Tag Archives: Pricing

The Business of Life Chapter 39 – brought down to earth

Life had never been dull at Metal Spinners Group but on a personal level I had settled into a routine that most weeks saw me travel up to Newcastle on Tuesday morning and return on Thursday evening.  Having invested my entire savings in buying the company (along with my stake in Bridgestream and ABC technology Distribution) I resisted what might otherwise have been a temptation to buy somewhere in Northumberland.  Instead I stayed in a variety of rented flats & B&B’s in the peaceful village of Corbridge culminating with the delightful Jill at Priorfield .Brought down to earth

Travelling had always been a part of my life and if I had to spend longer than a week in the same place I would become restless.  Now the international business wanderings had largely become a thing of the past but I had been wearing out a succession of cars covering 25~30,000 miles each year.  Whilst the time spent away from home was not something Denise enjoyed it did provide me with plenty of guilt free time alone.  The long hours on the road provided valuable thinking time and evenings alone permitted ample time for reading and whatever work I needed to do at whatever time I chose.  I also managed complete box sets of The Wire and The Sopranos, vast number of books and was always up before six either swimming, walking or working out in the gym.

In corporate life I had frequently felt I was under relentless pressure to make decisions with insufficient time to really think things through.  Owning and sharing the running of up to six businesses, all in different industries, all at the same time, might seem a less than responsible thing to have tackled.  However, this lifestyle did in fact help with many problems.  Simply having the time to think more deeply about all of the options and their potential implications overnight helped a great deal and the reaction to phone calls tended to become, “I’ll get back to you first thing.”  Having this time to myself was invaluable but there was one area it didn’t always seem to help.

Business partners can be a great help especially in broadening the range of  experience and skills within the team and the sheer advantage of others with whom you can chew over problems.  But, like a successful marriage, a business partnership requires respect and trust to succeed.  In opting for the role of chairman in these businesses I had to take my hands off the day to day levers of control and place trust in the partner who was MD to make these decisions.  Unfortunately, and to my great cost, Bridgestream was an example of what can happen when trust is abused.  Despite this the majority of my business partners have been entirely trustworthy but it didn’t stop me chewing my fingernails down to my elbows on occasions.

Roger was a vastly experienced chief executive with great depth and breadth of knowledge of the engineering sector worldwide.  He was also a proud and independent man and attempting to look over his shoulder or double guess his judgements would have been sheer folly.  Having worked with him on the broad strategy for the way forward, I would step back and give him the time and space to implement.  After the initial year working together we ceased holding regular board meetings for the most part.  Instead, we would frequently just sit over coffee and discuss progress, problems and the key issues.  Often no decisions would be taken but I knew that, having taken a sounding and gained another view, Roger would then make whatever decision he felt appropriate.  One such decision provided me with more than one sleepless night.

Our largest customer (one of the world’s largest industrial concerns) was forever attempting to drive down the cost of purchasing by one means or another.  Roger informed me one day that he had found out that they were considering moving a major component away from us to another metal forming process.  “It won’t work, though,” he said casually, “I’ve paid for an engineering feasibility study and it proves it won’t work.”  He then shared the study with them but subsequently learnt that they were still pressing ahead with the trials.  “They’ve said they are going to take full production away from us,” was his next report back, “and they are refusing to renew our contract.  However, they want us to produce the samples but that is going to work out very expensive for them!  If we’re not getting the production volume at least we’ll go out on a very profitable high.”

With our largest (by far) customer threatening to take away the largest piece of work we did for them I tried not to think of life without them.  Yes, the margins for this work produced were lower than other business we had and this would blunt the effect of the volume loss, but it was still a nightmare scenario.  Some months later Roger bounced into my office. “Guess what?” was his greeting.  “The new trials are going wrong and they have asked us to drop down to the price we had previously agreed for production volumes.”  My spirits lifted.  “I’ve told them to get stuffed,” he went on, “no contract, so they continue to pay sample prices.  It’s not our fault their other process won’t work.” “Oh shit,” I thought.

A couple of months later when Roger and I sat down with Malcolm to review the accounts, they showed a giant leap in profitability.  “Good this sample business, isn’t it?” smiled Roger.  Over the next year our customer howled and squirmed but kept ordering and the profits mounted to such an extent we were able finally to pay down our remaining debt.  We also got a new contract.  Life on the roller coaster.

In 2006 we decided to see if we could sell and we appointed Deloittes in Newcastle to market the businesses and act as advisors.  Initial discussions led us to the conclusion that it would be extremely unlikely that we would succeed in finding a buyer for both of the companies we owned within Precision Engineering International.  We decided to put Trisk on the market first with the target of Hedson our largest competitor who had failed previously to buy in 1999.  After a long and increasingly fractious process we succeeded with a sale of the business and heaved a sigh of relief.  The only problem was we were left with a very large factory site in Sunderland as they quickly moved production to Sweden.

With Trisk sold we turned our full attention to the MSG business and Malcolm and I put in a vast amount of time pulling together the required information for the sale prospectus.  A global research programme was carried out and a shortlist of 20~30 prospective purchasers was assembled and contacted by Deloitte.  The interested parties were then supplied with the detailed information pack, which resulted in a small number of offers.  Unfortunately, there was only one offer that looked at all worthwhile and this was from a small northern VC.  By this stage our relationship with Deloittes had become somewhat acrimonious over the modest amount of senior management time that had been spent on our account.  Negotiations commenced and it quickly became clear that there were a number of real stumbling blocks to a sale.

The first issue was that Roger was being viewed as indispensable (and at that stage he was) resulting in the condition that he remained with the business.  This was compounded by the requirement that he roll over a large proportion of his sale proceeds into the new company.  Given that 3i still owned just over half of the equity it would mean that Roger would gain very little in cash terms from a sale.  This was bad enough but there was another major problem.

Due to the growing market in China our largest customer had been once more making demands of us and this time it was for us to open a joint venture factory there with them.  We had run the projections on such a project and come to the conclusion that because of the additional costs involved there was no way we could ever make money from the venture.  There was another insidious risk to such a move; with a far Eastern partner in a joint factory our unique technical know-how could be copied.  In the UK no outsider was permitted to observe or film our processes.  By this stage we had learned that there was no one else in the world that could match our capabilities.  This came to light when our ‘loyal’ major customer approached the manufacturer of our equipment to find another supplier only to be informed we were really the only choice anywhere in the world.

Shortly afterwards the purchase offer was withdrawn due (as we later learned) to the threat of a potential £2m investment in China.  By this stage Roger had negotiated a deal to supply sample production to China, promising that we were committed to the joint venture.  Gradually production volumes and shipments to China grew and the concept of a joint venture disappeared.

Following the collapse of the negotiations a strategy was devised to put the business into a more saleable position for the future.  This involved a new drive to widen the customer base (especially in the USA) and to eliminate the dependence upon Roger.  The first step was to commence a search for an MD for MSG and create an operational board for the company that would take control (over time) on a day to day basis.

We had made two previous attempts to recruit a potential replacement for Roger and, despite sparkling CV’s and wonderful references, both had proved to be incapable of the role.  It had become clear that attracting the right calibre of executive was extremely difficult.  We needed a mechanical engineer with large company experience and commitment to continuous improvement and someone who wanted to move into a smaller business.  By this stage we were very profitable and by far the largest company of our type in the UK (if not in Europe), our previously equal sized competitor having all but disappeared.  We were prepared to put together a very attractive offer for a suitable candidate.  But the problem with our two previous executives was that they seemed unable to adapt to life in a smaller organisation.

However, a new threat emerged that was of far greater immediate concern.  I got a call from Ian the executive at 3i who was our official contact (I had managed to avoid having a 3i executive appointed to our board back in 1997).  Ian and I had worked together during the years we had been turning around ABC Technology and had a good relationship.  I knew (from my years as a member of an unofficial group of investing chairmen 3i put together to advise on ‘problem investments’) that they had been slimming down their investment portfolio in businesses that were not of substantial size.  The word from Ian that day was we were being put up for sale in a bundle of around 40 businesses.

This prospect filled me with horror (as it did Roger and Malcolm when I reported back).  An unknown new VC owner who most likely wanted to meddle in our strategy and turn a quick profit was not something any of us could see any advantage in.  I called Ian and asked him if he felt 3i would be receptive to an offer from us for their shares before they put us up for sale.  I got an affirmative but with the caveat that we would have to work quickly to raise the money and complete the sale process.  We had the advantage that Roger had known the regional director at HSBC for many years, who proved very receptive to the prospect of financing our loan.

The negotiation with 3i proved somewhat more difficult than I had imagined and whilst they had no objection to a sale to us they were certainly no pushover.  The worst aspect was a ‘non embarrassment clause’ that held that we could not sell within a defined period without making good to 3i the money that they would have made had they not sold their equity to us.  Given that we needed time to complete our strategy we agreed and the sale and purchase agreement was completed.  The downside was that we moved from being debt free to being the proud possessors of a very large, shiny, new 5 year loan.  But the upside was that Roger, Malcolm and I now owned 100% of our business.  Thoughts of selling were put aside as we pressed on with expanding the business and paying down the new debt burden we had acquired.

Frustrated with the time wasted sitting in  traffic jams I started flying lessons.  The freedom of the air was wonderful but I was brought down to earth after a short period by two factors.  The first was that it rapidly became clear that given our weather patterns (especially around my local airport – Leeds Bradford) flying was never going to be something I could rely upon as a means of business transport.  Even thoughts of pleasure flying on the few favourable days we occasionally enjoy were also dashed when I found that Civil Aviation regulations would preclude me from wearing my (now essential) hearing aids for the medical I would have to take.  This was frustrating.

