54 // Speaker Bureau Insights and ideas from some of the country’s leading business thinkers. .........................................................................................................
66// The Last Word
Bob Battye – How to ‘show up’ to your Vistage Group.
Connect online, in person, and at events centred around your industry or special interest.
15 // Game Changers
How can you reimagine the future of the marketplace for your product and shape it to your advantage?
64 // My Vistage
How to get the most from your Vistage membership.
Attention Entrepreneurs…
How could a top level Finance Director add rocket fuel to your business, working part-time, for the cost of a junior member of staff?
3 By helping you find funding (we’ve successfully raised more than £2.9bn for our clients)…
3 By helping you build (or re-engineer) your business plan to greatly increase the odds of you meeting the targets you have set for yourself…
3 By showing you how to build the business in such a way that if and when you decide to sell, you maximise the value and achieve the highest possible sale price…
3 By identifying all the inevitable roadblocks ahead on your journey and showing you how to avoid them…
3 By systematizing your business to maximise productivity and efficiency (and increase equity value)…
3 By bringing your management information into the 21st Century, giving you unrivalled visibility over what is happening within your business…
3 By showing you ways to greatly increase your profit…
3 By putting measures in place to ensure that you don’t have to stay awake at night worrying about cash…
3 By checking that your business is fully compliant so that you avoid legal issues…
3 By opening up our vast network of suppliers and providers so that you can outsource to save on costs and improve productivity…
3 To manage the relationship with your bank opening up facilities you may not know are even available to you…
3 By helping with your taxation and legal requirements…
3 By helping fast track your company’s expansion across 5 continents without the usual red tape…
Our ‘Team’ model means that when you take on an FD Centre FD you get access to the skills and experience of over 120 of the top financial minds in the country… a hugely valuable asset to have at your disposal…
If you are interested in the part-time FD concept and would like to discuss how your business will benefit from taking on a part-time FD for the cost of a junior member of staff, please call us on: 0870 169 1499 or email us at: info@thefdcentre.co.uk
September 2016
VISTAGE TEAM
Steve Gilroy - CEO
steve.gilroy@vistage.co.uk
Geo Lawrence
Marketing Director geo .lawrence@vistage.co.uk
Sam Oddie
Speaker Bureau & Events Director sam.oddie@vistage.co.uk
Andrew Forster andy.forster@enginehousemedia.co.uk 07711 160590
Your new look VQ magazine is published on behalf of Vistage by:
From Vistage
I’m very pleased to present our latest issue of VQ. Following the launch of our new magazine in April, we have received many positive comments from across the Vistage community. In this issue, we focus on The Business Funding Landscape
Recent events have proven yet again, that our world continues to change at pace, with surprises, shocks and directions that many of us never dreamed would ever materialise. Since the financial crisis of 2008-9, the banking and business funding landscape has changed significantly. Now more than ever, businesses need to be fully aware of the options available to them, and how best to secure the right type of funding to achieve their goals. In the last year or so, as I visited Vistage groups and heard stories from across the member community, a couple of strong themes emerged:
● Banks (and other sources) are ‘awash’ with cash, but approaches to lending have changed dramatically – loyalty and banking history counts for nothing.
● Asset-based finance and new or ‘alternative’ sources of funding are replacing traditional bank lending for many.
The Vistage community is probably better prepared for what lies ahead. For those looking to fund their growth plans, this copy of VQ should give you the information you need to make better choices. It presents a thorough review of the options available, and describes the pros and cons of each option. It also includes some valuable tips and advice on how you present your case to a funder – another key issue that Vistage members have raised.
Vistage provides the information contained in this document to stimulate thought and discussion. We work hard to ensure that the information presented is accurate at the time of publishing, but you should take independent advice before acting on any information presented.
No part of this document can be reproduced in any form without the written permission of Vistage International (UK) Ltd. All material is acted upon at the reader’s risk and, whilst every care is taken, Vistage and the publisher will not accept liability for loss or damage.
Welcome to the second issue of the new-look VQ. We set out to provide content that is both thought provoking and useful and I hope we are delivering on that. I’m confident you’ll find plenty of top-quality insight in this quarter’s issue.
After a tumultuous few years in the financial world, with old institutions under pressure and new platforms emerging, the SME funding landscape has changed dramatically. So this quarter’s VQ Topic – Business Funding – is a timely overview of an area that concerns every Vistage member.
In Gamechangers , Peter Fisk challenges companies not just to ‘play’ in a different way but to change the game itself. The really successful companies are the ones that reinvent their markets – think Tesla, Uber and Nespresso.
With 17 years’ experience chairing Vistage groups, Bob Battye’s advice in The Last Word on how to be an effective member of a high performing group is well-worth heeding. There’s also useful reminder of the resources available to members on the My Vistage website.
Meanwhile, the four Speaker Bureau topics this quarter cover everything from mindfulness to predatory marketing and also challenge us to think about how we arrive at our core opinions and beliefs.
That’s just for starters – there is much more as well. Enjoy!
Colin Bradbury is a business writer with more than 20 years’ experience as a financial analyst at global investment banks in Hong Kong and London. He has also set up and run his own businesses.
Colin Bradbury
Steve Gilroy – CEO Vistage UK
Vistage is the driving force behind all of my major decisions
Vistage is my route to business growth and innovation
Vistage is where I go to get my answers questioned
16 Business Leaders. 1 boardroom. Endless possibilities.
Since 1957, Vistage has been bringing together successful MDs, CEOs, executives and business owners into private advisory groups. Each group is purpose-built to help members help each other improve the performance and outcomes of their business.
In our con dential groups, about a dozen executives meet once a month to solve problems, evaluate opportunities and work on an assortment of strategic and operational issues. Our 20,000 members around the world represent a wide range of industries and a variety of backgrounds.
To nd out more about how you can develop and grow your business contact Tim Ponsford on 01489 770237, email tim.ponsford@vistage.co.uk or visit vistage.co.uk
VQ News
VQ – Member Success
Congratulations to Roisin Hopkins (K205), Test Director at HORIBA MIRA, who landed herself a place in the Top 100 Inspirational British Women for her continued innovative work in Product Development in the car industry. Roisin said: “I am honoured to be listed in the Top 100 British Women in the global automotive industry and very proud to have been able to progress my career at HORIBA MIRA, alongside many other skilled and successful women”.
Daryl Brown CEO of the Huntingdon-based emergency medical charity Magpas (V328), has been elected the Mayor of Huntingdon.
Cornelius Group plc, under the leadership of MD Darren Spiby (V328), was placed on the LSE’s ‘1000 businesses to inspire Britain’ list, for the 2nd time in 3 years! The list is an annual celebration of some of the fastest-growing and most dynamic SMEs in the UK.
Having been highly commended in 2015’s awards, Tamdown Group (K203 & K123) has gone one better to be named Employer of the Year for 2016. The judging panel was full of praise for the company’s exceptional focus on its people and the huge progress it is making as an employer.
A provider of infrastructure, groundwork and reinforced concrete frame services, Tamdown grew turnover by 8 per cent in its latest results. In 2015 the company launched what it describes as a change management project, Fit 4 Growth.
Jan Lloyd, CEO at Covent Garden Market Authority and member of V123, scooped an RHS Chelsea Gold medal and the New Design Award for most innovative stand in the Great Pavilion for the dramatic floral installation –‘Behind Every Great Florist’ – at this year’s RHS Chelsea Flower Show.
Chris Sykes of V79 and Volume Global, has just signed a deal with SoftBank Robotics and will be one of the first UK companies to become certified partners working on Pepper the humanoid robot. Pepper is designed with the ability to read emotions by analysing expressions and voice tones.
Gold-i, the first FinTech company to win a Queen’s Award for Enterprise, has opened an office in Shanghai and is experiencing significant growth in China. The Guildford-based trading software company has also been announced as a finalist in the prestigious High Potential Business Awards 2016 in the category of Fast Growth Champion of the Year.
Hats off to Andy Lothian (V19), Chief Executive of Dundeebased training firm Insights Learning and Development, who was branded an “outstanding entrepreneur” as he claimed the title of EY Entrepreneur of the Year 2016 Scotland overall winner at a recent awards event.
Member Survey Update: Issue Processing
In our 2015 member survey, one of the key areas that members asked Vistage to improve further was Issue Processing – our method of exploring challenges and opportunities.
What you told us
Although still with good overall scores, Issue Processing had the lowest satisfaction levels in comparison to the other most important rated elements of Speaker Workshops and 1-2-1 Coaching/ Mentoring. Noticeably, with the weakest scores being on quality and time spent on issues:
l Quality of issues 7.8/10
l Time spent on processing issues 7.5/10
Typical comments about Issue Processing included:
l “They go on too long sometimes”
l “Many of the topics raised felt ‘forced’ as in we were trying to find something to fill the time”
l “Perhaps more structure needed for afternoon member sessions”
What we said we’d do & what we’ve done
During 2016 we said we would:
1. Deliver new/additional training to all UK & Ireland Chairs on the value/impact of Issue Processing.
2. Deliver a new Issue Processing ‘kit’ to Chairs, with new tools and templates to be used in group meetings and 1-2-1s.
3. Track the number of issues processed by group and add this as a new KPI to Chair dashboards.
At our most recent National Chair Meeting in June, the two days were completely focused on developing and expanding the Issue Processing skills and toolkits that Vistage Chairs can use to help ensure even more value is delivered within a Group’s executive session.
A lot of time was spent learning, reviewing and practicing. The agenda included:
l Unearthing and preparing issues
l Masterclass of the standard process
l Issue Processing using different perspectives (4 Russians, 6 Hat Think Tank and Stakeholders processes)
l Creative thinking Issue Processing tools to stretch the mind (Lego Build and Synectics processes)
l Quick fire and multi-issue processing (Box Exercise, 20 min Drill, Silent Q’s, Guru Observation and Small Group processes)
l Mature Vistage Group - Stretch and Share processes
In addition to the new Chair training and Issue Processing tools, we have also been testing a new electronic survey system that will replace the current paper based forms that members complete at the end of a group meeting. The new surveys will also ask specific questions about Issue Processing, and so we will begin to track the quantity and quality of Issue Processing. We will roll out the new survey system later this year.
What you can do!
We hope that you will see your Chair start to use some of the new Issue Processing techniques in the months ahead. Feel free to challenge your Chair, and ask to see some of the new methods in action!
Meet Our Members
Stuart Fox Managing Director
IF IT WASN’T FOR VISTAGE, WE WOULDN’T HAVE DONE THINGS IN THE WAY WE’VE DONE THEM.
Stuart Fox
When Stuart joined Vistage just over a year ago, he was following in the footsteps of his father and brother. Family run Housing Units had been part of the Vistage community for 17 years, but today’s hyper-competitive retail landscape makes the benefits of exchanging ideas with other members, being challenged by his Chair and inspired by speakers more valuable than ever.
With customer experience a key competitive strength, the 300 employees delivering that service have to be at the centre of everything the company does. Stuart realised that it was critical to get closer to the employees and make sure their voices were heard. At the same time, he recognised the need for a medium term strategic plan to provide a roadmap for the business.
Solution
A talk from Vistage speaker Shay McConnon about putting employees in the forefront and making your business a great place to work was a light bulb moment for Stuart. He immediately initiated a series of ‘Breakfast with the Boss’ events and asked the employees, in Shay’s words, to “talk to me, not about me.” These were followed up with individual staff meetings involving the
HR manager and Stuart then passed the feedback on to the senior management team.
As for the longer-term future of the business, Stuart’s Chair, Ivan Goldberg gave valuable guidance in putting together a 5-year plan. Stuart was also encouraged in this by two other members of his Vistage group who had recently completed a similar exercise. Amongst other things, they identified the need to grow Housing Units’ online presence, leading to the appointment of a new Multi-Channel Director.
Results
The staff consultation exercise allowed the management and staff to understand one another better and for Stuart that was a major result. “Our business thrives on the fact that we are better than any other retailer at service so we have to look after our staff who are responsible for that. The team listening meetings were critical.”
The five-year plan, meanwhile, has helped with the generational transition in the business as Stuart’s father steps back from day-to-day responsibilities. More immediately, the online service that was identified as a priority has become the fastest growing part of the business. With two thirds of online sales coming from outside their usual delivery area, this has opened up a huge new untapped market.
With the business going from strength to strength, clearly something is going right at Housing Units. And Stuart is happy to acknowledge the role of Vistage; “If it wasn’t for Vistage, we wouldn’t have done things in the way we’ve done them.”
Housing Units
With more than 200,000 square feet of home furniture and interior design products, 30,000 products and 300 staff, 69-year-old Manchesterbased Housing Units is one of the largest furniture shops in the North of England. This family owned business prioritises exceptional customer service and also offers two dining and refreshment venues adjacent to its main stores.
Rob Judd
Managing Director
Optima Contracting
Challenge
With 30 years at the helm of Optima, Rob Judd has faced pretty much every challenge that a growing business can throw at a manager. For half of that time he has been a member of Vistage and has frequently turned to the members of his group and its Chair for input, advice and perspective. Rob picks out two moments in particular when the group members have helped with critical decisions.
Several years ago, Optima needed to make a strategic appointment in the form of a new Sales Director. Rob had two great candidates with very different approaches and skill-sets and was struggling to decide which would be right for the business at that time. Then more recently, one of Rob’s codirectors wanted to sell out of the business and, as happens frequently in these situations, it was proving difficult to agree on a valuation.
In both cases, the burden of the decisions fell on Rob’s shoulders, bringing home the reality that heading up a business can be lonely place.
Solution
Rob took the dilemma over the Sales Director to his Vistage group, outlining the case for each candidate. After discussions with the 15 members, a clear
consensus emerged and Rob appointed accordingly. Subsequent experience has shown that to be absolutely the right decision.
As for the director buy-out, Rob was pleased to find people in his group who had faced exactly the same situation. Their perspectives proved invaluable in arriving at a resolution. As he says; “There’s always somebody in the group who’s done what you’re looking to do. Specific experience always seems to be available.”
Results
Optima’s revenue is now in the £45-50m range, a fifteen-fold increase from when Rob took over. With 320 employees and production facilities and offices in both the UK and overseas, the company has changed from being a general office interiors business to a specialist in the partition market.
Rob feels that, far from exhausting the benefits of his Vistage membership over the last 15 years, he and his business are still learning. As he says; “There are always new people coming into the group and therefore new experiences. And you can give more because you’ve learnt more.” He has also found the speaker network to be of immense value. One specific example – as the business grew, several speakers helped them to re-think their position in the market. Optima are at the premium end of the range and the confidence to keep charging slightly higher prices in return for superior service has led to strong margins.
Finally, Rob also values the focus that Vistage places on the personal wellbeing of executives. After a personal bereavement, he found the pastoral support from his group invaluable.
A KEY ASPECT OF VISTAGE MEMBERSHIP IS HAVING 10-15 PEOPLE YOU CAN TRUST ABSOLUTELY TO GIVE AN OPINION WITH NO AGENDAS. YOU GET TO KNOW THE GROUP PERSONALLY AND IN A BUSINESS CONTEXT.
Rob Judd
Optima Contracting
Optima manufactures office partition systems and offers a design and installation service. The company has offices in the UK, Middle East and Malaysia.
Vistage Networks
■ Networks overview:
Construction Network
Construction – For Vistage members committed to excellence within their companies and the construction industry.
Financial Ser vices Network
Financial Services – Connecting Vistage members who are committed to excellence in their businesses and the financial services industry.
Connect online, in person, and at events centered around your industry or special interest. This issue we focus on the Media and Marketing Network and the Manufacturing Network.
1. Media and Marketing Network
Networking that works – the Network Directory Connection.
Marketing and Media Net work
Dave Thompson
Vistage Member, CE 3880 President & CEO, National Pen San Diego, CA – Join date May 2015.
Healthcare Network
Healthcare – Connecting Vistage members committed to excellence within the healthcare and medical industry.
Nonprofit Network
Nonpro t – Connecting Vistage members who have a passion for running businesses that positively impact the community and environment.
Wholesale Retail Net work
Wholesale Retail – Connecting Vistage members in the wholesale and retail industries who wish to broaden their knowledge, discuss industry challenges and grow their businesses.
Deal – Connecting Vistage members who want to explore mergers and acquisitions, growth capital and liquidity events.
Deal Net work
Family Business Network
Business Challenge Outreach:
Dave has been working on a strategic initiative for National Pen to generate business in China. Through the Vistage Marketing and Media Network directory, Dave connects with Casey Xiao-Morris, China Market Consultant for Leverage China, LLC.
Result:
Family Business – Connecting Vistage members within family-owned or operated businesses seeking support, knowledge sharing and growth.
Global Business Network
Global Business – Connecting Vistage members to their global community to broaden their knowledge of global business topics and emerging markets.
Golf Net work
Manufac turing Network
Golf – Connecting Vistage members with a passion for golf, both as a sport and as a business tool.
Manufacturing – For Vistage members committed to manufacturing excellence and innovation through collaboration and knowledge sharing.
Marketing and Media Net work
Marketing & Media – For Vistage members interested in connecting with other marketing and media peers to share knowledge across industry sectors.
With Casey’s expertise and guidance, National Pen sends RFPs for digital ad agencies based in China; Dave travels to China to meet with these agencies.
“As business leaders, we don’t know what we don’t know. I am constantly looking for ways to be more efficient in direct marketing, and the ability to find expertise outside of my world helps me better understand what I don’t know. Vistage Networks add value by providing the pragmatic viewpoint of peer members as well as recommendations around very specific subject matter.”
– Dave Thompson
Technology Network
Purpose-Driven Business – For Vistage members committed to creating a better world through business.
Purpose -Driven Business Network
Technology – For Vistage members in technology industries driving emerging trends, leading innovation and developing connections with industry leaders.
Travel, Food and Wine Network
Travel, Food & Wine – Connecting Vistage members looking to build relationships around a shared passion for travel, food and wine.
Women in Leadership Network
Women in Leadership – For Vistage members interested in a community devoted to supporting women business leaders.
2. Manufacturing Network
Manufacturing Network
The benefits of a discussion group are farreaching, here’s an example of how Vistage can help you connect instantly across the globe.
June 12, 2015 10:21am
Bernie Thompson Plugable Technologies, Bellevue, WA
“Technologies. I’m a new Vistage Member and live in Bellevue, WA. I’m glad to have this group forming and would love to build connections with other manufacturers looking at onshoring, especially for globally competitive areas like low-margin consumer electronics. Looking forward to the discussions.”
