Leading from the front

Whether raising finance, recruiting staff or taking a business out of the red and into the black, a strong leader needs nerves of steel to make the right decisions. Marc Barber speaks to entrepreneurs who have got what it takes

When Jeremy Whitaker joined consumer marketing group DLG in November 2004, his brief was to help negotiate a £23.5 million management buy-out (MBO) through a private equity firm.

Soon after joining, the vendor decided Whitaker was the best person to become the CEO once the exit was complete. Effectively, Whitaker found himself leading the MBO he’d been hired to facilitate from the seller’s side. While conventional wisdom says that when conducting an exit you should use advisers, he found that third-party advice put a strain on proceedings.

He says: ‘As the deal went on, it reached a point where the vendor’s advisers were saying I couldn’t be trusted. My advisers were also telling me not to listen to the vendor. Fundamentally, it was all about price.’

As the bickering dragged on, Whitaker realised that a hands-on solution was required: ‘I had a real dilemma about what to do, but made the decision that haggling about short-term gains was not in the best interests of the company. I’d been employed by the vendor to do a job and that was to sell the business, so I decided that the vendor and I had to work together.’

Whitaker approached the vendor directly. ‘We talked without the distractions of the external operators,’ he says. It worked and the deal went through.

Anyone who has led an MBO will know that it’s difficult to keep control of the deal and run a business efficiently. ‘Ours took six months and I didn’t see much of my family,’ says Whitaker. ‘I tried to front the whole process myself and let senior management run operations. It made sense to me as I knew the advisers, the vendor and had a detailed understanding of what was happening.’

Since taking the helm at DLG, Whitaker has led two acquisitions. His attitude to advisers and how they should be used hasn’t changed. ‘They often do the groundwork and approaches in most cases, but I decided to speak to the owners first. When you’re talking about these kinds of deals, I think you have to speak to the vendors direct. The advisers were introduced, but in a subservient role to me.’

It should be noted that Whitaker isn’t anti-advisers. Rather, he says they should be chosen with care: ‘When you’re undertaking larger deals, use the established big names as they have credibility – for example, a “Big Four” firm if you’re having an audit or due diligence done. It’ll cost more in the beginning, but you’ll get a return.’

To boldly go
For Mike Bandeira, CEO of mobile phone recycling venture Excel Fortune Holdings, the dilemmas of leadership are not something a genuine, diehard entrepreneur dwells on too much. ‘When people say they’re entrepreneurial in spirit, it’s easy to say but rarely backed up with actions. What differentiates an entrepreneur from a steady, staid owner-manager is an attitude to risk and a drive to succeed – to go into areas that perhaps a sensible person wouldn’t go.

‘If you talk to a bank, they’ll say that they support the entrepreneur and that they’re entrepreneurial in their outlook. That doesn’t mean anything at the end of the day, because as soon as they start to do their risk assessments, more often than not they’ll back off.’

If Bandeira’s right, then Michael Carvill, MD of Kenmare Resources, certainly joins the entrepreneurial club as he’s often displayed a willingness to put everything on the line.

Over the past 21 years, Carvill has spearheaded Kenmare’s outlandish plan to make a titanium-bearing ilmenite mine in Mozambique a profitable venture. To put it mildly, this Northern Irish family business has shown tenacity in both raising the funds and weaving a path through Mozambique’s changing political climate.

Back in 2004, Carvill arranged £50 million of forward sales for just under two-thirds of the mine’s anticipated production. He also arranged £112 million of senior and £35.5 million of subordinated debt. Lenders include the South African Development Bank, the European Investment Bank, Dutch development group FMO and German development specialist KFW Bankengruppe.

The gamble appears to have paid off. Kenmare, a fully listed entity, is poised to turn its annual losses of £2.2 million into a profit, expecting revenues of £62.5 million in 2008 on operating costs of just £19 million.

While Carvill must’ve had sleepless nights about the potentially catastrophic levels of debt Kenmare has taken on board, not to mention the added exposure of its being a public company, he was determined to see the project through – out of pride if nothing else.

‘I would say that I’d be far wealthier if I’d gone into international business and consulting,’ he comments. ‘As soon as you go to people to give you money, you either go bust or make it a success. What you can’t say is: "I give up."

Carvill notes that listing in the UK also made the project feasible. ‘The shareholders have been patient and supportive,’ he says. ‘If we’d been dealing in New York or Toronto as opposed to London, we wouldn’t have got the funding.’

What Carvill had going for him was the fact that he knew the money was there, due to the resources that were just waiting to be excavated, processed and sold. For many owner-managers, that certainty of future sales doesn’t exist.

The private option
David Williams, a partner at private equity firm Graphite Capital, observes that the classic business dilemma is whether to grow a venture beyond the £10 million to £20 million mark.

‘A different type of leader is required for the various phases of development,’ says Williams. ‘The skill to run an international operation will not be the same as for a start-up.’

Paul Morris, a partner at ISIS Equity Partners, makes a similar point, saying that once a business has been grown to a certain size, an entrepreneur may want to realise the equity in their concern, bring in new faces and basically initiate an exit.

Whitaker found, at DLG, that this can be a delicate process, in which diplomacy and understanding are at a premium. As Williams puts it: ‘An entrepreneur has created something fantastic with their own blood, sweat and tears. Exiting can be like losing a limb: once it’s gone, you can still feel it twitching.’

Using private equity to speed up growth has worked wonders for Whitaker, who is now working to secure the firepower of a larger backer through a secondary MBO. He notes that while the board packs may have grown and the emphasis on key performance indicators is exacting, the results speak for themselves: ‘We were the fourth-largest in the market and now we’re number one.’

