Watermark: John Calcutt

The cabin services company founder on how to give customers exactly what they want


As tough sectors go, they don’t get much tougher than the aviation sector over the past two years.

And if there’s anyone who should know, it’s John Calcutt the chief executive of Hampshire-based airline services company Watermark, a man who has a direct line to the boardroom of many of the world’s biggest airlines. Not that you need a direct line to Richard Branson’s office to know anything about the parlous health of the sector. “It has been the worst climate in which the airline industry has ever operated,” says Calcutt.

“There’s been 9/11, the downturn in the world economy, an ongoing threat of terrorism, the war in Iraq and SARS disease. It’s like a boxer who’s knocked down and just as he gets up again there’s another great smack in the nose, and down he goes again, he staggers to his feet trying to recover and in comes another.” Many CEOs might use this litany of woe as a preface to the story of why their business is struggling or has gone under, but Calcutt isn’t complaining. That’s because his business is doing better than ever. What’s more, it looks well placed to continue its impressive track record which has seen it post 10 years of double digit revenue growth, accompanied by consistent profit growth (see box).

To the outsider looking in, this success might seem baffling. After all, sentiment in the airline sector is shot to bits and as a result, cost cutting, job losses and other cutbacks are the order of the day. But as Calcutt, puts it “where there is adversity there is opportunity”.

So, far from sounding the death knell for his business, the upheaval in the airline industry which started in September 2001 has provided an ideal environment for Watermark to find fresh momentum for a new stage of growth for the business by transforming the service it offered to its clients.

A change of focus

Up until September 2001 Watermark had found handsome growth as a products company which worked with the likes of Virgin, or BA, international carriers making sure all the onboard kit for passengers such as head-phones or blankets were one brand and gave the passengers the right experience.

But the consequences of September 11 terror attacks, forced Calcutt to rethink his business, “If we hadn’t changed we wouldn’t have survived,” says Calcutt. “We let the dust settle post 9/11, we looked out of the gloom and tried to get focused on where the industry was going. There was only one thing the industry wanted after 9/11 and that was cost saving. They reacted and we had to react. I was well in touch with what was going on in the airlines so I was developing my thought processes without rubber stamping them and setting them in stone. We looked at where they were going so we could mirror that too.”

This process was helped by the fact that Calcutt prides himself on being a person who stays close to his customers in order to give them what they want (he knows their birthdays, the names of their pets and even the birthdays of their partners). By talking to his contacts in the industry, Calcutt found out that if he committed to building a company which could help the airlines outsource more, if not all of their cabin services, they would push business his way.

“We very quickly put a business plan in place, our vision for the future lowered the airlines’ operational costs and gave them additional revenues through some of our revenues,” says Calcutt.

“What our airline clients wanted us to put in place was what their in-flight services department bought. Before, there was no orchestrator of everything that happens in the cabin and that is what we set ourselves up to do.”

What this meant was a new focus for the services and so a new shape for Watermark emerged. A business plan identified 12 key service areas for its clients and Calcutt set himself the task of going out and acquiring businesses in these sectors.

Growth by acqusition

One year on from hitting the acquisition trail, Watermark is nearly there. Of the 12 service areas earmarked last year, nine are now on board. Rather than throwing money at businesses to close deals out quickly Calcutt has been shrewd with his strategy and bargained hard to get what he wants. Each business he has bought is profitable, each deal has been settled in paper at a multiple of no more than five times the revenue, each company has been ready to plug into Watermark’s existing client relationships and latent demand. And where he has been unable to acquire outright he’s struck joint ventures or taken partial shares in the target company. He admits the tough environment has made it easier to get deals on his terms.

“Take the deal we did with Aerobox (an airfreight container company). We got 12.5% of a publicly listed company capitalised at £18m, worth £2.2m and we paid a pound. They just raised a $2m marketing budget to spend with me. When I’m successful they will pay me a commission on every product I sell. That’s 12.5% equity for free, commission on everything sold and they pay me a marketing budget, it’s a damn good deal and it’s the shape of things to come.”

To ensure the acquired businesses added value, Watermark had a deal process in place to minimise disruption and maximise returns, a kind of acquisition hit squad. While Calcutt sourced potential acquisition targets and negotiated terms of the deals, his non-exec George Brooksbank, pushed deals through with lawyers. Post transaction the baton is passed to Watermark’s new managing director Paul Adams, a travel industry veteran, brought in from Air2000 and MyTravel to focus on margin improvement and bedding down the deals.