June 12, 2015 10:25am
Neal Elli Empire Precision, Albany, NY
“Hello Bernie. If you ever nd yourself in upstate New York you are welcome to have a tour of our facility. I’d be happy to share insights about equipping/running and injection molding company.”
June 12, 2015 10:26am
Nam Tran Cortech Engineering Orange County CA
“Glad to have you here Bernie. We have your UD-3900 on every desk here!”
June 12, 2015 10:45am
John Rasmussen
Canfield Industriues, Youngstown, OH
“My name is John Rasmussen, President and Founder of Can eld Industries in Youngstown, Ohio. We are a solutions based company with 107 employees making a broad range of products including contract manufacturing and assembly electronics work. We have made thousands of surge suppressions devices used in cell towers as well as many polyurethane over-molded connection devices.”
June 12, 2015 11:08am
VISTAGE NETWORKS MEMBERS GAIN EXCLUSIVE
ACCESS TO MORE THAN 21,000 VISTAGE EXECUTIVES, SMALL BUSINESS OWNERS, AND EXPERTS IN THEIR FIELDS WITH AN OPPORTUNITY TO:
● FORGE VALUABLE INDUSTRY CONNECTIONS
● SHARE BEST PRACTICES
● GAIN ACCESS TO EXPERT THOUGHT LEADERS
● PARTICIPATE IN SUBJECT-MATTER MEET UPS, EVENTS, AND WEBINARS
● SOURCE GLOBAL REFERRALS
Michael Ly Burlingtons CFO, LLC Burlington, VT
“Welcome to the group. I wanted you to know that I ordered one of Plugable’s docking stations for my o ce and I absolutely LOVE IT!”
June 12, 2015 11:22am
Jeffery Tawney AquaCal, St Peteresburg, FL
“Taking the opportunity to jump in on your o er to Bernie “ Plugable… We have just started up an injection molding division and it is new to us, we are learning as we go.”
June 12, 2015 12:40pm
Trey Thompson Anchor Fabrication, Ft. Worth, TX
“Nice to meet you Bernie, I have one of your USB 3.0 on my desk right now routed through mySurface.”
Leveraging Vistage within your organisation
Vistage KEY and INSIDE Groups
With over 1200 members in the UK, Vistage is reaching a growing share of the SME business market.
Our core offer (the Chief Executive group) focuses on CEOs, MDs and the most senior executives. Members in this area tend to stay within Vistage for two-three years, but over 40% of our CE members have been with Vistage for much longer than that (our longest-serving member has been with us for over 25 years).
Once Chief Executive members realise the value that Vistage can deliver to them personally they often ask how Vistage can help the rest of their organisation. There are two types of offer within the Vistage value proposition that are designed to go within an organisation and reach a wider audience – KEY groups and the Vistage Inside programme.
Profile – David D’Arcy
David works with business leaders and their management teams in the North East of England covering the area between the Scottish Border and Teesside. He concentrates on professional and personal growth thus increasing effectiveness and enhancing lives. He is Vistage Chair for the North East, a strategic planning facilitator, non-executive director and company secretary.
■ KEY GROUPS
Key Groups focus on key executives – typically Director-level roles one level down from the CEO role. CEO members can sponsor members of their management team as members of a KEY group. The usual Vistage formula applies – great Speakers, a professionally-trained Vistage Chair and access to the Vistage Open Day events and MyVistage. 121 coaching sessions can be added if needed. KEY groups can be a very effective development tool to prepare senior executives for succession plans or as part of a general personal development plan.
Vistage Chair David D’Arcy runs KEY groups in the North East, and lists several advantages for Vistage members…
W: https://uk.linkedin.com/in/daviddarcy4542
CEO members undoubtedly get more value from the Vistage experience if they have one or more Key Programme members because collectively they can achieve so much more. Having kindred spirits in an organisation helps to quicken the pace of change. I have lost count of the organisations who have got significant additional profitability by having a more unified top team who are singing off the same hymn sheet and supporting each other. One member company regards the Key Programme as a part of their Personal Development Programme for the Senior Management Team and being allowed to participate in Vistage is seen as the recognition that the individual is valued and has a great future within the Company.
In terms of the direct benefits to individual KEY members, David goes on to say…
As a Chair I cannot overstate the pleasure I get from seeing individuals blossom by the interaction with like-minded individuals from other growing organisations. The progress made is extraordinary and most rewarding. The full extent of the help members give each other between meetings is substantial and I only learn of a small portion of the interventions.
■ VISTAGE INSIDE
Another programme that can take the Vistage model into an organisation is the Vistage Inside programme. This involves the creation of a separate Vistage group where the members are all made up from executives within the same organisation. The group and entire meeting structure is customdesigned for an organisation to help achieve a specific set of strategic objectives. There are several advantages to this:
l The frequency of meetings can be adjusted to suit the organisations needs.
l Speaker topics can be planned to match the needs of the organisation, and these in turn can move the entire organisation towards a long-term plan or vision.
l The entire team gets the same Vistage experience, and so actions get implemented faster, people are more aligned.
l 121 coaching can be added as needed, and again, customised to the organisations needs.
Of course there are also one or two things that are different in a Vistage Inside group:
l Issue processing is still used where appropriate, but individual or personal issues are rare (unless the group agrees to go there). Most issues focus on business challenges or opportunities and change.
l Meetings tend to take place within the organisation venues, sometimes matching up with executive meetings to maximise the use of time/travel and minimise expense.
l Vistage Inside groups often incorporate other content, virtual learning and other items as part of an overall development programme.
If you would like to explore a Vistage Inside group, in the first instance talk to your Vistage Chair. Your Chair can work with Vistage HQ to design a programme to meet your needs.
Looking to scale new heights?
Group Chair and Executive Coach
• Challenge - Could you bring together a group of business leaders and inspire them to even greater growth?
• Contribution - Do you want to see other business leaders improve their businesses and their lives?
• Learning - Are you looking to further develop skills including facilitation and coaching and be part of a world class learning environment?
• Earning - Are you looking to build a great income?
If you’ve been a senior director or business owner and have the drive and passion to inspire others to even greater success then the role of Vistage Group Chair could be for you. Since 1957, Vistage has been bringing together successful CEOs, executives and business owners into private peer advisory groups. From the beginning, Chairs have been at the heart of what makes the Vistage experience so powerful for so many members.
Find out more about our community and the role of a Vistage Group Chair visit www.vistage.co.uk/chair/
Gamechangers
How can you reimagine the future of the marketplace for your product and shape it to your advantage?
Vistage speaker, Peter Fisk suggests how to change the playing field altogether and become a ‘gamechanger’.
For even the most ambitious businesses, innovation usually means adopting a new business model or introducing a new product into a marketplace that is seen as a given. But the real opportunity lies not merely in playing the game in a new way, but changing the game itself.
There are numerous examples of companies that have reinvented their markets.
While electric car manufacturer Tesla may be best known for their vehicles, the company recognised that producing a great car was only half the job. The infrastructure needed to speed the acceptance of electric vehicles was equally important. That’s why they are creating the world’s largest electric charging
Profile – Peter Fisk
Peter is a business and brand innovation expert. He is a strategic advisor to business leaders on winning strategies and bolder brands, smarter innovation and better marketing, making sense of fast-changing markets, learning from the next generation of brands, digital and physical, large and small, west and east, new ideas and practical solutions. He inspires and enables you to innovate and win in the exciting new world of business. He was recently described by Business Strategy Review as: “one of the best new business thinkers” and is in demand around the world as a strategic consultant and energising speaker.
Contact
W: https://vistage.co.uk/speakers/peter- sk
network. They are giving away IP so that others can grow the market for electric vehicles and ensure the success of their ‘Supercharger’ network. They have created a new ‘game’.
Coffee company Nespresso has also changed the playing field. By offering high quality but reasonably priced coffee machines that use their pods exclusively, then offering the pods through a subscription network, the Nestle subsidiary has altered the way coffee is consumed.
Other examples include WhatsApp and Uber. As Peter puts it; “They start from the future back, making sense of change, seeing the new patterns and possibilities.”
Breaking away from the mindset that sees new products as pursuing incremental improvements is key. For Peter; “gamechangers think about making things 10x better, not just 10% better.”
Here are Peter’s five ‘Winning Actions for companies starting down this road.
Design Thinking: Spend time with customers to understand their needs and aspirations and work out how you can make their lives better.
Parallel Worlds: Look at how consumers buy other products as well as your own. People who sign up for phone contracts may do the same for other products. Those who pay on a per use basis for one service might accept a similar approach in others.
Strategic Framing: Redefine how you see your market to avoid playing the same game as your competitors. A Brazilian company combined food and drink with cosmetics and created an entirely new product category.
Horizon Planning: Plan from the future back. Define what you want the customer experience to be in three years and work out how to deliver it.
Fast and Agile: Move fast, make mistakes, learn and then pivot to pursue the best opportunities. Look for profitable niches rather than mass market share.
SOME PEOPLE SEE THINGS AS THEY ARE AND SAY WHY? I DREAM THINGS THAT NEVER WERE AND SAY, WHY NOT?
Robert F. Kennedy
CREATE THE FUTURE IN YOUR OWN VISION, RATHER THAN LIVING IN THE SHADOW OF OTHERS. THINK HOW YOU CAN SHAPE THE FUTURE TO YOUR ADVANTAGE, TO MAKE SENSE OF CHANGE AND DEFINE YOUR OWN DESTINY. DON’T JUST PLAY THE GAME, CHANGE THE GAME.
Peter Fisk
Roger is an economist turned strategist. He speaks at conferences across the globe on the economic outlook and its impact on business. He is a practical researcher, focusing on how the economy really works and on the links between FT100 reward systems, the behaviour of banks and economic instability.
A special forum has been created on My Vistage to share relevant information and for specific Q&As following the Brexit referendum.
To join the group visit: https://my.vistage.com/ groups/brexit
Life After the Referendum
Roger Martin-Fagg shares his thoughts on a topic that has been high on the agenda.
The Prime Minister has resigned.
A Conservative MP who voted to leave said we must remember that nothing will change. Everything will change and in ways that we cannot predict. The economy is characterised by positive feedback. This means a small change in one part of the system is magnified by the systemic response. In the aftermath of the referendum result the global stock markets have crashed, sterling fell to $1.30, and Moody’s have said the UK will lose its AAA rating. These are knee jerk reactions but they are destabilising.
Positive feedback has already been triggered. The Bank of England has made soothing noises and will supply short run liquidity to prevent the wholesale market from seizing up. Boardrooms around the world will be trying to evaluate both the risks and the opportunities. As I said, everything will change, and it has already started.
■ THE BACKGROUND
Since the early 80s, skilled and semi-skilled workers in the USA, the EU and the UK have experienced falling real incomes. The share of national added value going to capital has increased (this means shareholders). This increase in inequality is now being reflected at the ballot box and voters think that it has been caused by the political class and, in the UK, by immigrants from the EU. This is incorrect. In my opinion it is China. From 1980, 1.2 billion new workers joined the global economy and this depressed real wage growth. At the same time shareholders approved reward schemes for senior managers based per share growth on earnings that prompted outsourcing, labour saving technologies, and headcount reductions. Taken in combination the result has been a significant increase in income inequality in the West and the voter has reacted to it.
Roger Martin-Fagg
■ THE KNOCK-ON EFFECT
The entry of China into the global system has driven the West to move further up the added value chain, which has increased the demand for highly skilled employees, and reduced the demand for the unskilled (and their real wages).
It is my opinion that these fundamentals are now driving the attitude of the electorate who tend to sum it up in simple terms: blame it on immigrants, the ruling elite and the unelected bureaucrats in Brussels who are depressing wages.
Brexit does not change this at all. It is not the solution. The solution is a significant increase in the education and training of those who have suffered falling real wages.
■ WHAT IS THE OUTLOOK?
History tells us that the perceived value of property is a significant driver of consumer confidence. The mortgage rate is closely aligned to the yield on Government bonds. The yield depends on expected movements in the exchange rate, the Government’s budget position, political risk and expected inflation.
If we lose our AAA rating, the yield on bonds could rise, but a weaker sterling could offset this. However, if a further weakening is expected, then overseas purchasers will wait and the Government will have to raise the interest rate or cut the price in order to obtain finance. Either way the cost of financing our £1.56 trillion national debt will rise. It costs 43 billion a year at present.
■ THE FIGURES
The Bank of England could do more QE but I doubt it. As a rough rule of thumb, every 10% fall in sterling adds 1% to CPI within a year (unless offset by price cuts from China). We have a deficit on our balance of payments equal to 7% of nominal GDP, this has to be financed and higher interest rates enable this.
Over the next three years we can forecast interest rates higher than expected, house prices stagnating or falling, inflation higher than expected (real incomes falling), consumer spending dropping from 4% year on year to 1-2%. Real growth falls from 2.5% per annum to under 1%. Unemployment begins to rise in a year, net migration drops to around 140,000. Government income falls below plan and either borrowing goes up (currently £68bn a year) or the rate of growth Government spending has to fall.
■ THE GOVERNMENT
As we go to press a new PM has taken office. Theresa May will write the letter to leave the EU or conceivably she might wait to see the results of elections in Germany, France, Czech Republic, and Hungary. Existing trading agreements will remain in place, which will give the UK time to build a team of negotiators. The EU is one of the least protectionist regions and that is where we should place all our efforts. However, a free trade deal will require free movement of people. Meanwhile the political risk in the UK will trash investment spending particularly from overseas. This impacts on longer run productivity growth.
■ IN CONCLUSION
I have not made any numerical forecasts because it is too early to have a view. I can be confident though, that we should expect much lower growth than forecast at the beginning of the year. I suspect there are many who voted leave, with no expectation that it would actually happen, they just wanted to give the toffs a bloody nose. Regrettably it will be the working poor who will get the bloody nose over the next few years. My personal view is this event will prove to be a mistake. It is companies who trade with each other, not governments. I cannot see how the vote will change the desire of companies in the UK to seek overseas markets with more vigour. The EU will still be our biggest market and as it recovers strongly over the next few years, we may regret leaving the table.
The Business Funding Landscape Introduction
The business funding landscape has changed dramatically over the last ten years. The 2008-09 Global Financial Crisis (GFC) rocked the foundations of the traditional banks just as technological innovation enabled new providers to challenge the existing players. As a result, the variety and sources of funding available have significantly expanded.
Peer-to-Peer lending and Crowd Funding are the most prominent of the new innovations and are experiencing explosive growth. More established forms of alternative finance such as Private Equity, Venture Capital and Angel Investors remain important, of course. Meanwhile, government incentives in the form of the EIS and SEIS schemes are encouraging capital flows into entrepreneurial businesses.
A big-picture overview of the traditional (i.e. bank) funding landscape, reveals that the credit market for SMEs has been improving since the post GFC lows.
The Federation of Small Businesses’ most recent survey on credit availability for SMEs in Q1 2016 showed a continued rise in the success rate of small
FSB SBI: Proportion of small businesses successful in bank credit (e.g. loan or overdraft) applications in the past three months
businesses applying for bank loans or overdrafts from the low point in early 2013.
The bad news is that overall bank lending to SMEs continues to stagnate. As the table below shows, the outstanding stock of bank loans to SMEs has been declining for the last four years.
Outstanding stock of bank loans to SMEs
*12 months to November 2015 Source: Bank of England
Net new bank loans to SMEs totalled just £2bn in the 11 months to November 2015. So while SMEs continue to rely heavily on traditional banks for capital, it’s been a tough few years for them. It’s no surprise then that, according to the 2016 SME Finance Monitor, 37% of SMEs in 2015 were using external finance, compared to 44% in 2012 (albeit a higher percentage for larger businesses with 50 or more employees).
And the banks’ lock on funding for SMEs continues to loosen. According to the SME Finance Monitor survey, the use of ‘core’ bank products (term loans and overdrafts) has been declining – from 40% of SMEs in Q1 2012 to 29% in Q3 2015.
So with estimates from the British Business Bank suggesting that approximately £4bn worth of applications for debt from nearly 100,000 SMEs are rejected by banks each year, it’s hardly surprising that growing businesses are looking for alternatives.
The definition is wide, taking in everything from established channels like Venture Capital and Private Equity to newer innovations such as Peerto-Peer lending and Crowd Funding. In between are established forms of funding that are being given a fresh impetus thanks to new entrants into the market; Asset Based Lending (invoice finance) is a leading example.
l Gross national bank lending to SMEs: £53bn
l Alternative finance raised through online channels in 2015: £2.2bn
l Total alternative business lending: £1.82bn
l Equity based Crowd Funding: £332m
Source: Nesta/Cambridge University ‘UK Alternative Finance Industry Report (2015)’
According to the ‘UK Alternative Finance Industry Report (2015)’ by Nesta and Cambridge University, last year, approximately 20,000 SMEs raised alternative finance through online channels (including Peerto-Peer business lending, invoice trading and debtbased securities), receiving £2.2 billion in business funding.
The report goes on to say: “Looking specifically at the small business sector, we estimate Peer-to-Peer business lending (excluding real estate lending) supplied the equivalent of 13.9% of new bank loans to small businesses in the UK in 2015 (based on BBA’s 2014 baseline figure of £6.34 billion).”
And awareness of the alternative options continues to grow. According to a report from the British Business Bank, for example, 49% of SMEs have heard of Crowd Funding platforms in 2015 up from 13% in 2012.
However, further education is needed in the specifics. While 60% of smaller businesses are aware of Venture Capital as a finance option, only 22% are aware of any specific funds. Similarly 40% are aware of Peer-to-Peer lending but only 19% are aware of a specific platform.
(Source: http://british-business-bank.co.uk/wp-content/ uploads/2016/02/British-Business-Bank-Small-Business-FinanceMarkets-Report-2015-16.pdf p.21 Table of Awareness of Di erent Types of Business Finance).
■ IN THE FINAL ANALYSIS, IT’S STILL A CHOICE BETWEEN DEBT AND EQUITY
Before we dive into the detail of the different funding sources available to SMEs, we shouldn’t forget that, for all their individual quirks, the options fall into one of two broad baskets: debt or equity.
DEBT
l Bank term loans and overdrafts
l Asset Based Lending
l Peer to Peer Lending
EQUITY
l Crowd Funding
l Angel Investment
l Venture Capital
l Private Equity
Whether it’s a traditional form of funding or something more novel, the first decision a business has to take is whether to seek debt or equity. Both of them are more suited to different uses and they have their own pluses and minuses.
