There is still not enough help for small businesses in the UK

There are about 4.8 million small and medium size companies in the United Kingdom, companies whose turnover do not exceed £50 million and whose profits do not exceed £300,000. To give you an idea of the importance of this type of company to the overall economy, they provide 80% of the jobs in the country and their total turnover exceeds all the companies in the Footsie 100, the stock market index of the top 100 companies on the London Stock Exchange.

 Given the importance of small and medium companies to the country, it is surprising that the Chancellor did not do more to help these existing companies, and those who are on the point of setting up new businesses. These are the companies which will pull the country out of recession. The Chancellor did bring Corporation tax down to 22% in 2014, with an objective of 20% in the longer term. However, there was no corresponding reduction in the small business corporation tax, which is presently at 20%. Surely an objective should be established of reducing this to 15%?

Small businesses complain that they do not have access to lending, at competitive rates in a non bureaucratic manner. Although the Chancellor did set up a National Loan Guarantee Scheme for £20 billion, this is not enough. He should supplement this with a series of Regional funds, which are allocated central Government monies, and set up through Regional Credit Committees through the local Chambers of Commerce. These should be set up with the help of successful local businessmen who are willing to commit their time and energy to helping other businesses. All the major cities should be allocated their own funds which could also lend money to start ups under the right conditions. Angel networks could also be brought in to enable rich private individuals to invest their money in interesting start-ups.

We should also be training our businessmen to become the best trained businessmen in the world, regardless of whether they went to university, business school or college. After all, it is no use business people setting up a business, and not knowing how to manage it properly. We should set up regional training centres which can provide free courses for those setting up or even those already running existing companies. This would then ensure that they have the best skills for the serious job of setting up their companies and making them a success. We can then set about pulling the country out of recession and creating a dynamic and thriving business community.

                                                     Image from www.eudesignstudio.com

Time stops for no man and no company; why companies lose their way

 Time stops for no man and no company. With the news that Eastman Kodak recently filed for bankruptcy protection, it shows that time moves on no matter what.

Eastman Kodak was founded in 1880, and became one of the biggest companies in the world, at its peak employing more than 145,ooo employees worldwide. As of  2012 the company only employed 17,000 employees.

The strangest thing of all is that the company actually invented the digital camera in 1975, but did nothing with their invention. One has to ask what the company’s CEO’s have been doing for the last 30 years?

The number of companies that have succumbed to the changes that time brings is long. There are some famous names in the list, including in the UK, names such as Woolworths. Why Woolworths never became a supermarket chain I will never know. Did its managers really believe that it could go on selling sweets for the next hundred years?

There is also a list of companies who are presently struggling to find a strategy that represents an attempt to adapt to modern times. HMV is one example. It’s core sales base of DVD’s and CD’s has been eclipsed by the likes of Amazon and the supermarkets who sell the same products more cheaply. But HMV does not seem to have fought back, its website exists but does not convince, and it has made half hearted attempts to show films through one or two cinemas and enter the field of live music. One has to ask how long it will last.

 IBM is the example of a company who has successfully adapted to the ravages of time. IBM was one of the biggest computer manufacturers in the world, but now is mainly an advisor and consultant to major companies, although it is still a manufacturer of computer servers.

 Apple is another company who has successfully adapted to the modern age, by combining manufacturing of modern age products, as well as those of the digital age by creating the itunes store. It was once a niche computer manufacturer. It is now the largest company in the world by market capitalization and sits on a cash pile estimated to be in excess of $80 billion.

There is no doubt that many of the Chief Executives of the largest companies in the world are very well paid these days. But very few of them seem to have a vision of where their companies are going. More worryingly, many of them do not seem to even have a strategy to face the next ten or twenty years. They are sitting on their hands while fighting fires, and without a proper strategy they will be burnt with their companies.

                                    Image from www.blogs.dallasobserver.com

The Parallels between Sport and Business

Businessmen have long pondered on the parallels between sport and business, and whether business could learn anything from sport. So let’s take an interesting example, the techniques used by Jose Mourinho, Real Madrid’s current coach, and the former manager of Chelsea.