But frustrating as it was to learn that I would never take to the skies as a solo pilot, another event was to occur that was far more devastating.

Image courtesy of mistralaviation.co.uk

The Business of life Chapter 38 – when a dream goes sour

“I’ve lost my job!” were the first words David uttered when he turned up to see me in early 2002.  David and I had known each other for well over twenty years, since our time in the lighting industry running competitor companies.  Despite the intense rivalry between our organisations we had always enjoyed each other’s friendship when we met at industry functions.  We had lost touch with each other when David had moved to the south for a new role but he had recently relocated back to Yorkshire again.  We spent time together discussing what had happened and the options David had for his next career move.

Our business crest & motto “Strength through knowledge”

It was some months before I met David again, but when he came calling it was to set my career off in a new direction and widen my portfolio of roles still further.  “I’ve got an idea for a business.” was David’s greeting that second meeting, “Are you interested?”  He went on to say that he had paid a large sum of money to sign up with what claimed to be a not for profit organisation that provided re-training for executives wishing to move into business consultancy.  David’s view was that the course he had attended had provided poor value for money and he believed we could do far better in setting up our own competing service.

I was noncommittal that first day but said that I would research the sector and see if the concept of a competing business made sense.  I went through the process of producing a draft business plan.  After reviewing the company in question, all similar businesses and the Small and Medium Enterprise (SME) sector I came to the view that, given David’s recent experience, we could well put together a superior service.  When I added in our respective experience and skills I became convinced that this was a viable proposition.  I met up with David once more, took him through my findings and we quickly trashed out the actions required to get our new business started.

Within a short period I had registered a company (The Academy of Business Consultants), obtained a VAT registration, taken out the required insurances, produced a corporate identity, leaflets and business cards, created and implemented a website and sketched out a marketing and operations plan.  I was driven!  Working with David proved to be extremely productive as we found that we had a synergistic effect upon each other that made creating concepts and resolving problems a simple and enjoyable process.  Within six months of our initial discussions we had our business and launch plans complete and placed the first advertisement of our advertising campaign in the Sunday Times.

The concept we had developed involved refining the enquiries we received from the advertising campaign, getting the candidates to complete an online personality profiling questionnaire and inviting them to an evening seminar.  During these seminars we would outline a genuine array of career options open to them, present a profile of the SME sector and its needs, pitch our training course concept and provide valuable feedback on their behavioural preferences and how these might impact upon future roles.  The responses we received to the advertising were good and we ran seminars in the North, Midlands and London.  However, despite receiving healthy attendance and strong interest it quickly became apparent that we had a failure on our hands.  We had encountered an insurmountable problem.

We had offered a better and more relevant training programme, set our price at a more attractive level and matched the offering of refined leads and continuing support to those completing the training programme.   There was, however, a critical element of our main competitor’s offering that clinched business for them but one we had chosen not to follow.  One of the key factors that invariably clinched the sale for our competitor was an ‘income guarantee’.  Having reviewed the documentation that David had been given it was clear that the guarantee was all but worthless, so hedged around with conditions and procedures that it was almost inconceivable that anyone could succeed with a claim.  Little wonder that they boasted that they had never had to pay out!  We decided that it would be unethical to match this misleading offer and we changed the direction of our business.

Whilst David had found that the ‘hot leads’ he had been provided by our competitor were at best on the tepid side of stone cold he had, nevertheless, succeeded in building a strong client base of his own.  An interesting and resourceful turn of events had been David’s success in persuading a local firm of chartered accountants to sub-contract the provision of business advice for clients to him.  This experience had led him into a similar arrangement with other firms.  The accounting firms were all members of a national marketing membership organisation (we’ll call them XYZ) that provided help and assistance to members to enable them to run a better business.

We knew from research conducted by Strathclyde University that accountants were the most trusted source of advice amongst private business owners.  However, David’s experience was that beyond the traditional areas of accounting and tax, most small and medium sized accounting firms shied away from offering other forms of business related advice.  “Why don’t we offer our business advice service to more of XYZ’s members?” I suggested. “They obviously see the commercial wisdom of offering advice to clients but don’t feel confident or expert enough to do so themselves.”  David agreed and this was the genesis of our new business venture.

I joined David (in my ‘spare time’) in widening the number of firms we approached and we quickly succeeded in winning further clients amongst the members.  Convinced that the service we were providing was potentially of real value to XYZ, we decided to approach them.  This was not a simple matter and it took many attempts over six months before we sat across a desk from one of the two founders.  The meeting went well and we came away with an agreement to trial our service to a sample of their members.  We recruited another highly experienced business advisor to join us and once again proved we could deliver results.  Some months later the trial was extended to a further region and the results continued to improve.

A short way into our extended trial the three of us started to uncover the same situation time and again.  It was the practice owner rather than their clients who was in most urgent need of face to face business guidance and support.  Despite being highly qualified and experienced chartered accountants the vast majority of practice owners lacked the wider business skills to get the most from their teams and their clients.  The answer we soon implemented was to commence a coaching programme with the practice owner in addition to our work with their clients.

We had implemented a client satisfaction feedback process whereby our researcher, interviewed every practice owner and client we worked with following a set period.  The feedback we received was invaluable and showed our service to be rated either first or second out of the whole XYZ offering.  It also enabled us to take corrective action where required and ensure that our service continued to meet members’ needs.  We also fed back the results to each associate and the XYZ management.  The change of direction was extremely successful and led to a real breakthrough when XYZ asked us to provide a national service for every new member they recruited.  We then formed a new company with XYZ as partners.  Given that we were now about to create a business with effectively a sole customer, we argued that such a shared destiny required a reciprocal shareholding in XYZ.  We were not successful in this but settled for the right to attend and participate in their board meetings.

Faced with a national launch far beyond the geographic capabilities of three of us we started an intensive recruitment campaign to cover the entire UK.  Within a short period we assembled and trained a team of 20 associates, each of whom had previously held at least one role as MD or chairman.  Ironically, each of these new associates had been uncovered via our previous competitor’s online network!  Based on the experience that we had gathered from our existing work, our model was based upon a mix of coaching and mentoring.  We knew that pure coaching methodologies (the coach questions and the coachee provides their own solutions) can provide strong results.  However, our own experience showed that a combination of coaching blended with appropriate guidance (based on the vast experience of our associates) enabled a time-efficient and professional solution.

By this stage I had been running businesses for thirty years and been an owner of various different organisations for ten.  These organisations had been many times larger than the one David and I had created and they had given me rich and varied experience.  But having created a successful organisation together from the failure of our initial concept was richly and uniquely rewarding.  To start and build a successful business is something really rather special.  We were now helping many business owners and their teams to be more successful as organisations and more fulfilled as individuals.  David and I had continued to make a truly synergistic team where difficulties were merely fresh challenges to be overcome.  With David’s superior interpersonal skills and my research, analysis and organisational work we were a powerful team.

David and I also worked closely with our new partners, resulting in an initially a strong relationship.  However, management changes took place within their organisation after a couple of years and differences of opinion started to emerge over strategy.  As time moved on I found that I was spending more and more time attempting to negotiate a resolution of these differences.  I became to realise that the rich feelings of satisfaction with our business that I had enjoyed so much had all but evaporated.  I could see only opportunity squandered and a loss of personal freedom stretching ahead.  A concept that both David and I had planned to run on into retirement had become something from which I could no longer derive satisfaction.

Following lengthy discussions over the situation we both seemed to realise that events had changed so much that we could never recapture the fun and satisfaction we had previously enjoyed.  Subsequently, following discussions with our partners, an offer was made to buy out my stake in the business and in 2010, after 8 great years working with David, I departed.

Reading over this last chapter I realise that it ends on a very low note but that accurately reflects the way it felt at the time.  There is a very much more complex story that I have abbreviated into a few short paragraphs but legal reasons preclude me from going into greater detail.  I really missed what David and I had created but time and circumstances had moved on and I had to do likewise.

David continued to run the business with our previous partners for another two years until the situation changed once more and the contract was terminated.  He is now continuing to offer business coaching and advice to a much wider spectrum of professions and still working with most of our previous associates.  I wish him every success in what remains a valuable endeavour.

We had succeeded in building this business together whilst I was still heavily involved in the running of ABC, Trisk and Bison as well as chairing Hallamshire.  I still don’t know how it all fitted together into 365 day years – perhaps the extra day in leap years helped.  And yes, whilst I was having fun in all these businesses, there was always the time I spent each week in Newcastle with the big investment I had made in Metal Spinners Group.  And events there were becoming ever more involving.

Less than a month after my departure an event took place in Newcastle that was to have far reaching implications.

 

The business of life Chapter 37 – the joy of closure

Assembled in a meeting room in a hotel close to Newcastle airport early one morning, the two sides eyed each other warily.  We had not met for three years but had fought with all the powers of the law on our side and what had seemed like pure obduracy & guile on our opponents’ part.  It appeared that Clifford had convinced himself that our legal claims would melt away as we failed in the business his father had founded all those years before.The business of life - chapter 37

The plenary session began with both sides facing each other either side of a long table with the law society facilitators at either end.  Both sides had legal teams present comprising lawyers and barristers, all enjoying huge hourly fees whatever the outcome.  The process of spelling out our claim in great detail and at length whilst staring Clifford in the eye was a strange experience indeed.  It was exceeded only by having to listen to what we felt constituted the fairy tale of their defence and counter claim.  The plenary session over we retired to our respective rooms and the shuttle diplomacy began.  The chairman visited each party in turn to ascertain at first hand the reaction each group had to the others’ position.

