March Leader: The power of many

Posted on 5 Mar 2012

Expectations for growth in UK manufacturing are rarely expressed without references to large companies like Jaguar Land Rover, Nissan and Coca-Cola Enterprises far in arrears. But should we really be looking to these kinds of companies – many of them foreign owned – for our future industrial and economic security?

Jane Gray considers the importance of fostering a dynamic entrepreneurial manufacturing base in the UK.

There has been so much talk in recent years of the decline of manufacturing in the UK that you would be forgiven for believing that a trend for offshoring- or simply succumbing to insolvency had marched forward unchecked.

But play the numbers game and the figures will soon make this idea impossible to support. The fact is, that in simple terms of the number of manufacturing companies in the UK, we have experienced steady growth. In 2010 alone 9605 VAT/PAYE companies designated as manufacturing-type organisations were registered as start-ups.

Place this number against recent research from PwC showing around 4000 insolvencies in UK manufacturing companies since 2010 and there is still an obvious swelling of entrepreneurial young firms rather than contraction.

But what is the value of such enterprises? Can they, and should they, be expected to grow into the multinational manufacturers of tomorrow? And if not – do they retain any economic significance, or are they representative of a rather parochial approach to competition?

Jacqueline Cullen

Growth is one of the Government’s and industry’s prime targets in the combined effort to increase the UK’s GDP. Not every company can or should aim to grow beyond certain proportions. And in spite of size limitations, the smaller and often more interesting companies bring other attributes to the business mix of a nation.

Jacqueline Cullen is a jewellery designer and manufacturer based in Whitby, North Yorkshire, a location also famous for the jet that Jacqueline relies on for her work.

As an artisan manufacturer of a niche luxury product Jacqueline has no expectation of growing to scale production. Indeed to do so would be damaging to her offering. “I’ve been given details of people who could produce my basic jet units in Bulgaria for a fraction of the price, but this simply doesn’t fit my product story or the integrity of the brand. People buy my jewellery because it has provenance.”

Last year Jacqueline turned over £67,000 and there has been a trend for between 30-50% growth year on year for some time. But retaining the above made-in-the-studio credentials undeniably puts a limitation on growth and although Ms Cullen’s business makes her selfsupporting, it will hardly provide an answer to national economic woes.

Does this matter? For Ms Cullen the value of British artisan manufacturing lies elsewhere. “We bring an immense cultural value to the nation,” says Ms Cullen. “Furthermore the skills and craft knowledge we retain are currently very much sought after as be brands like Gucci and Dolce & Gabbana look to emphasize their artisan heritage and credentials. I think the cultural importance of businesses which are protecting artisan skills needs to be recognised more widely.”

Jaqueline Culen in her studio in Whitby
Jaqueline Culen in her studio in Whitby

Can start ups, stand up?

Robin Johnson, partner at Eversheds LLP and a leading M&A lawyer hints at huge potential, blocked by a multitude of cultural and practical barriers. “Entrepreneurial start ups are essential to the continuous growth of UK manufacturing,” comments Mr Johnson, “and there are a lot of very ambitious owner-run SMEs out there who are great at innovation.”

The rub, says Johnson, is growth. “Typically, when they start expanding problems occur. Particularly if they are seeking new markets. People think it is enough to get help from UKTI and attend a trade show or delegation, but this does not help with the day-to-day and the fundamental alterations to company infrastructure that will be needed as a company grows.”

“What entrepreneurs lack is proper mentoring. And furthermore, by their very nature entrepreneurs can be extremely reluctant to take advice” – Robin Johnson, Partner, Eversheds.

There is a huge attrition rate for small firms that try to pursue ill researched opportunities or run before they can walk. Data published by the Federation of Small Businesses shows that around half of companies set up in the UK fail in their first four years. There are myriad reasons why this is so, but Johnson comments, “The attrition rate doesn’t mean that companies should ‘stick at what they are good at’ and not look to expand. An entrepreneur recently said to me ‘If you don’t keep trying to climb, then gravity will pull you back’. So standing still is not an option.”

Johnson concludes, “What entrepreneurs lack is proper mentoring. And furthermore, by their very nature entrepreneurs can be extremely reluctant to take advice. They yearn to carve their own road.”

But it is possible to strike a balance and provide disinterested mentoring without crushing entrepreneurial independence. A campaign for the advancement of British artisan manufacturing, Crafted, is doing just this.

On the board of Crafted mentors are some true heroes of British manufacturing whose products and companies are representative of the intrinsic value that a ‘made in Britain’ stamp can bring. Georgia Fendley, at luxury handbag manufacturer Mulberry, Mark Henderson of Gieves and Hawkes tailors and Lulu Lytle of bespoke furniture makers Soane Britain are just a few examples.

These experienced business people are match-made with a selection of 12 British artisan manufacturers every year and work alongside skilled entrepreneurs to advise on business and financial planning, approaches to marketing, brand management, supplier relationships and more.

A government response

Going for growth, government has recently upped engaged in renewed activity to support the growth of SME businesses in the UK.

In late February the Department for Business Innovation and Skills (BIS) launched a new online tool to supports its Get Mentoring Scheme – an initiative announced in November 2011 which aims to connect experienced business people with small firms and entrepreneurs to provide impartial advice and guidance on how to achieve sustainable growth.

