smallbusiness.co.uk: Helping your business think big

Not all companies are seeing their sales drop. Here SmallBusiness.co.uk meets entrepreneurs who are posting climbing profits.

If ever a company struggled to find its true identity, it’s Iomart. Veering from webmail to broadband telecoms, CEO Angus MacSween finally decided Iomart’s future lay in managed hosting and business continuity services.

‘We were a telco and I realised that we were never going to win the war of the telcos in 2001 and 2002,’ reflects MacSween. ‘It was about three years ago we decided to focus solely and completely on the web hosting environment, and that’s when we acquired our own data centre capacity.’

Perversely, Iomart’s star appears to be rising at a time when other companies, previously held in higher regard, are decidedly earthbound. The company is posting a profit and has plenty of cash after the sale in July 2008 of one of its subsidiaries, Ufindus, an internet directory services company, to BT for £20 million.

Demand for Online Services

Frank Beechinor, the CEO of online human resources specialist OneClickHR, is also seeing his company find its feet at the unlikeliest of times. Its latest financial results show profits of £304,000 on sales of £6 million – not bad considering it only broke even the previous year.

The company has, admits Beechinor, had to learn from its mistakes. ‘To be honest, we didn’t make a good job of [some of the acquisitions we made] previously as we were doing what I would now class as stupid things. For instance, we acquired a company without taking into consideration the additional bandwidth.’ Beechinor has had to work to a tight budget and therefore it’s been important to keep overheads light. ‘We’ve always had a low cost mentality,’ he observes. ‘There’s never been flash offices or company cars.’

Demand is everything in business and both Iomart and OneClickHR are benefiting from providing online services that are increasingly popular as other companies look to reduce costs. In Iomart’s case, this means having services delivered centrally from the web, while OneClickHR seeks to save on the cost of human resources.

Says MacSween: ‘There are two economies in the UK – online and offline. From where we are sitting, it is the online economy that is thriving. A recession won’t stop the fundamental shift to
operating online; it may slow it down, but it won’t seize up completely.’

The search for value is creating opportunities for lesser known players. ‘The market hasn’t dried up,’ observes Beechinor. ‘If anything it has increased. A couple of years ago, everyone was saying you must buy from Oracle, PeopleSoft or SAP – now they’re looking at tier two vendors as they realise the value for money is there.’

Pricing - Throw out the rule book

Peter Ilic, the founder of critics’ favourite Little Bay Restaurants, has an altogether buccaneering approach to pricing. Offering high-quality food at half the price of the competition, occasionally Ilic will invite customers to pay what they think the food is worth. The Farringdon branch of Little Bay ran such a promotion in February, leading to almost 10,000 people eating there during that month, paying on average £17.25, nearly 30 per cent more than the average food spend.

The idea for ‘pay what you think it’s worth’ first came to Ilic back in 1985. Its popularity exceeded all expectations and it proved commercially savvy, bar inevitable abuses from hungry, cash-strapped students. ‘I had incredible publicity, doing TV appearances on Channel 4, London Tonight, Sky News,’ he recalls, noting that interest in the offer became international and he was interviewed by reporters in France, Japan, Italy and even Brazil. The number of diners more than doubled and it reached a stage where ‘hundreds’ of customers were being turned away.

As a social experiment, it’s one that hardnosed cynics might prefer to quietly ignore. As a commercial and marketing coup, it’s left restauranteurs staring at the prices on their menus in head-scratching disbelief. But it shows how a little ingenuity can give you the edge in a sector that is suffering.

Ilic, a survivor of two recessions, says: ‘You’ve got to look at smaller margins at the moment, especially in the restaurants which are mid-priced, as opposed to the expensive ones. The likes of Heston Blumenthal won’t, I think, be affected. In the last recession, it was the middle tier that went down. Both the low and high priced restaurants were ok, but those that charged £35 to £45 a head suffered badly.’

For most entrepreneurs and advisers, talk of green shoots is misguided and the chancellor’s view that the UK economy will enter its recovery phase by the beginning of 2010 is wishful thinking (to put it mildly). The companies that appear to be prospering at the moment, such as OneClickHR and Iomart, are gaining momentum because they have low overheads, no debt, and have the flexibility of a smaller operation to take advantage of changing buying patterns among customers. Moreover, a mix of large and small clients, preferably spread across the globe, provides an additional layer of protection.

Business Expansion

Beechinor sees the company expanding in the Middle East and North America and a new product is being launched to attract a different segment of the market.

‘We view this as a great chance to extend our footprint, both in terms of size of company that we sell to and the geographical markets we operate in,’ he explains. ‘The state of the general economy provides an opportunity to strengthen our position rather than just pull in our horns and go on the defensive. ‘The UK market remains good, but I think the key focus is that we are not overexposed in any one market.’

It’s a message a lot of companies would do well to heed.

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