy project.  He accepted but not before something else got in the way.

Towards the end of my period of applying for jobs I met a head hunter with whom I had established a good relationship.  Out of the blue he called me months later to say he had an assignment he felt was well suited to my experience.  We met and I listened to the facts he laid before me.  His client was Ross Group a small UK PLC with a number of businesses in electrical products.  They were seeking an MD for one of the group companies, Selmar Industries, itself a group of three businesses manufacturing in West Yorkshire.  The previous MD had departed after running up losses of £3.0m.  Smelling a dead horse, I declined to take matters further.  However, a couple of weeks later he was back on the phone pushing me to meet the Group MD at the company’s factory, “It’s just down the road from you, I’m sure you’ll get on famously with Neil and if you still decide it’s till not for you, well fine.”

The following week I duly arrived at Selmar’s factory, which was housed in old mill premises in a tight, wooded valley on the outskirts of Brighouse.  My heart sank; it looked a tip.  However, my head hunter chum was right about Neil with whom I quickly established a rapport.  He had also worked in major corporations and there was a basic understanding between us over how businesses should be run.  Nevertheless, after several hours of discussions I politely declined to take matters any further.  A week later Neil came on the phone to chat and pressed me to meet the chairman, “Nothing to lose, see what he has to say, eh?”  A long trip down to Basingstoke the following week produced a firm offer, which I rejected.  They responded with an improvement and promises.  By this stage, I have to admit, it had become something of a game, so I pushed on and won more concessions.  Finally I accepted but not before I had negotiated approval to continue my work with Jerrard Bros.

I was back running a group of businesses and was confident that I could improve them.  Would it work out?  Or had my pugnacious nature set me up for trouble again?

 Image courtesy of Eliasbadi.com

The Business of Life Chapter 24 – can success come from losing?

I had settled into the pattern of a weekly commuter.  Monday mornings would see Denise dropping me off at Leeds-Bradford airport to catch the first flight down to Heathrow where I would switch terminals to catch the next Swissair flight.  Because of the time difference, I didn’t get into the office much before noon.  On Fridays I managed to flee the office by late afternoon in time to catch the BA flight to Manchester where I had arrangements with a local taxi firm to pick me up.  Frequently, I would be making mid-week trips to one or more of our subsidiaries or meeting with two of my direct reports who were based in our factories in Nuremburg and Tienen (Belgium).  Evenings in Geneva would have me either entertaining visitors or taking dinner on my own in one of the small local restaurants.  Given the uncertainty of the situation, it was my intent to save as much of my Swiss salary as I could.

Highlights were the weekends when Denise came over to Geneva.  We would visit some of the restaurants in the city centre or in the small villages on both sides of the lake.  We travelled around as much as we could at weekends and also managed to take a couple of short breaks walking in the mountains.  We also had a great week when my daughter Victoria also came to visit (marred somewhat by meetings I was required to attend).  Sundays were never a complete success when Denise came to stay as it seemed as if we were simply killing time until the time came to drive her to the airport.  The realisation that we were going to spend yet another week apart would cast a gloom over the day however much we tried to divert our attention with lunch out or trips further afield.  There was always that flight to catch and the growing realisation that the sale of the company would provide little of benefit to me.  I had pretended to myself that it might not happen (maybe no-one would want to buy us) but now the reality kicked in.

The meeting with our prospective buyers was a dispiriting occasion that only served to prove to me that, whilst our own senior management might have had no strategy for long term success, this lot had even less.  The reality was a management buy-in team (MBI) backed by CVC Capital Partners represented by Michael Smith, CVC’s CEO.  Michael Smith came across well enough but said nothing of substance to enlighten us of the plans they had for the business.  The management team comprised Norman Scoular (ex CEO of a small UK conglomerate) and another individual, Eddie Bartlett, who I can only describe (on his subsequent behaviour) as Norman’s enforcer.  Norman, pleasant enough on the surface, also said little of substance except to talk of personal responsibility for personal targets.  In turn, Eddie droned on repeating most of Norman’s utterances as if he believed that the repetition would somehow add weight to the vacuous comments.  The only concrete aspect to emerge was that we were now into the due diligence phase of the sale process.  We were instructed by our new prospective masters to respond to any questions they asked to the fullest extent of our knowledge

There was no mistaking the wealth in Switzerland, with fine houses, exotic cars, expensive shops and starred restaurants everywhere.  The Credit Suisse cash machine situated in the lobby of our building had a disconcerting habit of dispensing nothing smaller than a 200 Swiss Franc note.  This was probably fine if you were pulling out a wad of these in one of the many Michelin starred restaurants in town but was a definite problem if your intended destination was merely the local bar!  However, wealth had its positive side and my Swiss bank balance was growing nicely as a result of my abstemious lifestyle.