DEBT is suited for longer-term investment (e.g. an asset purchase) or to fund shorter-term working capital requirements. On the plus side, owners don’t relinquish any control over the business when they take on debt. All the lender cares about is the ability of a company to pay interest and repay the capital at the end of the life of the loan. On the downside, interest payments are a drag on the P&L and capital has to be set aside to repay the debt. And one way or another, that debt does have to be repaid. In a worstcase scenario, the business could be forced into administration in order to pay the creditors.
EQUITY, on the other hand, never has to be repaid. And dividends, unlike debt interest payments, can be suspended if the business goes through hard times. However, there is a price attached to equity. The owner is surrendering some degree of control and in extreme cases – for example if a large chunk of the shares have been sold to an aggressive Venture Capital or Private Equity investor – it could result in the CEO being fired from the company they founded.
This is all basic stuff for the seasoned entrepreneur. But it’s worth reiterating that the first decision to be made is between debt and equity. Once a judgement has been made on that issue, businesses are ready to start considering the options at the next level down.
PEER-TO-PEER LENDING AND CROWD FUNDING ARE THE MOST PROMINENT OF THE NEW INNOVATIONS AND ARE EXPERIENCING EXPLOSIVE GROWTH.
Traditional Banks
The global financial crisis changed the games for the banks
The world of finance underwent a seismic change in 2008-09 as a result of the Global Financial Crisis (GFC). SMEs in the UK are still feeling the effects. Prior to that, the large, traditional high street banks pretty much had it all their own way in the bread-and-butter business of providing finance to SMEs. In the years up to 2008, lending practices had become ever more liberal, with lax credit assessment and fierce competition to lend creating the environment for an explosion of bad debts.
After the banking system narrowly avoided toppling into the GFC abyss, a raft of new regulations were introduced to make UK banks more robust and prevent a similar crisis in the future. Some of the reforms have emerged from the UK and some are internationally driven, but the combined effect has been to change the way that high street banks lend money.
The most important initiatives were the introduction of the so-called Basel III regulations, which come into effect in 2019, and the establishment of a number of bank supervisory bodies.
The arcane details of the new regulations need not concern SME owners and managers, but it’s important to understand the main implications:
l The increase in banks’ capital ratios means that they will need to keep more cash in reserve for every pound in new loans they make, restricting the ability to grow their loan book.
l It will likely make banks more inclined to focus on lending to larger companies rather than smaller SMEs that carry a higher perceived degree of risk.
l Unsecured funding will become increasingly scarce, and Asset Based Finance, backed by a stream of future income (most commonly outstanding invoices) or hard assets will become the default. This type of lending is attractive to banks because it’s classified as relatively low risk and they therefore have to set aside less capital against it.
■ BUT BANKS REMAIN IMPORTANT TO SMES
At one level, growing businesses have become less reliant on traditional banks. The SME Finance Monitor survey shows that across all SMEs, the number using ‘core’ bank products (bank loans, overdrafts and credit cards) has declined from 40% of SMEs in Q1 2012 to 29% in Q3 2015. This has been stable since the end of 2013 however, indicating that the decline in use of such products has tailed off. And the overall figures are probably skewed by the lower propensity of very small businesses to borrow from the bank.
Bank lending remains the single largest form of finance for smaller businesses, and thus developments in this sector have a major impact on SMEs’ access to funds. The British Business Bank’s Small Business Finance Markets 2015-16 Report says; “over half of UK smaller businesses immediately go to their main bank when they first identify a financing need and do not shop around for finance.”
Estimates of the flows of some types of external finance for UK SMEs {a}
AFTER THE BANKING SYSTEM NARROWLY AVOIDED TOPPLING INTO THE GFC ABYSS, A RAFT OF NEW REGULATIONS WERE INTRODUCED TO MAKE UK BANKS MORE ROBUST AND PREVENT A SIMILAR CRISIS IN THE FUTURE.
Source: Bank of England
Other Gross Flows of SME Finance
Source: Beauhurst {f} No. of Reported Deals
Source: FLA {g} to Nov 15
Source: Alt Fi Data {h}
{a} The information contained in this table should be viewed as indicative as data and definitions are not directly comparable across different sources. There can be some double counting across estimates in different parts of the table. Flows data are cumulative totals for the year or to the date stated. Non-seasonally adjusted. All numbers are in billions and have been rounded appropriately.
{b} Statistics taken from Bank of England Bankstats Table a8.1 - Available: http://www.bankofengland.co.uk/statistics/Pages/bankstats/2015/nov.aspx
{c} Amounts outstanding data include overdrafts and loans in both sterling and foreign currency, expressed in sterling. Non-seasonally adjusted. Movements in amounts outstanding can reflect breaks in data series as well as underlying flows. For further details see www.bankofengland.co.uk/ statistics/Pages/iadb/notesiadb/Changes_flows_growth_rates.aspx. For changes and growth rates data, please use the appropriate series or data tables from Bankstats, available at www.bankofengland.co.uk/statistics/Pages/bankstats/current/default.aspx.
(d) Data includes overdrafts and loans in both sterling and foreign currency, expressed in sterling. Net flows does not always reconcile with change in stock due to differences in statistical reporting. The reported stock can include other adjustments made by banks but not detailed when reported, whereas flows data does not include these adjustments.
{e} Data exclude overdrafts and covers loans in both sterling and foreign currency, expressed in sterling. The total may not equal the sum of its components due to rounding.
{f} Beauhurst is a market data provider that records visible equity deals including Crowd Funding deals. Data will be available in forthcoming Business Bank /Beauhurst publication.
{g} The Finance & Leasing Association (FLA) whose members make up 90-95% of the market. Data obtained from FLA Asset Finance Confidence Survey.
{h} Figures do not represent the entire market. Data obtained from AltFi Data.
It’s fortunate, then that the credit environment for SMEs has shown some improvement recently. The same report says that; “Small business bank credit markets have improved over 2015… notably, after several years of contraction, net bank lending to smaller businesses has increased for four consecutive quarters. Asset finance has also continued to grow strongly.”
The Bank of England noted in its Q3 Credit Conditions Review that both its Credit Conditions Survey and the Federation of Small Businesses’ Voice
of Small Business Index were consistent with reports from the Bank’s agents that credit availability for smaller firms had improved; although it remained tighter than for larger firms. (See table on following page.)
According to the Bank of England, gross loans to SMEs exceeded repayments in each quarter in 2015, leading to an increase in net lending – the first time that this has happened since the GFC. Data also shows that successful loan and overdraft applications rose as a percentage of the total from 69% in the
p18 months to Q4 2012 to 81% in the 18 months to Q4 2015. So while bank funding has been tight for several years, and alternative finance sources (which we will consider later in this report) are growing in importance, traditional banks remain a critical component of the SME funding landscape.
■ FINDING THE RIGHT BANK
The rules of the game have changed in recent years when it comes to finding the right bank. Above all, relationships have become less important than before. Vistage speaker, Jean Pousson says: “These days, just because you’ve been a loyal customer, the bank doesn’t owe you any loyalty in return. If you go with a great pitch to a new bank they will hear you out just as much as the bank you’ve been with for 20 years.“
And the strategies of banks towards SMEs changes all the time. Different banks will be trying to attract SME customers at different times. Find out who is looking to grab market share by being more aggressive and offering more attractive terms. It could also pay to engage an independent adviser who will have up-to-date knowledge on which banks are offering the best deals at any one time.
So there’s a clear message: shop around and don’t make the transaction bank you’ve been with for years the default choice.
■ WHAT DOES A BANK LOOK FOR FROM A POTENTIAL BORROWER?
When you’ve found what looks like the right bank, how can you give yourself the best chance of securing funding?
The first thing to understand is that SMEs are perceived to be more difficult to assess from a credit risk perspective. Because the costs to a bank of due diligence on a loan is relatively fixed, it accounts for a larger share of small deals, making it more efficient for banks to lend to larger customers. As the Small Business Finance Markets report says:
“A material portion of smaller businesses who apply for finance are still rejected. This reflects the likelihood of information asymmetries between borrowers and lenders where it may be costly or difficult for lenders to secure the information they need to make an informed investment decision. It applies to small businesses at all stages of development.”
To overcome those ‘information asymmetries’, SMEs need to serve up all the data and the other information a bank needs for a credit assessment on a platter. While it’s a complex topic, in essence the banks’ information requirements boil down to the following. They want to know about:
1. Management
Nothing beats a face-to-face meeting to convey the strength of a management team. So take all the key members of the team along – the CEO doesn’t have to pretend to know everything. If the FD and the Sales Director are better placed to answer detailed questions in those areas, take them. The bank won’t see that as a weakness but will likely be impressed by the strength of the team.
2. Good quality nancial information
The bank will want to see up-to-date trading accounts – balance sheet, profit and loss account – together with P&L and cash flow forecasts for at least the next 12 months. When it comes to the forecasts, companies should recognise that banks will immediately chop your estimates back to gauge the impact on the ability to service a loan. So it’s a good idea to pre-empt that by presenting two cash flow forecasts – the most likely scenario and a distressed version. There’s a good chance the bank will accept the latter, which means the company at least has some say in the process. And with this, as with all forecasts, provide the business assumptions that underpin them.
3. Repayment of the loan
It goes without saying that the financial forecasts have to clearly show how the loan will be repaid. At the same time, the company will need to show that it has the requisite assets to provide security in case of default. That may sound blindingly obvious, but surveys of rejected loan applications show that a lack of adequate collateral is a frequent stumbling block.
■ MAJOR BARRIERS TO SECURING A LOAN
l Poor timing
If a company approaches a bank with an urgent request for money next week, the bank knows there’s a problem and will suspect poor financial planning. Informing the bank that in three months time you might need funds because of a looming cash flow issue sends a very different message.
l Meeting the wrong person
People don’t understand the internal dynamics and structure of a bank. Larger banks often have specialist industry desks so it’s wise to ensure that you’re meeting the person who is best placed to understand your business.
l Not making it easy for the banker to make a pitch on your behalf
The bank employee will have to do an internal pitch for funds, so make their job easy. When you put your loan pack together, make sure they don’t have any extra work to do.
l Over-optimistic projections
Forecasts that are clearly unrealistic will give the impression that you don’t really understand your business and have not thought your loan request through properly.
l Failure to understand how banks think
Banks are in the risk business and will always ask ‘what’s the downside, what can go wrong’. Show the banks that you’ve actually thought about the downside, identified the risks and worked out how to mitigate them. And ultimately, it’s free cash flow that repays the loan – not loan to value ratios or covenants. If you can prove that on a distressed free cash flow basis you can still cover the repayment, they will see it as a good deal.
And once you’ve been offered the deal, don’t just grab it without paying close attention to the terms. Ultimately, banks want to lend, their very livelihoods depend on it. So while it’s important to avoid being arrogant, if your business proposition is sound, don’t be afraid to stand up for yourself.
As Vistage speaker Jo Haigh puts it: “Negotiate terms first. It’s terms that make deals fail. People are so blinded by the transaction itself – they’re relieved to just get the money – that they don’t look at the intricacies of the deal.” It’s as competitive for banks as it is for SMEs when it comes to funding. Tell them you are shopping around.
■ KEEP MANAGING THE RELATIONSHIP
The work doesn’t stop once funding has been secured; you need to manage the relationship properly. “Keep you bank manager as close as possible. You need them to go native,” advises Jo Haigh. Get them to bring the credit team out to your business and then you won’t just be a set of numbers on a spreadsheet.
Jo also recommends ‘snowballing’ – sending the bank all the good news stories about the business. The more they know about your business the more they are likely to say yes in future. As she says: “For most businesses, the banks are the most important ‘supplier’ so you need to treat them as such. They’re a massive partner in the business.”
Manage the relationship properly and you are more likely to receive a sympathetic hearing if there are hiccups in your business or if you need to go back for further funding.
Jean is Managing Director of Jean Pousson & Associates Limited, a consultancy practice he set up in 1994 which provides banking, finance and strategy consultancy and training services to an international client base. Jean previously held the position of Director of Studies at the TSB Group Management College where he was responsible for overall academic leadership, but with direct responsibility for finance and strategy programmes and consultancy activities.
Jo, a corporate finance specialist, experienced NED, mentor and trainer, is CEO of fds Director Services Limited, which has been providing services to owner managed businesses for the past 26 years and is committed to supporting them on their business journey.
W: https://vistage.co.uk/speakers/jean-pousson
W: https://vistage.co.uk/speakers/jo-haigh
Jean Pousson
Jo Haigh
CASE STUDY
Rothley
Old fashioned banking relationships are still worth their weight in gold
Navigating the choppy waters of scale up
Rothley, a supplier of decorative steel tubing, DIY and hardware products to retailers, DIY multiples, furniture manufacturers, builder’s merchants and wholesalers, emerged from administration 10 years ago. MD Steve Jacques’ priority was to nd a bank that would allow the company to utilise invoice nance (IF) as much as possible to enable the owners to repay the company’s overdraft facility.
Many banks shied away from o ering an IF facility, however, because around 50% of Rothley’s credit exposure was to a single DIY multiple that paid on 90 day terms. Those concentration issues meant that most banks would only o er a relatively small drawdown against the debtor book.
The exception was Allied Irish Bank (AIB). Jacques found that AIB was prepared to take the time to get to know his business and put together a model that would take Rothley out of administration. Essentially, they acted like an oldfashioned relationship bank. AIB o ered them 80% drawdown against invoices even with that 50% concentration and, as the business – and AIB’s con dence – grew, that was increased to 90%.
Jacques is adamant that they key to a successful banking relationship is to keep them informed and avoid nasty surprises. That principle was sorely tested very recently in the run-up to the EU referendum. Rothley imports most of its goods, leaving them exposed to signi cant potential foreign exchange risk. A fall in the value of Sterling in the wake of a Brexit vote could have a severe impact on the P&L.
While Jacques was con dent that customers would eventually agree to the price hike required to o set the increased cost of imported goods, he knew that they would be likely to drag their feet, exposing the business to signi cant losses in the interim. The experience of the 2008-09 Global Financial Crisis, when Sterling plummeted, told him that forward planning was essential.
So Jacques went to AIB with his concerns to discuss how they could mitigate the risk. He showed them two di erent cash ow forecasts based on di erent exchange rate scenarios and agreed what would be required to protect their position. As a result, AIB doubled the forward currency purchasing facility and Rothley secured all forex needed until January 2017.
Subsequent events, of course, have proved the wisdom of this decision. Jacques says that the hedging has given them nine valuable months to secure a price increase. As he says, “That’s come through relationship banking. As a business we focus on relationships and it’s no di erent with our bank.”
He stresses the importance of demonstrating that you are in control of your business. They couldn’t predict the outcome of the referendum or what would happen to the value of Sterling. But the fact that they knew the impact of di erent scenarios gave the bank con dence in the management. And being open with their bank about the issues enabled the two sides to nd a solution.
Which goes to show that, important as it is to be aware of the new developments in the nancial landscape, sometimes paying attention to oldfashioned relationships gets the job done.
Steve Jacques Managing Director
Member of Vistage Group: V1
Visatage Chair: Bankie Williams
Asset Based Finance
Asset Based Finance (ABF) has been around for a long time and for that reason seems to get less press than the more headline-grabbing newcomers like Crowd Funding. However, as an alternative to breadand-butter bank term loans and overdrafts, ABF is an extremely valuable option.
According to the Asset Based Finance Association (ABFA), ABF:
l Makes a significant contribution to UK business financing, supporting 15% of all UK company turnover.
l Provides more finance than traditional bank overdrafts to SMEs.
l Is used by 42,000 UK companies to help grow their businesses.
■ SO WHAT IS ASSET BASED FINANCE?
ABF is a collective term describing two different types of funding (and shouldn’t be confused with Asset Finance, relating to lease and hire-purchase agreements e.g. for machinery):
1. Invoice Finance
Invoice Finance (IF) makes up the majority (80% according to ABFA) of ABF and is a method of raising working capital against the value of unpaid sales invoices. When used appropriately, IF can change unpaid invoices from being a drag on the cash flow into a valuable asset to be used to unlock funding.
2. Asset Based Lending
In ABL, money can also be raised against the debtor book, but here it usually involves an additional charge over the company’s assets – stock, property, plant, machinery etc.
We’ll focus on the first category which, with £15.9bn of invoice finance advances outstanding as at September 2015, is a very substantial corporate funding mechanism.
IF is an increasingly attractive option since it unlocks funds tied up in the unpaid invoices that are becoming more problematic for SMEs. According to the ABFA:
l The time SMEs are waiting to be paid by customers has been rising. It now takes 72 days on average for SME invoices to be paid – that’s up from 61 days at the height of the recession in 2009 and is almost twice as long as it takes larger companies to collect.
l The outstanding value of SME invoices is also rising. In 2015, UK SMEs were owed £67.4bn in unpaid invoices, up from less than £50bn in 2011.
l Manufacturing and construction are the sectors with the most SME unpaid invoices (16-17% of turnover) while across SMEs as a whole, unpaid invoices amount to 14% of annual turnover.
And yet, according to research from Amicus Finance last year, just 18% of small firms have considered using invoice finance in the past five years. Because the data is for small firms rather than SMEs as a whole, it’s likely that Vistage member firms are more active in the area than those numbers suggest. But even so, it points to a significant unexploited funding opportunity.
IF IS AN INCREASINGLY ATTRACTIVE OPTION SINCE IT UNLOCKS FUNDS TIED UP IN THE UNPAID INVOICES THAT ARE BECOMING MORE PROBLEMATIC FOR SMES.
■ HOW DOES ASSET FINANCING WORK?
Essentially, a funder lends a percentage – typically 85-90% – of a business’ total outstanding invoices. Because the debtor book varies constantly, so too does the amount of available funds. So a company would receive 85-90% of the value of an invoice upfront. The company pays an agreed rate of interest on those funds. When the invoice is settled, the balance is paid over, minus interest charges and fees. The business is essentially giving up some of the profit on the sale in return for receiving the cash early.
As far as the costs are concerned, there is a wide variation depending on the nature of the business and other factors. But as an example, leading IF provider RBS quotes the following charges:
Typical cost of an IF facility Arrangement fees:
1% of the facility
Service charges:
0.5% to 1.0% of the assigned turnover Discount charge*:
Base rate plus 1.5% to 4.0%
Annual Renewal fee:
1% of approved prepayment level
Legal costs:
£385 + VAT
*The discount charge is a percentage rate calculated daily on the money drawn down on he facility Source: RBS
The mechanics of the procedure vary depending on which of two invoice financing models are chosen:
1. Invoice Factoring: Here, the lender works on behalf of the business, taking over management of the sales ledger and collecting money owed by customers. The factoring company provides a service on top of the lending facility, helping the business with credit control. There is an additional cost for this, of course, and in the RBS example shown above, the service charge for invoice factoring can be as much as 3%.
