The Innovators – Driving Growth

IN the second of our series of round table debates on the subject of innovation, West Midlands companies have re-affirmed the need for diversification and bold decision-making.

But access to finance remains an issue for a number of companies.

The event – staged by accountancy and advisory firm KPMG at its One Snowhill offices in Birmingham in conjunction with TheBusinessDesk.com – brought together businesses and advisers to discuss how growth can be sustained and to look for common denominators linking successful businesses.

One of the themes to emerge was the importance of being open to bringing in outside expertise.

Wendy Merricks, chief executive of Solihull-based specialist recruitment and IT services firm Jumar Solutions, said: “Recently we took on a non-executive director so we can be more strategic. We’ve been operating a three year rolling plan but previously we stumbled into one opportunity after another and it takes time to evaluate these.”

Investment in products and services and diversifying into new areas was also a theme amongst the companies at the event.

“We’ve invested in product development,” said Merricks. “We started as a recruitment business but as an SME up against large organisations it was difficult because you were going up against businesses that could operate on 3% margins.

“We’ve had to become a bit more niche and now we are very technical and offer flexible management services.”

Henry Yap, managing director of Birmingham food business Wing Yip, suggested that his family’s business has evolved through necessity.

“Wing Yip has changed over 40 years. It was founded as a restaurant business but over the years changed the business model to supply restaurants rather than compete with them,” he said.

“Expansion has been driven by growing demand from customers but also by ourselves.

“We weren’t the first Chinese cash and carry business but many of our competitors are not there anymore.”

Yap said Wing Yip continues to invest into the business. During the bad times we prepare for the good and during the good times we prepare for the bad,” he said.

“During the downturn we expanded the Birmingham site and we are seeing the benefits of that.”

Yap also believes that having the right mix of people is essential to the running of a business, even a family one.

“You need a certain amount of tension in any organisation. You need different types of personalities and skill sets. Communications is very important. We get together and talk things through,” he said.

Ian Downing, an investment director at the Birmingham-based Business Growth Fund (BGF), set up to provide long-term capital for fast growing companies with the backing of a number of high street banks, believes the make-up of the management team is crucial when it comes to potential investment targets.

“All the businesses we look at are established. They all have a track record. The extra thing we look for are the people in the business,” he said.

“We are a minority shareholder. We like businesses to have non-executive directors and especially grey-haired non execs.”

Downing said poor management teams in good sectors are not as interesting to investors as good management teams in poorly performing sectors.

Fellow investor Craig Wright, chief executive of Burton on Trent-based Wright Industries, believes outside investors or advisers can sometimes act as a catalyst for future growth.

“We are looking for potential,” he said. “A lot of companies we have tried to acquire have built their reputations over a number of years.

“Sometimes companies hit a glass ceiling. It could be turnover or the size of their facilities. We look at whether our skills can remove the glass ceiling.

“We have to remove any barriers to growth.”

Specialist investors, or advisers, who work with start-ups or developing ‘tech’ companies are also attempting to add value to businesses that may be full of ideas but perhaps lack a long-term growth strategy.

Again, the theme is about bringing in outside expertise.

Michelle Rayner, a programme manager at E4F – a young entrepreneurs programme based at Innovation Campus Birmingham – said: “We like to meet companies face to face. They often need to find different skill sets.

“Mentors have an important role to play here as they challenge the business.”

Tim Grasby, an investment manager at Birmingham-based venture capital firm Midven, agrees. He said:  “At Midven we are very hands on. We take non-executive positions and put people into management teams.

“We have different funds, one for early stage. Later on we can bring in other teams.

“A lot of businesses we invest in have had a lot of funding from the government but it is too early to go the bank route. We come in to bridge this gap.”

Interestingly, access to funding was mentioned as a barrier to grow by several of the event’s participants, despite the widespread belief that things had become easier in this regard.

David Fair, financial controller at Birmingham-based residential developer at MCD, said: “Our biggest problem as a specialist residential developer has been the funding aspects. The banks haven’t wanted to go anywhere near property development over the last few years.

“The opportunities are around and the banks will come back but it is not there at the moment.

“We have looked at contractor funding so the builder in effect funds his own work.”

And Merricks at Jumar Solutions reports similar problems. “It is an issue now,” she said. “Six months ago we started to build a new product on the solutions side.

“This product is something that is in demand.

“We used retained earnings to build it but we talked to the bank about forward planning and they said they couldn’t do anything.

“We looked at other options and eventually found another bank that is prepared to lend against the debt book.”

Wright at Wright Industries believes cashflow is a key issue.

“I see the challenges time and time again,” he said.

“It’s about having the right advisers around. We work hard on headroom. If there is not enough to deal with issues we will step away.

“Cash management is crucial in a growth business. A lot of SMEs just don’t do it. They need to get under the skin of the drivers of cashflow. It might be about using working capital better.

“Finance must be seen as integral to an organisation.”

The feeling around the table was that family businesses often get the balance right between taking risk and keeping a tight rein on spending.

Yap at Wing Yip said: “Every business is different. Some of our largest businesses are family businesses. But every business needs to look at its people and skills and needs to plan clearly.”

Downing at the BGF added: “With some of the most successful family businesses we see, not all the senior executives are from the family.

“Some are very open minded and bring in externals and they are the most successful. It’s about creating a long-term strategy.”

Wright at Wright Industries said: “That’s why family businesses constantly outperform. They are not chasing turnover but looking at the business over the long term.”

Summing up, Ian Greaves, a partner at KPMG in Birmingham and the event’s host, said:  “At Wing Yip a lot of family members are in responsible positions but they are not all doing the same thing. It’s important that that’s the case.

“It’s about having all the bases covered.

“It is a barrier to growth if you have the wrong person in the wrong job. It could hold the business back.

“And it doesn’t matter which sector you are in, you need a good management team in place.”