Shirley Parsons has recently contributed to a great new book which is available as a free download from http://bit.ly/iTmK7t. The book is called Lessons Learned from the Recession and is the first in a series of books aimed at aspiring and proven Business Leaders around the world. To find out more and share any feedback, check out: www.thebusinessleadersbookclub.com.
In the book, 60 carefully selected business leaders share their personal experiences of what they have learned from the most recent recession. The chapters are a mix of success stories containing personal stories interwoven with detailed practical advice.
You can read Shirley’s chapter here, where she looks at the lessons learned from the recession whilst offering advice on how to mitigate its effects.
To read all of his points and the other 59 contributions, you can download ‘Lessons Learned from the Recession’ for free from www.theebooklibrary.co.uk.
Chapter 50: 30 years of Operating and Consulting: A Reflection
The current recession marks our third experience of operating in a recession in the UK. Back in 1979 we started our first two businesses going into a recession although we were very naive then. We didn’t actually realise we’d been in a recession until much later on, we just thought the trading climate was what it was.
It wasn’t until the 89-92 recession that we began to understand what going through a recession was really like. At that stage we had two businesses – Sypol, the environmental and safety consultancy, and S-Com, the technical agency and computer systems and products house. August 1989 marked the end of the property bubble of that era and prices were about to fall off a cliff. I remember addressing everyone in the group and announcing that we were about to go into recession, but we still didn’t really know what to expect other than things would get tough.
However new business dried up substantially, we had to release people and we all had to go back to developing as much business as we could – everyone became hands on. At the same time we were able to strengthen Sypol by merging with another small specialist consultancy and we decided to focus on the recruitment side of our ICT business and set about selling our systems house and communications products businesses.
The end of recession came as rapidly as the start. In March 1992 the tap came back on and having disposed of our systems house and products businesses and with Sypol operating autonomously with a new management team, we were well geared to expand rapidly. Both Sypol and S-Com grew rapidly throughout the 1990s and towards the end of the decade we sold both businesses.
This was followed by working earn outs and latterly, by a period as investors in a range of diverse entrepreneurial businesses. Then in 2005 we decided to start again on our own by forming The Identify Group. Our first group start up was a Health and Safety recruitment business, named after Shirley as by that time she’d become a brand in her own right. This was followed in 2008 by the addition of Kineticom Ltd, acquired from sister company Kineticom Inc. along with Malik Shaw – a small public sector agency.
We all heard Alistair Darling’s warning at the end of August 2008 about the worst conditions for 60 years, but at that time we weren’t seeing any effects feeding through. Even at the end of 2008 at our annual planning sessions we were asking “what recession?”. Indeed it was not until mid 2009 that trading conditions began to deteriorate rapidly and we felt the effects in both our health and safety and our ICT and Telecoms sectors. The Public Sector still continued to perform well though.
It’s fair to say that with the exception of those in the public sector, all of our staff began to understand what being in a recession was actually like. Then having planned for a flat year, 2010 has turned out to be good for all of our businesses. ICT/Telecoms was a little slower to get going, but Health and Safety hit the ground running and the first three quarters of 2010 were the best we’ve had.
So is it all over? We don’t think so. We’ve taken to engaging with the economic forecasters at the banks and we’re strongly influenced by the way they see things. We also meet regularly with our relationship mangers just to exchange views on how we all see things shaping up. The best view we have is that opportunities will still be there in 2011 and growth is possible, but expect a rocky road.
The main lessons we’ve learned from the previous and the current recessions concern the behaviour of finance providers. In 1987 our bankers had persuaded us to drop our invoice discounting arrangements in favour of a new offering direct from themselves. But by mid 1989 they were already getting nervous, bringing in new restrictions and generally making life difficult before finally announcing that they wanted out.
What had been a cordial relationship became one of mistrust. With the help of a former banker, we bought some time and managed to find a much better deal with a specialist invoice discounter. That relationship was also tested when one of our major clients – Ferranti – went bust, creating a £250K hole in our cash flows. The response of our new partners was to impose an overall reduction in our facility, leaving us to find more funding from private means, which we duly did and the relationship then got back on an even keel.
Similar behaviours came to the fore again in 2009. Our invoice discounting partner became very nervous and pernickety and was looking for holes in everything we did. They tried to unilaterally change the terms of our loan facilities in a really underhand way. We caught that one, but they won in the end because they invoked a change clause by claiming a breach on our part after a small error in one of our reports. Over the period, we went from being their biggest fan (and best reference site) to being their most vociferous detractor. We managed to terminate the relationship by mutual consent in 2010 and strangely our facilities are now with our High St bank (RBS) who we’ve been with ever since 1990 and who have been supportive through all of the ups and downs we’ve had over the years.
So the lessons learned are: -
• Recruitment businesses are usually first in and first out of a recession
• Property bubbles frequently precede a recession
• Banks and finance providers see the recession coming before we do
• When a recession comes many bankers show another side – not always an honest one
• If and when you do hit problems, expect the finance providers to give you a further stress test
• Long term relationships do seem to matter – but don’t bank on it
• It’s hard to call the start or the end of a recession in advance – just be ready to act
• Staff loyalty helps enormously
To mitigate the effects of a recession: -
• Create an operating cost base that is as flexible as possible
• Aim to create balance sheet strength that will enable you to withstand a ‘sizeable’ bad debt or trading losses
• Gear your business to have sufficient ‘headroom’ – avoid always being at the limit
• Try to spread the client base so that you are not overly dependent on a few large ones
• Be extra diligent with credit control and debt collection
• Be open internally – involve your staff more and keep them onside – you’re all in it together
• Help your staff to make sensible financial plans and not to over-commit when the times are really good, unless they have a strong personal balance sheet with good sources of liquidity.
• Know your sector cycles – some are cyclic with a recession, some are anti-cyclic and others depend more on sector investment cycles that are independent of recessions
Finally where are we now? Our figures are slightly better than they were in 2008, and we’ve moved our 5 year plan out by a couple of years. We’re cautiously optimistic about 2011 but we still have a higher degree of uncertainty than we would like. Our balance sheets are stronger now than they were last year and we have an excellent team. Let’s see what the markets do.
Addendum
Supplementary facts and figures: -
• In August 1989 we had approximately 120 contract staff working through S-Com.
• By March 1992 The number of contractors working through S-Com had declined to around 75
• In July 1997 when we sold S-Com, we had approximately 550 contractors on fees.
Throughout our time at S-Com we always supported the defence and telecoms industries and grew rapidly in the 90s in both of these sectors. The award of new mobile operator licences helped fuel the rapid growth during that period, as did the award of List-X for military work.