2. Invoice Discounting: Similar to factoring, but the business retains control over the administration of the sales ledger. An invoice discounter will need to be satisfied as to the quality of a business’ sales ledger systems and procedures.
The choice between the two generally comes down to a decision on whether the company wants to handle invoice collection or pay to outsource it. While outsourcing could be attractive to a rapidly growing business without the resources to chase down late payments, it does mean that customers will be receiving calls from a third party. Companies need to ask themselves whether they are happy handing over that part of the customer relationship.
■ HOW DOES A COMPANY QUALIFY FOR INVOICE FINANCING?
Lenders will make their individual assessments of companies applying for an IF facility but there are some broad criteria:
l Invoices need to be for business-to-business transactions (it’s very difficult to get B2C based finance).
l Goods will need to be sold on a non-refundable basis, without complex contracts or extensive warranty provisions.
l The lender will want to see a wide and diverse client base and if any single customer accounts for more than a third of turnover, that could be a problem.
l A large number of disputed invoices and significant levels of debt more than 90 days overdue could disqualify a business from obtaining IF.
■ WHO ARE THE MAIN PROVIDERS?
Mainstream banks like Barclays, HSBC, Lloyds and RBS are still major players in the ABF market and details of their offerings are easily sourced. One thing to note is that these providers tend to lend against a company’s total invoice book rather than individual invoices and borrowers are tied in to contractual arrangements. However, more flexible alternatives are emerging in the market now in the form of selective invoice discounting. Here finance is raised against individual invoices rather than turnover in total. Companies can choose individual invoices or debtors for discounting and so receive funding on an invoice-by-invoice basis. This flexibility can be ideal for businesses that deal with large single orders, have dominant single customers or seasonal trading patterns.
While it is generally more expensive than securing funding on the entire debtor book, it can be more cost-effective as all invoices do not need to be processed through the facility; you only pay fees for the invoices you use. And there are generally no fixed term contracts and no fees for ending an agreement.
Note: A list of ABL providers can be found on the ABFA website at: http://www.abfa.org.uk/members/membersList.asp
Two relatively new entrants to the IF market, offering an alternative to mainstream banks, are:
Market Invoice (www.marketinvoice.com) is one of the leading providers in the selective invoicing field and has financed more than £820m of invoices so far.
Invoice Financing Pros:
1. Unlocks cash tied up in unpaid invoices. A fast growing company can use that cash to generate more revenue in a virtuous cycle. Available funds grow along with the business as increasing turnover unlocks more funding.
2. Flexibility. No stipulations on what the cash raised is to be used for. Can be used to provide working capital, to fund organic growth or for acquisitions.
3. Low stress and improved cash flow. Helps to resolve the problem of slow payment from customers and can help manage the risks of bad debts.
4. Quick turnaround. As the funding is secured against invoices or other assets, funders can make quick decisions and provide almost immediate funding.
6. With invoice factoring, the responsibility for chasing the invoice is handed over to the finance provider, freeing management to focus on generating future revenue.
Resources:
Asset Based Finance Association – www.abfa.org.uk The majority of providers of asset-based nance in the UK are members.
Urica (www.urica.com) provides invoice discounting on a non-recourse basis, removing the claw-back risk for SMEs.
Invoice Financing Cons:
1. Cost. With interest paid on funds raised and associated fees, companies will be giving away a chunk of their profits on sales made.
2. Contracts can tie the company into a longerterm deal with the bank, limiting flexibility.
3. With invoice factoring, the company loses control of the debtor book. While that may save time, it also means that customers will be getting calls from a third party about their bills.
WITH INVOICE FACTORING, THE COMPANY LOSES CONTROL OF THE DEBTOR BOOK. WHILE THAT MAY SAVE TIME, IT ALSO MEANS THAT CUSTOMERS WILL BE GETTING CALLS FROM A THIRD PARTY ABOUT THEIR BILLS.
CASE STUDY
Siddall & Hilton Products Ltd
Funding an MBO with asset based finance
Navigating the choppy waters of scale up
When the family behind the 118-yearold wire mesh and fencing panel manufacturer Siddall & Hilton decided to sell out, an MBO was their preferred option. So Managing Director, Neil Stewardson and FD Ian Thurley appointed a corporate nance adviser to secure funding for the deal. Initial approaches to high street banks and private equity funds proved unsatisfactory for a range of reasons.
While the banks were keen to lend in principle, the credit approval process would have taken too long (the business owners and the MBO team both wanted to get the deal done as quickly as possible).
And although there was also plenty of interest from the PE community, they would have demanded a signi cant chunk of equity. The management team were not comfortable with that and also felt that the PE funds did not have a good grasp of their business and would not have o ered much in the way of management input – “they would just have appeared once a month to bang the table”, as Neil puts it.
In the event, an American bank, PNC, came forward with the best solution in the form of:
l A term loan secured on the xed assets of the business
l A revolving credit secured on the stocks
l A revolving credit secured on the debtor book (receivables)
l Cash ow facility term loan
So asset based nance was at the heart of the facility, something that was completely new to a business that had previously relied almost entirely on funding from the family owners. That’s one reason that Ian Thurley says that the process of securing the nance was very time consuming.
The good news was that the company was already in the discipline of producing management accounts on a regular basis so the foundations were there. However, there was still a large amount of data and information required and Ian warns
that this can take up to half of the FD and accounts department’s time initially.
In terms of the practicalities, fortunately an external auditor had revalued the xed assets just six months earlier and PNC was happy to accept those gures. Assessing the debtors’ book for the asset based lending facility was a more lengthy process. The lender examined the book in great detail, assessed the bad debt history (which was historically good) and asked the company to take out credit insurance.
Overall, it has been a very positive outcome thanks to the management team embracing a di erent funding model. The facility was in place within three months of the start of the process, enabling a rm o er to be made to the management, and the MBO was completed just ve months later.
The new owners are very pleased with the outcome since the asset based nance option provided the capital required in a timely fashion. The bene ts are ongoing as well, with the invoice nance part of the package improving the cash conversion cycle to the extent that the company now no longer has an overdraft.
Neil Stewardson and FD Ian Thurley
Member of Vistage Group: V312
Visatage Chair: Ian Brierley
4
Peer-to-Peer Lending
Terminology in the alternative finance world can get a bit confusing. Both debt and equity funding can be sourced from the ‘crowd’ via an internet platform. But for the purposes of clarity, we consider Crowd Funding to be primarily equity based, while debt is referred to as Peer-to-Peer lending (P2P).
At its simplest, P2P uses an online platform to match borrowers with lenders and is a direct alternative to a bank term loan. The market is growing rapidly and shows no signs of slowing. Gross flows of lending to businesses via online platforms reached £1.26bn in 2015, a 75% increase on the previous year.
UK Peer-to-Peer Business lending
These figures probably understate the size of the entire market; data from AltFi puts total alternative business lending at £1.82bn, 3.4% of gross national bank lending to SMEs. Moreover, businesses are becoming much more aware of the P2P market. According to the British Business Bank, reporting in February 2016, businesses’ awareness of P2P lending has risen from 24% in 2012 to 40% in 2015.
■ IS P2P HERE TO STAY?
It would certainly seem so. The surge in the P2P market is propelled by powerful push and pull factors.
A big push factor has been banks’ post-GFC reversion to type in terms of risk appetite. By 2007,
lending criteria at some banks had been relaxed so much that some were behaving more like VCs than the conservative high street institutions of old. In the post-GFC world, some have gone to the other extreme, lending – as the old adage goes – only to people who don’t actually need the money.
Hand-in-hand with this is the decline in ‘relationship banking’. In the old days, companies believed that if they built up a good track record with their banks, got to know the relationship manager, stayed within their covenants and generally were model customers, the bank would look after them in good times and bad. Vistage speaker, Jean Pousson says that many businesses don’t appreciate that times have changed since the GFC. “People go with the attitude that ‘I’ve been a loyal customer for 20 years and they owe me.’ They are then outraged when the banks turn them down. They don’t understand that things are different.”
Profile – James Alexander
James is an experienced entrepreneur and business advisor. He is currently a core team member of FutureAgenda.org, the world’s largest open foresight programme. James was previously a co-founder and Executive Director of Zopa, the world’s first and Europe’s largest P2P lender.
Contact
W: https://vistage.co.uk/speakers/james-alexander
The pull factors are equally important. James Alexander, Vistage speaker and co-founder of leading P2P platform Zopa, says that while the tightening of traditional bank lending has provided some impetus, the main driver has been the
competitiveness of the P2P product. “SMEs are very astute. P2P has been picked up because it’s a good offer and even if banks turn the taps back on they won’t push these new entrants out.”
Underpinning the competitiveness of the P2P product are the structural and operating advantages that the platforms enjoy. Leap-frogging the bricks and mortar stage means that they’re not carrying legacy branches, head offices, systems and people, allowing them to offer a competitive service. And because they’re not banks (they don’t take depositors’ money onto their own balance sheets) they aren’t regulated like them. So they don’t have to put aside funds to comply with capital adequacy requirements. Without the costs inherent in the banking model, lending platforms can be more competitive then their traditional counterparts.
■ HOW DOES IT WORK?
In some respects, the offerings from the major platforms are relatively similar.
P2P platforms
Funding Circle:
Ratesetter
instance, borrowers accept loan offers at the lowest interest rate. Funds are typically available very quickly – within two weeks on most platforms. In terms of costs, it’s difficult to generalise since lending platforms quote on a case-by-case basis. However, as a guide, Funding Circle is currently quoting a rate of 6.4% (including all fees) on a £100,000 one-year loan, which is competitive with bank financing.
■ WHO IS P2P FOR?
Any business considering raising debt finance should be looking at P2P. As James Alexander says: ” P2P is already in the essential set to be investigated. You’d be negligent as an owner not to look at both banks and new alternatives like P2P. It’s not right for everyone but in many cases it can be cheaper, faster and easier. So why wouldn’t you look at it? On the debt side, what’s the risk?”
Loan size Terms Early Repayment Penalty?
£5k-£1m 6m to 5 years No
£25k-£2m 3m to 5 years No
Zopa Up to £25k Up to 5 years No
Thin Cats
£100k to £5m 6m to 5 years No
What’s striking though is that whereas in the early days, the maximum loan amounts were small, platforms like Thin Cats now offer up to £5m in funding. This makes P2P a very serious alternative to bank finance.
Platforms have clear criteria to establish the eligibility of businesses to borrow. They usually require:
l A trading track record (two year trading history in the case of Funding Circle)
l A sound credit history
l Most recently filed financial statements
l Recent business bank statements
l UK ownership and resident directors
l Management accounts
If approved, platforms offer either a fixed rate or, in some cases, lenders bid for loans by offering an interest rate at which they would lend. In this
Businesses requiring a speedy response to their funding requests would be well advised to consider a P2P platform. Jo Haigh, CEO of corporate finance specialists the fds group, says: “By the time the bank has even bothered to ring you back, then sent out people to value the assets, then asked you to sign your life away, you can have done the deal with a P2P platform.”
And since loans are available for a range of uses –from working capital to asset purchase – it’s a very flexible option. Unsecured loans are also available (up to £250k in the case of Funding Circle).
■ MAIN P2P PLATFORMS
As with banks, all platforms are slightly different so it pays to shop around and find the one that best meets the requirements of your business. A good starting point is the Peer-to-Peer Finance Association (www.p2pfa.info) which has eight members, including the main platforms.
Funding Circle
The largest online business loan specialist with around £1.3bn lent to more than 15,000 companies. www.fundingcircle.com
Ratesetter
Offers both personal and business loans – up to £2m in the case of the latter. In June 2016 it announced an expansion of its lending to small businesses (with turnover between £0.5m and £15m and ‘a few years trading history’). The UK government backed British Business Bank is channelling £10m of loans to businesses through the platform. www.ratesetter.com
ThinCats
Unique in that it offers only secured business loans and will lend up to £5m. www.thincats.com
Zopa
The first P2P platform (set up in 2005) has made more than £1.5bn in loans (personal and business).
www.zopa.com
■ PLUSES AND MINUSES OF P2P
Pluses
l A viable alternative for the half of SMEs whose loan applications are turned down by high street banks. P2P platforms are more flexible than the post-GFC bank sector.
l Transparency. Platforms have a simple online application process with clear guidelines on the information required. Charges are also clearly stated.
l Fast response. Most promise a 2 working day turnaround with funds often available in 1-2 weeks.
l Flexible options. There are usually no penalties for early repayment and unsecured loans are also available from some platforms.
l Flexible in use of funds. Platforms will provide loans for working capital, asset purchase, commercial mortgages etc.
Minuses
l Credit checks are similar to banks. So companies turned down by a bank because of poor credit history, may have the same problem with a P2P loan.
l Unsecured loans require a Personal Guarantee (again, similar to banks).
l Watch the costs, which vary widely with the loan type and term. While there are usually no penalties for early repayments, setup costs makes it fairly expensive to take shorter-term loans.
5
THERE IS EVERY INDICATION THAT CROWD FUNDING IS BECOMING A VIABLE FUNDING SOURCE FOR LARGER SMES, AND NOT JUST FOR START-UPS.
Crowd Funding
The basic mechanics of Crowd Funding are straightforward. Companies seeking investment are connected with thousands of potential investors via an internet-based platform. The company submits an online pitch –typically including a video – for a given amount of money and then waits to see whether the investment community is prepared to back their business, Until relatively recently, this funding route would have been irrelevant to most growing SMEs. Its first incarnation was reward-based Crowd Funding, a way for creative entrepreneurs to raise funds for specific projects and ideas. Investors were typically given a ‘reward’ such as the ability to buy the product at a discount when it came to market.
But it’s all become much more interesting in the last couple of years thanks to the emergence of what is known as investment based Crowd Funding. Now, instead of receiving a reward, investors are buying equity in the businesses they are funding.
■ HOW BIG IS THE MARKET?
Two factors have driven the growth of Crowd Funding. First, technology has facilitated the emergence of an increasingly sophisticated range of online platforms. Secondly, a frustration with existing small business fund raising options (partly spawned by the fallout from the GFC). Technology has enabled the disintermediation of traditional finance providers just as investors and companies were hungry for a new model.
So how big is the equity Crowd Funding market now? According to a Nesta/Cambridge University ‘UK Alternative Finance Industry Report (2015)’:
l The equity-based Crowd Funding market (including real estate financing) grew by 295% from £84m in 2014 to £332 million in 2015.
l Excluding real estate, £245 million was raised in 2015, equivalent to 15.6% of total UK seed and venture-stage equity investment.
l There were more than 1,200 successfully funded deals from 2012 to 2015.
British companies’ knowledge of the sector continues to grow. According to a February 2016 report from the British Business Bank, awareness of Crowd Funding amongst smaller businesses rose from 13% in 2012 to 49% in 2015.
And from the investor side, there are signs that one potential barrier to expanding the equity Crowd Funding market – uncertainty over an exit strategy –is being overcome. The 2015 launch of Crowd2Fund’s The Exchange and InvestDen’s Investment Trader marked the advent of secondary marketplaces to allow investors to sell their investments and release capital. While both are relatively small at present, it seems likely that others will go down this path in the very near future.
■ ISN’T CROWD FUNDING FOR THE LITTLE GUYS?
There is every indication that Crowd Funding is becoming a viable funding source for larger SMEs, and not just for start-ups. Guy Rigby of Vistage partner Smith & Williamson points to the ‘equity gap’ between £0.5m and £2.0m when companies have exhausted the 3Fs (friends, families and fools) but where it’s too early for a PE investor. He believes that this is where a lot of companies flounder and that newer sources such as Crowd Funding can fill the gap.
Guy also points out a slew of recent deals that show Crowd Funding moving into the big time. Last year, JustPark raised £3.7m from almost 3,000 investors through Crowdcube (its initial target was just £1m). Soon after, Sugru pulled in £3.5m
Profile – Guy Rigby
Guy is the Head of Entrepreneurial Services at Smith & Williamson, the accountancy and investment management group. He is a highly regarded and well known personality in the entrepreneurial community, whose diverse career has taken him from chartered accountant to entrepreneur to author and now mentor and advisor to dynamic owner-managed businesses. He has recently been listed as one of the top 50 movers and shakers in the financial world by Economia magazine (published January 2016).
Contact
E: Guy.rigby@smith.williamson.co.uk
via the same platform, including a £1m individual investment and attracting funding from 68 countries. And rival platform, Seedrs saw winery Chapel Down hit the £4.2m mark.
■ SO HOW DOES IT WORK?
As with any other fund raising channel, companies seeking investment are expected to produce a business plan and financial forecasts. These will be ‘vetted’ by the funding platform to ensure that they are suitable for their investors.
Once approved, the pitch is posted on the platform website, together with a video promoting the investment. Note that the platform will offer no advice to investors so it’s up to the company to interact as much as possible with potential funders. That means answering online questions and generally being as open and available as possible. It’s also a good idea to arrange face-to-face events where investors can meet the company management. Generating engagement is key to the success of the pitch.
■ WHAT DOES IT COST?
Platforms typically do not charge for pitches to be listed. Instead there is a Success Fee which is a percentage of the funds raised. These vary but as an example, Funding Tree charges 5% of funds raised while Crowdcube takes 7%. Additional costs include Payment Processing Fees (ranging from 0.5% to 2.9%, depending on where the investor is located) and in some cases, legal charges. Fees are only payable if the company is successful in raising funds and there are no up-front costs (fees are deducted from the final investment pot).
■ PROS & CONS OF CROWD FUNDING
As with any funding option, Crowd Funding has pluses and minuses.
Pros:
l Speed of response – Crowd Funding is just about the quickest form of fund-raising out there. Most platforms will respond to a company’s initial submission in a matter of days and once accepted and listed, funding can often be secured in around a month.
l No loss of control – With the equity spread over a large number of separate individuals, you are free to carry on running your business without interference from a dominant large outside shareholder.
l Convenience – The platform handles the administration associated with having hundreds (or even thousands) of individual investors. For example, Seedrs run a nominee system to manage the interests of the investors meaning the business doesn’t have to deal with the paperwork or have 1,000 small shareholders attending board meetings. They provide one shareholder interface with your business.
l No up-front costs – Since the platform takes the fees out of the proceeds, companies don’t have to find up-front costs. And, of course, if your funding bid fails to reach its target, you pay nothing.
l Exposure – Particularly for consumer related businesses, a Crowd Funding exercise can be a great way to raise awareness of their products and build brand loyalty. Investors are likely to become brand advocates since many of them will already be enthusiastic customers.
