How we built a business out of recession - chapter 40 - I am sailing
The story of CitNOW*
This is the 40th chapter about CitNOW, the company started from a kitchen table in Winnersh, Berkshire. If you’d like to read from the beginning, here’s a link to chpt 1. Each chapter is a 5-minute read. It’s an early draft of a book.
CitNOW was founded by Andrew Howells and Donna Barradale in 2005, although the company was only registered in 2008. In February 2018, we sold the company to Tenzing, a UK private equity company. It has been sold again since.
With the launch of two successful CitNOW apps in the UK - workshop and sales - the headcount in the UK steadily rose to meet demand. Our biggest addition in Wokingham was Account Managers, whose job was to nurture our relationships with manufacturers and the bigger dealer groups that had invested.
I always thought the gold standard for client management in the UK was G-Forces (essentially a web agency), who employed some senior personalities to manage their customers. But their monthly service fees were also particularly healthy, revenue worth protecting and expanding, as they represented a significant chunk of any dealer group’s marketing spend.
We didn’t have the same revenue stream per dealer or group, but we worked with many more of them. We also wanted to offer good service to all our customers, whether on the phone or in person. We knew it was important, and I’d heard many complaints on my travels about poor service levels from other third-party suppliers, not always justified, I might add.
The UK started to go wrong because we weren’t managing our costs well enough. Our cost base was predicated on making our sales target, which we’d now consistently started to miss.
The European guys were building their businesses more slowly than we would have liked, but this was to be expected. We’d already failed in Germany once, so even with the smart, more senior Hans-Jörg in charge, he needed time to build and realise those annual revenues. Spain and France were essentially greenfield sites in the same position. There was plenty of interest and a long list of prospects, but no one was yet writing big cheques.
It was even more difficult in the Netherlands and Benilux. It wasn’t a big enough market on its own, and there were no incumbent manufacturers to speak with, only uninvested distributors. Erik would prove to be our one casualty as Europe found its feet.
When Nick became our European Managing Director, we also decided to create the same titled role in the UK. It was a mistake that Alistair and I are culpable for, only for different reasons. I should have fought harder to take on the role myself. I would have enjoyed the challenge, and I was more than capable. Well, I would say that.
Everyone agreed that we needed a safe pair of hands to manage our one well-performing region. Alistair wanted his own man, so he decided to promote our Commercial Director, his namesake, who had been doing a perfectly okay job before he took up the newly created position.
One of the marketing lectures I attended when studying for the Chartered Institutes Diploma always stuck with me because a sailboat was a good analogy for how companies behave. I also like them, which must be a throwback to being a sea scout once, sailing dinghies at West Kirby Marina on the Wirral.
Imagine momentarily that the sailboat is the company, its destination is the mission, the crew are the employees. The Captain is on the tiller, navigating and steering us across the sea. Wind is the most significant variable and represents sales. No wind means the boat is becalmed in the doldrums. Sales have slowed dramatically, but we still have an entire crew, who are bored and hungry, eating up supplies based on reaching the destination quicker. Some have even taken up fishing.
The skipper needs to find the wind again with the help of the navigator (Finance Director) and first mate (Sales Director). Finally, a strong wind fills the sails (our order book is filling nicely), and it’s a case of staying on that course for as long as possible.
It’s a delicate balance though. What if the wind blows up to storm force and the sails push the boat too fast in heavy, choppy seas? If the sails aren’t trimmed or some taken down, there’s a chance the boat will sink.
This would be the equivalent of overtrading, quickly leading to insolvency. There isn’t enough cash to operate the company - drowned by debt, if you like.
In our company situation, it surprised me how quickly we started to flounder. Our company was now bigger, so it needed more sales, which meant more people, but we were only seeing modest revenue increases. The worry was that the UK MD, controlled but not supported by Alistair, wasn’t reacting to the changing situation. Nothing was happening. There was still cash in the bank, and we continued to plough on regardless, making a loss (in the UK, not expected, Europe as expected) month after month.
Alistair and Steve (Finance Director) had previously disappeared to North Wales to sit around a lake where they’d concocted an ambitious budget with plenty of growth. (Never let a salesperson write a budget; they’re always far too optimistic). The maths was okay and finally board-approved, but like every budget, it was predicated on a level of sales growth and revenue which wasn’t happening.
It’s easy to spend money and we’d now added an extra layer of UK management, adding some nice-to-have people, none of whom were making a difference to our sales. We had one character (I genuinely can’t remember his name) whose annual salary was over £50k to focus on the commercial responsibilities of the newly promoted Alistair. With virtually no new contracts to oversee, he was now spending time on ISO 9001, a recognised quality management systems standard, to fill his days. Necessary, of course, but the timing was completely wrong. We should have been in crisis mode because our reserves were dwindling. This is not what we’d promised Santander or our brand new investor, Angela.
It was time to trim the sails and change direction.
*CitNOW was our company’s trade name before we sold it in 2018.