Delivering growth

Thanks to this process, the fruits of Calcutt’s deal-making is paying off with the commercial benefits already working through the business.

“Take Globe, the smallest company we bought on a revenue projection of £600,000 in July 2002. By the end of the year it had already done £825,000. This year (2003) it’s going to do £1.9m, just through locking onto our clients. Media on the Move, is a company we bought last month (September). We have already put four deals through which will add 20% to its profitability.”

By changing its structure, Watermark’s acquisition strategy has allowed it to transform the way it does business. “We are a different company now,” says Calcutt. “Our product offering is different. We are still dealing with the same relationships but with a much wider range of goods and services and we have had to change our sales story enormously to reflect all of these services.”

This has meant re-training sales staff to the bigger picture and the wider offering, and learning a new way of selling Watermark’s products.

“The way we do business has changed, when we were a products company I was trying to sell you a cup or a saucer. Now my phone calls are to commercial directors and managing directors saying ‘I want to come and see you, not about a product but to tell you how I am going to save you £10m’.”

Forward momentum

Two years on from the first upheaval in the business, and despite what Calcutt says is “an appalling climate” for the operators, Watermark looks in a strong position to continue on its hitherto uninterrupted growth path.

Although people are wary about flying, the perception that the airline industry is in decline is not accurate, says Calcutt, if you look at the bigger picture. The industry may be in turmoil but there is still growth when it comes to passenger numbers. And that’s the ‘magic metric’ for Watermark: so long as passenger numbers are growing, it doesn’t matter who is carrying them because the company still wants to supply the services needed in the cabin.

“The traditional markets like the North Atlantic have been on a downturn. Up until SARS disease there was huge growth in the Far East, then at the same time passenger numbers in the Far East dropped off due to SARS. Suddenly there was a rise in the number of people travelling in America,” says Calcutt. “Outside of that there are areas which are completely unscathed. There has been enormous growth in Russia: our friends Boris and Olga are travelling so we have growth there.”

Apart from growth in passenger markets, there is also the untapped growth potential in terms of the number of airlines who are not doing business with Watermark, which goes beyond the big name carriers and into local markets. With a network of offices in China, Hong Kong, Russia, Germany, and the US the company is well-placed to capture customers.

“Although we are a small business we are a global business. We have 183 clients across the globe, so if we lose a bit on the swings, as with SARS in the Far East, we gain on the roundabouts. You are never going to stop people travelling for business or pleasure. I travel abroad as part of global business, to see my clients and vice versa. People still go on holiday.”

So although the 183 airline clients of Watermark are impressive there are still plenty left to convert into customers. And if outsourcing as a way of cutting costs continues to be the trend, then Watermark’s proportion is a compelling one for them to take up. With its current client base it can buy its cabin products better than any individual airline. And as its client base grows, so too does its power to offer better cost savings to airlines.

Calcutt dismisses any suggestions that the transformation of Watermark is down to anything more than following the basics he learnt as a market-stall trader.

“There are two old mottos we have here: never sell anybody what you want to sell them, sell them what they want to buy and never make anything but money,” says Calcutt. “There is no difference in what I am doing today compared to when I was 17, in terms of mantra, business ethics and understanding. Its all just playing with a different set of numbers and a different set of products,” says Calcutt.

This may sound flip and simplistic, but, history shows that the best business strategies are always the ones which stick to the basic rule of giving the customers what they want and on the back of that philosophy. Watermark has thrived rather than just survived over er the last 24 months.

John calcutt

John Calcutt is the classic market stall trader made good. At the age of 17 his experience of running a stall on Petticote Lane convinced him to join the City. After answering an ad in the Evening Standard he worked his way up from the bottom of the stock-broking ladder to become a stockbroker, and dealer. At the age of 26 he quit, built a boat and sailed around the world. When he arrived back in 1978 he started his own marketing business called Sky Signs which brought big format advertising to the skies of London. A year later he sold up for £1m but stayed with the company until it grew within the new parent before he demerged it. In 1984 he retired to Hampshire but got involved with Virgin, running the logistics operation for Branson’s assault on the Blue Riband transatlantic boat record. Calcutt’s involvement with the Virgin empire grew from then on, with a brief which ranged from rolling out cabin products for the growing Virgin Atlantic fleet, to managing other brand launches…of which he launched 30…and managing all of Branson’s publicity stunts. Over a 10 year period with one client and 10 staff, Watermark established itself before selling to new clients.

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