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  • Which comes first the retail chicken or the e-tail egg?

    Friday 3rd December 2010

     

    Which comes first the retail chicken or the e-tail egg?

    This blog results from an interesting conversation I had with my friend Duncan Sutherland a few weeks ago.  Duncan is a bit of a retailing wizard, with an impressive track record in the traditional bricks and mortar retail sector.  He has been in the industry since the age of 22 working for household names like FW Woolworth and Marks and Spencer. When he was thirty the Board of Littlewoods engaged him to turn around the fortunes of the at that time ailing company. That done, John Hargreaves approached him to  help him establish a out-of-town retailer - Matalan. By the time Duncan left Matalan in 1998 the business had, from an almost  standing start, achieved a market value of £1bn.

    Duncan then went on to become the CEO of Moss Bros, did a stint at Happit and built up the d2 chain that he later sold to Tom Hunter of Sports Division fame.  So what Duncan doesn’t know about traditional retailing would not fill the back of a bus ticket.

    Our debate centred on where we would start a discount retailer; would we start with a base on the internet or use the more traditional way - bricks and mortar. Each model, we agreed, has its own set of advantages.

    Briefly stated, for the entrepreneur the obvious advantage of an internet business is significant cost savings. There’s the hugely important cost of stock. In the e-commerce model you don’t necessarily have to stock all of your offerings. With the advent of drop shipping your supplier holds the stock and your website simply sends the orders direct from the consumer to the supplier.

    But, the most important advantage for the retailer has to be the size of the potential customer base - it’s truly global. This coupled with the stock savings significantly cuts down costs associated with marketing, customer care, processing and so on.  Put simply you can e-mail the world for a fraction of the cost of sending out brochures to a limited number of people in one country.

    What about set up costs in the e-commerce model?  Well that’s become a plus too. Ten or fifteen years ago it would have cost hundreds of thousands of pounds to set up an e-commerce business. Web development in an immature market was an expensive process; but these days you can buy a website in a box and be up and running within a couple of days.

    How to take the cash from the consumer also threw up problems.  Payment processing a few years ago was a nightmare; today doesn’t everyone have PayPal and isn’t everyone happy to shop on line with their credit cards?? 

    “All fine and well,” said Duncan, “But….” He agreed with me that e-commerce in the UK is growing faster then any other country; but what about the vast number of people who don’t buy from the internet?  This may be due to a lack of knowledge or a lack of trust. I vehemently disagree with this as a reason for not starting your business with a website.  Nowadays there are more than enough people happy to do business this way. The one Duncan argument, however, which has caused me a number of sleepless nights is – what, for a discounter, is the optimum business model.

    After all, the whole discount retailer model is based on impulse buys and instant gratification.  You visit Poundland and the vast majority of the products you purchase are impulse buys. Websites are not good at providing instant gratification and the opportunity for impulse buys is greatly diminished.

    So is there a hybrid model a model available to a start up business, a model which combines the benefits of online shopping with the instant gratification and the opportunity to sell some more in a physical shop?  Everyone knows that Amazon has been talking about opening distribution centres up and down the country. But does this model stack up for a new start? Definitely not, in my opinion. Duncan and I have been continuing our debate and have come up with some interesting solutions to this problem... more to follow next week.

     

    Tip from Shaf – Diversifying your business

    Taking an old, well-understood product to a new market is a reasonably low risk way of expanding your business.  Similarly taking new products to an established market should not cause too many headaches; but taking a new product to a new market is fraught with danger.

      

     

     

     

    (Behind St Brides Church)

     

  • Leadership in Britain Redefined by Economic Climate

    Friday 23rd July 2010

    Sound financial decision making and emotional intelligence are the two most defining qualities of successful leadership, according to a study released today by Orange.

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  • Secrets of a Serial Entrepreneur: A Business Dragon's Guide to Success

    Wednesday 14th April 2010

    "Being an entrepreneur means being in the risk business. You will make some mistakes, and pay for them, but in the end you are your own person and the successes you achieve make up for the difficulties you've met and overcome on the way."

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  • Are the good signs there for good?

    Sunday 21st February 2010

    Are the good signs there for good?

    We’re all asking if we’re out of this recession or not.  The truthful answer that I, and probably everyone, should give is that I’m not sure.  Knowing whether we’re in recession or not is a strange statistic.  Officially it’s a statistic that doesn’t come to light until well after the event – Has the Gross Domestic Product, GDP, gone down for the last two quarters in a row?  If GDP, a measure of the total economic output of the country, has gone down for two quarters in a row then we’re in recession.  Aye right, and I’m supposed to make decisions about running my businesses based on what you could call economic ancient history.

