by Real Business - Thursday, 30th August 2007

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“You’re small, but you have big targets. You soon have unclear reporting lines and over-promoted people. To get the best people, you have to be a certain size. But to get to that size, you have to take risks with those over-promoted people.”

Welcome to the world of the supersonic company.

The soaring sectors are still seeing stunning growth – four years at 112 per cent must be a wild ride. But, overall, average growth rates have dipped as the broader economy hesitates. Still, the presence of five specialist recruitment businesses in the top 20 must be telling us something: great companies need great people. The competition for the best has never been more intense.

We have gathered the experiences of four of our top 20 companies, to find out what really happens when your business is flying. Have you got what it takes?

OUR PANEL

After a few entrepreneurial dabblings with computers and software, Steve Bennett set up the mail-order firm, Software Warehouse, in 1992. Now he prints nearly three million catalogues a month and aims for sales of £120m this year.

Three years working as a recruitment consultant convinced Paul Hayden he could do it better. Three college friends backed him in setting up Project Management Recruitment (PMR), supplying senior IT professionals to blue-chip clients. Seven years on, sales are headed for £20m.

Merchant bank SG Warburg might be a conventional follow-on to Eton and Oxford, but it wasn’t fulfilling Johnnie Boden. In 1991, he used an unexpected inheritance to mail out 5,000 Boden clothing catalogues. This year’s sales budget? £16m.

After 15 years in advertising, culminating as managing director of the 170 staff of WCRS agency, Amanda Walsh was poached by two creatives and a planner to be the “suit” for the new agency they wanted to set up. Walsh Trott Chick Smith opened its doors in 1995 and will hit a £5m turnover this year.

Real Business
Is there such a thing as growing too fast? What dangers does it pose?

Walsh
There is such a thing as growing too fast, but it’s not easy to control. In our business, you would control your growth by declining invitations to pitch, but that sends out bad signals. Anyway, if a blue chip comes along touting a £10m account, are we going to pass it up because it would make us grow too fast? Are you kidding?

What are the dangers? That you don’t bed things down. New accounts mean new people. They’ve got to understand your ways and gel with everybody else. That requires your time and energy, which you can’t give if you’re always pitching for new business. I try to deal with this by always keeping recruitment interviews going, even if I don’t have specific openings. We wouldn’t win a new account and then try to staff it from cold. We’d know which interviewees would be good people to bring into it.

One decision that restrained our growth - although that wasn’t our motivation in making it - was not to get seduced into sidelines. We could have made plenty of money early on by doing leaflets, point-of-sale stuff. We looked at these opportunities and simply said, “but they’re not what we’re about.”

Boden
I suspect I’m the only panellist in a business where expansion is not effectively funded by customers. We have to stock up, and generally pay up, before we sell the goods. For us, the stretch on working capital is the clear danger of rapid expansion. Each year, we make three or four mistakes. They start out as stretched management and end up as stretched working capital. I recall a media insert we did - in a rush. The guy who organised it didn’t really have enough experience. We managed him badly. It ended up expensive.You’re small, but you have big targets. You soon have unclear reporting lines and over-promoted people. To get the best people, you have to be a certain size. But to get to that size, you have to take risks with those over-promoted people. Entrepreneurs have two inbuilt failings. They expect the same commitment from everybody else. They can expect so much, it’s demotivating. And they assume they can cover all the gaps. Eventually, we needed a refinancing. An outsider came in with new money and took 25 per cent of our shares. He said, “And you’re also going to get a proper finance director.” We did, and we soon made him MD. Having a heavy hitter I could rely on was a revelation. Previously I had thought I couldn’t afford someone like that. When he was in, I realised how important it was to build the management structure.

Bennett
We have positive cash flow, so financing growth isn’t a problem. What is, is putting in the infrastructure to support the growth. Last year our sales growth was only ten per cent. That was way under our original plan, but we took a breather to get the structure right. I always wanted to promote from within, but last year we bit the bullet and recruited a corporate sales director and a marketing director from outside. We appointed a personnel manager too. And we put in systems to measure absolutely everything: return rates, lost calls - everything. If you can’t measure it, you can’t manage it. Now it’s back to growth: we aim to double sales this year.

