Talking small business

According to Government statistics there has been sustained growth in the total business population, an increase of 55 per cent, since the year 2000.

Looking inside this number, 90% of this increase of 1.9 million businesses is due to what they describe as 'non-employing' businesses. In total 99.9% of all the UK's 5.4 million private sector companies were classified as SMEs accounting for 60% of all private sector employees and a total turnover of £1.8 trillion! And the biggest sector of the UK businesses is "Professional, scientific and technical." Somewhere in this array of statistics is an interesting paradigm shift - 76% of these companies have just one person.

Technical Marketing Ltd [which was founded in 1999] has been well placed to observe and comment on the rapid growth of a different type of business model in the professional, scientific and technical sector of the UK economy, since 2000. Our business model is not unusual in this vibrant sector and in official jargon is a 'non-employing business'. Why do we not employ staff? Because we don't need to. Ours is essentially a knowledge business and can to a very large amount of the time operate with an Apple iBook from anywhere with a suitable Internet connection. That is not to say we don't employ people, because we do. We use businesses just like us for a range of skills such as programming, design, video, accounting, web hosting, translations etc. We provide a brief, agree a price and timescale and project manage the delivery of sub-contracted work. This has some very valuable benefits. We don't have to manage people. We don't have to own or rent premises. We don't have to deal with HR. We don't have to deal with a whole web of employment law. 

You don't hear politicians talk about this business model apart from figuring ways to impose more tax. The current Referendum campaign talks about employment, the 'Britain Stronger in Europe' web site proclaims 'being part of Europe means more jobs and opportunities.' It adds '3 million UK  jobs are linked to our trade with the EU.' Further a news release says '81% of UK small businesses want to stay in the Europe.' It continues 'More jobs, lower prices, less paperwork and its as easy to deliver to Berlin as it is to Birmingham.' The accompanying video on Facebook says 'over 200,000 UK  companies trade with EU countries.' 

Interesting. Do they mean 200,000? It's less than 4% of the 5.4 million private sector companies. Lets talk about the benefits for business advanced by the pro EU camp.

1. More jobs. I  would suggest few small businesses consider their purpose is to create jobs. Bearing in mind that a majority of these small businesses by far are single person companies job creation is not what motivates them.
2. Lower prices. This is based on the premise that British businesses outside the Euro tariff barrier would have to sell their products at a higher price into Europe. When the Euro currency was introduced prices in those countries ramped up fast. European regulations have tended to make goods more expensive, not cheaper. Off shore, mainly Far Eastern production, where there is far less regulation is what has lowered costs.
3. Less paperwork. Really! What about the EC Sales returns?
4. As easy to deliver to Berlin as Birmingham. Hmm? That's due to couriers - hardly an EU creation the rest of the world has them too. 

Talking about the global market

The global market which has evolved particularly since the widespread adoption of the Internet has created a paradigm shift in how products are designed, built and delivered.

In the early 1970's  about the time Britain joined the EEC, I was a Product Manager working for what was then the leading British lighting company.  Our world view could be simply put as  being divided into the UK market and the export market.The UK market had a massive sales team organised on a regional basis with offices and warehousing in most  major UK cities and in addition special sales teams for government contracts, major OEM customers, big companies and no doubt a few more. Not surprisingly  lot of attention was placed on designing competitive products for the home market, big launch programmes, advertising,  the works. By comparison export markets were managed by a small group who had office space on the 4th floor. Unlike our frequent trips to UK  sales offices we rarely wandered into their territory a couple of floors above us. It was a somewhat murky world inhabited by a small team of export managers who somehow divided the world up in a similar way that the UK  assigned cities and counties into 'sales patches.' Export managers were a varied lot. Some dealt with what was in effect the old  British Empire and the English speaking world in  general, where 'Made in Britain' stamped on the product was sufficient proof of quality and the only matter to discuss was the price and terms in general. It was boom time in most places then, particularly in the Middle East and securing production capacity in the scheduling was a major issue. Salesmen whispered to favoured customers things like. "I  can let you have 10,000 fittings in 3 months time." Europe was a different cup of tea. Export managers rarely spoke a second language, but there was one chap who seemed to have been recruited in error as he was alleged to be fluent in at least two European languages. The main drawback being he had no flair for selling and hated foreigners!

 When Britain joined the then EEC, to my knowledge neither I, nor any of my fellow product managers had been allowed to go abroad to get some sort of insight into the market. This was reserved for the export managers who enjoyed the perks of duty free booze and fags on their return from the continent and wanted to keep this to themselves thanks very much. The was also a quasi technical guy who was charged with getting our products approved by the proliferation of European Test Houses and spent a lot of time designing product labels to adorn our products. The absence of Test House approval was at that time given as the reason why sales to Europe were so feeble. The bad news was that the eventual award of such approval had little impact on improving sales, so new reasons were discovered. These came down to two main issues - they didn't look like European products and they cost too much.

The export sales managers had juniors who brought pretty well every foreign tender down to the product manager team to sort out. There was a clash of personalities between the technically oriented product managers who generally considered themselves superior to the export 'runners' which  created tension and led to all kinds of bad relations between marketing and export departments. Unsurprisingly the product managers were not well motivated to get involved in designing products for Europe.