                                                     Image from www.dailymail.co.uk

The first thing that Jose Mourinho instills in his team is a winning mentality. The difference between winning and losing in sport is very small and getting smaller. The strong survive, and win. No matter how great football a team plays, if they are weak mentally, they will not win the major titles. Witness Arsenal last season, and you will get my point. Creating a winning mentality is crucial because this then develops to an unbreakable team spirit, which can carry a team, even when all their energy is spent.

Mourinho constantly reminds his players that football is a team sport. The team is more important than any individual. No player can win a match on his or her own. Each player must make a contribution to the collective by working hard. Nothing is achieved by not working together, that is why Mourinho would prefer to have a team of ‘work horses’ than a team of individual ‘superstars’.

The coach instills discipline and organization in his teams. He plays his teams in simple, understandable formations, specifically designed to neutralize the opposition. He starts with a strong defence, on the basis that if your team does not let in any goals, you only have to score one goal to win a match.

Mourinho trains his team to be stronger and fitter than the opposition. When there is so little between the major teams these days, the last ten minutes of any match is vital, because this is when teams tire. Manchester United are masters at winning matches in the last ten minutes of games, as are teams managed by Mourinho.

Mourinho coined the term ‘the special one’. It is important in sport as in business to have a strong leader. The idea was that everyone knew who the leader of the team was, whose leadership was unquestioned. The focus of attention was on the manager, who knows how to deal with it much better than his players. This has the added advantage of taking the pressure off his own players, who would usually perform better without the pressure.

There is always room for improvement. If a change is need, its effect should be immediate and effective. A football coach has the chance through his substitutions to change the course of a match. If one team is effectively neutralizing the play of the other team, the introduction of new players combined with a change of tactics could unsettle the opposing team and make them give away a goal.

It is important for the strong leader to also actually be in control. Mourinho found it increasingly frustrating when he was expected to be the leader of the team at Chelsea and achieve results, but was becoming less in control of matters affecting the team and transfers. Apart from the meddling of Abramovich, Avram Grant and others were placed by the club in positions of authority that undermined the manager’s position and affected his control over the team.

Hard work and attention to detail over an extended period will achieve results. Yes, Mourinho makes his players work hard. Before every game they are each given a dossier giving them all the details on the opposition and their opposing players. Nothing is left to chance and there are no surprises.

                                                              Image from www.sportpedia.net

Jose Mourinho is one of the first professional coaches in the history of football. He studied Sports Science at the Technical University of Lisbon. He also worked with Bobby Robson at Barcelona where he was known as the ‘translator’. He has achieved outstanding results by learning in the classroom and learning in the field, and applying coaching theory with strong motivational and psychological techniques. He has created a new, more professional way of doing things.

So are any of the above methods applicable to the world of business? Well, hellooo, yes they are! Luxury Hedonist would argue that they are all applicable. If you go down to your local bank, are you impressed with the consummate professionalism of the bank employees? Can you recognize their knowledge, and the quality of their products? I don’t think sooo!

The fact is that the world of business is very competitive in general and there are industries that are extremely professional and have strong leadership. But, there are also industries that do not have strong leadership, do not train their personnel to a professional level, and to use a football metaphor, risk being relegated to the second division.

The Luxury Market is Turning Red

You might be forgiven for thinking we are living in a recession. Yes, that’s the time when you have to cut out the luxuries, make sacrifices and lead a meaner and leaner life. But there are people who live amongst us who are enjoying life to the full, buying luxury goods, and having a wonderful life.

Who on earth are these people? They may look like you or me, but they must really be aliens. Let’s see where they might be.

The global luxury market is estimated at £160 billion in 2011 composed of 37% in Europe, 27.4% USA, 11% Japan and 10% China, with the remainder from the Rest of the World. The overall market is predicted to double to £344 billion by 2020.