We have passed up growth opportunities, because we didn’t think we could cope with them. There was a chain of 60 shops - concessions - available. Our suppliers would have financed the stock. It was just a matter of moving in and rolling up the shutters. That would have taken us from 15 outlets to 75. We passed it up. It was a management thing - too big to organise. You must never take a gamble that could jeopardise the whole business.

Real Business
Who runs your financial function? What are your key financial indicators?

Hayden
I’m a business studies graduate. I know enough accounting to be able to do it myself. I used to do the books every Saturday - the books and the cleaning. We had high turnover, but low volume - it was manageable. When it got to the stage where I couldn’t squeeze it into a Saturday, we took on a qualified accountant, part-time, eventually full-time. He was our ninth employee. We got a cleaner, too.

This is a very simple business. We have 32 employees in one office. That’s one set of overheads which doesn’t change. We do one kind of business and we never play with the margin - it’s rock-solid. Our sales people’s pay is firmly linked to their sales. All this means that we don’t spend much time on the accounts - five minutes in a three-hour board meeting. Our accountant wanted us to have two columns in the management accounts - budget and actual. After a year, he came around to our way of thinking - that we only needed the actual. Two months ahead, we turn the budget for a month into a forecast. Then it becomes the actual.

Walsh
We have a financial controller, not a finance director. He’s ex-big agency. We got him in early on. But I also have a financial adviser - he’s a finance director in a manufacturing company. He comes in every month and we look at the management accounts. He also gives me input on the more complex issues - for example we’re in the process of moving to a new building. We know that we are going to need a finance director, to negotiate contracts and take on things like insurance and tax.

We have a very disciplined monthly meeting based on the management accounts. Sales, margin and cash flow are the main indicators. I do a simple fee forecast. One thing I have put effort into is making sure we get the bills out.

Boden
Our finance director - now managing director - arrived as part of our refinancing package when our annual sales were £2m. I think I was on my way to appointing a finance man but, looking back, I would have done it sooner. We had the creative side sorted out, but you need a director in charge of the dull management issues. We look at sales, the balance sheet, stock, cost per call, returns, every day. We have comprehensive management accounts every month. We have a one-year budget and halfway through the year, we recast it for the second six months. The process of focusing your mind is at least as important as the document itself.

Bennett
It was a happy accident that my first employee, Paul Aspinall, was an accountant. He came in to sell. He’s great at sales, but eventually he had to focus on the finances. We have very solid accounts. We can look up sales, stock turn, immediate fulfilment rate, profit per phone call and dozens of other things in real time. I check them twice a day. We have two board meetings a month. One’s devoted to the accounts and key performance indicators. The second one is about ideas. We’ve just completed our Master Plan for the year to March 2000. We’ve distilled it into a 12-page booklet - text, not numbers - and handed it to every employee. It says we must make £3m to £4m. It says anything less than £2.5m is not an option.

Real Business
Does your company have an ethos?

Hayden
I think we have a very special ethos. I really think we have never had an employee who didn’t love working for PMR. We are very, very democratic. Nothing is ever imposed on people. I am the majority shareholder and I could call the shots. Instead, I do a lot of persuading. I suppose in every ten issues, two might go against me. But if you go along with the majority view, it’s usually the right decision. But we are not a co-operative. We don’t consult the data-input team on strategy.

