How to grow revenues from £3m to £100m in four years
David Cox shares his part in Screwfix Direct’s growth from small family business to £82m exit to Kingfisher
When a small direct mail company in the West Country hired David Cox with a view to grooming the business for sale it surely can't have expected such explosive growth.
Ex-teacher Cox was the man who brought the laser-based interactive warfare games company Quasar to the UK from Australia in 1987. That worldwide manufacturing and distribution rights for the business was ultimately sold to LeisureCorp and Cox took an MBA as well as working for an educational charity and Norman Broadbent.
In 1996 he received a call to join Screwfix Direct. Below he tells the story of his time with Screwfix and how his unorthodox methods helped to grow the retailer to become a £100m-plus turnover business upon its successful exit. Since then, Cox has held a series of non-executive directorships and chairmanships in a range of sectors. He is chairman of Diet Chef, a company backed by Piper Private Equity, and a non-exec at online cycling products business Wiggle and Toolstation, a company cut from the same cloth as Screwfix Direct.
Every business aims for fast and dynamic growth. But achieving it can sometimes bring in dangerous issues from unexpected quarters.
One day in 1996, while running the Bristol office of recruitment consultants Norman Broadbent, I got a call from one of the owners of a very small business in Yeovil called Screwfix Direct. A direct mail fixings supply company founded in the 1980s by the Goddard-Watts family, Screwfix Direct quickly became popular among tradesmen – though in the early days they got their wives to call up as mail-order was considered a ‘woman's thing'.
By the time I started talking to the Goddard-Watts family, their company was turning over £3m. They realised they lacked the necessary management skills to manage the business and prepare it for sale and asked me to recruit a team, and later join myself as managing director.
By the end 1996 Screwfix Direct was turning over £7m, a figure rising to £28m in 1998, and £100m in 2000. By 1999, over 15% of our business was e-commerce – which was very unusual at the time. That year I remember reading an article in the trade press by a former managing director of B&Q who had said: “I can never see people buying screws on the web.” Ironically, it was B&Q's owner Kingfisher that bought Screwfix Direct for £82m in July 1999.
Our accelerated growth continued and was hugely satisfying, but it taught me some valuable lessons. The first is having the confidence to plan ahead. If you're doubling turnover every year, you need an infrastructure in place to sustain that level of growth. But how early do you do it? And how will you cope with the overheads?
Immediately after the Kingfisher purchase, we reached a stage where we ran out of warehousing space. After swiftly finding a suitable location, I took the proposal to an early board meeting. “Fantastic,” I was told. “Put a paper together for the Capex committee to consider in the next quarter's review.” We didn't have till the next quarter; if we didn't find space we would simply stop operating. So I had to go ahead and buy the warehouse on the quiet – not the sort of thing corporates tend to condone.
There's a similar conundrum about levels of staff. One of the challenges of fast growth is, somewhat perversely, ensuring you are relatively inefficient in terms of running the operations with more people than are needed. Many of the managers we hired at Screwfix Direct in the late 1990s had worked through a recent recession and were brilliant at running lean operations. But that's a dangerous approach in a rapidly developing business because you'll soon run out of people to handle the increased volume. You have to build in the fat today to absorb when you grow tomorrow.
Of course the choice of people in any business is important. But in a fast growing company it becomes more complicated as the temptation is to over-promote loyal, long-serving staff into roles that are simply too big for them. It's a difficult balancing act to recruit more senior staff while keeping your existing team happy, but failing to do so can catch out a lot of businesses.
Nowadays technology is another critical area. There's a simple rule here: the bigger your organisation, the more complex the systems and so the potential for systems failure increases.
This simple fact is indelibly scarred in my memory of one autumn day at Screwfix Direct. A junior member of the IT team noticed that the clock on one of our key database servers hadn't been turned back and took it upon himself to reset it. What he didn't realise was that doing so would automatically default the clock from October back to January 1. Suddenly this great big server tried to replicate every transaction we'd had in the last 10 months. Within a day, it ground to a halt and couldn't process a single order.
Mercifully, we had an old system that happened to be running in parallel while we were changing over to the new one, so we were able to switch to that. But it was a heart-stopping moment and could have closed us down completely.
Managing fast growing companies is all about careful planning and rapid execution; about ensuring you have the right people, processes and systems; and, perhaps most importantly of all, about the ability to hold on to your hat and enjoy the ride.
This is an extract from '25 Years, 25 Insights', published by Piper Private Equity to mark its 25th anniversary. A specialist in consumer brands, Piper founded Pitcher & Piano and has helped grow businesses such as Boden, Las Iguanas and Maximuscle. To order a free copy of the book go to www.piperprivateequity.com