Elliott King of MintTwist asks how he can best extract value from his business while retaining legacy

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Elliott King of MintTwist

In this new series we profile the brains behind fast-growing companies and put their most burning question to three experienced business leaders. This month, Elliott King, chief executive of digital marketing agency MintTwist, describes the bumps in the road of rapid growth and asks our virtual board how he can best extract value while retaining a legacy.

When Elliott King was given his first Amstrad computer at the age of nine, he hit the initial hurdle in Alan (now Lord) Sugar’s home computing revolution: there weren’t enough games to play on it. Undeterred by this hiccup, King set about programming his own. “I was a classic 1980s IT geek, spending hours on my beloved CPC128,” he says. Tech savvy from such an early age, it was inevitable King would end up in computing, riding the first dotcom bubble in Silicon Valley and setting up his own IT consultancy at the age of 26.

By 2006, having spotted the trend towards digital marketing, King and former school friend Alexis Pratsides co-founded MintTwist to create websites, apps and digital advertising strategies. Today, with 20 full-time staff and turnover of £1.5m expected to double this financial year, MintTwist’s client list includes CBRE, British Land and Cass Business School.

“We help them to formulate and deliver on their digital strategies. Our specialist teams create digital assets (such as mobile apps and microsites) that run marketing and advertising campaigns across digital channels, and work with management teams to help them evaluate performance,” explains King.

A third of sales come from outside the UK. With profits set to increase from 15 to 20 per cent, future growth looks positive. But it hasn’t always been an easy ride; King and Pratsides have learnt the hard lessons that can beset an expanding business.

“Between 2006 and 2010 we went from zero as a start-up to half-a-million pounds,” says King. “The start of the recession was good for us. Larger companies, keen to bring down costs, spoke to us rather than their in-house advertising agency. It helped us grow up really quickly in terms of revenue, but I think we got over-excited. We made a lot of freelancers permanent just as the second dip of the recession kicked in. There were just too many fixed costs. By the start of 2010, top-line revenue was still growing but we experienced significant pain from a drop in profits.”

The co-founders sought advice from three non-executive directors, who steered the pair towards spending the next two years focusing on the business and monitoring their key performance indicators. “We put in a tier of management – three of those managers have since become non-equity-owning directors – and started to understand properly the profitability of a given project. We learnt to be brave; to make certain a proposition was right for the market and that the clients were right for us, rather than taking on any business that landed on the desk,” says King.

Predicting the trend towards programmatic advertising and digital remarketing – the use of data-led targeted messaging of consumers – plus the increasing desire among clients to take digital marketing in-house, MintTwist started to reposition itself: from outsource partner to full marketing partner to comms directors. To fund the transition, the partners took on some investment in working capital.

“This debt investment enabled us to fix the profit problems over time. Without it, we wouldn’t be as far advanced as we are now. We would still be struggling,” says King. “We’re as much about helping our clients do more for themselves as we are about actually doing the work for them. It’s really a consultancy-cum-agency.

“By the end of 2012 we were pushing on the accelerator again, with growth and investment in sales getting us to the point we’re at now where we’re happy with what we’ve got, but are looking at medium- and longer-term succession planning.”

He explains that the founders’ traditional exit routes would see the business purchased by a larger, classic advertising group or merge with a marketing-technology company. But that’s not where they see MintTwist heading – and that’s why King is seeking the advice of Director’s virtual board.

“We do not want to exit the company. We want to stay and empower the (non-equity-owning) directors, the management team and other key members of the business with tangible ownership post-2017. I also think the best way to incentivise employees would be to put their shares into trust so they get paid an annual bonus based on company performance.

“My gut tells me you can have a combination of founder equity ownership, investor equity ownership and trustee-employee ownership. That’s not to say that employees couldn’t be encouraged to be investor employees via some kind of mechanism such as crowdfunding.

“I’ve come to the virtual board to find out more about my options.”

Expert answers
How can I extract some cash while enabling inward investment?

