There are countless examples of small businesses started by people working in particular industries who spot gaps that their current employers either do not see or fill inadequately. Through attention to detail and dedicated service, such enterprises can make surprisingly impressive profits out of the least likely opportunities and in so doing sometimes grow to a size to rival the original businesses from which they spring.
Local knowledge is key. Just as with management buyouts, where formerly languishing companies suddenly power ahead when those that really know the business are given the chance to run the show, many niche businesses thrive on the back of the specialist knowledge gained by their founders while working in the original companies. In some cases, they are able to transform an activity that was once an overhead or at least a nuisance into a profitable entity in its own right.
This is especially common in industries such as oil and steel, where the core activity of finding and selling oil or making steel is surrounded by ancillary activities that are not central to the main purpose of the business but are nevertheless crucial to its success because if carried out badly they can drag it down, or if done efficiently can dramatically enhance its finances. It is no coincidence that some of the early examples of outsourcing such functions as finance and facilities management were seen in the oil industry.
Robert Leigh, founder of the property company Devono, took a different approach. Rather than setting himself as providing a service to his former employers, he is using his knowledge of the property industry to compete with them directly in a particular sector of the market.
Devono was set up in October 2003 to represent tenants in property transactions precisely because most property companies are geared towards representing the interests of landlords, says Leigh.
He can see the sense in this. By representing landlords, agents gain kudos from letting prestige buildings. They are also more likely to enjoy more regular business, which helps them to grow. This does not mean that they do not represent tenants. Many do, often through separate arms of their businesses. But, says Leigh, this inevitably leads to the perception of potential conflicts because the landlord is likely to be a regular client, whereas a tenant is only involved in the property market every few years when looking for new premises.
Hence Leigh's decision to set up central London-based Devono. The logic is obvious enough. But then so are the limitations. Clients who are involved in your market only every few years do not look that attractive. It is understandable that the big players – with their large staffs and other overheads – find representing landlords alluring.
Leigh's answer is that clients value the transparency brought by his approach – "They know where our loyalties lie," he says – and are seeing the benefits in the types of deal that he and his nine colleagues at Devono are winning for them. The company may not win as much repeat business as those representing landlords, but Leigh claims that last year it moved more businesses than any other property company in London. He says that clients range from website operators to financial institutions, with Manchester United, for which it found a new London headquarters building, and Toshiba among the better known names.
Of course, timing is critical to the success of many businesses. And it could be that Leigh and his associates are well-placed to prosper from the anticipated falling off in commercial rents. Leigh himself is keen to remind clients that there is more to a rental agreement than the rent itself and he acknowledges that, so far, rents are holding up because of landlords' determination to avoid talking down the market. But he also believes that their confidence has been knocked by recent events in the financial markets. Which looks like an opportunity for a man championing the interests of tenants.
Opportunity spotting is also at the heart of The Star Principle, the new book by Richard Koch. Since Koch has been about equally successful as an entrepreneur and investor and as a business author, he is someone worth listening to.
His basic thesis is that there are certain "star businesses" that are attractive for investors and would-be employees because they have two key attributes: they are leaders in their particular market niches and the market niches are growing fast, at least 10 per cent a year.
If you are the entrepreneur behind such a business so much the better, but Koch – whose book is subtitled "How it can make you rich" – points out that the rewards for investors and even employees can be substantial. This is simply because the combination of market leadership and a fast-growing market means that a star business will be highly profitable through being able to charge high prices and enjoy low costs through spreading them across an ever-growing business.
Koch estimates that about one in 20 start-ups are stars – rare enough to justify the returns but not so rare as to be off-putting. As he says, "If you look intelligently for a star, you will find it."
For more information on Business Monthly, or if you have any comments regarding the supplement, please write to Business Monthly, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail email@example.comReuse content