If there is no escape from the credit crunch, how are so many small businesses managing to expand? Director celebrates some of the companies beating the downturn
Despite the headlines about falling retail sales, rising energy bills and general gloom, there are pockets of British industry that are thriving and planning to grow. A recent poll carried out by specialist insurer Hiscox reveals that despite the economic downturn and credit crunch, more that half (52 per cent) of small business owners say they have no intention of limiting their expansion plans. Similar findings came out of research conducted by Director and Atradius earlier this year. Hiscox's DNA of an Entrepreneur study researched the views, attitudes and lifestyles of entrepreneurs in five nations. It found the entrepreneurial spirit is flourishing in Britain.
"We know small businesses can be fleet-of-foot and highly
adaptable in a downturn. It's good to see the British entrepreneurial spirit still strong, despite the credit crunch," says Steve Langan, UK managing director at Hiscox. "At a time when big businesses are announcing profit warnings, refinancing and job losses, small business owners in the UK, Europe and the US are bucking the trend."
At the same time as firms are planning to expand, new businesses are being launched. Firms that ride credit-crunch inspired trends are booming. For instance, as consumers look to reduce holiday costs, more are seeking to take holidays in the UK and camping as a sector is growing, from camp-site bookings to equipment sales.
Some industries are particularly strong. The environmental
sector has reported roles in renewable energy and corporate social responsibility rising by 20 per cent in the past year. Luxury travel is also seemingly impervious to the global economic slowdown,
although the right product at the right price is essential. Centurion Luxury Living Index 2008 has revealed that 91 per cent of American Express Centurion cardholders—among the richest people in the world—now consider getting value for money important when booking a break. At the other end of the spectrum, a survey of 1,000 Britons by ebookers.com revealed that 50 per cent of holidaymakers consider taking a break as a necessity. They said they were prepared to make sacrifices in other areas—such as gym membership, buying fewer magazines, and taking sandwiches to work instead of buying them—in order to pay for their travel.
What consumers want, it seems, is value for money. But they are still prepared to pay that bit more for quality. And it is not just travel where this is true, but high-end consumer brands, too. Fashion house Burberry reported a sales jump of 26 per cent in the three months to the end of June, and French brand Hermes, which owns shoemaker John Lobb and fashion design house Jean-Paul Gaultier, reported a 12.8 per cent rise in first-half sales.
Consumers, it seems, have simply become more discerning. The British nation is polarised between people who want the absolutely best price on their weekly shopping basket and take a packed lunch to work, and those who are prepared to spend more to own one really beautiful overcoat, enjoy a fabulous holiday or an expensive meal with great service.
Here are four small firms bucking the downward trend and taking full advantage of a new breed of discerning consumer.
1. Knowing the customer
Director Tom Marchant
Company Black Tomato
Holidays—so we are led to believe—are among the first areas where people cut back when the economic going gets tough. But this is not true at Black Tomato, the internet luxury travel firm that offers bespoke experiences, such as glacier climbing and shark diving. Tom Marchant, one of the company's founders, says: "We are aware of global markets and it would be foolish not to understand the ramifications if the economic climate does get bad. But what we are seeing this year is that travel is a necessity for people. They are re-allocating spend so travel remains."
He points to areas of discretionary spend, such as less upgrading of seats, but adds: "To many people, travel defines them. And they want to look forward to something and to get away."
Black Tomato has grown steadily since it was launched in November 2005. Sales have risen from £1.2m in year one, to £3.5m last year, and are expected to be around £7m this year. It has been profitable every year. Marchant and his colleagues gave up jobs in the City to set the company up. They each had a passion for adventurous travel and were certain their fellow City workers shared this. "The idea had been in our minds for a number of years before we left our jobs, and we were sure the City was full of potential customers," says Marchant. They were right. Black Tomato customers are prepared to spend around £7,000 for a 10-day trip—though there are more expensive ones such as the Everest sky dive this autumn, which comes in at £17,000 per person.
"We knew the market we were targeting was discerning," says Marchant. "They are early adopters, they like trends, they want to push boundaries."
Knowing the customer has been key to Black Tomato's success. "We spend a lot of time seeking to understand our market," he says. "Our attitude is to understand the person first and then talk about the destination."
2. updating an old model
Director Ben Way
Company Go Green Plumbing
Starting a new business in the current economic climate might seem a little foolhardy. But serial entrepreneur Ben Way was convinced that, when he spotted a gap in the market for an environmentally friendly plumbing service, it was too good an opportunity to pass up. His conviction has paid dividends just months after launching. Way's original investment in Go Green Plumbing has already been paid back, the company is profitable, and employee numbers are set to double.
"Originally I just wanted a company to install environmental technologies," says Way. "But when I looked into it and the
possibility of having electric vans and electric invoicing, I found out I could offer a cheaper proposition."