Having assembled my evidence on the malign effects of the bonus scheme on stock levels across Europe, I decided to discuss the matter first with Alain (VP HR).  A large Belgian man who took an equal pride in his systems and procedures as he did in attempting to demonstrate the correctness of his views regardless of the subject, he listened with growing impatience.  “Listen,” he finally roared, “I spent a vast amount of time putting our incentive scheme together and I’m not about to change it on the basis of some flimsy information!”  Knowing that little happened on the HR front without Alain’s consent I argued to myself that, without Alain’s agreement, Don was unlikely to listen either.  Instead, I decided on a different tack.  We had a general managers’ meeting due for the next week so I merely told Don that I needed a substantial time slot to impress on the assembled group the importance of accurate sales forecasting.  He agreed and the time was duly allotted for late morning.  I worked on my presentation until I was absolutely confident that the logic and rationality were impeccable.

The day of the meeting dawned fine and sunny but as the meeting room started to fill I discovered that neither Don nor Swaanen were present.  I had a quick word with Germaine who informed me that Don, Swaanen and Dan (VP Finance) had decided to play golf in Evian and wouldn’t be back until lunchtime.  I tried to rearrange the agenda to put my slot back until the afternoon but found that this wasn’t possible.  I therefore either had to withdraw the subject from the agenda or go ahead without Don.  By this stage I had no alternative but to proceed.  It was conceivable that Swaanen had got wind of what I was planning and had decided to encourage Don to take the morning off.  Events would later prove at least my first supposition to be correct.

For this meeting I had decided that the issue of the bonus scheme was not relevant, it being purely a head office decision if a change was to be made.  Instead I was intending to focus on the need of minimising stock levels across Europe and the vital importance of letting the DRP system play its role.  For the presentation I had made slides of the graphs generated by DRP showing the accuracy of the system sales forecasts versus country amended ones and the actual results.  In order not to be confrontational all the information I showed was without any country identification.  Instead I had prepared an envelope for each of the general managers enclosing the results for their country that I handed out at the end.  I made known the saving we could make if everyone could trust the DRP generated forecasts and I asked for their support.  Wishful thinking.

All hell broke loose.  Ignoring the incontrovertible evidence in front of them I was attacked on all sides by men who argued black was white.  I knew that there was a degree of animosity existing between country managers and the factory managers who supplied them but I had simply not expected this outcome.  There was simply no-one in the room who was prepared to even acknowledge that their forecasting could be improved.  By the time Don appeared he wasn’t interested in becoming involved in the subject and quickly moved the meeting on to the next agenda item.  I had failed in two battles but I hadn’t given up.

The following week we had a meeting scheduled in London for Monday and that evening I travelled back to Geneva with Don & Alain.  As we had time to kill we decided to eat at Heathrow and over dinner I raised the stock and bonus subject with Don, going over the full facts.  For some reason Don would not acknowledge that there was anything wrong with either the stock or the bonus systems that couldn’t be put right by my team reviewing every single product line forecast for every country every month.  It was both an illogicality and an impossibility and I told him so.  Don disputed this and we went around the subject again but with voices getting louder with every sentence.  Alain stated that the bonus system had no part to play in the situation.  I reminded them of the investment that had been made in the DRP system and that it was being ignored by everyone.  By this time we were all shouting at each other in the middle of the restaurant.  In the end I said that I could not achieve better than the existing system.  But, if he was serious about making an improvement, he should take the whole logistics function away from Swaanen and give it to me to manage and I would commit to making it work.  We were by now red faced and out of breath but Don brought things to a close by agreeing with my proposal.

The following day I went into the logistics department to request that a further analysis I needed be produced.  Sheepishly and with great embarrassment the team informed me that Swaanen had that morning instructed them to not even speak to me again.  When I got to see Don he also looked embarrassed and said that upon reflection overnight he had changed his mind and I must proceed as he had originally instructed.  I had lost the war.  By connivance and weak management we were wasting $10m a year in working capital and no-one wanted to even look at the root causes.  I couldn’t give up.

