I S S U E # 1

P O RT F OL I O

T H E Y ’ R E O U T T H E R E . T H E E N T R E P R E N E U R S . T H E V I S I O N A R I E S . T H E R I S K TA K E R S . T H E B U S I N E S S H E R O E S .

⟩ ⟨

⟩ 01 ⟨⟩ 01 ⟨

02

T H E T E M P L AT E F O R T H E M O D E LE N T R E P R E N E U R

04

T R AV E L D I A RY:S H A N G H A I

07

T W O ’ S C O M PA N Y …

10

I N N O VAT I O NFA C T O R I E S

14

D AY I N T H E L I F E :M O R G A N D AV I E S &PA U L K I L PAT R I C K

18

H O W T H E I N T E R N E T H A S C H A N G E D T H EW O R L D F O R S M A L L

A N D M I D - S I Z E D C O M PA N I E S

22

T H E P O R T F O L I O :O U R I N V E S T M E N T S

OCT 2011 – OCT 2012

24

C O N T R I B U T O R S

WELCOME TO THE FIRST ISSUE OF PORTFOLIO. IT IS BECAUSE OF BRITAIN’S FAST GROWING, SMALLER AND MEDIUM SIZED BUSINESSES THAT BGF EXISTS TODAY.

THEY ARE THE ENGINE ROOM OF THE UK ECONOMY. THEY ARE ALSO THE BIG BRANDS OF TOMORROW.AND THEY ARE THE STORY HERE.

THEIR SUCCESS DEPENDS ON HAVING THE MEANS AND CONFIDENCE TO GROW. BGF’S MANDATE IS TO PROVIDE BOTHAND THE CONTENT OF THIS PUBLICATION ILLUSTRATES WHAT CAN BE ACHIEVED BY DYNAMIC ENTREPRENEURS AND

AMBITIOUS MANAGEMENT TEAMS WHEN THIS IS MADE AVAILABLE.

⟩ ⟨

P O RT F OL I O

—# 1

BGF backs business heroes.

They provide the bravery and vision to build fast-growing companies, create jobs and boost the economy.

And we provide the finance and expertise needed to help them fulfil that potential.

If you’re an ambitious British companywith £3m+ turnover then get in touch.

bgf.co.ukHere for the heroes in business.

They’re out there. Exceptional men and women.They look like everybody else.But they are not like everybodyelse. Something sets themapart, makes them different,gives them unique abilities. It’s in their DNA. They’re the entrepreneurs. The visionaries.The risk takers. The heroes.

⟩ 03 ⟨⟩ 02 ⟨

BGF made its first investment in October 2011. As I writethirteen months on, we have put nearly £100 million ofnew capital into growing British businesses. We are ontarget to make 20-25 investments in 2012, and moresignificantly we have put in place the team and theinfrastructure required to make 30–40 investments nextyear. And we expect that number to rise further as webegin year-on-year to make “follow-on” investments intoour portfolio companies.〉But this publication isn’t about BGF. It is about thecompanies that we are investing in, and the businessheroes that run them. This “club” now numbers overtwenty business leaders, including entrepreneurial teamsas well as single owner-led businesses. 〉There is no such thing as a typical entrepreneur. As ourinvestment portfolio has begun to expand, it has beenstriking how different the CEOs are, whilst at the sametime sharing notable characteristics. 〉Let’s start with the differences.〉The spread of investment shows that good ideas,good management and growth are not restricted to anyparticular cities or regions. And neither do one or twosectors dominate. 〉In fact, with 20 portfolio companies we have investedin 15 different sectors – from healthcare to oil & gasservices, and from leisure & hospitality to IT & telecoms.BGF doesn’t invest in property or financial services andwhen those sectors are removed from UK nationalstatistics, the BGF portfolio broadly follows the nationalpattern. For example, manufacturing companiesrepresent almost a quarter of our portfolio, as they do ina rebased UK economy.〉Across the UK we have invested in almost everyregion, and most large industrial centres. This is a directresult of having dedicated regional teams and regionalapproach to market.〉Another major point of difference is how ourinvestment is being used by each of the companies. BGFinvestments have to date funded overseas expansion,new sales and marketing campaigns, acquisitions (bigand small), development of new facilities and the roll-outof retail and leisure chains. There is one thing they all have in common, however – the creation of many new jobs. 〉Lastly, age, which presents no limit to entrepreneurialsuccess. Today, our youngest entrepreneur is 32 whileour oldest CEO is almost 33 years his senior. Theaverage age is 45. Experience is not a requisite forsuccess. What sets successful business entrepreneurs

apart is the passion and drive to take your businessfurther. 〉And so what are the characteristics that theseentrepreneurs share, qualities that we look for whenselecting which companies to back? 〉I see four that particularly stand out:V I S I O N : Entrepreneurs have an idea, probably even adream. They know where they want to go. Innovation iscritical, as James Hurley explores in his article (p 11). Butthe most successful entrepreneurs back up their ideaswith a clear strategic plan. They really understand thedynamics of the market they are operating in, and thatmeans they are sure of the product and companyposition they are seeking to achieve. They have visionand a route map to get there. PA S S I O N : Don’t ask any of the CEOs to tell you abouttheir company if you are in hurry to get somewhere else.They love their businesses. They love their products,their sector, and they love the people that work for them.They are generally in constant sales mode and itsinfectious. Spend time with a successful entrepreneurand you will soon become their latest salesman!O P E N T O I D E A S : Another characteristic iswillingness to listen to advice. That doesn’t mean anentrepreneur will always take it, but they are innatelycurious and looking for new ideas or a new edge. Theyrecognise that information, expertise, and new networkscan all be keys to unlocking yet more growth. This is whywe think it is so important to create forums where theCEOs can get together to share their experiences – andthey agree. O P T I M I S M and D E T E R M I N AT I O N : We asked allour investee CEOs for their single biggest piece of adviceto aspiring entrepreneurs. They all said the same thing:never say no, never give up. It takes a special kind ofperson to take the disappointments, knock-backs anddownright failures that come with starting and growing abusiness. Not everything works first time, not everybodysees the genius of your idea – even for the mostsuccessful business owners. But the real heroes are theones who put faith in their vision, take advice where theyneed to, possibly even change tactics, but ultimatelycarry on trying. 〉18 companies … 18 unique, compelling and inspiringstories. This publication tells some of them, and introduces the entrepreneurs that BGF has backed. If you want to know more, please visit the websitewww.bgf.co.uk, or better still just give us a call 0845 266 8860.

—T H E T E M P L AT E F O R T H EM O D E L E N T R E P R E N E U R

J O N R H O D E S

—

THEY’RE OUT THERE. THE ENTREPRENEURS. THE VISIONARIES. THE RISK TAKERS. THE BUSINESS HEROES.⟩ ⟨

—K E Y S TAT I S T I C S

A B O U T T H E P O R T F O L I O

—Average age of Portfolio CEO

〉45〈

—Average age (years) of Portfolio company

〉8〈

—Median turnover of

portfolio companies, when BGF invested

〉£14m〈

Smallest = £3.1m, Largest = £90m

—Number of employees

(average)

〉151〈

From just 7 to over 600

—Size of BGF investment

(£million)

〉3–10〈

Average = £5.38m, Median = £4.25m

—

⟩ 05 ⟨

In September 2012, HSBC hosted a programme of internationalexchange events which sought to bring corporate businesses fromaround the world to selected fast growth, emerging markets forthe purpose of facilitating introductions, sharing best practice andinforming on opportunities. 〉3 September 2012, saw 75 businesses from across the worldgather in Shanghai. 〉Clive Nation, founder and CEO of the Surrey based Cennox plcgroup of companies – a provider of services to the ATM (cashmachines) sector and backed by BGF in June 2012 – was one ofthe CEOs taking part.

