500 Not Out and The Rise of The Machine

I was a little staggered to realise that this is the 500th post on my blog. For those who know me, I have always had a lot to say on many things but I never thought I would write so much in such a short time.

Then again, a lot has happened. When the history of the period is written, it will be hard to know where to start - we are in the aftermath of several major terrorist atrocities attributed to the deadly but unseen Al Qaeda, led by an equally unseen leader, Osama bin Ladin. He has remained at large although the American Dyslexic Rangers thought they had him early on when they surrounded Debenhams after a tip that Bed Linen was inside.

To a large extent we can explain why we went into Afghanistan but the trail of reason stops there. It is a vast and mountainous country with tribal factions which has not been annexed effectively since Alexander the Great (Kandahar is a version of is name). Modern British and Russian Armies have been defeated there and still we persist against history - and how history repeats itself as we under-equip and fail our brave forces in what is fast becoming a pointless war.

The aftermath of Iraq is finally taking us to the real reasons why we invaded. It started with Bush's 'Axis of Evil' speech and then came the charades of WMDs. Blair concocted a reason - any reason would have done as he has now confirmed - and we spent years opening a new front for those with a gripe against the West to come try their luck and stoke up the hatred of Islamic fanatics for the next century. There has been no good to have come out of Iraq, and no WMD were ever found.

Then came the financial meltdown. After years of trading largely fictional products amongst themselves, the financial people got caught by their own scam - rather than see their companies go belly up like anyone else who has traded effectively illegally, these people held us all to ransom. The scam was so big and widespread that the entire banking system was at risk and so the taxpaying people of the world had no choice - we had to bail them out. UK Government borrowing to do this has escalated and currently our national debt is 69% of our total GDP and rising faster than everyone predicts. Billions and trillions have been lost in supporting a thin wedge of people who were already extremely rich. At the Copenhagen Summit of Climate Change, African nations express their disbelief that rich nations could throw away so much money and yet not have a few million to help them as they starve. But that is the crux of the issue - there were no real profits made over the 12 years leading up to the crash, it was all fiction. We settled the gambling debts of a few 'gifted people' and reloaded their pockets to do it all again.

It proves that you cannot have Capitalism and a global conscience - and so Africa will always be Africa and poor.

At the nadir of the Crash and the ensuing recession came the trivial yet infuriating revelations about MP Expenses. We got the claims for duck houses, blatant 'flipping' of residences to profit and avoid Capital Gains Tax, manure, kit kats, toilet ducks, second homes in London for London MPs - the list was almost endless and staggering how the taxpayer has been abused. Then came the contrition and now the fight back. Despite doing tit for tat claims on second homes with her husband, Julie McBride, having said she would stand down, has decided that the public really think what she did was morally right and will stand again. Meanwhile we have a whole cast of cynical 'Zombie MPs' who will shuffle off in shame but will not be sacked or resign as they get a pay off for being elected off at the next election. You really could not make this all up it is so disgusting. We now have several MPs moaning that the rules have been changed and applied retrospectively - welcome to the real world, I say. Sadly, at the next election, I think we will have forgotten the sleaze and many will get re-elected because of our own ignorance.

The Rise of The Machine

The rise of the machine has been amazing. Since 1997, a million more jobs in the Public Sector have been created and during this recession, as over one million extra have been dispatched to the dole queue, still the Public Sector has not been affected and continues to recruit at a fearful rate. Over one in five jobs are in the Public Sector now but that does not tell the whole story as so many are not reported as they have been outsourced - the picture is much closer to one in four jobs in the Public Sector. And top end salaries have risen enormously - throughout the recession, the Sunday Times Appointments Section has been devoid of Private Sector jobs but full of top level jobs at £200k packages for the Public Sector. Layers of Government have been introduced with fat salaries and little power - the First Ministers in Scotland and Wales earn as much as and more than Gordon Brown - then there are the armies of Assembly members, flunkies, MEPs, Commissioners. The machine is vast and getting bigger - we are being spoon fed what to think and do by more layers of Government than you can shake a copy of '1984' at. The bill for all this is crippling us.