    I tend to form my view of the business climate by the trends of my order book and monthly sales.  If they are staying much the same then I’m holding on but if they’re going down I take that as an indicator that the economy is slowing.  (That’s assuming that I have checked carefully that the decrease in sales is not a function of something completely different like competitive offerings or competitor pricing changes and that I am thus comparing apples with apples.) 

    Can we get any clues from the big boys?  Well, in terms of retail Marks and Spencer and John Lewis showed pretty good signs of growth in their last announcement, John Lewis being particularly spectacular.  But is it apples with apples to compare historical figures with current performance?  After all, VAT went back to its old level at the beginning of the year.  We’re almost certainly looking at tax rises sometime this year.  Interest rates will go up this year making the recent times of the mortgage joy com to an end pretty sharply.  All these things will take money out of consumers’ pockets and have an impact on everyone’s sales.

     

     

    Tip from Shaf – Keep your head down

     

    I think it’s too early for us to change our attitude to the effect of economics on our businesses: basically we’re still running businesses in a recession.  Keep a tight control on costs and continue to look for cost savings.  If you’ve been able to hold on to all your people so far, well done; but don’t do anything too adventurous at the moment and monitor your sales and order book numbers reacting fast when they show bad signs. 

     

    On a wider perspective I’m looking for some really positive and practical signs before I think any of us can feel confident that the hard times are over.  I’d like, for example, to see the banks lending to small businesses properly again.

    Having said that, any recession means that there can be big opportunities out there.  Maybe we should be looking at other small businesses to see if they have fared OK.  If we see some that are showing signs of difficulty then we should be looking for a chance to step in and see if we can get some shares in the business in return for helping it back to health.  That’s why I like being an entrepreneur; we can see opportunity in any economic situation.

     

    If it feels like a recession then operate as though it is one.

  • Forecast how the assets might be made to work harder

    Saturday 23rd January 2010

    I have made a lot of money out of buying businesses where the current owners were either underestimating the value of their assets or, more likely, overestimating the value of their assets.  In the first case some owners do not think sufficiently outside the box to realize that their assets could be worth a lot more if, for example, their customer database were combined with another customer database or enhanced with the addition of another line of products.  If I can realize the potential of the undervalued assets, then it makes good business sense to buy them for a price that reflects their current owner’s lower valuation.  The seller is valuing their assets on a stand-alone basis; I am seeing them in the context of what I can make them worth if I bring the business into my portfolio.  The trick is to realize what the assets of two or more businesses will look like if you put them together.  So in the case of a customer database, the seller sees their customer base as the ones on his customer file whilst I see it as that file plus one or two others that I control.  I know that by adding it to my existing customer databases I can reach all those new people with a salesperson or an e-mail as soon as the deal is done.

    A classic example of leveraging a database is what I advised Cheryl Hardwick the managing director of www.boffer.co.uk to do. Boffer is a deal-a-day site. It sells only one product per day, sourced from stock from bankrupt companies and companies with excess stock. The bulk of that stock is sourced through another company I have an investment in called CPM asset management, a company that offers a very rapid way of turning problem stock into cash.

    Boffer has a tremendous cult following. It sometimes has in excess of 30 thousand unique visitors per day. However the fact that it only has one product on sale per day does restrict the possibility of ramping up the revenue. My advice to Cheryl was that she should set up a sister site to boffer and leverage the boffer database by encouraging boffer customers to visit the new site. On the 15th of December 2009 boffer’s sister site www.bigoffers.co.uk was born. Bigoffers also sells excess stock, again sourced from CPM asset management. But it has several thousand products on its website. On its first full day of trading it did 500 orders with no advertising apart from an email to the current boffer database. That’s the effect of leveraging a database.

     

     

    Tip from Shaf – Look at the ‘soft’ assets too

    When you’re buying a company you will mainly look at the profitability of the target company.  You will also look at the assets, particularly if they include a juicy commercial property.   But look at the ‘soft’ assets as well.  As well as the customer database there’s a bunch of other assets that you might be able to leverage – the supplier database, any brand recognition, people with useful skills and the company’s logistics processes to name a few.

     

     

     

    Buying a company into a portfolio is an attempt to make two and two equal at least 5.  Look for the possibility of synergies between the two companies that might improve profitability of both if they were merged.