As product managers we worked with designers, development engineers, in-house test engineers, production engineers and with much shuttling between the laboratories, drawing office, test department and factories to get our products produced. We also calculated the 'Cost to Sales' - an absolutely key figure which ensured factory overheads were recovered, tooling investment fully amortised and the sales mark up sufficient to provide discounts for wholesalers and contractors, could be sold at a competitive price and achieve a return  Gross Margin [GM] at company set target figures. We PMs assiduously studied reams of computer print outs each month, avidly checking GM s for our product portfolios. One of my product portfolios was 'Outdoor Lighting . In this product  category was one of our best sellers; a 500 W tungsten halogen floodlight which sold several million during  the product's lifetime and typically sold back in 1970s Britain for round about ten pounds. I  have just Googled a floodlight of the same sort and turned up a price of £4.95! That's undoubtably offered for sale at less than I  could get the same sort of product made for, 40 years ago. A pound in  1973 is apparently worth £11.90 in 2016, so the £10 fitting in 1973 would be £119.00 now. Amazing.

From time to time we tried to open up a market opportunity for domestic garden lighting but always came up against a major problem. Hardly anyone had an outside electrical supply and didn't fancy spending a £100 or so to get an electrician in to light up some roses. Last weekend we bought a pack of 8, for what was described as 'Smart Yard, LED  large solar lights'  all for under £40, or put another way, approximately £5 a fitting. The LEDs neatly solve the need for a mains electrical supply - a technology not available to us 40 years ago - but what was interesting was the pricing and by inference, the cost and the journey from manufacturer to end buyer.  The units contained LEDs, associated electronic driver circuitry a photocell, a waterproof housing  with windows and  mounting spike plus packaging, probably at a cost to sales of £2 to £3! But wait a moment, country of manufacture was shown as Taiwan, imported to California, USA and shipped to Costco in Milton Keynes, England. In short made on the other side of the world, shipped via America to England , sold by an American outlet all for a few pounds. I am left wondering how much cheaper would it be without any import duty to the EU [averaged duty for this class of product is over 15%] and this is not an isolated example either.

So what would change if Britain leaves the EU. In this scenario just the import duty would go, we could pick this sort of stuff even cheaper.

The market environment - political considerations

In recent blogs we have looked at the issues of EU membership that have had an impact on product development. We have noted that global requirements are now increasingly more relevant than national or European ones. Mandatory test standards tend to have evolved from national standards to International standards. Technical barriers have been overcome  so developing products for world markets can be managed in many ways regardless of EU  membership.

This time we look at price penalties in the form of an import duty which may be tougher to deal with. One  current issue being debated is whether Britain's trade with the rest of the world will be more successful by remaining inside the European trading block, or will it flourish outside once free of EU  constraints. A major question is the application or absence of tariff barriers and the prospects of securing alternative trade agreements should Britain opt out of the EU. Having been members of the EU for more than 40 years, many people will have had no experience of business in an independent country despite Britain having traded freely and successfully around the world for centuries.  It is not surprising the 'Remain' in the EU side are playing the 'Fear' card promising all sorts of bad things should voters choose to leave and take a step into the big unknown. But is it really that unknown? Europe is in decline, the currency has had a hard time, some member countries are probably bankrupt, many countries are dealing with immigrants by literally fencing off borders with razor wire, there is growing unrest and political dissent even in Germany and France who along with Britain bank roll the whole show. Eurosceptic parties are gaining support and a British exit could serve to hasten the inevitable collapse of the EU, at least in its present form.

The outcome of the British Prime Minister's renegotiation  of the terms of Britain's membership of the European Union were finalised towards the end of February. They seemed to come down to just four issues which government spin presented as a significant reform of the EU, while others see these proposed changes falling a long way short of any serious reform, in fact marginal at best. The Prime Minister apparently regards these changes sufficient to commend continued membership of what he now calls a reformed  EU to the British public at a referendum slated for June, to let the voters decide if the country stays or leaves.

The concept of a referendum is itself something of a continental expression of public sentiment, whereas Britain has a long established tradition of voting for a party programme or manifesto at a General Election, although local factors such as the popularity of the local Member of Parliament can have an influence in the 'first past the post' winner takes all outcome. Most European countries use a system that correlates the number of seats won to the number of votes cast, so the party with most votes gets most MPs elected and if that is also a majority percentage they get to form the government.The thing is getting over 50% of the popular votes is not what usually happens, so coalition governments are the usual outcome.

But in Britain the local votes determine which party gets the MP in each constituency and  for several decades it has been a two horse race between the Conservative Party and the Labour party. Constituency sizes vary considerably and from time to time are reviewed but typically the 2 parties have see sawed back and forth forming alternate majority governments. It is possible to get a majority of seats without having anything like 50% of the vote; 40% will probably do it. However things have been changing.The two main parties of government have pursued similar policies and all the main political parties support membership of the EU. In fact the so called third party - the Liberals - are even more enthusiastic about Europe than the Labour and Conservative parties which include MPs - the Eurosceptics - who are less enthralled by the European project.

