Article: The Growth Opportunity
Manufacturing enterprises have long experience of turning adversity to their advantage. David Baggaley at Locate in Leeds picks up some lessons on how to seize the moment and overcome the risks.
Manufacturers know all about survival. Despite a steady decline in numbers employed over the last 30 years, the UK remains the world’s sixth largest manufacturer by value. How have enterprises kept themselves in the game when conventional wisdom suggests that they will continue to struggle against low-cost competitors? By being innovative, nimble-footed and entrepreneurial.
As the UK struggles to emerge from one of the deepest recessions for decades, there are lessons that enterprises in other sectors could learn from manufacturers who have found ways to seize opportunities, whether they happen by accident or by design.
Create an opportunities network
Soeren Vonsild, head of engineering at dairy products manufacturer Arla, describes entrepreneurs as people who are quick to spot an opportunity, quick to commit and determined to see an idea through.
The danger in larger organizations, he feels, is that structures and processes can become opposed to innovation and entrepreneurship. Incentives become too tied to where someone sits in the hierarchy. Too little weight is given to taking risks or challenging the way things are done. It is often easier to make an acquisition than to create a business from scratch like an entrepreneur.
So how do you encourage a spirit of innovation, which Vonsild describes as ‘the pursuit of opportunity beyond the resources you currently control’? His answer is to create an ‘opportunities network’ within the organization, thereby giving everyone ownership and responsibility for implementing new ideas.
Put effort into developing new products, of course, he says. But remember that often more value can be created by innovation in processes and delivery.
Wetherby-based supplier to the automotive industry GSM Group has also focused on innovation as the key to growing a manufacturing business. Serial entrepreneur and CEO Barry Dodd emphasizes the importance of looking up and down the value and supply chains to identify opportunities for innovation and growth. Combined with a nil borrowings policy – that means no overdrafts, loans or leases – the strategy has ensured financial security and year-on-year growth for a company that now has operations around the world.
Spot your opportunity
All well and good but opportunity often comes about by accident rather than design. The original Eureka moment for Sue Taylor at Craftwork Cards in Leeds came when she popped into a demonstration on making greeting cards. Already saddled with debts from an earlier and unsuccessful business venture, and with a background in graphic design and print, she had found herself balancing freelance design with working in a local card shop. Hence the invitation to the card-making session.
Straightaway Taylor spotted the opportunity for a new venture producing bespoke greeting cards: ‘I realized immediately I could source the materials much more cost effectively and decided to set up production in my spare bedroom. A small ad in a crafts magazine produced 50 responses and the business was up and running, with further sales building from the shop, which agreed to stock my card designs.’
Twelve years of steady growth have seen her bespoke greeting card company approaching £1.2 million turnover this year and a 15-strong workforce recently relocated to cope with increasing demand. The new premises are a virtual Aladdin’s cave of everything required for making greeting cards, personalized invitations and associated stationery. Cutting, foiling and embossing are all handled in-house, with printing carried out on a row of vintage Heidelberg machines.
As a hobby, card-making is far from cheap: some card packs costing up to £30, assuring healthy margins and strong cash flow. But product quality is essential to maintaining a loyal customer base and so too is innovation. As Sue explains, customers are buying ideas and original designs, as well as the individual components for making cards. Here Craftwork Cards has benefited from its extended family of customers who are more than happy to add their own imaginative ideas to the company’s creative designs.
Switching from a catalogue-based mail order business basis to trading wholly online was another innovation that ruffled the feathers of more traditionally minded customers but Sue has no doubt it was the right decision. Approaches from major high street chains have also been considered and rejected as the business has grown.
Strict credit control and avoiding the temptations of borrowing to fund growth have been hallmarks of Sue’s approach to business.
Rethink your credit terms
However, a recent deal with TV shopping channel QVC promises to deliver up to 40 per cent of new sales for Craftwork Cards. As well as increased sales to individual hobbyists there’s been further interest from the retail sector as a result of TV exposure. The company is also looking at franchising to further accelerate growth.
To make the most of these opportunities, Sue Taylor is having to rethink her attitude towards credit: ‘Following my early business experience, I was determined to control expansion and my accountants have been very helpful in managing that process.’
Previous company policy had therefore been that no orders leave the premises without pre-payment. But the sale or return policy and payment terms of QVC has meant a rethink of the way credit is handled. Taylor thinks the risk is one worth taking in order to grow the business to the next level and the accountants assure her that it’s a risk the business is now in a strong enough position to withstand.
Live with Low Risk
Another Yorkshire man learning to live with risk is Mike Briggs. Until recently, Mike managed a 30-strong team of service engineers for a German manufacturer of laser cutting machinery. As the company restructured its UK operations he faced relocation to the Midlands with all the ensuing upheaval for him and his family.
Fortunately, a reunion with two former engineering colleagues who had successfully established their laser cutting operation in the Midlands opened up new opportunities and the idea for a northern operation was born. Now Mike is heading up the new division of Accurate Laser Cutting in Leeds, with a £600,000 investment in the latest laser metal-cutting technology behind him that promises to create up to a dozen jobs.
The operation was set up in just a few swift weeks although, at one stage, an unsuccessful trawl of potential premises threatened to jeopardize the investment. With only days to go before the finance deal expired and still looking for premises with the power supply needed to run the equipment, Mike found a former industrial unit where the landlord had maintained the up-rated power supply for heavy machinery at his own cost. A tough lettings market meant the landlord was also willing to discuss flexible rental terms as well as refurbish the office space within the unit.
Mike and his partners have since driven other hard bargains. As a result they’ve been able to negotiate extended warranties and flexible payment terms on equipment, which will help ease demands on cash flow as the business gets off the ground. Ironically, with UK lenders still reluctant to take risks on new businesses, financial backing has been secured from French bank Société Générale.
Circumstances also conspired to create new opportunities for managing director Mark Wray who set up Power Engineering Services 10 years ago. The firm specializes in refurbishing and supplying high-voltage switchgear and transformers, to a list of blue chip clients ranging from British Steel to leading supermarket chains and regional power supply companies.
At the beginning of the year Mark’s partners, who owned the PES premises, decided they not only wanted out of the business but that they also wanted the premises the business operated from as well. ‘When our partners told us they wanted out of business, it came as a bombshell’, Mark recalls. But he and his wife quickly regrouped, pulling together the help and £400,000 worth of finance needed to organise a management buyout and relocate the business from South Yorkshire to bigger premises nearer their home in Leeds.
Preferred supplier status with many major organizations means 90 per cent of sales are repeat business, although recent projects have included power supplies for a by-pass tunnel for a hydro-electric plant on the mountainsides of Loch Ness. Keen pricing and a spotless health and safety record are hugely important but Mark attributes much of the success of the new venture to a great team spirit and a golden rule — he never asks anyone to do something that he isn’t prepared to do himself: ‘We really do pull together – who sweeps up after a job depends who’s nearest the broom at the time and that includes me’.
Like many other entrepreneurs such as Mark Wray, Mike Briggs and Sue Taylor have turned adversity and being in the right or wrong place, depending how you look at it, into an opportunity. All three share the courage of their convictions and a determination to make it work.
As enterprises grow into larger organizations, it’s this spirit they have to retain, one that challenges the status quo and encourages anyone with get up and go to spot opportunity, take risks and embrace change.