When your business is on the brink of failure, how do you turn it around and make it a success?
REDnews spoke to three owner-managers who have pulled their companies back from the brink – and pinpointed three fundamental steps that apply to every industry.
1: FIND YOUR FUNDING
You’re in a sunset industry and we don’t think you can succeed: that was the depressing message CEO Euan Sparrow heard when he tried to secure funding for his fourth-generation Ashburton-based manufacturing business, The NZ Sock Co.
The company was wholly family-owned, but had grown too quickly, run out of working capital, and was close to insolvency.
But Sparrow wasn’t letting the 115-year-old family business go without a fight. Previously 100% family-owned, Sparrow sold a quarter of The NZ Sock Co to an equity partner, invested heavily in technology, took advice from Icehouse, and grew the business by 27% the following year.
It now employs 55 people and sells socks in 26 different countries.
“Our equity partner is very happy and now the company has a strong financial base,” says Sparrow. “People want to hang onto the family jewels, but that can go nowhere. If this business rockets away again, I wouldn’t be averse to selling another 25%.”
When your business is only just keeping its head above water, you need to find a source of funds for you to have any chance of switching from struggling to striving.
For MWF Manufacturing, it was the Christchurch earthquakes that caused the business to teeter right on the edge of collapse. The company’s building in the CBD, all its plant and machinery, were destroyed, along with 90% of its work in the central city.
“It came to a screaming halt,” says owner-manager Gary Altenburg (also a happy Icehouse customer). “No customers, cashflow frozen, we couldn’t operate – and our house was red-zoned.”
He spoke to the bank to borrow money and to suppliers to ask for easy terms; this support meant they were able to ride out a turbulent period of vacillating income.
To boost cashflow further, they came up with new payment terms to help the business fund itself: a 50% deposit up front and 40% prior to delivery, “not negotiable!”
The business had a pre-quake annual turnover of around $2.7 million, which plummeted to $700,000 in the year after the quakes. Since then growth has been a massive 35% each year to an impressive $6 million in annual turnover and a staff of 35.
2: ANALYSE YOUR REVENUE STREAMS
When the news is bad, it’s tempting to avoid looking at your financials. But there’s no other way to turn your business around – you need to analyse every line of your spreadsheets to identify opportunities to improve.
When Mark Carley took over as director of HirePlants in 2013, the company was in poor post-recession shape. A combination of reduced demand and high fixed costs (the nursery) meant it was “getting close to the cliff.”
One of the difficulties was, once again, cashflow: the cost of growing the plants was all up front, with that expenditure recouped in a slow trickle of hire fees. To try to make the company more profitable and grow the volume of sales, Carley looked at every current and potential revenue stream, expanding into events, vertical gardens and other niche areas.
“We’ve experimented a lot and we needed to do that,” he says. “We’re clear on our core business but we’re also thinking about what’s new and different – maybe there are some things we shouldn’t have tried, but some have worked out very well.”
Innovation has also been the key for The NZ Sock Co. The obvious solution for a sock business is to make more socks and sell more bulk orders at lower margins, but that strategy resulted in many of Sparrow’s local competitors going broke, he says. Instead, the business focuses on research and development: “We’re not selling socks. We’re selling technology. We sell to North Face and Kathmandu based on technology. Every day our R and D team is looking at every aspect and every way to improve socks.”
For Altenburg, it was more important to define MWF’s focus and concentrate on high-quality, long-term customers: “We looked long and hard at every sector of our market. Where are our opportunities? Where is our profitability? We offer less than half of what we used to, and we pick our clients based on people who are great to deal with and good payers. It’s hard saying no but we’ve become quite resilient around that.”
3: MANAGE YOUR GROWTH
“Growth? I love it. But the key is managed growth,” says Altenburg. “If the opportunity came along tomorrow to double my growth, I’d turn it down. The culture you’ve spent all that time building can go out the window overnight. By getting the right people we’ve grown our gross profit 9% from last year – we’re doing it smarter and leaner and it’s giving us a competitive advantage.”
Sparrow was grappling with a similar dilemma when we spoke: an order for 100,000 pairs of socks from a new customer. Those socks need to be delivered on time without upsetting existing customers – “we may have to drop a C customer off because this person may become an A customer. You’ve got to walk that balance when it comes to your speed of growth.”
Growth at HirePlants took a huge leap when Carley bought out a competing business, increasing his revenue by 50% overnight and making the same fixed cost base service a far larger operation. Overall, revenue has tripled in two-and-a-half years since he took over and the Auckland-based company employs 25 people.
“I wasn’t running it with this goal of tripling the revenue, I was just trying to incrementally turn it around – we have good and bad months,” he says. “It’s really trying to balance our plans with what’s doable in the current month.”
“IT TAKES LONGER THAN YOU THINK”
All three business owners been extremely successful at growing their companies, but they’re still struggling with the challenges of growth, human resources and day-to-day operations.
“I had to realise I couldn’t knock everything into shape in six months,” says Carley. “It’s such a rollercoaster. It doesn’t take much to feel quite excited and it doesn’t take much to feel quite worried. I’m painfully conscious of having a long, long way to go.”