Clive Nation’s Travel Diary:Soon after we received backing from Business Growth Fund, I wasapproached by their Regional Director Paul Oldham, with details ofa suggested exchange visit to Shanghai. Through connections withits banking shareholders, BGF knew of HSBC’s internationalexchange programme and recognised the relevance of the Chinesemarket to our business.

You will travel far and wide.

〉32% of Cennox’s turnover is generated overseas, and the rapidexpansion in the ATM market as a whole is being driven by a sharprise in the banked population in emerging markets. China also hasthe potential to play a major part in our supply chain.〉Having arrived in Shanghai after a 12-hour flight from London,the group of 75 businesses gathered for a welcome from MontyHo, HSBC’s Head of Commercial Banking in China and HelenWong, President and CEO of HSBC China. Over a light supper (justtwelve courses!), they mapped out the plans for what would proveto be a highly engaging, and revelatory, three days. 〉Alan Keir, HSBC’s Global Head of Commercial Banking, set thescene with some staggering statistics. China is home to some 160cities with a population of more than 1million, dwarfing the 10similarly populated cities in the US and 30 in Europe. If the groupwas in any doubt about the size of the opportunity here, reality had

now definitely dawned. 〉This is a country that is currently acting on its 12th five-year plan.It is also undergoing significant change, which any entrant to themarket needs to be aware of.

Life does not get better by chance. It gets better by change.

〉Consumerism is well underway in China. Long established as anexporter, it is now increasingly looking to supply its own internalmarket; and this in turn represents opportunity for foreignbusinesses with a strong brand, product or service to offer.〉China has long since been influenced by the working practices ofthe West, and traditionally you would expect many of the mostsenior corporate positions to be occupied by Western executives.However there is a noticeable shift in the structural hierarchy oflocal businesses and an emphasis on business education.Increasingly local people are moving out of mid-management intomore senior positions, taking proactive ownership of their market.

The man who waits untill tomorrow, misses the opportunities of today.

〉State ownership remains an obvious feature of business in China.However there are signs that the state grip is releasing. It is still truethat most foreign businesses seeking to establish a presence inChina would look to agree a joint venture with a local company.However the state ownership levels are decreasing, with a stake of30% now more common than the historic 80%.〉The face of Chinese manufacturing is also swiftly changing. I have visited China ten to twelve times in the past, generallythrough Shenzhen and Hong Kong. The manufacturing scene thatwe witnessed in Shanghai was markedly different – now there ismuch less of the compound setting, with factory and residential

Cennox plcHeadquartered: Camberley, Surrey Turnover: c £20 millionNumber of employees: 84ATM market valued at: £5 billion,machines forecast to increase by36% in the next four years. BGF investment: £3 million

⟩ 04 ⟨

—O N E

S M A R T C O O K I EC L I V E N AT I O N

I N C O N V E R S AT I O N W I T H E M I LY W E S T O N

—

CHINA’S PROMINENCE ON THE WORLD STAGE IS GROWING AND IT ISA MARKET THAT ANY COMPANY WITH AN INTERNATIONAL OUTLOOK

CANNOT FAIL TO CONSIDER. IT IS DEMONSTRATING INCREASINGDEMAND FOR INTERNATIONAL PRODUCTS AND SERVICES. IT ISALSO LOOKING TO MOVE UP THE VALUE CHAIN, WHICH IN TURN

OFFERS EXCITING OPPORTUNITIES FOR BUSINESSES IN DYNAMICSECTORS SEEKING TO COLLABORATE WITH CHINESE COMPANIES.

⟩ ⟨

The secret of getting ahead is getting started.

⟩ 07 ⟨⟩ 06 ⟨

accommodation built side by side; and much more modernity,almost like walking into American or European manufacturingfacilities. 300 new factories are opening every day in China, not justin the first cities but also in well-populated inland locations, mademore attractive by new tax incentives.

Bend the rod while it is still hot.

〉This reflects the way that the Chinese approach to themanufacturing sector is developing.〉The actual process of manufacturing is changing with anincreased emphasis on efficiency and automation. Low labour rateshad previously reduced the importance of automation but risinglocal wages have brought issues of headcount and operationalefficiencies further up the business agenda and more investment isgoing into R&D, particularly in the engineering space.〉There is a perception that China is a cheap manufacturing base.And to an extent that holds true. But it is certainly not as cheap asit once was and relatively speaking, it faces competition from bothKorea and South America, which anyone with an interest in supplychain management needs to recognise.〉The RMB is set to become the third global currency and localbanking structures are changing so that it is more possible to buy,sell and trade with Chinese partners in the local currency. Thereseems to be a drive to address issues that hinder international tradeand a growing willingness to adopt the best of business practices.This is good for businesses like Cennox who seek to do businessin the region.And…〉This impacts an area that is critical to my own business:intellectual property. It is key because we have developed andpatented a security device that combats skimming from paymentterminals. Any patent holder should enter the Chinese market withtheir wits about them, as the country has been renowned for thehigh incidence of counterfeit. But moves are clearly afoot torecognise and address this failing and increase the overallattractiveness of trade with the West.

〉A key benefit for me was building relationships with other like-minded business owners and directors. I had come to Chinaexpecting to find a way to source products locally but soon realisedthat the relatively small quantities needed would necessitate mespeaking to a number of Chinese companies. At the exchangeevent, I met an Oxford based company that is meeting exactly thisneed and is well placed to help us source product direct from China– reducing the time and energy that I would otherwise have had to commit.

Be direct, usually one can accomplish more that way.

〉I also found common ground with a Huddersfield basedautomotive business, with factories in the US and India; and aSpanish waste management business. Although we do not operatein the same sectors, we do have a mutual interest in internationalcommerce and doing business in China and as such can sharevaluable experiences and insight.〉Cennox is currently in talks with the UK banks about adoption ofour anti-skimming security technology. This will necessitate highervolumes of production and at that point, we will have a strongcommercial reason to source direct from China. As a result of thisexchange visit, I feel significantly more confident in doing that. I have a better understanding of the issues that the local market iscurrently facing and their objectives for the future; as well as someinsight into the way they do business, negotiate and buildrelationships.〉As I look at my travel plans for the year ahead, I see good reasonto visit South America. And, I expect it won’t be long before I returnto China – this time better equipped for what awaits me.

Some men dream of fortunes, others dream of cookies.

STATS GROUP CHIEF EXECUTIVE PETE DUGUID MET HIS CHAIRMAN GRAEME COUTTS JUST EIGHT MONTHS AGO IN A MATCH MADE BY THE COMPANY’S NEW EQUITY PARTNER, BUSINESS GROWTH FUND.⟩ ⟨

—T W O ’ S C O M PA N Y …

P E T E D U G U I D & G R A E M E C O U T T S I N C O N V E R S AT I O N W I T H D AV I D P R O S S E R

—If you feel you are right,

stand firmly by your convictions.

