As a former bank manager and managing director of PrintWeek’s reigning SME of the Year, CS Labels, there can’t be many small business owners better placed to offer advice on running a successful company than Simon Smith.
Established in 1976 as a flexo and screen business, Smith joined the then nine-staff company in 2000 and oversaw its transition into the purely digital label and flexible packaging business that now employs 56 staff with sales nudging £6m.
But with a clutch of awards under its belt and a shiny new factory to call home, Smith’s single biggest challenge is perhaps yet to come: playing a leading role in the digitalisation of the flexible packaging market.
Darryl Danielli How did your involvement with the business come about?
Simon Smith It was a family business and I married into the family.
And before that you’d had no inclination to get into the trade?
I couldn’t have told you the difference between flexo and screen if you had asked me when I joined. Although, that might have been one of the biggest assets I brought.
How do you mean?
I didn’t understand the industry, but I had come from a corporate environment, where I looked at a lot of different types of companies and, I suppose, told them how they should be managing their businesses. One of my final roles before joining here was what was called an advance manager; so if you went to see your bank manager for a big loan it wouldn’t have been them that approved it, it would have been me. I would have to look at the business and decide if it was something we wanted to support.
So clearly you’ve always had an interest in business then, even if it wasn’t specifically print?
Business had always interested me, and I had always had this ambition to run my own company, but I actually did both roles for a while: I worked part-time at the bank and part-time at the company. It was a small company when I joined, and I needed to know I was doing the right thing as my family was still quite young back then. And, I must admit, the first day I walked in I thought: what have I done?
How small was the business in 2000 then?
We had nine staff and turned over £650,000 in that first year. We now turn over that sort of amount in six weeks.
It was essentially a screen-printing business when you joined, right?
It was, although we had just acquired our first flexo press, but we were only doing single colour labels on it and 80% of our customers were within 20 miles of the factory. The business was profitable, but it had been starved of investment. And when it came to look at investing, the people that worked in the business had worked nowhere else, so, to be fair, even printing four-colour on a flexo press was beyond us back then. So, we had to go out and ask lots of questions and that’s what we did all the time, we just asked people how do you do this? Over time we developed and developed, but we hit this glass ceiling of, if we’re honest, knowing that we were never going to be the best flexo printer. We hadn’t got the skillset, we hadn’t made the investment and we didn’t have a big enough time frame to catch up and develop the company. It simply would have taken too long.
And along came digital in 2007?
We thought why not get into an industry [digital] in its relative infancy, and that’s what I thought I could see: the opportunity. I wanted something that we could sell differently, something that offered us commercial opportunities, in a market that had a demand and wasn’t over served. Yes, it’s been a steep learning curve, the technology probably hasn’t always performed as it should or how we expected, but the market has embraced the advantage that [digital] technology offers. Yes, it’s more expensive than flexo, and flexo will always have a place in the market, but for me digital is a more interesting sell; you’re talking about the customer’s brand, how they’re going to develop, and how they’re are going to interact with their customer base. You’re talking about new solutions, not just being price defensive in a commoditised market like flexo.
And I suppose digital offered you an opportunity to be become an expert in your field, rather than playing catch-up?
Exactly, and that’s where, to a certain extent, we’re able to differentiate ourselves. With my own background as a bank manager, I was able to approach the bank in such a way that they bought into our strategic plan. We’ve invested a lot money over the years, we’ve constantly reinvested an awful lot of money, because that’s how we continue to grow: by identifying new markets and developing the potential of the technology to serve them. Our philosophy is that digital is so much more than short-run.
It must have been a challenge in those early days though, as even then digital was a bit of an unknown quantity for lenders, so going to the bank as a small business with ambitious growth plans…
…The bank had a fair amount of experience in digital, to be fair. But their experience was sheetfed digital, but the challenge for them was the residual values. Their thinking was: what’s a secondhand photocopier worth? So it still wasn’t a market that the banks necessarily found very easy to support.
