Two years and millions of pounds later and the Croydon company went into production – and then the roller coaster ride really began.
Darryl Danielli talks to RDI’s David Laybourne, managing director since 2007, about how, against the backdrop of eye-watering losses in the early years, the banking crisis, and the perils of first-mover advantage. The company finally turned the corner in 2010 and hasn’t looked back since.
Darryl Danielli Where did the idea come from of launching a business aimed at what was then a non-existent market for white-paper, digitally produced, full-colour direct mail and transactional documents?
David Laybourne We’d essentially done it before as Olwen Direct Mail in the late 1980s – create a new market I mean. RDI was a very similar vision in many respects; it was just that the marketplace and the technology were different.
In the Olwen days, we took data processing off the mainframe environment and onto PCs, which made it a faster application development environment and more responsive. We also had the end-to-end solution and that’s something that was as key to us then as it is now – that we have lots of tools in our toolbox.
That’s what stops us from being a one-trick pony or being in a situation where we are trying to force a client to do something just because it suits our equipment. Instead, we find out what our clients want and translate that into the technologies available and figure out how we take different elements of those technologies to do what they want, or more often than not, more than they want.
In those early days though, I get the impression that you were taking on work that you hadn’t really built the business for?
In the early days we had to take anything that was there to an extent, because we really were up against it due to the financial crisis and the number of clients and projects that had stalled as a result. But we always recognised that we needed a good mix of work. While it’s great to have long-term contracts, you also need the ad-hoc work to fill the gaps.
What is the work mix now then?
It’s probably split equally between transactional, conventional DM and loyalty schemes. But the boundaries are very blurred and that’s why we need the breadth of services and skills in the business.
You can’t be one dimensional, you can’t just say I want to print a million statements please, you need to look at what those statements are doing, what their objectives are and how you can perhaps add value to them by combining marketing messages – the horrible transpromo word.
You mentioned the transpromo word, which I know is one of your bug bears…
I hate it. And someone’s invented a new one now: transfulfillment.
But isn’t the good news now that it’s now a redundant term, insofar as all transactional mail carries personalised marketing messages. So we can just go back to describing it as transactional?
It’s just a communication. Let’s bury the word – brilliant. But I’m not sure we can just yet. There are still businesses out there that don’t want to innovate, can’t afford to innovate, don’t get it or are under-resourced – so there is still some traditional transactional. But you’re right, transpromo is now the norm.
Back to the business though, I understand that people from the shopfloor upwards have equity stakes?
Yes, but they weren’t share options. Everyone who has a stake has bought into the business with their own money. From our point of view that’s amazing – we want employees that really get it and buy into a plan and are prepared to put their money where their mouths are.
Every employee though, shareholders or not, benefits from our profit share scheme, where we distribute 10% of our profits pro rata.
I guess they had to wait a while though. After all, I understand that the plan was for the firm to be profitable after five years – were you?
I think we were hoping for it to happen a bit sooner than that to be honest, but partly because of the financial crisis it very quickly became apparent that it was going to take five years. We finally started making sustained profits – i.e. profits every month – from around mid 2010. We’d had a few profitable months before that, but mid 2010 was the turning point – and every month has been profitable since then.
So how much money did you lose in the dark years then?
Some months we were burning through losses of £300,000 to £350,000, so it’s safe to say a substantial amount of money. Our trading losses at their peak in 2009 were £16.5m
You’ve got to remember, though, that when we started, light was beginning to appear at the end of the tunnel as soon as early to mid 2007. When Lehman Brothers collapsed [in 2008], that light faded because a number of campaigns we were scheduled to run for banks were just pulled. At that time they were probably the difference between breaking even and losing hundreds of thousands of pounds.
So at that point we had to ask ourselves was it still possible to get to where we wanted the business to be and how we were going to get there. Once we figured that out we geared the business accordingly.
Was that the low point for the firm?
Absolutely. 2007/2008 were incredibly tough years. We had to fight hard and had several very uncomfortable discussions with our bank.
I had one meeting where the bank’s representative asked to tour the factory so that he could "see his kit". Another time someone from the bank leant across the table at one particularly fractious meeting and actually said "I shut businesses like yours down every day of the week".
Where do you go from that?
I firmly explained that he was wrong, he didn’t shut down business like ours every day; he was closing businesses that were withering on the vine. We weren’t; we just needed the time to grow.
I think at that point though our saving grace was that we had invested so much of our own money in the business.
Are you still with the same bank now?
Yes.
So I guess your bad experience was more to do with the individuals than with the bank itself then?
It’s difficult to distinguish between the two really. The process with the bank was, let’s say, very interesting. Previously we had always run very successful businesses, so we didn’t really have any experience of difficult conversations with a bank, and therefore the opportunity to understand their processes and needs. That said, I’m not sure it would have made much difference because what we learnt very quickly was that they’re generally a very closed book. So we would have meetings when we genuinely didn’t know what the outcome was going to be and what the agenda was and how much rope they were going to give us.
So you didn’t know who was bad cop in any meetings then.
They were generally all just silent cops. I’ll give you one example: we were called to a meeting after we were passed onto the bank’s loans management unit, which is a bit like intensive care after you’ve been taken out of branch level. They gave us no idea what it was about, so I drew up my own agenda and the options were euthanasia or intensive care – because I had no idea what it was going to be. With hindsight I think that meeting was to determine what it was going to be.
I think we were one of only two companies, in that four- or five-year period, that came out of loans management in one piece. The others were sold, closed down or substantially restructured. We’re now actually a case study for the bank. The whole process was bloody expensive though, especially when you bear in mind that we didn’t have any money at that point.