PARTICULARLY FOR CONSUMER RELATED BUSINESSES, A CROWD FUNDING EXERCISE CAN BE A GREAT WAY TO RAISE AWARENESS OF THEIR PRODUCTS AND BUILD BRAND LOYALTY.
Cons:
l No management input – Having a highly fragmented investor base is fine if your goal is to continue running your business unimpeded. But if you actively want strategic management input, you won’t get it through Crowd Funding. In that situation a business angel might be a better choice.
l Cost – While the up-front costs are zero, the final bill could be as much as 7-8% of the investment raised, a not insignificant slice of your funding.
l If the paperwork isn’t right, you’re in for problems in the future –Raising equity is an area potentially fraught with difficulties. There are issues of shareholder rights to consider, for example. If, as is likely, you want to raise further equity capital in future, you’d better be sure that the paperwork is in order or you’ll be in trouble. Some Crowd Funding platforms are better than others in this regard, so do your homework.
l Crowd Funding is still a new market – This remains a lightly regulated area. While that might not seem to matter once you’ve got the cash, with equity (unlike debt) it’s not quite that simple. Equity Crowd Funding hasn’t yet been though a full business cycle and there have been few meaningful exits. There will undoubtedly be casualties in the sector and when that happens it could have an adverse effect on SMEs hoping to raise further funds via this route.
Selected Crowd Funding platforms
Kickstarter
A reward-based ‘all or nothing’ funding platform. www.kickstarter.com
Crowdcube
Established in 2011, Crowdcube is the leading equity funding platform. So far 420 fund raisings have brought in £171m from 292,000 registered investors. www.crowdcube.com
Seedrs
A platform initially established to focus on start-ups but which has now moved into funding more established businesses. www.seedrs.com
Syndicate Room
The platform, which has raised £57m since launch, focuses on ‘investor led’ equity Crowd Funding, allowing the ‘crowd’ to participate alongside sophisticated angel investors. www.syndicateroom.com
Funding Tree
The company became the first combined equity and debt crowd funding platform when it launched in 2014. www.fundingtree.co.uk
Investing Zone
The company, which describes itself as a professional equity Crowd Funding platform, was launched in 2013. www.investingzone.com
Platforms with secondary marketplace for crowd funded investments
Crowd2Fund www.crowd2fund.com
Investden www.investden.com
Industry body UK Crowd funding Association www.ukcfa.org.uk
6
Venture Capital
This and the two subsequent sections look at three well-established funding routes that are still somewhat poorly understood: Business Angels, Venture Capital (VC) funds and Private Equity (PE) Funds. All of them are primarily equity finance providers, taking stakes in promising businesses in the expectation of generating large returns. The broad differences between the three are as follows:
l Angels are individuals investing their own money in early stage businesses. They provide seed capital for new ventures, sometimes alongside funds raised via Crowd Funding sites.
l VC funds raise capital from other individuals and institutions to invest in larger, though still relatively young, businesses. They can often be involved in several funding rounds.
l PE funds raise capital from other investors and institutions to invest in more mature businesses.
The boundaries between the categories can inevitably become blurred. For example, it’s common for individual angels to form a syndicate for the purposes of co-investing in a business, raising amounts that can match those of VCs in some cases. Nevertheless, the broad distinctions are still valid.
The nature of the funds makes it difficult to find accurate numbers on the size of the VC market. But as an example, UK tech companies raised over £2.5 billion in 2015, up 70% from £1.4bn from 2014 according to figures from London & Partners. So this is clearly an important source of funding for early stage businesses.
■ IS THE VC ROUTE RIGHT FOR YOUR BUSINESS?
Before approaching a VC fund, here are some questions to ask:
l Will our growth projections excite a VC?
While VC funds differ substantially from one another, one thing is common to them all: they are looking for big returns. And they have to; because funding early stage businesses brings a very substantial risk that the whole investment will be lost. To offset the failures, the successes need to generate very high returns – in excess of 10x over the life of the investment. There’s no point approaching a VC for investment in your early stage business with projections of nice steady 10% annual growth rates.
l How will I achieve those growth rates?
To produce the returns they seek, a VC will look for companies bringing new ideas with the potential to radically disrupt their industry. They will want a company to demonstrate a clear competitive advantage in their market, and that market must be sufficiently large that, by winning a share of it, your company will reap substantial revenues. If your business is just doing something slightly different, or marginally better than competitors, it’s unlikely to be generating those out-of-the-ordinary growth rates.
■ DO YOUR RESEARCH BEFORE APPROACHING A VC FUND
Because VC firms differ substantially in their approach, it’s also important for the company seeking funding to research potential investors to ensure they are a good fit for where their business is and what they want from the relationship.
To find the right fund, entrepreneurs should ask three basic questions:
1. Am I in the right sector?
Since extensive pre-investment due-diligence is required, VC funds typically have a specialist industry focus. Many concentrate on tech (and some on specific sub-sectors such as mobile apps) while others look for opportunities in healthcare, financial services or manufacturing. It sounds obvious, but a company is wasting its time pitching to a VC that doesn’t invest in their sector.
2. Is my business at the right stage?
Some VC funds will invest in very early stage businesses (closer to the angel end of the spectrum) while other prefer more established companies (closer to the PE stage).
3. How much strategic input do I want?
The amount of influence a VC exercises over the companies in its portfolio also varies widely. Do you want a high level of involvement and support or would you prefer to go it alone?
As a starting point, below is a list of some major UK VC companies and the sectors of interest to them:
Abingworth Life sciences and healthcare abingworth.com
Alchemy Partners Distressed and undervalued alchemypartners.co.uk businesses
Aries Capital Partners Industrial, energy, services ariescapitalpartners.com
Balderton Capital Early stage and Internet start-ups baldertoncapital.com
BC Partners Invests across a range of industries bcpartners.com
Bridgepoint Business services, consumer, bridgepoint.eu nancial services, healthcare, manufacturing, tech
Business Growth Fund Healthcare, construction, businessgrowthfund.co.uk business services, IT
DN Capital Seed and growth companies in dncapital.com e-commerce, software, mobile apps, digital media
There are plenty of sources of information about VC funds, but a good starting point is the British Private Equity and Venture Capital Association (www.BCVA.co.uk)
■ THE BUSINESS PLAN
Everything starts with the business plan – getting this right is critical. There are plenty of resources out there on how to write a business plan, but the core elements that VCs will expect to be covered are:
l Executive summary
l Company history
l Management team
l Products
l Analysis of market and competitors
l Commercialisation
l Operational issues
l Financial forecasts
l Capital requirements
l Exit strategy
There is more background on the pitch in the Private Equity section of this report – the process is essentially the same for VCs.
■ DON’T JUMP AT THE FIRST OFFER
Companies seeking funding can be so focused on the end result that there’s an understandable tendency to grab the first offer that comes along. Before doing that, think about the following issues.
Are the values and interests of the company and the VC aligned? To put it bluntly, a VC will be looking to maximise the company’s growth rate and profitability in order to maximise profit on exit. They are, after all, accountable to the owners of the capital they are investing.
So they may not be too concerned about fuzzy concepts like ‘values’. One Vistage member we interviewed for the last VQ mentioned that this was the reason that they chose not to go down the VC route. Providing ethically sourced ingredients in their gastro-pubs was a core value, even though it added significantly to their costs. They knew that a VC would likely insist on abandoning that policy to boost margins and so looked elsewhere for capital.
The question of exit is also something to consider. The only way for a VC investor to realise a profit on an investment is for the company to list on a stock exchange, to be sold to another business or for the management to buy the VC out. The pressure on VCs from their investors to realise gains can be intense. So entrepreneurs have to ask themselves whether, when the day comes for the VC to take their money out of the company, the process is one that will suit the management and employees of the business.
The bottom line: VCs will do extensive research on the companies they invest in, but the due diligence should go in the other direction as well. And on a larger scale, companies need to consider all the pros and cons of VC as an option to fund the growth of their business because while the investment could kick-start the scaleup phase, it does come with significant strings attached.
7
Private Equity
PE is a huge potential funding source but a tough nut to crack
Private Equity (PE) is a somewhat poorly understood concept, not least because of its ‘private’ nature. But with UK PE deals totalling around £20bn in 2015, according to the Centre for Management Buyout Research, it’s an area that growing SMEs need to understand.
Private Equity funds are collective investment vehicles. Which means, in simple terms, that a PE firm gathers capital from various sources, including pension funds, high net-worth individuals, banks and endowments, to buy equity stakes in companies. The PE firm manages the fund, sourcing the investments and overseeing them on an ongoing basis.
It’s important to make the distinction between PE and Venture Capital (VC) funding. Where VCs focus on early stage companies, PE investors target more mature businesses. These can be very large companies that need funding to effect a major transformation, but of more interest to the Vistage community are the investments in growing SMEs.
PE funds are a common source of finance for scale-up businesses that have survived the perilous early start-up years and are now looking to embark on an accelerated growth phase. But they also provide finance for specific business purposes such as funding a Management Buy Out (MBO).
According to Guy Rigby, Partner and Head of Entrepreneurial Services at Vistage partner, Smith & Williamson: “Proper scale-up businesses fit into the PE area. They’ve already demonstrated product or service, leadership and management, shown growth, stability and if not actual profitability, the pathway to profitability.”
A critical characteristic of PE is that it’s an active investment model, with the fund seeking to add value by eliminating inefficiencies, providing strategic direction and improving the overall performance of the business.
And PEs are in for the long haul, typically holding their investments for five to seven years according to the British Private Equity and Venture Capital Association (BCVA). When it comes, the exit is usually in the form of a stock market listing, a trade sale or a sale of shares back to the company management.
■ HOW BIG IS THE MARKET?
Long term investment capital. The PE is looking for the businesses in which they invest to generate stable, long term growth – they’re going to be with you for around seven years after all – so they’ll allow the management team time to implement strategic plans.
PE FUNDS ARE A COMMON SOURCE OF FINANCE FOR SCALE-UP BUSINESSES THAT HAVE SURVIVED THE PERILOUS EARLY START-UP YEARS AND ARE NOW LOOKING TO EMBARK ON AN ACCELERATED GROWTH PHASE.
Practical support. The PE’s number one aim is to support you and help you grow your business in order to generate the returns they need. They will have specialists who can provide strategic input, contacts and practical help on issues like finance and IT. The bottom line is that the PE has every incentive to help you overcome problems and reach your goals.
Sector expertise. A PE may have invested in several other businesses in your industry, giving them insights and solutions that you may not have thought of. They will also have a valuable network of relevant contacts and could also open doors to new distribution channels.
To find the right investor, the company seeking funding will have to do due diligence on the PE providers to the same extent that the fund will research the potential investment. That will involve
talking to professional advisers about funds active in their industry, finding out which funds have invested in industry peers and generally keeping an ear to the ground.
■ PITCHING TO A PE FUND
Once a company has identified a suitable PE fund (or funds) the next stage is to interest them in investing in the business.
Step one is to send a pitch book with the proposal, historic figures and forecasts. Since PE investors could be receiving literally dozens of proposals a week, they won’t read all of the pitches. So it’s important to get the Executive Summary right, as they will at least read that part. And it might sound obvious, but the term sheet (how much money are you looking for and on what basis) should be right up front so the PE knows exactly what is on the table.
Once a meeting has been secured with a potential investor, companies should be prepared for a real grilling. The PE will ask detailed questions, will want to test all the assumptions and generally satisfy themself that the company is being realistic about its business. CEOs shouldn’t feel that they have to do it all themselves. Taking the FD, Marketing Director and any other executives who can talk in detail about their areas of the business will help to present a convincing case for investment.
But it’s not all about the numbers (though they’ll need to be water-tight). As well as knowing the detail, the CEO will need to be able to zoom out and explain the big picture story of the business. As Vistage speaker Jean Pousson says, “The business plan should cover the source of competitive advantage, industry dynamics, the main competitors, where the business is heading, what the threats are etc.” Basically you’ll need to explain how you are going to generate the kind of growth rates that PEs demand. Jean says, “If a PE can’t understand things like the source of competitive advantage, they won’t even look at the numbers.”
Finally, pitching to a PE is a performance. Executives have to enthuse the funders (with intelligent and coherent enthusiasm) while demonstrating a deep understanding of their business.
■ WHAT SHOULD THE BUSINESS LOOK FOR IN A PE INVESTOR
There is a tendency for companies looking for finance to play the role of humble supplicant, desperately hoping the PE investor will deign to unlock their
treasure chest. While a CEO should never be arrogant when approaching an investor for funds, this is a huge step for the business and they need to be comfortable with the outcome as well.
This particularly applies when a representative of the PE investor will be taking a seat on the board. Companies are often so delighted to get investment that they don’t ask questions about the individual. Do you really want to have somebody on your board for five years or more who you have never actually met? The CEO needs to make sure the person they are going to be spending a lot of time with is somebody they can actually work with.
Finally, the company needs to make sure that they’re getting into a deal which works for them as
Advantages of PE
well as the PE investor. If the fund provider is looking for a 30-40% Internal Rate of Return (IRR) over 5 years, the pressure will be on to deliver that. If a company gives away too much equity as part of a deal and returns start to fall short of expectations, the CEO and their colleagues could find themselves out of a job.
Selling a stake in a business to a PE fund is very different to selling equity to hundreds or thousands of small investors, none of whom they may ever meet, via a Crowd Funding platform. With a PE investor, the company is embarking on a long-term relationship with a single party who will have very firm opinions on the strategic direction of the business. It is critical that expectations and values are aligned, otherwise it is a recipe for trouble.
l You are giving away equity, which, unlike debt doesn’t have to be repaid.
l No arrangement fees or other costs.
l You get an experienced investor to sit on your board and the resources of a team of specialists.
l The right PE investor could help to take the business to levels that would not have been possible otherwise.
Disadvantages of PE
l You are giving away equity to demanding investors who will be expecting big returns.
l If you fail to deliver and have surrendered a large chunk of equity, the PE can exercise their voting power and put you out of a job.
l You will have a new face on your board and you could feel constrained by that. The PE’s goals will be purely financial and they may conflict with your company’s values.
CASE STUDY
Templine Employment Agency
Securing a happy long term Private Equity relationship
Navigating the choppy waters of scale up
In Tony Bucciero’s 23 years at employment agency Templine, he has seen the company’s annual revenues grow to around £75m. The pivotal point was the 2007 MBO, funded with a £4.3m private equity investment. So it’s no surprise that Tony has an interesting perspective on the merits of PE investment relative to alternatives such as bank funding, as well as insights gleaned from what has been a very successful relationship with his own backer.
Think small: Tony ended up doing a deal with a PE company specialising in SME funding. The decision to go with a small fund paid o when Templine hit a rocky patch caused by the Global Financial Crisis. Tony feels that he got a more sympathetic hearing thanks to the personal relationship with a smaller company that recognised that the problems were externally driven. A larger fund might not have been so willing to listen (other SMEs seeking PE investment take note).
Be positive: Securing funding is never a walkin-the-park. But go into discussions with potential PE backers understanding that they are under pressure to invest the money they have been entrusted with. So they’re looking for a good story, they WANT to believe you and want you to be able to answer their objections convincingly. That’s di erent to banks, whose primary focus is on avoiding losses.
Understand the dynamics: Within a PE fund, one partner will lead on the deal. If they’ve had a strong run of recent successes, others will likely defer to them if they are enthusiastic about your proposition. If the partner has had a rough patch though, they will tend to be more conservative. Try to understand the team dynamics.
It’s personal: The lead partner will be sitting on your board as a non-executive director, potentially for many years. As Tony says, “ask yourself whether this is somebody you’re going to be able to work
with in both good and bad times.” And nd out whether they truly understand your industry. The relationship will be much smoother if they do.
Be careful with your forecasts: Banks are concerned that borrowers don’t breach their covenants. But PE investors care whether the companies they invest in hit their forecasts. So while your forecasts have to be su ciently exciting to interest an investor, don’t over-promise. As Tony says, “Hit your forecasts and you’ll be ne. Show you know what you’re doing and they will let you get on with it. “
Accept that you will lose some control: Before accepting PE investment, Tony advises entrepreneurs to ask themselves: “Can I go from being the guy who made all the decisions to having to answer to someone else?” Of course, it helps if, like Tony, you are a genuine lynchpin of the business. “If you are intrinsic to it, you have a degree of leverage regardless of the paperwork. If you’re not critical though you’d better hit your targets or the PE guys will get somebody else in to run it.”
Tony Bucciero Managing Director
Member of Vistage Group: V5
Visatage Chair: Bob Battye
8
Business Angels Angels are extending their investments beyond start-ups
■ WHAT IS ANGEL INVESTMENT?
According to the ‘Nation of Angels’ report by the UK Business Angels Association (UKBAA):
“Business angels are individuals investing their own money into new and growing privately owned ventures. Many angel investors bring not only finance to the business but also access to business experience, strategic advice and market and customer contacts. Business angels may invest on their own, but frequently they operate as part of a group of angels, referred to as a syndicate or network.”
According to the UKBAA, there are about 18,000 angel investors in the UK, investing as part of a £1.6bn annual EIS market (more than 3x the amount of Venture Capital invested in early stage small businesses).
■ BUT AREN’T ANGELS ONLY INTERESTED IN START-UPS?
It’s true that angels used to be primarily individuals, often retired business people, investing an average of £30-40k in early stage enterprises in their local area. On the face of it the typical Vistage member’s business would be too large and too developed for that model to be relevant. However, several things have changed in recent years to make angel funding of interest to businesses that are beyond the start-up phase.
Profile – Jenny Tooth OBE
Since July 2012 Jenny has taken the role of CEO of the UK Business Angels Association, which superseded the British Business Angels Association, the trade body for angel and early stage investing. Jenny provided strategic support to BBAA since its establishment in 2004, supporting both policy and interfacing with Government, as well as developing the trade body’s major annual events. Jenny has over 20 years’ experience of supporting SMEs access to investment, both in the UK and internationally.
Contact
W: www.ukbusinessangelsassociation.org.uk
First, angels are increasingly investing as part of a syndicate, meaning that the sums available to a business are larger now. According to UKBBA Chief Executive Jenny Tooth OBE, the average investment from a syndicate is £100k to £1.5m, with the ability to follow on with further rounds. That makes Angel Funding an option for businesses at the scale-up stage rather than just start-ups.