It was clear that no quick or easy solution was likely to emerge, in fact it seemed that Clifford and Mike were as resistant to a settlement as ever.  Day turned into evening with no progress at all and the session broke up with each group making its own arrangements for dinner.  The next day began and continued all morning with no progress.  I was becoming increasingly irritated by the corporate finance partner from our law firm who could only match the other side’s bluster and seemed intent on ensuring that we ended up in court.  In contrast, Stephanie his manager who had worked closely with me over the previous three years impressed me greatly with her calm efforts to find a solution.

The day wore on in like fashion and Roger, Malcolm and I were becoming resigned to having to endure the costs and uncertainty of resolution before a judge.  I had been casually intrigued by the behaviour of our barrister who for the last hour or so had been ignoring the rest of us and quietly doodling on his pad (or so I assumed).  “OK,” he suddenly exclaimed, “this is how I see things.”  He then proceeded to share his doodles with us, which were actually a matrix of all of the claims and counter claims at stake.  Ranged against each claim was a percentage calculation of the chances of each party winning or losing with his best estimate of the awards and costs each would incur should they win or lose.

The bottom line was the view that we had an almost 100% chance of winning all of our claims.  His view was that Clifford had, at best, only a 50% chance of winning their counter claim.  However, the killer result was that the costs and damages Clifford would suffer as a result of our wins would exceed any benefit from his counter claim succeeding by a factor of about ten.  We called in the chairman who quietly listened, asked a few questions and departed to put this picture before Clifford and Mike.   An hour later he returned and we learned that they had capitulated almost completely.  A couple more hours later we all signed the necessary documents that drew matters to a close (apart from some remaining issues that festered on with HMRC).

As I drove back to Yorkshire that night I reflected on what had happened over the last three years.  Many years previously Clifford and Mike had put in train a course of action that was relatively insignificant at the time but one that had snowballed into major proportions.  I felt it was sheer arrogance and mindless bravado that had brought Clifford into conflict with us, a process that set about unravelling their plan & compounding matters through their refusal to negotiate.  It was clear that Clifford and Mike’s legal team had failed to advise them of the costs they could incur by their actions.  We had won a long, drawn out and bloody battle that had never been of our choosing and had won handsomely.  Strangely, it gave me little satisfaction other than great relief that the whole sad story was over.  I had closure.

Freed of the efforts and frustrations of a long and drawn out legal fight, we threw ourselves back into the challenges of improving our complex new group of three companies.  MSG was our strategic acquisition, the core of our business with, we believed, great potential for highly profitable growth and an ultimate sale.  By the standards of the UK engineering sector it was already a highly successful business (not least due to its non-involvement in the mainstream automotive sector, one we steadfastly ignored).  It had a potential to become even more profitable through an ability to offer unique solutions to demanding blue-chip customers.  We knew that it would take hard work and patience owing to the extremely long leads times required to replace an existing process.  In the case of one of the major customers we won, it took fully ten years.

Trisk and Bison were more tactical (and certainly opportunistic) acquisitions.  Both produced exceptional profits in the first year of our ownership.  If we had then put both businesses up for sale life would have become a lot simpler (a lot sooner).  However, buoyed by the wondrous sound of cash hitting the bottom of the piggy bank and improving PEI’s balance sheet, we pressed on certain that we had hit the magic formula.  From then on matters got infinitely more complex as the cash production machine slowed.

There are long, frustrating stories behind our ownership of both these businesses but I’ll restrict myself to the following brief accounts.

A common feature of both businesses was the quality of management and many of the staff we inherited (courtesy of TUPE).  In both cases, instead of their embracing the change and opportunity brought by new ownership, we had to spend too much time fighting a tendency to revert to the orthodoxies that drove them into administration in the first place.  It was almost as if they believed their failed businesses had been pursuing the correct strategy and policies all along and some freak external event had knocked them temporarily off course.  These tendencies were bad enough but the net effect was to divert our attention from MSG where, with hindsight, we should have concentrated our time and energies.

With Bison, it only took a parting with the MD (son of the CEO of failed parent PLC) and four short years to sell the business in 2003.  We heaved a sigh of relief and moved on.

The situation with Trisk was much more complex.  The company still had technical leadership in infra red paint curing and had also developed ultra violet technology for more demanding applications.  The business was certainly a world leader in its sector and exported to every continent across the globe.  Once we had taken over we saw that Trisk had a number of critical strategic issues.  A major market for Trisk had been the USA where we had a network of commission agents.  Our products were capable of commanding far higher price levels but the agents had learned to sit on their hands ahead of the peak winter demand until our locally based manager panicked and reduced prices.  This was a pattern that revealed itself to be a major problem in many parts of the world.  Attempting to establish a stable and rational pricing strategy proved to be particularly tough due to internal company politics and the weak MD we had inherited with the business.

The other major problem took several years to emerge as the Trisk management either weren’t aware of the shifting dynamics of their marketplace or they ensured that they wouldn’t reveal what they knew (knowing it would require them to change strategy completely).  Trisk had built its initial success on designing and selling IR paint curing systems almost exclusively used for automotive repair work.  These systems were based around an array of IR lamps mounted on relatively simple mobile stands that could be moved around car repair workshops.  Trisk had also adapted the concepts into larger arrays built into custom spray booths.  A major market shift began to make itself felt in the first couple of years following our acquisition.

Legislation was driving the introduction of health and safety and other environmental regulations and these were killing off small repair shops, consolidating the market towards larger and more efficient units.  As this trend continued (fuelled by a succession of mild winters) sales of Trisk’s traditional mobile units declined.  The problem, that took some time to emerge, was that we were not gaining the share of in-booth systems that we should have been achieving.  Booth manufacturers were being involved at the design stage of the new super car repair shops permitting them to specify whose paint curing system was installed.  By the time Trisk personnel got to know about a new repair centre it was already up and running with a competitor’s curing system installed with the booths.

It was clear that Trisk management and sales staff had simply been unaware of this key shift in market dynamics.  Or worse, they had chosen to keep doing what they always did (in their comfort zone) in the hope that it might bring about a return to the glory days.  Around the time that this strategic market shift was becoming apparent, our MD, Tom, came to us with a request to buy the company out from us.  Tired of the short-sighted and intransigent management at Trisk and a need to re-focus our attention back upon MSG, we agreed.  What followed was a disaster that we should have foreseen.  Tom took many months getting funding and putting his bid together during which time he clearly neglected the company.  The bid he put to us ultimately was derisory, was duly rejected and he departed shortly afterwards.

Roger and I became more closely involved in running the business and the strategic issues began to surface.  Trisk’s real expertise lay in the technology of curing paint quickly and effectively and it was a world leader in this field.  The actual delivery systems were secondary but it was vital that Trisk became involved in ensuring their systems were specified at the design stage of the spray booths.  We recruited a marketing manager to research the market, promote and co-ordinate the use of Trisk technology into booths.

We also looked to see where else the technology could be most effectively employed.  It didn’t take long to discover that the servicing and repair of commercial aircraft was a potentially hugely profitable sector.  The leading edges of wings and tailfins had to be resprayed on a scheduled basis but the paint curing systems used were slow and expensive.  Trisk’s solution could eliminate days of aircraft downtime saving thousands of pounds for the operators.  With these two strategies in place, we employed an aerospace expert and a new managing director.

Sadly, our new MD transpired (despite an apparently strong CV and significant technical qualifications) to be completely ineffective and I had the task once more of seeing an MD off the premises.  It became clear that the sales and marketing team were not being successful in either ensuring specification of Trisk technology into new booth installations nor were they taking the action we had agreed to improve pricing.  Despite diverting major time on the part of our local MSG US manager towards assisting Trisk, the distribution problems there remained.  The fledgling aerospace business was still struggling to break through and gain aerospace approvals.  Our aerospace manager resigned taking up a more mainstream role in the sector.  Despite investing huge amounts of our time the team never seemed to have their heart in stepping out of their comfort zone and taking the necessary action that would turn the business around.

Looking back, Roger and I had believed in the business and had pushed hard to effect the changes that we believed would turn its fortunes around.  Our experience once more had been of ineffective management that we had inherited (and subsequently employed).  Buying both Bison and Trisk had stretched our management capabilities to the limit.  I still believe that we could have made a success of Trisk had we been able to concentrate solely on that business.  Both businesses had initially contributed strongly but we should have sold both within a year.

Although 3i had never overtly pressured us to sell PEI we did experience attempts at ‘persuasion’ occasionally and around this time a fresh ‘persuasion offensive’ was made.  Roger, Malcolm and I discussed the situation and decided that we would put the entire PEI business up for sale.  MSG had been performing well, our debt had been significantly reduced and we would be glad to see the end of Trisk.

Could we find a buyer for the whole business?  Would we receive offers that would reflect the value we had built in MSG?

