Metaphor

Once more a warm welcome to my June Newsletter for business owner-managers.

Writing this a few days after the election that gave us the outcome no-one predicted. Step forward the new Business Secretary Vince Cable who - when he’s not pinching himself to check he really is in the big job - is wondering what’s best for owner-managers running the 4.8 million SMEs in the country. Top of his list must be how to generate new jobs and economic growth.

My guess at the doodles on Vince's desk pad is something along the lines of: hmm, can't see much growth coming from previously popular sectors like financial services, high street retailing, or most bits of the construction industry. No growth in public sector jobs (more likely several rounds of fierce cuts).   So where do Vince and the government look for growth and the new jobs? My money as you expect is on the world of small business (including the manufacturing sector which I believe is due for better times after years of contraction). Whatever your business, being small and owner-managed is probably a good place to be in the next few years. Government badly needs sustainable solid growth in the small business sector. I'm quietly hopeful.

Late news: proposals from the Business Secretary to simplify red tape:

• - “one-in, one-out” rule for regulations
• - regulation as a last resort
• - putting all regulations on trial; should they stay or should they go?
• - review of regulations in the pipeline

We’ll see if the actions match the rhetoric.

After the recession?

I've been working with clients who have had very different experiences in the recession. An IT services company who went through a hard time have bounced back strongly in the last 6 months, and are now actively looking for growth through acquisition (anyone interested?). Another client in manufacturing however is only just beginning to see some rays of light after a 2-year hard slog of redundancies and cost-cutting. And "What recession?" is what I hear from a few lucky or shrewd clients who managed to dodge the deluge and have stayed busy.

Looking ahead my main concern is probably clients who have large bank loans or overdrafts. Interest rates have been at a historic low for a while, but the current situation is untenable beyond the next year or so. As soon as growth is established we can expect UK interest rates to start rising. A doubling or trebling of borrowing costs is going to hit many SMEs hard. Time to renegotiate your loan rate soon before interest rates rise?

Also looking ahead, there's the question of funding growth in working capital as businesses start to expand. Many businesses that operate in distribution, manufacturing and services need working capital to grow broadly in proportion to the size of their turnover. Old hands will tell you that cash crises are more common in fact in expanding than in shrinking businesses. I’m not at all sure the banks are ready for funding working capital demands again.

Insolvency

Gloomy subject but insolvency statistics are in the headlines. The number of UK companies going into liquidation over the whole of 2009 was the highest for over 16 years, although the good news is that it seems to have peaked. We all know that cashflow is the lifeblood of every business, particularly since access to finance recently has become harder and more expensive (despite record low interest rates and what the banks are saying about their willingness to lend).

In the end it's always lack of cash causing the final crisis which precipitates insolvency.  There's no cast-iron defence against insolvency of course, but preparing and reviewing your own cashflow projections regularly are the best way to manage the future. Forecasts give you time to take action if things look difficult. Interestingly, a survey on how much small businesses rely on accurate cashflow projections shows that while many SMES see them as vital, over a third don't even bother!

Cashflow forecasting has been a regular topic for me in the past 2 years, helping clients to set up and use cash forecasting systems to manage their cash in the coming months. It's something your accountant can do for you, or your financial system may well have CFF facilities built in as standard.  Mostly people seem to use Excel though and I’ve been developing various spreadsheets to help with this.

Innovation

Does innovation only happen in advanced economies? The accepted wisdom is that advanced economies are the places where new technology and business ideas are born, but things are changing. Developing countries are becoming hotbeds of business innovation not just in products and services, but also in processes and even radically new ideas about business. In the West we tend to think of ourselves naturally as the place where new ideas turn into success but companies in some surprising emerging economies are moving fast.

Here’s a thought experiment; try thinking for a moment how you would market what you offer your customers but if they were very, very much poorer.

 What features and nice-to-haves would have to be eliminated? How would you cut costs? Could you sell your product profitably at 50 or even 25 percent of the current price? Have we lost sight of the benefits the customer demands? Do we just add in more and more costly features for customers in return for an inflated price? For example one idea I like is a proposal from India for a radically cut-down bank branch. It comprises just a fingerprint reader, a mobile comms link and a cash dispenser. This kind of device could bring financial services for the first time to whole areas of the rural economy around the world. In Britain it might help save rural post offices or pubs. A mobile-phone network might take this up as a valuable new source of revenue. A new retail bank starting up might see this as a way to start without the need for investing in bank branches.

