Insight from our experts

Bucking the trend – Success in the downturn

While upbeat, positive business stories are thin on the ground today, that's not because there is no good news to report. Throughout the recession – which many economists view as the worst since the Second World War – there are businesses and entire sectors that are bucking the trend and performing well.


Recent sector challenges

One industry that is well known for seeing problems compounded more than most during downturns is printing. However, security printing business Checkprint Ltd is demonstrating that it is made of sterner stuff.

Based in Hinckley, Leicestershire, Checkprint employs 52 people and turns over £4 million annually.

The company's core product - secure cheques for businesses - is in long-term decline, as fewer businesses use cheques for payments. To offset this threat, for some time Checkprint has been developing software-based products and services to support businesses who are migrating away from its traditional product.

Despite this, when the recession struck, group MD Martin Ruda says the company was still exposed to the same forces as everyone else in the industry.

"Because our business relies on companies making and receiving payments, a downturn in activity inevitably means reduced demand for our products."But rather than resigning itself to the situation, Checkprint confronted it head-on with a three-pronged strategy for attack.


Staff engagement is key

Firstly, it has invested in developing the capabilities of its sales team.

"Our historic strength was supporting our 15,000 customers with traditional products and getting repeat business from them, but as our product has changed, so the approach of our customer-facing people has to change," says Ruda.

Full-day training programmes, one-to-one coaching sessions and half-day workshops have equipped staff with the skills to make the transition to more value-added solutions sales. In addition, Checkprint has developed a new lead generation process. This has involved training staff to ask the right questions of customers who phone up to re-order traditional products.

Already, this investment in training is paying off. Ruda says hundreds of new leads have been generated and a proportion of those have been turned into new business accounts.


Product development

The second prong of the strategy has been to design a structured new product development process. Checkprint was supported in this by innovation network organisation Pera, through its Growth Readiness Programme.
“Over the years we've developed new products on an intuitive, ad hoc base – if somebody had an idea we got round a table and decided whether to do it. That's been fine, but we recognised the need for a more structured approach to accelerate the rate at which we bring new products and services to market and ensuring they happen rather than wither on the vine,” explains Ruda.


Overseas expansion

The third strand has been to start targeting overseas markets.

Although Checkprint has shipped its traditional products overseas for years, it has never actively addressed international opportunities, believing it to be too difficult.

Now, the company's group export manager is charged with identifying export opportunities for software-based products and services, and Checkprint is on the verge of signing contracts in Tanzania and Uganda.

Clearly none of this would have been possible without good business management to underpin it.

“Our directors are both cautious and aggressive,” says Ruda. “We're aggressive in terms of identifying and grasping opportunities, but we're cautious when it comes to cash management - ensuring we keep a tight rein on credit control, employee expenses and all the things you need to in order to run a sound business.”

Ultimately, this strategy has not only ensured Checkprint's survival, but also enabled it to acquire new customers from competitors who haven't been strong enough to weather the storm.

“We've seen a number of print businesses and a couple of print security businesses go into liquidation. The demand they have satisfied has to go somewhere and we have won business from customers of competitors who have effectively gone to the wall,” says Ruda.


Grasping the opportunities

Another industry that has been hit hard by the recession is the property market - values have been heavily impacted and new developments have often ground to a halt. The flipside of this is that there are some great deals to be done on property – tenants are in a stronger than usual position to negotiate leases with favourable conditions and buyers may be able to bag themselves a bargain.

It is all very well talking about the opportunity to snap up cheaper property, but for many businesses, securing funding is a major stumbling block.

Take, for example, the care home market. Theoretically, now is the ideal time for care home operators to be opening new homes – as a sector it is pretty resilient, and a growing ageing population means future prospects are bright.

As Paul Birley, Barclays' Commercial Head of Healthcare, points out: “We're all ageing at the same rate, so there's been no slowdown in how many wrinkles we're getting.”

However, as property values have fallen, some banks have withdrawn from the sector, making it difficult for operators to access finance. Barclays is still active in this sector, and has been working with clients to help them take advantage of the current lower prices of land and buildings.

