Every now and again I come across spin-out businesses that don’t want to grow.
The conversation normally runs along the lines of ‘We want to focus on what we are doing and not get pulled out of shape trying to grow’.
On one level, there is some sense as a spinout in securing your beachhead before marching your troops into new terrain. You need time to draw breath. And, after all, a poorly organised landing leaves you exposed and unready for the next big drive.
But there is danger in getting too comfortable with your new surroundings. Timing your move from the beachhead to the next battleground is essential. Leave it too long and you could give your enemies (the competition) time to regroup and fight you back from what you felt was a secure position. Often these enemies have superior resources – more capital, superior commercial experience – and unless you take the fight to them, they will see you coming and take you out incredibly easily.
OK, war-metaphors aside, while I also worry about those spin-outs that are going willy-nilly after every bit of growth I worry far more about those that sit back and don’t expand. These are probably relying on one customer in one place and, for my money, are not doing quite enough to protect themselves against the competitive onslaught that will, eventually appear.
When I look across the community of spinout organisations, the ones I am most impressed with have taken a maximum of a year to consolidate but have also invested in improving their business and in new products and services that will attract new customers in new places. This not only keeps these businesses in a state of movement, it also helps to spread their risks away from the single product, single customer scenario that could, unaddresed, bring many the spin out down if a key contract is lost.
So think on - if you’re newly stepped out – keep driving forward.
1. Carry out your own due diligence – know every detail of your business and organize it.
2. Make it your business to understand where the value is in your organization – weed out the risk issues and revenue sapping functions and negotiate their separation prior to the spin out.
3. Give detailed consideration to the legal entity you will use and how it will be governed. Give full attention also to the terms on which you leave the public sector so that your spin out is viable and capable of sustaining itself.
4. Seek as many transitional protections as possible to give you some lead-time to build the organization once it becomes independent. 5. Once independent make sure that you organize and document every key aspect of your business. Put in place procedures for contracting, making sure that the right people participate in negotiations and contract sign off.
6. Train your people to understand the commercial and cultural differences of being outside of a Council of Health Trust. There should be no more SLA’s, gentlemen’s agreements or ‘nod for nod’ arrangements.
7. Your spin out business will be totally dependant on its key relationships. These must be set up in the right way, with the right input and monitored closely against service provision or supply. Failure to take this approach will result in financial losses and damage to your organisation.
8. Avoid contractual provisions, which tie you in for longer than necessary, where you cannot control the costs and where your liability is not capped or minimised.
9. Do not make the mistake of thinking that the contractual process is not important. Your staff involved in service delivery or purchase must be involved in the contracting process. Without their knowledge or input you will not get a contract that fulfils your organization’s commercial needs. Eventually this will catch up with you.
10. Make business/legal affairs a priority. Integrate a business minded lawyer into your decision making team to support your directors and senior staff, to protect your organization and make it ready for growth and success.
I have just come back, bushy-tailed, from Cranfield University’s Business Growth Programme (BGP) which helps entrepreneurs like me to grow their companies.
What have I learned? Three things come to mind.
Firstly, I have been reminded of the importance of a big, simple vision for your company. 25 years of BGP at Cranfield has shown, beyond doubt, that defining an end-point, and working back, is the best way to create business success.
Secondly, it has taught me the importance of focus. Most businesses grow to success by doing what they do well better, not by trying something completely new – sticking to the knitting. Sure, you might pivot your business into adjacent markets or develop a new service for current clients – but new products / new markets are, while cute and appealing are, on the puppies we need to drown.
Thirdly, I came to a new appreciation of how socially useful most enterprises actually are.
Growing businesses generate jobs, wealth and taxes, often in parts of the country which badly need them. Private entrepreneurs, by and large, are also a good lot. Indeed, I found their lack of bullshit incredibly refreshing.
What can the spin-out sector learn from Cranfield’s BGP, as well as the lessons I outline? I think the main one is that successful, growing organizations need to focus utterly and completely on their value-proposition to the customer. Every business I encountered on BGP is obsessed with customers. Each could explain to me, very quickly, what they did and what differentiated their offer to the paying client. Staff matter, for sure, but it is customers around whom the business is designed and built.