 Image courtesy of careers.guardian.co.uk

 

The Business of Life Chapter 36 -it’s not just the business risks

Roger was taken seriously ill over the Christmas holiday 1998 and admitted to hospital with crippling back & chest pain.  Following MRI scans and blood tests he was diagnosed with an MRSA infection in his thoracic spine.  The affected vertebrae had all but collapsed, were partially fused, trapping nerves and were the cause of the excruciating pain he was suffering.  No one knew the source of the infection or how it came to lodge in his spine but it seemed life threatening at worst and incapacitating at best.  Whilst Roger was being pumped full of a cocktail of the most powerful antibiotics I pondered our situation. When it's not just the business you have to fear

 The illness could not have come at a worst time.  Our dispute with the vendors of MSG had reached the stage where a court action seemed inevitable and with the only certainty that we would be spending vast sums more to fuel the action.  I had been overseeing the detailed investigative work inside the company and liaising with our legal team.  I could ensure that our claims continued to be pursued with vigour but there was a peak of activity occurring simultaneously on a number of fronts.

A few months earlier one of our minor customers had been placed into administration.  The loss to MSG was small but the business itself was interesting.  The company concerned was Trisk, a world leader in infra red paint curing equipment for the automotive after market.  Situated only a few miles from us in Sunderland, it had enjoyed explosive growth with the founder recently receiving the accolade of North East Businessman of the Year award.  Unfortunately, a combination of poor strategy and uncontrolled spending had run the business into the ground resulting in the management being replaced and the bank appointing an administrator as soon as they had recovered their overdraft.

 The other aspect was that Trisk was also a 3i investment.  Although they had no hope of recovering their original investment they assured me that they would be supportive of an acquisition by us.  Prior to Christmas we had met with the administrators and the new management at the Trisk headquarters.  The new team had all been promoted from within and, whilst lacking experience, seemed supportive of our efforts to acquire the company.  However, there were a number of other parties interested including the largest competitor, Hedson of Sweden.  We were fully engaged in negotiations when Roger was taken ill.

Our efforts to locate at least one suitable acquisition candidate in our own engineering sector had come to nothing.  Having scoured our industry, had meetings with owners and analysed many sets of accounts, we came to the decision that there was not a competitor worth buying.  With the exception of a single piece of equipment (that we subsequently acquired for very little) none even had assets worth acquiring.  It was also quite clear that our competition fought with only one weapon – price.  They competed with each other for components that had always been made by the spinning process simply driving down price in the process.  The result was that margins in all of the competition were slender to non existent.

Following our strategic review we had identified that any new major business to be targeted would have to be conversion from alternative metal forming processes.  It was apparent to us that we could offer significant technical advantages for industrial applications where the risk of failure in life had to be eliminated.  This was a risk in particular (and demanding) applications where components had been made using alternative metal forming processes.  Companies were prepared to pay heavily for a process that eliminated these risks.  As the result of our new strategy, Roger had targeted the medical division of one of the largest industrial companies in the world.  Within hours of his contact they had put an engineer on a plane from the USA to meet with us.  Now, they had followed this up with drawings for a set of major components for one of their products.  The only person with the engineering skills to lead the investigation into how we could produce the components was Roger.

When I went into the hospital the following day to discuss how we might make alternative plans, I found I had been beaten to it.  Drawings were strewn across Roger’s bed and a small team were assembled around him.  “If I don’t do it, no other bugger can.” growled Roger in his inimitable manner.  He proceeded to lead the team that developed our ultimately successful solution from his hospital bed in the weeks that followed.  Samples were produced, shipped to the US and soon approved.  Unfortunately, despite our superior solution (and the winning of an internet auction) we fell foul of internal politics and it was to be several years before we became a regular supplier.

The infection that had laid Roger low was finally pronounced clear but it was to leave him with subsequent and recurrent problems that continue to this day.  Somehow he would shrug the problems off and battle on displaying a level of fortitude and perseverance I have never witnessed before or since.   It soon became apparent that to pursue these strategic opportunities required investment in new equipment that was capable of producing the power and tolerances required for the demanding, new work.  Over the next few years we acquired two of the largest CNC spinning lathes in Europe (capable of spinning components up to 5 metres in diameter).  These were followed by smaller state of the art spinning machines, water jet cutting, high speed plasma and a robot.

Our bid to acquire Trisk was successful, beating off our Swedish competitor.  Getting to know our new business and repositioning strategy proved to be a time consuming process.  However, we quickly had the business back into profit and started looking for fresh opportunities.

In another serendipitous turn of events we suffered a further minor bad debt when a second of our many MSG customers went into administration.  The company, Bison IBC Systems in Bradford, produced UN standard intermediate bulk containers for the transportation and storage of hazardous chemicals.  It was a leader in its field and had a strong reputation for quality.  However, once again we found a company that had been mismanaged, although this time it was through the activities of its parent company.  Following protracted negotiations we bought the assets of the business later in 1999.  A similar pattern occurred as with Trisk and profits started to flow shortly after our acquisition.

 By the end of that financial year both new acquisitions had made strong profits and, combined with our MSG business, we produced an extremely strong result for our holding company, Precision Engineering International (PEI) which we held jointly with 3i.  We now owned a portfolio of 3 industrial companies, each a leader in its sector.

Pleased with our track record, 3i positively encouraged further acquisition activities.  As a result I received a copy of their entire engineering and manufacturing portfolio (over 500 companies) together with an open invitation to consider any of these for acquisition.  Detailed investigation made clear a couple of things to me.  The first was that it was extremely satisfying to discover that we were one of their top performing investments in these sectors.  The other aspect was learning that they were quite amenable to turning over an investment with a fresh set of partners they considered could produce a higher return.  However, despite spending a great deal of time in further research and analysis there was no obvious target for us.  Shortly afterwards, another problem was sprung on us.

When I set up the funding to acquire MSG I had sat through a ‘beauty parade’ of banks (something that might reasonably be called an oxymoron).  The bank that offered the lowest lending rates and the most attractive deal was Allied Irish.  It seemed that they wanted to become involved in supporting VC backed deals and were anxious to become involved with 3i, hence their better than average offer.  All had gone well for several years although it was clear from various meetings that they knew little about manufacturing and less about engineering.  Nevertheless it was a shock when they turned up one day that year and said they were calling in their millions and we would have to refinance.  When pushed for a reason they claimed that they really didn’t understand our sector and were going to concentrate on property, a sector where they had real expertise.  Well, we all now know how that one worked out for them!

We refinanced easily with HSBC and that relationship worked well for a number of years with further lending to support our growing capital investment programme at MSG.  Until that is, they decided to replace their extremely knowledgeable regional director for someone who knew about as much about business as Allied Irish (perhaps less).

In 2000 another significant event took place.  Our claim against the vendors of MSG and our defence against their counterclaim had been consuming vast amounts of my time and we had already run up massive legal fees.  With all legal avenues exhausted, I had prepared for a full hearing with a brief to a very experienced barrister in London.  We were convinced we could win our case and this meeting reinforced that view.  The process had become more and more fraught as a result of constant rejection by the vendors of each and every attempt we made to resolve the matter and obstruction of our investigations.  It didn’t help that Clifford had a reputation as a blustering bully whose usual line of defence was attack.

Nevertheless, in one last attempt to avoid the additional time and expense of a trial we made a proposal to the vendors to join with us in the Alternative Dispute Resolution (ADR) process.  To our great surprise we learned that they had agreed to this process.  The stakes were very high.  We had already sunk a large six figure sum into legal and investigative fees in the previous three years but there always has to be an element of risk and uncertainty in legal matters.  Even the ADR process didn’t come cheap with barristers in attendance on both sides.

 Some weeks later I sat across the table from Clifford with our respective teams ranged around us.  It was the first time we had met since we bought the business three years previously and in that time I heard he had suffered a stroke.  Would illness have mellowed him or would he be as obdurate as ever?  Could we reach a settlement and put an end to the vast drain on time and expense?  Or was this just a futile exercise?

Image courtesy of gastroenterologyupdate.com.au

The Business of Life Chapter 35 – when you can’t take no for an answer

ABC desperately needed to acquire a competitor.  If we didn’t then it was increasingly likely that we wouldn’t succeed in turning the business around and finding a buyer of our own.  We knew that acquisition of a suitable company offered us the only realistic opportunity to reduce the cost of sales, boost influence with major suppliers and make a step change in performance.  We also needed to acquire a competitor with distribution rights to certain ‘flagship’ brands.  We had a suitable and seemingly willing target but one huge problem remained; we had no money and no hope of raising any fresh capital. When you can't take no for an answer

The only option was to get the parent company of our target to fund our purchase.  Having worked for most of my career within very large organisations, I understood the type of pressures that can arise.  Someone in the organisation might be so personally desperate to offload their losses-making UK division that they might be prepared to find a way to finance our purchase.  So, having said we were interested at a much lower price than they wanted, we left them alone whilst they negotiated with a number of our other competitors.  No sale took place.

After about six months we approached them again with the following proposal; we would buy the customer list and the goodwill and pay for this out of a percentage of future gross profits over the next 3 years.  We required that they transfer the stock to us and we would pay for it as we sold it.  Any stock still unsold after 1 year, we could return.  They would make the entire workforce redundant and bear the cost themselves.  Finally they would retain the premises.  Following an agonising wait, they accepted our terms in their entirety.

We had assumed that only around 30% of their turnover would be retained but in the event we kept over 60%.  We also retained the distribution rights to the ‘flagship’ brands (having sounded out these suppliers in advance) and used these to grow our business significantly in our traditional accounts.  Over time we backed away from the poorer credit risk customers we had and replaced these with business grown from the higher quality new ones.