MHA, a not-for-profit operator of 70 care homes, is one organisation that has been able to expand its network thanks to £20 million of financial backing from Barclays.

“We were priced out of site and land acquisition prospects because residential builders and speculative developers were able to pay much more than we were,” says Paul Milner, Finance Director of MHA. “Now, the opposite is true.”

MHA has also been looking at Greenfield sites and new builds, and has acquired several registered care homes from other charities.

“There's a lot of regulation, control and review around care homes. Smaller charities struggle with that because their management teams and trustees tend to be less experienced, and social landlords struggle with that because it's not their core business,” explains Milner.

Besides growing its network of care homes, MHA is using the current climate as a time to invest in refurbishing and updating its older care homes, to enhance service levels and boost occupancy.


The necessity of a strong business model

As with the Checkprint example, none of this would be possible without a healthy balance sheet and strong business model. Milner says MHA has reduced its overheads considerably in the last five years by supporting its services more centrally, enabling it to generate operating surpluses of approximately £14 million.

As businesses look to streamline their operations and reduce fixed costs, one sector which benefits is business process outsourcing.

“The outsourcing sector performs in line with the broader support services sector. However, in recession it tends to behave in a counter-cyclical manner, driven by businesses that are looking to reduce costs and consolidate operations,” explains Mike Daniels, Barclays' Commercial Head of Business Services.

As in the healthcare sector though, the reluctance of certain banks to lend presents a potential barrier to expansion.

Data centres, for example, are a growing marketplace. However, to open a new data centre costs in the region of £70 million, cash that few businesses can raise without third party funding.

By building up a strong cash position prior to the recession thanks to a £125 million debt facility from Barclays, TelecityGroup plc, a pan-European operator of data centres, has been able to embark on an aggressive expansion programme – opening new facilities in London, Amsterdam, Paris, Stockholm, Milan and Frankfurt, whilst its competitors are quite literally 'cash strapped'.

“We didn't know what the future was going to bring but we decided to create a very strong balance sheet up-front,” says CEO Mike Tobin. “This has meant our competitors haven't been in a position to maintain their expansion programmes due to a lack of available capital, whereas we have.

“The supply constraints have also generated upwards pricing pressure, which is driving though higher internal rates of return and returns on investment. By building these centres we're probably going to generate £50 million of free cash this year, rising to £70 million next year.”


A forward thinking approach

For companies in the professional services industry, such as accountancy, law and surveying firms, the degree to which they are affected by the recession depends largely on what sectors they are active in.

“Sectors doing well include insolvency, litigation and family law,” says Jane Galvin, Head of Industry for Professional Services at Barclays, “whilst those that rely on mergers and acquisitions and the property industry have been severely affected as activity in those areas has fallen away.”

But that doesn't mean those in the latter camp should just sit back and wait for the hand fate deals them. There are examples of professional services firms in the worst hit sectors who are reversing their fortunes by reacting to the changing marketplace, according to Galvin.

“Those firms who adjust their workforce to the level of work available, examine how their business is run and make efficiency improvements are performing well. Some firms are also diversifying to give them a broader spread of capabilities; we've seen a lot of merger and acquisition activity in the last six months and there is more where that has come from.”


Heading towards the recovery

All three businesses in this article have determination, sound business management and strong balance sheets in common. Make sure you're ready to seize any opportunities that might arise from the recession by getting your business in good shape.


Top tips

Tips for preparing your business to seize the silver lining of the recession as we head towards eventual recovery:

  • Know where you're going: have a three-year plan for where you want to take your business so you understand what the challenges and opportunities are, and confront any brutal truths this presents.
  • Understand your market: know where your sector is going and the factors and forces that influence it.
  • Maximise client relationships: extract maximum value from existing relationships by mining for more business and seeking referral business.
  • Exploit synergies: look at what synergies exist between different departments and subsidiaries within your organisation and exploit them - this could involve sharing management or customer information, or coordinating supplier sourcing.
  • Ask for help: use other people to help you shape your strategy - seek input from people internally, and from external advisors such as your bank, accountant and lawyer.
  • Conserve cash: reinvest free cash into the business or keep it in reserve so that you are in a strong cash position to grasp opportunities as they arise.