Spin has dominated this country for the last 12 years and we have listened and believed all that has been said. Careful angling of Public Enquiries have delivered no change time and again and then come the 'big plays' which are designed to show how the Government has delivered. The rise of the 'Target' in the Public Sector has thrown us off the track as to what is important - more kids get top grades in exams but can't add or write, the NHS has no queues but is obsessed with trivial treatments to score. Then we have grandiose schemes like the Asset Protection Scheme, the Automotive Protection Scheme, the Credit Top up, the Enterprise Loan Guarantee schemes none of which have delivered any good anywhere.

Stark facts elude us. We have remained in recession longer than any other G20 nation, it is a record length and depth of recession, we will continue to repay our borrowings long into the next generation of working kids. The world is changing in front of our eyes and we deny it - instead of lowering our carbon footprint, we trade it. What idiots we all are.

It's my 500th post and I have covered a lot, as well as issues and help for small businesses. But I am hopeful of a good 2010. We will emerge finally from recession, we may not have learnt any lessons from the Credit Crunch but at least it has exposed a poor, laissez faire Government for the sham it was - perhaps we will get a decisive vote at the election but that will depend on the quality of the opposition and, frankly, it is not good enough at the moment. At least we have found that a couple of our sports stars are only human after all - Tiger Woods is as weak as the next man, Gareth 'Alfie' Thomas, ex-Lion Captain (for one test) has proven gay people can be amongst the best in the most macho of sports.

I hope for one big thing. I hope that the next Government will not have a 167 seat majority on just 34% of the vote. The impregnability of this last Government has been the massive drag on progress and it has been a period of missed opportunities. I hope that does not happen again.

All Mouth And No Trousers

Cast your minds back to January this year and we got lots of big talk from the aptly named Department of Business of how it had introduced a scheme to support the car industry pledging up to £2.3bn in cash for loans.

This week we have heard that despite the bravado and big talk, not a single penny of that money has been given to the car industry. There have been plenty of meetings and negotiation, with Jaguar trying to get its hands on around £300m at one stage but for one reason or another, no firm has received any benefit for a scheme that was largely advertised with the sole intention of grabbing the headlines and making it look as though ministers were actually doing something about the potential collapse of an entire business sector on which around 800,000 jobs depended.

The grandly called Automotive Assistance Program (AAP) offered minimum loans of £5m to ailing car firms while the Enterprise Guarantee Scheme (EGS) offered loans of up to £1m - clearly any component or distribution firm in the car industry that wanted a loan anywhere between £1m and £5m was scuppered from the start. But then came the conditions. Far from taking on risky loans as the scheme was intended, with £400m of potential toxic debt write off written into the scheme form the start, firms who applied for the scheme found the rules too inflexible.

The Government, meanwhile, claim that there are 10 firms in negotiation on the scheme needing as much as £2bn of loans or guarantees. It seems that during the period of inertia from the beginning of the year, the scrappage scheme, successfully cloned from the continent, has filled a gap which has helped rescue rapidly falling car sales by offering incentives directly to customers to promote buying new cars - a simple and sensible proposition, easily aimed at the right point. It seems that simple, well directed applications of money get immediate and exciting results whereas complex, airy ideas which are difficult to implement but far more grandiose sounding and headline grabbing get no results whatsoever.

If only the Government had looked at its history in education and health it would have realised that smaller packets of focused money deliver greater results than shed loads poured down a hole with no real objectives and spurious measurements of results.

The Automotive Assistance Scheme has been an object lesson in how to waste time and money and get zero results but good headlines. It also illustrates that spin gets the desired results as everyone will see car sales recovering and believe it was the AAP that helped. Instead it was a continental idea that had already brought spectacular results in France and Germany - both of whose economies were out of recession at the end of the Summer.

IT seems that inaction speaks louder than words.