     

  • Making a sale to the trade

    Saturday 23rd January 2010

    You're selling the business right?  Well yes but what is the business?  You might have one idea of what it is that's for sale here, and your potential buyer might have another.  This can cause problems.  You don't want to waste valuable business selling time clarifying all of that because:

    ·         It takes time and effort

    ·         At the end of the discussion you may find you're not talking about the same thing

    ·         It can be a really simple misunderstanding such as whether the customer list is included in the sale

    There are a number of ways of selling a company.  You can sell the whole thing, lock stock and smoking liabilities.  You can just sell the assets.  Or you can sell shares in the company. Take a moment and consider the options. 

    Finding a buyer is difficult and needs some preparation. Small, privately held businesses are not likely to be interesting to financial buyers like private equity and venture capital firms. So the two most likely exits would be trade sales and management buy-outs.  I’ll talk about trade sales in this blog and management buy-outs next.

     

    Tip from Shaf -Who should I sell to?

     

    Don't just put the business up for sale and see who bites; you'll get a better price if you think about who would want it and then go directly to those people.  Things to think about include the possibility that:

     

    • Your customers could be worth more than your business  - a new entrant to a market may be prepared to pay over the odds for access to customer just to leapfrog their way into serious contention
    • One of your products may be the piece that fits the gap in someone else's product range
    • You have the distribution solution to their manufacturing needs
    • Economies of scale could mean the difference between long-term survival and failure for a company that is relatively cash rich but struggling with its profit margins
    • Don't forget to look abroad for your potential buyer – your business might be the perfect stepping stone into the UK market for a continental competitor

     

     

     

    Trade sales

    This is probably the first thing you think of when it comes to selling up and with good reason as it often offers by far the easiest sale and frequently the best return.  In a trade sale you sell the business to someone else who intends to run it pretty much as it is.  One pub owner sells to another pub owner, that sort of thing. 

    In this case, look for the reverse of what you were doing when you were buying businesses, searching for synergies where, for example, common customers or suppliers made the sum of two businesses greater than the value of the two separately.  This, of course, has an impact on the price of the deal.  If you can recognise the benefits of the merger to the buyer due to synergies, so that two and two make five, then you can base the price you want on the profits of the new combined concern rather than the old one.

    To do all this requires some preparation work.  First you need to do everything possible to let other firms in your field know that you exist. Join trade bodies and raise your company profile in the year or so leading up to the planned exit time. Study the market and draw up a short list of buyers to whom an acquisition may make sense.  Particularly look for people who have already made acquisitions - it’s habit forming. Make sure they know your company and what it does. Study their structure and re-engineer your own company so that there are obvious synergies and as painless a merger as you can plan.

     

    Nurture a relationship with the Trade Press and set some resource aside to get PR in the lead up to exit. Trade magazines are always hungry for stories however mundane. Make sure you feed them.  Speak to local network contacts in banks, local accountants and so on.  But, beware of giving the business a bad name by touting it around too heavily or for too long.

     

    I’m sorry to repeat myself, but preparation is probably the most important part of getting a good price for a business

     

  • Think you are up to the job?

    Saturday 2nd January 2010

     

    Today I'm launching a nationwide campaign to offer three of the country's
    most promising youngsters the chance to come and work in my business.

     It's fair to say that young people have been hit hardest by the economic
     downturn with the latest figures showing just under 1million 16-24
     year-olds are out of work.

     The TUC described the crisis last week as a "national emergency" for the
     current government.

     And do you know what, they are absolutely right.

     I've become so frustrated by the lack of opportunities for young people
     that I have decided to launch a one-year apprenticeship scheme called "The
     Dragon's Apprentice".

     The successful applicants will get the opportunity to be taught a
     lifetime's business skills in a 12-month crash course within my
     organisation.

     Through training and mentorship, I will equip them with the skills they
     need to excel in business for life.

     I get a great buzz out of introducing open minded, creative people to the
     ways of business and I want to give something back to this generation.

     This is a time when people should be putting their stamp on the world but
     circumstances aren't going their way and through no fault of their own
     they find themselves stuck.


     We simply can't afford to waste this talent or let their lust for life
     dwindle. I want to get some dynamic minds into my organisation and let
     them get started in the world of business, finding skills that will last a
     lifetime.

     I have already set young people to work in my organisation and have been
     so impressed with their zeal for life I want to award others the
     opportunity.

     Six months ago I published a job asking for a writer and found Ally Millar
     who was immediately thrust into the world of entrepreneurialism and is now
     managing editor of geeks.co.uk.


     I know the importance of guiding and mentoring home-based talent so I lend
     my skills and expertise whenever possible at workshops and entrepreneurial
     events.

     At a special BBC Youth Job Panel event I was so impressed with one of the
     entrepreneurs I have made him my first apprentice.

