Since 2000 the explosion of human progress has literally become exponential. This is largely driven by technology. This enables established business models, processes and products to become defunct overnight.
This is in a political backdrop that is exasperating this macroeconomic environment. The VC and PE narrow focus on Fintech seems to be fueling a rise of the NSDAQ 500 to Dot com levels. When the whole market is investing in one direction that is the bubble territory. Truly extraordinary times?
What is the answer?
Consultants will offer much clever advice as regards innovation. The reality is that most businesses models are already usurped. Somehow some remain blissfully untouched until the next UBER arrives at their dooretep. Theoretical advice rarely passes the “so what common sense test”, nor addresses the reality. For example:
One such business: “clever advice” is not required…
As a shareholder I recently attended the AGM of a £40m family technology business that has won awards for innovation. The c19 business was founded by some real entrepreneurs and has survived. But now the business is burdened by a pension scheme deficit that is rising 30% year on year. This is strangling the company. The balance sheet is now insolvent.
Yet the underlying business could be a great business. The board are doing pretty much nothing to improve the robustness of the core business: gross margins are 23% when they should be at least 35% and the business could be printing cash.
The reality only become apparent when some direct questions were asked of the chairman at the AGM:
When the directors were asked about the solvency: the family shareholders gasped “agh” and amazingly the company bank manager responded; “the bank have checked the solvency and they will lend the business more money”.
NB: The bank simply does not care:he has the primary charge on the assets when or if the business goes bust.
The business is under-performing by at least 20% margin, with no action plan to close the gap just chase sales.
The MBA qualified MD was presenting cash improvement as the measure of financial success. Yet in 2015 this cash improvement was primarily driven by a shift in debtors and creditors not profits. The fact is that since 2005 the same period the balance sheet is now £11m weaker.
The chairman has now been in situe for 23 years when asked what are his plans to exit? “When I have got the succession right!” No chair should be in place for over 10 years
On governance the board has presided over changing the memorandum and articles to make the shares completely worthless to the boards benefit to issue as they see fit.
When challenged the board responds by removing shareholders voting rights and has a history of threatening shareholders.
Despite negative profit reserves: the FD justified the dividend by moving profit reserve between the consolidated company (and the operating company). Yet the operating company does not exist in its own right nor can the pension liability be removed from the operating company balance sheet!
Then a retired director much to everyone relief piped up to save the day..: ” The Pension deficit is expected to come down due to anticipated increase in interest rates post election”. Yet the issue is the meteoric increase in liabilities not the return on investments.
The big 4 pensions advisory stated that somehow the pensions payments had been agreed until 2030 and twice said that the chairman had personally benefited from managing the pension scheme investments yet this was denied by the big 4 partner and the chairman a day later!
Most of the business is not recovering the overheads i.e. non core. The core business is strong and just needs commercialising to restore margins.
Its primarily a people issue:
There is very little focus on separating the dominant ego from doing what is right for this business. The tragedy is that the business could could vastly increase its cash and profits to weather even this severe pensions challenge.
Of course it is possible to run a business without bending the facts and rules like this by simply facing them and taking the right action. We have found this type of governance since 2006 very common. The challenge is to dispel the myths. Without this nothing happens. This requires a different skill set and real courage to effectively and respectfully address the compounding generalisations and status quo.
As the myths are not rational a rational analytical response always fails.
Its not about “the theory of people engagement and innovation” its about creating a sea worthy vehicle and doing it quickly. Then creating the capability to stay ahead before someone pulls the plug out.
Why wait years when we can resolve this type of situation and get the basics in place to build on in weeks? How is that possible in weeks? Because when something is an imperative you develop the capability to do it. We have had to to recover businesses like this when they become critical or the bank immediately removes credit and hit all of the buttons to get the business and team working effectively and immediately.
To make it easy to engage we have crafted some action orientated 2 day packages. These are based upon what we have learned from sorting out over 25 businesses like this. The same logic applies to some very successful businesses we have worked with like Huntleigh Healthcare that just got a bit stuck. These businesses often create cash too slow or are too slow / making hard work of implementing change.
We are great innovators in the UK
Most are simply setting the bar far too slow or planning results far too slowly. Speed is the core differentiation alongside a means of implementing change in a way that transforms capability.
icebreaker have crafted and refined the capability to resolve these situations since 2006. This enables us to resolve the tough issues and commercialise these businesses very rapidly. Without this specific help businesses often remain stuck in their own myths and burn the investors cash. Forget clever advice without an effective catalyst we find change often wont ever happen at all, or at best the business may limp along waiting to be found out.
Sorting out businesses like these is key to resolving the macroeconomic situation in the UK. We can easily do 10 / year. If you own a business like this let me know.
Have a jolly and good day Tom