2004 What's in store...

You’re confident in your prospects, but not in the economy as a whole. Growth is your priority, but you’re not going to seek venture capital. You’d rather ask your colleagues for advice than speak to Business Link. You’re tired of red tape, but it won’t stop you from hiring. And you couldn’t care less about what goes on in Westminster.

If you want to know what the future holds for entrepreneurs you don’t need a crystal ball, you just have to ask them. And that’s just what Growing Business did in the run up to the end of the year, by going out and getting the answers from the key decision makers in 200 of the UK’s fastest growing companies.

We wanted to hear what your opinions and priorities will be so as to understand what would be pushing you forward – or holding you back – over the next 12 months. What we’ve ended up with is a unique insight into the to-do list of entrepreneurial Britain for 2004.

Why have we done this? Because we want to get a clear understanding of sentiment and confidence in the entrepreneurial business community as we start a new year, in order to get a better picture of how companies, like yours, plan to move forwards, and help you get a sense of the issues which will increase or dent the confidence of your peers.

So if you want to know what your competitors are planning for the next 12 months, put down those horoscopes, and read on.

GROWTH, GROWTH AND MORE GROWTH

One word that seems to be on nearly every entrepreneur’s lips in 2004 is growth. Unsurprisingly you are an optimistic bunch with 79% of you saying that 2004 will see an increased emphasis on growing sales revenues.

Caroline Plumb, co-founder of business research house FreshMinds, is one such optimist. She explains: “This year is really much more about expansion whereas the last two were focused on consolidation. This is partly our business life cycle, but it also has a lot to do with the business environment.”

But there’s still an air of caution. Angus Drever is CEO of Multimedia Television, which has had to survive both the overall economic slowdown and the spectacular commercial implosion of his own media and technology sector. He says 2004 should be the time when the seeds he has sown over the past few years will begin to blossom in the form of new long-term and profitable government contracts. While growth is important, says Drever, so too is cost and cash flow management, and these have kept the business on track over the past two years.

“It’s been a tough couple of years and those that have survived are the ones who managed their cash flow, and took a firm rein of their costs. It’s a case of last man standing, particularly in the new media and technology sectors, but those that have can take the full benefit of the upturn,” he says.

And with 55% of you saying managing costs will be your priority over the coming year and 46% saying cash flow management, it’s clear that although economic recovery may be on its way, more than a handful of you want to make sure you are still around to take advantage further down the line.

BUT WATCH THOSE COSTS! 

Cost-cutting isn’t just a symptom of survival mode. Jacqueline de Baer is one person who says it’s all about facing the new reality of tougher buyers who want more for the same money. The chief executive of the uniform company which bears her name, feels that, while sales may increase over the coming 12 months, her customers demand for value for their money will be far greater than ever before. And that means squeezed margins.

“Consumers expect a value-added offer and have greater access to information, allowing them to compare prices. Therefore you have to go that bit further to win their business and, of course, that’s going to have an impact on your bottom line. So managing costs and keeping an eye on cash flow are still going to be vitally important,” she says.

Alan Horridge, managing director of clothing manufacturer Americana, sees another cloud on the horizon, keeping him on the cautious side of the fence, and that’s a potential downturn in consumer spending.

Despite investing in a new warehouse and expanding existing outlets he says the past few months of 2003 have cooled his expectations towards the coming year and is choosing to look instead towards 2005. “I’d like to get a couple of months trading in 2004 under my belt before I get too carried away. If you had asked me a few months ago I would have been optimistic, but levels of consumer spending in the last quarter have been disappointing. When there’s an upturn we will be ready, but it may well be some way off yet,” believes Horridge.

SALES GO NORTH - BUT HOW?

Whatever the reservations, the majority of you have called a bottom to the post-bubble slump. There’s faith in the future and a firm belief things will get better, not worse for you in 2004. In fact 86% of you believe your annual sales revenues will increase in the next 12 months at a greater rate than was seen in 2003.

Entrepreneurs, by nature, are an upbeat lot, so we quizzed our panel on what kind of investments they will be making in order to boost their sales. For 56% of our respondents the answer was an increase in marketing spend. This is certainly the case for Mark Mills, chief executive of AIM-listed cash machine company Cardpoint. The more transactions his customers make, the more money his company will take so, for him, 2004 is all about pushing his product.