We never missed a repayment though; it was just that we needed some more headroom at times. But the relationship with the bank is good now and we got through it in the end and we should pay off our overdraft this year.
That probably gives a lot of people hope that find themselves in a similar position now. What got you through it?
Hard work and commitment…
And luck?
It sounds trite, but I think you make your own luck. We could have made a lot of very different decisions. We could have decided not to put extra money in the difficult times and cap our risks. But because we were brave and so convinced of the vision we had, I think that’s what carried us through. Clearly there are times when you have to draw a line, and I think we might have come close to that in some respects, but if you’re sure enough of your figures, the model and the vision, you’ve just got to see it through.
Is that the secret, though, having a plan and sticking to it?
I think having a vision and sticking to that vision is the right thing to do. But a plan needs to be constantly modified. I mean we had a plan to fill our factory with variable data print, but then the financial crisis bit. Your plans have to be adaptable, but if you’re convinced of the vision then that should never change.
So what’s the vision for the next five years?
To maintain our compound annual growth rate of 12%-13%. Realistically, we will put £2m-£3m in turnover on the business each year and that is serviceable and manageable. In terms of the technology, we’re at the stage of moving to the next generation of print technology. But the business model and the vision, of offering highly sophisticated, complex digital print, remains. Where it might evolve is in the markets we serve. We’ve proven the model in the finance, retail and telecoms sectors, now I think we can move into other sectors and really get into their supply chains and make a difference.
Clearly the business is well beyond those early difficulties now and is solidly profitable. But does that bring its own problems? Because profit does seem to be a dirty word in our industry.
I think because it’s very much a buyers’ market, there does seem to be almost a resentment from some buyers that they’re paying more than they should be just because the printer is making a healthy profit. I think that’s a shame because they don’t see the enormous capital costs associated with our industry and the reinvestment required.
Using us as an example, they don’t necessarily appreciate that I need to create a war chest if I want to invest £1m in kit this year and £4m next, because you can’t do that on margins of 2% or 3%. And why would you?
What can stick in a printer’s throat is when those same clients are making a substantially larger margin than the printer that they’re giving a hard time to. I accept that, to a degree, that’s what happens in a combative marketplace such as ours. I just wish sometimes that more buyers were positive and appreciated the benefits of working with a successful company. I know a lot do, and I also know that RDI is incredibly lucky in that respect.
The reality, though, is that there is so much capacity available that buyers really needn’t worry about being taken advantage of. But if clients want a stable supply chain that can deliver the services and products that will help them in the future, then they’ve got to allow us the money to be able reinvest.
Until now though, your investment strategy has been focused on kit and organic growth, have you never been tempted to get involved in M&A?
Yes we have, but more in a technology support services role. We already have a multichannel capability, but the data that feeds into what we’re doing is where I see our real opportunities. But the core of what we do is always going to be about print – I always want to add value to that. But my main focus is to fill this factory, not fill the internet.
So you mean acquisitions in the data sphere?
Absolutely. One of the difficulties that we found in setting the business up is that a lot of clients have said they really want to get involved in what we do, but they don’t quite understand the path to get there – and data’s often the biggest block.
In terms of internal investments though, last year you talked about implementing a new print technology here. Did that happen?
Sadly not. The vendor that we found had a really good bit of kit, but just couldn’t bring it to market properly and the machine has been sat in a factory since Christmas and they just haven’t been able to make it happen. I had to cancel the order around a month ago. It’s really frustrating because I know it had the makings of a really great line, but it just wasn’t quite ready. That is one of the risks we run by always pushing the envelope in terms of equipment. It usually pays off; unfortunately it didn’t this time and we’re probably going to have to opt for a slightly more conventional solution. We’ve just signed off a £1m post-press investment, though, and the £4m print spend will still happen next year.
But surely it’s harder to rely on technology as a USP nowadays?
Absolutely, and the lines are getting more and more blurred. You’ve got HP with the 10000 moving into the iGen territory, you’ve got Xerox not really developing the iGen range but going down the Impika route, which is very exciting. Ultimately, even though the technology is mature, there aren’t a lot of options out there. In fact, I think selecting our next-generation platform is harder than our initial investment was. But standing still is not an option, a business has to keep re-investing – provided there is a good reason to.
Do you ‘talk technology’ to your clients, seeing as it’s so important to your business?
In the early days we were certainly guilty of being too technology driven in our discussions with clients. Clients are generally agnostic when it comes to technology. We almost blinded them with options of what was possible, whereas nowadays we’re much better at listening to help identify their needs and then detailing our recommendations. Some, of course, are interested in the technology, but we’ve learned to wait to be asked rather than blind them with science.
What else have you learned along the way?
Self-reliance is probably a key one. You can’t run and build a business without taking outside advice, but the buck ultimately stops with the management team and we have to make the decisions. Our mantra now is ‘what we do, we do for ourselves’. Juxtaposed with that though is the importance of having the full involvement of everyone in the business, because any one person, from the factory, to the warehouse, to the office, can cause the 18 months’ hard work you’ve put in to winning a new client to be meaningless, with just 30 seconds of thoughtlessness. I know it sounds idealistic, but it’s true.
Final question: the business has all been about a vision – so if that’s the case you must also have an end game, an exit strategy – is there one?
Yes there is, but I’m not going to tell you what it is.
RDI AT A GLANCE
Sales 2012 £15.8m
Pre-tax profit 2012 £2.6m
Pre-tax profit margin 2012 16.5%
Projected sales 2013 £17.4m
Employees 134
Shareholders Peter Rivett, co-founder: 62%; Tina Rivett: 15%; David Laybourne, MD: 8%; Barry Stephens, production director: 5%; Andy Ruddle, co-founder: 5%; Other employees: 5%
