Real Business Hot 100 2000

by Real Business - Thursday, 30th August 2007

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Of all the private company rankings, the Hot 100 is the most demanding. Companies must demonstrate mega-growth in sales turnover – over four years.

So who is our number one? Meet Simon Arber, creator of our first and 15th-placed companies, recruitment consultants Progressive Computer and Computer Futures....

Computer Weekly is the sort of publication for which the people who pay one’s wages would probably sell their grandmothers. It surely makes a tidy margin on the cover price alone. But the job advertising has to be seen to be believed. You could weigh it. In a 128-page issue, jobs start on page 47 and continue almost uninterruptedly to page 127.

When a magazine forms a major meeting place for an industry, it can give you an idea of who the big players are – just see who has the most ads. If you want a job in the IT industry, it’s clear you should call Computer Futures. They have 14 pages of permanent appointments and a separate double-page spread of short-term contract positions. Progressive Computer – with 12 pages in all – looks like another heavyweight. And you might not be wasting your time with Huxley Associates, who run to a three-page spread and three half pages. An outfit called Pathway and a couple of others have double-page spreads, then you’re into the small stuff.

Simon Arber is a smart guy but his qualifications only run to two O-levels. He recounts a two-year stint as a hospital orderly and a variety of labouring positions before he found himself being interviewed for a job, “I had absolutely no right to,” as a recruitment consultant. His interviewers arrived at the same conclusion. But three months later, they called him back. “I was very grateful.” He became the top producer. He put accountant-turned-salesman, Bill Bottriell, into British Home Stores as a systems analyst. When they relocated, he despatched Bottriell to Readers Digest. And when Arber came back from a year abroad in 1986, Bottriell had itchy feet again.

“Personally, I was never set on being an entrepreneur until I became one,” says Arber. “But Bill always was. We didn’t choose IT recruitment because we knew it was a winner. We chose it because he knew IT and I knew recruitment. We had several other ideas – one of them was about weddings, because Bill was getting married around then. We put up five thousand each to start Computer Futures on the basis that when it ran out, we would decide whether to put in some more or walk away.”

It was clear by the end of the first week that they weren’t going to escape that easily. Every client they rang was gagging for IT people. After a month, most of the nest-egg was still in the bank. “Then Bill came up with an idea that gave me a big lump in the throat. He wanted to blow the whole ten thousand on advertising. In the end, I let myself be persuaded. It was the best thing that ever happened. It became a guiding principle.”

It was such a guiding principle, that when Arber and Bottriell spawned Progressive Computer, the big-budget approach to advertising was installed there, too. And at their third start-up, Huxley Associates. And at Pathway (which in fact, came out of Progressive).

So what’s with all the start-ups? Because start-ups are, like advertising, an axiom of the Arber/Bottriell architecture. Because – taran tara, roll the drums – all these companies are the same company, or at any rate, the same group. Because that £10,000 back in 1986 has – if you work it out on the basis of their share of the advertising in Computer Weekly – grown into a 43 per cent share of the IT recruitment industry. Last year, Barclays Private Equity paid £50m for a piece of the action. The precise terms have not been made public. But there’s no way the deal valued Arber and Bottriell’s new group holding company, S Three (Solutions in Staffing and Software) at less than £300m.

Simon Arber, Bottriell & Co don’t have 43 per cent of the industry, of course. But if you were a candidate, you could easily think they do. In fact, they claim to fill one in ten of the UK’s permanent IT positions, which is reckoned to be ten times as many as the next biggest competitor. In contract positions, the line is that they have an eight per cent share, which is around the same as their two biggest rivals.

And Bottriell’s insight, back in 1986, was this: the scarce resource in this market is candidates. Clients are ten-a-penny; candidates are gold dust. To prosper, you somehow need to get more than your fair share of candidates. So you advertise every job at every opportunity, whether you could fill it from a search of your database, or not. Because the more candidates who send in their CVs, the better off you will ultimately be. At the head office of Computer Futures off Regent Street, serried rows of data-inputters (“We get them all from recruitment consultants. They cost a fortune”) spend all day every day entering candidates’ CVs into the database: 200,000 and counting. Plausibly “the biggest in the UK.” A valuable resource. And that’s why the two-man firm committed £10,000 to advertising in its first month. And has been travelling the same road ever since.