So, they were supporting you as a business with a plan, rather than the specific investment plan then?
Exactly. But then, to a certain extent, I was still having to convince them of what I was doing as a business. That story I mentioned downstairs, where I borrowed 100% [for a press] and paid the loan back early, having established that track record, then the next time I bought a press the bank was supportive, because they understood how I was managing the business. It also helped that at the end of the day, if I’m honest, I run the business like a bank manager; the figures and how we monitor them is key for me. I have a team around me, people like Adam [James, operations director] and Paul [Humpage, sales director] who can offer the industry expertise, if you like. I also like to take people from outside the industry, by looking at their skillset first, and print experience second. We like to approach things differently, and that comes from our people.
Do you think your banking background has helped you to constantly invest in the business though?
Honestly, yes. I have this running dialogue with my bank manager that I write the application that he would have submitted to me when I was in my old role, because I know what they’ll be looking for and what questions will need answering. I’ve had a number of bank managers over the years and I never tell them in the first meeting that I used to be a bank manager myself, but they usually guess after a few questions [laughs]. But we have a very good relationship with our bank and that’s always been a strength.
What’s the secret to that?
I think it’s sharing the vision with them, and then showing them the financial data to support it. And also giving them the what-if scenarios: what if it doesn’t work, what’s my exit route, how do I ensure that this doesn’t take the company down? It’s about managing the risks; banks don’t like taking undue risks. In my first loan I got 100% finance, but in future loans I didn’t ask for that, I put down bigger and bigger deposits – and at each stage of the process I show them how I can service the loan, the capital and income gearing, the ratios they need to know. I work all that out for them. It also meant that in the early days, where we got a lot of grant support, I knew how to write a business plan and present financial information in the right way. That helped us secure very attractive grant finance to develop the business. Almost every year we’re replacing a technology, whether that be upgrading a digital press or a finishing line to drive efficiencies. Understanding how finance works is critical to that.
You mentioned that you think of your role as a bank manager for the business, and you’ve experts for the other bits, but when we were walking the factory floor earlier, you knew your stuff in terms of the technology, the customers, the applications?
I’ve learned it over a period of time, but for me I’m always looking at the business from the primary focus of financials; what is my return on capital, what is my margin, what markets do we want to play in? Because you need to be strong in two or three chosen markets, you can’t go chasing every single market because you will spread yourselves too thin. For us we feel that we are amongst the best digital printers in the country, there are some very good digital houses out there, but we’ve established a very strong reputation and knowledge base and we’re at the forefront of the industry and help set the standards for other people to follow. There are risks associated with that and certain challenges.
When you went 100% digital then, how difficult was that?
There were a number of factors driving it. One, we had run out of space, so getting rid of the flexo presses freed some up. Two, we were having a challenge with some staff that wanted to operate the digital presses, because they were new and sexy, and they didn’t want to go back to flexo. Three, flexo margins were reducing as the flexo volumes were no longer sustainable [for us]. Four, we wanted to focus on the area we excelled in, digital.
There must have been a downside though?
Well, we knew that we would be walking away from some customers that we would no longer be able to fulfil. But it was a decision about looking forward and setting a vision on what we thought would be the primary growth areas in the future.
How do you identify new opportunities then, is it a paper exercise first?
We do a strategic planning review every three years. So, over the 18 years I’ve run the business I’ve gone through a series of these strategic reviews where we ask: where do we want to be in the next three to five years and what do we need to do to achieve that. It might be to exit certain markets or push the company in a slightly different direction, because I’m constantly looking at the strengths and weaknesses of the company and what the market is doing. We’re also constantly looking at what opportunities the technology provides us with and do we think there’s a demand for that new product, or old product produced in a new way.
Is that where the new digital flexible packaging service came from?
