Back At The BBC Good Food Show

Once or twice a year we take our Sarah Smith Brand on the road at a big public event like this one.

With around 150,000 visitos over 5 days it provides a great way to showcase the products but more importantly to hear what people REALLY think of the Brand.

I have learnt that THEY define your brand.

You don't.

You think you do but you don't.

Once you send your Brand out into the world it acquires a momentum you cannot entirely control. So we have learnt to listen and reflect back what we hear.

We have trebled sales of Sarah Smith since 2006. Trust me. It works.

41 Things We Did During The Turnaround

I had been mulling over a concise, pithy, and to the point post along the lines of "10 Turnaround Tips For Troubled Times" but then Paul Fabretti ( @paulfabretti ) said this:

@gapingvoid agree. Sick of reading trite "10 reasons why" posts...

So instead I will share with you the full list of things Martyn and I wrote down in a bar in Amsterdam two years into the project when reviewing how far we had come by that point.

I have two objectives in doing this:

1. To illustrate that executing a turnaround is not necessarily straightforward. Yes there are some basics that you need to get right to sort your cash flow and stop the bleeding but turnarounds have two phases: crisis management and comeback. I can give you some crisis tips that should help you stabilise but comebacks are tougher.

2. To emphasise that any successful turnaround is a mixture of good practice, fire fighting, opportunism, and has many factors distinctly specific to the individual business and its individual problems.


Here is the list :

1. Painted the office. Put up pictures. To give staff a positive indication of change.
2. Installed computer system from scratch. Over a weekend. Ourselves. £30k in licences!
3. Merged warehouse & shop floor "line service" teams. 1 headcount reduction (natural).
4. Recruited 2 new admin staff.
5. Moved shop floor onto new 7 day/2 shift pattern.
6. Moved shop floor back off new 7 day / 2 shift pattern after 1 month as a total disaster.
7. Narrowly avoided strike with action 6.
8. Negotiated lower cost overtime pay structure in agreeing to 6.
9. Issued new contracts to all employees together with employee handbook bringing Terms & Conditions in line with current legislation.
10. Customised very old semi scrap metal machine to manufacture a very odd new product for a French customer.
11. Bought a small carton erector / sealing unit to go with 10.
12. Exited 3rd party warehousing and brought all finished goods in house. Huge saving. Meant fundamental reorganisation on shop floor and disposal of museum of old (s)crap kit that came with the acquisition.
13. Exited the "Industrial Distributors" market for our kind of products. Cut c. 100 small customers.
14. Moved to new sub contractor for a critical sub assembly. Halved cost.
15. Moved a key customer(4% of yr 1 T/O) to new more profitable product specification. They got a lower price. We got a wider margin. Win:Win.
16. Renegotiated a key partnership (we license a brand to them & make the product) onto more favourable terms. (5% of yr 1 T/O)
17. Launched what is now our single biggest product with what is now our biggest customer.
18. Ceased production of old "canister" format wet wipes. Resigned £100 k of business on very short notice. Sold production line to a Iranian gentleman. (Cash arriving days before we would have run out!)
19. Negotiated shorter payment terms from 5 of our largest customers.
20. Moved our single largest raw material supply to a new supplier having agreed an earn as you go increasing scale of credit, and lower prices.
22. Moved a further critical mass raw material component to a lower cost and easier assembling format. Saving RM cost and reducing labour time per assembly.
23. Installed ERP system upgrade.
24. Retained and relaunched key export contract on improved terms.
25. Bought a new production line from a Swedish drag racing champion. He had built it himself as a project. Reduced time from first action to finished product on a key margin item from 7 days to 1 day. Also a critical forward chess move in allowing us to move the business. The line it replaced was immovable.
26. Reduced the amount of space we leased from our former parent company as a result of 25 and by knocking a hole in the wall that separated our production areas from our warehouse to allow direct internal access. This also improved productivity by reducing "raw material miles".
27. Resigned a swathe of low margin business (2003 150 skus, 2004 116 skus, 2005 86 skus)
28. Negotiated further price reduction for 20.
29. Renegotiated a contract worth 9% of Yr 1 T/O onto a lower cost specification.
30. Moved a third key raw material item to new supply with longer payment terms although prices slightly higher! Sometimes the term is more important that the price.
31. Started purchasing in regular smaller quantities even though this sometimes meant higher prices.
32. Reduced order backlog from 6% of annual turnover (yes I mean that at any one point in time I had a backlog worth 6% of that year's sales!) to zero. Took nearly 2 years of attrition and steady planning improvements and my almost constant involvement.
33. Customised a small, mothballed machine to make a new format product (for us) and gain a good margin chunk of new business.
34. Bought a new packing machine to go with 33.
35. Began an improvement programme on our largest volume production line. Engineering investment, training, changes to RM inputs to stabilise woeful productivity.
36. Virtually eliminated the need for overtime.
37. Reduced engineering team by 1 by natural wastage.
38. Achieved ISO9001/2000 and BRC Global Standard for Non Food accreditation within 9 months of acquisition.
39. Completely renegotiated contract of employment and terms and conditions with staff and union. Major confrontation. Played VERY HARD and got 98% of what we went in for. A FUNDAMENTAL CHANGE. The single toughest thing we did.
40. Imposed a dramatic price increase on our biggest customer (14% yr 1 T/O) when they refused to give us a firm 12 month commitment. Took them 8 months to resource. They always took so long to pay that this repositioned our cash cycle once they were gone. A big decision, but they had to go.
41. Took a net head count reduction in mid year 2 that totalled 12 jobs ( out of 55) through natural churn (influenced by 39. possible as a result of 40.) and only 1 forced redundancy.

