Why their set of values is unusual
Nothing too unusual about an owner-managed company having a set of values and a mission statement. But the co-founders and directors of Original Steel Services Limited have written a document that sets out how they would like the business to be run once they are no longer there.
“Of course it’s not legally binding, but I hope it would be followed,” explains Chris HuttonPenman who set up the manufacturing group with Peter Davies.
It could kind of work if the owners have offspring willing to take the reins, but often the next generation is only willing to find a professional manager to come in and run it instead, or they sell the business. “Some small businesses do seem to run out of steam,” muses Hutton-Penman. “You can see clogs to clogs in just two generations. The dad starts it and the next generation takes over without any enthusiasm and watches it decay.”
What is interesting – fascinating really – about OSSL is that Hutton-Penman’s son and Davies’ daughter are both on the board as non execs: in addition, the former looks after marketing, and the latter is an accountant.
Group revenue has reached its current level of £25million mainly through acquisition, and the owners want more. But growth for growth’s sake is not what it’s about, says HuttonPenman. The goal is to increase steadily the size and stability of the business by bolting on additional metal-based businesses, making sure they are ones that will fit well with the rest of the group.
The targets are mainly small businesses where retirement is looming, and HuttonPenman says it’s important to deal tactfully with their owners. “We have to accept that the business is their baby and they are emotionally attached to it. So we spend time getting to know them and getting them comfortable with our philosophy and attitudes.” That can take time, he adds, saying they have been talking to one business owner for two years.
Although all the businesses in the group are involved with steel, they range from a forge to a stock-holding company; the former has a long order book and the latter little idea of what it’s likely to sell over the next few months. One significant advantage of having several different but related businesses is that they can trade with each other; for instance the stockholder supplies to the forge.
Davies and Hutton-Penman started the group in 2004, having had long careers in UK manufacturing industries across a wide variety of sectors. Hutton-Penman had trained as an electrical engineer and worked in computer companies and in manufacturing as a “prostitute engineer” before meeting Davies while he was working as the venture capitalist’s representative on various boards.
In the early 2000s, they were “earning some nice cheques” finding low-cost Eastern European suppliers for UK manufacturing customers on a commission basis before deciding to create a small group of traditional manufacturing businesses, all in the steel industry. By 2014 they had bought four businesses, including the stock-holding company, the forge and a steel rolling mill.
“We’re both nuts about UK manufacturing,” Hutton-Penman says. “Steel businesses in this country had suffered from a lack of direction and a lack of investment, which meant we could buy companies at a sensible price as no venture capitalist was really interested in something as boring as steel bashing.”
But aren’t their products less competitive than imports from foreign producers? “If you had asked me that fifteen years ago I would largely have agreed with you,” he replies. “But there’s a better opportunity for British manufacturing than there has been since I started work. In the past three or four years there’s been an acceptance in Westminster that we can’t build an economy based on McDonald’s and that we need more manufacturing. And there’s growing awareness that manufacturing is under-invested. We’ve just spent £150,000 on a new CNC machine; a venture capitalist would expect a business to get that money back in two years but we have a longer-term view.”
That’s just as well, because all of the companies OCCL have bought have needed work doing on them. “They have all faced challenges,” says Hutton-Penman. “We can spend two years getting to grips with an acquisition, putting in management teams, improving processes – and lowering the costs; we have saved £400,000 a year in operating costs across the group by doing things differently.” At least 75% of profits are re-invested in the group.
Each company has its own board, which makes everyday decisions while HuttonPenman and Davies hold monthly meetings and talk to the chief executives a couple of times a week. Other than that, they like to be fairly hands off.
Hutton-Penman says there’s been a strong streak of opportunism in his career – as displayed by his liking for acquisitions, which he says are, by their nature, an opportunistic way of running a business.
“The third company I worked for was run by a tremendous salesman who was a bit of a rogue,” he recalls. “He ran out of cash and it went bust but the receiver asked me to keep it running while he looked for a buyer. We couldn’t get credit so we had to pay for everything in cash. It was hard work but a tremendous baptism of fire, which got me away from being an engineer and into the commercial world.”
And having that kind of opportunity to prove yourself is quite common in business, he reckons. “Anyone who tells you they don’t have some luck in business is fooling themselves. We are where we are today due to me happening to walk into a multinational that had trouble sourcing products from Europe. I said ‘I can help you’ and that gave us the money to establish the group. When you get an opportunity like that you have to say ‘I will do it’ and worry about how afterwards. A riskaverse person – and a lot of small business people are risk-averse – will walk away from an opportunity like that.”
But he qualifies what he’s just said, adding: “I was able to say we could help because I knew it was possible we could find what was needed to meet that requirement. If we had done it without the first idea of where to start, we would probably have had egg on our faces.”
However, the ability to take risks where appropriate is vital to success, he insists. “You also have to have passion and belief in what you’re doing, and enjoy it. And you need a vision. The reason we do what we do is because we are believers in British manufacturing and we’re doing our bit for the next generation. We are evangelical about that.”
A good measure of whether something is too risky might be whether the bank is prepared to fund it. Hutton-Penman says OSSL have never had a funding application turned down, but he makes the point: “If the bank doesn’t want to fund something, should we be funding it? By definition that definitely makes it risky so perhaps we shouldn’t be doing it at all.”
Their big challenge is that the workforce isn’t getting any younger. At the forge for example, the average age is fifty-seven and because it’s a skilled job, it’s difficult to find replacements when staff there leave. “We tried taking on apprentices but it proved to be a nightmare,” Hutton-Penman explains. “We got kids who couldn’t get up and get to work on time. As a small business we don’t have the human resources function to do the interview processes that the multinationals can apply. This guy at Siemens told me they hire only one in seventy five applicants; we just don’t have the resources to go through that process.”
Ironically for exponents of British manufacturing, they’ve found the best recruits have come from eastern Europe. “They turn up on time, they get stuck in, and they work hard,” says Hutton-Penman