And the start-ups? It is a time-honoured technique to keep the top talent engaged by raising it to partnership status. But no-one has ever done it like this. Arber: “Many entrepreneurs find themselves inside other people’s businesses. We want to hang onto their talents. So we start them up in their own businesses.”

Not new divisions within a centrally managed group, but independent businesses competing furiously with each other as well as with their alter ego. “I cannot overstress that they are totally autonomous,” says Arber. “They have their own databases, their own premises and their own customer relationships. If Computer Futures wins a client, it’s a Computer Futures client. And that’s eminently reasonable. If the client were suddenly to be approached by all the other companies in the group, they would say ‘Well what’s going on here, then?’ Whenever they are opening a new office, someone will always suggest they take the spare space in the premises belonging to another of the companies. They are wasting their breath. They want their own identities.”

Five so far. The first was Progressive. It’s owned in three exactly equal parts by Arber, Bottriell and one Sunil Wickremeratne, an early recruit of Computer Futures “who would certainly have left to do his own thing.” The table shows Progressive has £58m of sales, but in the current year, that rose to £70m, (tut tut, slower growth) and profits of £4.8m rose to over £10m.

Next came Huxley – “This one is a bit different,” says Arber. “It is heavily focused on investment banks, who are exceptionally demanding. Huxley seems to have cracked that market.” Cracked it to the tune of £21m in sales and £3.5m in profits last year. In 1997, it was followed by Pathway, now running at £16m of sales and £2.7m of profit. And two years ago, Real IT joined the gang: so far a £2.3m sales company with £450,000 of profit. Russell Clements, employee number two, is now joint managing director of Computer Futures with Gary Goldsmith, employee number 17. “When Simon and Bill back your start-up, you don’t get 100 per cent. But you do get all the ingredients you need. So you can build a much bigger cake, much faster.”

Add all the cakes up and take out the £160m or so that passes straight through from clients into contractors’ pay packets, and you have around £100m of conventional sales and an astonishing £30m of profits.

“It was always our intention to expand fast,” says Arber. “The way to do that was to get the best graduates. Our first two employees are now both equity directors. Sunil was recruit number six. We were very good at getting the people we wanted. It was 1991 before we had the first experience of a job offer being turned down. And they stayed with us, too. Why? First, we gave them more than they were going to get anywhere else. The measure of this is that around 45 per cent of our new top company is owned by our people, including ten per cent in an employee trust. We paid them more, too. Second, we were nicer people to work with and for. Third, we weren’t the typical small business entrepreneur who takes all the profits out of the company. It was clear to our people that we were going places. That helped them decide to stay.”

What came next made the sound foundations sounder. “In January 1991 this industry fell off a cliff,” Arber recalls. “Our turnover fell 40 per cent. Tough markets are a great training ground. Better still, the downturn scythed the competition. Firms who hadn’t been thinking long-term just melted away. We kept it all together. We grew from two to 23 people between 1986 and 1991 and in 1994, we still had 23 people. Then the good times came back. We have been on a roll ever since.” Today, the payroll is 950.

“Yes we have been very successful. I think only one other company in our field comes close. What would I tell your readers? I would say share it out with your people. I would say share out what’s left with your business. In other words, invest in it. And strive to be a nice company. People like working for nice companies.”

It’s an improbable claim for a recruitment consultant. We didn’t hear it without checking it out. Perhaps their detractors will put us right, but so far as we can see, it checks out. So be nice.

We put some key questions to Arber and asked him to pass on his pearls of wisdom to our readers...

What it takes to succeed in recruitment
Arber: “Motivation. That’s two things: you have to want to achieve and you have to be prepared to do it on your own. That is the case at every level. It doesn’t matter how big or structured your team is, you always end up doing a lot of it on your own.

“Integrity. You have to have your own set of moral standards, which have to be consistent with what the market requires. It’s no good your ethical code being in one place and what the marketplace requires in another. You see many cases of people cutting corners, blagging deals. I think they soon end up not liking what they do. If you do it properly, you do it better and like it better. That’s incredibly important.

“Also, you have to be a reasonable communicator. I say reasonable because people have funny ideas about communicating. I think that content is far more important than delivery. You have to have the right message, and deliver it in a reasonable fashion. Beautifully delivered irrelevance will get you nowhere.”