Mark SperringVirtual-Board_Mark-Sperring_March15
Managing
director, Achondrite Group

I support the strategy of owners seeking investment, incentivising key stakeholders and their greatest asset – their staff – by issuing shares while also looking to release equity. The key considerations are: control, tax, investment and profit sharing. I recommend a combination of ordinary and preference shares to obtain investment, with varying classification for either non-equity-owning directors or staff. This lets the company reward staff with dividends according to seniority and/or performance. On leaving, shares must be relinquished at the value of issue, plus an agreed percentage.

Some preference shares issued to directors should be convertible to ordinary shares. There are substantial tax advantages for employee-ownership trusts covered by the Finance Act 2014, which provides for tax exemptions for a company of which a controlling interest is held by the trust. Taking all of that into account, I’d recommend engaging a corporate accountant to ensure the optimal solution.
achondritegroup.com
Mark Sperring is a fellow of the IoD


Virtual-Board_Jane-Sunley_March15Jane Sunley
Chief executive, Purple Cubed
You could make a number of shares available for the existing leadership team to purchase gradually over a period of time rather than outright. That makes it easier for them to find the funds, perhaps through their bonuses or dividend payments, though it would obviously take you longer to extract cash from the business.

The usual stumbling block is that employees often cannot afford to finance the purchase and would have to raise the necessary cash from external sources. Likewise with an MBO. You could look at a Bimbo (a combination of MBO and MBI), though.

Or you could set up an EMI (Enterprise Management Incentive) share option scheme, as I did last year.

While fairly simple to understand and operate, it does take time to set up (it has to be approved by HMRC) and there are professional fees involved. It is a tax-efficient way for employees to benefit from the sale of shares without having to give up equity now, and provides a strong incentive towards employee engagement and retention.

Our employees really feel that it’s ‘their’ company. They are ideal for small companies, such as those in the tech sector, wishing to incentivise management.
purplecubed.com
Jane Sunley is a member of IoD London


Virtual-Board_Denys-Shortt_March15Denys C Shortt
Founder, DCS Group UK, Enable Software, Deal-Track and Enable ID
My instinct is always to avoid touching the shareholding and to come up with a better solution. I have seen many messy situations where shares have been handed out and it all ends in tears. It’s worth investigating “phantom shares”, though. My advice would be to pay your directors a good salary and give them a discretionary annual bonus based on profit share and specific measures. Always make sure the bonus is discretionary, though, because you may want to change the measures – even directors can get complacent.

How about using any spare cash to invest in the property market? We purchased a £1m office block, which is now our smart headquarters and has also helped us to grow sales. With interest rates so low at the moment, this is a no-brainer and it brings in rental income, too – a win-win. You can always
re-mortgage to get cash out.
mystrategyplan.com
Denys C Shortt is a member of IoD West Midlands


King’s response
Thank you. Operating in a fast-moving sector we adapt to meet the market – partly why we want to explore innovative ways to reward contributions while retaining flexibility. I’m concerned the traditional mechanisms around options may lack flexibility; negotiating interim value of shares on employee departure seems counter-intuitive. Property investment is a great idea, especially if we can structure this to enable investors and/or employees to benefit from tangible capital growth. We’re looking for a simple structure that encapsulates a genuine and well-founded sense of ownership while engendering the requirement to ‘put in extra before taking out more’. Employee-share options should be an easy investment opportunity benefit and not a statutory right, so a form of the Bimbo idea also sounds interesting.

@elliott_king
Elliott King is a member of IoD 99
minttwist.com

What advice would you give King? email us

CV

Age 40

Education University of Leeds

Career 2001-2003 Swiss Life
2004 Accenture Technology Solutions
2004-2005 Servista
2006-2007 CBRE
2006-present MintTwist

Lives London

Family Married to Aleksandra with three daughters, aged three, five and seven

Hobbies My interests are my wife and daughters. I spend my spare time reading about internet technology and business

To join our virtual board or to seek its advice, contact us

About author

Richard Dunnett

Richard Dunnett

Richard Dunnett is an associate editor who writes about entrepreneurs, SMEs, FTSE 100 corporations, technology, manufacturing, media and sustainability.

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