How we built a business out of recession - chapter 42 - the reckoning begins
The story of CitNOW*
This is the 42nd 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 company's natural evolution, we had moved from a regular quorum of four shareholders meeting at Hogarth’s Hotel in Solihull to a much flabbier melange of senior managers and non-execs, with some shareholders in attendance.
The meetings were usually helpful, as was catching up the night before the board meeting, as people travelled in. Over time, as the company grew, they naturally became more serious; there were fewer gatherings, and even less as 2016 progressed.
Our pinch point was fast approaching as a poor new business January carried on into February and March. It wasn’t long before we were discussing a poor quarter’s results rather than the month. Before long, we were talking about the half-year figures, with no meaningful improvements to our deficit, and its cumulative growth.
This predicament didn’t mean that our monthly revenue wasn’t rising because it was, albeit slowly. The problem was that our cost base remained stubbornly high because most of it was wages, and there had been no attempt yet to address that. We continued to lose significant sums of money every month.
It was time for the board to face its first really true test. Every business runs into problems, and ours was no exception. We now needed to find a way to deliver the most positive outcome possible without damaging the foundations of a good business. Whatever we did, it needed to appear that we were still moving forward and not having to retrench because we’d overexpanded.
Surprisingly, there was less appetite for change than you might expect. Instead, our day-long meetings continued in precisely the same fashion as before. Steve’s** financial report succinctly reminded us that we were making a significant monthly loss, mainly because the UK wasn’t growing fast enough. We expected Europe to be slower, but the lack of UK progress was rapidly eating into our Santander bank loan and Angela’s investment.
It became clear quite quickly that the board would never make the necessary, timely decisions that were needed. It was partly because of its size, the lack of leadership in addressing the real problem, and the fact that what needed to happen would undoubtedly disrupt the current status quo. There was a preference, not unexpectedly, to want to continue in the naive belief that a recruitment freeze would work wonders as we quickly traded our way out of the current predicament.
Our first real investor, Angela, was also attending board meetings. I don’t think she could quite believe what she read in our board reports and witnessed firsthand at the meetings.
On the face of it, she might have been forgiven for not being too concerned. The UK and European sales reports were constantly burgeoning with lots of opportunities. But the same prospects kept appearing on the same forecast month after month, never being closed, sometimes disappearing without a trace as the author applied a slightly bigger dose of realism.
The sales pipeline was real enough, but the reality of when a sale would close was nearly always too optimistic. It was a common problem and one of the reasons why our monthly targets were being missed. They were also too high and unrealistic, with an increasing pressure to chase business because of the overhead issue. It had been easy to spend money and hire new people within the newly agreed budget, but it had happened far too quickly and before any forecasted revenue had been delivered.
The meetings started to become more fractious as the reality of the situation began to sink in. Department heads had to start defending their people, and old debates, like the need for UK account managers, were dug up again. Where were the obvious places to make cuts?
The headcount freeze might have been a good start. It made little sense when Alistair was still sanctioning consultancy fees outside of board meetings, continuing to follow his agenda, aware that approval would most likely be denied if it had gone to a vote.
Collectively, it all exposed the nub of our problem - turkeys are not going to vote for Christmas. Substantial change was needed if we were ever going to move on successfully and put this behind us.
My discussions with Ken*** were really helpful, but they couldn’t continue in isolation. I needed to find a way to remove the board from the picture and arrange an extraordinary meeting of the shareholders to address this crisis head-on. I intended to present a proposition we would vote on, rather than play the blame game or debate ad infinitum, which was already happening at the board meetings.
I needed support from elsewhere, which fortunately turned out to be Geoffrey, who had recently joined the board as another non-executive director.
Geoffrey had been the Group Ops Director of Sytner before deciding to leave. They are a prestigious UK dealer group with plenty of BMW dealerships and, more recently, a group of car supermarkets. He gave the impression that work was now probably optional, but had accepted Alistair’s kind invitation to join the board, impressed with Citnow's progress over the 5 years he’d known about us.
Alistair was having a bromance because Geoffrey had generously lent him a Maclaren for the weekend while he was still at Sytner. In fairness, he was a senior statesman, well known in automotive circles, who might be able to open a few more doors and put a bit more polish on our persona in preparation for any future sale, thoughts of which were a complete nonsense at the time. Importantly, though, Geoffrey had a foot in both camps.
What was needed now was a compelling argument to make the right changes, which everyone would find difficult to refuse. Well, nearly everyone.
*CitNOW was our company’s trade name before we sold it in 2018.
**Steve was our Finance Director.
***Ken was a friend of Donna’s with plenty of board-level automotive experience, who proved to be a great mentor during this challenging period.
A certain director collecting stamps in his passport didn’t help. Travel costs for him were out of control