The British voters generally have shown scant interest in Europe until in more recent years there was a growing concern at the increasing number of immigrants from the less affluent eastern states of Europe which became noticed at the day to day level with pressures on services such as health, education and housing. It seemed that nobody really knew how many people from European countries were now in Britain, although it ran into millions. The governments of the day helpfully explained that nothing could be done because of European legislation - an explanation for pretty much everything. For years the popular press more in tune with the public mood had made fun of the European desire to legislate for even the most trivial thing from the curvature of bananas to the classification of carrots as fruits. So  when the  British voter looked for a political party that reflected their concerns there was an electorate ready for an openly Eurosceptic political party. And they didn't have to look far. Waiting in the wings was UKIP with a simple solution to the various concerns with their origins in European inspired laws and that was to leave the EU and govern ourselves.

And so in the 2014 UK election for Members of the European Parliament, UKIP became the largest party with 24 seats from 4.36 million votes, Labour with 20 seats from 4.02 million votes and Conservatives 19 seats from 3.79 million votes. The Scottish Nationalist polled 389 thousand votes and won 2 seats. But using the traditional UK  first past the post electoral system at the 2015 General Election the results were very different. The Conservatives with 36.9% of the vote won 331 seats, Labour with  30.4% won 232 seats, the Scottish Nationalist  with 4.7% won 56 seats while  UKIP's 12.6% as the third biggest party translated into just one seat. Put another way nearly two thirds did not vote for the government. Mind you compared to the EU where the people that run the show are not elected at all, The Democracy Deficit in the UK seems trivial.

So the big issue of whether Britain stays in or opts out comes down to the British electorate in a referendum, a rarely used tool in Britain. With the political establishment campaigning to remain members of the EU and backed by big business and big trade unions all motivated to protect their perks the leave campaign which seems barely visible is in the hands of a few maverick politicians, small businesses and the general public.

Design by consensus

Designing new products generally doesn't work when the task is handed to a committee and is even more likely to  result in failure when that committee comprises members from several different countries.

It has been claimed that the camel is a horse designed by a committee and that is what you get when trying to meet the key demands of all parties. In the early years of operating in the then Common Market nothing much really changed except as a product manager I  was sent off to Europe on some sort of fact finding mission. My first trip was to Sweden, not then even a member of the EEC - the European Economic Community - but one of our best markets for floodlighting products  outside the UK. I  learned little of interest relevant to designing products for that particular market, but more about the people who had wanted to give input to the next phase of product development. I  took away a simple message that those who were making good progress in the market and shouted loudest got listened to. Basically we tended to modify design to suit products that were already selling well rather than attempt to design a pan European product that could be sold anywhere without modification. The real challenge was to develop products that were better than the competitors and price competitive.

My next company operated in more of a niche market and the MD - one of several who occupied the hot seat during my 10 years there - became bored with all the moans he got about our product not suiting the market in every country he visited and so insisted on each sending a representative to design meetings. We would have been lucky to come up with a camel, yet only the horse.  Bringing them all to London and getting them in the same room was challenge enough and keeping them in the room even tougher. Each had some favourite element that must be included in the final product. If we had actually incorporated all of them, the product would look ridiculous in any country and be burdened with a high cost overhead. Design is not really a committee thing, less so if the individual members have some private agenda to get some feature or the other in. And lets face it, even if they were all from the same country most people have little idea anyway, until that is you have made a product. Then they will soon tell you what is wrong with it. But ask them to explain upfront and it is a different story.

We had manufacturing in several locations, but mainly in Italy, Scotland and the USA. A visit into the factory in Italy was itself instructive. Stop and examine a product making its way through assembly would soon draw a crowd of excited Italians who all seemed to be frustrated designers, oblivious to the work piling up at the work station they had abandoned to join the argument. Interestingly the biggest market for their products was the USA. I think it fair to say the enthusiasm for the design of products and passion for beautiful engineering was not a thing that troubled  assembly line workers in the USA or Scotland to anything like the same extent. Indeed  in some English factories they had to ask permission to visit the toilet!

It seemed to me that a good product, at the right price was what everyone actually wanted to buy and getting the designers to understand the end user needs and often the installers' preferences was more helpful than assembling an international committee. Football floodlights were an interesting example. These were often at the top of a tower of uncertain vintage and usually ex MOD  from the end of WW2. Climbing some 200 feet up a lattice construction tower was bad enough but then fiddling around with an Allen key to tighten up the screw was not something designers thought about until I  took them to a major football stadium and made them climb up and see for themselves. In Sweden by the way they often had to do this in sub zero temperatures!

All said, British membership of the EU as the EEC  became, had little real impact on product design or acceptance in other countries. The test standards did, but then it is international standards that are more relevant than now. While all this focus on European issues was going on, the Japanese and later the Chinese were making great inroads into our markets without needing to be members of the EU.  The larger companies in the UK did have some input to British Standards and sometimes to European standards as well, smaller companies did not have that advantage. So we are left with tariff barriers and cost issues. Again, experience suggested that compliance with standards was not always mandatory. It is the old marketing Product, Price, Place and Promotion which had to be sorted.