We are very different from the industry norm. Most of our competitors have what we call a dealing room approach to sales. “Rah rah” - hungry young graduates in blue suits. The sales manager sellotapes their phone to their hand, takes their chair away until they’ve booked an interview. I think they sometimes see the client as their victim. I’m not knocking that approach. It has been very successful time and again. But we’re more cerebral. Older, more mature consultants - mostly with some IT background. One of our best guys came to us when his previous firm told him he was too old. Our newest consultant was an internal promotion from the support side. He’s finding it tough. Anywhere else, he’d have been out already. We think he’s going to make it. One reason we can take this approach is that we earn good margins. We spend some margin maintaining quality. Also, we are genuinely specialist. We’re not managing a vast database of every kind of IT person. Just a big database of people in our specialist area. We have a much higher ratio of support to sales staff. We always take up references. Most of our candidates are on our competitors’ databases too. They say they are often put up for jobs without their knowing it. Then they have to say, “But that’s not me.” That would never happen here.

Bennett
The bigger you get, the harder it is to maintain your ethos, so I started writing it down and it ended up as a book - Serve to Win. The first thing you have to do is ensure your directors all buy your spiel. Ethos has to come from the entire top level. Basically, the customer is king, but work must be fun, too. When we planned this new building, we incorporated a squash court and a gym. We have plenty of parties. And we’re very open. The only doors in here are on meeting rooms. No-one will ever get the wrong side of me by telling me they disagree a decision. But they will if they see something going wrong and don’t point it out.

Boden
There are two elements in our dealings with customers that I think carry through everything we do: honesty and reason. In our foyer, we don’t display our clothes. We display our worst complaint letters - and our responses.

We have a “presidential” every two months. All the directors, sandwiches and drinks. It’s not compulsory, but most people come. I talk about how things are going. People ask questions and make suggestions. We are going to make these more regular. It amazes me the amount of involvement staff like to have. I overhear conversations as I walk past our smoking shed. People are often discussing the company and our most recent achievements - not their boyfriends and girlfriends.

Walsh
We have spent a lot of time working out the relationships between the partners. I had never worked with any of them. Before I agreed to join, we hired a facilitator to help us find out what we each wanted, what we had in common, and didn’t, where we were going, how to get there. I thought this was important, because I had worked in agencies where the partners didn’t get on with each other. That’s terribly disruptive. It was important to this agency’s culture that all the senior people sang from the same song sheet. One thing we discovered was that we all have a strong work ethic. Not as in working all night, but as in being prepared to do all the jobs. Early on, we hired someone who turned out to be too grand to do trade ads. But there was no-one to delegate them to. That person left.

Real Business
What’s your pay structure? How does it fit into your strategy?

Hayden
We are a sales machine. We pay our consultants a meaningful basic, but for our top earners it’s a small fraction of their total earnings. We pay way above the average. We also have sales prizes such as holidays for people who hit new records. Now, we’re giving them equity too, alongside loyalty covenants. We reckon the value we give away will be more than made up for by the increased value of the equity we retain. We also pay top money for support staff and they get bonuses.

Bennett
Almost every department has a bonus scheme of some sort, geared to what they do. In the technical support, it’s based on return rates. We had eight-and-a-half per cent returns, so we said, “you’ve got to tell sales why products are being returned and what they need to do about it, and your bonus is based on getting the return rate down.” Now it’s four per cent. We also hand out ten per cent of profits every year, divided equally between everybody. This used to be based on salary, but we decided that was unfair to the guys packing the boxes. This was worth £400 each last year. The year before, it was nil.

Boden
We don’t have a bonus system. It’s the catalogue that does the selling. Our phone people just take orders. The catalogue is a huge effort involving almost everybody. We couldn’t pick out individuals or teams and say, “You did very well, have a bonus.” We’ve talked about a bonus system, most recently just a few months ago. People decided against it. It would cause dissent.

Walsh
We pay bonuses, if we can, which we have been able to do so far. We’ve just moved from once a year to twice a year. Bonuses enable everyone to participate in the success of the agency and helps them to feel they are making a contribution. Everyone qualifies for a bonus, but there is no formula. The partners sit down and rate everyone’s contribution, regardless of their salary. A junior person doing a really fabulous job could get a great bonus.

Real Business
What’s the key to achieving exceptional sales growth?

