Managing a business when economic conditions are tough
Here's how my business survived adverse trading conditions
JoraPh Ltd is a specialist Oracle technology consultancy based in Telford with around 20 employees. After rapid early growth in an expanding hi-tech market, the company looked set for success. But when tough times hit, managing director David Phizacklea went back to basics to ensure the business' survival. Here he explains how the measures taken to combat competitor activity, improve debt collection and overhaul the company's service delivery model have put the business back on track.
What I did
Recognise the challenges
"Our business was originally based on the technical expertise of its co-founders, in implementing and optimising Oracle technology. A combination of professional reputation and an expanding market gave us a flying start, with revenue doubling year on year for the first four years.
"It wasn't until our fifth year that we started to experience difficulties. We began bringing in sub-contractors to increase our capacity, but inadequate debt collection procedures meant that we were having to pay those contractors before we had been paid ourselves. This created obvious cashflow pressures.
"At the same time, word of our success began spreading within the industry and we quickly went from being 'below the radar' to being highly visible, so we found ourselves the target of a lot of competitor activity. We also found that potential customers were using our comparatively cheap rates as a means of driving down the contract price during competitive tenders. We were fighting for business and all too often losing, despite the fact that we knew we were good at what we did."
Regroup and review
"The first step was to clamp down on costs and reduce the number of debtor days by tightening up debt collection practices. We also trimmed costs in other ways, such as improving efficiency and reducing staff numbers from 20 to 16 through natural turnover.
"Once we'd got the immediate cashflow situation under control, we were able to take a much-needed step back. We undertook a thorough financial analysis of the business at board level and sought advice from peers and mentors. Key points that emerged were that our sales costs were too high, brought on by knee-jerk attempts to prop up our market share, and that our service delivery model simply wasn't working. We had been relying on our technical prowess to get us through and not paying enough attention to overall strategy or marketing ourselves effectively.
"We started by restructuring the consultancy team so that more of my time was freed up to concentrate on leadership and business strategy. We also took on a commercial manager and a business development manager to help us formulate and implement a proper sales and marketing plan.
"Another important decision was to focus on generating a regular revenue stream instead of relying on ad hoc short-term consultancy projects. We began by segmenting the business more clearly into products and services, which allowed us to analyse where the real profit potential lay. As a result, we have placed greater emphasis on our managed services, such as long-term database management contracts, plus the marketing of our own unique product, Jorascope, a data capture tool."
Learn from the experience
"Surviving adverse trading conditions was a real lesson to us, in a way it was a blessing, because we've emerged all the stronger for it.
"On top of greater financial control and a revised strategy that's starting to pay off, another advantage has been a huge increase in internal communication and teamwork. There used to be a definite division between the 'techs' and the 'non-techs', but now everyone in the business pulls together and realises the importance of selling ourselves at every opportunity.
"We have new products and customers in the pipeline and we're also getting interest from potential distribution partners, opening up opportunities to sell the Jorascope product overseas."
What I'd do differently
Focus on our strengths
"When trading conditions were tough, we didn't have enough faith in our abilities and spent too long thinking that diversification was the only way forward. Once we re-focused strategy on our core strengths, things began to fall into place. Now we're in a better position to gradually expand our offering by buying in third party products that genuinely complement our services."
Subjects covered in this guide
- Analyse the health of your business
- Minimise cost and maximise efficiency
- Keep your cashflow healthy
- Limit the risks your business faces
- Develop an effective survival strategy
- Access sources of business support
- Checklist - key tasks when economic conditions are tough
- Here's how my business survived adverse trading conditions
- Here's how I grew my business during a recession
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David Phizacklea
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