The independent firms poised to lead Britain out of recession
Small- and medium-sized businesses are proving resilient to the recession, with research carried out for ‘The Independent’ showing they are particularly confident, says Roger Trapp
Tuesday 13 October 2009
Britain’s independent businesses are poised to lead the country out of recession with a mixture of innovation, a readiness to take calculated risks and a determination to succeed. Although there is tentative talk of “green shoots” in the economy as a whole, the sector that includes 99 per cent of all businesses and which accounts for more than half of UK jobs and sales is especially confident, according to research carried out for The Independent by CultureMap, a think-tank focused on small and medium-sized businesses, with the market research agency BMRB.
The Business Culture Index used original techniques to analyse the real economy by looking at more than 3,500 businesses ranging in size from sole traders to those with up to 250 employees. It found that the vast majority of businesses (84 per cent) had a stable headcount, with 10 per cent increasing numbers and only 6 per cent shedding staff – in contrast to the economy as a whole.
However, the study also identified a group of “go-getter” businesses that were more ambitious about growth, keener on trading internationally, more likely to invest in innovation, in relation to both product and market development, and more sophisticated about obtaining different types of finance.
The findings fly in the face of conventional wisdom that the businesses not listed on the stock market can be lumped together under the single heading “small business”. Some of these businesses are large entities, while many others are set upon joining them. At the same time, many smaller firms, often dismissed as “lifestyle businesses”, account for many more jobs and contribute much more to their communities than is generally realised.
John Owrid, one of the founders of CultureMap, said: “The UK’s economic life has always depended as much upon small businesses as large ones. Firms employing 250 people or fewer generate £1,352bn for the national coffers (52 per cent of national revenues). They employ 56 per cent of the workforce. And despite what you might read elsewhere, just as many start doing business in a downturn as appear to stop. So they’re arguably the most recession-resilient part of the UK.”
None of this is a surprise to Kevin Baker, who founded the luxury goods company Thomas Lyte at the end of 2007. “I think this environment is the time when you can achieve most,” he says. “It’s a time when change is the new status quo.”
Such circumstances create opportunities for new entrants. And Baker, who started on his own after a lengthy career with such companies as Dunhill and Aquascutum because he wanted to build his own brand, is determined to make the most of them.
One of his early opportunistic moves was to acquire the silversmith that repairs the FA Cup. And, with some established companies scaling back their activities, he has found it easier to recruit than might otherwise have been the case. “We have hired people from other companies as they were laid off,” he explains. The silver business has tripled in size in less than two years.
This experience has been echoed in other areas. In particular, the downturn has made suppliers more flexible. Whereas before they would only make 1,000 units of something, now they will do 50, says Baker. “Also, their prices are lower and their lead times are shorter, which means that we can get to market quicker.”
Until now,Thomas Lyte has made its money by supplying gifts for awards ceremonies and similar occasions, with its retail presence confined to the internet. But Baker has taken advantage of the state of the property market to buy premises in just the right part of London at an attractive rate so that the company can use a high-street presence to help it into the next stage of its development.
Henry Dimbleby and his colleagues at Leon, a developing restaurant chain that aims to combine the healthy food and fast-food markets, are similarly defying the economic downturn. A year ago, things looked bleak. After all, Leon’s restaurant in London’s Canary Wharf was below the Lehman Brothers building. But, once things settled down a few weeks after the start of the financial crisis, the company began to prosper – benefiting from the new desire for value. People are so used to eating out that, although a year ago the response to the crisis was to pack a lunch at home, after a few weeks those who still had jobs returned to their old ways, albeit with a little more attention to the price, says Dimbleby.
He and his friends and cofounders – John Vincent and Allegra McEvedy – are not without their concerns. Dimbleby, the son of the broadcaster David Dimbleby (who was among the early investors), is worried rises in interest rates will hit the disposable income of the company’s customers and fears VAT will rise to higher than its level before it was cut in an effort to boost consumer spending.
But for now they are celebrating that they have been around for five years and have passed through the break-even point that can prove so elusive for start-ups. Earlierthis year, the team opened its first outlet outside London – at the Bluewater shopping centre in Kent – and it is on the look-out for more. Although the company started slowly, and for a while was a secret to the trendy set, the founders – particularly former management consultants Dimbleby and Vincent – always intended to build a large business. As part of this, the menu is carefully chosen to include dishes that can be replicated on a large scale, while staff are trained in thesort of techniques that enable fast foodchains to deliver fast, efficient and uniform service.
“We think there will be people who will do good fast food and there will be global brands. We are setting out to be one of those,” says Dimbleby.
Duncan Grierson is similarly convinced he has a pioneering business. Sterecycle, which he founded in 2003, is a waste management business that uses innovative technologies to recycle and recover up to 80 per cent of the household waste that would typically go to landfill sites. Grierson, a former private equity executive who saw opportunities in clean technology, initially struggled to fund the company.
He financed the early development with his savings and funds from his first angel investor until, in 2005, the tightening of the landfill tax regime provided the driver the business required. Investors signed up and the company was able to build its first plant, in Yorkshire, where it has begun to process waste from local councils. It has recently won permission to build a second plant in Cardiff and aims to have six plants operating by 2013.
While it is generally true that the “credit crunch” has made it hard for companies to raise finance, Grierson says funds have become available for his type of business. This is because the leveraged buyout deals that private equity houses have focused upon in recent years have fallen dramatically in number because of the difficulties associated with raising significant amounts of debt. Funds have looked for growth opportunities – such as Sterecycle. Indeed, the company is a classic example of a start-up seeing an opportunity apparently missed by the established players in its industry.
Grierson is convinced the big international players in the waste industry will eventually see the appeal of his approach. But, having been a lawyer before moving into private equity, he has taken care to protect the patents of the technology that powers his business so that he retains first-mover advantage.
“We can capture market share while they are trying to work out what to do,” he explains. With even the six planned plants only projected to process just over 2 per cent of the UK’s household rubbish, there is room for growth, and Grierson is planning for a stockmarket listing to provide the funds for that. In the meantime, the current £50m fund-raising is going well. Evidence, perhaps, that for those go-getting, determined, independent businesses identified by the research there has rarely been a better time to have been in business.
As Thomas Lyte’s Baker puts it: “The last one and a half to two years have been undoubtedly the best time I have spent in business.”
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