Ideas like this are useful because they open our eyes to possible new business ideas. But there is nothing basically original or new about something like the cut-down bank branch device.  The originality is in the approach. Some have called this kind of thinking "frugal" or "reverse innovation". Because innovation is the process that transforms new ideas into customer value innovation is at the heart of every successful business. But many SMEs find that just keeping afloat is hard enough. Often we need someone to work with to help us think about new ways and new products.

Sometimes innovation is about how you do it, not what you sell. Nutriset, a French manufacturer of special foods for undernourished children, has turned the idea of franchising on its head. Nutriset does not franchise sales, but instead franchises out manufacturing (via the web and mobile phone links) to many small companies in Africa who can make and easily distribute to local children (see http://www.nutriset.fr)  Nutriset controls quality and the process, leveraging this out across a network of many partners to achieve economies of scale with a clever approach to geographical efficiency.

Peter Drucker the management writer said several times that the only two value-adding functions in a business are marketing and innovation. Everything else is cost. Innovation may be the only true source of competitive advantage.

Coaching for business managers

I am about to start doing some coaching of a senior manager in a local college.  This person has all the technical skills needed for a new role he has been promoted into, but his manager has also been shrewd enough to see that technical skills on their own are not enough. To do the job well he needs other skills involving communication, leadership and helping others to learn. What’s interesting for me as the coach is how important self- awareness is for him.  A great lesson has been for my learner to be recorded and see himself presenting to an imaginary audience on video.  Comments like: “I never realised I came across so badly”, properly handled, can become a great starting point for a journey of learning.

As his coach I hope to learn lots too. To help me, I will be using a coaching supervisor so that hopefully I can do a good job for my client.

Once more welcome to the regular e-newsletter that I write for SME owner-managers and the world of small business. Lots of interesting stuff to browse and I hope you find at least one idea that can help make your business more valuable. If there are topics that you think I should explore in future please let me know.

The economic picture continues to look grim for 2010, but every day I’m meeting companies who are fighting back against it. I’m constantly amazed at the creativity of the people I meet in the small business world.

Peter

Bank finance – another idea

In my last newsletter I mentioned the experiences and difficulties that many small companies I work with are having with bank finance.  Those remarks made the manager of a Bristol-based Enterprise Development Fund get in touch and tell me how they help companies who need finance or who are struggling with cash flow when the banks say no. Sounds like your situation?

Up to £30K  for successful small businesses that need working capital

• Difficult to raise additional finance for your business?
• Need more than the bank can offer?
• Struggling with your cash flow?

This might help. The ‘Working Capital Loan’ is a new competitively-priced loan product from Bristol Enterprise Development Fund, a not-for-profit company that has been providing loans for small businesses in Bristol since 1992.

BEDF is the best known non-mainstream business lender in the Bristol and the West Country and was set up to improve the local enterprise economy by helping financially disadvantaged individuals and small businesses.

 The Working Capital Loan provides up to £30K to successful small businesses that cannot get the additional finance they need from their bank. Its purpose is to finance short-term working capital needs for businesses that have been trading for at least two years. It is not for expansion or to pay off business debts.

Interest is fixed at the beginning of the loan, which is usually over 2 years, and stays the same throughout so you know what it will cost.

Are you eligible?

You may be if your trading premises and office base are in Bristol, South Gloucestershire, North Somerset or Bath & NE Somerset and you employ less than 25 people.

To find out more contact BEDF Tel: 0117 944 4700 or Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Web: www.bedf.co.uk

If you prefer contact me for an informal discussion beforehand.  I know that BEDF are keen to lend – you just have to fit their criteria.

The case for coaching

Coaching is a topic that has moved from the fringes to become a mainstream management technique today. But how do you justify the investment in business coaching? I’m delighted to include here an article by my friend Terry Wright who coached me with great results a few years ago. Terry writes on making the business case for coaching

Can Coaching Deliver Value to Your Organisation?

Terry Wright

There has been a rapid increase in the use of business coaching over the last ten years. Organisations not using coaching are now asking the question:

What is the evidence that coaching works for individuals and organisations?

Coaching providers naturally believe that coaching can be excellent value for money. They line up alongside Daniel Goleman who says:

It has repeatedly been shown that coaching and mentoring pay off, not just in better performance, but also in increased job satisfaction and decreased turnover.  But what makes coaching and mentoring work best is the nature of the relationship.  Outstanding coaches and mentors get inside the heads of people they are helping.  They sense how to give effective feedback. They know when to push for better performance and when to hold back.  In the way they motivate their proteges they demonstrate empathy in action.