     Tom Mursell was just 18 when he founded notgoingtouni.co.uk which gets
     30,000 students clicking on it each month.

     The site was his answer to the lack of options for school-leavers outside
     of further education.

     Now 20, Tom has built his profile by helping students in their post-school
     options and commentating on the trend for many major broadcasters and
     newspapers.

     Tom is quite unique so I don't want his entrepreneurial success to put
     people off.

     The opportunity is open to anyone. Although we are looking to help ease
     the problem of youth unemployment, I don't want to put off anyone who
     thinks they have the necessary skills to do the job so anyone is welcome
     to apply no matter what your skillset or background.

    Experienced, non-experienced, young people, students, graduates,
    school-leavers, trades people, ex-professionals, long term unemployed,
    anyone.

     I just want fresh, enthusiastic talent; people who want to put their stamp
     on the world and want to let me and my organisation show them how to do
     it.

     I want to expose the successful applicants to the business and have them
     working across my portfolio, expanding their skills and finding a niche
     for their talent where they will thrive.

     I want to meet you and put you to work to learn the ropes from day one so
     we can help you make your mark.

     As I said there are three positions available and we know competition will
     be fierce.

     If you are interested or know anyone who fits the bill, Edinburgh
     recruitment consultancy Head Resourcing is supporting this campaign. To
     find out more details go to
    http://www.headresourcing.com/dragonsapprentice.stm

     Get your CV to them no later than 5pm on Monday January 18.

     The position will be mostly based in Edinburgh and I look forward to
     introducing the successful candidates to my teams of colleagues. It's a
     great opportunity for anyone to seize with both hands and I hope to be
     interviewing some of you very soon.

     

    To read more about this opportunity  click here

     

  • Why do you really want to sell your business?

    Sunday 13th December 2009

    There isn't a business owner alive who hasn't dreamt of selling their business. Just as millions of office-bound workers dream of quitting their jobs and going it alone, so business owners dream of the day when unreliable suppliers, bad payers, seasonal dips, and the maze of modern marketing are no longer problems that haunt them in the early hours.  Even very highly successful entrepreneurs, particularly in the UK, dream of getting out and going back to the simple life –leisure, sun-kissed beaches, and happy family lives all playing a significant part.  So much so in fact that it's a well-established fact in the UK entrepreneur market that a lot of serious entrepreneurs are actually second-time-rounders. They've already set up one successful business, and sold out for the magic million mark.  (It's funny how we still dream of being 'millionaires' even though a million barely buys you a house with a garden in a decent part of Edinburgh these days.  If being a millionaire were your aspiration five years ago, you better up the anti.)

    Anyway these people have made it, life is good, and they can relax now.  Except they can't; or at least the good ones can’t. In the UK you get a lot of folk who 'make it' then realise that it was never just about having the money to pay off the mortgage and take the round the world cruise.  They really miss the thrill of running a business. Most of all they miss the strategy and buzz of playing the game and trading one business for another in the search of further success - I hope that's why you're reading this chapter.  But at the end of the day if all you really want to do is sell up and go fishing then good luck to you.

     If you're selling up to get out of the game or selling up as part of a plan to cash in your chips and move to a bigger game then a lot of the ground rules are still the same but you must be absolutely clear in your head which type of seller you are. Don't think it's going to be easy either because people bidding for your business will demand no end of information about it and you'll have to have an answer every question – starting with the obvious one of 'why do you want to sell it?'  If it's because you fancy retiring and growing prize marrows then great because that's the kind of answer people might want to hear, but don't expect anyone to believe that if you're in your twenties (or for that matter if you're an Asian-Scots multimillionaire known for speculating).

    So, given that you’re not just giving up, what is your reason for selling? If the real reason is that you think you've reached a dead end and the business is either going to stay still or else start to decline then that's likely to be sniffed out by potential buyers who will either lower the bid or walk away.  You really need to get the business into a condition where you can, hand on heart, say that while you are confident about the business and its future, you desperately want to focus on another project that's got you excited in a different direction.  This had better be the truth and you better be able to give evidence of the secure future of the business you are selling because the buyer won’t stop probing until they’ve found what’s really going on.

     

     

    Tip from Shaf – You can’t fool due diligence

    When you’re selling a business then expect the buyer to go through due diligence either formally or in a less formal manner though in just as much detail.  As part of your preparation to sell, go through the steps of due diligence stopping every time you hit a question mark or a problem.  Do whatever you need to do to answer the question or fix the problem.

     

     

    Be confident about a business you are about to sell because of its intrinsic value, not its superficial appeal.