“We’ve spent time building our customer relationships and our services, so now it’s time to push our transaction numbers. We’re rebranding our machines, because we’ve got a good number in place, but now it’s time to pull all the strands together,” he says.

TIME FOR TECHNOLOGY

For 48% of our respondents, investment in new technology is the key to delivering growth next year. Marcelle Speller, founder of internet property agency Holiday-rentals.com, says her company’s 60% year-on-year growth will be hard to keep up, but spending money in this area will go a long way towards achieving that.

She says: “We will keep developing technology and not rest on our laurels. It’s going to be the back office, rather than the ’sexier’ side of things on our website, but doing this will allow us to operate more efficiently and that’s extremely important.”

And it’s not just technology-led businesses like Speller’s who have an open mind as to how technology can improve your business. Judging by the 70% of you who implement new technology sooner rather than later in its development life cycle, you understand clearly the competitive edge technology can give you in your market.

But for most of you, your investment in technology to date has not included investment in e-commerce. Despite the well-hyped growth of online trading, an average of just 7% of our businesses’ annual sales came via the internet. Within that statistic, the majority of you did no business online at all, while only a few did all of their business on the web.

Given the cost-savings, business efficiencies and increasing pressure from commercial partners a move to e-commerce based trading systems looks long overdue.

PEOPLE POWER 

After two years of recruitment freezes and redundancies, it looks like you’re ready to start hiring again. Over 60% say overall headcount in the business will increase in the next 12 months. If you are like Robyn Jones, founder and chief executive of independent caterer Charlton House, this won’t be an exercise in adding fat to the head office, but recruiting more people to service clients.

“We have around 11,000 members of staff, but I expect to increase that by around 16% in 2004, though only a small amount will be in our head office,” she says.

But recruitment has its issues. While you want more staff, you don’t want to hire any old person to do the job. And there’s the problem, that there aren’t enough good well-trained people out there.

Alan Horridge is one person who is concerned about the impact this will have on his company and the businesses of others.

“I was at a presentation the other day where it was pointed out that the one million people who are currently unemployed are the ones who have no skills whatsoever to speak of. That means if I need to hire I’m basically going to be pinching them from someone else’s workforce, and then that means when another firm’s recruiting they’re going to be nicking my staff.”

Robyn Jones agrees with this. She says picking those with the right skills is becoming increasingly difficult, and this is exacerbated by the fact people don’t see catering as a credible and attractive business to go into.

So while low unemployment has not been an issue over the past two years, a shortage of staff could really hamper growth if the economy takes off in 2004.

WAGE WORRY

Along with a more buoyant labour market, salary inflation is one cost you will be finding hard to keep in check over the next year.

A massive 82% of you expect to pay your employees a significant percentage more next year than the last. Most of you put this down to two factors. The first is to make up for the lack of salary increases over recent years.

“Wage increases will be one of our big issues next year,” says Angus Drever. “We’ve got to be very careful – we’ve kept wages on hold in the past couple of years because business has not been as healthy as it is today, but now we have a pent up demand and managing that is going to be difficult. There’s also an increase in expectations as good times roll in.”

The second factor is staff retention. If, as Alan Horridge points out, the only way to get good staff is to recruit from a rival company, then that competitor will be looking to improve remuneration in order to retain the best employees.

So how are you going to fund the increases? Most of you favour a performance-related approach, so the upside for the employee comes when there’s a change of fortune for the business.

“I would favour a more bonus-based approach along with other benefits, because that way we can remain competitive employers, without hurting our cost base too much,” says Drever.

The use of bonuses is also a route Marcelle Speller is keen to explore further over the coming year.

“In areas like sales and customer services we need more people and to keep the ones we’ve got. Wage rises will be in line with inflation, but with a link to bonuses, which I think is the way to go forward. We now have a quarterly scheme, which is a happy medium, as annual’s not enough but monthly can just make it seem like wages to an employee,” she says.

THE BIGGER PICTURE

It’s quite clear that most of you feel good about your businesses. But what about the bigger picture, is your optimism down to our prudent Chancellor and the state of the UK economy as a whole?

Well, the answer appears to be ‘no’. Despite signs of a return to growth in Q3 2004, only 45% of you felt the market conditions in which you will be operating in will improve in 2004 while 52% expect 2004 to be the same or much worse.

