From financing growth to managing reputation, a group of business leaders tell Director what it's like at the coalface
The panel
Steve King, regional director, Santander Corporate Banking
Askar Sheibani, chief executive, Comtek
Piers Linney, joint chief executive, Outsourcery
Rachel Elnaugh, entrepreneur; former Dragon
Elly Woolston, managing director, DMS
Jonathan Smith, managing director, Citygate Holdings
Charles Johnson, relationship director, Santander Corporate Banking
Mark Derry, co-founder, Brasserie Bar Co.
Mark Walker, managing director, Streetcar
Peter Stolerman, finance director, Trace Group
Joss Hargrave, partner, Bird & Bird
Russell Parsons, finance director, Whyte Group
Is the mood among entrepreneurs jittery or confident?
Elly Woolston Our attitude to hiring has changed—we're fishing in different ponds. Around 30 per cent of our staff are now consultants on a day rate. You get a different type of person. They're a bit more ambitious, not quite as attached so they challenge more—you get fresher thinking.
Jonathan Smith The recession has resulted in two things. Companies have looked at ways of reducing costs, particularly in the back office. It's also an opportunity to get rid of dead wood.
Rachel Elnaugh There's a wave of people, who've either been made redundant or are graduates taking their future into their own hands, starting their own business. Almost all of those are completely virtual. It's about having collaborative, virtual organisations that take what they need when they need it.
Piers Linney One of our guys lives on an island off the south coast. He does three days on the mainland and the rest of it he's kitted out with video conferencing. We don't really care where they are, we just want the good people.
Mark Walker We run an entrepreneurial development programme. The quality of the people we recruit through that is astonishing. They're not going into McKinsey or Goldman Sachs—they're making a conscious decision to do something different. You end up with an extremely rich, grounded workforce, which is the future leadership of the company.
RE Aren't you worried that they'll end up as your competitors?
MW Of the ones that have left, all of them bar one have set up their own company. That's fine.
Joss Hargrave Our experience is that there are a huge number of applicants for each training contract place. The numbers have increased dramatically post-credit crunch as graduates have perhaps been attracted to a profession that is seen as stable and those that might otherwise have gone for banking have changed their thinking—maybe due to the adverse publicity.
Steve King The graduates we've recruited have been fantastic—some of the best I've worked with. One challenge is keeping them focused and managing their expectations. Sometimes they want to be chief executive next week. We've been in a recruitment phase for the last couple of years—taking that talent brings in new blood. For the incumbent population it makes them think, 'We'll need to raise our game.' Santander has been in a different position to a lot of our competitors. While they've been downsizing, we've been growing. We've been able to recruit experienced bankers—not just for their technical skills but for their relationship skills as well.
Askar Sheibani Finding skilled people who were prepared to relocate to us in North Wales used to be difficult. But because of the market situation you can recruit at relatively good rates. We've recruited four trainees locally, which has given hope to a lot of members of the community. And it has helped give us a competitive edge.
Mark Derry In our sector there's a polarisation. Those who've got a good product are doing well and those who don't are very quickly going the other way. Turning something around is 10 times harder than starting something and growing it. Now is the time to grow because there's a lot of talent out there. Fast-growing companies are like magnets.
How important are remuneration and bonuses?
EW I think some companies have used the recession as an excuse not to pay people appropriately.
JS It depends on whether you're recruiting or retaining. If you're looking to bring people in to your business it's essential to present a competitive pay package and the right environment. If they buy in to your business style and culture it's much easier to retain them. You can't pay peanuts and get the best.
Russell Parsons We've had a salary freeze for two years. In the last six months there have been competitive pressures, we've started to lose staff and had to put up salaries to retain people. We're more diligent about making sure we select the right people. We're putting them through their paces.
PL We've tried to base bonuses on company values and it has weeded out those who aren't committed.
MD You've got to be competitive. There's no virtue in overpaying, particularly if you have shareholders.
How has it been for those companies looking to grow and access finance?
AS The perception is that if you can't afford to borrow, don't borrow-try not to have a situation where banks have influence on your business. Maybe that's damaging the economy? The funny thing is, because we are in a strong, positive cash situation, major banks are trying to have
our business.
JS The world went into shock in 2008. The challenge for those who have the ambition to expand is how supportive the bank will be and their approach to risk. The base rate may be low but lending rates are different. It frustrates me that the cost of borrowing is not as low as it could and should be.
RE It's virtually impossible to get any form of finance unless you are a growing company that's profitable and doesn't need it. There's a big push on banks to do these EFG [Enterprise Finance Guarantee] loans. But they're looking for safe, risk-free businesses.
SK We want [the economy] to grow but we also want to make sure we balance the risk/reward equation. Sometimes there's a misunderstanding—some of the language doesn't translate easily about where the risk sits on the risk spectrum and where the return sits. We try to understand what the
business is trying to do and talk through it so we can
balance that equation.
PL What the market needs is some sort of structured debt specifically for small companies. The problem is the institutions don't get the middle ground.
MD The concept of a relationship is deteriorating. What was too cheap money is now too expensive. It doesn't feel like there's much relationship in that. I think relationships are designed to be long-term.
SK We have to project forward 10 to 20 years. We spend a lot of time on discussions based around: What would happen if rates went to this level? What impact will that have on your business? Will it affect serviceability or profit? Will it take your business underwater? Our approach is a relationship rather than a transactional approach. We try and understand a business and build a solution that balances those differing priorities and issues.
JS There have been opportunities to acquire good businesses that have been generating losses. But if the banks see that as purely high risk without understanding the model there is no positive ongoing relationship between business and the bank.
