Telling the truth about SME life today

A business makes radical change

Inspiration is the USP of the product or service. Then there’s marketing – I prefer to call this market – potential purchasers and a means to reach them. Control is the ability to manage all the processes and in particular the finances. While it is of course a simplistic model I felt it neatly covered the key elements.

As the audience was mostly business owner/directors, the speaker (an accountant) was seeking to emphasise the critical role of the finance community in providing much of the ‘control’. To those of us who were fellow accountants, he reminded us we were perhaps only a third of the picture. Without the inspiration and the market there is nothing to control.

The fact that ‘market’ is so critical was illustrated very clearly a couple of days later. I was at the monthly board meeting of a long-standing client discussing why 2007 performance had fallen so far below expectations.

Since I have been involved, the company has had one main route to market. Their main operations are in Europe and the UK subsidiary was set up with the backing of the local distributor. They had been suffering to penetrate the market because of long lead times from the European factories. The two companies had ambitious but, on the face of it, realistic targets to increase market share in the UK through quicker lead times, a joint marketing plan and some other sharing of effort.

My client would make the product and arrange for collection of worn units for repair and return once the necessary work was complete. The distributor would run the sales force and would put effort into marketing to attract potential new customers.

Whilst the arrangement was not quite ‘open book’, there was a very good idea of each others’ costs and therefore the broad profitability of the two operations. Both parties felt they had a good deal and plenty of potential to reap the rewards of the collaboration.

For a couple of years things ran reasonably smoothly. Sales were not quite at the level forecast but there was some growth on previous periods and the ultimate customers were pleased with the reduction in leads times.

Since then it has been a struggle. Market conditions have been far from ideal but many of the issues have been closer to home. Our business partner has had four marketing directors in the past two years. The business has changed hands twice and it is clear priorities have changed.

My client has made mistakes, too. There has been a high turnover of production staff which has resulted in both late and off-spec deliveries. This in turn has lost the confidence of the sales force that has, partly as a result, stopped pushing the products.

“For 2008 we must do something different,” said the group CEO. It was impossible to disagree with his summary. “I think we have to be radical. My patience has run out. We still have the confidence of the ultimate customer. We must sell direct.”

It was an intriguing suggestion. We knew there was some margin to play with but a whole host of pitfalls. Would customers really stick with us” What price reduction would they seek to negotiate Could we quickly acquire the necessary sales skills” What extra credit risks were we taking on” How much extra admin would we need

After a lengthy discussion, we agreed it was the best option we had. It far from guarantees success but it gives a better chance than carrying on with the old arrangement. I am looking forward to 2008 with a mixture of optimism and trepidation!


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