(Harvard Business Review, What makes a leader?)

Self-praise is no recommendation however. Although coaches support their views with testimonials from satisfied clients, more objective data is needed. 

Good news: recent studies suggest positive answers to questions about the effectiveness of coaching.

Does Coaching Work for Individuals?

In a recent (2008) international survey by Blessing White, around two-thirds of employees being coached claimed that it had produced a significant improvement in their performance and job satisfaction. This high level of satisfaction is replicated in a range of other surveys.  The most common benefits listed include:

• Time to reflect, focus and learn
• An independent, safe, confidential space where you can challenge yourself
• Insight and clarity
• Keeping sanity and perspective; stress management
• Matching your needs and core values to your behaviour and leadership style
• Self-empowerment, self-confidence, self-awareness
• Awareness of others’ perspective and impact on others
• Ability to set and meet goals, prioritise and focus (goal management)
• Ability to embrace change
• Improved Emotional Intelligence (EI) and Spiritual Intelligence (SQ)
• Improved skills and competence
• An improved quality of life
• Cultural flexibility
• A greater capacity for happiness!

Does Coaching Work for Organisations?

A major 2004 Chartered Institute of Personnel & Development (CIPD) survey gave a strong endorsement to the effectiveness of coaching:

Coaching can deliver tangible benefits to organisations – 99% of respondents agreed

Coaching is an effective way of promoting learning – 96% agreed

When coaching is managed effectively, it can have a positive effect on the bottom line – 92% agreed.

Areas where coaching is typically seen to be effective:

• Improved performance
• Business planning/strategy
• Team effectiveness
• Conflict resolution
• Peer relationships
• Relationships with management
• Customer relationships/loyalty
• Sales performance
• Efficiency
• Team morale
• Staff retention and attraction
• Staff commitment
• Job satisfaction

The 2008 Blessing White survey confirms this picture, with 90% of experienced managers believing that the time they spend coaching helps them achieve their goals.

Is there objective proof that coaching adds real value for the organisations funding it? 

Until recently this has been difficult to answer. In the last few years however several studies have come out all pointing in the same direction:

1.    A ground-breaking study in 1997 by Olivero, Bane and Kopelman compared the effects of managerial training alone against the same training followed by coaching.  31 managers in a US health agency underwent a conventional managerial training program which was followed by 8 weeks of one-on-one executive coaching. After the training productivity rose by 22.4%. After coaching, productivity went up by 88%; a significantly greater gain compared to training alone.

2.    In 2001 a Fortune 500 firm examined the effectiveness of its middle management coaching programme. Benefits derived from coaching were quantified in financial terms. Key benefits were productivity, customer and employee satisfaction, work output and work quality.  Financial benefits showed a 529% ROI.

3.    An in-depth study by Manchester Consulting in 2001 looked at 100 senior executives in a range of organisations who had undergone change and growth-oriented coaching.  The ROI was calculated at 545%.

4.    A controlled experiment in Bristol & West Financial Services looked at the added value of coaching as against training.  From a group of 24 managers 12 attended a selling skills course.  Of these 6 also received three months coaching. The actual sales figures were looked at for the three months before and after the training and coaching inputs. 

• Neither training nor coaching -  sales up by 4%
• Training only – sales up by 8%
• Training and coaching – sales up by 27%

Making the Connection - How Does Coaching Deliver Results?

How does coaching deliver results to organisations? What links coaching to the bottom line? Surveys suggest that good coaching produces changes in behaviour. These changes are what drive improved bottom line results:

How to maximise the benefits

Studies suggest that to increase the success rate of coaching:

• Select coaches with care
• Ensure that coaches understand the company’s business and culture
• Identify in advance the desired measurable outcomes
• Manage the process to ensure quality, including good supervision of coaches
• Ensure that the line managers support coaching
• Measure and communicate the impact

Conclusion

Organisations can now be confident that business coaching delivers results. Those who don’t use coaching may want to look again. Studies currently taking place will shed more light on the linkage between coaching and business performance. 

Daniel Goleman was mentioned at the start of this article. Goleman has written extensively on the subject of Emotional Intelligence (EI) and I’ll be writing more about EI in a future newsletter. 

8 ways to murder your business

Life is full of advice today. So rather than looking at what makes a good business I’ve been thinking the opposite; ways an owner-manager like you can cost-effectively shoot your business in the foot.  How do you kill a business in easy steps?

