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Wednesday, March 18, 2009

Interview from an Industry Warrior, worth the read

This article is an old article but it captures what it is to create and sustain a business through the hard and the very hard times, I know the gentleman in question and can say that he is true gent.

JOHN Roseman has survived in Scotland's technology sector long enough to know ambition isn't everything. Credibility, steady growth and even profitability are also business drivers worth pursuing if your aim is to build an enterprise that lasts.

And 22 years after he set up the Sematek Group in his Kilsyth bedroom, the founder and chief executive of the Lanarkshire-based supplier of engineering services to the high-technology sector remains as focused as ever on ensuring the business continues to evolve in the decades ahead even through challenging times.

"I never wanted a flash in the pan, I wanted a solid business," says the former offshore oil and gas engineer who moved into Scotland's expanding semiconductor industry in the late 1970s before launching Sematek in 1981. "Over the last few years turnover has dipped slightly, but I still want this to be a (pounds) 20 million business in 10 years. We are in an industry that is finding it difficult to sustain growth when some players are pulling out. But that's why we are diversifying."

This process of expanding its core operations is not entirely new to the Sematek Group. Over the past 20 years or so, it has added to its service range to underpin profitability. In 2003, however, the pressure to evolve and keep pace with a fast-changing technology marketplace is greater than ever. So cutting edge is Roseman that he flies all over the country in his own helicopter to tend to clients' needs.

With four key divisions in place (Sematek Advanced Technology, Advanced Engineering, Process Control and Electrical Systems, and Hamilton Plastics Fabrication), it can provide a range of skills and technical expertise unmatched by any indigenous company. With a client base that includes the cream of Scotland's semiconductor sector (Motorola in East Kilbride and National Semiconductor in Greenock), as well as the likes of OKI, ShinEtsu and optoelectronics start-up Intense Photonics, its long experience in the sector remains an important factor in retaining and winning new business.

Sematek's divisions handle everything from design and construction management, gas and electricity distribution, planning and mechanical installation through to certification and facilities management. And although the company's origins were clearly in designing, constructing and installing process equipment and systems for advanced technology applications used in semiconductor manufacturing, the high standards required by the sector ensure that the firm is always focused on quality control and international standards.

"With a business like ours its hard to get into the big boys and you need credibility and stature. When I got my first job with National Semiconductors in Greenock [in the late 1970s] it opened my eyes as these guys dealt with a lot of dangerous gases and chemicals. In those days there wasn't a lot of experience in how to handle them, so that's why I formed my own business when Digital arrived in South Queensferry."

With 11 people on board, the Sematek Group's skills base was quickly recognised in the early 1980s by several other new semiconductor businesses, among them Siemens and Fujitsu in Newcastle and Intel, which at that time had a base of operation in Dublin. Since then, a small group of semiconductor manufacturers have formed the backbone of its client base, with the company supplying engineers and technicians who remain on site with the client. It has 40 personnel working with Intel in Ireland, some with Motorola in East Kilbride and others with Avanex (formerly Kymata) in Livingston. Over the years it has also undertaken projects in the US and Israel.

Mark Stevenson, Sematek's new business development director, says the company is keen to develop similar partnerships with other manufacturers and start-ups around the UK. With Sematek controlling day-to-day operations at the Avanex facility since August last year, the parent company has more flexibility in personnel numbers, cost and maintenance.

"We can offer a client everything in-house from one firm, from design and construction to facility management. There is a greater demand for outsourcing than ever before and it's vital that companies just focus on their core product. They don't want this chunk of personnel and manpower which is just a drain on cash. They just want to focus on getting products out to market. I believe we are head and shoulders above anyone else in this market. We are already picking up enquiries from England and are in discussion with several companies. But our competitors are either well established locally or are global businesses, and we are very conscious you have to walk before you can run."

Sematek's caution about expansion is predictable given the question marks semiconductor manufacturing in a Scottish sector hit hard by a global contraction over the past three years. However, with a relatively stable (pounds) 7m turnover, both Stevenson and Roseman believe its technical expertise and loyalty to clients who are only now beginning to increase project and capital spending should stand it in good stead in the years ahead. The problems suffered by competitors such as Motherwell Bridge and the change in focus from Steill's facilities management division could also work in its favour. However, adds Roseman, the focus on diversification remains as strong as ever. Sematek acquired a Greenock electrical installation business five years ago, and late in 2002 it concluded the purchase of Hamilton Plastics Fabrication in which it had earlier acquired a 50% stake. This deal also coincided with the company's move to a new HQ in Cumbernauld.

With Sematek targeting the petrochemical, pharmaceutical and biotech sectors, it is hoping to convince international clients and young Scottish companies of the financial sense of outsourcing and facilities management deals. Other potential growth areas are renewable and bio-energy plants.

Roseman adds: "The semiconductor market is declining and won't sustain us over the next five years. But the skillset our people possess has been finely honed in a competitive and high quality field, and the discipline they have to work in high-tech areas is transferable."