Our investment in stock settled down to a level not much higher than pre-acquisition despite the significantly increased turnover.  A key influence in this had been the previous identification that no one person in ABC (except Mike) had responsibility for the value of stock.  A product manager was appointed who, in addition to his responsibilities in managing the ranges, had responsibility for sales forecasting & absolute levels of stock.  With his efforts and skills, stock turns improved, our service levels got better & working capital requirements reduced.  We were often able to win business at regular prices because we were the only distributor with stock.

One of the most successful moves we made was to de-emphasise sales revenue.  In order to adapt to rapidly changing pricing levels amongst competition, it was essential to allow the sales team certain flexibility over day to day pricing.  The problem was that sales revenue was chased to the detriment of margins.  This was especially evident as every month end approached.  In an effort to remedy this we scrapped sales targets and moved to cash gross margin targets.  All access to sales figures was removed from the internal IT systems.  In our internal communications only cash margins were ever referred to from that point on.  The result was a steady improvement in margins that provided clear, additional profit.

Despite including some of the major global corporations (e.g. IBM) the behaviour of most suppliers was chaotic.  They lacked any evidence of a coherent strategy and seemed entirely reactive, capable only of using price as a variable.  We put together a detailed presentation that Mike then made to each of our suppliers.  In it we spelt out our analysis of the sector, our plans for the future and what we needed from our chosen suppliers.  We announced a supplier performance monitoring system together with an annual Supplier of the Year award.  Each month we shared the ratings of our suppliers across 25 pre-announced criteria.  The results were dramatic, with suppliers rapidly falling over each other to improve their ratings (and in so doing improving service to us).  Tangible support in terms of focussed co-operative promotional activity rose and with it our sales.  The year end saw a major one day event for all suppliers with awards given for the best in category and overall winner.  The programme cost us very little but grew in effectiveness each year.

Performance slowly improved and monthly profits started to be the norm.  Gradually, the losses on the balance sheet were being eliminated.  However, part way through this process one of the major customers was placed into administration owing us over £160k.  There was little hope of any recovery and most of the loss was uninsured.  We managed to cover the loss from the provisions we had built and a small insurance recovery.  The shock of this was severe though.  Strict new credit policies were put in place and the board agreed a new guideline that no single customer would be allowed to represent a greater exposure than a pre-set limit.  It was clear that we urgently needed to lift the quality of our customer base to continue building the business.  Many of the traditional customers were just too risky to allow the credit required to fund the extra volumes we required.

Priority then turned to improving the internal processes of the business and to improving profitability.  A range of Key Performance Indicators (KPIs) was identified for the entire business with weekly & monthly monitoring agreed.  These became the dials we all watched on the dashboard & formed the language we all talked within the company.  A complete review of the financial systems was undertaken and tight new accounting controls were put into place.

A reorganisation of the internal sales structure was achieved that established a series of teams comprising a Field Sales Manager plus a Customer Service Executive and a Telesales Canvasser.  This restricted the number of expensive field sales heads & beefed up the proactive telesales’ prospecting & selling activities.  Grouping them into discrete teams gave a sense of identity & team spirit.  The increased communication achieved within the teams greatly assisted sales results.  Various techniques were tried in an effort to improve the rate of proactive sales calls.  Finally, the ‘quiet room’ concept was born where each prospector went into a spare office for number of hours per week & made calls from a direct outside line with no distractions.  The rate of new business rose.

That some sales people were much better than others soon became apparent.  We suspected that technique was the cause.  External sales trainers were brought in to overhaul our sales approach & re-train the entire sale steam in a revised selling model.  The sales team loved the process and learnt many new lessons, which they were quickly able to apply.  Mike decided not to replace the sales director but to run the sales force himself (which he did with great leadership & drive).  Mike had a natural ability to lift spirits in the team.  Following a particularly successful month Mike would declare a beer and pizza outing to celebrate.  If the business had an especially bad month, he didn’t rant and rave but declared a beer and pizza evening to put it behind them!

Freed of the German company, we were now making profitable inroads into Europe via a UK based sales effort.  Curiously, Hull proved to be a fertile source for staff with European language skills.  The business went on to make three straight years of good profits and the balance sheet continued to improve, building thereafter to achieve a very healthy net asset value.  Finally, the remodelling of the business was rounded off with a change of name to ABC Technology Distribution Ltd.

The bank had been patient during this period and had finally let us leave the ‘intensive care’ department.  Mark T had moved on within 3i and had been replaced with Ian with whom I built a close working relationship.  The relationship however maintained certain protocols one of the most important being that I never allowed a parallel reporting system to creep in.  We were fellow shareholders with common risks and common interest but all the key issues were reported formally.  There was however a great deal of pressure to achieve a sale and I was constantly keeping Ian up to date on our plans whilst shielding Mike from as much of this pressure as I could.

We did have a very clear plan for a sale however, one that was clearly understood by the board and was one that we carefully implemented.  Mike had known the CEO (Mike B) of a major US distributor, Scansource, for many years and had ‘borrowed’ many of their business practices and strategies.  Having closely followed Asda’s emulation of Walmart, which directly facilitated the eventual acquisition of Asda, Mike’s stated intention of selling out to Scansource made a lot of sense to me.  One significant problem had occurred though.  Having opened a competing business in what Mike B saw as his backyard, the relationship had soured.

Now that we had succeeded in extricating ourselves from the USA, Mike attempted a charm offensive designed to achieve a rapprochement with his erstwhile mentor.  The news that we might be ‘on the market’ to such an obvious buyer was duly conveyed.  This did not achieve the desired effect and it was with dismay that we learnt that Scansource were trawling Europe looking for acquisition candidates whilst ignoring ABC and Mike’s blandishments.  We had to battle on with improving the business with no other realistic purchaser in sight.

Finally, Scansource came knocking on our door and negotiations for a sale began.  After a long, drawn out and frustrating process we achieved a sale in May 2002 for a healthy sum that gave me and all the ordinary shareholders a good return on their investment.  Additionally, Andy and I received a healthy incentive payment from 3i that had been offered to us 5 years previously in the event that we achieved a recovery of their investment.  Mike stayed with the business but this didn’t last long as making the shift from owner to employee was never going to be an easy one.  He went on to form another business in a related field that has been extremely successful.  And, in a strange turn of fate, the Scansource European MD ended up working for me in an unrelated business I formed some years later.

The previous five years had never been easy, firstly with the challenges of keeping ABC afloat, then of making that vital acquisition and going on to achieve a satisfactory sale.  This had been taking place against major problems in my other investments.  It was though, and despite the many pressures, one of the most satisfying times of my career working with such a cohesive and successful team.

Elsewhere life was equally challenging, frustrating, commercially dangerous and rewarding.  I was getting used to it.

 Image courtesy of thepoliticalcarnival.net

The Business of Life Chapter 34 – life under water

Earlier in 1997 I had been asked by 3i to review a technology business they had backed that was being viewed increasingly as a ‘problem child’.  I agreed to meet the two main director shareholders of Advanced Bar Coding (ABC) to see what the situation was and if we could work together.  The business, a distributor of bar coding products, had been formed by the joint MDs in the early 1990s.  It operated from an industrial estate in Hull where it had offices, warehouse and a technical department.  Approximately 60 staff were employed & turnover was around £8.0m (having grown by approximately 35% each year since formation).  There were two other members of the board, a Sales Director & a Technical Director.Life under water

The situation I found was dire.  It was clear that the business was on the brink of insolvency having lost £1.0m in two disastrous investments in the USA & Germany (with the losses increasing each month).  The bank was threatening to withdraw their overdraft and had placed the management of the account into the hands of their ‘intensive care’ division.  The factoring company were reeling in their advances due to the poor credit record of many of the customers.  Margins were slender and seemed to be slipping with each passing month.  On the initial visit I got on well with Mike and Alan (the joint MDs) and was subsequently appointed to the board as a non-executive director.  The total investment made in the business by the shareholders and the bank was, to quote a phrase, “below water”.

Mike was a volatile powerhouse, a dynamic and successful salesman, totally committed to his business but very autocratic and appeared lacking in broader-based business & strategic skills.  His energy was inexhaustible but at times he seemed merely reactive to events.  The other main shareholder, Alan, was a quieter and amiable individual who acted as Finance Director (despite being completely unqualified).  We started work on a revised business plan to try to convince the bank to stay with us while we turned the business around.  A core element of the plan was withdrawal from both the USA & Germany.

The meeting went well but the bank refused to support the plan unless 3i and the shareholders increased their investment.  In a separate meeting they also conveyed that any further support would be conditional on a restructuring of the board.  Specifically they required that Alan step down as joint MD and Finance Director and be replaced by a new and suitably qualified accountant.  I was appointed chairman and required to invest, as was the incoming FD.  3i agreed to inject a modest amount of further capital and the whole package was conditional on finding a buyer of the business without delay.

Mike and I had agreed to approach the subject of Alan’s departure in a joint meeting with him and I hoped that we could resolve the matter, if not amicably, at least following due process.  An early demonstration of Mike’s volatility was not long in coming.  I arrived on the morning allotted for our meeting with Alan to find no sign of him but was greeted by Mike in an agitated state.  “I’ve fired him,” were the first words he uttered, “I couldn’t stand him any more.”  It seemed a row had blown up early that morning between the two of them resulting in this potentially disastrous turn of events.  Not only were we liable for a clear cut claim for unfair dismissal but there was the not insignificant matter of Alan’s equity.

