Fri, Aug

Can we futureproof our businesses?

In keeping the widthwise 2013 theme, a panel of grassroots players recently met in a round table to discuss the issues impacting upon the wide-format sector.

"There is a zombie group in print that have no hope of being successful longer term. They are hand to mouth feeders and seem not to understand the concept of a profit driven business. There is still massive potential in wide-format print, but it needs to be seen in conjunction with other offerings so that the whole package can drive up margins. We simply don’t get involved in areas with no margin and aim for a return of 12% net across all areas of our business.” 

altThat’s strong stuff from Roger Bull, managing director of Soho-based Genix, and one of the key takeaways from the annual Image Reports Widthwise Round Table discussion, which focussed on how companies in the wide-format sector can futureproof operations, the theme of this year’s report.
Over 220 UK/Ireland print providers involved in digital inkjet wide- format production took part in the 2013 Widthwise survey earlier this year, the data analysis showing that 48% have a turnover under £250,000, but that 27% turnover £1m+ (9% over £5m). 56% have five employees or fewer, and 10% have over 50. The largest proportion of businesses (35%) is based in the south east of England. So the question was put to the round table group: “Do you think the demographic and make-up of the sector have a significant part to play in how businesses futureproof themselves?
As Andrew Hodson, sales and marketing director at Chime Communications company Icon immediately pointed out, companies in the south east have higher overheads, a comment that hit a nerve with Andy Wilson, director of PressOn: “The north is cheaper in terms of overheads, there are more grants available to small business, and therefore they can afford to charge less for the print they produce”.
?So will we see a migration north? Perhaps not, but Bull did press home the need for companies to take a serious look at location, explaining that Genix is moving its print production out of London’s West End for cost reasons – and one of the company’s considerations when it came to deciding on the amalgamation it’s currently in the process of completing. “We (Chime Communications) moved McKenzie Clark and saved a fortuning,” pitched in Hodson.
But the debate on demographics wasn’t all location, location, location: it was also about one-man start-ups undercutting the more established companies. Old ground perhaps, but Wilson raised an interesting point. “I had clients of ours coming saying they were getting cheaper quotes from smaller companies elsewhere. So I did credit checks on the competition and presented the findings to the clients, asking if they really want to trust the financial credentials of these guys.”
It’s a ploy also used by Raccoon managing director Richard Clark. “We’ve done that with competitors – and with suppliers too. We’re only as good as what we can deliver at the end of the day, and if a supplier runs out of stock or whatever, we’ve got a problem. It’s easy to lose credibility with customers, so it’s important to futureproofing the business that you know exactly what you’re dealing with in terms of your own supply chain.”
“And in terms of proving our own credibility with clients I’ll show my own company’s credit report,” added Wilson.
Clark moved the debate on saying: “The thing is, wide-format is still an attractive proposition, so we’ll continue to get the one-man bands and at the higher end there’ll still be a lot of the big screen and litho companies moving in and costing jobs in the same way they’re used to so the prices will get pushed down. But I think that influx is flattening out,” a standpoint echoed by the others around the table.
“And also, many are recognising that they don’t want to compete in that commodity end of the market – there’s no future there. There are bigger, faster machines coming along all the time. If we put in a Memjet-based printer we could do half of London’s work, but then you have to have 24/7 response and shift your business model. If you’re going to change your business model why not do it so that it focuses on areas where you’ll see better margin?” asked Bull.
“For instance, we see real growth in the creative services we offer, which incidentally also pushes our wide-format print growth. But, you need to think carefully about how you diversify. We separated the creative services arm from the print arm so that we can charge properly for both sets of services, not give one away with the other.”
Hodson jumped in on this last point: “Too many ‘print’ companies give away services as a value-add to the client. But then I approach the service offering from the marketing angle. If you deliver clients an innovative solution that perhaps included project management, design elements etc., then you don’t have to worry about cost so much. I’ve found people don’t blink at the end charge, because you’re offering a whole service and they’ll pay for that.
“What I would stress though is the need to totally understand the markets in which you want to operate and learn how to deliver beyond its expectation. Icon has a great reputation in sports events. We go to great lengths to find new materials that open new opportunities for the client and work out all the logistics to deliver projects that they didn’t even think possible. What I’ve found is that there is a lot more scope for wide-format print if it’s part of a solution that delivers the ‘wow’ factor and is part of a bigger package of services.”
“And it’s important to realise that clients, even consumers, now know a lot more about what is actually achievable with wide-format print,” stresses Clark. “There’s a naturally occurring growth market for wide-format print if you like, because more people are waking up to it, and that in turn is prompting suppliers to provide more unusual materials etc.”alt
“At one time we had to educate the market – now we don’t” added Wilson. “They may not understand the detail, but they know what’s possible. Even designers in areas outside the normal scope of wide-format print like retail etc., just need to open their eyes and look around them to see what’s achievable. And the technology, media, inks are getting better all the time, but the problem we face now is that as the clients are increasingly aware of that, they push us to do more, and faster, and cheaper.” And so back to margin, and strategies for delivering more of it.
“A lot of print companies are merely funding their directors’ lifestyles. They turnover enough for them to have nice houses, run decent cars and go on an exotic holiday, but there’s no futureprooofing mentality,” said Bull, to plenty of nods around the
