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.
MacSween says Iomart’s focus has to be on managed hosting and, to this end, its number of datacentres has risen to five after the £4.4 million acquisition of RapidSwitch in May. The deal took seven months to get over the line as both sides tried to agree a price; MacSween is confident he has wrapped up a tidy bit of business.
‘We did a lot of due diligence, more than we would normally. In December and January, when corporate UK was in panic mode and everything came to a standstill, RapidSwitch hit their numbers every month.’
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.’
This approach extends to having 140 staff based in Chennai, India, although 40 staff are situated in the company’s headquarters in Kent. ‘If we had 200 people in the UK, then we would probably have to let chunks of them go as it’s unlikely we would be able to sustain them,’ says Beechinor.
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.’
Jeff McManus, the chairman of Lo-Q, which has created a clever device to reduce queuing time at theme parks, has seen profits soar. Yet the company, which listed on AIM in 2000, has experienced more downs than ups before he has been able to study monthly accounts without a sense of trepidation.
‘We had lots of problems in the start-up phase primarily because of 9/11. That depressed the number of people going to the parks at that time. Because of that, the major customers’ credit ratings disappeared and then we had a leasing company that was lined up to lease the product; they decided they wouldn’t do it after we had spent all the money we had raised on the stock exchange.’
A change in the company’s fortunes stems from a growing number of people visiting theme parks as they prefer to holiday closer to home, and some key client wins, notably in the US. In addition to this, McManus introduced a bonus scheme to get more out of employees and he also addressed pricing. ‘We found a slightly higher-level demographic as attendances rose, so we raised our price.’
The most recent year-end shows Lo-Q has grown turnover by 73 per cent to £13.5 million and tripled pre-tax profits to £1.85 million. If anything is holding back the company, says McManus, it has been the unwillingness of banks to provide additional finance. ‘The one thing that is harder about this recession compared to others is that the banks are not there as they were in previous years. What I find saddening is that no instruction seems to have gone out to say to the banks that they should be helping companies which are bringing back wealth to the UK.’
It is the international spread of the company’s clients which makes it too high-risk for the banks, says McManus. The rejections haven’t broken his spirits and in the past month he has finally persuaded a bank to provide financing.
‘I don’t want to give the impression that all the banks are abandoning smaller businesses, but unfortunately a lot of them are,’ he observes.
Tapping the mood of clients and being attuned to the psychology of the recession is no easy task, especially if you have traditionally targeted a classier or blue chip clientele. It means you will have to reassess your company’s marketing message, allowing you to attract new business without becoming estranged from your regular customers.
Coming up from the streets
Pay-as-you-go car hire service Streetcar initially targeted a higher demographic of customer, the sort of poor, overworked soul who found it slightly tedious to maintain their own vehicle. John Hewett, chief executive of Smedvig Capital, an investor in Streetcar, explains that the company’s message has now shifted toward the cost savings to be made by using a pay-as-you-go car service.
‘More people are waking up to the fact that it costs them £3,000 a year to run their car. That’s probably helped us and sign-up last month was the highest ever,’ he says, adding that they’ve been careful to promote the perceived advantages of the service, while not brashly selling it as a cheaper option and potentially demeaning its appeal post-recession.
Crucially, the company is in a strong enough position to raise margins or put pressure on the competition by adjusting prices, should it wish to do so. ‘Streetcar utterly dominates the UK market,’ asserts Hewett. ‘If you change your pricing and you’re a tenth the size of the biggest player, it is very difficult to change the market – you just don’t have enough cars.
‘But if you’re the number one player with a high relative market share, like Streetcar, and you change your pricing, there’s not much anyone can do about it.’
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 hard-nosed 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.
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.