Going public
“You can’t go public as a mosaic of interlinked but independent companies. So we had to put them all together. That’s S Three, which was created as a precondition of Barclays coming in. As I see it, the next thing is, can we entrepreneurs turn ourselves into businessmen? Lots of people can’t. I have an open mind on this, but I certainly don’t want to discover the answer after the flotation. So one item on the agenda is, do we need to appoint a CEO? We are also tightening up our budgeting and financial reporting.

“The Barclays deal was very distracting. I spend two days a week visiting sites. That keeps me in touch with trends in the marketplace, and it ensures they don’t feel remote. I got the distinct impression – ‘Oh, you’ve forgotten about us.’ We had to do a bit of a rebuild.”

“A full-on sales environment”
Beyond the foyer in a Computer Futures office, you will find an open-plan room housing as many as 150 consultants facing PCs, with telephones clamped to their ears. They are talking to candidates and clients.

Russell Clements, joint MD: “Almost every assignment we get is also registered with our competitors. To turn it into money you have to be quick and you have to be smart. When an assignment arrives, you don’t peruse it over a coffee. You get on our £3m database and you pull off the people. We want to be talking the client through our shortlist of candidates within hours. We want them on the client’s premises the next day.

“We call this a full-on sales environment. If you are not an extrovert, you won’t like it. The sales board is on the wall. When you sign a candidate to a client, you mark it on the board. You get a 40-second cheer which will be heard in the neighbouring building and makes you feel like Michael Owen. No, we have never taped anybody’s hand to the telephone receiver. We might have a routine involving a silly hat.”

“Are we a nice company? Except that introverts wouldn’t think so, then yes, we are. One thing I have learned from Bill is that you always leave something in it for the other guy, even when you could leave him with nothing. Otherwise, he ends up loathing you. Ultimately, that’s not conducive to your well-being.”

The Hot 100 ranking

Here’s sample of the top 10.

1 Progressive Computer Recruitment (see main story)
What it does: Employment agency
Sales: £58.84m
Pre-tax profit: £4.81m
Average sales growth over four years: 158 per cent

2 Forest Environmental
What it does: Asbestos removal specialist
Sales: £6.22m
Pre-tax profit: £1.59m
Average sales growth over four years: 137 per cent

3 Mark Kass
What it does: North London Nissan and Toyota dealership
Sales: £38.88m
Pre-tax profit: £0.91m
Average sales growth over four years: 126 per cent

4 Ultimate Events
What it does: Conference organiser, especially for Microsoft
Sales: £12.12m
Pre-tax profit: £1.18m
Average sales growth over four years: 121 per cent

5 Rovtech
What it does: Remotely operated submarines
Sales: £10.78m
Pre-tax profit: £1.50m
Average sales growth over four years: 119 per cent

6 Demipower
What it does: KFC franchisee
Sales: £4.63m
Pre-tax profit: 0.12
Average sales growth over four years: 117 per cent

7 Genevac
What it does: Laboratory vacuum manufacturers
Sales: £4.23m
Pre-tax profit: £0.18m
Average sales growth over four years: 117 per cent

8 Techpartners International
What it does: Employee recruitment services
Sales: £12.72m
Pre-tax profit: £-0.36m
Average sales growth over four years: 113 per cent

9 S D S Infotech
What it does: Financial and IT services
Sales: £2.51m
Pre-tax profit: £0.35m
Average sales growth over four years: 108 per cent

10 Value-Direct
What it does: Electrical goods supplier
Sales: £3.39m
Pre-tax profit: £0.06m
Average sales growth over four years: 107 per cent

For the full Hot 100 ranking, see the print version of Real Business March. For back copies, contact Cassandra Donnovan on 020 7592 8903.

The criteria
It’s as tough as ever to be number one in the Real Business Hot 100. Try these hoops, which we set to the Dun & Bradstreet database of over two million private UK companies:

You have to show consistent sales growth. We rank our companies by average sales turnover growth over a four-year period.

You have to be profitable. A rare quality these days.

You must start our four-year qualifying period with a minimum turnover of £250,000. That’s to make sure the ranking isn’t skewed by the mega-growth that start-ups are bound to see when they start from zero.

You can’t be a quoted company. Or a subsidiary.

You have to be actively in business. Obvious but important.

Any company to which D&B couldn’t assign a credit rating or could not assess its net worth was omitted.