The “New York Times” runs an entertaining small business blog by entrepreneur Jay Goltzays that looks at this question. A former president of Coca-Cola has written a whole book “Ten Commandments for Business Failure”. Based on what I’ve seen here are my eight ways to murder your business. You can probably come up with others.  

1.    Rely on a few customers. Big customers never leave us (or before they do finally take their business to China they always give us plenty of notice). Our business won’t be affected by a 30% drop in turnover anyway.

2.    Don’t forecast cash flow.  The bank is very accommodating when we ask them for an extended overdraft or a further loan, particularly at short notice when we urgently need cash to pay this month’s wages or settle an important supplier. Whoever heard of a business running out of cash?

3.    Ignore your customers. They don’t care how you treat them. Customers always come back, and they still tell their friends to come to us despite awful service. It’s easy to drum up new customers when we need them. That stuff about customers having a choice is a myth.

4.    Never evolve.  Successful companies have the motto: “If it ain’t broke, don’t fix it”. A working business model lasts for ever. Relax. Who cares about upstart newcomers come along aiming to eat your lunch?

5.    Splash out.  You can always tell a good business by their smart offices, big desks, the fountains in the courtyard and this year’s top-of-the-range German saloons in the car park. That’s the reason we have dividends and bonuses. Better to take cash out than leave it in the business.

6.    Fight the competition on price.  Market share is what really matters, so we happily get into price wars with our rivals undercutting each other. We sell just on price because we know customers only buy on price. Discounting is a simple game with low risks. We will survive because our costs are lower than the other guy anyway.

7.    Be a dictator. I like to keep myself well away from staff, suppliers, customers and people offering me advice. Look how well Stalin managed running the Soviet Union for years on his own. I’m the boss. That means having all the answers.

8.    Fix it afterwards. All that stuff about an ounce of prevention being worth a pound of cure is old hat and boring. Mistakes are easy to fix. Life’s too short for planning and controls – we have insurance if things go seriously wrong.

Best of Bristol business exhibition 2 March 2010

On 2 March there is a Bristol business-to-business exhibition at the Mercure Holland House Hotel, Bristol where I will be speaking on improving cash flow.

At this exhibition I will be giving free-to-attend seminars on: “How to improve your cash flow” specifically for SME owner-managers. Instead of the usual Powerpoint the seminars will be completely interactive. I will be showing what drives cash flow, how to improve it, and how to prioritise your actions. All with a live business model on screen, all based just on questions put by members of the audience. If you want to understand cash flow this is your chance to learn in just one hour! I want to make cash flow as simple and clear as possible. (If I’ve used QUAD on your business then you will recognise my seminar is based on QUAD).

There are other seminars covering areas including marketing, business strategy, transport, IT and social networking.

About 100 local businesses will be exhibiting and it will be a good chance to network with other owner-managers.

Let me know if you plan to come, else please come and say hello on the day. And if you do attend my cash flow seminar I hope you find it useful.

The exhibition is open from 1030 and tickets cost £10 plus VAT; buffet lunch, free tea and coffee included.  To book your ticket for this event:

E; This e-mail address is being protected from spambots. You need JavaScript enabled to view it

T: Martin Langdon 0117 9114223 or 07887 658025

www.thebestofbristol.co.uk

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Banks Lending?

I was asked recently about a business that had trouble getting investment finance to purchase a new piece of equipment to replace an old machine. They applied to a high street bank (one of the nationalised ones) for a loan under the Enterprise Finance Guarantee (EFG) Scheme. The purpose of the EFG scheme is “... to increase SME start-ups and growth”. EFG does this by reducing the risk to the bank if the loan cannot be repaid. 

After 4 months of delay and chasing, the bank agreed to the loan but as they did so they asked for an additional personal guarantee from the owner!  Hmm, smacks of a severe overdose of caution to me. I know banks these days are more risk-averse but asking for two guarantees on what seems a pretty straightforward loan is about as careful as you can get.

In this particular case the owner-manager had only recently bought the business using a personal guarantee, so he was already fully committed. But he badly needs this piece of equipment as part of the plan to grow the business. No option but to provide a further PG on the basis of "in for a penny, in for a pound".

The banks now are being very, very cautious about lending to SMEs, despite what some would like us to believe, and I hear that banks are often asking for a personal guarantee in addition to being covered by an EFG arrangement.  I understand that one bank has a policy of always asking for a 50% PG in support of a loan.  Someone commented on my last Newsletter that despite having more money to lend than ever, banks always ask for a house or other assets for security.