⟩ 09 ⟨⟩ 08 ⟨

I’m an Aberdeen boy brought up with oil and gas from myearliest days, and I think the fact that we were both local ladshelped when I first met Pete. I went straight from school into a

job in banking which I hated, and I very quickly moved intoengineering at Schlumberger the giant oil services group, with whomI travelled the world. Then I spent seven years at another companydelivering a new product range before joining Expro in 1989, initiallyas a short-term consultant. I didn’t leave for 21 years.〉I worked in all sorts of senior roles at Expro, culminating in a stintas chief executive of the public company. In 2008, we were just onthe edge of FTSE 100 membership, when we were taken over by aprivate equity group which had fought a very tough and publicscrap with Halliburton the US oil business to buy us. It was themost sought after brand in upstream oil services in the world at thattime.〉I stayed on at Expro as chairman for a couple of years to nursethe private equity guys but it was always my intention to retire oncenew management was in place, after I’d led a head-huntingexercise for a new chief executive. You should never have a formerchief executive serving as chairman – it’s completely unfair on allconcerned, because no-one really knows who is in charge and thechairman can’t stop himself from interfering in matters that shouldno longer be his concern.〉When I retired, I said I wouldn’t do any work for a public company– just simply because the onerous governance was not my scene.I wanted to get back to having a bit of fun – fun for me is workingwith small private businesses and the more local the better. Mystrategy is to help local entrepreneurs try to realise their journeytowards the creation of value. Having worked in oil in everycontinent of the world I thought I had something I could bring to thetable for these guys, because they all face the same challengesand they all make the same mistakes.〉It is a very small world up here, particularly in the oil business,and I knew some of the guys at BGF quite well. They asked me totake a look at STATS.〉In these situations, it’s all about how you get on with the chiefexecutive – even more so in this case because this is Pete’s

business – and the chemistry has to be right. He’s the owner aswell as the chief executive and in many ways he’s entitled to makethe decisions. My approach is not to ram things down people’sthroats – it’s to be on the end of a phone, to listen and to offer someexperience, especially when the awkward things happen.〉It is the job of the chairman to provide a counterpoint to the chiefexecutive and to challenge his thinking. But I’m always trying topoint Pete towards what I suspect is his end-game and that’s allabout structuring things to make that happen. The relationship isvery important – I’m not the sort of guy to bite his tongue but wenever disagree and it’s not my role to do so. I’m here to point outsome of the potential roadblocks when Pete has decided on aparticular course of direction. 〉I also come with a pretty extensive list of contacts, both amongmy peer group and with clients and customers. The thing I’m mostactively involved in with Pete right now is recruitment of talent –that can be very tough in Aberdeen, where the market isoverheated.〉It is crucial though. Pete is a highly dynamic guy and hischallenge is that his ambition for the business is very high, includinga great deal of international expansion where there are all sorts ofpitfalls. He moves very quickly and it’s important that I spell out forhim just how critical it is to have the right team of lieutenants aroundhim that will take and translate his message into action.〉Right now we’re at that point where we have to make sure weresource this business so that it is capable of delivering theambition we have for it. As the business grows andinternationalises, Pete won’t be able to do everything so the key isto have a foundation of very good and trusted individuals roundabout him who are like-minded, capable of good communication,and allowing him to do the things he’s good at and to keep awayfrom the things he’s not so good at.〉It’s all about being honest. Everyone has strengths and everyonehas weaknesses. The collective approach of the team is whatcovers the weaknesses and allows the progress to be made. We’reworking on those basics today. Graeme Coutts

I’ve been in oil and gas my whole working life. I started outworking offshore on hook-up and commissioning projects beforemoving into the well intervention business during a downturn.

That was my first step into junior management and I really got ataste for it. The business I was working for at the time had adynamic very like STATS in that it was growing very quickly, and itwas bringing in a lot of management in order to accommodate thatgrowth. That was unfortunate for me because it blocked myprogression into more senior levels, though now I can see they hadno choice.〉I ended up leaving that business and going to a very small oilservices company – it had an annual turnover of about £250,000when I started. It was a really interesting business that hadn’t reallydecided where it wanted to be and I ended up as the operationsmanager. I brought in a product that made us more sustainable andwithin two years we were doing sales of £3m a year.We started STATS in 1998 with very limited capital, some veryrestrictive covenants imposed on me by my previous employer andI was in poor health at the time. But we struggled on and eventuallyI bought the asset base from my previous company which gave usa product to sell.〉Still, it was very seasonal and we spent the next few years tryingto build an innovative engineering solutions business. The smartbit was to look at whether solutions delivered to individual clientscould be taken to the broader market and eventually we ended upwith a suite of products. From engineering came a need tomanufacture those products, so we began doing that, and we reallybegan to evolve.〉I vividly remember my bank manager telling me I couldn’t build abusiness on enthusiasm alone. In truth, while there was alwaysgrowth, we were constantly fighting working capital. That was finein 2007 when the banks were offering very easy access to credit butthen the financial crisis came along and the oil market collapsed.Life wasn’t very good for a period and we had to fight to maintainwhat we’d built.〉By the end of 2010, we’d stabilised but banking support haddisappeared. I had to make a call – we knew we had to do

something different and that’s when I began looking for outsideinvestment. Then BGF came along with a remit to support growingBritish businesses and we were an ideal candidate.〉As a business, we’re now ready to internationalise, to build aninfrastructure in the regions in which we operate, and in thosewhere we’d like to operate, so that we can become a global,sustainable business. But we realised we needed a more seriousmanagement team if we were to transition from one sort ofbusiness to another.〉When BGF came on board, I was perceived as a very operationalmanager and it was suggested that I needed to create some spacearound myself and to have someone to talk to and bounce ideas off.I needed to be a chief executive who could delegate the day-to-dayrunning of the business and I needed a chairman who could be thatsounding board. We’re still looking for a chief operations officer, butwe hired a new chief financial officer at the time of the BGF investmentand, of course, Graeme arrived as non-executive chairman.〉He wasn’t the only candidate, but I felt I could run rings aroundthe first couple of guys I met; I knew I needed someone who wouldchallenge me. Then Graeme’s name came up. I didn’t know him,and I was worried that with his background at Expro, he’d be toocorporate for a fast-growing small business like ours, but I agreedto meet him.〉I realised straight away that he’s incredibly grounded – he canlook at the details but also see the bigger picture. Also, he tells itlike it is which is important because I needed someone who wouldbe able to work with me. I know I can be bloody-minded.〉Graeme isn’t in the office full-time but I talk to him at least two orthree times a week. It’s a very informal but dynamic relationship –he’s brought a structure and discipline that was probably missingfrom our management style when we were a younger company,without being overly forceful. It’s an easy relationship to be in.〉I did have reservations about taking on an equity partner and achairman. My concerns were all about whether I was working for anew master – about how the decision making process would work.I wanted to be sure that we could still be decisive about ourdirection. That seems to be working really well. Pete Duguid

GRAEME WASN’T THE ONLY CANDIDATE, BUT I FELT I COULD RUN RINGS AROUND THE FIRST COUPLE OF GUYS I MET; I KNEW I NEEDED SOMEONE WHO WOULD CHALLENGE ME.⟩ ⟨ IT IS THE JOB OF THE CHAIRMAN TO PROVIDE A COUNTERPOINT

TO THE CHIEF EXECUTIVE AND TO CHALLENGE HIS THINKING.⟩ ⟨

STATS GroupHeadquartered: Kintore, Aberdeen Turnover: c. £20–25 millionNumber of employees: 135Market valued at: c. £500 million BGF investment: £7.8 million

⟩ 11 ⟨⟩ 10 ⟨

—I N N O VAT I O NFA C T O R I E S

J A M E S H U R L E Y

— THE KEY TO STAYING INNOVATIVE FOR THESE GROWING COMPANIES IS TO KEEP REMEMBERING THAT BEING INNOVATIVE DOESN’T STOP AT SIMPLY COMING UP WITH NEAT PRODUCT IDEAS.⟩ ⟨