Your most recently filed accounts have to be within the past two years. Finance, brokerage, insurance, real estate and holding companies can confuse the numbers. So we excluded them.

And you couldn’t have an annual turnover rise of more than 500 per cent – that disallows restructuring. We were after proper, dogged, dynamic organic growth.

Rises and falls
The Real Business analysis of the trends apparent from this year’s ranking.

Hot, hotter, hottest
The Hot 100 got hotter last year. A year ago, sales of the fastest growing company, Plexus Personnel, were rising at 112 per cent a year. This year, the rival to which it hands its baton has been growing at 158 per cent a year. At that rate, you get from sales of £3m in 1995 to almost £60m in 1998. Another seven companies grew at 110 per cent a year or faster. At the bottom of the table, the hurdle was again growth of 50 per cent annually. Given the effects of compounding and the four-year basis of our statistics, it’s worth pointing out that even the coolest member of the Hot 100 had £3.40 in sales in 1999 for every £1 they had in 1996.

Dot-com fever?
We only caught one real dot-com. Few of these companies date back to 1995/96, where we set our starting line. Internet service providers Demon and Easynet both appeared in early drafts of our table but we disqualified them for going public or being taken over. That left Value Direct, whose Web site could give high-street home appliances chains, Comet and Currys, a run for their money on the Internet. You can deal with Value Direct by phone, too, but it’s a dot-com at heart, having started by running company shops via the Internet, before taking the plunge to dealing with the general public. Your correspondent bought a new microwave oven from Value Direct while researching the table. We expect to see a flood of dot-coms in next year’s table.

But the Internet boom is nevertheless evident throughout our table. First of all, the progress of number one, Progressive, has been assisted by frantic demand in the market for software personnel. It was one of nine recruitment consultants in the Hot 100 – the same figure as last year, although several faces have changed – most of which specialise in the IT sector. Second, the plumbers and builders of the Internet – hardware suppliers and systems consultants – which have always been a major component of the Hot 100, this year make an even bigger showing than usual, accounting for around one in five of the list.

Weird and wonderful
There’s the usual sprinkling of what-did-you-say-you-do-again? Businesses in this year’s Hot 100. Dicyclopentadiene, the stuff behind liquid moulded engineered products firm, LMC Technick (number 30), is a plastic that won’t crack. Its time seems to have arrived. Mathmos, cunningly described on the Dun & Bradstreet database as a manufacturer of domestic lamps, looked like an imposter as we sized up its 70 per cent a year sales growth to £18m a year, which puts it at the sizeable end of the Hot 100. But the description proved correct. Mathmos (number 44) makes those seventies revivals, lava lamps. And it sells tons of them, too. Rovtech (number five), a renter-outer of mini-submarines to oil-rig operators, is another company that’s as niche as they come.

Not so ordinary
But hearteningly, the bulk of the list comprises the usual eclectic collection of companies in everyday businesses. All of these demonstrate that if growth is the destination, no place is the wrong place to start (but starting recently helps). Hence Forest, the builders who got into asbestos removal (number 2); the kitchen manufacturers, Omega (number 18); C-Side, which revives run-down pubs (number 33); Stort Valley, which operates coaches (number 23); and lorry and warehouse firm, Great Bear (number 66). All these companies and literally dozens of others in the Hot 100 are doing conventional things in a conventional way, but with enough inspiration to get at least 50 per cent a year growth out of it. And although some of them have the benefit of having started only recently, all of them had sales of at least £250,000 in the base year.

The regulars
We counted a smaller band of repeat appearances than in earlier years. Fourteen companies are back again, starting with last year’s number one, Plexus, and including three of the four companies we profiled last time round and veteran, Software Warehouse. Steve Bennett’s company was number ten in our first list in 1997, when its sales were £16m, thanks to compound growth of 128 per cent. This year, £71m of sales and 66 per cent growth gets Software Warehouse to 55th place in our table, an impressive ranking for what is one of the three largest companies in the list.

Contacts
Alistair Blair is the 1999 PPA Business Writer of the Year. Contact him at ablair@pobox.com. For the full Hot 100 ranking, see the print version of Real Business March. For back copies, contact Cassandra Donnovan on 020 7592 8903 or e-mail her at cd1@caspianpublishing.co.uk.