Upon inspection of the Shareholders’ Agreement I found that there was no provision in it that required Alan to sell his equity back to the company in the event of his departure.  Given the dictate we had been given to sell the business, the prospect of a disgruntled Alan with no requirement to sell his shares rendered this possibility almost impossible.  I proposed that I met with Alan and asked Mike to have no contact with him.  Over the next week or so I shuttled back and forth in a diplomatic mission that ultimately resulted in us buying Alan’s shares back for a nominal sum.  With the bank onside, albeit with a reduced overdraft (and ABC still in the intensive care department), the factoring company agreeing to continue support and 3i making their additional investment, we were only left with a small number of mountains to climb.  We now had to extricate ourselves from the USA & Germany, find a buyer for the business and, without delay, find a new FD.

In the event this last requirement proved relatively painless and Andy joined the team first as a consultant and then formally as FD.  An accountant with a very commercial outlook, good venture capital experience and somewhat of an IT expert, he also had the invaluable experience of having been part of a team that built and sold one extremely successful company.  He was a thoroughly nice guy who fitted in well but something of the iron fist in the velvet glove.  If Andy felt a particular course of action was not either legally, procedurally or ethically right then you knew that it was not going to happen.  Colin the technical director was supportive but I had my doubts about Jay, the sales director (who soon moved on as the business became progressively more structured in its approach).

The three remaining board members became the most successful team I have ever worked with in my entire career.  If anyone from outside had been an observer at many of our board meetings they might have thought we stood no chance of success as violent argument was not unusual.  But we proved Meridith Belbin (probably the world’s first, and arguably the best, expert on team-working) right.  Successful teams don’t need to be harmonious affairs, in fact dissent often ensures full examination of the relevant facts and the available options and leads to successful decisions.  Mike grew in my estimation.  I can’t imagine how tough it must have been for him to be planning the sale of his treasured business although I did know that a sale was something he hoped would never happen.  A previously successful entrepreneur, he had seem his creation grow and then fail, saw little or no hope of a return on his investment and had to welcome onto the board two outsiders who questioned every assumption about the business.  We certainly had blood on the walls at times and Mike would often storm out of the boardroom with a face like thunder when a decision went against him.  But always, and often within the hour, he would seek me out and tell me that he had already implemented (or put into motion) whatever change was required.

Mike knew everything about the industry we were in and everyone in it.  The problem was that his knowledge was vast at the micro level but it was akin to a huge database without a search facility that could link aspects together.  He had always existed previously making rapid decisions and usually without reference to others.  The business had been Mike’s train set.  I was worried however that he lacked the experience or toolkit effectively to analyse the industry and our place within it.  He didn’t know what he didn’t know so often he didn’t go looking.  If we were to stand any chance of turning the business around and selling it on (let alone making a return on investment) I knew we had to have a coherent strategy, one that would take us out of the maze we were in.  Mike had resisted initial attempts to instigate a full strategic review.  “Waste of time,” he would claim, “I know everything about this industry and this business.”  Finally, he agreed to a rigorous process of strategic review and over several long meetings, by a process of research, brain-dumping, questioning and probing a clear picture appeared that the whole board could grasp.

In a highly fragmented channel, it was clear from our research that ABC was market leader in distribution.  This leadership stemmed from high levels of customer satisfaction, driven by an industry leading catalogue, great depth and breadth of stock, a superior technical infrastructure and a uniquely proactive telesales process.  Critically, we had premises and systems that could support at least double our current sales.

We had a customer base with a low level of creditworthiness, poor sales and marketing expertise below Mike and suppliers (some of whom were well known global corporations) with chaotic distribution strategies, poor service and zero demand building activities.  It was also now clear that we were suffering from a lack of certain key ‘flagship’ brands.  But overwhelmingly we suffered from a continual cash drain from the USA and Germany operations and a balance sheet with a £1m hole.

It was apparent that there were actions we could take to improve matters such as boosting our technical services and expanding our specialist product ranges, both of which provided superior margins.  We urgently needed to improve the quality of our customer base and lessen the risks we faced from bad debts.  But, far and away, the only option that offered a real step change in our fortunes would be to acquire one or more competitors.

Prices across the whole market were falling year on year and manufacturers continued to dump stock further depressing prices and margins.  But the greatest threat facing the business was of the bank ‘pulling the plug’ completely, leaving us with no means of raising the capital we needed to turn the business around.

The situation the business was in could be summarised as being fraught with problems and opportunities!  There was also only a very limited window of opportunity to act.

Mike admitted that he had learnt a great deal from the process & a new strategy was agreed by the board to move the business towards achieving a sale.  We were still living from hand to mouth in cash terms and were very exposed.  We desperately needed access to the ‘flagship’ brands to improve our offering in every category.  So, the suppliers of the brands we required were approached to allow us to gain access.  An agreement was reached with the least important of these, however the main two companies still declined to add us to their distribution base.

The obvious solution that had emerged from our strategic review would be to buy a competitor & transfer all business to Hull, thus improving sales & profits in one giant step.  We researched all competition & identified the half-dozen most likely candidates who had the key brands we required.  Meetings were held with all of these; some were initially interested in a sale, some refused.  But the crushing difficulty was in obtaining further funding.  Following meetings with both the bank and 3i to present our proposed strategy, both agreed that acquisition was an excellent idea but flatly refused to lend more to achieve it!

 Over the next six months and only following a great deal of effort (initially attempting to improve our operations) we finally succeeded in withdrawing from the USA and Germany.  A small but significant victory was receiving an ex gratia payment from one of the big four accounting firms that recognised faulty due diligence work they had carried out in Germany had led to the problems we had encountered.  We were still technically insolvent (with huge negative equity) but we had stopped making losses and, painfully slowly, each month we were starting to reduce the hole in the balance sheet.

Priority was then given to improving the internal processes of the business and to improving profitability.  Much work was done to analyse the customer base, sorting them into categories.  The sales force was now targeted with specific objectives against each of the main customer groupings.  Certain customers were ‘de-emphasised’ and left to competition.  However, we still could not break into certain of the best potential customers due to our lack of the remaining key brands.  The only remaining way we could gain access to these was via acquisition.  The problem was that we couldn’t raise a single pound more finance.

Of the discussions we had been having with a number of acquisition targets, one of these was owned by an American parent, primarily involved in software.  The UK products distribution business was losing money heavily, the parent was very keen to sell but they wanted serious money for a sale.  The business was ideal as it had both of our target brands, had an excellent customer base (a good percentage of which would be new to us) and had leasehold premises we did not need.  We estimated that we would need none of their staff and could transfer the entire business to Hull.  We also felt that we could grow sales of our product range via their customers.  A perfect match.  We left them with a statement that we were very keen to buy but that their price was too rich for us.  The chances of them selling to us seemed remote as we simply couldn’t raise any money.  The only option left would be to get the American parent to fund our acquisition.  But would they?  And if they wouldn’t, what future would ABC have?

We were still way ‘under water’.

  Image courtesy of lakedistrict.gov.uk

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 21 – troubles mount

Gregg’s main management control system was a bi-monthly pan-European meeting of all the general managers from most of the 16 countries we operated in, plus those running our factories.  Seated in some vast hotel room in Geneva we would have to make our individual presentations of progress against our national budgets whilst being quizzed by Gregg and his large head office entourage.  There we sat for three whole days whilst the circus played out.  On one occasion (when Gregg was not suffering an attack of post prandial narcolepsy) I followed the German factory manager’s presentation with my own.  A key factor in an adverse variance to my budget so far that year was a very large exchange loss against the budget rate (set by head office) of the pound against the DM.  Gregg leapt into action, “Whaddayamean ya lost money?  Where’s it gone?” he roared, “Get the German guy back up here with his P & L, I wanna find it!”  Over half an hour was wasted whilst Peter, my German colleague and I were forced to submit our accounts to ever closer scrutiny whilst Gregg played hunt the profit that he felt sure would counter my exchange loss.  Gregg was convinced that someone was making money out of my budget variance and wasn’t placated when I finally offered the explanation that it had merely disappeared into the English Channel.

By around 1990 the situation across Europe was not improving and theUK’s performance was suffering too.  To provide an illustration; when I joined the company the average price we were achieving in the UK for a single fluorescent tube (we sold millions of these non-differentiated products) was in excess of one pound.  Ten years later I was averaging just £0.32 for each as a result of the extreme competition between the small number of manufacturers.  With common (and limited) suppliers of glass, basic metal, rare phosphors and gases across the industry, almost the only way you could drive the cost down was by finding ways to increase the speed of the automated production lines.  The result of this was that every hour you produced more product at a theoretically lower price but only if the additional production could be sold.  Unfortunately, the total market wasn’t increasing fast enough to counter the falling prices and the increased output, so the vicious cycle went on.  Efforts had shifted in my time with the business towards development of a stream of new products from all of the major manufacturers (driven also by the goal of energy savings) but the vicious cycle of downward pricing soon took over as they became commodities.  I kept a graph in my office that plotted the average price per unit sold against market share.  When I dropped the price our share rose and when I raised price it fell.  It was a perfect correlation.  I was getting beaten up on a regular basis for not raising my price in theUK.  But when I did, unit volumes dropped and the factories became starved of demand.