Another fine fiasco has been the trade credit top up scheme, designed to help small companies where their credit insurance has been lowered or withdrawn. The Department of Business, once again, offered £5bn in another headline grabbing initiative which was said to help companies maintain trade with one another. It is a testament to the fortitude and invention of treasury departments that just 72 UK businesses have benefited from the scheme utilising just £18m of the £5bn funds (less than 4% of the total).

Now Lord Mandelson has said that he will withdraw the scheme as it was no longer required, which has sparked uproar among small to medium sized business owners. The issue is that during the recession, businesses have focused on cutting their cloth and recognising more profitable business opportunities where credit is easier to cover. Now that we are entering the recovery phase, businesses will be gearing up to get a little more creative and risk-taking as markets pick up speed.

Once again, companies have felt that the scheme was too inflexible, restrictive and prohibitively costly to use. However, rather like the AAP and the EGS, great sounding, ostentatious schemes have delivered nothing to British business and it is little wonder that when so much was given so cheaply to banks and so little and expensively to business generally that the recession has lasted far longer in the UK than anywhere else. Grand ideas with little substance packaged with large business in mind always.

Too much money given to too few too cheaply, and too little to many too expensively equalling a long recession. It's a lesson in mathematics and economics that I hope Mandelson remembers in future.

The Nature of The Beast

'Banks are in a dangerous frame of mind: they feel isolated, the whole system of mutual support and syndication has broken down and they are not doing what the government tells them to do.'

The words of Lord James of Blackheath, or to you and I, David James the renowned Company Doctor. Interviewed in this month's Director Magazine from the IOD he insists that in over 55 years in business he has been through 8 recessions and has seen nothing like this one.

At Christmas, a good friend of mine had a very good business, growth was good year on year, his customers seemed buoyant and he was very dismissive of how the recession could affect his business. We talked about diversification and protecting customers by offering them extended deals early but he dismissed this as he 'had never offered a discount in his life'. In February he made 5 people redundant justifying it on the grounds that the chosen people were poor performers. By the end of this month he will have made a further 7 people redundant - in total nearly half his workforce has gone in a single quarter.

Here's the rub. He isn't short of cash - he's short of sales. In a single quarter, his major customer indicated he was no longer in the market for his services and then a few more hit with the same message. Of course, he had reviewed the pipeline and tried to reason that each deal was good but he had failed to talk to his customers early and address the issue of those who might actually not continue to buy. By the time he had realised what was happening, a massive drop in sales left him with no course other than to cut costs radically.

Economic Shock

I have blogged before on the extreme speed at which this recession has hit. But there are survivors, there are losers and there are winners in the tumult. While Sainsburys reported a recent rise in sales, Marks and Spencers have just announced a 4% like for like drop - they have already announced the closure of many of their smaller outlets which had so much captured the public's eye at service stations and the like.

David James asserts that anyone who tries to expand through bank borrowing is likely to find their funding withdrawn - and this echoes concerns I raised yesterday that many small businesses are not getting access to the Enterprise Finance Guarantee (EFG) scheme as put up by the Business Secretary which made sure banks were only liable for 25% of any loss on lending. Yet little of that money has been released to businesses while banks are busy converting current lending to the scheme by offering small top ups and then getting 75% of previous borrowing covered.

It's a blatant scam and as usual the Government's implementation of what on the face of it was a decent idea has been incompetent to say the least.

The emphasis from senior business luminaries (and not people like Ruth Badger) is to look at cash-based rather than sales-and-margin-based sales. This will put a pressure on the social cycle we all want like suppliers paying on time, which has been an exaggerated problem in the last few months for many, but the advice is that we should also pay our suppliers on longer terms and conserve our cash while offering incentives for sales which bring cash in quickly. In the same breath we are advised to cut capital spend, cut people, take no risks, do nothing novel and batten down the hatches or go bankrupt. This is the advice of Jon Moulton, founder and Managing Partner at private equity firm Alchemy.

As he puts it, 'When there are seven of you and only five seats in the lifeboat, what else do you do?'

