Furniture for Business: Martin Stocks
Martin Stocks’ Furniture for Business is ready for its next stage of growth, with or without an upturn in the market. Ben Neasmith finds out just how he plans to do it
When you operate in an industry notorious for succumbing to the highs and lows of the economy, you’ve got your work cut out trying to grow your business into a major player.
That’s the challenge that faces Martin Stocks, managing director of London-based Furniture for Business (FFB). He has just gone through the process of restructuring the company into a group with two subsidiaries and is now looking to grow the business through acquisitions. If all goes according to plan this should mean reducing overheads and spreading risk, while at the same time pushing them ahead of their competitors. For the new businesses under the FFB umbrella, an exchange of equity for services, such as accounting, marketing and design, should also give them the opportunity to fulfil their own potential.
Furniture for Business was set-up in 1991 to source and provide furniture for businesses, but without being tied to a single line of products so as to offer a more comprehensive and independent service.
Having built the business up to a £9m turnover, Stocks and his co-directors wanted its future to break free from the fortunes of the economy. “Straightforward organic growth means, from time-to-time, you get caught with your pants down. When business contracted we could have been left with a big overhead. We needed to think a way around this because we had seen a number of businesses try and build themselves up followed by spectacular failure,” he says.
After mixing with his business contemporaries while attending a course at the Cranfield School of Management, it became clear to Stocks the way forward would be through joint ventures and acquisitions. It seemed a particularly relevant approach as the furniture market tended to be made up of successful sales people with their own businesses, but who often found themselves kept away from the front line because of the day-to-day responsibilities of running their company.
“We’ve got some important strengths as a business,” Stocks explains. “We’ve been an Investor in People since 1996, we have excellent accounting systems, in-house design, project management and marketing. So why not set ourselves up as a group hub and acquire businesses or set up joint ventures? That way they can be purely sales-focused operations and we’ll provide the infrastructure.”
When the idea was announced to the company it really struck a chord with one of Stocks’ senior sales people, Ken Kelley, and as a result The Furniture Practice was created, with him at the helm. Employing six people and now turning over £3m, it operates on a similar remit to its founding business, but with more of a focus on selling to architects and designers. Just as importantly, it has acted as a pilot scheme for FFB’s future restructuring plans.
But it was a downturn in business, as a result of September 11, which surprisingly provided the impetus to move ahead with Stocks’ plans. “It made us think even more about strategy. If we were to survive the peaks and troughs we needed to look at our options during a shallow period, to see how it stood up,” says Stocks. FFB advertised through their accountants, Baker Tilly, for companies interested in being acquired and, as was somewhat expected during a tough trading period, received a good response with a significant percentage seeing the offer as a potential lifeline. But the stumbling block came in convincing entrepreneurs to sell a majority control in their business for a stake in the new group, and then remain on-board. “It’s a very big thing to ask,” Stocks admits.
Restructuring into a group
Going back to the drawing board, Stocks attended an Investment Readiness course run by Cranfield and Baker Tilly, and it became immediately apparent the idea of implementing a group structure and reducing overheads was still the best way forward, but as a two-stage process.
“We added a stage where we would provide the company with our services, but no equity changes hands. They would probably have to make some redundancies and cutbacks, and in return we would provide work such as accounting, design, marketing. These become taps they could turn on and off, so a fixed cost becomes a variable one. We would do that for between six to nine months and then, if either side was not happy, we could walk away with little loss. But if it was a success, both sides would know what they’re getting into and the exchange of equity becomes less of an issue.”
In July 2003 the new future of the company was launched to FFB’s staff and since then the restructuring into a group has begun in earnest. The support areas have been formed into a group company called ‘Momentum’, while a second subsidiary branded ‘Function’ takes care of the services aspect, such as repair, relocation and furniture hire, leaving the remaining part of FFB to focus on sales.
And while its transformation has not resulted in a massive change in the roles of his employees, Stocks has been very aware of the cultural and mental shift that’s occurred in their move from support staff to front line service providers. As FFB now has employees whose services are charged out at either an hourly rate or on a percentage of sales, this has put a much greater focus on exactly what it’s providing, so putting FFB’s own performance standards, by which it can be measured, down on paper has been a key task.
Stocks admits the whole restructuring process has been more complicated than he anticipated, from reapplying for Investors in People status to rebranding the new subsidiaries. And all this has occurred while trying to keep the business running as smoothly as possible.
But now the bureaucratic part is over and the plan is a reality, the fun can begin. The new group is looking to acquire four new businesses over a three-year period, turning over at least £2m each and with a sales team of around three people. “We feel by providing all those support areas, including management assistance from myself and my co-directors, we can build each business we work with to at least £3m, giving the overall group a collective turnover pushing the £25m mark,” says Stocks.
As far as the types of companies which would appeal, FFB has already had a number of senior industry figures approaching it with ideas for complementary business, such as high value woodworking or storage. But there are less tangible assets FFB will be looking for, particularly in regards to the individual heading up any potential acquisition.
“I think whether an entrepreneur is right to work with comes as more of a gut feeling. Ideally they will be a strong sales person, with a good track record, have built the business and been driving the sales behind it, but on the other hand not be too pushy. It wouldn’t worry us if they’d made mistakes in the past because that could be why this sort of offer would appeal to them,” he says.
In order to convince potential applicants the deal is a sensible one, FFB has looked to raise capital of about £500,000 – half through the current directors and half through outside investment. Even though, on paper, the plan is self-funding Stocks is astute enough to recognise targets might not necessarily be reached, and acquisitions might occur at a slower or faster rate than predicted. “I think, when we’ve got businesses that want to come aboard in what is, for the industry, a difficult climate, we feel morally obliged to show them a properly funded plan with contingencies.”
So far the response to FFB’s search has been positive, with a recent mailshot achieving a 10% response rate and suppliers putting them in touch with businesses they think might be suitable. It’s apparent Stocks is raring to get going and excited about what the next 12 months could hold for his business. But he’s not getting carried away and recognises there’s still a long way to go before an exchange of equity.
? Acquire four new businesses over a three-year period, turning over at least ?2m each
? Raise capital of ?500,000
? Push overall turnover towards the ?25m mark