READ these words carefully:
''I believe real business growth during the 1990s will only be
achieved by companies who (sic) are focused down extremely tightly into
niche markets which they clearly understand. They will also have to
watch their financial management extremely carefully, and their
financial strategy will have to go hand in hand with a business
strategy.
''The risk of over-stretch will be extremely high during the 1990s and
the market will punish swiftly and unforgivingly those who do not manage
their cash flow or who fail to tailor their ambitions to their financial
abilities.''
They come from old kipper tie himself, Sir John Harvey-Jones. Fresh
from bashing innocent managers about the ears on TV with truisms about
why their companies are doing so badly, the former ICI chairman is now
delivering crisp warnings to the depleted ranks of British business
about what they have to do not just to grow but to survive into the next
century.
JHJ's remarks come from the latest issue of QED, the quarterly
enterprise magazine of venture capital group 3i. I chose them because
the more we think about next year's business climate for our own
company, the more we identify with such views.
Think about it. ''Real business growth'' . . . ''Companies focused
down extremely tightly'' . . . ''Niche markets which they clearly
understand''. How many small-to-medium-sized companies still around in
Scotland today fit that strategy? I see lots of businesses that are
indeed focused on markets they know well -- but that is not what our
florid friend is saying. Sir John means that sort of single-minded,
obsessive focus that is the hallmark of the best managers: the kind of
attention which ignores all the side issues and other distractions that
surface hourly to compete for the brain space of business managers.
When you think about it, this is the classic problem of small company
owner-managers. Not only do they have to be chief executive, corporate
strategist, marketing director, and sometimes financial director all
rolled into one, but they have to think of a million and one other
things all the time.
Pouring all of your energy into a sliver of a niche market and its
specialist requirements is a really difficult personal challenge in such
circumstances. But there is no doubting that it works.
In our own modest way that's been precisely our strategy this year.
The only way we will change it for next year is to become even more
tightly focused. We have good products, a brand name, an excellent
customer base and a reasonable reputation within that market.
We have all been working very hard to provide that market with better
products and some new products. The results to date have been remarkably
encouraging in terms of new business. And of course the inevitable
consequence of focussing so tightly is that you discover all sorts of
things about the market that you never appreciated before, and as a
result still more new product ideas come spilling out. To be frank, we
had taken that all-important market rather for granted during the boom
times. No longer, and never again.
As for Sir John's next point about financial management, we're hot on
that too. Our bad debts were well under 1% of turnover for the financial
year just finished. It's costly and time-consuming to do that job well,
but again there is no alternative.
Unless an acquisition prospect comes into view, we will not need
finance. What, though, of businesses that are struggling to fit their
financial strategy to their corporate strategy, and on present trading
patterns known only too well that they will have to seek more debt or
equity soon?
Again, some useful words in QED. An article by Anne Segall, the Daily
Telegraph's economics correspondent, forecasts sharply increased demand
for capital funding during the rest of this decade. However, there is a
matching difficulty in persuading the shell-shocked banks that your
business proposition is worth a punt. While this is a view one would
expect to find in a publication produced by a venture capital group, the
wise course seems to be to seek equity funding rather than debt. Too
many businesses had their balance sheets badly burned during the past
couple of years to want to become overburdened with debt once more.
Eyes down -- and don't lose concentration. The future of your business
probably depends upon it.
* Alastair Balfour is editorial director of Scottish Business Insider
magazine.
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