As we look to reform public services, be this through the integration of health and social care or the re-provision of probation services, we need to bear in mind the lessons of success from mainstream enterprise: the importance of vision, sticking to the knitting and always-but-always putting your customer first.
The spirit of enterprise is alive and kicking in Britain. Last year, 400,000 businesses were set up – that’s one in 10 of the working age population setting up in business in just a single year. The country is, it appears, waking up to the joys and possibilities of entrepreneurship. Of course, I am one of their number.
Three years ago, I stopped being a charity chief executive and set up a for-profit business called Stepping Out. At the time, a couple of people asked me, slightly disdainfully, why I was going to the “private sector” – assuming, I think, that grubby money had got the better of me.
My report back, if I were to meet those people again, would be that I think I have done more good in the past three years than I did in my preceding three as a slightly careworn charity chief executive.
Why so? Well, I have created seven full-time jobs, including two for recent graduates. And the business now gives HM Treasury enough money to fund the education of a whole classroom of kids for a year.
Stepping Out has also given £15,000 to our Foundation, which invests in entrepreneurial charities. On top of this, we donate 30 days a year for our staff to sit on trustee boards.
I say all this not to big myself up for an OBE, but to make a point about the private sector. We are, basically, a force for good, particularly for the small and medium-sized enterprise sector.
Charity people are often quick to paint business with a single brush – especially since the financial scandals of recent years, nearly all involving large financial institutions. If you are one of these anti-corporate types, look again. Do not mistake the fallen giants of banking for the mainstream of business in this country. Most firms in the UK are led by passionate people who care as much about their services and customers as you do about yours. Any profit these businesses make is not due to skulduggery, but to getting it right for customers, treating staff well and taking risks on new products and services.
I know this because I spend a lot of time with entrepreneurs. Right now I am attending a brilliant course for business owners run by Cranfield University. The buzz in the classroom is like nothing I have experienced before. I love my fellow students’ energy, drive and generosity of spirit – not something I always felt in the company of charity chief executives.
What has this got to do with the third sector?
Think about it: SMEs will be providing the economic growth needed to get donations flowing again. It will be their taxes that will fund the future public service contracts of many charities.
And finally, SMEs will be getting tens of thousands of unemployed young people into real, unsubsidised jobs. Not an achievement you will find in many charity impact reports.
So let’s all celebrate the UK’s entrepreneurs – no ifs and no buts.
Article originally appeared in Third Sector, see it here: http://www.thirdsector.co.uk/news/1187239/craig-dearden-phillips-i-done-good-running-business-i-running-charity/
We’re pleased to feature this excellent blog from Alice Watson of Porge Research (http://www.porge.co.uk/)
Can Social Enterprises compete against the Private Sector?
In the NHS contracts league its ‘game on’ for public and private sector suppliers – but what makes a winning team . . .
Much has been written about the morality of the Government’s strategy to re-energise the NHS via an injection of private sector competition. Now that 105 companies have been awarded AQP – Any Qualified Provider – status, what was initially a strategy, is now a reality.
As far as the private sector is concerned, it’s “game on”, but l for one am pleased to observe that the NHS isn’t exactly backward in coming forward.
Look at Essentia for example, a company set up by Guy’s and St Thomas’ Foundation Trust to deliver all aspects of health infrastructure for acute and primary care organisations. They have a great logo, and a good website. They “design, build and maintain healthcare infrastructure vital to the smooth running of healthcare services”.
Essentia looks and feels just like the private sector and is following the same model that NPS pioneered twenty years ago. NPS – Norfolk Property Services – started life as a business unit of Norfolk County Council. It is now a group of companies, still owned by the Council, with in 2011/2012, an annual turnover of £76.8M, employing 1,200 staff in 28 offices across the UK.
These public sector companies certainly look appealing. If I was in the market to buy Infrastructure Services for my hospital, I think Essentia’s website would probably look a lot more focused and knowledgeable than those of the private sector, against which they will inevitably be pitched in very hot competition. The public sector has some definite “unique selling points”, the biggest of which is, they aren’t the private sector. Councils and Health Trusts can outsource to NPS and Essentia with a relatively clear conscience.