What I don't have on the list is that we re-paid a huge amount of debt, slashed discretionary spend, R&D spend and Marketing spend to the bone. We didn't start actively selling until mid year 3. Up until then it was contract and re-focus. The first profitable month was month 10. We were net in the black and technically solvent for the first time by month 21. To be honest this is not the full list of things we did. There is more. But this is what we wrote down at that one pointas we paused for breath and a cold beer and as this was written live in the moment this is what I share with you here.

But lets be clear. If was complex. It was HARD. And £1 profit for 21 months hard hard graft is not much to write home about, but we got there and look back now only to learn.

This Week We Will Mostly Be...

1. At The BBC Good Food Show at the NEC as is our way promoting Sarah Smith - more details here from Dale at Delta Two Zero

2. On TV:

Deflation? What Deflation?

I guess it takes a wiser mind than mine to figure this out. But I just don't see prices falling, not around here.

I was talking on Friday with a guy that @martynshiner met at meet 'n' greet in Bristol a while back. The man in question built a very successful niche sports goods company which he recently sold. The only reason I mention it is for one comment he made:

Anyone whose business model is built on low cost dollar priced imports has just taken a 25% cut in margin

His point was about the impact of weak Sterling. Many UK retailers and their suppliers are now dependent on imports from China and SE Asia. A year ago to provide their suppliers with $2000 they only needed to put their hands on £1000. As I write the exchange rate is $1.49:£1 so that $2000 now costs £1342.

You don't need me to tell you the % shift.

You don't need me to tell you this is going to hurt many many businesses.

Think of fashion retail for instance. Think of electrical goods. Think of toys. Think of Sports goods. It won't hit straight away because of the high inventory involved in distance sourcing but the wave is coming and when it hits there will be casualties if weak sales mean aggressive price cutting just as higher input costs soar.

The same is true of the Eurozone. We buy around 2.5 million Euros worth of raw materials p.a. at the moment. for the vast majority of these there is no domestic supplier or alternative. A year ago the exchange rate was typically 1.37-1.42 euros: £1. For most of this year the average has been in the range of 1.23-1.27 euros : £1. Today it is 1.17 euros : £1. So lets call 2007 1.37, 2008 1.23 and 2009 1.17. The cost therefore goes from £1.825 million to £2.032 million to 2.136 million. That puts 2009 17% up on 07.

In reality we deal with this in more ways than simply increasing our prices. We don't deal in commodities. So a combination of product innovation (so that lower cost new generation products replace higher cost old), cost engineering, progressive NPD deployment and Positive Churn portfolio management (so that we drop off lowest margin business as we new higher margin business grows) all figure, although inevitably some prices have to rise.

My underlying point remains that from where I am sitting prices are still rising and will continue to do so into 2009. The Sterling price of Oil is a figure that gets lost but when you read the headline about Oil being under $60 a barrel remember that when it went through that figure on the way up it meant £30 and when it came through it going down it meant £40.

Maybe in the long run weak sterling will boost exports but long before it is sending the cost of imports up and don't forget, here in the UK we import just about everything.

Open Source ERP Project Update

As some readers will know we have been quietly (well reasonably quietly) creating a new ERP solution in house around an Open Source core (EGS from those fine chaps at Senokian - best know for Tactile CRM).

In a few minutes long Twitter frenzy this afternoon I fired out a few bite sized statistics about Severn Delta to aid your understanding when you read the beautifully understated project update that my partner in crime @martynshiner has posted on the company blog Delta Two Zero.

A link to Martyn's piece is at the end of the post. My tweets are shown here in reverse order:

we employ 50 people and will T/O around £6million in 2008.
1250 parts / sub assemblies and around 350 separate items of inventory. And we invoice around 4500 invoice lines p.a. or about 2200 invoices
That's around 7000 stock movements pcm, c. 2000 works orders being issued to the shop floor p.a. 480 bills of materials. 300 end products.
We pack them into around 1.4 million cases which we ship on around 9,300 pallets. Having received around 50% of that no as goods in...
Today is statistics Thursday: The following is for your information: Severn Delta produces around 12 million packs / units of product p.a.

