If We Can, You Can

Author:

Tony Trapp

Business:

IHC Engineering Business

Published:

12/11/2008 11:40:00

I know some people have a clear vision to set up their own business from when they’re in school. I wasn’t one of them. Although, when I look back I got quite a good trade going in selling sodium.

In those days you could buy sodium pellets from the chemists, and I sold them to my friends at school. This went on for a few weeks until the headmaster found out, and out came the cane.

I left school fairly early and went into horticulture. From there I realised that I wanted to get some education and went to college to get an OND in agricultural engineering. I came to Newcastle to do a BSc in agricultural engineering. I did a PhD in vibratory rock cutting and then went off to Edinburgh University to become a lecturer.

I was there for five years and although it was working out pretty well and I enjoyed it, I couldn’t see myself doing it for the rest of my life. But at the time I felt locked into the system . I looked round one day in the senior common room and I could see my whole life mapped out in front of me. It wasn’t the life I wanted.

It was only when I gave up my lecturing gig in 1978 and went back to Newcastle for a temporary research job that business started to feel really interesting to me. This was the start of the North Sea oil boom when people were looking at how they would put pipes on the sea bed and how they would trench them.

Very little was known about it at the time, and huge amounts of money were available to develop the technology, and there were big opportunities for people to develop it, along with new schemes and new patents.

A company had been set up in 1972 by a guy called Alan Reece whilst I was doing my rock cutting PhD called Soil Machine Dynamics. Tim Grinstead, our technical director joined in 1978 and the three of us built that company up to a reasonable quarter million pound turnover in the university over a six year period to 1984.

At this point we left the university to go out on our own. We got our first contract for a company called Brown & Root, which was a one and a half million pound, cost-plus contract. We made lots of mistakes, but we learned from them rapidly. Everything we did we got paid more for so that worked out pretty well when we were making mistakes.

We became leaders in trenching, pipelines, and in trenching cables. This was the start of the submarine fibre optic telecom cable revolution and we built the first trenching equipment for the first transatlantic fibre optic telephone cables. It was called TAT8 and we worked with British Telecom developing that technology.

We then sold a plough to AT&T in North America, and after that everyone else jumped on the bandwagon. That worked out very successfully and the company grew rapidly. It had completely transformed from just the three of us.

Tim and I owned 10% of the company each, and what I discovered was that that wasn’t enough as I was forced to leave the company.

It ended up being a good move because it prompted me to really do something. I needed to prove more for myself and I needed to do more things. I enjoyed what I did and this was an opportunity to develop something new that my colleagues and I really had the control over.

I left SMD in 1996, and in 1997 we set up The Engineering Business. It was a very unlikely start, and if you did any analysis you’d say, “Don’t do it, it looks ridiculous.” We were trying to compete with a very well established and wealthy global leader, and we had nothing. It looked like an unlikely prospect.

Four of us started the business, based in my own house for nine months. We had various restrictions on what we could do so it was a very difficult time. But we actually enjoyed it a lot - we often sat out in my garden, had lunch, and developed exciting new ideas from scratch.

We set about redesigning seabed trenching technology and keeping ourselves in touch with the market. I travelled around the world, going to conferences and so on.

We never had what you could formally call a business plan, but I always wanted the company to operate like a big company from the outset. It had to have proper meetings and proper documented information and an idea of where it was going.

I was keen to bring in a non executive director, a mate of mine from Aberdeen who was well experienced in running businesses. Later we got another lady from the City of London finance industry, who was a really good person to have as she provided something completely different to us, as five engineers.

Part of the secret is to get different people in your organisation, and if you can get them to work together then you can create some wonderful things. You don’t want clones, you want people with different characteristics.

We were free to operate fully in 1998 and it took us a year to get our first significant order. It was a 20 month period of pain really and we needed a lot of persistence and determination to get through it. I think one of the secrets in life is persistence. Calvin Coolidge, that American president all those years ago, had it right when he said that persistence is omnipotent.

After we won that first contract, the whole thing began to take off. After four years we had a turnover of eight million. At that stage, about 92% of that turnover was in submarine telecom, to do with the installation of cables on the sea bed. We were now one of two world leaders, the other being our old company.

Over a period of literally a few weeks, that whole industry completely collapsed. We were involved in supplying major equipment to six new build cable ships, all of which were in Korea, in two different shipyards for three different customers. By the time we finished that job there was no future for the market.

Most of the people I’d known for years started losing their jobs, companies were closing down, and we had a million pound system ready for delivery, but the customer went into receivership. But even though we dropped a significant amount of our turnover, we managed to survive the storm.

Being active in a number of markets is key to us, and we had a couple of back-up industries which we could develop. Being an organisation which could make decisions quickly meant that we could rapidly change tack; therefore not leaving ourselves to be vulnerable to the collapse of one market.

We rapidly accelerated our renewables programme which was to do with particularly tidal stream generation, but we also had an interest in offshore wind and in waves. I think it’s fair to say that we were the leading developers of offshore renewable technology in the UK at that time. We were the largest government supported organisation.

In the business, we have a tendency to not let things go. If we see an opportunity, we go for it, even if we’re being told that we’ve lost it. That’s the point when you’ve got to step things up. Don’t be disillusioned or disgruntled and back off. You go for it with even more energy.

We did a lot of fundamental research and development. We developed our own tidal stream generator called Stingray. Within a year and a half of starting that project we installed a 180 tonne demonstrator in the Yell Sound in Shetland and we developed our own test site.

I also established the Ocean Energy Group and became a director of the Renewable Power Association. So I got totally involved in that industry.