When it comes to decision-making, Mark Gouldthorp, MD of British institution Raleigh Bikes, has probably been confronted with every leadership dilemma imaginable since joining as financial director five years ago. ‘There isn’t a single part of the business that we haven’t changed, kicked or modified,’ he says.

It’s been a radical, accelerated programme. ‘We’ve conducted major surgery to get to where we want to be,’ he says. ‘Whether it be marketing, sales, how we run our mobile phones or selecting postal services, we’ve had to alter and improve our previous practices.’

The company manufactured in Nottingham for 120 years. In 1999, it ceased making frames, outsourcing production to the Far East, but it continued to assemble its bikes in the UK.

That ended in 2002 as the directors had sold the land that the manufacturing site occupied to the University of Nottingham. Says Gouldthorp: ‘Raleigh had to find a new place to be, and the management realised there was no rationale for developing a new site in Nottingham as it could never pay for itself.’

At this time, Raleigh also had a parts and accessories division. This area focused on design and marketing, importing from suppliers around the world. It had worked to this model for the best part of a decade, and the Raleigh management realised that this was the future of the company.

Gouldthorp explains: ‘A classic rule of business is not to do two things at once. Well, we had to, and just about managed to get away with it. We brought the two operating divisions together into one centralised operation.’

Uniting both sides of the business was no easy task. For example, they had different management teams, which duplicated overhead costs. Moreover, there was a clash of cultures, which needed to be reconciled.

‘We brought the warehousing and distribution all under one roof, and created a single sales and marketing division, harmonising all the functions under a single management team.’

The IT systems were 15 years old and had to be replaced and made uniform too. In the midst of this revolution, Gouldthorp stepped up from FD to MD. He reflects: ‘The management team within the cycle division was pretty ropey, in my view – a lot of the quality had been eroded; whereas the management and infrastructure within the parts and accessories business was a lot more capable.’
In the space of two years,

Raleigh Bikes was taken apart and put back together again. A side effect of such an overhaul of systems and processes was that sales were not given the necessary attention.

‘That did cost us money,’ he says, ruefully. ‘We didn’t really regain that impetus until 2005. Looking back now, we were probably still a bit wayward operationally in late 2004.’

Raleigh has, in every sense, managed to get itself back in the saddle. From losing £5 million in 2002, it reduced that to £1.5 million a year later. In 2004, it finally moved into the black, posting a profit of £300,000. Gouldthorp anticipates profits of £1.2 million for this year-end, on turnover of around £33 million.

The emphasis is now on marketing and design, re-releasing and updating retro-classics like the Chopper and BMX Burner, while introducing new models. ‘We were marketing leaders ten years ago and then the marketing budget was cut. By the time the factory was closed, it was non-existent. Despite the fact that we’ve made ourselves profitable, we’ve also increased our marketing spend by about 30 per cent.’

Franchising is the future Establishing effective distribution channels is now the company’s biggest problem, as independent shops tend to lack efficiency and national high street stores often have their own cheaper versions of Raleigh bikes. In a bid to fight this, Gouldthorp has launched a franchise scheme that should provide a framework for long-term growth.

He attributes the company’s near collapse to a woeful lack of foresight and ruinous decision-making by the original management team, noting that their attitude was all too commonplace among many UK businesses with household names: ‘I used to work for ICI, and 20 years ago it would ring customers and tell them what paint they would receive. Raleigh was in the same position, and that level of arrogance and ignorance screws you in the end.’

People and power
You may have a vision for your business. You may have grown it from scratch. Trouble tends to begin when you reach the stage where you can’t manage everything on your own and so the hiring begins. One of the greatest problems facing any employer is selecting the right talent.

Elizabeth Gooch, the plain-talking MD of operations management business EG Solutions, has had a bad run of hiring individuals who didn’t quite perform how she’d hoped.

At the beginning of the year, EG’s revenues were £500,000 lower than expected, resulting in a pre-tax loss. This was due to a revenue recognition issue, whereby sales were booked in earlier than they should have been. The accounting error resulted in the resignation of EG’s financial director.

While the company is overcoming this setback, Gooch is now especially wary of assuming that the work ethic and values of new personnel match her own. ‘My attitude when it comes to recruitment is that it’s a 50/50 [success rate]. You never really know if a person is right until they actually start working for you.’

Stephen Morris, MD of marketing agency Haygarth, also highlights recruitment as a challenge: ‘There are two things that are key for a business, and if you get them right then you will win. If you generate revenue, then all the other problems you have to face will be easy to fix. Everything, that is, apart from getting the right people.’

Morris, speaking to Business XL while sitting by a swimming pool in France, sipping a glass of Chablis, admits that he’s ‘hopeless’ at hiring. ‘I have some very good senior people who are excellent at recruiting,’ he says. ‘If there’s something you’re weak at, then let someone who has the necessary skills do it.’

An ex-member of the parachute regiment, Morris says that in running a company ‘you have to lead from the front and can’t expect people to do things that you aren’t prepared to do yourself’.

What makes a leader?
If you type ‘leadership’ into an internet search engine or go into the business section of any bookshop, you’ll be overwhelmed by the amount of theorising out there. For Morris, leadership and having that ability to drive a business and its people onwards is an indefinable quality.

‘I don’t think you can teach leadership,’ he says. ‘It’s something that you’ve either got or you haven’t.

‘The most difficult thing in business is surrounding yourself with the right people. If you can crack that, you can conquer the world.’