CEO's Diary: Bust

The CEO's lost a customer

November 28 - Having a major customer go into liquidation when the press suggested that unlikely is always a reason for getting all hands on deck, especially when you have short-term leased equipment in a lot of their sites that you could reclaim, but which the administrator wants to be there to enable them to carry on trading.

Thankfully at times like this having an excellent record of precisely what we have and where pays enormous dividends.

But it has still taken a lot of work in the last day or so to ensure that even if we lose some of the debt we can be paid for use of the equipment whilst the administration goes on. I'm reasonably confident that will happen now. But it wasn't the end to the week that I wanted.

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November 26 / 27 - Met the AM late yesterday to review her initial findings.

We're definitely not taking over the overdraft - these people have been stripping the business of capital for some time. Taking the overdraft would represent a decided premium over value in our opinion.

But there is money to be made from what is there, and it could fit in.

She is drafting a response today. It's up to them, but we're not benefactors, and nor are we the means for exiting proprietors to pay off their mortgage on retirement.

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November 25 – The ex-Mrs CEO's lawyer rang me today. I am still surprised she has found anyone of such even temperament to work for her, but he was his usual charming self.

More than that, he thinks he may have a business we might consider acquiring that he would like to introduce me to. As he put it, the fit is not perfect. But he thinks it complements what we have got. Would I like to see the information? It was available in his office, and if I saw it there he suspected the need for an NDA could be dispensed with at this early stage. So I scooped up AM, and we were there within an hour.

He's right. It is not a direct fit. But a bit like Woolworth's, it's going for a song. We pay £1, clear the current owners' overdraft (it's a partnership) and take their obligations to staff off their shoulders and it's ours. The kit is all included (although all vehicles are leased). And the story is it's available because the owners have had enough, they're near retirement age, can live without the hassle and just want to move the staff on.

The appeal was strong enough to agree a brief with AM on what I want her to do, and to leave her to get on with it. I want a full low down, a critical appraisal of what's really in the business and a realistic projection of what it can offer us including a draft P & L and measure of capital commitment.

Maybe that's a baptism of fire, but if she can't do it I have the wrong person. Better to know now.

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November 24 - Well as far as I can see that pretty much did nothing for us.

We won't be borrowing using any scheme.

We might save 1% on corporation tax.

VAT won't make a penny's worth of difference.

Our NIC will go up in the long term.

Some of our staff will be a bit better off for now. That will reverse.

Have I missed something?

Is this the price of being a company doing OK?

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November 23 – I'm sure it's not my job to do a pre-budget report forecast, but having read a great deal over the weekend on the issue I really do hope that a VAT cut is not what the Chancellor does.

I direct a company that works almost entirely in the business to business sector. I really can’t see what a VAT cut is going to do for us, at least in the short term when helped might be needed most.

Help with credit would be good.

Help with employment costs would be better.

Investment incentives would be appreciated.

But any consumption led boom is going to take a long time to reach businesses like us.

So I hope he’s got better tricks up his sleeve.

For once, I’ll be tuning in.

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November 20 - Had to spend a lot of time over the last day or so preparing for a disciplinary tribunal we held this morning. This one was complicated.

As part of our service we have a call-out facility that operates at night. All it actually is, is a telephone triage service to an agreed list of our people who are on call. And to be honest, they do not get called very often. Our service may be important, but it is only occasionally, and usually in the case of deliberate damage, that we are asked to attend to something at night. But, if and when somebody is called they are paid quite a good rate of pay. I think that is fair.

So it was rather odd that one of our people, now under East’s management seemed to get an abnormally high number of night call outs when he was on duty - a phenomenon first really noticed in the payroll section of accounts. Then it was appreciated that most of the calls came from just one customer. Unbeknownst to him we put a little loop into the triage service. When he was on duty East got a call before he did to activate the call out. Completely abnormally there were three over the last six weeks.

On the first East just had his van tracked. He did go to a customer site. But then he went to a hotel, and stayed there for most of the rest of the night, being back at home a little before sunrise.

On the second occasion the pattern was repeated. East went to the hotel, saw the van, and then noted the registration number of every car in the car park.

Then he went to visit the customer. And he checked the registration numbers of cars in their car park. One matched. He hung around. It was a member of their facilities management team. A female member of their facilities management team. It wasn’t hard to identify her.

And on the next call out he went straight to the hotel. Our member of staff dutifully arrived. He followed him and got the number of the room to which he went. Then he went to reception and asked if he could put a call through to the named member of the customer’s staff and gave the room number in which he suspected she was present. She answered to her name. She had booked the room. He asked to speak to our member of staff. He heard a stifled response, and he left. But he sat in the car park and watched our staff member leave soon after. So too did she.