Being realistic however, it’s not going to be easy to win against the might of the private sector. Acknowledging and understanding the strengths of the private sector, will go a long way towards narrowing the gap. In terms of offerings, particularly with regard to non-clinical services, it seems logical that both the private and public sector can do an equally good job with regard to service delivery. The obvious difference between the two sets of providers, is their approach to the actual selling process.
Within the private sector, “sales” is a well-respected and valued skill. Every board of directors knows that they don’t have a business without a highly effective, high profile, sales team made up of degree-qualified, intelligent, and experienced business people, individuals who are a million miles away from the stereotypical white-socked-double-glazing salesman.
But running an effective sales team is expensive. Sales salaries are among the highest in the company. The biggest sales cost however comes from the fact that tendering for public sector outsourcing contracts is extremely complex and long-winded. Crafting a water-tight bid that minimises exposure to risk by giving absolute clarity about what will be delivered is a real skill. Devising service level agreements, and modelling possible future cost/service scenarios is intellectually challenging. Competitive dialogue bids often rumble on for twelve months or more. The paperwork involved is immense and the laws of probability combined with market forces, means that most companies lose more bids than they win. A 25% success rate is normal, so a company typically loses three bids for each one that it wins. If a bid team is made up of five people, each of whom is paid an average salary of £50,000, and the bid takes a year, the total cost of the bid is £250,000. As private sector companies lose two or three of these for every one that they win that lost cost of £750K goes into “overhead”, which leads me neatly onto my second point.
Estimating costs accurately is essential for any company that wants to trade competitively. In an FM business it’s not complicated to work out how much it costs to cook a meal, or clean a room, but it is very complicated to work out how much overhead cost needs to be apportioned to each contract. Each successful contract has to pay for the cost of the sales team, the finance team, the management team, and all the other back office functions. The company knows what these costs are, but when it apportions this cost to contracts, it is essentially gambling on how many bids the sales team is likely to win. If the company thinks that it’s going to win a lot, it can spread its overhead costs thinly between a cluster of bids. If it thinks it isn’t going to win many, then all the overhead has to be borne by the small number of bids. This is why companies continually strive to keep overheads lean.
Because bid costs are so expensive, and margins are so tight, the private sector is keen to make wise bid/no-bid decisions. In these recession driven times companies are far less likely to “throw their hat into the ring” unless they consider they have a strong chance of succeeding. One of the most significant factors that determines a bidder’s likely success, is whether or not they have engaged with the commissioning organisation prior to the start of the formal procurement. Those people that have already met, and discussed the potential project have a far higher chance of success than those who bid blind. Meeting in the months and years prior to the formal procurement enables the private sector company to determine if it’s a contract that it would actually like to win. It gives the company a chance to understand some of the risks, enabling it to decide if it can make a profit from the contract, or not. Many of these risks are intangible, and you can only “feel” some of these risks through face to face meetings. Contracts that are being awarded by dysfunctional organisations always end in tears (as do contracts that are being serviced by dysfunctional companies). Equally, where a company and a commissioning organisation really “hit it off”, a hunger develops to win that bid, and that feeling of engagement enables the supplier to sharpen its pencil and reduce contingency costs, in the belief that the two organisations will make a good team.
Pre-procurement assignations are vital, and without them, few blind-bidders win. Getting early sight of emerging procurements gives enormous competitive advantage, and it’s for this reason that the private sector invests in market insight intelligence. When it comes to contract award time, having been able to cultivate pre-procurement opportunities, make well educated bid/no bid decisions and have really understood what drives the customer is so often the difference between winning and losing.
See Alice’s blog as posted originally here: http://www.porge.co.uk/blog/2013/05/private-public-competition/
A year and a half into Stepping Out I now feel able to compare this with running a large charity. One of the interesting things is that it is, on many levels, very similar to the early days in the charity. It is about passion, finding clients, building a brand, delivering really great stuff. There’s really not that much different on one level. Value is value, whether it’s in the life of a disabled person or a council team seeking to spin out.
Psychologically, though I have had to go through a shift, one that has actually made me think quite a lot about the idea of social enterprise. When with a pure for-good organisation, everything went through the prism of mission. In short, we sometimes did things because they were right, regardless of whether they were good for the business.