table. “All they’re doing is taking in work to feed the habit of paying their suppliers late.”
“And then they wonder why the banks won’t lend them money to buy new kit,” added Wilson. “They will if you can afford to pay it back. But too many businesses don’t save for deposit or have a proper business plan. They see kit they like the look of and want instant gratification.”
“And too much onus is put on investing in depreciating assets rather than appreciating assets,” fired back Bull.
Clark admitted that having had a company that effectively went bust in 2009, he took a step back and took a long hard look at how things had gone wrong and how he needed to move forward. “I decided it had to be about profitability not turnover, about staying away from markets and clients that are nothing but a drain, and about being a bit more clever in what services I offered. Raccoon is predominantly a vehicle wrapping company, but in the last couple of years we’ve started renting out wrapped vehicles because you can lose the cost per square metre of print in offering the bigger solution.”
“Oh, we don’t sell digital print per se or we’d sell at a loss,” continued Hodson.
The debate among the printers having now run for some time, it was a natural point for consultant Peter Mayhew to provide his thoughts. “I think a lot depends on where you are in how you run and progress your business. Go to the provinces and they’re steps behind in the full service offering of many of the progressive print companies of the southeast. As a sector, wide-format definitely has pockets where the speed of development is faster or slower – where there’s more competition printers have had to move quicker.”
So what of the Widthwise 2013 finding that while 45% considerate a high/very high priority to find/enter new marked or offer new services, 21% said this is no priority at all?
alt“That 20% will die! They’re the ones selling posters. If you remain as just a digital printer you’re going to come under increasing stress,” started Hodson. “Our sales people are actually trained not to sell print, not even a print-based solution. They are trained to ask the client ‘what’s the problem?’ and the we look at how we can address that.”
“But we’re manufacturers at the end of the day. You just need to be good at what you do and do it well,” argued Wilson.
“It’s expected that everyone can print well. Part of our diversification plan, and part of the reason we will merge with another company next spring, is that we’ve looked not just at new services but at the clients that are likely to buy into those services and become confident that they are there,” added Bull. “There’s no point diversifying into markets you don’t understand. In terms of strategic development we don’t say ‘we want to be there so lets do that’. Something happens in the market that starts you thinking and then you invest in your ideas. You have to take risks but do it in a controlled, thought out way.”
“When I joined Icon in 1982 we made everything we sold. We now make less than 50% of what we sell,” highlighted Hodson. “Print is part of what we do, but people employ us as much as anything for our management/project skills. Diversification for us has been about taking the blinkers off. Four of five years ago we bought a live events company. We did some print work for them, got talking and realised the business was a good strategic fit. They were in financial trouble so we bought their assets (the people) and rebranded and because they had worked with higher level contacts than we had they took us up into another level. It was about being open minded and not diversifying too far away from what we knew. Actually I don’t want all my print competitors to be proactive too because we want to retain the edge!”
“Futureproofing is really all about making the right decision at the right time,” summarised Bull. “Part of the problem for print is that the outside perception of the industry is not in kilter with what it can deliver. And also, it’s so diverse in terms of the attitudes of the business owners/directors within it. Some people just won’t move outside their comfort zone, but lots will and are.”
So are there specific areas where printers should look to growth, and should they be looking at partnering with experts in those fields?
“I’ve watched, and still am watching, people trying to sell their companies because it’s becoming increasingly more important that owners take on a strategic management mantle, and not all are suited to that. But the problem is that what those companies
looking out for acquisitions really want to buy is people/talent –the production kit isn’t really the issue. So there are businesses that the owners think should be valued much higher than potential buyers are willing to pay,” said Mayhew. “So what do companies do? Are there fewer acquisitions and more mergers on the horizon?”
“We work in partnership with people but not other print companies,” explained Clark. “We have a joint venture approach with a vehicles company for instance, whereby we wrap and rent out the vehicles. That’s a synergy that works well.”
“The thing is, you need the resources to be able to act when the right opportunity presents itself,” stressed Wilson. “Not many smaller companies have that financial flexibility.”
Hodson admitted: “If you’re a company of a certain size, brand etc. then doors start opening that you didn’t even know were unlocked, and you’re in a position to start taking advantage and act when you want to.”
A note of caution in regards to acquisition/merger/partnership was sounded by Bull at this point. “Over the years I’ve noticed many companies that have acquired others and screwed up. They hadn’t bought what they thought they’d bought. Businesses going cheap are usually going cheap for a reason. Often, what you don’t end up with is really what you want – strong management. That’s where the real investment is.”
But doesn’t it makes sense for companies of various specialties to work together to offer the ‘solutions’ package that can deliver those higher margins so sought after?
“The thing is, people often start businesses because they want to be in control. They don’t want to lose that control, and therein lies a problem,” advises Bull.
Wilson is one of the above: “I’m perfectly happy to outsource but I wouldn’t want to merge,’ he says. Clark is of a similar mind, adding: “It is difficult relinquishing the control you’ve spent years building up.”
But as Mayhew reiterated, print buyers are getting younger and want to work with solution providers that can handle more of the overall project. As Hodson sees it, this means “we’re more likely to see the big companies drilling down to the services they want to reach rather than the smaller printers drilling up to find and offer them”.
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