     

  • Getting a head start

    Saturday 21st November 2009

    Getting a head start

    Now I have not done any academic research on what I am about to suggest; but I do have good anecdotal evidence to support it.  People who feel motivated or even compelled to set up their own business are quite likely to have been brought up in a family firm or a family where at least one of the breadwinners ran a one-man band.

    I was brought up in a family that owned and ran a newsagent’s ‘corner’ shop.  I did my first paper round when I was ten and heard my parents talk about the good times and more worrying times that affect all business owners more or less every day of my life.  I learnt a lot from that experience; I may not have realised it at the time but profit, how much we could safely draw from the business and cashflow were concepts with which I was very familiar before I set up my first enterprise.

    So I would say I learnt a lot from the family business:

    ·         The basics of how money works

    • Knowing that working smart was as important as working hard
    • I know it’s trite but I learnt to look after the pennies knowing that the pounds would look after themselves
    • Don’t over extend yourself in terms of borrowings
    • Keep tight control of the finances
    • In fact keep your finger on the pulse all the time.  I f you look away something will go wrong
    • Know your customers
    • Finally, a most important lesson - I knew that I wanted to do something on a much bigger scale than the traditional family firm.  I dared to go big

     

    So if you were brought up in a home where your parents climbed the corporate ladder or worked for big companies, make sure before you jump into entrepeneurism that you have got the same head start as the offspring of family businesses.  You can cover the basics of business by reading or talking to people running small businesses so as to get a handle on the mindset of the person running their own thing.  It’s dead easy to do: people who run their own businesses love talking about them and they will all give you some information that is the same as everyone else and some that is peculiar to what they are doing. 

     

    Tip from Shaf – Listening to experience

    So, the next time you go into a restaurant when it’s quiet ask the owner how their business is doing, what is going well and what, if anything, is worrying them.  Do the same in your local IT shop; talk to social acquaintances and so on.  You will be surprised how much real, practical information you will pick up.

     

     

    Being brought up in a family business gives an aspiring entrepreneur a head start.  Make sure you learn the same basics as they did automatically before you take the plunge

  • Looking for synergy

    Saturday 21st November 2009

    Looking for synergy

    It’s very interesting to think about HP taking over 3Com.  Any entrepreneur knows that when they are buying companies they are looking for a good fit between the two companies.  HP finds a product, market and strategic fit with 3Com.  It will double its presence in the network equipment market, expand its international market in China and strategically take the war to Cisco in this market. It also expands its business into more profitable areas than its massive PC business.

     

    This search for synergies works too for small businesses as well.  In order to buy the right businesses into their portfolio of companies, entrepreneurs look around for companies that fit.  Perhaps they use the same suppliers, sell to the same market or even the same customers.  Perhaps you offer each other a new channel to market.  For example, would a click through from your web site direct to theirs increase sales and vice versa?  Would it work to virtually combine the two web sites? 

    Perhaps it’s something about having the expertise you already have on board that makes an opportunity seem right.  Suppose you have built up skills in, for example, Web selling and viral marketing. That could make a target business look attractive if once you had bought it you could increase its rate of growth by putting your people with those skills in to help the new business partner forward.

    How do you find out where this synergies lie?  Well, you read the papers and technical journals and eventually you talk to the managing director and owner of the business of course: you research their web site and perhaps talk to one or more of their customers. 

    But don’t forget the front line troops.  Speak to the people who really know at the sharp end what the opportunities in the business are.  Talk to the salespeople, for example, they’ll almost certainly say things like, “If we only had product B as well as product A we could do a lot more business.”  Speak to the people doing the purchasing and you’ll hear something like, “We could almost certainly get a better deal on a number of items if we worked with a new supplier; but we are very tied into our current supplier and senior management don’t want to change.” 

     

     

     

     

    Tip from Shaf – supplier loyalty

    The worst answer to the question “Why are we doing business with these people” is “Because we have been doing so for years and we have a good relationship with their people.” People have a huge inertia caused by their relationships with their current suppliers.  Two lessons here:

    1. Don’t let it happen to you.  Make sure that all your suppliers are aware that you are consistently looking for cheaper ways of buying the products or getting the service.
    2. Look for opportunities to shake people out of their inertia by offering better terms.  A taxi operator I know offered a perfectly good service from a town about 15 miles away from Heathrow taking business people to the airport.  He got an appointment at a big company in the area and offered to undercut their current supplier.  They were nice but used the ‘long time… good relationship…’ argument to turn him down.  He went back as the credit crunch started to bite and got the business.

     

     

    The right business to buy next is the one where you can get it to quickly take a giant step forward in sales and profits through its synergy with your other businesses.

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