“We haven’t got the ‘not invented here’ mindset,” says Richard North, founderof Midlands toy business Wow!Stuff. “Our attitude to innovation is ‘whoever,wherever’ – we don’t care who comes up with the idea, or where they are inthe world.”〉Even on the side of a mountain in Vermont. This is no imaginary example –it’s the strange, isolated home of Jaimie Mantzel, an inventor that North ishoping will help him deliver a hit toy this Christmas.〉Mantzel spent a decade flipping burgers, painstakingly saving up $22,000to buy a remote piece of land that would be his escape from the rat race. Oncehe’d found a 20 acre plot on the side of a mountain, he designed and built an“off grid” three-storey dome structure from reclaimed materials to live in.〉Deciding he wanted to build a workshop, he obtained a disused aircrafthanger and transported it up the mountain by foot, piece by piece andreassembled it. With a better way to carry materials to his new base clearlyrequired, he started work on an off-road vehicle. Building a DIY 4x4 would beimpressive enough, but Mantzel is a man who likes to put his imagination towork: he started creating a giant, 12 foot tall robotic spider from scrapaluminium that he could pilot.〉Documenting his singular lifestyle and esoteric creations on a blog and,crucially, on YouTube brought Mantzel a global audience. The giant robotproved a particular source of fascination. One of those who followed Mantzelwas a robot scientist working for Wow!Stuff and fascinated with the eccentricinventor, he told North.〉As it turned out, Mantzel had already spotted the potential of toy versions ofhis giant arachnid – but had bad experiences with American toy giants. Northand his team eventually convinced the reclusive creator that they could enjoya fruitful relationship.〉The result is Attacknid – a six-legged “battling machine” that North isconvinced will be the number one boys’ toy this Christmas, with all of the UK’smajor toy retailers having agreed to list it.〉Wow!Stuff has a knack for coming up with toys that capture the imagination.Last Christmas, it sold 400,000 Air Swimmers, a giant inflatable radio controlledfish that ‘swims’ through the air. Another hit was My Keepon, an interactiverobot that dances in time to music.〉Its origin? YouTube again. Wow!Stuff workers spotted a video on the sitestarring a dancing robot designed by scientists to help therapists improve thesocial development of autistic children. When North watched the video, he sawthe potential of the £20,000 device, which had been developed by US companyBeatBots.〉The lesson, North says, is that no amount of market research and analysisof trends can substitute simply recognising an inspired idea.〉“You’ve got to back your hunches. Research won’t predict the next big thing.If you’re growing a business you can have a perception that all the ideas haveto be generated internally. We’ve realised you have to look outside.”〉The company – which has won a National Business Award for its approachto innovation – also uses the internet and social media to find new ideas andinventors, which North says can come from any industry and any location.〉“You have to cast your net wide. The people we employ are people whoshare ideas freely and aren’t selfish – innovation has to be in everything we do,〉

⟩ 13 ⟨⟩ 12 ⟨

It’s difficult if you don’t have those closeconnections.”〉Encouragingly, he thinks the principlecould apply to less hi tech industries too –rising costs in emerging markets meanfashion companies increasingly see thespeed and control benefits of couplinginnovation with local manufacturing.〉“I think that trend is something the UK ispulling through strongly on,” he says. “Itmakes the cycle of iteration much morerapid – so innovation can happen morerapidly. Many of the great innovations inrecent years have had a number of iterations– the tighter the loop the better.”

But what about companies that aren’tinvolved in developing physical products?How do they approach innovation?〉A care home isn’t something oneimmediately associates with innovation.〉However, Graeme Lee, chairman ofSpringfield Healthcare Group, insists plentyof creativity has gone into turning a familybusiness with sales of £400,000 into a £12mturnover company. He too is pioneering anew way of doing things in the domiciliarycare market.〉Unlike Wow!Stuff and M Squared Lasers,Lee’s innovation is focused on service andhis business model rather than productdesign and production. Yet Lee’s emphasisof looking outside your own business forinspiration echoes the approaches of Northand Malcolm.〉In his role as chairman of a not for profitcare association, he visited a multitude ofcare homes. A range of problems struck him– residents felt isolated in remote homes andfrustrated by living on top of one another.“They wind each other up,” he says.〉Worse, many have to cope with a changein circumstances – if a resident developsdementia, they’ll often have to move.〉Lee’s solution is simple, butunconventional – a “care village” in the heartof a normal community just outside Leeds.Residents have separate units, and canmove from complete independence to

sophisticated care in one location. Andthey’re in the heart of real community life –the pub, the village shop, the post office.〉“Say Mrs Smith comes in at 70 – we candeliver everything she needs for the next 25years. Normally, if you’re in residential careand you get dementia you have to move.This is a home for life. And for us, we keepthe patients longer so it’s a good businessmodel, if we give people the right care at theright time.”〉Echoing Malcolm’s point, for Lee, the hardpart is in the delivery, not coming up with theoriginal idea .〉To bring the care village to life, Lee hashad to convince both the NHS and localcouncils – hardly organisations known forembracing change – of the benefits of hisapproach. He’ll need their backing if hewants to expand the business, after all. 〉Just as North warns that bad timing cankill a good toy, Lee has picked a time ofupheaval in the healthcare market tointroduce a new model.〉“GPs take control of healthcare budgetsnext year. They love what we are doingbecause they know that everything thepatient needs is taken care of. For doctors,we’re ticking all the boxes.” 〉BGF liked the idea enough to invest andLee is hoping to replicate it in otherlocations.〉When BGF backed North’s business, hesays it focused the mind on what they werebuying into – and ramped up the pressure tokeep coming up with the bright ideas.〉“As investors, their worry is, how do theyknow we’ve got the magic touch. You don’tknow why it’s you that they’ve chosen; butthen, why not us?”〉The key to staying innovative for thesegrowing companies is to keep lookingoutside their businesses for inspiration,hiring people who don’t care where the bestideas come from and remembering thatbeing innovative doesn’t stop at simplycoming up with neat product ideas. And ofcourse, timing is everything.

not just toys. There’s a world out there full ofideas, so it’s your job to capture that, notthink, ‘we have all the ideas here’. It’s aboutbeing free and inclusive.”〉If that makes the process of productdevelopment sound easy, North is at painsto point out that the pressure in his industryto innovate quickly and accurately can be“brutal”.〉“When we started out I remember talkingto people in the industry. Everyone had thesame remark – it’s one of the hardestindustries to do a start-up. Even the biggesttoy companies, with millions to spend ondevelopment, research and focus groupssay 50pc of their toys won’t workcommercially. It’s like being a venturecapitalist – you know a lot of what you do willfail. And the amount of start-up capital youhave to invest upfront can kill you quickly ifyou get it wrong”.〉With toys taking between two and threeyears to develop, the moment they’represented to retailers is “nerve racking”,North says, with some understatement. He’sjust back from toy fairs in the US and HongKong where he’s been doing just that.Unusually, all of the toys that Wow!Stuffpresented received orders or interest.〉“That never happens. It’s the best we’veever done. At the point of the first reveal,you’re hoping people get it. Sometimesyou’ve just missed the trend, sometimesyou’re too far ahead – predicting somethingthat hasn’t arrived yet,” he says. “We saw alot of companies doing toys that worked withmobile apps. They’re probably two yearsahead of the consumer. Next year is whenwe think the timing will be right for that.”〉When I tell North that the way hedescribes innovation makes his companysound like it is run by Tom Hanks’ characterin the 1988 film Big, his response is telling:“I’ve never seen it but people keep sayingthat to me.”〉In the film, a 12 year-old boy is granted hiswish to be given an adult body. He gets a jobin a toy firm and becomes an unwittingnemesis to an experienced product

developer by rubbishing his ideas andcoming up with much better ones of his own.〉“The industry is like that – there are lots ofclever people trying to justify their jobs byrelying on research and numbers. The truthis, the answers are out there, not in you. Theminute you start getting hierarchical is thetime you lose your innovation. You need tothink like a kid, be like a kid – before youwere indoctrinated by life and educated inthe supposed right and wrong ways of doingthings.”〉However there is no one single way toinnovate; companies will invariably takedifferent approaches to it as is evident withinBGF’s own investment portfolio. Theimportant common denominator is thatinnovation is high on the corporate agendafor them all.