Risk in A Recession

No one could argue that Moulton's advice is not sound. In the teeth of the worst economic recession since the 1930s, it would be suicidal to start taking daft risks. However, that does not mean that there are not opportunities out there. Yesterday, I gave the example of Richard Branson seizing the opportunity to sponsor the new F1 Team Brawn who had formed from the ashes of the Toyota Team. With two decent drivers and a team, Ross Brawn has developed a car that is not only competitive at the first time of asking, but actually qualified in positions 1 and 2 on the grid and finished the race in the same order. Branson, not even an F1 geek like some sponsors, seized on the fact that there was not a single logo on the car and signed a hastily put together, tentative deal by his standards, to sponsor the Brawn cars. It could not have been a more spectacular coup for a man known as the master PR expert.

Virgin will be in pride of place at the next race, at the top of the driver and constructor tables and feted as the saviour of the team. Such bold risk taking in hard times is a priceless gift.

Business Myopia

The car industry is an example of a tragic crash in the heart of this recession. Hit by the dual cosh of lack of credit and lack of sales, production has slumped dramatically and this means that the car makers are quite literally in survival mode. Promised a £2.3bn package of rescue by the Business Secretary, none of that money has yet flowed to the companies, and across the UK it is estimated that over 800,000 jobs are directly or indirectly dependent on the industry. In the '80s, Sir John Egan epitomised Margaret Thatcher's industry boot-boy who got out and kicked the unions and slammed Jaguar back into shape after years of fattening under state control. He improved productivity by some 70%, slashed the workforce by 40% and exceeded the cash targets set.

As Egan said recently, 'For all but the grandest companies, cash will be more important than profit right now.'

John Mumford, a former BP executive and now at risk of my haranguing for being on the board of several companies, claims that companies he has worked with, large and small, suffer from what he describes as 'business myopia' - a lack of empathy with introversion regarding what is going on in the real world. I can only agree - too many companies I have spoken to recently who poo-poo'd the recession and claimed that they were having a record year, had a recession-proof business and thought people like me were 'talking up the recession', have had to lay off staff at minimum and, in some cases, tried to get emergency loans.

Mumford believes there is a 'high level of dysfunction in terms of talking to outsiders and seeing problems coming.'

Mumford also believes that in larger companies there is a level of 'group think' and that those who do not share the collective view are cast aside politically. In the past IBM suffered from what was called internally as managers giving 'Good slide' - a vernacular that described their ability to dress up the issues and results. In the aftermath of massive failure, it took a breakfast cereal executive to rescue the company and bring it back to leadership again, though never with the same dominance. Many would suggest that Microsoft could be going through the same problems, Apple did some years ago until Steve Jobs was brought back and more recently, Dell has recalled their CEO, Michael Dell, in the face of business problems.

Too often management just ignore the real world in favour of looking politically good and agreeing. Dissenters are seen as whistle blowers, pariahs or unnecessarily negative.

Company Politics Can Kill

The issue highlighted above does not have to be a large company. Medium and even small sized businesses suffer from inertia due to internal politics. There is an element of group think that suggests that no one should tell the Board or owner that he/she 'has no clothes on' and is out of touch with reality like the fabled emperor.

Sometimes it takes guts to challenge management views and get a taste of reality.

The best way I have seen this work is by staff actually talking to customers and feeding back their views. If you can combine that with some simple research about each customer, an informed report about the actual state of each customer and therefore the dependencies of deals becomes more fact than supposition.

This is vital in seeing the issues companies face.

There is no tried and trusted method as to who should do this. Sales Directors and managers who dare talk to customers about the potential of their orders arriving and state of their company are seen as 'making excuses' for poor performance often but if they can combine that with a realistic action plan then they may be able to be seen as forward thinking.

However it is done, Board Directors and executives need to take a longer, closer and more realistic view of their position and make sure that they clearly understand the implications to their future. The worst that can happen in any business, large or small, is that warning signs are ignored. Face them, act on them, communicate with everyone and tackle them.

After all, you don't want to be branded a real politician, do you?