The business was already global with 90% of our UK production exported to the rest of the world and 85% of the ranges sold in the UK being imported from our overseas factories.  Whilst our UK production facilities were new and efficient, many of the overseas facilities we had to rely upon were old, unproductive and located in European countries with impossible labour laws and highly difficult unions.  Slowly and inexorably, our profits in the UK declined as I had to suffer far higher prices on our imports when the pound declined.  I found myself under increasing attack for failing to overcome this structural problem.  It seemed that little was being done at a European level to really counter this critical issue.  Despite my resistance to product strategies that made no sense, I always worked extremely closely with the European management and had very good relationships.  The only exceptions were a small number of Gregg’s direct team who seemed to follow his style of never discussing but only attacking.

One decision from head office illustrates the poor decision making going on at the time (exacerbated by the law of unintended consequences).  During this period of falling margins across Europe, a decision was announced that the transfer prices from our Belgium factory were to rise significantly for the next year onwards.  I never got to the bottom of what I felt were the underlying reasons for this move but I suspected it was simply to bolster manufacturing profits.  It was announced at the time that no country would be penalised for this increase as the effect would be taken into account in the budgeting process (in other words the lower margins that flowed would be ‘forgiven’ for that year).  However, the ‘forgiveness’ disappeared over time and countries, still under margin pressure, inevitably started to de-emphasise this particular product line.  In this way countries improved their margin percentages.  The Belgium factory certainly gained higher unit margins as a result but on declining volumes.  Some years later I managed to get to the bottom of this situation (as we shall see) and the reality was even more astounding.

The issue of pricing became more and more to the fore at every meeting.  Coming under attack yet again at one of the large European meetings, I put up a slide of my graph, which plotted market share against price.  I made the comment that one could either have increased market share and volume or increased prices and lower share and volumes.  Given the dynamics of the market nothing else was possible with non-differentiated commodity products.  Gregg responded with one of his usual eruptions saying that other countries were making more effort and running better marketing programmes (Sal, my Italian counterpart, had just given details of his latest sophisticated promotion – offering T shirts and beach towels).  Finally, he said he would close the UK operation if I couldn’t improve performance.  Throwing caution to the wind I turned to Swaanen, who was VP Manufacturing and the most influential of Gregg’s team, and asked him if he could afford to lose the production volume from the second largest market we had in Europe, “Of course not!” he growled back.  I turned to Gregg and asked him what he wanted to do.  I may have won that battle but I knew by then that I wasn’t winning the war.

I was becoming rapidly more disillusioned.  The company had spent a fortune on a business education for me that had been simply superb, providing cutting edge theory and technique, direct from the mouths of some of the best academic brains across the US.  The problem was that our senior management in Europe, whilst happy to tick boxes that said that bright people were getting the right training, simply didn’t understand what we were being taught.  Worse, they didn’t wish to know what we had been taught and constantly demonstrated that they wished to keep doing what they had always done (probably in the hope that it might yet produce a different result).  It was clear that there was a profound lack of real business acumen and strategic skill in our European headquarters.  My cynicism grew.

Some months later I received the news that the US company president was to make a UK visit.  I was required to meet him in London and make a presentation on the UK business.  Realising that I was probably being set up for a good kicking, I set about a robust analysis of the situation facing the entire light source industry.  A few years earlier Michael Porter, a Harvard professor, had published the first of a number of what became seminal works on strategy.  As a result of my US business education I was very familiar with Porter’s theories and decided to use these to analyse our industry.  What emerged was an indisputable picture of a global industry that was doomed to low profitability unless (and until) savage consolidation and production rationalisation took place.  Unless our ultimate parent company (now Verizon) was prepared to invest heavily in acquisition and new and fewer production facilities across the globe, we would continue to suffer declining margins.

On the day of my meeting the US president sat quietly, paid close attention and asked pertinent questions as my presentation unfolded.  Something had either prevented Gregg’s appearance or, deciding that he would leave me to my own downfall, had sent Louis our VP of marketing in his place.  Louis turned puce and kept attempting to move me onto what I was going to do to meet the UK budget that year.  At the end of the meeting, the big man thanked me warmly for the presentation and asked me to send him my full analysis.  My name inEurope was lower than low from then on and I subsequently learnt that I was being accused of ‘intellectual arrogance’ and ‘executive burnout’.

Did I know what I was talking about?  Had I been doing all that could be done?  I hold to this day, that by this stage, I had a better grasp of the market dynamics across Europe than anyone else.  Either that was the case or, much worse, others knew and wished to ignore the situation long enough to get their retirement package.  I had also succeeded in substantial market share growth and repositioned the image of the UK company.  Nevertheless, I had a weak spot and events found me out.  I had taken my eye off an important ball and it was to cost me dearly.

Image courtesy of Pacific Exchange Rate Service (© 2012 by Prof. Werner Antweiler,University of British Columbia,Vancouver BC,Canada.)

The business of life (chapter 11 – what goes up..)

Back as a hero from Japan, waving my bit of paper committing to contract renewal, I felt somewhat like Neville Chamberlain promising ‘peace in our time’.  My first action was to debrief Gordon on the exact details of the trip and the letter of intent and make the necessary changes to the operating budget. The flush of success soon wore off (I think it took place some time that same afternoon).  I then sat down with the team to plan out the detailed marketing plan to ensure we achieved the revised targets that I had agreed to back in Tokyo.  We had a mountain to climb.  However, I’d found that I rather liked challenges.

The Akai Golf

As our new brand widening advertising campaign got underway, one of the unwelcome effects was that all manner of ‘unmissable opportunities’ started crawling out of the woodwork.  Most of these were not worth the time spent reading them, but then one of those serendipitous events occurred.  I received a letter from Richard Lloyd  (of GTI Engineering) seeking sponsorship for the forthcoming British Saloon Car Championship.  What caught my eye and set his approach apart from many others, was artwork of his Golf GTI in our brand livery.  We met, got on famously and I agreed to a package of sponsorship for the year, with an option on the next. I had the artwork for the car reworked, wheedled a road going version from VW that I had resprayed into a replica to use for dealer events and then bought a double decker bus (a Bristol FLF for anyone interested).  I had the bus converted into a hospitality suite, also repainted in the team livery.  We then set about using the races for dealer hospitality, something that became hugely popular, especially as Richard won time and again. Sponsorship became a core element within our communications mix, offering a high technology, exciting and success driven image that resonated with our target market.

 The team I had inherited came up with a variety of ideas for boosting sales and, following a review of these together, we decided that one had real potential to fit with the exciting image we were creating and to boost sales.  That year the Akai Awards were born.  Hammed up beyond belief, we announced to our dealers that they could nominate themselves to win a ‘coveted’ Akai Award for success in promoting the brand and growing sales.  Following a long weekend of exhausting investigation of venues around Europe (in the welcome company of my wife) I chose The Trianon Palace atVersailles and engaged the services of Michael Parkinson as host.  The event later that year was a runaway success.

The most critical new product introduction from Akai that year was the new VHS video recorder.  Head to head with competition from the other brands in the VHS technology camp (especially JVC) it was an all out systems battle with the Sony Betamax system. Against the odds, Akai was the first brand of VHS recorder onto the UK market (and ahead of Sony & JVC) with a batch of just 50 machines air freighted in.  These machines had a recommended retail price of £799 but even while the first batch was still in transit (and with no firm date for the next), retailers were advertising a price cut to £750. Despite a severe supply restriction from all manufacturers in that first year, the price continued to fall.

An interesting endeavour took place whilst I awaited the first VHS deliveries.  We had left in stock quite a large number of an earlier portable black and white quarter inch video system (the VT100).  Never much of a seller and now completely obsolete, these were something I had inherited and they now needed to be cleared prior to our VHS launch.  Thinking of ways to clear the stock (none of our retailers would touch them) I hit upon an idea. My father in law had been struggling to get me to understand what needed to be done to improve my golf swing (my failure not his).  I realised that if I could see what I was doing it would be so much easier to understand.  Back in the office I set about recruiting a temporary sales team to sell these systems into golf professionals.  We succeeded in clearing the stock but it was an uphill struggle to get these ‘professionals’ to envisage the potential of what we were offering!  The joke about the machine gun salesman getting turned away at the battle of Hastings came to mind.

As that first year progressed and sales climbed, research was showing that our brand awareness was rising and that of our competitors was falling.  We repeated the research on a regular basis and monitored consumer purchases via an omnibus survey of household buying by brand. It seemed that the battle for brand awareness was very much a zero sum game.  Using this detailed information I was able to determine which elements of our marketing mix were having the greatest effect on consumer purchases.  It was therefore possible to fine tune our spend in the most cost effective way.  Unfortunately, this knowledge couldn’t save me in a future battle that was looming.

A change that occurred that first year was David’s departure and replacement by Gerry.  A very different man to David, he exuded charm and bonhomie, but soon demonstrated a severe lack of marketing judgement or expertise.  Bounding into my office one Monday morning shortly afterwards, he announced that he had had a simply great idea for a completely new advertising campaign.  “Picture it,” he gushed (complete with a wide ranging variety of hand gestures), “a nude draped over the bonnet of a red Ferrari hugging an Akai product that doesn’t quite cover everything.”  “Great idea.” I responded, trying to muster enthusiasm, “Why don’t you join me at the advertising agency next time we’re having a brain-storming session and pitch it?”  Oh, shit, I thought.