Again, the source of this angst is the fragile state of the consumer which is casting shadows across all sectors.

Warthog Games is one firm having to weather a slump in its industry, something which is down to the consumer.“This year will have to be about consolidation. It’s a tough time in the industry – retail has been hit by a slowdown,” says CEO Ashley Jay Hall.

Jacqueline de Baer is another who is finding confidence is fragile. She says her customers are finding things hard on the high street and are likely to continue to be conservative, which in turn will effect her prospects for 2004.

However, she says, the key to surviving these mini-downturns is to be lithe and not to leave your business reliant on any one sector. “Before September 11, we were dependent on the travel industry so we have to make sure that we’re never in that position again. There’s no recession, it’s more sector specific as we’ve seen in banking at the moment, so we have to make sure we’re covered.”

And given the optimism about your individual businesses next year it seems that adopting this approach and cherry picking promising sectors will be the key to growth.

DOWN ON BROWN?

In the same way most of you think you’ll make your own luck whatever the shape of the economy, and what the government does has very little bearing on your plans too. In fact, it seems you are largely an apolitical lot who care little about who is in charge of the country.

When we asked which political party would best serve the interests of business, 40% picked the Tories, 12% plumped for Labour and 2% selected the Liberals.

But, as those of you with a calculator to hand might have noticed, the biggest percentage of our businesses were in the ‘don’t know’ or ‘undecided’ category – some 46%.

Caroline Plumb sums up the opinion of many when she says that if the party in power changed overnight little would change.

Nick Schwefel, founder of children’s shoe shop One Small Step, One Giant Leap, agrees. “What they do really doesn’t affect business either way. Of course inflation and interest rates are important, but I think business owners, particularly the smaller ones, are largely apolitical because there’s just a lack of influence,” he says.

So while some issues like last April’s rise in National Insurance contributions got many hot under the collar, the general view is that their business will succeed or fail on its own merits rather than what goes on in Westminster. Perhaps Jacqueline de Baer puts it most concisely: “Fortunately, there’s a business momentum which continues regardless of what they do.”

Perhaps this disenchantment with the politicians comes from the fact that they understand the true priorities of business so poorly. Gordon Brown and the Conservative Party of Michael Howard seem to think that unraveling red tape is the most important message they can send to business. Yet the reality is that most of you see red tape not as a business-threatening issue, but rather as a minor annoyance.

Mark Mills of Cardpoint says that compared to continental Europe, the amount of red tape we have in the UK is minimal. Babel Media’s Algy Williams, who has experience of operating overseas, agrees and says that in contrast to our continental counterparts, British businesses have it relatively easy.

Some, such as Jacqueline de Baer, say red tape has created a more difficult environment for employers, because it has weighted the law too far in favour of employee claims.

“Employing people is fraught with problems,” she says. “Red tape has affected us because nowadays you’d rather just pay off an employee to get them off your case, otherwise you’re facing astronomical legal fees.”

But many, like Angus Drever, are happy to keep the issue of red tape in its true perspective:

“It would be unrealistic to say we haven’t taken people on because of red tape, but it does mean if you do hire someone you’ve got to be incredibly rigorous in your selection process, because if they turn out to be unsuitable it’s going to be very difficult to get rid of them.”

WHO'S YOUR VOICE?

Tellingly the problem politicians have in understanding the real issues faced could simply be down to who they choose to listen to. As the most vocal and best-organised employer organisation, the CBI is the most dominant voice in the media, claiming to be the voice of enterprise. It’s also regularly consulted about over-legislation by a government which lives in fear of what damage it could do if the relationship broke down.

Despite this, we found a mere 19% of you felt the CBI was doing anything close to a good job in accurately representing your interests or those of British business.

The Institute of Directors and the Forum of Private Businesses did not fare much better either.

Some, like Robyn Jones of Charlton House, have found their views being promoted by their own trade associations with some affect, while others are less enthusiastic about whether anyone can get the government to act in their interests.

“The games industry has enjoyed some success with government, but sadly there’s no real body or group which represents us well,” says Ashley Jay Hall. “Whereas in countries like Belgium and France it has been actively promoted and we’re losing businesses because of that. We want to see tax breaks and incentives alongside those given to the film industry, but I’m not optimistic – it tends to be reports on reports and no action.”