Secondly, angels are investing alongside other funders, and not just traditional ones like VCs. For example, angels are becoming cornerstone investors in Crowd Funding offerings. So Angel Funding is now a viable component of a mixed finance package.
Finally, and partly as a result of the move to syndicate investing, angels’ horizons are broadening and they are increasingly prepared to invest beyond their geographic home.
■ WHAT CAN ANGELS OFFER (APART FROM CASH)?
Several aspects of angel investment make their involvement attractive to growing businesses.
1. Speed Angels often make investment decisions quickly, without complex assessments. That’s not to say that they are slap-dash, but they are not constrained by the bureaucratic processes required by a bank, VC or PE fund. Angels also do not have to answer to outside investors.
2. Active participation and input Angels play an active role in helping businesses achieve their goals. Most have first-hand experience
of running successful businesses and that knowledge will be shared with the companies they invest in. They will also have built up an invaluable network of contacts.
The utility of that management input is increasing thanks to a shift in the age profile of the angels. While they used to be primarily retired business people, the ‘Nation of Angels’ report showed that a significant proportion of angels are now under 50 years old and a good number under 40. They’re now investing alongside their day job, meaning they have even more up to date knowledge and contacts. This kind of hands-on input would not be available if a business raised funds via a Crowd Funding platform.
3. They are in it for the long haul Angel investing is often called ‘patient capital’ since they are less concerned with rapid return and exit and are prepared to support the business on its growth path, exiting over a longer time scale. That’s very different to the VC model.
4. They do not demand a majority stake in the business
Under the Enterprise Investment Scheme (EIS) through which a large percentage of angel investments come, the maximum stake an angel can take is 30%. In any case, angels recognise that management has to retain sufficient equity to incentivise them and that there has to be enough equity left in the pot for future funding rounds.
5. They have the freedom to invest in higher risk enterprises
While VCs and PE investors tend to be relatively conservative investors – which is not surprising as they have outside investors to report to – angels can be more adventurous. So, if investment in a business requires what might be characterised as a greater leap of faith, angel investment might be the way to go.
■ WHAT KIND OF BUSINESSES DO ANGELS INVEST IN?
Jenny Tooth OBE says that some 75% of angel investment goes into businesses with an underlying technology or distinctive IP. But that doesn’t mean tech companies in the narrow sense; it’s more about having something that makes the business defensible and competitive. As Jenny says, “There has to be something more underlying the business and that is often technology in its broadest sense.”
In terms of sectors, angels are investing in a vast range of industries, from hi-tech to traditional, from manufacturing to services. As the table shows, the top 5 sectors for angel investments are: professional services, healthcare, ICT-software, food and drink, digital media, with retail and e-commerce, financial services and leisure industries, being the next most popular.
Sectoral Distribution of UK Business Angel Investments
■ WHAT DOES IT TAKE TO WIN ANGEL INVESTMENT?
Angels are interested in transformative investments; they are looking to put in an amount of money that can really make a difference to a business. Ask for £30k and an angel will likely ask whether that is really enough to get your business to the next level of growth. Most angels will be looking for companies with growth plans requiring £100k plus. As Jenny Tooth OBE says, “If you have a realistic plan, ask for the money. “
Angels seek companies with ambitious growth plans, those in the process of scaling up. And while angels today are certainly prepared to fund companies that have progressed beyond the startup phase, they’re still looking to get in close to the tipping point.
So angels won’t fund something that will just make an incremental difference to your business. Adding another production line or opening another restaurant is unlikely to get them to open their chequebooks. You should probably be talking to your bank if that’s what you need.
No, they’re looking to invest in a part of the business that will have an impact at a higher level. Often that involves people, bringing in new hires with fresh expertise and talent – perhaps in marketing, technical development or finance – to open up new markets, develop new departments or new products. Angels are looking for businesses with the potential to grow at 30% or more per annum, so the investment they make has to be in something that will help to light the blue touch paper for that sort of explosive growth.
The final part of the equation is price. However promising your business may be, the investment case has to stack up in terms of the valuation you are placing on your business. So when entering discussions with a potential angel, have a valuation in mind (and be able to explain how you arrived at it – an unrealistic valuation will cast doubt on your judgement in general) but be prepared to be flexible. And remember to put aside your pride; if an angel questions your valuation, it’s not a personal sleight, just business.
Angels are looking for entrepreneurs that:
l Are ambitious, with a clear vision of what it will take to generate growth
l Understand their market well enough to know how they can make money by taking a piece of it
l Have proved a need for their product and identified potential customers
l Know how they can build a defensible market position
l Know how they can differentiate themselves and be distinctive
■ FINDING THE RIGHT ANGEL
Not only does the angel have to find the right company to invest in, the business has to find the most appropriate angel.
You could start with the online directory on the UKBAA website. It’s a searchable database, allowing businesses to enter criteria such as the amount of money being sought, the company’s stage of development, location, business sector etc. That will start to narrow the field down.
Another way to find possible angel investors is to tap into the connections of any advisers working with the business. And since angels see hundreds of business plans and have to filter a lot of deal flow, an introduction from a trusted source can provide a very valuable leg up.
Once potential partners have been identified, do some due diligence. Look at the syndicate’s previous investments to check whether they have funded companies like yours or companies in your sector. Ask for references from the companies they’ve invested in. It’s critical to check out the people who are going to invest in your business. Don’t be shy! It’s a longterm relationship and it needs to be good on both sides. The bottom line is that you’re looking for smart money that will add value to your business.
To gve your company’s equity raising plans the best possible chance of success, it’s essential to ensure that investment will qualify for any tax breaks to which funders may be entitled. There are two schemes that can, for businesses that fit the profile, significantly boost the chances of a successful share offering.
■ WHO QUALIFIES AND WHAT ARE THE BENEFITS OF (S)EIS SCHEMES?
The criteria for businesses to qualify under these schemes and the benefits to investors are as follows:
Qualifying investments
Maximum number of employees
Maximum gross assets
EIS SEIS
250 50
£15m £200k
Maximum company age n/a 2 years
Maximum annual individual investment
£1m £100k
Maximum stake an individual can hold 30% 30%
Tax Relief
Income tax relief
30% 50%
Capital gains tax exempt? Yes Yes
Inheritance tax exempt Yes Yes
Losses o setable against income tax? Yes Yes
■ WHAT ARE THEY?
The primary schemes of interest to SME investors are the Enterprise Investment Scheme (EIS), set up in 1994, and Seed Enterprise Investment Scheme (SEIS), established in 2012 and aimed at smaller businesses. These are government incentives offering tax breaks to investors in small, private companies.
Statistics from the HMRC, published by the Enterprise Investment Scheme Association, give a measure of how important the schemes are:
l Since the Enterprise Investment Scheme was launched, more than 24,500 individual companies have received investment through the scheme and over £14 billion of funds have been raised.
l In 2014-15, 3,130 companies raised £1.7 billion of funds under the EIS scheme.
l In 2014-15, more then 2,185 companies received investment through the Seed Enterprise Investment Scheme, raising £168 million.
l Of those companies raising funds in 201415, 1,175 companies were using the SEIS for the first time – representing £146 million in investment.
Other stipulations for qualifying under both EIS and SEIS are:
l Companies must be established permanently in the UK.
l Companies must not be under the control of another company.
l Companies must be unlisted (excluding listings on the AIM market).
l Companies can raise a maximum of £5m in any 12 month period under EIS and £150,000 under SEIS.
l Shares must be held for at least three years to qualify for tax benefits.
l Investors must not be an employee, partner or director of the company.
l Under EIS, companies must be carrying on a ‘qualifying trade’. Sectors that don’t qualify include finance, property trading, farms and nursing homes.
(for a full list, see https://www.gov.uk/government/publications/theenterprise-investment-scheme-introduction/enterprise-investmentscheme)
The tax benefits to investors are clearly very substantial under both schemes, making companies that meet the EIS and SEIS criteria extremely attractive propositions for equity investors.
And yet, according to a 2014 survey by entrepreneurs’ network E2Exchange, 40% of founders were unaware of SEIS and 25% unaware of EIS.
A KMPG Enterprise survey later that year found that 71% of SMEs had not made use of these resources. The situation may have changed since then, but companies appear to be missing some big opportunities.
■ WHICH TYPES OF FINANCE DO THE SCHEMES COVER?
The two groups whose investment decisions are most likely to be influenced by whether a business has (S)EIS status or not are business angels and equity crowd funders.
Business Angels invest in a range of enterprises knowing that some will fly and others will fail. So the tax incentives, allowing them to take their profits free of capital gains tax and use their losses to offset their overall tax liability, are an enormous factor in their decisionmaking. It’s hardly surprising then that businesses qualifying under the (S)EIS schemes immediately become more attractive to a Business Angel.
To reinforce that conclusion, according to the Nation of Angels report from the UKBAA:
l Almost 90% of angels have invested through the EIS or SEIS.
l Around 80% of the total investments in angels’ portfolios were made under these schemes.
l Over half (55%) invested under EIS and a quarter (24%) under SEIS.
The report concludes that “it is the existence and extension of these schemes that have encouraged angels to keep investing in turbulent economic conditions.” The message couldn’t be much clearer.
It’s a similar story with Crowd Funding. Every Crowd Funding platform without exception features the EIS and SEIS prominently on its website. There is no question that equity Crowd Funding would not have taken off as it has without the tax incentives.
■ HOW DO YOU QUALIFY AND KEEP THE ENTITLEMENT?
So there is clearly a very strong case for companies looking to raise equity to get the (S)EIS imprimatur. The detailed procedures for ensuring that a company qualifies for and maintains (S)EIS status are beyond the scope of this report. All the relevant information can be found on the HMRC website at: https://www. gov.uk/topic/business-tax/investment-schemes. However, there are some key things that businesses can do to ensure that the (S)EIS process runs smoothly.
Before approaching potential equity investors, companies can get Advance Assurance – basically a pre-check that your company will qualify under the (S)EIS scheme. It can take a couple of months for HMRC to process an application so get the application in as early as possible.
During the process, companies should give as much information to HMRC as possible since Advance Assurance is only a preliminary indication that the business will qualify for (S)EIS. Should the company’s circumstances change in the run-up to the share offering, (S)EIS may prove to be unavailable. It’s clearly best to know that as far ahead of time as possible.
Another hazard is that regulations around (S)EIS change frequently and if that happens between a company receiving Advanced Assurance and the share offer, it’s possible that it may become invalid. So it pays to keep a close eye on what HMRC are doing.
And once the deal is done, companies need to continue to meet the requirements of the scheme for another three years if their investors are to benefit from the tax breaks. The financial penalties to investors in the form of claw-back of income tax relief could be extremely painful.
So while the case for getting a business registered as eligible for EIS or SEIS status ahead of a share offering is compelling, it is a potentially complex process.
Detailed information on the process can be found at: https://www.gov.uk/hmrc-internal-manuals/venture-capitalschemes-manual/vcm35000
Business Growth Fund
With its model of providing long term funding to established, but growing, SMEs, the Business Growth Fund (BGF) should be of particular interest to Vistage members.
The Fund, established in 2011, is backed by five of the UK’s main banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered – and has a £2.5bn pot for long-term equity investments.
BGF’s stated mission is “to unlock the potential of fast-growing UK businesses that need long-term capital to drive their future success” by taking minority equity stakes with a view to holding them for up to 10 years. So far the fund has invested in more than 100 growth stage companies in its five-year life.
While the BGF will invest from £2m to £10m, it’s the £2m to £5m range that is probably the most interesting to SMEs. That’s the ‘equity’ gap where the amounts are too large for start-up funders and too small for private equity. So it is meeting a real need in the SME funding market.
■ HOW CAN A BUSINESS QUALIFY FOR FUNDING?
Here’s what an SME thinking of approaching the Fund for investment needs to know about how the BGF works.
The Fund:
l Makes initial investments from £2m–£10m for a minority equity stake and a board seat.
l Backs both privately owned and AIM-listed, profitable companies typically with a turnover of £5m–£100m.
l Invests in all business sectors except regulated financial services.
l Invests in UK headquartered companies.
l Offers long-term funding of up to 10 years.
l Invests from its own balance sheet and can provide follow-on funding as businesses grow (several companies have now received total funding in excess of £10m).
l Is willing to co-invest alongside other investors.
That’s the basic ‘hard’ stuff. But it’s just as important to understand the more subjective criteria that the BGF uses to assess potential investments.
First, they are looking for management teams with a good track record, a proven business model and a desire to grow. This is not start-up funding or capital for entrepreneurs looking to run a comfortable ‘lifestyle’ business. As the BGF says, “We are looking for companies that have robust and realistic expansion plans, with the flair, business acumen and desire to reach for new heights… Our ambition is nothing less than creating the household business names and listed companies of tomorrow.”
Secondly, while the BGF emphatically does not want to take majority stakes and will leave the management to get on with growing the business, there will be significant input. As they say, it’s “about more than just financial investment and returns. We are offering a collaborative approach to financing growth, working closely with the companies in which we invest.” The BGF has six offices across the UK, enabling them to build close relationships with the businesses they invest in.
Thirdly, the BGF insists that at least 50% of the funding it provides goes into ‘growth measures’. That can be an acquisition, increased production capacity or perhaps a new factory or retail outlet. But it’s clear that companies will need to go to the BGF with a very clear idea of how the funding can be used directly to grow the business.
■ THE PROCESS
The process involved in securing funding is similar to that taken with a PE investor or business angel. Companies will need to provide the same historic financial information and forecasts together with a strategic business plan.
The BGF says that: “We undertake due diligence on all investments, but we make this streamlined and cost effective by being very focused. In practical terms, that makes it a three-month process: 4–6 weeks to understand the business and funding needs, 4–6 weeks to complete the investment. We can structure our investments in ordinary shares, loan stock, preference shares or a combination, and we will consider a small element of cash-out from our investment for existing shareholders.”
■ SO IS THE BGF RIGHT FOR YOU?
There are many things to recommend an approach to the BGF for companies seeking equity investment including:
l Funds from a stable, long term investor who will not demand a controlling stake.
l Flexibility on the use of investment funds
l Access to an experienced team who can offer strategic advice and a network of contacts and relationships.
In terms of the potential downsides, it’s really just a case of asking the basic question of whether the company is prepared to sell down equity in return for funding. If the answer is ‘yes’ the BGF is clearly an option.
■ VCFUND
For companies in the technology sector, it’s worth noting that in 2015, BGF also funded a new venture capital unit to the tune of £200m. BGF Ventures will make investments of between £500k and £5m in start-up tech companies. While they will be competing with the rest of the VC community, one thing that separates them from the pack is that they are investing from their own balance sheet. They can therefore afford to be more patient than funds with outside investors as there is no forced exit pressure.
Resources: http://www.businessgrowthfund.co.uk
BGF VENTURES WILL MAKE INVESTMENTS OF BETWEEN £500k AND £5M IN START-UP TECH COMPANIES.
Business Funding Synopsis
Why traditional banks have changed their game
While the high street banks were badly battered by the Global Financial Crisis and now operate in a more constrained environment, they are coming back strongly in the SME finance market. But the way they lend has changed and the relationship element has declined in importance. They also focus much more on secured lending these days. So SME owners need to do their homework and shop around to find the best deals rather than sticking with their transaction bank.
How the world of business finance has changed
In the last ten years, the business funding landscape has changed radically. The combination of the GFC and rapid technological development means that a number of new challengers have grown up, making it a much more competitive field. That ought, of course, be to the benefit of SMEs pondering their funding options. The choice still boils down to equity vs. debt (usually some combination of the two) but the field has now opened up, giving the smart SME a wider range of options than ever before. 2 5 3 4 1
Asset Based Finance
ABF makes a huge contribution to UK business financing. The primary method is raising funds against the debtor book, so-called invoice financing. This turns unpaid invoices from a drag on cash flow into a source of funds. And since the amounts that can be advanced against those invoices increase with turnover, this can be a very effective source of capital to fund a growing business. Mainstream banks and a growing array of alternative providers make this a competitive market place.
Peer-to-Peer Lending
The decline of relationship banking means that high street lenders are no longer the only game in town when it comes to raising debt finance. Online platforms showcase businesses to a large universe of potential lenders, and because the likes of Funding Circle have lower structural costs than banks, their rates are very competitive. The decision-making process is also much quicker, making P2P a very viable option now.
Crowd Funding
Crowd funding has matured to the point where even larger SMEs looking for equity finance should seriously consider it. A recent deal through platform Seedrs raised more than £4m so it’s not just for start-ups any more. Selling equity to a large number of small investors means you won’t get any management input as you might from an angel or VC, but you will be left alone to run your business without interference. It’s also quick and cost-effective.
While the boundaries are blurring, VC sits broadly between business angels and PE investment. VCs can offer sizeable chunks of equity but they are demanding investors. They will want to be convinced that you have a company with exceptional growth potential, they will do in-depth research before investing and will be actively involved in the business. They will also be looking for an exit strategy to realise their gains. If that fits with your business, VCs funding can provide a turbo-boost for earlier stage companies.
6 7 8 9 10
To give a business the best chance of meeting its fundraising goals, it’s essential that the investments into it qualify for all possible tax breaks. The Enterprise Investment Scheme and Seed Enterprise Investment Schemes offer generous incentives to funders (mainly angels and crowd funders) of start-ups and growing SMEs. Companies need to look very closely at the qualifications for these tax breaks and to ensure that they meet the requirements as that will make a big difference to their chances of raising investment.
PE investors tend to focus on more mature businesses than those that feature in a VC portfolio. They are a common funding source for companies entering the scale-up phase, but also provide capital for specific purposes such as an MBO. In common with VCs, PE funding is an active, long-term investment class and it is in their interest to help their businesses overcome obstacles and achieve their full potential. But they can also be ruthless with management that they feel is failing to live up to expectations.
The 18,000 UK business angels differ from VC and PE investors who manage and invest money on behalf of others. Angels invest their own capital and can therefore be more flexible and, potentially patient, than the others who are under outside pressure to realise the profits on their investments. They can also take a chance on higher-risk investments than PE and VC funders as they only answer to themselves. Above all, angels are looking for businesses where their investment will be transformative, not just generating incremental improvements.
The £2.5bn fund, backed by five large UK banks, typically takes stakes of £2-5m in established but growing SMEs and holds them for the long term. This covers the ‘equity gap’ between many start-up funders and, say, Private Equity. While they do not look for controlling stakes, the fund will provide management input and guidance and insists that the investment goes primarily into areas that will directly boost the growth of the business.
Conclusion
Finding the right funding source for a growing SME is an increasingly complex exercise. But some of the core principles remain the same, regardless of the funding channel chosen.