SK We take some of our risk partners out to meet customers. If they understand the strategy and the numbers then they can see how you're building the business and where you're going to extract the EBITDA or the income from that business.
RE People are trapped with their bank and the bank is abusing that relationship. If you've got some debt and they know you can't replace that with an overdraft somewhere else, they're piling in with huge charges.
RP Directors are very nervous. If they've got a relationship with one bank they're nervous about moving to another bank that they don't know so well.
EW It's better the devil you know. It's nice to hear you talk about relationships because that's language I haven't heard from a bank. It almost feels like we have to go cap in hand. And the recession has alienated people.
SK It's incumbent on us to earn trust back, so we've actually got to deliver what we say we will. This comes back to recruitment. Those people we've recruited have a personal currency. A personal brand in their particular marketplace. They have come to Santander and some of their clients trusted them as individuals and followed them to us. Charles is a good example. He will challenge them, he will weigh out the risk and the reward and try to get that balance right.
Charles Johnson We're trying to break the monopoly a little bit. We've picked up a number of customers who have been unhappy with their bank relationship. We've benefited as an insurgent bank coming into the cosy world of the big four or five. It's been a useful time to be expanding.
MW Banks are going to have to get better at dealing with these funny things called start-ups. As a number of banks clean up damaged balance sheets a lot of small businesses are suffering by these rather blunt control- and risk-management hammers. But it was the high-profile mega deals that caused a lot of pain, not what was going on on the ground. Yet small businesses are subject to that same tight scrutiny.
PL On the turnaround and insolvency side there are thousands
of small cases, which are ridiculously time-consuming for banks. I don't think it's fair to say that banks are wrong to
be cautious.
JH Banks by and large have shown great restraint in enforcing their security against defaulting businesses. Unless there is a compelling commercial reason, generally banks have been reluctant to put companies into formal insolvency whereas in previous recessions this was not the case.
MD The reason the banks are getting so much grief is bonuses. People don't understand the casino end of the business- private equity-where there's lots of money coming out. They should separate them, or make sure the casino end is going back into the economy as well.
SK There are different types of banks. Investment banks and retail banks are like chalk and cheese.
Does reported lack of access to finance have implications for
UK innovation?
AS Most young entrepreneurs have a dream to build something different. They know little about the heart of finance. They go to their branch and talk to their bank manager who does not have the skill to understand the potential. Helping them grow is something that is missing in the finance industry.
SK We've put some of our people out there as mentors-taking the experience of seasoned bankers to help these young entrepreneurial businesses grow. That may be helping them structure some of the facilities the bank can lend on; helping them with other sources of finance; or helping them connect with other people.
EW We have a responsibility to help young people to innovate.
PL Entrepreneurs have to work a lot harder to hone their business plan; persuade people to give them money. Perhaps this sorts the wheat from the chaff?
MD It's the fact that entrepreneurs ignore all that and just keep going. That kind of development of new ideas does not happen easily in big businesses. I fear that you won't know for 10 years the result of not being able to fund these things.
RE No one is setting a vision for the industries that we want to nurture and innovate around. What do we want to be world leader in?
RP I'm grateful that not all the finance goes to young companies. In some ways traditional manufacturing is easy to finance because you've got tangible assets. You've got proven cashflow, you've got debtors. Britain still has an industrial base. It's not only the new-horizon companies that people want to work for.
MW I think the relationship between business and the state is extremely clumsy—like adolescents at a party. We've got to
get better at working out this balance. Have the confidence to pick some winners for the future and incentivise to make
that happen.
EW We need more politicians who've been entrepreneurs themselves. Most of them are career politicians, they're not practitioners from industry.
MD Can I ask about the employee ownership you were talking about? Does business have a responsibility to encourage the idea of inclusion?
Peter Stolerman We are an example of a company who did follow Charles. We were started up by an entrepreneur 40 years ago who believes that the people who have helped him get where he is are his family. His family is us. We have an EMI [Enterprise Management Incentive] scheme worth very little at the moment, while we're still paying back MBO debt. He has given away 95 per cent of the company to employees, five per cent to a charitable trust. The staff know their options are worth virtually nothing right now but in five or six years they will have something with real value. It will be their destiny to shape their own futures. They will bring in the new entrepreneurs.
MW That sense of ownership is extraordinary. You ride out the soft years knowing you're playing a long-term game, and that's the real bounty.
PS People also understand why you don't get a pay rise for two years. Because if you have it now, you don't have it later.
How do you handle reputation?
SK "Bank bashing" has become a sport and I understand why.
We can say all sorts of things but it's what we do rather
than what we say that'll be the acid test. Our business is evolving the same way as your business is. You make an acquisition, it takes time to bed that in; you bring in new people it takes time to bring them into the culture and deliver. The difference for us is that finance has been very high-profile because of what has gone on with the banking industry generally.
RE It's so dangerous for those companies getting it wrong. It's not about this veneer of brand, it has to be through the values and the culture. It's so transparent now.
EW Social media is what Britain thinks, it's a social barometer.
MD Old people don't run discos, young people don't start nursing homes. The people who start these companies personify the brand. Your brand is you. If you behave properly, the people
in the business will reflect you.
JS We review [social media] feedback. If someone has made a negative comment it is essential that we react positively and look to the root cause of the problem to ensure that appropriate actions are taken.
RP The chemicals industry has had a bad press, probably as bad as bankers. But we do have good bits about us. A chemical plant tends to hire a lot of people who tend to live locally. So you've got 60 ambassadors who, provided you're treating them well, think the world of your company. You need to build up a store of goodwill in the local community so that, if an incident occurs, you have their support to get going again.