At M Squared Lasers in Scotland, backedby BGF this year, thinking like a child is noton the agenda – they have to take a rathermore structured approach to innovation. Thecompany develops lasers for a huge array ofindustries, and for a wide range ofapplications – from advanced scientificresearch to sensing hydrocarbons in oil andgas production, sensing explosives andchemical warfare agents and computer chipmanufacturing.〉All of the industries that the company sellsto demand both speed and accuracy – andconstantly changing demands means MSquared needs to come up with newproducts all the time.〉“Our term is dependable innovation,” saysthe company’s chief executive, Dr GraemeMalcolm. “They’re novel processes butsolving a real problem, so what we produceneeds to be robust as well as quick. Thecustomers don’t want flaky prototypes.”〉In one sense, however, the approach MSquared takes to achieving that aim isstrikingly similar to Richard North’s“whoever, wherever” philosophy.〉“We can sense chemical agents fromhundreds of metres – that’s unique to us.What we’ve done to get that advantage is

take a collaborative approach with supplychain partners and universities. Typically, ourbig publicly listed competitors take the ‘notinvented here’ approach to life. We’re smallerand more agile, which gives us a biggerresearch and development group – becauseit’s not just us coming up with the ideas.”〉Working with a multitude of partners is nota soft option, however. “You have to thinkharder about intellectual property this way,”Malcolm warns. Detailed agreements aremade in advance so partners know wherethey stand on ownership if somethingcommercially valuable is created. Workingwith academia as a small, fast growingcompany presents challenges of its own butMalcolm says it’s less of an issue than onemight expect.〉“We try to work with the most like-mindedgroups in universities – there are agile partsthat are already working with industry. Therest, the more research-based academicparts, can be worked with for longer termprojects,” he says. “We license a lot oftechnology from universities – that makesthe relationship last longer because they’llcome back to you.”〉For Malcolm, the hard part aboutinnovation isn’t coming up with good ideas –it’s bringing them to market. “There’s oftenmuch more innovation involved in theprocess than in the original idea,” he says.“Some of the things we’ve worked on havebeen groundbreaking. But 1,000 times moreeffort goes into rigorous engineering anddeveloping a new market, and educating anew customer base. That’s the bit that’sunderestimated – the light bulb momentscan be obvious.”〉To make sure innovative ideas quicklyresult in physical products, unlike many of itslarger rivals, M Squared uses localmanufacturing, via an advanced productionfacility in Glasgow. “The proximity betweenengineering and manufacturing is crucialwhen you’re doing it quickly. It’s an intimateprocess – and allows you to keep the skillsyou need to do the whole cycle fromanalysing a market to delivering a product.

THE LESSON IS THAT NO AMOUNT OF MARKET RESEARC H AND ANALYSIS OF TRENDS CAN SUBSTITUTE SIMPLY RECOGNISING AN INSPIRED IDEA.⟩ ⟨ THE HARD PART IS IN THE DELIVERY,

NOT COMING UP WITH THE ORIGINAL IDEA.⟩ ⟨—

W H AT I S I N N O VAT I O N ?

—If the Wall Street Journal is to bebelieved, innovation is the most

overused word of 2012. It is oftenbandied about by consultants andPR executives, and companies can

be just as guilty; heralding innovationwhen in truth what they have is

simply a good product.

So what is real innovation? There arenumerous definitions, and the expertscan’t quite agree, but here are a few

examples to consider:

〉Inventing a product, technology orservice that is genuinely new. Like the

light bulb, wifi or Google.

〉Revolutionising an existing productby changing the users' behaviour

while at the same time revolutionisingthe market. Apple’s iPhone anybody?

〉Inventing a new process, deliverymethod or business model. Turningmainframe computers into personal

ones or shifting video rental fromstores, to post and then online.

〉Creating a new market for aleftover or overlooked commodity,

or extending a market for an existingproduct. Best Buy, the US electronics

retailer is creating revenues fromrecycling so-called ‘e-waste’.

O R …One could always just go with thesummary offered by the late SteveJobs who knew a little about the

subject: innovation is what“distinguishes between a leader

and a follower”.

—

⟩ 14 ⟨ ⟩ 15 ⟨

Entrepreneurs are, on the whole, creaturesof habit; they have their own way of doingthings, charged by a belief that it is the onlyroute to achieve the goal of building asuccessful business.〉However, for Barburrito co-foundersMorgan Davies and Paul Kilpatrick routinedoesn’t have a chance to establish itself inan average working day, as they work to rollout their Mexican food chain and treble itssize in three years.〉The two ex-management consultantshave taken up very different roles within thebusiness, with Paul spearheading theacquisition of new sites while Morgan hastaken responsibility for the coal face,ensuring that their existing locations aremeeting the exacting standards that havebeen put in place.〉On the day we met the duo rose at asimilar early morning hour and, havingarrived at work (Paul by bike to cram in someexercise), spent the first hour of the daycompleting the unenviable task of siftingthrough their email inboxes. 〉With BGF as a long term investor and£3.25 million, Barburrito is now embarkingon an ambitious roll-out plan which willinclude cracking the London market. 〉Like every Tuesday morning, the next taskon the agenda is to look at the financialperformance of each restaurant (thebusiness now has six) to pick up anyirregularities. Weekend trading has beenstrong across all sites, and today there areno specific problems.〉Morgan has taken on the role of managingthe day-to-day running of each restaurant toensure that the treatment of each site isconsistent. So, with nothing untoward to findin the financials, he can start talking with therestaurant managers to plan the day ahead.

Morgan likes to begin by reviewing pivotalprocedures such as operational standards,team quality, cost controls and anyupcoming marketing opportunities or events.With Barburrito hoping to prosper fromrepeat trade, its success will come down toenticing customers into returning multipletimes a week. 〉Today the first port of call is Barburrito’sManchester Piccadilly restaurant, where hemeets with store manager Sarah to discussthe operational priorities for the day.〉There is also time for Morgan’s favouritetask – introducing himself to the newBarburrito recruits. He wants to find out howtheir training is going, and he asks specificquestions around the quality of theirinduction, who their buddy trainer is and hemakes sure they are generally on track withtheir development. Morgan also uses hismorning to field a call from BGF’s RegionalDirector for the North of England, AndyGregory, to discuss meeting with othercompanies, in the area and in the hospitalitysector, that are considering BGF funding. It’sa task he enjoys and allows him to offer aperspective on life with BGF as a juniorpartner.〉While Morgan’s morning was very muchspent in the guts of the business, for Paul theperiod provided him with an opportunity topush on with his key projects.〉On the day we met Paul had a supplychain issue to resolve, the ongoing re-fit ofone of Barburrito’s current stores to overseeand he wanted to get a update from theteam working to develop a new breakfastoffering. But top priority for Paul is the driveto find new restaurant sites.〉Finding a new site involves ticking anumber of boxes which Paul and Morganbelieve are necessary to ensure that a new

restaurant will provide not only the rightamount of footfall, but the right kind as well.Sites in high-density office or studentpopulations are top of the list. Theserestaurants benefit from repeated andsustained visits as well as somesocial/weekend trade. Underneath a largeoffice block, rather than in an out of townshopping centre, is where they believeBarburrito is best suited.〉Paul is working his way through a long listof potential locations; a task which he saidcan be about whittling down 100prospective sites to a shortlist of six or so forpersonal viewing. He aids this task by usingtools such as Google Maps and Streetviewto get a better feel for the area surroundingthe possible spot. Sites which fail at the firsthurdle tend to be ones in the wrong locationor units that are long and thin with big stepchanges of height.〉To help with site selection and to ensurethat new restaurants hit the ground running,Barburrito has brought in an industryheavyweight to provide some advice. Tocoincide with the investment deal, the chainsecured the services of former Pret AManger and EAT-board member ColinHughes as a non-executive director. WithHughes having opened over 100 sitesacross the country, Paul tells me that he hasan incredible understanding on locations.Today Paul takes the opportunity to giveColin a quick call to discuss a couple ofpotential sites in an area he is not familiarwith. 〉Colin has a particularly good knowledgeof the London market and has been vital insupporting Paul’s on-the-ground work inidentifying potential locations. Furthersupport comes from another non-executive,Richard O’Sullivan who possesses the

SECURING LUCRATIVE CONTRACTS, LAUNCHING INNOVATIVE PRODUCTS AND CLOSING GAME-CHANGING DEALS ARE ALL PART OF AN ENTREPRENEUR’S LIFE.⟩ ⟨

Securing lucrative contracts, launching innovative products and closing game-changing deals are allpart of an entrepreneur’s life, but what really goes on during the day-to-day operations. Luke Archer

meets Barburrito founders Paul Kilpatrick and Morgan Davies to find out what they get up to.