Much has changed in the SME funding landscape in the last few years. Before the GFC, traditional banks dominated the SME market. By the mid 2000s, securing funding had arguably become too easy but the banking system that emerged from the neardeath experience of the GFC is a very different animal and also faces a slew of new competitors.
■ DON’T DISCARD THE TRADITIONAL BANKS
The banks were slow to respond to the challenge of newcomers and their legacy business models present a competitive handicap. But while alternative funding sources are eating away at their core business, don’t expect the banks to fade quietly away into oblivion. They are opening their coffers again, simultaneously recognising the need to compete. So while unsecured bank lending appears to have gone the way of the dodo, SMEs should still explore the potential to raise capital via secured facilities, including asset based finance. The key? Shop around, as relationship banking is largely a thing of the past. SMEs need to hunt down the best deal regardless of the provider.
■ ALTERNATIVES ARE MORPHING CONTINUOUSLY
The more established non-bank sources of finance –business angels, VCs and PEs – continue to evolve and the boundaries between them and newer channels are becoming blurred. So where individual angels previously invested relatively small sums in early stage enterprises, they increasingly work in syndicates. Average investment size is creeping up and funds are often going into later stage businesses. Similarly, it’s now common for angels or VCs to be ‘cornerstone’ investors in an equity Crowd Funding deal.
So SMEs need to be keep abreast of the latest developments in the market, since a funding source that might previously have been dismissed as unsuitable could now be a legitimate option.
■ BUT MANY THINGS HAVE NOT CHANGED
While the funding landscape has changed considerably, many of the underlying principles remain the same.
1. Terms and conditions of the funding have to be right. Whether it’s the covenants attached to a secured bank loan or the conditions laid down to the board by a VC, companies must assure themselves that the deal is the right one for the business.
2. SMEs have to ask themselves what relationship they want to have with the lender. The relationship with shareholders buying into a business via a Crowd Funding platform will be very different to that with a demanding PE investor. One might suit the business much more than the other.
3. When it comes to assessing potential funding sources, it’s still a balance between availability, speed, cost and terms. Whether it’s an asset based lending deal or an investment from the Business Growth Fund, the same criteria apply.
4. It’s still personal. The process of pitching to a bank, business angel, a VC fund or a PE investor remains a personal one. With a smaller business the capabilities and vision of the CEO and their team remains one of the biggest factors. The spreadsheet numbers have to make sense, but unless the investor believes that the team in front of them can deliver, they won’t part with cash. And even though web-based platforms appear to have removed some of the personal interaction, the most successful Crowd Funding and P2P pitches are those where the management actively communicates with potential investors (answering questions on an online forum, or through ‘meet the management events’ in the real world). Not for nothing is ‘engagement’ the buzzword in the world of the online funding platform.
Vicki Curtis is a well-established leadership development professional weaving the science and practice of mindfulness into her leadership and organisational development work. She has worked for over 20 years in the field of organisational, team and personal development as both an internal and external consultant. Her work spans Leadership Development, Team Facilitation, Business Partnering, Culture Change Projects and Executive Coaching across a range of companies and industry sectors but predominantly with FTSE 100 organisations.
Why not book a speaker into your orgnaisation for training –visit www.vistagespeakerbureau. co.uk or email Victoria.cotton@ vistage.co.uk
Vistage Speaker Bureau
Mindfulness in the Workplace
The following is an image you are probably familiar with – sitting in front of you is a successful leader in the prime of her career, sharp and competent, albeit a little bit distracted. In the course of your conversation, several messages announce themselves on her blackberry. Your first impression – everything is under control, business is good. If we look a little closer though we see that under the desk her foot taps nervously. The conversation is interrupted several times by a few quick texts, a phone call shortly thereafter. In the middle of a sentence she glances sideways at her laptop. Whilst you are speaking, she briefly scans an email. The atmosphere changes – the thread is lost and the topic has shifted.
■ The pressure is on
Stress, constant pressure, not enough time to think things through, endless e-mails (100? 150 per day?) and at least 30 phone calls… our ‘to-do’ lists are longer at the end of the day than they were at the beginning. No time to reflect, no room for creativity, or even to finish a thought. The yearning for more focus, space, time, and a bit less going on is palpable. The workday begins at 6am, our mind is already at work on the email we read at 23:20 the night before. Before we know it we are in a meeting, then off to the next one, whilst simultaneously ‘surfing’ through the day’s tasks, and finally we are exhausted as we again check our e-mail, ‘one last time’ before trying to go to sleep.
■
Everyone knows that stress has consequences for individuals
But there is a deeper story to this. Ask your average manager if they are good at multi-tasking, and they will probably say yes, they are an expert. Research, however, shows that frequent multi-taskers have a poor ability to concentrate, respond frequently to irrelevant signals, and lose their ability to notice the social and emotional signals of others. Multi-tasking and emotional intelligence do not go hand in hand. In addition, team work is an ongoing challenge. We have become good at processes, structures, roles – even in global teams – but still many teams don’t function well –simply because team members are not engaged. In a high pressure, ‘always-on’ environment, the ability to trust or care
for each other and to really listen often gets lost – but these are actually the very cornerstone of high performing teams.
■ A positive impact
There is strong evidence that mindfulness practices have a very positive impact on some key aspects of how we show up to and actually perform at work. In a similar way that sports or exercise can cultivate our endurance, flexibility, power and fine motor control, mindfulness practices have been shown to have a strong influence on our attentional control, ability to sustain positive emotions, self-awareness and ability to recover from emotional setbacks. And since we work more with our minds than our bodies, it is clearly obvious that cultivating mental skills will have a strong impact on how we work.
Interestingly enough, these four skills are not only the core capabilities underlying resilience but are also closely connected to the essential skills for cultivating emotional and social intelligence. The intersection of neuroscience and mindfulness practices, with the added help of positive psychology research, is beginning to really uncover the mechanisms of how we can work with our minds. It is not a mystery any more – it simply requires practise.
■ And that’s the nub of it
Mindfulness is not a quick fix for an organisation’s problems. The real impact of mindfulness is only realised when it’s fully integrated into leadership development and an organisation’s culture. Mindfulness provides leaders with the opportunity to create space. It helps to add a pause between stimulus and response, to be more purposeful and more present. That successful leader you had the conversation with isn’t distracted and stressed because they don’t have time, they don’t have time because they are distracted and stressed. There are many ways of applying mindfulness practices in the workplace but the key is practise and feedback. Assessments and evaluation can provide evidence based outcomes of change. The impact of doing this is powerful – people practising and applying a mindful approach over a period of time, supported in groups, really notice that something changes.
Profile – Vicki Curtis h ps://vistage.co.uk/speakers/vicki-curtis
The Warrior, The Strategist and You
Floyd Woodrow is the Managing Director and founder of Chrysalis Worldwide, the world’s leading values-based organisation. Floyd has an excellent track record of success as a military leader, Director, Non-Executive Director, consultant and negotiator. He is challenging, supportive and totally committed to developing elite commercial value in strategic planning and execution and has established an international reputation for designing and running leadership and elite performance training.
My fascination with human potential, how we can release and harness it, has been a key driver throughout my life.
I was fortunate to be a soldier for over 27 years of my life, working with talented, dynamic and entrepreneurial people who happened to be elite soldiers. I’ve studied psychology, philosophy, and worked with people from all walks of life and cultures, exploring how we work with others, how we achieve for ourselves and, more importantly, at our highest level, for society.
When we look at the lives of our heroes, we see that they had to overcome misfortune, external resistance, jealousy, stubbornness, failure, and mistrust. We are no different from them; we all have storms to weather. I judge the success of a person or team when I see them at the height of the storm’s fury, working through adversity and coming out of the other side intact and together.
■ Because success has a strategy and failure is not an accident
Working with the Vistage team has enabled me to work with some wonderful Chairs, CEOs and MDs from most sectors of society. Vistage’s aim is the same as mine to provide each leader with the key skills and knowledge that allow them to be consistently good, to get to the highest levels of leadership which in my opinion is the ability to lead without authority. We wish to take the complex subject of leadership and make “it simple…” as Einstein wrote.
Our lives are complex journeys where we are constantly growing, constantly learning and developing our knowledge and skill sets to deal with an ever more complex world. The best leaders are not only able to lead themselves and others to the highest levels of performance. They also create leaders as part of their legacy. In order to do so I believe that we need to have a methodology that is flexible, adaptable and understood by all even children.
■ We need our own compass and a map and not rely on sat nav
The compass is the essence of who you are, the North Cardinal on your compass, a purpose (your Super North Star), that magical element that enegises you, draws you
forward and you are passionate about achieving. The South Cardinal (the STRATEGIST) is your ability to plan your life and build the scaffolding to get to your Super North Star. The East Cardinal (ETHOS) is your values, the behaviour, the things you believe in and are non-negotiable and finally the West Cardinal (the WARRIOR) which is your desire to fight for what you believe.
With your compass in your hand, you now need a map. This is where you plot as much information as you can. You look and identify the routes that you may have to travel, the obstacles you may have to navigate and the steps you need to take to get to your destination.
Once your mind, body and spirit are connected and triangulated, you will have the power to succeed in any area of life you choose. Most importantly you will then be able to connect to your team and have an organisational compass and map. This is where the puprose is clear to all. Backed by an intelligent strategy, a great code of conduct and the warrior spirit (strength of character) to deliver it. It allows you to trust in yourself and commit to your future.
Alvin Toffler once said: ‘The very process of writing changes me. It clarifies my thoughts, it organises my time and my life’.
Drawing your map alongside your compass will enable you to explore your theories, challenge your beliefs and push through your limitations to achieve what you desire. The great thing about the compass and map is that it is with you for life as you adjust your direction and route according to the terrain and circumstances in front of you the compass and maps adjust alongside you.
As with all compasses we must be aware of the magnets we may come across on our journey. The biggest magnet I generally find is ourselves, our fear of failure which can be quite debilitating. That is why we must always keep our map and compass with us.
Profile – Floyd Woodrow h ps://vistage.co.uk/speakers/floyd-woodrow
Profile – Michael Nicholas h ps://vistage.co.uk/speakers/michael-nicholas
Michael Nicholas has 30 years of practical leadership experience and runs Optimal Track Ltd, a coaching and training company specialising in emotional intelligence, engagement and decision-making. He is an award-winning Vistage speaker and is currently working on his third book, on the subject of decisionmaking, which will be published by Capstone Wiley early in 2017.
HThe Challenge of Knowing Right from Wrong
Why Making
Reliable
Decisions may be Harder than we Realise
igh quality decision-making is inseparable from the ability to achieve business success because it determines how well every other talent or capability we have can be applied. So it is unfortunate that no one is immune from making mistakes: while we may sometimes be incredibly smart, at other times we can all be almost unbelievably dumb when it comes to aspects of our decision-making. To make better decisions more often, we need to understand why errors are so predictable, and for that we must look at the complex mental processes that underlie them. These processes impact in numerous ways, both individually and when we interact with others, and they have been the focus of much research for decades.
One very clear factor to emerge from the studies is that we routinely use numerous unconscious mental preferences and short-cuts, even in the most basic dayto-day activities. These are biases that can lead to errors. To compound the problem, we get no warning bells when this happens. Unfortunately, when we are wrong, our internal experience is exactly the same as when we are right.
■ Feeling “Right” is a Poor Guide
“It infuriates me to be wrong when I know I am right.” ~ Molière
Many people challenge the suggestion that being right and being wrong feel the same; for example, aren’t there times when we feel uncomfortable when we are wrong? Let’s look at it. Discomfort suggests uncertainty, that we have doubts, which therefore precludes believing we are right. On the other hand, we may have the discomfort of realising that we were wrong, but the illusion of rightness must evaporate at the same time!
Another factor compounds the challenge: we also prefer to be right. Known as Confirmation Bias, recent studies have provided extensive scientific evidence that we have a strong tendency to seek information to confirm pre-existing expectations or hypotheses, or to justify our decisions, whilst disregarding evidence to the contrary.
• The Misconception: Your opinions are the result of years of rational, objective analysis.
• The Truth: Your opinions are the result of years of paying attention to information which confirmed what you believed while ignoring information which challenged your preconceived notions.
Our preference for being right is so powerful that we can display incredible imagination to create reasons for dismissing, disconfirming or falsifying information, even when this information would be more useful. Confirmation bias also affects our memory and can lead us to have high levels of certainty even when we are wrong. Unsurprisingly, the impact of this bias on judgement and decision-making can be extremely detrimental.
Seeking to Disprove
The most important principle that I’m aware of for overcoming confirmation bias and protecting ourselves against a misplaced certainty that we are right is that of deliberately considering why our judgements may be wrong. I call this seeking to disprove, and it is so powerful that it is at the very heart of scientific thinking.
Why not book a speaker into your orgnaisation for training –visit www.vistagespeakerbureau. co.uk or email Victoria.cotton@ vistage.co.uk
As such, even Molière was wrong. His recognition of having been wrong implicitly precludes the possibility of still believing himself to be right. It follows that the statement, “I am wrong” cannot be true, and Molière should have said something like “It infuriates me to realise that I was wrong when I was sure I was right”! This is a huge problem: once we are sure we are right, feelings will only validate the belief.
In science, theories are recognised for what they are: operating principles to be used until disproven, at which point they become replaced with new theories of higher utility. When devoid of this approach, science rapidly descends into quackery. Similarly, your thinking will be prone to error until you learn to welcome alternative perspectives, proactively seeking evidence that flies in the face of what you currently believe. I recommend regularly reminding yourself that having a feeling of certainty that you are right is absolutely no guarantee that this is the case. As you learn to challenge your inner feeling that something ‘just is,’ and seek to disprove your own ideas, the reliability of your decision-making will improve.
Profile – Adam Long h ps://vistage.co.uk/speakers/adam-long
Australian based Adam Long consults to Sony Pictures in London on their global strategy. With a degree in industrial design Adam is able to combine both strategic and creative solutions to problems. He has deployed these skills across the not-for-profit sector, the government and big business across Australia as a strategist for Step Change Marketing. Adam has been awarded as one of Australia’s ‘Top 30under30’ entrepreneurs –twice.
APredatory Marketing
Strike at the weakness in your competitor’s strength
ll of us want our message heard, to drive sales and to boost profit margins. But the brutal truth is our messages are often ignored and our perspectives are being missed. Predatory Marketing is the answer to being heard above the noise. It’s a development that challenges preconceptions about how organisations can expand their client base.
The way marketing is taught has followed a typical pattern for decades – that it’s about meeting the needs of customers. But this is changing. Today, the only predictable need that customers have is a need for less corporate ‘noise’. The challenge is for business leaders to stop thinking about simply meeting customer needs and to target the weaknesses of their competition. In other words, companies need to embrace Predatory Marketing.
■ “Who has my money?”
Now that companies can no longer think solely about satisfying needs, they have to start asking, “Who has my money?” It’s a zero-sum game that businesses are operating in, and organisations now have to tailor their marketing practices to ensure they accommodate this new reality. Failing to keep up with these changes will ultimately make it harder for companies to grow.
In Australia, they spend roughly $13.3 billion on marketing per annum – translating into around a million branded messages that each of us see every year. That’s 3,000 every single day. Of those 3,000, we will only notice 80 and react to 10. And of these 10, we instantly treat half as unwelcome intrusions, leaving only five messages a day we actually notice, react/respond positively to and absorb.
■ The five-ninths law
Why not book a speaker into your orgnaisation for training –visit www.vistagespeakerbureau. co.uk or email Victoria.cotton@ vistage.co.uk
You also have to remember the five-ninths law that states that five-ninths of marketing messages will be misattributed to the leader of a market segment, rather than the company paying for the message. For organisations that aren’t in this leadership position, they are essentially cementing the position of their leading competitor with their own marketing budget.
Overcoming this gap, and crafting messages that actually move market share away from competitors is therefore key to building a successful Predatory Marketing campaign.
■ What does Predatory Marketing look like?
Step 1) Identify where the money would go if your company didn’t exist. Imagine your business didn’t exist –where would your customers’ money go? A competitor? Or would customers spend it on a completely different offering? You’ll usually identify four or five competitor organisations that are offering a comparable product that your customers would gravitate towards. From there, we are looking to narrow down the list to find a target. This means identifying a competitor that is very large or is perhaps a little lazy and isn’t meeting the needs of its customers.
Step 2) What are the strengths of the opposition? Now that you have a competitor lined up, you need to objectively evaluate their strengths. To do this, put yourself in the shoes of a customer or consider why a third-party would recommend them. When you can express in simple terms the strengths of your competitor, the next step is much easier: weaknesses.
Step 3) Find the weakness that comes from the opposition’s greatest strength. The challenge with Predatory Marketing is to find the specific weakness that arises from a particular strength and then explain it to the customers. The reality is that customers won’t necessarily notice this weakness by themselves.
Step 4) Where are you strong? The final step is to build your strengths to address this pain point and then convey this value to customers. You can be explicit here when communicating with prospective clients – acknowledge the strengths of a competitor before honing in on the weaknesses that your products and services can address.
It’s time to get Predatory
Customers don’t have needs anymore; their needs have been filled. We need to arm ourselves with new tactics that can help us rise above the noise of our competitors and ensure that our message is the one being heard.
September Friday 9th
Friday 23rd
Friday 30th
October Friday 7th
Friday 7th
Thursday 20th
November Thursday 10th
Friday 11th
Friday 18th
Friday 25th
December Friday 2nd
London Vistage Open Day+ etc. Venues, St Pauls
Midlands Vistage Open Day+ The Belfry, Sutton Cold eld
Manchester Vistage Open Day+ The Midland Hotel, Manchester
Glasgow Vistage Open Day+ 200 St Vincent
South Wales Vistage Open Day Celtic Manor
Belfast Vistage Open Day The Titanic
North East Vistage Open Day Crowne Plaza, Newcastle
Midlands Vistage Open Day+ Ricoh Arena or The Belfry (tbc)
Yorkshire Vistage Open Day+ Harrogate Conference Centre
East of England Vistage Open Day Wyboston Lakes
London Vistage Open Day+ etc. Venues, St Pauls
Crowne Plaza, Newcastle
The Midland Hotel, Manchester
SPEAKER
Professor Steve Peters
Balaji Krishnamurthy
Balaji Krishnamurthy
Malcolm Smith
AmyK Hutchens
Professor Steve Peters
Adam Long
Adam Long
Professor Steve Peters
Professor Steve Peters
SESSION
Optimising the Performance of the Human Mind
Developing Leadership through an Intentional Corporate Culture
Developing Leadership through an Intentional Corporate Culture
Promise Management: The Art of Delegation
Ignite Brilliance in Your Leadership
Optimising the Performance of the Human Mind
The Future is Predatory Marketing
The Future is Predatory Marketing
Optimising the Performance of the Human Mind
Optimising the Performance of the Human Mind
To be con rmed
To be con rmed
etc. Venues, St Pauls, London
The Titanic, Belfast
The Belfry, Sutton Cold eld
The Vistage Marketplace
Showcase your products and services to hundreds of decision makers and industry influencers.
