Design businesses often need to bring in outside investors or partners to fund the growth and development of their business, create an alliance or as a way for the shareholders to release some cash for themselves once the business has been established.
I would argue that every design business should strive to make itself attractive to a third party and this is the ten-point guide I use when looking at whether a businesses is suitable to invest in.
1 – Impressive leader: Top of my list is the personality and ability of the leader. Where were they educated, who has mentored them, where have they worked and how successful have they been running their own business? Strong leaders are often opinionated, confident, commercial and driven, yet always have weaknesses. Do they recognise them and have they taken steps to address them? Can I work with them and do they receive as well as they transmit?
2 – Raison d’etre: There is nearly always an underlying driving idea or belief that has caused these entrepreneurs to set up in business in order to fulfil their dreams. This means that there is a stream of passion flowing through the business that attracts and motivates staff and clients alike. While making money and being profitable are vitally important, they are most certainly not centre stage.
3 – Distinctive offer: The need to be different is always apparent in these businesses. The personality and beliefs of the founders will often permeate through or they may have created or developed something that sets them apart from their industry competitors.
Clients are also attracted to these design consultancies since they too are looking for a competitive edge in their own markets. Office environment, location, website and branding all play their part.
4 – Loyal clients and staff: People leave their bosses, not their consultancies. These consultancies have a way of ensuring that staff and clients are always valued, looked after and nurtured.
The leaders (or managers) in the business command the loyalty of people and staff turnover is consequently low. Dig deeper and you find that there is normally a strong social side to the business – people enjoy working there and will go the extra mile for their bosses, friends and colleagues as a result.
5 – Leadership team and ’skin in the game’: It is rare to find a successful business that is a one-man band. More often than not the founders have hired people who are better than them and have had the strength to let them flourish.
This is never easy and our industry is full of examples of failures. The secret is to learn from mistakes made and try and try again. Giving senior players ’skin in the game’ is the private equity way of saying give people a stake or share in the business. I have yet to find a successful consultancy that is still 100 per cent owned.
6 – Enough cash and good margins: Consultancies that have no cash will never flourish – they spend their time in survival mode juggling cash from day to day. So this means that gross margins (fees less staff cost) must be good in order to generate cash and a healthy slice of it stays in the business rather than paying off the founder’s mortgage.
7 – Never satisfied or complacent: I love people with chips on their shoulders (I’m from Yorkshire) and this means that they have boundless energy to get on and do things. There is always something in the business that isn’t right or that needs working on.
Although these consultancies are indeed successful they do not necessarily always regard themselves as successful. There is always more to be done and being close to these consultancies is often exhausting (but fun).
8 – Watch the right numbers. The owners of these businesses are not (in fact, they are never) accountants, but they have a knack of being able to pick out and watch the right numbers that tell them how they are doing. These are never referred to as key performance indicators, but this is precisely what they are. They are always simple and easy to measure and not always broadcast to the rest of the business. The back of a fag packet always beats a spreadsheet hands down.
9 – Five-year plan and stretch goals: 90 per cent of consultancies do not have a plan other than to survive, do good work and have fun. There’s nothing wrong with that, but there is no road map for them to follow and they can easily end up in a cul de sac or on a ring road.
The businesses I’m interested in always have a five-year plan – it may not be written down, but it is certainly carried round in the head of the founder.
10 – First impressions: There had to be ten points, but this one could easily have topped my list. Our instincts are hugely important and mean that most decisions are arrived at within seconds of meeting someone or seeing something. A strong first impression is absolutely critical.
Point one stresses the importance of the leader, but my favourite activity always is going to someone’s office and sitting quietly in reception and seeing, listening and observing what goes on before I actually get to meet the gaffer.
Ian Cochrane is chairman of Ticegroup