Luke Kingston, Partner, Horizon Capital
‘If you can keep your head when all about you are losing theirs…..’
I have always enjoyed the poetry of Rudyard Kipling. The opening line to ‘If’ made me contemplate the UK business response to the pandemic this year and the unintended consequences of such a response.
The first lockdown of the year was unprecedented in terms of its impact on the economy, businesses and individuals. A significant reduction in revenues for many businesses naturally led many owners and entrepreneurs to cut costs and manage working capital, for example, by stretching creditors. However, history tells us that businesses who make bold, somewhat contrarian, decisions in situations like these will often thrive again when the economy begins to recover.
With this in mind, what relevance does Kipling’s poetry have for entrepreneurs in the context of a year like 2020? Here are three important takeaways for businesses:
1. Retain Key Salespeople
It may seem counter intuitive to retain salespeople during a lockdown. However, this is a perfect time for salespeople to improve customer relationships by acquiring a deeper understanding of the challenges they face. This newly acquired knowledge puts businesses in the best position to address their customer challenges and places sales teams at the vanguard of new business.
2. Grow through acquisition
In a recent survey of business leaders by Harvard Business Review, 23% of respondents reported either “no impact in 2020 forecast deal volume” or their intent to “accelerate” deal volume during the remainder of 2020 with a desire to acquire the most promising technologies or solutions, and gain first mover advantage while other prospective buyers are still in shock or sorting out next steps.
Growth by acquisition carries a higher degree of risk than doing so organically, even more so during a downturn. On the flip side of the coin, acquisitions can also significantly accelerate the execution of strategy. If an entrepreneur wants to provide a complementary and adjacent service to existing customers then it makes sense to acquire a business that already expertly provides that service. A business has much to gain from a strategic acquisition in the form of new valuable customers as well as potential cost savings in the new combined group.
3. Invest in infrastructure
The lockdown prompted an unwelcome quiet period for many businesses. However, it did provide a window of opportunity to sort out time consuming issues that would otherwise be overlooked. Changes to accounting systems, CRM, or other infrastructure can seem daunting during normal periods with a requirement to ‘parallel run’ systems in order to manage risks. Businesses who utilised this period to upgrade infrastructure, especially in advance of acquiring accretive bolt ons, will undoubtedly see this pay dividends in the future.
The fact of the matter is that all of these actions do not come without a significant cost attached to them. That is why we provide entrepreneurs with the capital and support to help their businesses become market leaders. As a specialist investor in technology and business services, we help every company we invest in consolidate the growing and fragmented markets they operate in, whilst investing in infrastructure and sales operations. Over the last year, this investment has played a significant part in helping our portfolio companies navigate the challenges of Covid 19. To find out more about the robustness of our investment portfolio companies, please click here.