■
WHAT IS A VISTAGE OPEN DAY?
Vistage Open Days are high-impact, business workshops bringing together Vistage members, their colleagues and guests. They provide delegates with actionable takeaway value from world class speakers, not just information, which can be used immediately to keep you and your company moving forward.
■
WHAT IS THE MARKETPLACE?
Selected Open Day events will include The Marketplace, an exhibitor area, where you can promote your products and services and connect with others on the day.
At our Open Day events, members can now reach between 150 and 300+ CEOs, MDs, business owners, senior executives and their organisations in The Marketplace.
■
WHY EXHIBIT AT THE MARKETPLACE?
l Increase your visibility to decision makers and industry leaders who are loyal to Vistage
l Enhance your brand awareness and credibility with CEOs, MDs and business owners
l Generate new and meaningful relationships within the Vistage community
l Increase sales leads and form new business partnerships
As an exhibitor you’ll have the opportunity to connect with other business executives that share the same mentality as you, those that are focused on being better leaders as well as the comfort of knowing that they are driven by the same hunger to be more successful.
During an Open Day you will have up to 2 to 3 hours of networking opportunities to those in attendance. Your stand will be located within the catering area and we will arrange networking activities to maximise the traffic to your exhibition stand.
■ UPCOMING VISTAGE SPEAKERS
Vistage speakers are all established world-class business experts who provide actionable takeaways which can be used immediately to keep you and your company moving forward. The topics vary by event, location and demand. We have a mix of International and National speakers at upcoming Open Days.
Vistage Audience
In attendance will be a mix of entrepreneurs, CEOs, MDs, business owners and their teams
THE VISTAGE OPEN DAY MARKETPLACE HAS BEEN A FANTASTIC OPPORTUNITY FOR GATE8 TO BUILD BRAND AND MARKET AWARENESS WITHIN THE ENTERPRISE AND BUSINESS TRAVEL SPACE – A PERFECT ONE DAY NETWORKING EVENT TO A HIGHLY TARGETED AUDIENCE. THE EVENTS ARE PROFESSIONALLY ORGANISED WITH STRUCTURED BREAK OUT SESSIONS TO NETWORK AND SELL – IN SUMMARY, A MARKETING SPEND WITH ROI.
Alistair Callender, Chief Bag Carrier, GATE8 Luggage
AT SALES PLUS PROFIT WE’RE HUGE FANS OF VISTAGE AND ITS COMMUNITY, WHICH IS WHY WE’RE ALWAYS EXCITED TO PARTNER AND SUPPORT THE MEMBER MARKETPLACE. HAVING BEEN INVOLVED FROM A VERY EARLY STAGE, WE SEE THE MARKETPLACE AS A GREAT PLACE FOR VISTAGE MEMBERS TO PROMOTE THEIR BUSINESS TO A QUALITY AUDIENCE IN A RELAXED AND PROFESSIONAL MANNER. AS OUR BUSINESS GROWS TO PROVIDE NATIONWIDE COVERAGE, WE’RE LOOKING FORWARD TO EXTENDING OUR RELATIONSHIP WITH VISTAGE EVEN FURTHER AND BEING INVOLVED IN OTHER MARKETPLACE EVENTS THROUGHOUT THE COUNTRY Matt Garman, Managing Director and Founder, Sales Plus Pro t
To con rm your sponsorship for The Marketplace or for further information, please contact: Katie O’Donnell Events Executive katie.odonnell@vistage.co.uk 01489 770224
Members Rates at £495 an Open Day
Vistage: Book Reviews
As Harry S. Truman so rightly put it: “Not all readers are leaders, but all leaders are readers.” Our bookshelf this month is abundant with insight and advice from business classics to new thoughts on leadership.
From Vision to Exit: The Entrepreneur’s Guide to Building and Selling a Business
Guy Rigby
ISBN 9780857191472
September 2011, Harriman House Ltd
£16.99
The focus on building a business in today’s climate is not just about how to profit and stand out from the crowd, it is also about creating a business that is successful enough to sell. With a plethora of start up books already out there, Guy Rigby set about writing a book that had a very practical approach, taking the entrepreneur from first vision to final exit.
Guy believes that there are many differences between a good and great business, but that they aren’t beyond a business leader’s control. For him there is a system – you must do many things better than anyone else – and in the book he explains what these things are, arming the reader with the strategies, plans and tactics to get their businesses to the top.
The style is easy and engaging and covers every business area. From finance and management to marketing, business planning and the ultimate final exit, Guy takes the entrepreneur beyond the basics equipping them with a deeper understanding of every stage of the business process. Kevin Stopps, Managing Director, Smith & Williamson rates this as the: “…definitive handbook and guide. Everything you’ll ever need to know about building and selling a business.”
BUSINESS CLASSIC
The Seven Habits Of Highly Effective People
Stephen Covey
ISBN 9781471129391
November 2013, Simon & Schuster UK
£16.99
Stephen Covey’s business classic has sold over 20 million copies worldwide and celebrates over a quarter of a century of success. He reveals a set of principles that give us the security to adapt to change and the wisdom and power to take advantage of the opportunities that change creates. The book presents a principle-centred approach for solving personal and professional problems, complete with penetrating insights and pointed anecdotes and has become a blueprint for personal development. The book reads as both a self-help guide and a business guide – a combination of mastering the inner self before becoming outwardly successful.
The seven habits are a set of inspirational and aspirational standards and are as applicable to life and business today as they were when they were conceived in 1990. The values are not limited to the workplace and can be applied across all aspects of life. He moves away from previous, process-based ideologies giving the reader a set of habits that are full of integrity and humanity. Each one is powerful enough to be used in isolation yet all are interrelated and combine to create an invaluable life-toolkit.
The New One-Minute Manager
Ken Blanchard
ISBN 9780008128043
June 2015, Harper / New Thorsons
£7.99
It’s an age-old management conundrum: how do you keep a firm hand on the reins, yet keep staff on board at the same time? Is it possible to win in business and win the respect of staff simultaneously?
For Ken Blanchard, managers have typically fallen into one of two camps: the ‘hard-nosed’, who rule autocratically, often successfully, but at the expense of their staff; and the ‘nice’ and ‘supportive’, who garner ground support at the expense of the business. For Blanchard, however, it is possible to win on both counts, and this is the key to effective management. He shares his insights in an update of his bestselling book, The One-Minute Manager, which has sold over 18 million copies in more than 25 languages.
As the title suggests, the answer is in keeping things simple and concise, a philosophy that Blanchard and co-author Spencer Johnson follow loyally. It’s a short, easy-to-read tome, which gets to the point quickly then drives the message home. CEOs have been known to request that all their managers read this book at least once a year to improve performance, and if you wish to become more effective then a quick read of this landmark text is a good place to start.
Financial Times Guide To Finance For Non Financial Managers
Jo Haigh
ISBN 9780273756200
November 2011, Prentice Hall
£22.99
The Trusted Executive - Nine Leadership Habits that Inspire Results, Relationships and Reputation
John Blakey
ISBN 9780749474225
April 2016, Kogan Page
£19.99
Trust has become a much-discussed topic for many since the recent global financial crisis. However, the business word as a whole has yet to embrace the concept and in many organisations and corporations trust is low and leadership flawed because of it. Blakey helps create a trust-based strategy, through innovative coaching exercises, personal anecdotes, inspirational CEOs and well-researched business models, leaving us with the confidence to build trust in ourselves and in our companies.
The tripartite approach to trustworthy leadership is based on ability, integrity, and benevolence. We are taught how to develop and measure trust, how to deal with trust violations and manage a constantly changing work environment and diverse workforce. Underpinning these three pillars lie nine habits of trustworthiness; habits that enable executives to deliver outstanding results while maintaining relationships.
The Trusted Executive, the style of which is conversational and engaging way, addresses both the theory and the practice of the trust-building challenge so making it an essential tool for leaders who want to create a positive long-term legacy.
EDITOR’S CHOICE
When it comes to finance, Jo Haigh knows her stuff. The Institute of Directors’ former ‘Business Adviser of the Year’ and ‘Business Woman of the Year’ has a wealth of experience as a CFO for established firms to draw upon in this revealing book, packed with useful insights. Whatever your background in business and route to the top, one thing is clear among all successful leaders: you must have a handle on the numbers. However, there are many talented, entrepreneurial, and creative business people who have not experienced a formal grounding in finance or simply who desire a greater understanding of this aspect of business to progress to the next level in their career. This book is for them.
Hailed for her ‘no-nonsense’ approach, Haigh writes clearly and passionately about her subject, making corporate finance accessible without dumbing down. As a result this excellent book has been referred to as a ‘pocket bible for nonfinancial managers’ – the perfect solution for leaders and managers who must make important financial decisions.
My Vistage
Get even more from your membership!
Many Vistage members are not fully aware of the wide range of information available on the My Vistage website. My Vistage enables members to connect between groups meetings, tap into the broader international Vistage community, learn from expert speaker videos and access bespoke best practice materials.
Connect with your group
Manage your group meeting online, raise issues to be processed, set your personal goals and engage with the other members of your group in a secure environment.
Connect with the global community
Engage with industry influencers across the worldwide Vistage community and connect with 21,000 members who can help you get answers you need for your business.
Ask questions and participate in discussions with community members to help your business and explore the Marketplace to discover new opportunities.
Promote your business
The Marketplace can be used for business listings to promote your services, products and special offers within the Vistage community.
Access Best Practice Toolkits
A library of articles, tools, resources and member best practices designed to provide you with everything you need to achieve success (or further success) in your business.
Each toolkit is built out with expert information carefully chosen and edited to provide a comprehensive level of insider expertise you’re not likely to find anywhere else.
There are currently 26 toolkits across Business Operations, Human Resources, Marketing & Sales, Strategy & Management and Technology.
Watch Online Learning videos
Watch inspirational and informative videos from Vistage speakers from around the world by accessing Vistage Studio.
Topics range from Leadership, Growth & Strategy, and Beyond Business to Human Resources, Management & Operations to Marketing & Sales.
■ RECOMMENDATION 1: COMPLETE YOUR MY VISTAGE PROFILE
To make sure that you get the most from the My Vistage website, you need to ensure that your profile is complete.
Your pro le is your brand - update it now!
Having a complete profile is important. It’s a way to introduce yourself to the Vistage Community and make it easy for other members who are looking for someone with your similar experience and interests to find you. It only takes a few minutes to upload a photo or two of yourself and add a brief introduction.
Update your profile today by following these simple steps.
1. Open your pro le in My Vistage
To edit your profile, click on your name at the top right of the website.
On the right-hand side of your profile under Actions click ‘Edit pro le & privacy.’
2. Complete the Edit Pro le form
Fill out profile fields as completely as possible. Enter or update your industry, LinkedIn URL, business website, and other information you would like your Vistage peers to know about you. Be sure to fill out your biography and business description to make it easier for your peers to find you when they are searching for keywords and phrases in the member directory.
3. Save your pro le
Click ‘Save‘ at the bottom of the profile form when you are finished editing your profile.
NOTE: If you need to update your name, company, title, address, phone or email, then click the link within the Edit Profile page to request an account update. You will be redirected to a separate page to enter this information, which will then be sent to Membership Services for processing.
4. Add a pro le image
Your profile photos are the first thing people see when they view your profile. To add a photo, on your profile, click ‘Change photo & avatar‘ under Actions.
Click ‘Add photo‘ and select a file from your computer.
Click ‘Choose File‘ and select the photo you’d like to use from your computer. The file name should replace the “No file chosen” text.
Crop your photo by clicking and dragging the corners of the photo. A preview of the cropped photo will
appear on the right. When you are satisfied with your photo, click the ‘Crop Photo‘ button.
■ RECOMMENDATION 2: MARKET YOUR BUSINESS TO THE ENTIRE VISTAGE COMMUNITY
The Marketplace is used for business listings that promote services, products and special offers within the Vistage community. In addition, you can also make use of “classifieds” for time sensitive, transactional items such as help wanted, seeking employment or for sale.
Each listing includes a description of the business, an uploaded logo image and:
l Easy to find contact information for your business
l Special badges to indicate exclusive offers for Vistage members
l Text, video and photos within the description
Follow these simple steps to create a listing for your business:
1. Access the Marketplace
To access the Marketplace click on ‘Events and Forums’ from the home page.
Click ‘Marketplace’
Click on ‘Create a Marketplace listing’
2. Create your Marketplace listing
To create your Marketplace entry, simply complete the fields in the listing information form.
You can enhance your listing by including the following information:
l An uploaded image, such as a logo, that will display at the top of the listing
l Attach videos, images or PDFs within the company description
3. Publish your listing
Click ‘save draft’ to revisit later or ‘publish’ when your listing is complete - your listing will then appear in the Marketplace available to all the Vistage Community.
■
RECOMMENDATION 3: TAKE A COUPLE OF MINUTES TO SEE WHAT’S ON MY VISTAGE
My Vistage has recently undergone a redesign making it simple to access all information and resources to get the most out of your membership – simply login and click on My Groups and Networks, Directory and Resources or Events and Forums to investigate more!
The Last Word
How do you ‘show up’ to your Vistage Group?
I’ve been running a Vistage group since 1999. Over the years I have seen the lifechanging results that can come from the Vistage formula. I’ve also seen a vast range of issues, challenges and opportunities that Vistage members face, in their businesses, their professional lives and in their families. If my maths is correct, so far I’ve had a total of 264 members who have joined one of my Vistage groups. I’m often asked what makes a good member, how should members approach Vistage, how do they get the most from it?
So if you’re a member, or a potential member, here’s my suggestions on how to approach Vistage and your group. It’s a set of views built up and refined over the years – I’m sure some Chairs and members may not agree with everything – but for me I know these things work…
■ How do you ‘show-up’?
As you walk through the door into your Vistage monthly meeting you get the feeling of “Ahhh! I have arrived with my tribe” into the place where you will learn new things, where you can remove what Shakespeare called ‘The Kings Mask’ and be yourself. Around you is the familiarity of what you knew as a child as your club house, your ‘den’. You see the sign-in sheet on the flip chart, KPI stats, reminders of success from previous meetings, name plates with achievements and honours. Your fellow members cover a spectrum of businesses and each and every one of them bring special skills and life experiences to the discussion. This is a special day; a different day from any other in
the month. It’s the day you will get some answers, but also a day that will question the answers you already have. It’s a day that will challenge you, but you’ll feel better when you leave than you felt when you arrived.
If you lift the lid on your high-performing group you will find a few things that make your group effective. These are often taken for granted, but a combination of the Chair’s skill and dedication, and that from you and your fellow members all contribute to ensuring that these group essentials are firmly in place.
■ The group size and skill mix is important
A minimum of fourteen members ensure that you always have someone who knows the answer or if not they will know someone who will. Over the years I’ve met several Chairs and members who are wary of what they view as ‘large groups’. They hang on to small groups of 8-10 members, believing that this ‘cosy’ number gives them more airtime, or allows them more room for discussions. Oh dear. You have no idea what you are missing. With 1416 members like yourself, the discussions go much further, the ideas keep coming, the challenges are more robust, the digging goes deeper, the fun factor increases, the value gets better and better.
You know that it’s your group, and you and your fellow members take responsibility to ensure the right people and skills are around the table. You also know the group norms, the standards, the ‘rules’. Everyone arrives on time. Everyone networks at breaks (rather than being on the phone), and
AHHH! I HAVE ARRIVED WITH MY TRIBE.
everyone stays for the full day. If you can’t make it to a meeting you explain in advance to your fellow members. But attendance is high; the group meeting is one of your highlights of the month; you look forward to it. Missing a meeting is a big deal, for you and for your fellow members.
■ Safety and Confidentiality
The safety and confidentiality of the group are things that are just accepted without question. They enable you to discuss the things that are difficult to discuss at work, or at home. Maybe you’ve never had this before; but you soon get used to it, you value it and you leverage it. Over time, you get to know your fellow members really well. You and they are OK to share things, to feel vulnerable. But because you also feel safe, you discuss all sorts of things and soon you come to realise that everyone’s life is filled with emotion, challenge, happiness, stress, elation, frustration and the occasional curved ball that stops you in your tracks.
Over time you become very selfish with Vistage Speaker sessions and you challenge Speakers to make sure that they give you what you need to help your business and your life. You write down your actions and ask the members to make sure you follow through with your commitments. You do the same for the other members of the tribe. You’ve never really experienced the regular flow of new thinking, new ideas. Not everything is for you, and not everything gets acted on. But you build a strong new personal toolkit. You apply it in all sorts of places and your handouts and notes are wellused. Many members look back over several years of Vistage and their collection of Speaker notes has a special place in their office – it’s their gold mine of tools and techniques and they’re quick to refer back to previous sessions when a fellow member has an issue.
■ A good member
If you’re in a high-performing Vistage group, then you quickly get the message that what makes you a good member is the real issues and opportunities you bring to the group. Even when things are going well, you’re always ready with questions or things that you could bring to the group to get better answers, to get your views challenged and refined. You take care in crafting the issues, and you also invest time into reviewing the issues from others. You know that when handling others’ issues you
must not leap too quickly to an answer and you have become an expert at clarifying and probing questions. Another BIG step forward occurs when you learn that the power of silence does the heavy lifting in a difficult issue session. The bonding in the group is strong, and you all feel a commitment to each other. Pain is often shared, support is fast and genuine.
My role as Chair is to identify the right people for the group, to set the standards, to facilitate, to guide, coach and nurture. But high-performing groups ultimately come from the members. It’s all about what the member commits to, how they approach their investment in Vistage. So whether you’re a member or a prospective member, my question to you is – how do you ‘show up’?
Bob Battye works with business leaders and their management teams in the West Midlands with their professional and personal growth thus increasing their effectiveness and enhancing their lives. He works as a Vistage Chair and as a Strategic Planning facilitator and non-executive director.
E: bob.battye@vistagechair.co.uk
Profile – Bob Ba ye
To find out more, please contact:
Guy Rigby 020 7131 8213 guy.rigby@smith.williamson.co.uk
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