Go Green Plumbing, which launched in central London in June 2008, has neatly combined two current consumer trends. A desire to be more environmentally aware is fulfilled by a service that operates vans without petrol, and can deliver environmental technologies such as solar panels, low-flow toilets and heat pumps.
And a desire to get the best service at a competitive price is met because the company's electric vans don't have to pay central London parking fees or the congestion charge.
Way, whose other business interests include technology companies, says he has brought the plumbing industry kicking and screaming into the 21st century by introducing van tracking, so customers know exactly how far away their plumber is, and proper electronic invoicing, which again reduces costs for the customer. "There is an obvious cost reduction," says Way. "But our systems are also cutting edge."
A lot of Go Green Plumbing's work has come from managing agents and property developers who are attracted by the efficient service, the immediate quotes by email so they don't waste an hour's call-out fee, and the chance to tick boxes for their CSR programme.
Way is confident the company will continue to prosper. "The environment is a driver," he says. "But the economic downturn is an opportunity for us because of the number of established players that are expensive. What we are seeing is that companies are more likely to take a risk on using a more cost-effective solution."
So confident is Way that he is already preparing to launch a similar company for electricians. He says: "What I want to do is provide a service that is not only green, but because it is green it is cheaper."
3. Quality and value
Director Duncan Ackery
Duncan Ackery has been in the restaurant business for long enough to know what works. Last September he took up the role as chief executive of Searcy, the catering company that operates restaurants in places such as the "Gherkin" [30 St Mary Axe], St Pancras Champagne Bar, and Bath's Pump Rooms. Since then the financial markets have crumbled. But Searcy restaurants are busier than ever. The reason, according to Ackery, is that Searcy offers interesting, well priced menus, matched with great service.
"They are the restaurant concepts that work," claims Ackery. And he points to Searcy's conscious decision to offer what he describes as great value food and drink in 'amazing' surroundings. "You can't confuse price and value," he says.
Restaurants are usually seen as an economic barometer—empty restaurants mean spending is being reined in. But Ackery distinguishes between mediocre restaurants and superb ones. "If you are a good restaurant, such as the Wolseley, Scott's, or the Ivy, then you are busy. You can go to other restaurants that are not as well run and they will be struggling at the moment," he says.
Ackery points to the restaurant at the top of the Gherkin as "a very unlikely counter-cyclical business". He says: "Corporate entertaining will be more difficult in the autumn—to pretend any different would be stupid. Companies that choose to entertain will be selective and will want real bang for their buck. The Gherkin delivers that. It is jaw dropping."
Sydney-born Ackery came to the UK in the 1990s and developed the Tate's restaurant estate, building a profitable business with annual sales of £13m. He is an expert in operating restaurants or catering facilities in magnificent buildings such as the Royal Opera House and National Portrait Gallery—both Searcy operated. And he says such businesses will weather an economic downturn. "These are businesses that have good footfall and they are often good in a recession because people go to museums when times are tough," he says.
The challenge for Ackery is to lift Searcy's business profile, which means a rebranding exercise this autumn. Searcy will continue to provide catering services for places such as Mansion House and it will continue to be a big player in the restaurant scene. A new restaurant at St Pancras opens shortly. "I am very confident St Pancras will be a success, people will fall in love with the idea of it," says Ackery.
"If you are a restaurateur and are not an optimist you are in the wrong business. You have to be positive and optimistic and look forward the whole time."
4. doing the right thing
Director Dave Wallwork
Company Feel Good Drinks
When Dave Wallwork and two other former Coca-Cola colleagues founded Feel Good Drinks in 2001, they wanted people to think about the company and smile—they reckon the phrase "feelgoodness" sums it up.
The business has been at the forefront of the recent explosion in tasty, healthy, soft drinks. And Wallwork sees no slowing in the growth of the brand. "We are confident about our position in the market," he says. "In my opinion consumers are not going to stop buying tasty, healthy, soft drinks. It is the last thing people are going to compromise on. We are not a super premium brand, we are a premium to mainstream brand. And people know it is worth paying a bit more for drinks."
But it is not just price or taste that puts Feel Good Drinks in a favourable competitive position. It is also the brand's "honest" and "green" proposition. "All the trends are in favour of companies that do the right thing," says Wallwork. "We put together a brand and a business that was about doing good things." Feel Good Drinks communicates with its customers through the internet and has regular tasting sessions. Taking a drinks brand off the shelf and integrating it into people's lives in this way is a relatively new development (the founders of Innocent drinks say they've always been accountable to their customers, too), but Wallwork says it is important to create a brand that consumers buy into—and to deliver on that. "We have always taken the view that getting out to customers is important," he says.
And he is confident that in an economic downturn, what people want is something that makes them feel happy. Of course some things, such as the price of raw materials, are out of Wallwork's control. But those that are in his control are carefully monitored. "This company started from what we wanted and what we believed in," he says. "It is about living life with a smile on your face. Ours is an awesome brand name. That simple focus—to feel good—is at the core of the brand and the business."