My trips to Tokyo became fairly regular events.  Whilst these visits had been mentally exhausting over the winter, as the months turned to spring and early summer they became physical agony.  As the world was still suffering an energy crisis, Akai had decided that the air conditioning would only be switched on in July and August.  Sitting on the plastic covered chairs in a pool of sweat in one of the windowless meeting rooms, during an unseasonal heat wave in early summer, Andy and I were soon afflicted by a medical condition colloquially known as ‘baboon bum’.  Sweating and fidgeting away we decided that we needed ‘rest and recuperation’ to ensure our fitness before we returned to the office.  The advantage of crossing the international date line on the return leg was that of gaining a day.  Why not take advantage of this?  A call to rearrange our flights saw us that Friday evening jetting off to Hawaii rather than Anchorage.  If you’ve never done it, arriving at 6.00 am (after a seven hour flight) on the morning of the same day you departed at 6.00pm, takes a little adjusting to.  Friday was largely lost in a jet lagged haze but we did manage a few visits the next day and decided that the (then) Kahala Hilton atDiamond Head would make a fine venue for the next year’s Akai Awards. It took a subsequent visit a few month’s later just to ensure that we had made the correct decision.

Back in London the visit of the Akai Company President finally took place (having been continually delayed), resulting in a significant shock.  There was to be no contract renewal despite our raising sales by 50% in under two years to a new high of £6m.  Instead, it was announced that Akai was to form its own company that same year (1979).  I was involved in no further discussions and the President and his entourage moved on.  RAV promptly served redundancy notices on me and my entire team.  The personnel director assured me that he would let me know if any other roles became available within the group. Gordon was nowhere to be found.

Did my success count for nothing? Had my spell of success run its course?  With the trade unions wreaking havoc upon the economy, the three-day week, Britain being laughingly referred to as the sick man of Europe and with unemployment raging, the outlook seemed far from benign.  What followed over the next couple of years was to reveal aspects of my make-up that would cause me to question my abilities and the wisdom of meeting opposition head on

Image courtesy of Forzamotorsport.net

The business of life (chapter 10 – in which I learn the art of patience)

So it was, after a whirlwind few weeks, that I met David at Heathrow one Saturday afternoon and we boarded the long flight out to Tokyo (in economy, alas).  At that time the only sensible route was over the Pole to Anchorage for refuelling and then on toTokyo (given thatRussia had yet to agree to its airspace being used by the new 747).  The brief stopover in Anchorage provided a welcome opportunity to stretch the legs, enjoy a bowl of ramen and be glad that the enormous polar bear in the lounge was of the deceased and stuffed variety.

Unable to sleep on the second leg to Tokyo, I took to wandering up and down the aisles.  Pausing near the emergency exit I looked down into the blackness through the small porthole and was greeted by a curious sight. Spread out as far as the eye could see were pinpricks of light all at equal distance.  I moved across to the port side of the aircraft and was intrigued to see exactly the same.  I beckoned to one of the hostesses to look and asked her if she knew what they were, “No idea,” she responded “but I’ll ask the captain.”  After consulting on the phone she turned to me with a smile and offered, “Russian fishing fleet.” in that delightful Japanese lilt.  We flew over this vast armada for half an hour.  Failing in my attempts to calculate how many square miles of North Pacific was being covered and how many tons of fish were being gathered, I realised I was exhausted and returned to my seat and slept.

We arrived the Sunday afternoon at Haneda airport to be greeted by the horrendous queues that were by then a constant feature.  Haneda, although conveniently close to Tokyo centre, was desperately overcrowded and the new Narita airport was not finally due for opening until the following year.  After a quick shower at the hotel, we were met by what became the usual delegation from the Foreign Trade department, headed by a senior manager, Sugino who was unusually tall for a Japanese man. What followed became a constant feature of my trips to Akai.  Firstly, I had to make my presentation to Sugino and his team at the hotel; this was greeted by sharp intakes of breath and pronouncements that Horie-san (the director in charge of foreign trade) would never agree to this or that some other aspect could never be contemplated by him.  This went on for several hours, by which time I was hungry enough to start gnawing at my own limbs, but didn’t give any ground.  It had been agreed that David would take a back seat whilst I, as the new man, would stick his neck out selling the process as the new start that I was heading.

Finally, Sugino, said that he would speak with Horie overnight to see if he considered it worthwhile even meeting us the next day, and announced that we should go to dinner.  The evening taxed even my youthful stamina and ability to drink and it was gone midnight before I crawled into bed.  The following morning we were collected by one of the department’s junior managers and driven to the Akai office. The first few hours were filled with a variety of junior managers wanting to ‘clarify a few points’; the clarification inevitably leading to request for reconsideration of one point or another that had already been discussed endlessly.  The juniors would depart whilst we were offered more green tea and then return to start the ritual once more.  By lunchtime, neither Sugino nor the elusive Horie had made an appearance.  A curious interpretation of a sandwich lunch followed.

And so it continued, until sometime in the late afternoon, at the point that David and I were ready to stage a walkout, Sugino appeared apologising profusely saying that Horie had been detained at a meeting with some important visitors and would be joining us for dinner.  Would we like to relax with a bath before dinner?  Having spent the day in a windowless meeting room, I was ready to agree to almost anything. In fact, I had already become a fan of the Japanese system of communal bathing and massage and readily agreed (David taking some persuading).

Following a leisurely bath and relaxing massage, Sugino took us to what was clearly a very expensive restaurant.  We were ushered into a private room where a very urbane and distinguished looking Japanese man in his late forties introduced himself as Horie.  No business was discussed that evening.  Horie concentrated, in an extremely polite and sociable manner, on seeking to find out as much about me as he could.  The meal went on for a considerable time and was served in what seemed an endless series of courses all presented on exquisite, lacquered dishes.  David was obviously not a fan of Japanese food and had been doing his best to avoid eating more than a morsel of anything.  However, he seemed to perk up at one dish which included what looked like two small bacon rashers.  With the rashers poised in front of his lips David, looked across smiling at Horie and enquired,  “Horie-san, what are these?” before popping them into his mouth and proceeding to chew enthusiastically.  Horie raised an eyebrow and glanced at Sugino who smiled back at David explaining, “Ah, how you say, cock of pig?” David stopped chewing, looked aghast and realising that he could only continue with his mouthful, proceeded to chew ever more slowly, his face reddening as he did.

In the morning Sugino met us at the hotel and drove us to the office where, after the obligatory wait, we were joined by a smiling Horie.  Following tea and more polite conversation, Horie invited me to present the business plan.  My presentation was accompanied by constant interruptions and haranguing from Horie.  The day wore on in similar manner with Horie finally stating that there was no way he could present the plan to his board without major changes.  David and I suggested a breakout and together we agreed that we had to make some changes if we were to stand any chance of getting the contract renewal. We returned and said we needed to review all of the points Horie had made and consider if any changes were possible to our plan.  We returned early to the hotel where we agreed to increase the units we were proposing to purchase, but with a corresponding reduction in the price we paid.  We ate a quick dinner and David left me to make the changes to the business plan. The changes complete, I sat in the top floor hotel bar gazing out high over an incredible vista of the blinking lights of night-time Tokyo wondering if it would ever be possible to win the contract renewal. The nagging doubts of possible failure stayed with me, producing a night of troubled sleep.

The following morning Horie was nowhere to be seen and the previous pattern was repeated with Sugino leading the discussions.  Game playing and histrionics became the order of the day once again.  I couldn’t believe how so much time could be spent going over the same ground in ever finer detail, time and again.  The day passed slowly until it was announced early evening that we were going for dinner. Sugino disappeared and we were taken off in a taxi by two of the junior managers.  First we went to a bar for several hours before being taken for dinner (considerably less sumptuous than the previous evening).  We then went onto the classic Japanese bar where hostesses joined us for more hours of stilted conversation, much joking and karaoke. I crawled into bed at some point in the early hours.

The next morning dawned with us due to catch a flight that evening and still no nearer an agreement.  Yet more negotiations followed at the office but I was beginning to feel that we might just be edging closer together.  Lunch was the usual sandwiches after which Horie appeared and announced that Sugino would draft a letter of intent with us for signature. I couldn’t believe that we had got to this point. The hours ticked by as every word was considered, reviewed, challenged, changed, agreed and finally the document was typed up.  It was late afternoon before Horie reappeared and we signed the letter of intent, which included the commitment that the President would sign a new 7 year distribution agreement in London later that year, providing we were meeting our plans.

We were driven to the airport where the first thing David did was to demand my ticket and charged off to the JAL desk where he promptly upgraded us to first class. “We’ve bloody well earned this.” he stated.  Upon boarding we were greeted by Gerry (Angus’s recent replacement) and Harry (my counterpart who had run the Nikon business for years).  The two of them had also had an extremely successful trip and we partied most of the first leg to Anchorage.  On the long flight back over the Pole, still buzzing with elation, I had time to reflect on events while the others slept.

The pugnacious side of my nature had clearly been guiding my actions when I agreed to take on the role of running the Akai business.  By this stage I had begun to believe that I could achieve success at whatever I turned my hand to.  Having had by then over 10 years of unbroken achievement and ascendency I really did feel invincible.  This week’s trip to Tokyo seemed to prove that I certainly could go on achieving results. However, I felt strangely alone in my new role, having left behind my own, hand picked team and a very supportive boss in Peter (and indeed Angus).

I had sold myself and my plan to a very tough new company; now the only thing I had to do was to deliver on my commitments. The problem was that the hill was now even steeper than it had first appeared and I wasn’t entirely convinced that my new team were 100% supportive.

Image courtesy of Panoramio