Small Businesses - The Forgotten Masses

Mighty big talk came from the newly manufactured peer, Lord Mandelson, regarding the great steps he was taking with banks to guarantee loans for small businesses. Just how much of that mighty big package of help that is filtering through is pretty minimal, it looks like.

Over the weekend, it was reported that banks are allowing around 120 small businesses go bust every day while large scale ones get bailed out completely. The so-called Enterprise Finance Guarantee (EFG) was set up by the Government with £1.3bn capital in the form of loans or overdrafts which would be 75% guaranteed by the Government. If you have a small business like mine, then my overdraft has been cut back and last year I was not allowed to flex it for a single month even though I had a capital bond with the same bank worth over 5 times the lending required for just a 30 day period.

Banks did not seem to want to lend even when you had cash and security at the very same branch.

The Scheme That Never Was

As with so much lately, the EFG was set up as a knee jerk reaction to the recession and credit crunch and as a sound bite to ward off criticism and show that the Government cared about small businesses while wasting billions on larger ones.

As has been the case with most things, it was mighty big talk without any action to show for it.

36,000 businesses will go bust this year according to BDO Stoy Hayward and that will cause the loss of over 150,000 jobs, and many affected by this squarely blame the banks. One firm of accountants claims that every single one of his clients who applied for a loan under the EFG had it turned down and that he had not yet heard of any firm that had been granted such a loan. Often the whole thing does not get past a first meeting with the bank.

A Sunday Times report shows that in fact many of the loans granted under the scheme are not new money at all but merely the transferring of an existing overdraft or loan facility with a small top up. In other words, banks have used the opportunity to protect current loans and get a 75% guarantee on them by transferring old loans under the scheme and making them qualify by offering a small bit more.

As has been the way in the this whole banking fiasco, it is the implementation of talk and plans which have lacked precision and diligence and then the Ministers involved either blame those below, the banks or anyone else they can think of when the schemes go wrong.

It is the attention to detail of such plans and their execution that determines their success not the assertive soundbites and words used at the journalistic launches.

The Real Facts

As this week Lloyds are planning to pay hefty bonuses to staff and executives after being bailed out by the taxpayer and despite our owning a decent chunk of them, it really does beggar belief that banks like Lloyds are letting businesses down.

The bail outs and daft schemes have had little or no effect other than to preserve the status quo and small businesses have been just left with the echoes of words from the likes of Mandelson to pull them through.

What companies need is action on these ideas. Banks should be compelled to instantly review cases for loans and answer them in a minimum period of time, certainly less than 6 but ideally 4 weeks from initial contact. Realistically, no small business puts in such a request unless it is urgent so there should be a mechanism to get bridging loans in as soon as the request is made.

To add to this, many businesses who apply for such loans are still being asked for security like their homes, yet up to 75% of the loan is being guaranteed by the EFG scheme - banks should step up to their side of the bargain and take the 25% risk themselves. In order to get faster decisions, the local branches should be given more authority to make the calls on these loans - the faster, the better. Too often such requests are lost in the system and people who know nothing of the business or bank relationship make the decisions in the ether.

Bank terms are changing rapidly and there should be far more notice for small businesses and more proactive help. Too often the first we know of change is after the first new statement is received.

Finally, it would really help if people like Mandelson and bank managers show more knowledge and understanding about the plight of small businesses. Soundbites are only a starting point - to make this work there has to be a flow of commitment and understanding down the entire process chain so that at each step and for each decision made, the goal is understood and the sympathy lies with the business concerned.

The speed at which this recession has struck is frightening and while I have pleaded in this blog with executives to plan ahead, too often businesses can turn from buoyant sales with upward growth to downward with 20 to 30% declines. For small businesses, it is hard to legislate for such incredible swings even with good forethought and so banks have to understand how usually good businesses can need a short term support to hold onto until the business can once again stand on its own two feet.

That will need proper execution of the EFG Plan and its failure flows right to the top. It's time to stand up and be counted for ministers and banks managers as business leaders will not forget how they let us down.