—A H E A LT H Y

PA R T N E R S H I PL U K E A R C H E R

—

⟩ 16 ⟨ ⟩ 17 ⟨

nickname Cookie having co-founded Millie’sCookies back in the 80’s and rolled it outacross the UK.〉While ultimately Paul relies on good oldfashioned shoe leather to search for newrestaurant sites, today he is hammering outthe details of the four offers that Barburritohas recently made, and that will hopefullytake the chain into double digits.Nailing the right site, he told me, isimperative – as getting a good one can makethe business, while taking on a bad one cantake years to recover from.〉The lunch period is when Morgan closeshis laptop and joins the front line by helpingout in the restaurant to make sure servicesstandards are being met, a factor which bothPaul and Morgan say has to stay at the topof their priority list. On this particular dayMorgan is front of house, greetingcustomers, clearing tables and giving peoplean opportunity to interact with one of theowners first hand.〉With the busiest period of the day over,Morgan puts in a call with BGF’s Head of HRJenny Chandler to discuss the latest draft ofBarburrito’s Employee Handbook. He iskeen to leverage best practice from the BGFportfolio. 〉Morgan also speaks with Colin Hughes.He wants to discuss the first set of resultsfrom Barburrito’s new operational auditpartner. While the business is building thebones of a solid management team whichcan begin to take on further responsibility asthe restaurant site number rises, for nowMorgan likes to ensure that he has his handfirmly on the wheel of every location.〉Despite the two having taken responsibilityfor different facets of the business,throughout the day Paul and Morgan makesure they touch base to check on the others’progress and bounce ideas off each otherthroughout the day. Both acknowledge thatbeing co-founders has provided the pair withan invaluable outlet to leverage different skill

sets and take time away from boardmeetings to evaluate the performance of thecompany and plan for the future.〉Engaging in social media is Paul’sfavourite part of the day and in the afternoonhe picks up on a couple of tweets fromcustomers which bring a smile to his faceand prove that the Barburrito brand ismoving in the right direction. Like anyentrepreneur, praise brings validation to whatthey are doing – and during a visit toBarburrito’s Trafford Centre location a weekbefore, his frustrations at what he saw wereerrors on the restaurant floor were quicklyextinguished when he overheard a small girltelling her mother how delicious the mealshe’d just eaten had been. 〉He also picked up on a Facebook postingwhich presented a Barburrito-brandedNicorette style patch on a girls arm with thecaption ‘Will this help?’ and a subsequentcomment reading ‘I’m hooked!’〉For the remainder of the afternoon Morgannavigates around a number of Barburrito’ssites in Manchester as part of his weeklyeffort to make sure he visits all of itsrestaurants in the city, as well as its Leedsand Liverpool establishments. He says it isimportant that all the restaurant teams gettime with the owners. He’s frank in admittingthat the business is run and operated by thestaff on its restaurant floors, a fact he andPaul cannot afford to forget.〉Having spent the day surrounded byburritos, rather surprisingly the hard-workingentrepreneurs like to do their own cooking athome (just not Mexican!). In the eveningsPaul and Morgan both like to make time fortheir children, providing a welcome breakfrom the pressures of building a business. Leaving the office means an end to emailcommunication, I’m told, but engaging withsocial media at the end of the day remains aguilty pleasure for Paul and helps motivatehim ahead of the challenges facing him thenext day.

BarburittoInvestment Date: March 2012Office: NorthSector: Leisure & HospitalityEquity Investment: £3.25 million Number of Employees: 100Turnover: £5–10 million Company Location: Manchester

MEXICAN FOOD IS ONE OF THE FASTEST GROWING SECTORS IN FAST CASUAL DINING SECTOR.⟩ ⟨

⟩ 19 ⟨⟩ 18 ⟨

—H O W

T H E I N T E R N E T H A S C H A N G E D

T H E W O R L D F O R S M A L L A N D

M I D - S I Z E D C O M PA N I E S

D AV I D P R O S S E R

— “The internet’s biggest impact on SMEs hasbeen as a great leveller, making it possiblefor a small firm to be a global company fromday one, with the reach and capabilities thatonce only large companies could possess,”says Charles Roxburgh, a director at themanagement consultancy McKinsey, whichhas been researching the impact of the webon the global economy.〉“They can reach customers, find suppliersand tap talent on the other side of the world– and also use the internet to providesignificant marketing and brand muscle.”〉McKinsey’s work suggests the internethas been a hugely powerful enabler for manySMEs: in a survey of more than 4,800 firmsin 12 countries around the world, it found

that those which use web technologies grewmore than twice as quickly as those with littleinternet presence.〉Nor are the benefits that the internet offersavailable only to online businesses. While theweb’s development certainly has spawnedthousands of new ventures that could notexist without it, many more conventionalbusinesses are harnessing its power to growfar more quickly than they would ever havedreamed of had they launched in the pre-internet world.〉The internet is now making a majorcontribution at every stage of the valuechain, boosting productivity wherever youlook. Not only has the web fundamentallychanged the way products and services

are sold, but it has also revolutioniseddevelopment, design, production anddistribution. Even the smallest businessesnow operate with the sort of geographicallydiversified supply chains and globalworkforces that until these past few yearswould have been the preserve of large multi-national corporations. There is more tocome. McKinsey’s research suggests that ona global scale, the internet is nowresponsible for 3.4 per cent of GDP (in theUK, it says, the figure is as high as 6 percent) but will deliver much more. Largecompanies are part of that story, but it issmall and medium sized enterprises forwhich the internet presents the most excitingopportunities.

WHO HAVE BEEN THE BIGGEST WINNERS FROM THE LIGHTENING-FAST DEVELOPMENT OF THE INTERNET OVER THE PAST TWO

DECADES? ANY INDUSTRY YOU CARE TO NAME CAN POINT TO THEFANTASTIC OPPORTUNITIES THE INTERNET HAS DELIVERED ANDEVERY COMPANY HAS HAD THE CHANCE TO PARTICIPATE. STILL,WHILE LARGE COMPANIES HAVE REAPED HUGE BENEFITS, IT IS

SMALL AND MEDIUM ENTERPRISES FOR WHICH THE INTERNET HASBEEN UTTERLY TRANSFORMATIVE.

⟩ ⟨

—TA P P I N G TA L E N T:

U N R U LY M E D I A

—Unruly Media makes and distributes socialvideo campaigns for some of the world’sbiggest companies, as well as many smallerbusinesses. It’s a business that wouldn’texist without the internet, but for Unruly theweb is also hugely valuable for back officeoperations such as recruitment.〉“The internet opens up the passive talentpool,” says Deana Murfitt, the company’schief people officer. “Prior to the internetthere were lots of people sitting around whowere ideal for the kind of jobs we recruit for,but there was no way of getting at them.”〉Thanks to sites such as LinkedIn, Murfittexplains, Unruly has effectively been able totransform part of its human resources teaminto an “in-house head-hunter”. For themajority of roles for which the companyrecruits, the process is to identify the skillsand experience needed and then to scourLinkedIn and other talent databases forcandidates who might be suitable.〉One obvious advantage is hugely reducedspending on recruitment agencies, but “ourapproach is about the quality of candidatessourced as well as the expense of findingthem”, Murfitt adds. By cutting outintermediaries such as recruitment agencies,Unruly can be sure it targets only thosepeople with the exact skillsets for the roles itis looking to fill.〉Tapping talent in this way has otheradvantages too. “This is extra helpful for us,and for all small businesses, because thebrand may not yet be recognised in themarketplace,” Murfitt says. “If you can buildup your online profile, by building up lots ofcollateral around the type of employer youare, the kind of culture you have and thevalues you look for in people, you can buildup your profile and reach out to passivecandidates over the internet.”〉Unruly has been so pleased with theresults of its internet networking that it nowoffers staff a bonus if they are refersuccessful candidates for jobs. Murfittexplains: “It’s like an ecosystem ofconnected people who are all interfacingacross the internet to try to find the rightperson for the role.”