These days, I can’t function like this. While social value – and the well-being of clients – is never far from the front of my mind I have to always always be doing the math. Riding two horses is never easy, I find. In a straight choice, I still tend to help, even if it doesn’t make long-term business sense, but I know, that in doing so, there is a commercial cost.
Of course, I know that the magic of social business is about precisely this – balancing commercial and social considerations in a new way. I think what I am saying is that it is far more natural for most people to operate in one mode or the other. Instead of holding the two in balance, I tend to oscillate between the two considerations. On my ‘social’ days I have to constantly check myself for not watching the bottom line enough. On my ‘commercial’ days, I ask myself if I am giving enough to warrant our claim to be a socially-oriented business.
Which brings me to my point here: social business, while appealing to our natural desire to be both commercial and social doesn’t always go with the grain of how we operate day to day. Most of us are essentially commercial or social in our approach. Or, at best, we mould ourselves into one or the other type and operate consistently in that way. Holding both in mind requires a kind of double-think (holding two simultaneous beliefs ‘I am social’ & ‘I am commercial’) which doesn’t always come easy.
Of course, this isn’t always a zero-sum game. You can use a commercial logic to build fanastic social outcomes. And this is perhaps the larger point here. I am perhaps coming from it from the position of a convert from the charity world. But I think I might be onto one of the reasons why so few social enterprises really hit the big time commercially.
As an independent consultant you will need to specialise. Last year, about 70,000 people in the third sector lost their jobs – pushing on enough to fill Wembley Stadium. While some are happily now in new jobs, many will be making a go of it as independent consultants. Some of these folks will, no doubt, be loving it – and telling anyone who will listen that losing their job was the best thing that ever happened to them. Others, however, will be sat, quietly desperate, in the spare bedroom opening another pack of custard creams and waiting in vain for the phone to ring.
So how do you make that transition to running a successful independent consultancy?
Having attempted the journey myself, I would offer three pointers. First, understand that as an independent you will need to specialise. Whether you realise it or not, there will be something – a single stand-out skill or attribute – for which you’re best known. It’s this ‘something’ we need to understand – because this is the one thing that people will pick up the phone specifically to ask us to do. Your specialism is the essence of your usefulness to others.
Second, realise that in consultancy everything matters. To win work from clients, it is not only your encyclopaedic knowledge or contacts that will bring in the business. You need to look and sound the part. Your website should look fresh and the voice on your answering machine needs to sound like it is pleased to hear from people. Hair, teeth and clothes all matter too. Nobody hires a consultant who looks crap.
Finally, and perhaps most importantly, you need to deliver. This sounds obvious, but it’s the main fear in the mind of every client: “What if this hired gun lets me down?” You deliver by listening carefully to what the client needs. You deliver by carefully agreeing the scope of the project, charging a fair price and taking on only work you can complete to an exceptional standard. Note my use of the word ‘exceptional’. As a consultant, it’s rarely enough just to put in a decent performance, as you might do week-in, week-out at work. This seldom leads to a long relationship with a client. You’ll always get paid for a decent job, but the client will move on if you don’t totally wow them. Should you manage to do this, however, your client will get you back time and again.
Of course, your decision to step into the world of consulting depends, in large part, on whether you’re personally suited to do it. Resilience is key – particularly in year one when you’re still finding your feet. Self-doubt, if it is your companion, will tap you on the shoulder and suggest you apply for that supervisor job you’ve seen down at Tesco (regular hours, paid holidays, people to talk to).
So should you be one of this year’s Wembley-sized crowd of third sector leavers, think carefully before you make your move into consulting. It’s not for fainthearts.
This article first appeared on Third Sector Now. See the orginal article at: http://www.thirdsector.co.uk/news/1130376/craig-dearden-phillips-losing-jobs-sector-heres-survive-consultant/
I had breakfast today with a friend and former Barcap investment banker who confided in me, over fresh cappuccino at the Commonwealth Club, that he was ‘deeply pessimistic’ about the future of the UK economy – and therefore also quite worried too about the charity and social enterprise sector in which we are both now active.
His view, and it isn’t new, is that we all – including him during his time in the bank – grew convinced that we had, somehow, hit a new economic paradigm – one of continual growth. Of course, we know the rest of the story. We were, in reality, living beyond our means for a very long time, all fuelled by the Emporor’s New Clothes of debt.