In the UK the luxury market is expected to grow 10% to £6.5 billion and will grow by a further 57% to £9.4 billion by 2015 according to a report by Walpole and Ledbury Research. A quarter of all sales of luxury goods in the UK are sold to foreign tourists who visit the country, with the Chinese being most avarious purchasers.

It is the Chinese who are set to set the luxury market alight over the next few years. Although the Chinese make up only 10% of the luxury market in 2011, they are predicted by Hong Kong Research company CLSA to grow to 44% of the market which will total £344 billion by 2020.   

Many of the top brands already have a significant amount of their sales coming from Greater China, which includes Hong Kong, Taiwan and Macau. These account for 28% of sales for Swatch, 22% for Richemont, 14% for Bulgari and 11% for Hermes. Top British brands such as Burberry and Mulberry also have significant sales figures from China.

So, the luxury markets are veering east, and the future is red. The Chinese are setting the luxury markets alight. Roll out the red carpet…..

Is Top Executive Pay out of Control?

In the early 1990’s there was lots of talk in the media about the fact that many of the Chief Executives of the top British companies were badly paid when compared to their American counterparts. The argument went that companies could not attract good talent because they did not pay enough. Since then things have changed radically, and it is clear to see that top executive pay is now completely out of control.

The High Pay Commission was set up by the Coalition Government in November to look at pay in the private sector, and has just published its interim report.

It is worth reminding ourselves of some basic principles here. We are talking about the private sector, not the public i.e. government sector. The private sector is divided in two parts, private companies where the ownership is controlled by private individuals, and the public companies, where the ownership is open to the general public.

With regard to privately held companies, what the top management pays themselves should not be the concern of anybody else as long as the management respects the law, and no fraud Is involved. After all, these are companies that have been built up by entrepreneurs or their families who have put their own money behind their companies and taken the risks necessary to succeed. They understand better than most the dynamics to make their companies work effectively. They know that if they pay their employees too little, they could lose them. Most do look after their employees and try to create a family type atmosphere.

With regard to public companies, the situation is completely different. The top management have rarely had anything to do with the establishment and growth of the companies up to the time of their appointment. There are one or two exceptions to this, of course, one of the most exceptional being Sir Martin Sorrell, who was instrumental in the development of WPP.

There is no doubt that CEO’s should be’ well paid’ for the job that they do. It is a question of what one considers to be ’well paid’. The High Pay Commission points to the fact that the average worker is paid £25,816 and a top executive receives £3.75 million, 145 times more than his worker. This is up from 69 times more in 1999. There is no doubt that this appears excessive.

It would not be so bad if this top management were ‘worth’ the salary and bonuses they are paid. The reality is that very rarely are they actually worth it. There are some good examples of top managers who were worth it-Sir Terry Leahy of Tesco-comes to mind, but he was exceptional. Too often they are very well remunerated for failure to deliver the targets set for them.

The average tenure of a FTSE Chief Executive has fallen to 4.6 years as of 2005. The reality is that they have relatively little time in the job to actually achieve anything. Five years should be minimum term, with the object of increasing this to ten years, should results be good in the first five. Knowing this, many Chief Executives probably turn their attention to focusing on how much they can earn in as little time as possible, before the inevitable happens, and they move on.

Warren Buffet, the legendary investor, recently spoke about an interesting concept that a Chief Executive should bear the personal responsibility if a company goes into liquidation under his watch. This would mean his personal bankruptcy, thus ensuring that he did not benefit personally from his own bad management. It would also create a stronger ‘duty of care’ to the company and the employees. There have, after all, been a number of cases of ‘commercial dictatorships’ where the leaders of several companies including Enron, Lehmann Brothers, and Royal Bank of Scotland have led their companies to ruin, but benefitted substantially financially in the process.

The Coalition Government is talking about putting into law the Military Covenant, the country’s agreement with our armed services. It is now time for a new Commercial Covenant. We have just had the biggest shock to the capitalist system for 50 years. It is certainly time to reflect on what changes may be required, and some ground rules set, so that everybody in a company can benefit from progressive capitalism, not just the greedy and privileged few.