Walsh
In our business, it’s about profile. Publicising your successes. But getting onto pitch lists also means networking - there’s a lot of who-you-know going on. And there’s always sales growth to be had from existing clients. You can often identify further opportunities with people you are already working for.

Boden
It’s all about product - having something people want to buy. We had an okay but not brilliant Christmas. We’ve been looking at why and there are all sorts of theories - timing of our mailings, the economy generally and so on. But I think the main reason was that our range wasn’t exciting enough this time round. Product development - that’s the key, even if it’s not totally controllable.

Hayden
We’ve got a great product. If you want senior staff to run an IT project, your choice is between contracting in a big consultancy firm - at twice our price for people who are good but not yet good enough to work freelance - and going to the rah rah salesmen. Or coming to us. We specialise in very narrow markets and dominate them.

Bennett
In our business, you have to identify your name with the product - 2.9 million catalogues a month helps. Then you have to be offering value, or perceived value. Two months’ longer free support than the next guy is offering. A free product with every sale. A second product at half price. Maybe low margins help too. When we sell a copy of Microsoft Office, the margin is in single figures. That charges us up to sell that caller something else with a decent margin - an anti-virus product, or a Year 2000 checker. We pre-negotiate these in massive volumes that give us good margins. But bigger than that, it’s people. It’s not companies that succeed - it’s people. You have to find a structure that backs them.

The top company in the Real Business Hot 100, 1999
Skilled IT staff are in huge demand, especially among big companies and financial institutions. Such people enjoy very tasty salaries, too. So it’s no surprise to find an IT recruitment company in first place in the Hot 100; specialist recruitment is also the most common business sector within our ranking.

Our top performer, Plexus Personnel, was founded in Weybridge in 1990 by Howard Butterfield. This year it’s planning to hit a £20m turnover. It employs some 47 staff and has two offices, in Weybridge and London. Each week it places about ten people - mainly enterprise resource planning, client server and e-commerce specialists; it has deliberately avoided over-specialising in Y2K experts.

So far growth has been organic but, as for the future, “let’s say we’ve invested in improving our own knowledge of mergers and acquisitions,” smiles business development director Roy O’Brien. Board members are regular conference attendees. “We want to be a predator,” says O’Brien. And he’s very cautious of venture capitalists - “it’s like selling your first-born child.”

Plexus was founded with the explicit aim “to reduce the margin the agent took out of the deal. The days of adding no value and taking 40 per cent out of the salary are long gone,” says O’Brien. Margins are, therefore, very slim. Instead Plexus has concentrated on volume and service. All details about its placements are open-book, says O’Brien.

Maybe we shouldn’t be surprised to find Plexus topping our list. In a tight and fierce market, it has made great efforts to differentiate itself. Branding has been vital; its Web site speaks volumes for its ambitions. Says O’Brien: “People have always thought we’re bigger than we actually are.” Not any more, Roy.

Hot 100 companies: some insights

For a full breakdown of the Hot 100, you will have to get hold of a print copy of the March 1999 edition of Real Business. (To do that, go to "Subscribe to Real Business"). But here are the details of the companies mentioned in the text above.

Company: Plexus Personnel
What it does: IT recruitment specialists
Turnover: £11,316,000
Pre-tax profit: £255,000
Average percentage growth: 112.88

Company: Software Warehouse
What it does: Computer software suppliers
Turnover: £64,355,038
Pre-tax profit: £876,971
Average percentage growth: 102.79

Company: Boden
What it does: Clothing mail-order company
Turnover: £9,490,592
Pre-tax profit: £160,992
Average percentage growth: 100.83

Company: Walsh Trott Chick Smith
What it does: Advertising agency
Turnover: £3,305,530
Pre-tax profit: £185,645
Average percentage growth: 88.21

Company: PMR Group
What it does: Recruitment agents
Turnover: £7,453,535
Pre-tax profit: £421,895
Average percentage growth: 83.96

Words of wisdom

We asked several experts for their best advice to give to a high-growth company.