I am not so tribal or stupid to blame this all on Labour as the Tories are doing this week. All of us fell into the same trap. Sure, Labour could have modified it but their OTT spending was matched comfortably by excess elsewhere. We were all at it. Yes, all of us. Consumers too. Charities even. We all grew on the back of a surging economy. A doubling in the number of charities, no less.
We’re now faced with not just a couple of years of pain before things perk up – but, probably, a decade’s worth at least. There are no big levers to pull. Rates are as low as they can go. There’s no oil or Big Bang to spark or soften the blow of an economy in which demand is now at a super-low. Neither is there money for tax-cuts. In fact, there’s very little to lift things – that’s the problem. The bottom line is that our economy in 2011 just isn’t strong enough to support us at the level to which we’re become accustomed.
This applies to public spending too. One in every four public pounds is borrowed. Yet the debate hasn’t moved on from the 1980s in the minds of some of the defenders of the current system.
Take those people in Stroud last week who successfully got a court order to stop a social enterprise being formed to take forward former NHS services. They think those same services are ‘safer’ in the NHS. Folly. If we want to keep social and health provision at ANYTHING like current levels, we have to make a diminishing sum of money work a lot harder.
Getting it out of public sector monoliths is the first step in doing this, as we’re trying to show with Stepping Out. Putting that money to work alongside community and individual resources is the new name of the game. People trying to ‘save’ public services need to realise that.
As we finished our cappucinos, my former banker friend ventured that our children will probably be 25% poorer than we were in our pomp. Public services 25% less well funded and so on. We’re not used to that. And it will probably be this possibility – more than any other- that shapes public sector reform over the coming years.
Regardless of whether we like it, this means markets. These could be very open ones – like the Tories seem to instinctively go for – or, as I prefer, more managed markets that are regulated to guarantee diversity of supply and competition on quality as well as price.
We said goodbye. He has been chastened by the experience of recent years. But I have too. I grew a social enterprise when it was easy. I wouldn’t like to try to repeat that feat today. We have a generation of leaders now who aren’t used to coping with decline – and who lack the skill-set associated with it.
2012-20 will be a very different era for charities and social enterprises. Much less secure but possibly richer in opportunities for the well-positioned and most capable.
But for the rest, my friends’ pessimism seems very well placed.
In the next couple of months I will post my first year’s results on the Companies House website. One of the most conspicuous things that you will notice (if you look) will be that while Stepping Out has made a pretty decent profit and put 20% of it aside to set up the Stepping Out Foundation, one thing is missing. Salaries. Because, in year one, I didn’t actually pay myself. Or rather, I put the money I would have paid myself into paying back loan, reinvesting in the business and setting up the Foundation.
I could have been a social enterprise, had I wanted. It would have been oh-so-easy. Had I actually bothered to pay myself, rather than pay what I owe and reinvest, I would hardly have made a profit at all. A sliver of one. And, if I then gave half of that sliver of profit to a Foundation I could, with pride, declare myself to the world as an ‘official’ social business.
See where I am going here? What I am saying, I guess, is that it is quite easy to pass muster as social business without necessarily doing a great deal of good for anyone. Just pay yourself a decent whack of what would otherwise be profit and you’re away. Then simply declare a small profit, give 50% of it away and give yourself a pat on the back, social businessman.
So why haven’t I done this? I haven’t done it because to do so would have been bad for our business. Stepping Out, like any new business needed to be profitable so that it could first survive and then see this profit reinvested in the business.
In year one, this was more important than paying me (and it takes an entrepreneur to understand this logic). I have lived, as most entrepreneurs do, on savings and by counting my pennies. I don’t take a wage until it’s safe to do so. But I know that if and when the business succeeds, I will do well enough from it to compensate for these early risks and privations.
Social enterprise logic – and I hear this a lot – is very different. There are normally fewer early privations. Indeed why should there be? For there is nothing down the road to point to as compensation. Therefore, to be reasonably expected to start a SE, , one has to to put oneself, as Founder, on a decent wage right from the off. But this is hard for the business: The enterprise then has massive need for cash to pay you ahead of secure revenue streams, making survival less probably and funds for reinvestment less likely to be there. In short, social enterprise can cut off the oxygen supply to new ventures which comes from entrepreneur’s financial self-sacrifice.