Martyn's update is here

A Turnaround Tale - The Brief History Of Severn Delta -

A 10 point mini history for your information:

1. Severn Delta was created in Aug. 2001 as a buy out vehicle but sat dormant as we waded through the various abortive MBO attempts until March 2003, when trading began.

2. We bought the "Consumer Goods" division of BFF Nonwovens, an industrial textiles manufacturer in Bridgwater UK. This was an internal division prior to the buyout. When I say internal I mean fully integrated within the main business. It had never traded independently and was not structured to trade independently using many shared resources e.g. planning, buying, customer services, accounting. In 2002 the turnover of the part we acquired was 1/3 of the whole.

3. The business we acquired mainly supplied UK Supermarkets with contract manufactured wet wipes, cleaning cloths and tumble dryer sheets. It still does although a significant and rapidly growing % of revenue now comes from our Sarah Smith brand.

4. At the time we acquired it the parent company of BFF, Lamont Holdings PLC was in Administrative Receivership, and so therefore was BFF. Something we in our final pre-receivership buy out attempt inadvertently precipitated. It was the main bank's refusal to sanction the sale of 1% of the total assets of Lamont to us that brought the house down.

5. We finally completed the deal on 27th March 2003. The next day we started again. We had 50 people in three locations within the BFF building(e.g. to get from our production zone to our warehouse you had to go outside walk around the building and go back in!) . These now needed to become a new unit, a new company, a new team. We had no computer connection. No email. No fax. The only telephone was an extension on BFF's switchboard. That weekend Martyn installed new servers himself so that we could get back on with the basics of life. In order to give our team a plain simple visible signal of change we painted the walls (with the help of our wives, daughters and my retired in laws.). We hung paintings and stuck company name signs (made on a desktop laminator) on all our zones. So by the following Monday at 6am the factory came back to life with a usable ERP system returned - the same one used at BFF of course with the data history carried across and the first semblance of a new identity and purpose.

6. By this time the business was in trouble. Suppliers withheld credit. We were funded purely by debt (but with less than we needed). Some customers walked away. Productivity was on its knees. In the first 6 months we had 2 floods, 10 days without power and the main union on site had gained national executive approval for a strike ballot. By the end of 2003 we had hit the ceiling of our debt facility and racked up a substantial loss (6 figures, and the first digit was not 1!). But we had started to turn the corner.

7. We started 2004 with sweeping changes. We had already exited two markets and sold a production line. We had started life with a long long tail of small low margin, commodity product customers. We amputated it. Every change we could make to overhead costs without negotiation we imposed. We gave statutory notice on a new contract of employment first and negotiated second. We played tough with our biggest volume customer whilst lining up replacement business on better (i.e. shorter) terms and succeeded in steering the former to the exit while the latter were collectively settling in. Effectively as I have described elsewhere we shrank to survive. The combined effect of the market exits, customer rationalisation and payroll strategies meant that turnover came down but cash flow was transformed. We took a net reduction in head count without making a single role redundant by freezing recruitment as people churned out in protest at the new contract (I'll admit we had not entirely anticipated this!). Tough medicine. But it worked. By Dec 04 we were in net profit after 21 months of trading. This is very much the simple version. Martyn and I sat down in a bar in Amsterdam during a visit to a trade fair in May 2005 and listed more than 50 separate substantive actions we had taken within the first 21 months.

8. So we landed in 2005 in the black and arguably with the worst behind us. This therefore seemed the logical time to move the business into new premises, and this we duly did in Sept 2005. At which point we returned to Turnover growth, and even though we took most of the relocation project costs straight through the books in 05, we still made a modest profit before tax.

9. 2006 was the lull before the (next) storm. We had a 6 month hangover from the move. Lots of small irritable, hard to fix, teething manufacturing issues. On the horizon a black storm. Turnover came up. Profits held but we wondered for how long. By the end of 06 a market that had delivered a 3rd of our revenue up to that point suffered a price collapse. Margin evaporated. We knew it was coming and were working on ways of filling the hole. In 06 I was launching NPD like there was no tomorrow! If enough stuck, I reasoned, if we solved our productivity issues and kept up what by then was an exceptional record in raw material cost engineering maybe we could buck the problem.

10. 2007 was tough. Oddly, given the first 2 years, it felt like the toughest year. We were having a bad time as I had expected but by the middle of the summer I realised it was for entirely different reasons than those I had anticipated. Most of the problems turned out to be self inflicted ratherthan related to the price-collapsed market. It had to be fixed with a structural adjustment. Heads rolled. I gave more responsibility to a smaller core team and kept a very very tight grip on the daily detail until I was confident the problem was fixed. To be honest we have not looked back. 2008 has of course had some choppy waters. The majority of our big volume suppliers are in the Eurozone. A year ago we got 1.4 euros for a GBP now we are lucky to get more than 1.2 (do the maths). But our relentless focus on raw material cost engineering (you can always get it lower - you just haven't worked out how yet), on NPD and on improving productivity and service has served us well so in a tough economic environment we are doing OK. Maybe the crash-crunch-tough-times don't phase me because that is mostly all we have known.