The Get Mentoring scheme aims to sign up 15,000 business mentors across sectors. So far 3000 have joined and 2000 have completed the workshop training required. Becoming a mentor is voluntary, and using the mentor service is free to small business owners and entrepreneurs.

But are the good intentions of this scheme sufficient? Speaking with Jason Iftakhar of Swifty Scooters, it is clear that some entrepreneurs are disillusioned by a historical lack of support for small business enterprise.

“It infuriates me when I see the Business Minister on television and he talks of the support available,” says Iftakhar. “After draining resource on looking for support options and filling out the endless paper work involved I have always found that I am not applicable. But we have a British-made product which we are successfully exporting to foreign markets – all the attributes government say they are looking for.”

Crafted mentor Georgia Fendley of Mulberry says this experience is not uncommon. “I have been shocked on the behalf of those that I work with, at how little support is available to entrepreneurs and small business owners,” comments Fendley. With such a backlog of disappointment government will have its work cut out to gain trust such new initiatives.

Alone, none of the companies on the Crafted campaign are going to level our immense imbalance of trade or noticeably raise GDP, but says Jason Iftakhar, founder and creative director of Swifty Scooters, “we should not underestimate the power of the many.”

Since launching in September 2011 Swifty has sold over 400 of its cleverly engineered folding scooters including a bulk order from Singapore. Retailing at £450 a pop these sales mean that, at six months old, Swifty has turned over half a million pounds – and this has been done during recession and in winter. “I am eager to see what some summer weather will do for us,” comments Mr Iftakhar.

Continuing to extol the virtues of entrepreneurial business Mr Iftakhar continues, “A dynamic base of start ups and smaller firms can create a better hedged environment. It makes more market opportunities accessible overall and is more agile. It takes an awful lot of effort to effect a change in a large organisation. But we are not afraid to change and we don’t have a lot of outdated infrastructure tying us down. Most modern start ups are ahead of the curve and in a much better position to leverage modern technology for the kind of business model that is needed for today and tomorrow.”

And Iftakhar is keen to emphasize the wider impact of entrepreneurial businesses like his own too. “It’s not just about success for Swifty itself,” he says. “Now that we’ve expanded I think we probably support around 100 jobs in our supply chain.” The ripple benefits of Swifty’s establishment, in other words, are safeguarding local prosperity.

Metal forming for the Swifty One scooter
Metal forming for the Swifty One scooter

Losing our grip

The level of success and rapid growth demonstrated by Swifty Scooters is not a one off. Examples of designers, engineers and artisans in a variety of sectors launching products, manufactured in the UK, that become keenly sought after are not hard to find. The Cambridge Satchel Company, for instance, was set up by Julie Deane from her kitchen table in 2008. After taking the fashion world by storm, the company now produces in the region of 1,500 satchels a week and is approaching a £10m turnover milestone.

Of course demonstrating this kind of dramatic growth curve and owning a product which is a la mode or game changing in an sub-sector attracts attention. And this is another challenge for manufacturing entrepreneurialism in the UK says Evershed’s Johnson.

“Successful companies will attract investors and acquisition enquiries,” he comments. And while some entrepreneurs are wed forever to their original product and business – for every one of these there are a magnitude more who are more than ready to sell up.

“I see an awful lot of serial-start up type entrepreneurs in the UK who like to grow a seed but are uninterested in taking care of the tree or eating the fruit,” continues Johnson. This is not necessarily a problem – but the fate of these sapling businesses could be.

Whether through lack of savviness in M&A or lack of motivation, it seems that indigenous medium sized and large companies in the UK tend to lose out to foreign buyers more often than not when promising home grown start ups come onto the market.

“Historically most acquisitions that I have seen are made by companies from North America and western continental Europe” – Robin Johnson, Partner, Eversheds LLP

Our lead interview subject for March, Mike Norfield, CEO of Team Telecom Group (p22) comments, “UK SMEs don’t generally have a lot of know-how when it comes to M&A and this is a huge problem if the sector wants to grow. You can only get so far with organic growth and it makes sense, for the advance of technology and capability, that there should be consolidation at times. It is essential that innovative, ambitious UK leaders overcome their fear of acquisitions.”

Johnson adds to this with a perception of foreign confidence in acquisitive growth strategies. “Historically most acquisitions that I have seen are made by companies from North America and western continental Europe,” states Johnson. “In the future this may change but I have concerns about the cultural compatibility of M&As pursued from the Far East.”

Cultural issues aside, while foreign ownership often transforms into inward investment in UK firms, it ultimately means that the UK loses control of those companies. It also means that an opportunity for the indigenous middle ground to feed off UK entrepreneurialism and create a confident emulation of the German mittelstand is lost.

To return to the questions posed at the beginning of this article. It seems that yes: UK start ups can be expected to grow, and in some cases they will break through to become the household names of tomorrow. But for many, the economic, social and cultural contribution available for the UK is being left unacknowledged and underleveraged. A combination of unwillingness to seek help, a lack of awareness around where help can be found and a more competitive approach to M&A from foreign parties are perpetuating this situation.

Campaigns like crafted, the BIS Get Mentoring Scheme (see box) and organisations like the Manufacturing Advisory Service (p46) are going some way to answer the support and guidance issue. But a tendency towards inward thinking and lack of acquisitive confidence in the UK’s medium sized business seems largely unaddressed.