Outrageous fortune may shake the nerve of even the most hardened business veteran in 2018 and the outlook is unsettled. So does it make sense to diversify?
Perceived wisdom in volatile times is for companies to focus on core activity – but if diversification is prompted by customer demand it can successfully drive growth and expansion.So should you be seeking multiple revenue streams? As partners at accountancy and business advisory firm BDO, Steve Le Bas and Arbinder Chatwal have a broad view across the wide-range of businesses in the Central South Mid Market.
So how do they answer the question:
To diversify or not to diversify?
“Running several strands of business in parallel de-risks the business, especially if they’re complimentary and can have a wider benefit to each strand of the business,’ said Le Bas. “It can provide healthy challenge and opportunities that may not have otherwise presented themselves.
“The downsides are that you may end up trying to spin too many plates, not focusing on the really profitable and growing side of the business.”
‘Think slow…. act fast’ is Chatwal’s motto. “In the current uncertain climate if you’re standing still, you’re falling behind. Businesses still need to explore, branch out into new areas and take risks, but these risks need to be calculated, and measured.
Economical and political uncertainty is the new norm, and those that find opportunities in this adversity will succeed. Diversifying is one way to grow – but only with appropriate homework and due diligence.”
For some successful local companies diversification had been the modus operandi for many years. SHB and Just Develop iT, are two of the region’s top performers identified by BDO this year in their ongoing focus on the Central South Mid Market.
Film stars and scorpions
No two vehicles are alike for SHB (Hire).
Anyone who loved Thunderbirds would love the Scorpion. A massive vehicle, it sits on the motorway, reflective diagonals on its rear alerting drivers to the proximity of road workers – and protects both in a unique way.
“My favourite,” admitted SHB commercial director Nicky Simpson, in the Romsey HQ workshop. “The crash cushion, with its circular metal cage at the back, lowers down to the road and if a car hits, it grabs the car and brings it safely to a halt. The front of the vehicle instantly stabilises so the impact doesn’t travel through to workers on the other side.”
It’s not a beast you’d find on every forecourt.
‘We’ve always been diverse,’ said managing director Paul Street. ‘We moved into golf buggies in 2013 for summer festivals … and we also supply quarry vehicles, built with roll cages, road menders, bird scarers for airports …’
With 16 depots across the UK, SHB doesn’t just hire and sell its 17,300 vehicles – it innovates.
“Our whole business has changed through being customer-centric,” explained Simpson.
This means every day demands different solutions, from how to move a stranded farm vehicle to which golf buggy is best for the PM to ride on at Farnborough Air Show. It can be challenging.
“Our mechanics aren’t just learning about a car or a van,” said Simpson. “They’re building this wealth of knowledge about all kinds of vehicles. One minute a car, the next an old gritter…”
And Street points out that diversity doesn’t immunise SHB to recession and Brexit wobbles. “Yes – in recessions traditionally customers prefer rental to purchase, which is good for us, but we’ve still had our share of customers going into administration.”
Diversity, though, is in the blood. Since the family business launched in Totton fifty years ago, it’s evolved from 4x4s to precision engineered road menders and bespoke plant vehicles. SHB’s workshops, and mechanics, are impressive and exhaustively capable but also adaptable for very specific customer requests.
Street and Simpson clearly relish the daily requests for solutions to the 21st century’s mobilisation problems – and the upswing of profit in recent years proves customers appreciate this.
And there is the occasional high point. For Simpson it was overseeing a mass mobilisation for Shropshire Highways with Kier. “We had around 150 vehicles to deliver. We took over their workshops and seconded their staff. On delivery day I saw all the vehicles lined up; all our guys doing hand overs. I felt so proud.’
For Street, it was all about Nicole. “Twenty years ago… out with the film industry, on the set of Portrait of a Lady,” recalled Street. “ I had the pleasure of being Nicole Kidman’s chauffeur for the day. She was absolutely lovely.”
Just Develop iT
Developing a passion
Technology, product, property, finance and … a fleet of jets.
You couldn’t get a much more diversely spread business than Just Develop iT.
“We’re pitched to two or three times weekly. There are always opportunities to diversify,” said Dan Richards, chief operating officer of the Segensworth-based global investment and finance firm.
“We own 95% of one of Europe’s fastest growing private jet operators. We acquired Xclusive Jets in 2016, keeping the entire team ‘on-board’. We’ve more than tripled the headcount, acquired five new jets – with two more coming to the fleet in Q4 2018 – and increased turnover by over 600%.
“Chris Phillips, our CEO, was excited by the opportunity. He’d already started flying privately and thought he could operate the business in a more efficient way. We researched, carried out due-diligence and a couple of months later the business was ours.”
It’s not just the UK that attracts investment from Just Develop iT.
“We own 20% of the number one vaporiser pen in the US – Kandypens. Over two years the business has sky-rocketed. It’s featured in a Justin Bieber and DJ Khaled music video, and has a huge celebrity following.
“And we’ve a great investment in San Diego. Workwell, an all-in-one solution for employee and payroll management, is one of the most consistent performers in our portfolio.”
Closer to home, varied investments keep the team at JDi excited – Portsmouth’s Astoria nightclub, clothing line Feather, a thick property portfolio, a development finance business and a music festival showcasing A-list stars from across the globe.
JDi likes to give back to local businesses too.
“Recently, we ran a Dragon’s Den style competition. The prize was £25k equity-free funding, mentoring, HR support and website design. The winner, Southsea Bathing Hut, a local cosmetics company, is run by a wonderfully talented woman who has sound business acumen. She used her winnings to open her first storefront on Albert Road.”
JDi is not just about the money. The 80-strong staff at Segensworth HQ put in much more. Advice and strategy is key.
The downside is that its very diversity can run the team ragged, as chief finance officer Tom Barrett explained: “You have to educate yourself; learn the history. You get your head around a tech business, then the next idea is in and you have to go and learn about jets. It can be exhausting.”
Richards added: “You have to understand the operating nuances of all these businesses. It’s incredibly fun but a challenge finding the time to get all the business leaders what they need.”
Also key is when to get in … and out.
“We’ve built and scaled numerous businesses now. Our forecasting is incredibly accurate – we predict when a business will break even almost to the day,” said Barrett.
Richards continued: “We aim to exit our technology investments every two years. Our latest is an antivirus product business with eight million users on the platform. It starts generating positive EBITDA in two months’ time. Then our need to cashflow the business falls away. Typically at this stage we exit the business.
“Sometimes it’s sad when something that you’ve worked phenomenally hard on is sold off – it’s bittersweet. But you enjoy the returns … and there’s always the next project …”