Flexible packaging is a market that does have a solution available, but it’s aimed at a specific part of the market. I’m not looking to take on the flexible packaging companies head on for long runs, that’s not our market, but there’s clearly a segment of the customer base that the existing solution doesn’t serve.
But how do you identify those opportunities, do you start with the technology or the market?
With flexible packaging, for instance, the solution has taken a number of years to develop to the point that it’s commercially acceptable. But we’ve had a website all of that time, bringing in enquiries [for short-run flexible packaging], so we’ve had a lot of interest coming in. In the early days the conversion ratio was very poor, because we couldn’t produce the size they wanted, or offer the range of materials or the turnaround they needed. But we use all of that data to look at where we’re missing the opportunities and what solution can we develop to close that gap. We didn’t go out to the world and trumpet that we’re here to do flexible packaging, but for two years now we’ve been collecting the price pointing enquiries of where we need to be. So, we can now think where we need to position the solution, not just in terms of price, but in terms of quality, service and what the customers are actually looking for.
So, the customers would come to you and, at that time, you knew in your heart of hearts that you couldn’t deliver what they wanted, but you still had the conversation to help shape your final offering?
Precisely. And we collect that data, because we’re quite open with people and explain that we cannot meet that requirement at the moment, but we will come back to you if we can in the future and they often said yes, please do. Because what they were looking for, no-one could offer. So now we have the opportunity to go back to those customers that we may have spoken to two years ago and explain that we’ve now moved on in our journey and this is what we can offer. One of the things I truly believe is that the flexible and carton packaging markets are where labels were 10 years ago. There will be a gradual trickle of customers seeing the advantage of digital. Then as the technology develops and the volumes and efficiencies develop and improve it will become significant. At the end of the day digital might only represent 5% of the flexible packaging market, but if you look at the label market – where it’s 5% by volume, but 10% by value – then that’s a huge market potential in packaging for digital.
And I suppose that if right now digital can only address a tiny part of the market, it might be meaningful volumes for your business, but it’s still not necessarily attractive to those massive packaging companies – leaving the field, to an extent, open?
Yes. But over a period of time those big flexible packaging companies will take an interest, but they won’t have the expertise and that’s when, I suppose people [who do have the expertise] might say, okay come and buy me, buy the expertise [laughs]…
…True, and that’s happened in labels.
Yes. At the end of the day you have to have a digital mindset and that’s a cultural shift that takes time. We have always had the philosophy that flexo and digital don’t mix, you’re either one or the other. We prefer to be digital, we feel it’s more exciting and offers more opportunities, but we have to understand that there are certain markets, as a result, that we can’t be competitive in. But we’re increasingly taking chunks out of those [longer-run flexo] markets too, because the dialogue we’re having is about managing SKUs, quick turnarounds, legislation changes, peel and reveals and how the technology can improve their branding. And those are the types of discussion you have with marketing departments rather than the procurement department.
Meaning the conversation isn’t just about price?
I think historically, as someone who came from outside the industry, the sector is too focused on selling a product on a price. But when I was in the bank, I had to sell you a solution, and that taught us how to sell.
The consultative sell, rather just trying to win by being cheaper?
There are certain markets where you have to do that to win the business, say supermarkets for example. You’re never going to be able to tell them how to improve their business and you’re not going to sell them a product that’s expensive. They will always push you down to the lowest price point they can. But because we tend to deal with SMEs, we talk about things like the challenges they have, how do they get their product to market, how do they sell it, have they looked at other technologies like AR and so the conversation is different. We’re not trying to be a consultant, but we’re asking questions to get the best possible understanding of their businesses and then coming up with solutions that might be able to help them overcome those challenges.
Helping them to achieve their goals?
For us it’s all about innovation and selling the solution. Yes, we need to be price competitive and we can achieve that through economies of scale and how we layout our production. But for us it’s more about the innovation that can drive the potential cost savings for clients, not just in terms of the label cost, but how they’re using the label. It’s also about helping them to think about how they can get their branding into the market in a different way.