So we brought disciplinary action against our member of staff. As far as we could see there had been no entry by him into the client premises on any call out. We advised him that we would be asking for formal confirmation of this fact from the customer. As such we charge him with making a false claim for overtime payment. And we accused him of misuse of a company vehicle. We advised them that we had located his whereabouts on each occasion using our van tracking system and had photographic evidence. We also advised him that we were aware that a member of the customer's staff was present on every occasion, with photographic evidence.

We did not need to specify that we were somewhat annoyed about providing him with cover for his extramarital affair, and having the account for it effectively settled at our expense.

He panicked and asked if he could resign. We agreed that he could but only with a full discharge of all liabilities against us agreed before an independent solicitor with an agreement that he would not be provided with a reference except to confirm the date of his employment.

I expect that to be completed tomorrow.

I hate this sort of thing. So too does East, which is why he maybe went beyond the call of duty. But at least the guy quit, and the amounts involved do not make it worthwhile taking it further.

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November 18 – Management meeting day and it is clear that we are entering into a new era of thinking in the company.

It’s obvious that organic growth is going to be hard right now. It just is not coming through. We are instead planning the raining sessions I was discussing recently about defensive selling techniques, and individual coaching when needed. We’re not going to give up anything without a fight.

And yet, the desire to make progress is still there. It’s obvious that people are happy with having AM on board to look for and manage acquisition growth.

But I’ve realised that this might mean some rethinking of incentive arrangements. I know bonuses are not the topic of the moment, but they’re important here. They are not the largest element of salary by a long way, but it’s good to get a year end extra month or so of salary. And maybe I need to incentivise finding acquisition opportunities. It seems reasonable to me. In addition, retention could be a target right now.

I’m going to have to work on it or next year may not go to plan.

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November 17 - AM joined today.

I am really not sure why I think this is such good news: I just like her positive attitude.

Today was the beginning of her induction. Even though she is quite familiar with a lot of things about the place, and knows all the senior management, I am not skipping this. It's a real mistake.

So much of the day was spent sitting down working through with her ideas about the job I want her to do.

Tomorrow it's her first management meeting and then she will be out with Newc, and then she's on tour meeting the people in the division we want her to run in between any acquisition activity, plus customers of course.

And I also take a lot of time trying to make clear to new people how they fit into the hierarchy. Like it or not these exist, and we all know it, so the arrival of a new person has the potential to ruffle feathers. The induction process is as much about keeping the existing team happy as it is about explaining to the new member staff just exactly what it wanted of them.

It's worth the effort.

P.S. For those who don't recall, AM get's her name from previously being the audit manager

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November 14 - It was seriously suggested we cancel the Christmas bash today.

I refused.

Then it was suggested we make it staff only - no partners.

Again, I refused.

I might be looking for cuts, but Scrooge I am not.

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November 13 - I did not speak in jest about the amount of work that the current financial position is creating. For the second time this week I found it difficult to post this blog, and yet managed to do so throughout the period when we were negotiating the buyout of the company.

This is really because of the change in my focus over the last few weeks. When we were trying to buy out the company I was thinking about finance and deals and lawyers and the like. Right now those have fallen pretty much off my agenda and the issues are people, people and people.

OK, some of those people are our employees, some of them are customers and some of then are suppliers, but at the end of the day they are all people who need to be kept happy in a time of uncertainty.

So, for example, we have decided to put a halt to automatic recruitment to replace those leaving at present. It seems like an obvious thing to do when we are potentially re-profiling the work that we undertake, but any such decision involves uncertainty and people might start thinking that such action might be that the precursor of redundancies and so I have been going out of my way to meet key members of staff who are the important communicators within the organisation, irrespective of their official title, to reassure them that this is not the case. At times such as this I do wonder whether it might be easier to be unionised. At least you might have one body of people to deal with, but there is no such thing here and as a result I have to make sure that the message gets out in the right way to the right people to ensure that no one ends up stressed.

And all that takes time.

Which is why I've been spending less time on my keyboard.

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November 11 - One thing I am learning is that a recession does not mean things go quiet.

I think there is one other thing that is very obvious. We are already getting to understand that when some of our customers are talking about potential competitor's service they actually mean price.

I went out to dinner last night with one of our long standing customers. It's not something I do very often, but this person happens to also be a friend. Once upon a time we worked for the same company. I was intrigued because he was candid. His company is largely in distribution, and of products which seem to me to be aimed at the youth market. They are not seeing the expected pre-Christmas rush. They are seeing pressure on prices. They are not worried about the viability of their business ( and in their case, nor am I) but conversation inevitably turned to maintaining margins, whether that be on the individual product or at the level of EBIT (with which his organisation is obsessed).

He didn't have to say it. I know he thinks that we can offer price cuts to help reduce his fixed cost. I know we're going to do so. But rather like him, we are going to need to thoroughly appraise a lot of overhead in our organisation to make sure we are not carrying any excess right now.

It's a horrible reaction to do so, and so typical of an accountant, but #1 is on the job, and because Newc is coming free when the AM joins us I want him to hit this for us by undertaking the individual negotiations. It's the sort of special project he's good at.

