How on earth can £10m be problem? I'll tell you how.
My story starts 12 years ago with a group of ambitious people. Ambition is the thing that keeps you chugging away at 5am and 9 o'clock at night. But ambition - or chasing growth - can also lead you into trouble.
In the marketing industry, growth is a vital statistic. The marketing industry is extremely competitive. Whenever you speak to a prospective customer or investor, your ability to grow is seen as a premium factor. Growth demonstrates progress. Clients like to back winners. Talent wants to work at agencies that are seen to be growing. Everyone wants to do business with successful, growing companies. Your ability to grow is a fundamental part of your future.
When you're building a company, you have to keep a realistic view about what you're doing, why, where you want to go, how you're going to get there and when. Chasing rapid growth for the sake of rapid growth can lead you into dangerous territory.
I'm not alone in my negative experiences with over-ambitious growth, Saachi & Saachi nearly went out of business through a series of audacious moves in the eighties. They tried to buy Midland Bank. It stretched them too far; that and other things like it. Growth just for the statement can be dangerous. WPP is the largest group of agencies in the world. They chased growth and sometimes it went too far and led to lots of trouble. That's me saying it's not just us that over-stretched ourselves.
There were six of us at Iris back in the beginning. We were established in 1999, a breakaway from another industry player. We were all under 30. That brought with it good bits and bad bits. The good bit about that was that we were cheap! We didn't have big mortgages and none of us were married with kids so we could work hard and we were fresh and full of ideas. The bad bit was that none of us had ever done anything like this before.
It was inevitable that Iris was going to go global. We were quite good at what we were doing. Clients wanted to take us with them on their travels and we had enough money in the bank to do it ourselves.
Being entrepreneurs, we only knew one way to do it. Make some money, give it to some youngsters, buy them plane tickets and tell them not to come back for a while and go and do some start-ups. Our first office was in New York. We were working with Manchester United and they took us there on tour and we stayed with them ever since. From there we went to Singapore because somebody said Asia was growing really quickly. We even opened an office in Manchester, I'm not sure why.
You have to work your growth plans around demand. Especially if you're a marketing agency. When you're not selling anything tangible, it's all academic; it's just chat.
We had a modest, affordable, organic growth strategy using our own time and talent that was working its way around the world. All the offices we started up took a year or so to get off the ground. They only got going if we had real client commitment and they were making money. And it worked really well.
Then something really strange happened. We took part in a competition and won £10m. That was the beginning of our problems. A couple of years ago we could easily have gone out of business because of it.
The prize was actually £5m of interest-free money but the bank really liked us. They thought we were a cool company, really PR-worthy. The bank said they would give us another £5m. It was very interesting. Almost overnight we lost sight of all our principles and went on a mad spending spree around the world.
We bought a management consulting company called Concise. We lauched a whole series of start-ups in lots of strange and exotic places. It was almost like, 'Right, think of somewhere exotic. We're sending a logo and some people, here you go.' Wallop. You'd be amazed how much time goes into trying to acquire a business somewhere or start something a new. We got so obsessed with ourselves and growth and spending this money, we were suddenly too powerful.
Suddenly, with all this cash, you think 'We have to be all grown up' and stuff, which leads to other weird things. From an organically driven, entrepreneurial company, we started bringing in loads of professionals.
We had 30 accountants, two or three lawyers, seven or eight people working in HR. It all adds up. We thought this infrastructure would reduce our growing pains and smooth our pathway to growth. That's one way of looking at it. The other: they're very expensive these people and they're very egotistical some of them. They didn't know their own limits. They started to get in the way.
We started doing everything very, very quickly. Much more quickly than we knew was sensible based on past experience. So we'd got a load of money and we'd spent a load of money and had loads of grown-ups in the company.
Suddenly there's an unfortunate global recession. That sent ripples through our industry; through every industry. Then the bank that gave us the money, HBOS, was taken over by Lloyds TSB. They were much more conservative, let's say. None of the people who gave us the money were involved any more, we were working with people who knew nothing about us whatsoever.
We were hammered with debt repayment. Lloyds changed the terms of our repayments, from five years to one year. We had a lot of offices, some were making money, some were losing quite a lot of money, clients were experiencing a lot of volatility in their budgets.
When clients are not sure of their spend, that's when you have problems in my industry. You can't manage your cost base accordingly. COI stopped spending overnight and they were our second biggest client. It was a perfect storm of crap. That's where I get all my grey hairs from. And learned some really important things.
If you've got some money, that's the cheapest money you can get. If you don't need it, don't take money from outside sources. Use your own money if you can. If you are going to take money, only take what you really need. Don't spend your money in a hurry. If you do, you'll make mistakes, and if you're trying to acquire a business, it tends to inflate prices.
The biggest lesson here is: Don't lose sight of your principles. The things that make you successful. That is the lens that lets you make good decisions.
So, instead of sticking flags anywhere we could, we went back to offices where we had a good client base and good client commitment. We closed offices of low strategic importance or that could be serviced by an office nearby. We only invested in high-growth markets: we know that India and Mexico will be important for us, even if these markets take a while to mature. We also invested in high margin activity.
We got rid of all the overheads, got rid of all the expensive infrastructure and went back to a simple, organic, entrepreneurial, flat environment encouraging people to do more for themselves. That's what worked for us in the beginning. We also simplified the agency. Through scale and chasing growth, the agency had become quite complex.
We invested in technology that would let us work more easily around the world. We learned that we didn't have to be everything, everywhere; we didn't have to take all the risk. We could partner with existing companies. That has worked really well.
We're not the biggest agency in the world and we never will be. But we are global. By hook or by crook, we're moving forward again. We had all sorts of problems during the recession and coping with the aftermath. Now that we're more clear on income volatility, we're making money every single month. We're nearly debt-free. We've got a much more healthy relationship with the bank. We're just better at running the company.
We will grow again in 2011 but the focus is on profit. This year we'll make between £506m. It's an incredible return to form for Iris. And now I know that we're all better business people because of the thrills and spills of the first 12 years.