It’s time to discover what really creates success.
How much of the magic in your business have you discovered? I use the word magic as all entrepreneurs create something truly amazing from nothing but an idea, however really I mean value; the tangible and intangible things your business does in exchange for money. I bet there is even more magic in there somewhere…
It might seem like a crazy idea creating a television brand and going up against some of the world’s best known names – but we managed to do it at Linsar back in 2006. Yes, the overwhelming sentiment from people at the time was ‘you must be crazy’ – often expressed using far more colourful language – but we knew the market and believed we could do it.
Both freshly redundant from a large multinational, Terry and I went into business and the Linsar brand was coined by combining our wives’ names – Lynne and Sarah. Bonus points all round!
So how on earth did we create value for the business in a market so dominated by aggressive multinational companies and large volume driven retailers? It takes passion, drive and energy of course, but we had to find a way to make money in a market famed for ever-decreasing prices and really complicated products. We wanted to do something exciting and as disruptive as possible in a market we knew and loved.
Retailers at the time could buy any number of low price products of all shapes and sizes, but these products had always been compromised in some way – poor LCD panels, cheap remote controls and basic electronics as examples – to hit the price point. Retailers would buy a product, lose their margin to compete against a similar item in a supermarket and then end up supporting a television that wasn’t up to scratch.
So, in the beginning we knew that retailers such as John Lewis and the Independent Channel needed an entry-priced option that wasn’t awful and didn’t have to be purchased by the container load. They needed to earn a fair margin from the sale and retain that margin over time – something that the incumbent products couldn’t offer. We just needed to convince them to put the straight jackets away and place an order with us!
We realised that there was value in us bringing in a container of televisions (actually quite a few of them!) and distributing the stock out to a number of retailers. Even retailers who may have purchased full containers in the past from brokers would talk to us – they could buy a smaller amount of several different sizes rather than a lot of one model while mitigating their risk at the same time. You really don’t want to be holding too much stock in a deflationary, fast-paced market. This was hard physical work, harder than we expected, unloading containers one television at a time and delivering
the orders we secured before the containers arrived. But we had found a way to create value.
We also realised we could offer a better margin to the retailer, which would incentivise them. Our product was differentiated from the supermarket lines, not least because the brand was different, but we always got the best product the factory was able to make – it doesn’t necessarily add a lot of cost to the bill of materials. Plus, we had a low cost base and took a partnership approach to our customers, understanding their business and how we could be of value to them. The retailers who were selling Linsar were making money and loving the support they got.
So, after a lot of hard work and an acute understanding of our customers’ perspective, the way the market operated and the supply chain, we really started to make some progress and create some magic. However, if we really wanted to grow the business we needed to increase our margin and properly resource the business.
There is a limit to how many containers three people (we had our first employee on board – my brother Paul) can handle. I remember going away for the weekend to Devon with some friends when my son was about a year old and I couldn’t pick him up or go surfing as I had planned; my arms had tendonitis following a particularly crazy week. We needed to find some more magic in Linsar and get some extra help.
Extended warranties for products like televisions were being sold by larger retailers and insurance companies for high prices, while at the same time the products were becoming more and more reliable and easier to fix. We recognised that we could include a 5-year warranty on our products at very low cost compared to the perceived value. So that’s what we did. Along with some other product innovations and some great marketing, we increased our gross profit from single digits to nearer 30% by selling at higher prices to retailers who were then able to sell to the consumers at a higher price.
In the same period turnover more than doubled.
By now, Linsar televisions had seen off the entry price competition in partner retailers who were achieving higher retail prices with a great proposition, a great story (more about brands in another article) and market-leading customer support. We had a profitable, exciting business with the best team in the industry able to scale into more and more retail partners.
Some great market knowledge can do wonders. I don’t just mean the trends that help you plan your business and measure your success, but the little nuggets of insight that help spawn new ideas in the business, which can in turn lead to new magic. There always has to be new magic, especially in a fast-paced industry like Consumer Electronics.
We knew from research that the consumer’s most highly valued benefit on Personal Video Recorders (PVRs) like Sky+ and TiVo was the ability to pause the channel they were watching; this is actually prized far more than recording capacity and other features. We were able to incorporate technology into Linsar televisions, which enabled consumers to pause the Freeview channel they were viewing for up to thirty minutes if they plugged a suitable USB memory stick into the television. In fact, this technology was available on many products in the market and cost virtually nothing to add, but not one of the other brands even mentioned it. So we gave it our own name, marketed the benefits properly and offered every consumer a free Linsar USB stick if they registered the product through our website. We were able to charge more for the televisions, sold more, got huge amounts of engagement online and built a chunky database in the process.
No matter how mature and sophisticated a business gets, I believe there is always a little extra magic. Seasonality in a business is a pain; capacity is stretched during the frantic success at peak times while the slower months can erode the business in many ways. At Linsar, we had both spare warehouse space and capacity in the team during the quieter months; there was always plenty to be done but the team were able to more than double their productivity when it was required!
So, using the spare, relatively clean, secure warehouse space at Linsar along with the fantastic individuals there we started offering to store and fulfil other companies’ products. We also rented out a spare office to a start-up and looked after their stock. We leveraged our ace warehouse team and spare logistics resources to create a new revenue stream from something that is normally seen purely as a cost base. After a year or so, this revenue covered our mortgage and the salaries of the warehouse staff without impacting the service levels in the core business. The warehouse guys were always engaged and we recognised them for the achievement – more magic for them too.
I would urge you to think about where the magic comes from in your business right now. Why are you of value to your customers? What is the source of the support for your business? Why you and not someone else? At Linsar we had a passionate and engaged bunch who recognised that we had to do something really special to thrive in a market where, even as a multi-million pound business, we were tiny. More about how we developed this mantra and ensured everyone knew why we were doing all this in the business in other articles…
Research your market on a regular basis and look for the insights that will help you create your magic; so many businesses look at their market from an internal perspective asking how are we doing or what does this mean for us, rather than looking for the customer insights.
Look at the resources you have, speak to your team – where might there be a little extra?
Value is so often discussed in the context of its creation for shareholders, of the tangible financial worth in the business and the brand. But it is the customers of a business and the team of people working in the business that ultimately determine this value through their support. It feels like magic when your business is creating something important to your customers and the team who work there, so don’t miss it.