Is there a downside to targeting SMEs, though?
Well, I suppose that model means that at the end of the day you’re not going to have millions and millions of labels from one customer. But I’m not sure that’s a downside as it means you have to have a diverse operation, in terms of geography and sectors, and customer base. We’ve analysed our customers in such a way that we’re not over dependent on one customer or one industry.
What you mentioned earlier though, it’s a reverse of the traditional industry capex model of making the investment and then trying to find the customers?
Yes. But it still doesn’t guarantee success. You can undertake a project and it just crashes and burns and nothing comes of it.
Has that happened?
Yes [laughs]. But I’m not going to tell you what they were.
Fair enough, but what did you learn from them?
At the end of the day, you quite often get a breakthrough after you’ve tried everything else first. We were struggling with one client project and my production director tried something, well, a little unconventional, and he thought I would go nuts if I knew what he was trying to do, so he waited until after I went home. But it worked [laughs] and I think having a culture where your team isn’t afraid to try something new is very important to us. A business should not be afraid to make mistakes. We also seek out experts in the industry to help us, and as a result we’re plugged into a network of people that can help us develop technology solutions in-house and minimise the risks.
Back to your involvement with the business though, what’s the ownership structure?
Effectively, it’s owned by myself, my wife and my brother-in-law, with the family owning 99% of the shares equally. But we’re now starting to bring outside directors like Adam in as the next generation and, ultimately, if we do set up a new company then there’s the opportunity to reward and incentivise the team. So, for example, if we set up a flexible packaging company one day, then we could give them an opportunity to invest in that.
You mentioned earlier that you moved to this new purpose-built site last summer, but you still have the old site for another three years – so that’s an opportunity there for a new business?
Potentially, but it’s too early to say, the [flexible packaging] volumes aren’t big enough for it to stand on its own two feet and we need to make further investment to scale the business up, such as the website, and building new, more efficient coating and laminating machines. But in order to fulfil its potential we’ll look at a number of avenues, joint ventures, venture capital, etc.
In terms of the move to the new site though, how did that go? I know it can be a challenging time for a business, straining cashflow, straining production. You’re smiling...
[Laughs] Basically this building is owned by my pension fund and investment company and it was a very well-structured deal.
So there was no strain on the firm?
There was strain in the sense of the tenancy improvements the company financed and in terms of the overall investment, we’ve probably spent around £3.5m in the past 12-18 months on the premises and new equipment coming in. So, we continue to invest at a rate of knots. But that’s where my expertise comes in.
And in terms of the move, what was key to it going smoothly? Planning to the nth degree?
Regardless of how well you plan, there’s always the unexpected. Being honest, did we plan it well? Yes. Did we come in on budget? No [laughs]. But we moved over three months, so disruption was minimal, although it was hard work for everyone. Importantly though we structured it so that business isn’t overly geared, and we’ve carried on investing since moving in here. Can’t necessarily say it will continue at this pace, Brexit has been an unwelcome challenge for us. But moving to this site has given us the opportunity to develop for the next five or 10 years.
What is the growth potential here?
We could literally double the turnover on this site. We’ve secured our future here for at least five years.
It sounds like you have multiple plans: a three-year plan, a five-year plan maybe even a 10-year plan.
Yes, because I’m also having to think about my own retirement, after all, I’m 56 now. So, I need to think about what I want for myself and my family in the future. Whether my children will want to come in the business, time will tell. They need to go and make their own mistakes in life and learn business first.
And hopefully make those business mistakes with someone else?
[Laughs] Ideally. But no, we’re going to need a different skillset going forwards as the business grows. It’s no longer me controlling sales, managing quality control... as the business gets bigger, I need to bring people in around me to manage the business.
What’s been the steepest learning curve since you joined the business?