By this time it was clear that, unless a last minute disaster occurred, the transaction to sell the business would complete.  Feeling less and less respect for the senior team I gave up the daily ritual of lunch with them and started eating instead with one or other members of my team (something that was far more relaxing).  In a last ditch effort to preserve something of the work I had put into the goal I had been given and the findings I had made, I told Norman that I would appreciate a meeting with him as soon as possible.  The problem was that he seemed always to be travelling.  Meanwhile, Christmas was approaching and I decided to drive back to England with my son Alex.  He had been attending a French language school in Chambery, had come to the end of his course, and needed a lift home.  We enjoyed the time together and it made a pleasant change from air travel.  Christmas passed too quickly and it was soon time to return.

A harsh winter had descended upon Europe after Christmas and by the time I drove back across France the temperature was showing -18C.  I had tried to keep the situation out of my mind over Christmas but as I drove along near deserted autoroutes the situations I faced looked decidedly unattractive.   If the sale by some chance fell through it was clear that my role was going to become increasingly more difficult. I had a brain that wanted to understand the big picture and address the things that influenced it.  The problem was that I had neither the skills nor the inclination to enter into politics.  I had also by now made myself something of a pariah amongst the senior team in Geneva by fighting without fear or favour for what I knew to be right.  On the other hand if, or now more likely when, the sale went through I faced new management that seemed to hold views that were an anathema to me.

Finally, in January I met Norman for dinner one evening.  He wanted to know my views on the business, which suited me just fine.  I gave him an overview that I felt was realistic and showed opportunities.  I took him through an abbreviated version of the stock saga and shared with him the savings that could be made in working capital. However, Norman surprised me with his response that indicated he had little or no interest in the DRP system and that country managers should take responsibility for their own stock levels.  They should be completely responsible for their own results.  We talked on but it became clear that in terms of modern management thinking, Norman was back in the Stone Age.  Newco was not going to possess a culture that would play to my experience, training or skills.  A new threat wormed its way into my consciousness; what if they did want me?  A great concern.  I also had to pick up the bill.

A week or so later we got the news that the transaction had completed and Norman and his team marched into the offices.  Don had disappeared and then Norman promptly got on a plane to somewhere.  Eddie quickly took up his role as enforcer with relish.  As will have become apparent by now my view was that whilst many of the problems in the industry were structural, we certainly hadn’t made the best of the hand we had drawn.  However, that is different from some diminutive clown telling us we had all been complete idiots.  The only thing of note that happened that first week was that business class travel was banned and we all received a long lecture from Eddie on the need to save money and how life was going to change.  I’m not sure what motivational training Eddie had had but he wasn’t a patch on my old headmaster at the art of bollocking.  Life at the back of the plane on Friday evening wasn’t too bad but the signs for the future were.

A few days into the following week Alain called me into his office.  Looking less like his usual bombastic self than I could ever have imagined he fidgeted and launched into the worse version of a HR scripted Dear John speech I had ever heard.  I put my hand up to halt him, “Don’t worry about the niceties, Alain” I smiled, “Just be good enough to tell me if this lot are going to honour my contract?”  It was with relief that he nodded and handed me the paper laying out the terms of my severance, which were exactly as my contract.  Alain went on to tell me that my whole team was to be fired with just one exception   He held out his hand for my office and car keys.

At the age of 47 and after 13 years of constant commitment and effort to the organisation that had given me more highs and lows than I can now recall, I was out of work once more.

Postscript

The North American business of GTE Sylvania was sold to Siemans shortly prior to CVC purchasing the European and Rest of World business.  Europe and ROW was subsequently sold on by CVC some years later and has passed through several ownerships since.  The business is currently owned by an Indian conglomerate and was the subject of an article in the Sunday Times (22 July 12) describing the difficulties they had in changing the company culture.  

My inactivity in the ‘non-job’ referred to above did not in fact stop me from carrying out a very detailed research project to establish the viability of the Linolite brand.  The results I obtained indicated that attempting to extend the brand’s franchise was not a viable proposition; this was ignored and the product range I had developed was rebranded Linolite despite my stiff opposition.  Today the Linolite brand is no longer owned by Sylvania (which has gone on to develop its very successful industrial and commercial lighting fittings identity) and appears to have a very limited market presence.

Greg retired to Florida where I understand he still lives.  Don now works for a small venture capital company owned by a past GTE Sylvania president.  Alain still lives in Geneva where he runs a successful multinational HR consultancy.  Swaanen was persuaded to stay with the business.

Norman died on Swissair flight 111 in a crash over the Atlantic in September 1998.

Image courtesy of  www.Fecielo.com