Over the next couple of years we did more and more research. Tim Grinstead looked particularly at the tidal stream resource in the UK and we came to a conclusion that it wasn’t a sensible use of financial or intellectual resources. There was no future in marine energy in our opinion.

It was a very unpopular opinion but we had been paid six million pounds to evaluate the technical and commercial feasibility of our tidal stream technology. The conclusions that we came to weren’t what the politicians wanted to hear.

Offshore wind, however, can generate huge amounts of power. It is expensive, it will be excruciatingly difficult to get reliable technology but, there is no doubt, it can be done.

We’ve also added a new leg to the stool and we’ve been a major part of building Nato’s new submarine rescue system. We supplied about 110 tonnes of kit, the portable launch recovery system, and it’s about to go live.

Currently though, offshore oil and gas dominates what we do, and we’re involved in a couple of much bigger projects than we’ve been used to. We also have construction capability on the Tyne and the Tees.

We have very great aspirations for the future and hope to achieve a hundred million turnover in the next three or four years. We’re forever looking out for new opportunities in the market and making sure we can benefit from them.

What I really like is change and challenge. If we go on a long car journey I like to have my i-pod on shuffle. There’s that little tingle of anticipation every time you get to the end of one song and you don’t know what’s coming next.

A lot of people don’t like change, and one of the problems we’ve had with the business, particularly in the last five years, is that people haven’t liked our rate of growth. They haven’t liked the ambition and a number of people have said why can’t be the way we were. Wouldn’t we do better if we didn’t aim so high?

The truth is that a couple of people have left us because they didn’t want the company to grow as ambitiously as we have done. But I always felt like that was the only option. Fortunately I have people close to me who are keen to go with me.

Growth means change and change is absolutely crucial to what we’re doing which is why I always say we’re transient. There’s no destination for our journey because we’re always aggressively opportunistic.

If the oil and gas business collapses, and I don’t think it will, but if it does we’ll be resilient and we’ll quickly move onto something else. But the business has done really well especially considering how we started, and we’ve got a very good return for everyone who’s involved in it.

We’ve had to make sure we grow organically though. In the offshore oil and gas industry, traditionally you have to put up a bond when you take an order. If you take an order for 30 million, your customer probably wants a bond for three million.

We’d run out of a capacity to provide bonds out of our profits, because if you grow very quickly and you take contracts running for two or three years, you build up a bond portfolio which uses up all of your resources. So we had to get some outside help.

Consistently our orders have been more often that not, greater in value, than our existing turnover. It does carry risk as we can’t afford a major contract to go wrong. We’ve always been told that you’re only as good as your last contract.

Everyone who looks at the financials of the business doesn’t like the look of the risks that we take. Almost everything we do is new, every drawing is new and it’s a huge challenge.

The important thing is to maintain good relationships. We pay our suppliers within 30 days, and we’ve always maintained a positive cash situation based on advance payments for the work we’re doing.

Because managing cash is so important, we set about taking on contracts that paid us properly and in the end we haven’t had many bad debts at all. I think it hasn’t been a huge problem because we’ve always been very well aware that cash is the most important thing to keep an eye on in business.

I’m a great believer in the fact that the team matters more than the individual. I still read all the CVs we get in, it’s more than 1,000 a year, and I interview just about everyone. Getting the right people is so important, and then you’ve got to nurture and develop them.

You’ve got to spread the message of your company to everyone in the business. It gets more difficult as you get bigger and communications get harder. We’ve got 150 people now working on three different sites.

We have six board meetings a year. After each board meeting I do a thing which has been called State of the Nation. We get people together and I’ll spend a couple of hours and I’ll explain the business situation, what we’re doing, what we’ve done, the successes that we’ve had and the problems we’ve shared.

Clearly we have to have people all the way through the organisation who reflect the ideas and the energy that we have at the top. We’re just setting up a shadow management group of young people to shadow the work of the main management group and come up with their own ideas. It has to be disseminated all through the business.

We sold The Engineering Business very recently. It was a 100%, clean sale which I think was the best thing for all the people involved.

Early on, we made the decision that we would want everyone in the company to participate in any success we had. So we gave away 20% of the business, moving from four stakeholders to five- the fifth one being the rest of the staff.

We had 70 share option holders in an EMI scheme, and a few weeks ago we handed out more than £4m in cheques to 70 people. Staff right the way through the business benefited, even those with more minor roles, walked away with tens of thousands, so that was a real achievement. We felt like we were giving something back to the people who had helped us so much in getting to where we were. It wasn’t just an achievement for the four of us.

We had to make sure that we had the right people around us when we were making the decision about who to sell to, and we had great financial, tax and legal advisors to turn to.

In the end we had a competitive situation when we sold the business. We had huge amounts of activity going on, but it was only a conversation I had with the president of the eventual purchaser that settled the deal right at the last moment, so it was an exciting process. We maintained competitive tension until the final hour.

Choosing between potential buyers is always a difficult process. In the end, for me at least, a lot of it was based on my instincts and feelings about the people we were going to work with in the future.

I had to decide between a private equity firm, and a shipbuilding and dredging experts. There’s no doubt that the shipbuilding and dredging experts talked the same language as us. They were doing large projects, they understood the hard times and the need to get things delivered properly.

There seemed to be very good synergy between us, so it was a natural match and a clean sale. I always wanted something that was simple, open, understandable and straightforward with a sale, and no doubt we’ve got that.

If you’re thinking about starting your own business, the key thing is to go into a market which is really going to attract people. Either that, or create one of your own with a new product or idea that you know will catch on. It can be difficult, but the key thing is to be persistent, and have a fantastic energy and enthusiasm. Building the right team around you is essential, and you need to get on well together in order to grow the business. It’s all about being persistent, and believing that you have a chance- why not just take it?