There are some other options if you are seeking finance for investment:     

-          Ask the  supplier or manufacturer if they can help with asset finance as part of the deal  

-          Hire purchase or lease purchase

-          Specialist finance brokers

-          South West Investment Group – they are there to help firms where the banks won’t fund.

Finally make sure you keep the family home away from the transaction as much as you can.

Make It In The UK

I don’t want to sound like TV doomsters Robert Peston or Nick Robinson but it’s no secret that whichever political party wins the election next year will face a daunting economic challenge.  At a Conservative “listening to business” event that I went to in the summer, Ken Clarke made a good joke wondering aloud whether his party even wanted to win the election.  The winning party - if that’s the right phrase – looks like inheriting a massive annual deficit of around 15% of GDP, with government debt rising to around 80% of GDP and the unemployment graph heading up towards 3 million. Compared to past recessions though there are fewer levers to pull this time. The public sector certainly will not be expanded as happened in previous recoveries to create new jobs. In fact the CIPD expects the public sector to have to shrink by 300-400K jobs in the next 5 years to help reduce the deficit; less and the pound begins to look at risk, opening up threats of a sterling crisis and inflation. Brutal stuff. Other mainstays of the UK economy like the retail, construction and financial sectors have severe problems of their own.  So after 2010 where will the growth in new jobs and tax revenues come from?

Well, I’m going out on an unfashionable limb to predict that UK manufacturing will reverse its long-term decline and start to grow strongly again from 2010. Conditions look favourable. Admittedly manufacturing has shrunk from 16% to 9% of employment since 1997 but with a low - and possibly lower - pound, ready availability of labour and skills and huge pressure on a future government to be business-friendly and employment-friendly, the idea of manufacturing coming home looks a smart bet.  Over the past 2 years the pound has lost more than 20% of its value. When the global economy picks up, this fall in sterling will give UK manufacturers a huge boost not only from overseas buyers finding UK goods cheaper but also domestic customers finding imports more expensive.

The UK still remains a diversified economy with a flexible labour market which should enable companies including manufacturers to adapt to new conditions. Of course talking about UK manufacturing as a whole is misleading. High-tech manufacturing in the UK (semiconductors, aerospace, pharma, biotechnology) has been expanding confidently for many years. Expect these sectors to stay in the fast lane. And strong growth in core high-tech manufacturing in turn has driven growth in a wide range of associated business services; things like product design, logistics, marketing and outsourcing. But the strong picture in the growth areas has been masked by a much larger decline in many areas of low-tech, low value-added manufacturing where UK companies have failed to innovate and keep up. Business is always about changing what you do and how you do it. Stay where you are and you end up competing on the basis of cost; not the place to be in today’s global economy.

So if UK manufacturers can compete by designing and selling high-value added products, and possibly using more automation to keep costs down, then maybe there is a scenario for the title “workshop of the world” to come back to these shores. “The most valuable, not the biggest” might be a good motto for manufacturers.  Today the UK is a hard place to make high-volume basics like commodity chemicals, cement or steel (or even vehicles; 4 out of 5 cars sold here are now imported) but there is strength in many UK manufacturing niches. The UK is still the world’s sixth largest manufacturer. Once the recovery which has begun in Asia spreads around the world and the election is over, expect whoever forms our hard-pressed next government to be looking to the manufacturing sector to generate new jobs and economic growth.

So whatever the Dept of Business, Innovation and Skills gets renamed (again) and regardless whether it’s Ken Clarke or Peter Mandelson in charge, I expect a tsunami of manufacturing-friendly government initiatives to pour forth in 2010.

A way manufacturers can improve and compete is process automation. I will be writing an article about this in a future newsletter.

Selling your business?

Recently I’ve been looking at some numbers showing that in Europe SMEs are the main drivers of economic growth. The very large number of SMEs means they are truly the backbone of the European economy.  As the recession ends and recovery starts, owner-managed businesses will have to play a big role in the economic recovery by being the major contributors of new job and wealth creation.

 Although innovative and adaptable, owner-managed SMEs often face problems when it comes to change of ownership. Family firms of course often look for succession within the family. Where succession is not right or practicable for a family firm, what are the other options?

Sometimes a business has within it a non-family manager or group of senior people who might be good candidates to take on the ownership. A management buy-out (MBO) is then a possibility if finance can be obtained and suitable terms agreed for the handover of control. Where a sale is the best route then a well-run family firm can often be an attractive opportunity for an acquirer.  Many of the small businesses I meet though have no plans about who will own the business after the current owners.