It worries me more when things appear to be going OK, makes me wonder what calamity is just around the corner.

I have learnt that it is wise to take a little paranoia withyour optimism.



Footnote: for the sake of clarity and good order Clive Birnie is Managing Director / CEO and Martyn Shiner is Financial Director / CFO of Severn Delta Ltd. They each own 50% of the company.

Thoughts On A Friday Morning

1. Obamaramalamadingdong

2. Judge people by their results not their promises

3. 1.5% cut in interest rates means squat for my business. It has no impact on whether we succeed or fail

4. If 1.5% still doesn't do it for your business it because the cost of finance ain't the problem that needs fixing

5. If the rule is "when in hole stop digging" how come more high govt spend and borrowing + cheap money+ more regulation is the solution when this was pretty much the policy cycle that fed the asset bubble and created the problem?

6. If your business is slipping into a hole - STOP DIGGING! and contact us (see @martynshiner or @positivechurn or here for details) ...

7. This story is told to Josh by Leo in The West Wing (sorry can't recall episode or season):

A man falls into a hole. It is too deep for him to just climb out so he calls for help.

A Doctor stops and looks into the hole. The Man says "Doctor, please help me, I have fallen into a hole." So the Doctor writes a prescription, drops it into the hole and walks on.

But our guy is still stuck in the hole. He can't get out.

A priest stops and looks into the hole. "Father, please help me" our Man in the Hole says, "I have fallen into a hole". So the priest writes a prayer on a slip of paper and drops it into the hole, says "bless you my son" and walks on.

But our guy is still stuck in the hole. He can't get out.

Then his friend walks by and he calls out to him "Hey I need some help here buddy, I have fallen into a hole". His friend looks down. Thinks for a moment and then jumps down into the hole.

"What did you do that for?" Our man says "Now we are both in the hole!".

"Yeah, I know." His friend says, "But I have been here before so I know the way out..."

(thought this would make a good SOTM but I guess Mario would find the huge piece of paper contrary to rules of good composition!)

8. It is Carnival night tonight so I really must remember to run away north before the roads get closed!

A Brush With The Police and The VAT Man in Belgium

Something of a Diary entry rather than a typically opinionated Positive Churn post but at the end of a busy seven days here is a run through what I have been up to:

Last Thursday @martynshiner (pictured) and I jumped in the 5series and drove to France with the help of the jolly nice, very efficient and quite reasonably priced people at Speed Ferries dot com. Speedy indeed. Sailing from the old Hover terminal in Dover and the little used ferry terminal in Boulogne Sur Mer its only 50 odd minutes across. The coffee on board ain't bad and on the return leg I strongly urge you to be early and factor in time for a swift meal at the Mirador Hotel, Restaurant, Bar and Hotel (The blue one across the port). Yes I know it looks a little shabby from the outside but it is one of those family run gems that you find all over France where hidden behind a nondescript facade is a restaurant providing food of a stupendous quality for a pittance.

No time to dally in France however swinging past Hem to pick up our man in those parts we were heading on to Ghent in Belgium for the Countryside 2008 consumer fair. The mission: Test drive the Sarah Smith brand of kookily British kitchen textiles from a cold standing start with the Belgian public. Not a bad result. We are always hunting for the niche appeal rather than a mass market stampede and after four days and reinforcements (Sarah and Alison from the UK team) we had chalked up value very similar to our first consumer fair forays in the UK. Given that three years on from its debut the UK sales of this brand generate a big chunk of our profits most months this is promising indeed!

In the middle of this @ms and I madly drove back to Blighty. He to pick his son up from a return flight from Hong Kong. Me to watch the Daughter play in a hockey match and to drop in on the celebratory 40th birthday bash of an old friend before charging back to Belgium to finish up. A small brush with the Belgian police (driving at the French speed limit once across the border is frowned upon!) not to mention Belgian VAT officials failing to put me off!

I said at the beginning of the year that breaking out of the UK was one of my 2008 missions. It hasn't always gone to plan but we are making progress and will push on harder next year via two big trade fairs way beyond these shores and by seeking to consolidate on the beachheads established this year in Japan, Ireland, Norway, Sweden, Denmark, France and now Belgium.

I long ago subscribed to the philosophy of If You Build It They Will Come so build we will in our small- not quite yet a global micro brand but working on it - kind of way in country after country after country because all evidence thus far confirms that we have a brand that travels.

We just need to buy it the plane tickets!