Understanding print itself and the technology initially, but the biggest challenge I have within the business is managing the staff. Because we’re all different, we all have different ambitions. When you’re working in a bank, it’s very much a career-oriented structure where people are very ambitious. You get that within private companies too, of course, but there are different ranges, some people are looking for different things out of life, and have different skillsets. There aren’t a lot of printing companies in our geographical area, so we sometimes find it difficult to recruit people with the right talents, and that’s why we quite often look outside the printing industry.
Across all roles?
Yes. Certainly in terms of sales, those skills aren’t just the privilege of the print industry.
Is it a challenge to attract people from outside the industry though?
If you’re an award-winning company, operating from some very nice premises and are pushing the edge of the technology, then that in itself is attractive. Winning awards is a huge opportunity to help develop your profile, if you were a very ambitious individual, where would you want to work? Also, it’s not just about what the employees can bring to CS, it’s about what we can bring to them.
You’ve won lots of awards though, what was the most important one? No pressure.
Personally, for me, it was the SME of the Year at the PrintWeek Awards – and not just because you’re sitting there [laughs].
I wouldn’t mind.
The one we really want now, though, is your Label Printer of the Year, we’ve been nominated before, but always the bridesmaid, never the bride.
On that though topic, do you consider CS a business first and print business second?
Depends who you ask. If you ask the team then they would say it’s a print business first. I like to think we’re a business. For me, I do get excited about our print, but it’s a means to an end, it’s about can I sell what we’re making into the market and differentiate ourselves.
When you look at the digital label sector though, there are a number of innovators, but they tend to be smaller businesses, it does feel like it’s ripe for consolidation?
Yes. I think that will come over time. You see a lot more of that on the Continent. But putting my bank manager hat on, there are probably too many small, family-run print businesses in the UK and we need consolidation to get the geographic and economies of scale required. Investment in digital requires big numbers, we’re a small family company, but we’re still one of the biggest digital operations in the UK. What I mean is that we’re not seeing companies coming into our sector and putting in a suite of 20 digital presses.
What are the barriers to growth then?
I think it’s still customers’ perception of digital. We still need to get out there and explain the real benefits of digital, which may mean that clients have to change their own processes and view of the marketplace and have the confidence to invest in their labels or packaging. They’re ready to invest in their product and their marketing and we need to encourage clients to not fall at the final hurdle and just view labels and packaging as costs rather than as sales tools.
What about your challenges here though, rather than the market generally?
The hours in the day [Laughs]. I think we touched on it earlier, it’s finding people with the talent at a price we can afford. And also dealing with the external challenges like Brexit. Leave or remain, the challenge is the uncertainty it has caused. It’s a huge distraction and for us it has meant delaying decisions and investing six figures defensively to increase stockholding rather than growing.
On the subject of growth, talking to other leaders – getting past the £5m-£7m sales hump is a challenge, because it requires upscaling processes, management, infrastructure – are you finding that?
There’s a saying that cash is king. Our ultimate aim is to double our turnover in the next three to five years, but the real challenge is that we manage our margin accordingly. There’s no point in doubling sales if we can’t maintain a consistent level of margin. I don’t ever want us to be busy fools.
Looking back though, is there anything you would have done differently?
I probably would have made some decisions quicker and try to go on the journey faster. But at the end of the day I have always tried to make sure that if something doesn’t work out, I have an exit route. So, I’ve never overstretched the business and we’ve still invested a lot of money. But, I suppose, if I had my time again, I would probably have been a bit more aggressive and less risk averse.
Final question. What piece of advice would you have given your younger self in 2000?
Enjoy it more.
Really? Because it sounds like you have enjoyed it?
[Laughs] I have enjoyed it, but it’s been hard work at times. You enjoy the destination, especially when you get the recognition, but I haven’t always enjoyed every step of the journey I suppose. But I’ve achieved one of my lifelong ambitions here.
When I worked at the bank, I always wondered if I would be able to run my own successful business. And when I got the opportunity, I proved that I could.