—B U I L D I N G A B R A N D :

B R O A D B A N D C H O I C E S . C O . U K

—As viewers of daytime television will know,brand is everything in the price comparisonbusiness – several competing personalfinance sites have spent a fortune onadvertising in an attempt to build it. In thehome broadband sector, however,Broadbandchoices has chosen to set out itsstall a little differently.〉“In a business-to-consumer market likeours, brand is really important but theproposition has to be absolutely right too,”says Michael Phillips, the managing directorof Decision Technologies, the owner ofBroadbandchoices.co.uk. “We’ve spent agreat deal of time building an engine that hasevery tariff in the marketplace – nobody listsas many packages as we do, so nobody canclaim our level of expertise.”〉Since launching in 2005, the company hasworked especially hard on its user interface,directing customers to an extensive list ofpotential broadband deals and then using asuccession of filters to narrow down thechoice. In a market that isn’t entirelycommoditised – people are looking fordifferent speeds, for example, or to bundletheir broadband with TV and a phone service– this is crucial to the customer experience.〉“Broadband is getting more complicatedall the time,” Phillips adds. “Our job is to helppeople prioritise the variables in order tomake the right choice for them.”〉The business has, in other words, usedthe power of its technology to build a brandthat is based on quality rather than ubiquity.And it is now in the process of doing thesame thing in international markets such asSpain, France and Germany.〉The great thing about the internet,however, is that once your brand value isestablished, ubiquity follows more quicklythan ever before. “What’s really exciting isthat in the broadband price comparisonmarket there has been no definite brandleadership established yet and that’s a hugeopportunity,” Phillips says.

—A C H I E V I N G

G L O B A L R E A C H :W O R K S H A R E

—For Workshare, the internet has deliveredglobal scale in a remarkably short space oftime. Founded in 2009, Workshare providesbusinesses with a highly secure cloud-baseddocument management service that enablesusers to share files with colleagues andclients of their choosing. Those files can beaccessed via PC, laptop, tablet orsmartphone and worked on by any usergranted the right access privileges – thesystem also tracks all changes made todocuments.Workshare targets markets such as legalservices and financial services, where there’sa high concentration of skilled and mobileworkers operating in a regulated andsensitive environment. Other examplesinclude the pharmaceuticals industry, as wellas government services.〉Ordinarily, it would take years to buildtrusted relationships with such businessesand even longer to achieve critical mass. Butnot for Workshare – while it has only ahandful of overseas offices, it already hashundreds of customers in 65 countries allaround the world.〉Anthony Foy, the company’s chiefexecutive, says that in addition to the rightproduct offering, it is the viral distributionmodel on the internet that has enabledWorkshare to achieve such reach so quickly.〉“Every one client that subscribes to ourservice typically invites five others to jointhem – and every one of those five theninvites three more contacts of their own” hesays. “We haven’t got round to tracking whatthose three contacts do yet, but you can seehow the maths works for us.”〉Clearly, the numbers begin to add up veryquickly, and have already done so forWorkshare. But Foy believes there is plentymore growth to come – “we’re nowhere nearthe point yet where we run short of potentialnew clients,” he says. Independent researchfrom Gartner supports that view – it thinksthis market niche will be worth $8bn by2014.

—B U I L D I N G A C O M M U N I T Y

O F C U S T O M E R S :A F G M E D I A

—AFG is the company behind Morphsuits, theall-in-one fancy dress costumes that havebecome a common sight at stag dos, fancydress parties and special events all aroundthe UK. Founded in 2009, AFG had revenuesof £1.2m in 2010 but has grown astonishinglyquickly. This year, sales total £11m and thebusiness is now expanding internationally.〉Gregor Lawson, one of the three foundingdirectors of the company, says AFG hassocial media to thank for its 300 per centyear-on-year growth. “Without Facebook, wesimply would not exist in the way we dotoday,” he explains.〉With little to spend on advertising ormarketing in its early days, AFG’s strategywas to build a community of customersthrough its Facebook page – not everyonewould buy a costume straight away, Lawsonreasoned, but the more they participated inthe community, the more likely they would beto spend money when the occasion arose.〉“People underestimate the commercialpower of Facebook,” says Lawson. “Forevery one person who does something onour page, another nine will ‘like’ it andanother 90 will see what’s been done.”〉AFG is scrupulous about engaging witheveryone who posts on its page – evencomplainers become advocates of thebusiness if you engage with them, Lawsonargues.〉In addition to the ideas its Facebook userscome up with – not least a remarkablenumber of photos of Morphsuit wearers inridiculous poses – AFG offers plenty ofproactive opportunities to engage. Itorganises competitions and even meet-ups –a flash mob in Trafalgar Square, for example,attracted 200 Morphsuit-wearing fans.〉“People think social media is flitty,”Lawson says. “I disagree – if you’re clearabout your objectives and your customers,you can deliver real commercial advantageson Facebook.” AFG’s own statistics provethe point – they have 1.1 million Facebookfans and counting. And only a smallproportion of those fans need to becomecustomers to sustain AFG’s rapid growth.

—A C C E S S I N G G L O B A L

S U P P L I E R S :P R I M R O S E

—The business model at online gardenproducts retailer Primrose developed as aconsequence of the way search enginesoperate. Type, ‘barbecue’ into Google andthe site it delivers you to has to pay thesearch giant for referring you – even if it thendiscovers you were after a £5 disposablebarbecue rather than the £300 gas-firedmodels it sells.〉The solution, says Ian Charles, one half ofthe husband-and-wife team who foundedPrimrose in 2003 and still run it today, is tomake sure you sell every barbecue thecustomer might possibly be interested in –or water feature, or garden bench and so on.〉“We realised we needed to expand intoevery possible type of garden product andto offer the deepest possible range in eachcase – to become the Amazon of thegardens world if you like,” says Charles.“Fortunately for us, one thing the internet hasdone is made the infrastructure of sourcingfree – it now requires far less of aninvestment to find the manufacturers.”〉Primrose aims to offer greater depth in anygiven garden product range than itssuppliers and therefore needs to sourcehuge amounts of stock in an industry wheremanufacturers are based all around theworld – often in inaccessible, emergingmarket locations. For a relatively smallbusiness, the cost of such a sourcingoperation would traditionally have beenprohibitive, but the internet has changedthat.〉Much of Primrose’s sourcing is nowconducted entirely online. That has enabledit to build the sort of stock range that meanscustomers who use imprecise, generic termswhen using search engines – that’s mostcustomers – will usually find what they’relooking for at Primrose. “This sourcing hasenabled us to be real product specialists inlarger and larger number of ranges,” Charlesadds.〉It seems to be working – despite theentrance of giants such as Tesco to onlinegarden products retailing, growth of up to 40per cent a year has proved sustainable.

⟩ 21 ⟨⟩ 20 ⟨

BGF CASE STUDIES:FIVE INVESTEE

COMPANIES HARNESSING THE POWER

OF THE INTERNET.

