While the classic image of an entrepreneur is that of someone spotting a gap
in the market, starting up a business in their garage and, several years
later, presiding over an empire worth millions, the reality can be somewhat
different.
While entrepreneurs like this do exist - Sir James Dyson and Amazon’s Jeff
Bezos to name but two - the fact is that there are hundreds of people with
entrepreneurial mind-sets working hard to transform existing British
businesses from within.
According to Rebecca Harding, founder of research think tank Delta Economics,
“entrepreneur” can be used to describe a state of mind, not just a certain
business model.
“The fundamental thing about entrepreneurs is how they go about solving
problems, how they manage change and think creatively,” explains Harding.
“All these things can be done within a large corporation just as much as by
setting up your own business.”
Brian Purchon, 54, managing director of Grimsby-based Shand Engineering, which
makes pipe-and hose-coupling systems for the oil industry, would agree. He
was brought in 12 years ago to run the company, which was only just breaking
even on a £2m turnover and, even more worryingly, relied upon one customer
for 85% of its business.
By moving quickly to assess the situation and changing the strategy of the
business, he and his team managed to turn the company around in just over a
decade to become one of the leading suppliers in the world.
Says Purchon: “I approached it from an entrepreneurial point of view; while I
knew nothing about the industry itself, I knew about the importance of
getting back to basic business principles and focusing on getting the
results we needed.”
Before joining Shand, Purchon had spent three years with a paper manufacturing
company, with little cash flow and a sparse order book. Having turned the
company around so it could be sold, he was more than happy to tackle Shand’s
problems.
“At the time I came in, oil was at a low price, and it was very risky having
so much reliance on just one customer,” recalls Purchon. The choice he faced
was either to diversify Shand’s product line and increase sales that way, or
to take the existing, very specialised range of products and increase the
customer base in the UK and overseas. He chose the latter path.
After spending a lot of time travelling to meet potential clients, networking
within the industry and building up customer confidence in Shand’s products,
the hard work paid off when the firm won its first new big-league customer,
Japanese company Yokohama. “That was the tipping point,” says Purchon.
Now Shand has customers in Europe, Japan and North and South America,
supplying seven of the top eight flexible-hose manufacturers in the world,
and claims to have 60% of the offshore market. Turnover for next year is
expected to be more than £7.5m, with profits running at a healthy 10%. The
main problem for the company is keeping up with demand.
Shand is commissioning a £300,000 machine - “the biggest single investment
we’ve ever made” - which will double capacity by next year. Shand will
either buy it with existing funds, on hire-purchase, or with a bank loan,
and is hoping to get nearly £90,000 of the cost supported by a selective
finance for investment grant from Yorkshire Forward, the regional
development agency.
Two years ago there were 34 employees. By the end of next year, Shand says
there will be 50. And while the company still carries out the same amount of
business for Dunlop Oil & Marine, the client that once accounted for 85%
of business, it counts for just a third now.
The key to the business’s success was not doing everything but being focused
on certain things, says Purchon. “Before I arrived, we were trying to do
everything for everyone, whether it made us any money or not. One of the
first things I did was to get rid of all of the nonprofitable work, which
meant our turnover went down but our profits went up.”
Stephen Alambritis, of the Federation of Small Businesses, says: “Having an
entrepreneur come into a business can have a great effect on the staff and
the business, giving it the energy and courage to move into other markets
such as exporting, diversifying, devising new products, even taking over a
competitor.”
However, it could also lead to problems, warns Harding. “Entrepre-neurs are
very good at strategy but not so good at the practicalities. That’s why they
often surround themselves with a good management team. A lot of their
success can be put down to that.”
Rapid growth can lead to problems as critical to a business as no growth at
all, adds Alambritis. “It is easy for fast-growing companies to overreach
themselves,” he says, “either by taking on orders they cannot fulfil, which
leads to unhappy customers who will take their business elsewhere, or it
could puta massive strain on cash flow as you wait to get paid for orders
you have already fulfilled. You need to make sure all the necessary systems
are in place if you are expanding rapidly.”
Shand did the right thing in chasing new customers, says Ganesh Selvarajah, an
adviser at Business Link. “We counsel the businesses we work with to make
sure they spread the risk by having a diverse customer base. If you rely
heavily on just one client, then you are very vulnerable if they go bust or
if they switch suppliers. Even if they don’t, having one customer in such a
strong position that they can dictate terms can be very hard on your
business.”
Toby Stephenson, partner at the business advisory firm PKF, says that for any
enterprise, having more than 80% of your business with one client is very
risky and, in the short term he recommends looking at taking out debt
insurance to cover you if they go under.
It is preferable to have no single customer making up more than 50% of your
business, Stephenson suggests, and you should also put contingency plans in
place. If you have a minimum notice period for termination of a contract set
up, then if one of your company’s big customers stops doing business with
you, for whatever reason, you at least have time to try to replace the lost
trade.
“And you have to make sure that you are not neglecting your main customers
when you start supplying to others,” he says. “You don’t want to throw the
baby out with the bath water.”