"Good people, and good managers in particular, take a long time to recruit and develop. It also takes time for them to learn how to work together effectively. The best people are those who create future opportunities. These are the people who will go on to be the management’s successors. They will be crucial in the development of a successful business ethos, which permeates the business and helps it achieve its plans. In a climate of economic uncertainty, it is easy to lose sight of the importance of staff. You may doubt whether or not to go ahead with key appointments; you may even consider laying off managers who you know to be capable. Beware this temptation. While you may feel you are actively managing the business, you may be sacrificing its future."
James Roberts, a senior partner at the Croydon office of chartered accountants and business advisers Arthur Andersen.

"You may often wonder who can I trust? While there will be no shortage of praise and deference from those around you, you may also be the subject of envy. The management of envy and rivalry is the single most neglected area in the successful business, partly because it can be difficult to spot. But the ability to identify and manage it marks out an emerging leader from an established one.You may think, 'if I am being successful, the most helpful people are those who can assist and develop what I am already doing.' This is such a reasonable and reasoned argument that you probably haven’t questioned it. Unless, of course, it also matters to you how you can help others and their aspirations. While ruthlessness is often admired, it is humanity that is remembered."
Neil Crawford is a senior organisational consultant at the Tavistock Clinic.

"You may be tempted to broaden your product range to appeal to investors before your company is ready. You may invest in new product before you have the cash flow to support it or take on something that is poor (or outside your area of expertise), just to encourage funding. This is a common danger for fast-growth companies, particularly in the IT sector. And all the advice in the world about protecting intellectual property, important though it is, won’t overcome this problem."
Rex Parry is a partner at law firm Eversheds. He heads up the company’s intellectual property and information technology team at the Leeds and Manchester offices.

"Early growth can be spectacular. This is because you are starting from a low base. But maintaining growth in a well-established firm is more challenging. It requires a balance between entrepreneurialism and greater disciplines. It is fundamental at this stage that you remember the plot - although this is easier said than done. It is this vision that binds your team if you are heading up a super-growth firm. You tend to share values and pull together. You might also include a wider group of people in your strategic thinking and you certainly never forget the need for results!"
Shai Vyakarnam is professor of enterprise at Nottingham Trent University.

The Hot 100: how do you qualify?
Once again this year, we have put Dun & Bradstreet to the test to help us find the UK’s fastest-growing private UK companies (D&B’s UK marketing database lists two million actively trading UK businesses and accounts for 95 per cent of the UK’s GDP). What we were after was a picture of sustainable, entrepreneurial endeavour.

We set a number of rigorous selection criteria.

All the companies had to be actively in business. They needed to be able to provide turnover and profitability data for the past four consecutive years of filed accounts. Any company to which D&B could not assign a credit rating or could not assess its net worth was omitted. Because private companies can take longer to file their accounts than their quoted counterparts, we stipulated that the most recent turnover figure had to be within the past two years.

To avoid confusion, we didn’t include finance, brokerage, insurance, real estate and holding companies.

We set a floor: all of our 100 growth companies had to have a turnover of more than £250,000 in the first of their four years.

We discounted any company whose turnover grew by more than 500 per cent in any one of the four years. This, we felt, removed companies whose average growth in sales had been distorted by restructuring or other one-off activities.

Subsidiaries and publicly quoted companies have been largely excluded.

We have been as scrupulous as we can be, but there may be the odd glitch in our ranking. If you feel that you should have been included among these entrepreneurial stars, let us know. Contact us at: editors@realbusiness.co.uk

Contacts
For further details of Dun & Bradstreet’s databases and ratings, contact Martin Smith or Philip Mellor at D&B, Holmers Farm Way, High Wycombe, Bucks HP12 4UL. Tel: 01494-422000; fax: 01494-422260; e-mail: smithmar@dnb.com

For information on what Arthur Andersen can do for the growing business, contact Andrew Pincott on 0171-438 3000.

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