⟩ ⟨

⟩ 23 ⟨⟩ 22 ⟨

—B E N E F E XSoftware supporting online employeereward and benefit schemes

Investment date: Oct 2011Company turnover: £5m–£10mBGF Investment: £4.2mCompany location: Southampton

www.benefex.co.uk

—S TAT SIsolation services for onshore andoffshore oil and gas pipelines

Investment date: Mar 2012Company turnover: £20m–£25mBGF Investment: £7.8mCompany location: Aberdeen

www.statsgroup.com

—S P R I N G F I E L D D O M I C I L I A RY C A R EDomiciliary healthcare provider inYorkshire and Humberside

Investment date: Jun 2012Group turnover: £10m–£15mBGF Investment: £4.4m

—S E A C R O F T C A R E V I L L A G EResidential care home and privateindependent living

Company location: Yorkshire

www.springfieldhealthcaregroup.com

—P R I M R O S EOnline retailer of garden products

Investment date: May 2012Company turnover: £10–£15mBGF Investment: £4mCompany location: Reading

www.primrose.co.uk

—W O R K S H A R ECloud-based document collaborationsoftware for business

Investment date: Sep 2012Company turnover: £10m–£15mBGF Investment: £7.25mCompany location: London

www.workshare.com

—C E N N OXSpecialist ATM products and services

Investment date: Jun 2012Company turnover: £15m–£20mBGF Investment: £3mCompany location: Camberley

www.cennox.com

—S H SHigh specification industrial scaffolding services

Investment date: Sep 2012Company turnover: £10m–£15mBGF Investment: £5.4mCompany location: Barry, Wales

www.shs.uk.com

—A F G M E D I A Fancy dress andparty fashion, including Morphsuits

Investment date: Jun 2012Company turnover: £10m–£15mBGF Investment: £4.2mCompany location: Edinburgh

www.morphsuits.co.ukwww.foulfashion.co.ukwww.royalandawesome.co.uk

—D T L ( B R O A D B A N D C H O I C E S . C O . U K )

Price comparison website andsoftware for consumer broadband, TV and telecoms

Investment date: Sep 2012Company turnover: £10m–£15mBGF Investment: £10mCompany location: London

www.broadbandchoices.co.uk

—W E A R I N N SFreehold community pub estate

Investment date: May 2012Company turnover: £5m–£10mBGF Investment: £8mCompany location: County Durham

www.wearinns.co.uk

—S H U R O P O DYSpecialist footcare provider and retailer

Investment date: Sep 2012Company turnover: <£5mBGF Investment: £3m Company location: Coventry

www.shuropody.com

—M S Q U A R E D L A S E R SDesign & manufacturing of lasers andphotonic optical instruments

Investment date: Apr 2012Company turnover: <£5mBGF Investment: £3.85mCompany location: Glasgow

www.m2lasers.com

—G C I C O MIntegrated telecoms and data services

Investment date: Jan 2012 Company turnover: £45m–£50mBGF Investment: £10mCompany location: Lincoln

www.gcicom.net

—W O W ! S T U F FToy development

Investment date: Mar 2012Company turnover: £15m–£20mBGF Investment: £4.8mCompany location: Wolverhampton

www.wowstuff.co.uk

—B A R B U R R I T OFast-casual Mexican restaurants

Investment date: Mar 2012 Company turnover: <£5mBGF Investment: £3.25mCompany location: Manchester

www.barburrito.co.uk

—S TAT E S M A N T R AV E LTravel management for corporate and private clients

Investment date: Oct 2011Company turnover: £90m–£100mBGF Investment: £4.25mCompany location: London

www.statesmantravel.com

—U N R U LYSocial video distribution

Investment date: Dec 2011Company turnover: £10m–£20mBGF Investment: £4mCompany location: London

www.unrulymedia.com

—T H E P O R T F O L I O

O U R I N V E S T M E N T S : O C T 2 0 1 1 – O C T 2 0 1 2

—

THE SPREAD OF OUR INVESTMENT SHOWS THAT GOOD IDEAS, GOOD MANAGEMENT AND GROWTH ARE NOT RESTRICTED TO ANY PARTICULAR CITIES OF REGIONS. AND NEITHER DO ONE OR TWO SECTORS DOMINATE.

IN FACT, WITH OUR PORTFOLIO COMPANIES, WE HAVE INVESTED IN 15 DIFFERENT SECTORS – FROM HEALTHCARE TO OIL & GAS SERVICES, AND FROM LEISURE & HOSPITALITY TO IT & TELECOMS.

⟩ ⟨

⟩ 24 ⟨

—C O N T R I B U T O R S

—

LUKE ARCHERLuke specialises in writingabout private equity andventure capital. He has

experience in covering fastgrowth companies and

entrepreneurship, and hasprofiled some of the country’s

most well-known businessbuilders.

JAMES HURLEYJames is the Enterprise Editorfor Telegraph Media Group.

He writes about entrepreneursand small and fast-growth

businesses for the Telegraph’sDaily, Sunday and online

editions. He is a former editorof Growing Business magazine

and Startups.co.uk.

MURDO MCLEODMurdo is an award winning,

freelance photographer basedin Edinburgh. His work has

been published in TheObserver, The Guardian, as well

as national and internationalmagazines – from The

Economist and Paris Match toThe Big Issue.

CLIVE NATIONClive is an engineer by

background and he foundedCennox in 2004. He joined

Travelex in 1994 after itacquired his previous business.

He became MD of Travelex’sglobal ATM division and helpedpioneer foreign currency ATMs.Clive grew the ATM estate from150 to 1,250 machines before

leaving in 2007 (after Apaxacquired the business) to focus

on Cennox.

DAVID PROSSERDavid is a freelance journalist

who specialises in writing aboutenterprise, smaller companies,personal finance and business.The former Business Editor of

The Independent, David has 20years of experience writing for

a range of nationalnewspapers, magazines and

specialist publications.

JON RHODESJon is Director of

Communications & Marketingfor BGF. He works closely with

BGF’s investee companies,highlighting their success to

business audiences andproviding advice on how they

might enhance their ownapproach to communication.

JON SUPERJon is a press and commercialphotographer working out of

Manchester since 1993. He hasworked extensively for

Associated Press, and hisphotographs regularly features

in The Times and FinancialTimes newspapers. Recentcommercial clients include

Bentley motors and the BBC.

EMILY WESTONEmily is a partner with Equity

Dynamics, a specialistcorporate communications

company known for itsexpertise in all areas related to

the financing of businesses. It works closely with a range ofinvestors as well as underlying

companies and the broaderentrepreneurial community.

“We have been especially impressed by the straightforwardedness and integrity of the BGF team and their speed of decision making” Frank Duffy, MD, Shuropody

“BGF made us think differently. I haven’t ceded control of my business and I am in a stronger position torealise the ambitions I have for it, because of BGF’s involvement as a partner and long term investor.”

Wayne Martin, CEO, GCI Com

“We wanted an investor that would not only provide capital but that would work with us as a partner over the long term” Mervyn Williamson, MD, Statesman Travel

BGF is authorised and regulated by the Financial Services Authority.

We provide long-term equityinvestments of £2m–£10m for a

minority stake in ambitious, smalland medium sized companies

looking to grow

We offer insight and analysis tohelp business owners and future

entrepreneurs understand thechallenges and choices for fast

growing companies

We want to inspire today’sentrepreneurs to achieve more,

and tomorrow’s business owners totake their first steps

We recognise that to succeed,companies need more than justmoney. We are a junior partner

bringing our networks, experience and expertise to help ensure growth.

Aberdeen 0845 600 3699Birmingham 0845 266 8862Bristol 0845 266 8864

Edinburgh 0845 266 8863London 0845 266 8860Manchester 0845 266 8861

W E B S I T E www.bgf.co.ukE M A I L enquiries@bgf.co.ukT W I T T E R Twitter @bgf_team

AB51.EH13.M11.SO15.GU15.WC1V.LN3.G20.E1.RG30.CF63.EC4.CV6.LS25.TS27.WV10.BGF.CRACKING THE CODE TOINVESTINGACROSS THE UK.

0845 266 8860bgf.co.uk