 Looking at the sale option from the outside, it’s clear that good owner-managed businesses represent a big opportunity for trade or angel or private equity buyers. Owner-managed firms often have significant potential for growth which can be achieved with the right input from a new owner.  Ownership is a strategic issue that can be overlooked when planning the future of a business.

Despite the recession, the market for acquiring good owner-managed companies has remained buoyant in recent years and is expected to grow further.  This is driven in part by the end of the recession, but another major factor (at least in the UK) is the ageing population of owners (which naturally enough matches the general ageing population as a whole). Businesses broadly tend to be owned by older people. Owner-managed SME businesses, which have avoided the worst practices shown by corporate giants in recent years, in my view now represent high-quality investment opportunities for potential acquirers.

If you are interested in a discussion about change of ownership, whether immediate or planning for the future (and every SME should have a future ownership plan) give me a call.

Is marketing special – or do you do marketing naturally?

Marketing - like much in business - is often wrapped in obscure theories that have little relevance to the real world especially in a downturn. I’ve been looking at marketing recently to see what I can learn about it. Marketing is not my area of expertise but it's high up the list of client concerns. In fact I would say that lack of cash and lack of customers are the two most common problems I meet in owner-managed businesses. 

(Thanks to my friend and colleague Phil Comer of the Chartered Institute of Marketing for many of the points in this article. Phil has forgotten more about marketing than I will ever know!)

For many people marketing simply means "advertising and promotion". For others the word is always linked with sales. But I think that marketing should be seen as a strategic function in a business, and some owner-managers see it that way too. Philip Kotler in his book ‘Marketing Insights from A – Z’ says:

- “Marketing is not the art of finding clever ways to dispose of what you make. Marketing is the art of creating genuine customer value.”

- “… marketing is not a short-term selling effort, but a long term investment”

To me this is about putting yourself in the customer’s shoes and looking at your business from an outside-in viewpoint. What does a customer see as valuable? Why should a customer stay loyal and not go elsewhere? What makes people choose one supplier’s product or service over another?

Most companies have a large database of information on their customers/clients but all too frequently it is not used. The analysis and strategic use of this data should inform our marketing activity and investment:

- Where are customers located?

- What is the volume and value of their annual purchases?

- Which products generate the best return?

- Which customers generate the best return?

A common saying is that it is more cost-effective to retain and develop existing customers/clients than to go chasing new ones. And a Harvard Business Review article in 1990 suggested that reducing customer loss by 5% can double profits. So customer retention is key.

Complaints are another interesting aspect of marketing. Customer complaints are considered by many to be an inconvenience or the inevitable prelude to losing them. But an excellent book, “Connected” by Willy Sussland, offers some great insights on how to use customer complaints:

- A dissatisfied customer will tell 8 -16 people how bad you are

- For every customer who bothers to complain, 26 remain silent

- Customers who complain tend to be the more loyal ones

- Seek out complaints – they can offer insights on how to improve.

With increasing competition and an astute customer base it is important to

consider switching motives. Another book ”‘Designing and Delivering Superior Customer Value” suggests the top four motives to switch are-

- Core service errors e.g. basic mistakes, invoice errors, wrong deliveries

- "People" failures e.g. uncaring, impolite, unresponsive, uninformed staff

- Pricing e.g. high prices, price increases, unfair or deceptive pricing

- Inconvenience e.g. location, opening hours, waiting time

I’ll be coming back to look at strategic marketing in small businesses in a future newsletter.  Meanwhile comments or questions welcome as always.

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Investment

The private equity industry has been saying some interesting things recently about investment capital. (Most SMEs are well below the scale of private equity, of course but are affected by the financial environment just the same).  According to reports from Preqin, a consultancy, private equity worldwide has more than $1,000bn in “dry powder” waiting ready to spend.  One US private equity house alone has more than $29bn of uninvested capital, the most in the company’s history.

To me this says that there is substantial potential earnings power here if the right home can be found for this capital. The rub is that there is a lack of opportunities asking for investment, suggesting an industry limping along in second gear instead of the fast lane where private equity would like to see itself.

The main reason the cash remains uninvested is uncertainty with the banks.  Banks remain reluctant to lend for buy-outs. Whereas banks might previously have sold on a high proportion of these leveraged buy-out loans, the world of potential buyers has shrunk.  It remains to see whether banks will recover confidence in backing buy-outs by finding new (and safer) ways to sell on buy-out loans. Until then investors are going to have to keep their cash in the bank longer and investment activity will remain at its current low level.  Ironic to think that there's lots of money around seeking investment.