I am saying this because I think it is time we opened our eyes to the fact that the term ‘social enterprise’ should not be restricted a corporate structure that discourages personal risk-taking by making difficult reasonable long-term reward for founders. Companies starting need to ‘borrow’ from their founders in every way. Starting businesses on full costs is simply very difficult – and dangerous for the business. It is only right and proper that is repaid generously to founders once the business is a success.
Fans of Ed Miliband please note, this is not ‘something for nothing’ behaviour . It is not greed which motivates entrepreneurs lany more than it is greed that makes it a requirement for social entrepreneurs to pay themselves good wages from the off. Indeed., how else are social entrepreneurs of the officially sanctioned variety to be compensated for their risk?
You will notice that there is rival ‘Social Enterprise Mark’ now available. It reads something like ‘For Profit Businesses, Creating Shared Value’. It invites for profit businesses that can demonstrate tangible social value through the way they do business to join the social enterprise movement. Of course, at the moment, this is a shadow movement, outside the mainstream. For profit means, for many in this movement, that you’re essentially in it for yourself, not social, at least not in the way they are.
I refute this. Why? Because I could, with one stroke of an accountants’ pen, be a social enterprise tomorrow. And have a pocket full of money to go spend on a new car or two. But I care about my business and what it is here to do – socially & financially- a lot more than that. My business needs investment. Its Foundation needs cash (we pay 20% of profit into it). As an entepreneur – and yes a bloody social entrepreneur – I want to be free to create long-term value, not hemmed in by a structure that stops me doing that.
And for that reason, I know which Mark I will be using on our new website when it comes out later this month.
It’s coming up to a year since I set up my consultancy, Stepping Out, and I’m glad to say we’ve worked with about 25 clients – many in the third sector.
So what have we learned about how the sector uses external advisers?
Broadly, clients come in one of three types: Adventurers, Micro-Managers and Ditherers.
The Adventurers have a clear idea of what they want from you, yet are open to advice. They have a sensible, faff-free process for hiring you that respects everyone’s time. They know you bring something new and welcome you into their world.
Crucially, the Adventurers roll their sleeves up too, learning from you as they go, rather than seeing you just as a hired hand. And should the project change, you can have a sensible conversation without them getting in a tizz. Trust rules.
At the other end of the scale are the Micro-Managers. Ostensibly, they want help, but their fixed ideas make them impregnable to advice. When searching for a consultant, they set up such a drawn-out process that many of the better ones walk away.
If they go on to choose you from the 50 consultants they have met, you’re then handed a shopping list of stuff to report back on every week. If you can’t comply, the relationship starts creaking. Raise this with them and they get very shirty. You seldom make any real money because they’re always on the phone to you about something. In truth, the Micro-Managers get little value from external support: they may as well do it themselves and save the money.
But the trickiest group by far is the Ditherers. They seek outside help because they are lost in their jobs, fearful of the future and haven’t done any new thinking for a decade. Which is fine, but their organisations are often in such a bad state that, as an adviser, it’s impossible to know where to start. But you do start – and then halfway through (and this always happens) they shift the goalposts and you’re back to square one.
Ditherers also tend to be easily distracted by day-to-day fire-fighting – and these days, especially, a general sense of despair as the abyss beckons. As a consultant, you end up in a bubble, struggling to gain any traction in the organisation. The assignment ends in a friendly enough way but with a vague feeling of dissatisfaction on both sides. The Ditherers then pick up the phone to another consultant and the whole dance starts again.
OK, these are caricatures and I am happy to report that nearly all of our clients are firm Adventurers. But we come across Micro-Managers and Ditherers in the third sector all the time – more than in the public sector, I have to say. Fortunately, one becomes more skilled at spotting them. Only Adventurers really benefit from external consultancy.
Before they splash out, then, I would invite readers of Third Sector to reflect on whether they are, in truth, an Adventurer, Micro-Manager or a Ditherer. You might save yourself a lot of money – and your advisers a lot of heartache.