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November 7 - It's funny how my attitudes have changed. Cash used to be the one thing I didn't really have to worry about. But it is now. We've paid out a lot to the shareholders. And although we've always monitored debt with vigour that changed cash position now means I do so with an eagle eye.

I have already mentioned that we are seeing more customers asking for better payment terms at present, which is unsurprising. There is also some resistance to our business model of charging for maintenance on an upfront basis. Sometimes people are not paying us until the end of the quarter, and then taking credit terms on that. The result is that we are reacting to demand. I am asking people to change billing arrangements where that happens so that we bill monthly, strictly, and always by month end and that is producing a net benefit. In addition, our billing arrangements to ensure that we reduce time between support visits and billing are being tightened. They've always been good. They’ve just got to get better.

Cash is king.

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November 6 - I thought I'd better find out about the reality of the new sales environment and so joined Hitchin's #2 at a meeting with one of our major customers in the East of England this morning. They're people I've known for a while, always good payers, with a history of being quality rather than price driven. Their product is, however, one that is being recession hit, and we all know it.

This meeting was a pretty routine contract review session, simply between us and their facilities management team to review current issues that come up on any contract from time to time. Hitchin had, however, warned me that he expected future contract terms to be flagged up as an issue.

He was right. It was. There was nothing half hearted about this. They were blunt. They were under pressure to cut costs, and were looking to do so pretty much across the board. Where spend was discretionary that discretion would be exercised, but we weren't in that category. So in our case they were looking for three things. The first was an opportunity to change contract specification whilst retaining a value added element. The send was better payment terms. The third was a price cut. And they made clear that this was not so much a negotiation, more a fait accompli they were under instruction to present to all suppliers.

I'll be candid. I immediately appreciated that my colleague was out of his depth. Without support I suspect he’d have given way on all three points almost immediately. I didn't. There were games to play.

With a customer of this sort there was some margin to play with on the service level agreement. But I was determined to make good the loss on price and payment terms by more than reducing service level to keep overall contribution.

So we played games on that for some time to see what they'd tolerate, and I then assured them we'd go away, design a new package meeting all their objectives and get back to them.

We then departed for a nearby hotel's coffee shop for lunch and an opportunity to discuss what we'd offer with my colleague. Within 30 minutes we'd sketched out the whole alternative. It works. We think they'll buy it.

So I'd impressed an important member of staff, and I'd built a training exercise, all in one go. Not a bad morning’s work. Especially if I'm right and they do go for it.

* * *

November 5 – Had the brainstorm. But try as we might we actually did not come up with anything very different from what we already have on the product offering we can make available.

Much of what we do is regulated. And if you need it, you need it. And if you must have it there's a certain level you have to achieve, or rather, we have to achieve for you. The only options are in how it is then maintained, and even then some indication of checking is required (we must go annually to all sites who claim we maintain them, for example).

And that has a cost. There is a point below which we cannot go.

We can and do offer spread cost options. We offer sale and lease options. We offer proactive and reactive care. We offer basic and better than basic packages.

The real issue is we have to communicate better that the customer has to accept their responsibility in this area and in turn manage it proactively, and that if they do not then they will suffer potential consequences. Right now fear has to be part of our back stop for those who don't want to buy, as much as providing reassurance is a key part of the sale to those who do really value what we do.

It's obvious that the training issue is making sure they know which technique to use, and to be able to identify when people have moved from one camp to the other.

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November 4 – My PA is pregnant.

I know. I should be delighted for her.

But I'm not sure she is.

And I know I'm not.

She's asked me to keep it quiet for the moment – but felt I ought to know as she is whacked and otherwise I'd wonder why. She doesn't want anyone else to know for six weeks as yet.

It just feels like after a relatively short time of having her, my right arm is to be cut off soon.

But I know I'll grin and bear it and stump being a grumpy old git

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November 3 - I have rarely enjoyed a week off more. OK, East Anglia was cold, but we saw no snow. And OK the family seems to take so much clutter on holiday that we actually went in two cars this time. But I still think it takes an awful lot to beat an East Anglian beach holiday if you really want to have a good time.

And now it is back to the fray. Initial reports from all managers are that we are facing problems on all fronts. Sales are not as high as anyone would like during October. People are delaying payment and we're having to get tough in some cases (but we are doing so proactively and are offering extended credit in return for regular instalments to mitigate risk). But most of all we are beginning to see more people ask about how they can either eliminate our service or cut its costs.

We have always been proactive on this point and we have a serious range of options available to offer. But I'm still worried that our people are not proactive enough when faced with this challenge so later this week we are having a brainstorming session on this issue and then, I hope, intensive training for everyone about how to manage sales in the downside.

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For previous installments of the CEO's Diary, see:

October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004
April 2004
March 2004
February 2004
January 2004
December 2003
November 2003
October 2003