Roseman, a member of the Scottish Semiconductors Suppliers Forum and the Scottish Technology Forum, says there are lessons to be learned from the firm's conservative approach to growth (it has never taken on venture capital funding) and its focus on sustainability.

The recent failure of new technology businesses such as optoelectronics hopefuls Essient Photonics and Terahertz, he says, is almost inevitable if they are rushed out to market before creating products or generating revenues.

"When it comes to technology, Scotland is still not utilising its universities enough and firms are not nurtured in the way they should be. They need to be nurtured to a certain level before going to the marketplace, and if we do bring them on carefully then we can also make sure that the economy and education institutions keep people in Scotland. Currently, we are losing a lot of engineers and while five years ago we were at the leading edge of semiconductor production, now Ireland is way ahead.

"It's pointless living on a knife edge and that's why I have always reinvested profits in the business. You can chase work around the world, but if your base isn't strong enough then you could be in trouble. At the moment we have a solid business and if we can take it forward then I will be a happy man."

By Darran Gardner


Tuesday, March 17, 2009

Let common sense prevail in all your dealings

An Obituary (The London Times).

Today we mourn the passing of a beloved old friend Common Sense, who has been with us for many years. No one knew for sure how old he was, because records were long ago lost in bureaucratic red tape. He’ll be remembered as having cultivated such valuable lessons as: The early bird gets the worm; Hard work is the secret to success, Life isn't always fair; and Sorry that was my fault.

Common Sense lived by simple, sound financial policies like don't spend more than you earn and Save part of your income for the future plus reliable life strategies like Adults are in charge not children and When there’s a problem, look for a solution don’t look for someone to blame.

His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student.

Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do, disciplining their children. It declined even further when schools were required to get parental consent to administer sun lotion or an Aspirin to a student, but couldn’t inform parents when a student became pregnant and wanted to have an abortion.

Common Sense lost the will to live when churches became businesses; and criminals received better treatment than their victims. Common Sense took a beating when the law said that you couldn't defend yourself from a burglar in your own home and the burglar could sue you for assault if you did. Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.

Common Sense was preceded in death, by his parents Truth and Trust, by his wife Discretion and by his children Responsibility and Reason.

Unfortunately he is survived by his 3 stepbrothers; I know my rights, I want it now and Someone else is to blame.

Not many people attended his funeral because so few realized he was gone. If you still remember common sense then please pass this on. If not, join the majority of the world and do nothing.



Best Regards
GW

Thursday, March 12, 2009

Wake Up to reality Founders and Investors

Time for a valuation reality check
Time for a valuation reality check

If you think your company is still valued at last year’s prices, then you'll need to think again. GrowthBusiness looks at what your business is worth in today's credit-crunched M&A market.

What a difference a year makes. Twelve months ago, vendors were desperate to find a buyer to get taper relief on a sale after Chancellor Alistair Darling introduced a capital gains tax rate of 18 per cent. Today, anyone looking to sell has a host of different and far more challenging problems to face.

Richard Glasson, CEO of marketing agency Gyro International, says: ‘People who have missed the boat of the last three to four years need a pretty good reason to sell at the moment, either because they can see their business model is running out of steam or they are staring in trepidation at their cash flow.’

That’s not a particularly attractive proposition for acquirers when protecting cash flow and margins are the main priorities. Mark Wignall, chief executive of Matrix Private Equity, observes: ‘The reason that so few deals are being completed, and why the pipeline is so thin for everybody at the moment, is that sellers aren’t selling unless they’re distressed.’

Well runs dry


The lack of capital resource from the banks has seen the funding for mergers and acquisitions (M&A) virtually dry up.

Graham Cunning, regional director of Scotland for acquisition finance at Clydesdale Bank, observes that deals are happening, albeit with a far greater degree of caution.

‘To be honest, I think the way a deal is being done now is how it should’ve been before. Perhaps that’s why we’ve got money and other [banks] don’t,’ he says breezily. ‘The process is not that different – it should involve a bank and a private equity house sitting down and conducting an assessment before an initial offer of funding. You’re probably talking an extra ten or 20 per cent on the time to do a deal.’

Using multiples of profit to price a business has always been a less-than-exact science and Cunning notes standard ratios have taken a tumble. ‘Typically, for deals up to £50 million, you’re probably only going to see three times earning before income, tax, depreciation and amortisation (EBITDA). It depends on the sector, but you would have been looking at four or five times EBITDA last year.’



Open for business


The good news is that deals are still going through. At Gyro, Glasson has overseen nine acquisitions over the past two years, seeing turnover rise to around £100 million. He says the company will be looking to make another couple of acquisitions over the next 18 months, with backing from a US-based private equity firm and a credit line with HSBC.

Chris Williams, a partner at Cobalt Corporate Finance, which specialises in mid-market technology, media and telecoms companies, comments that ‘deal volumes are down dramatically. I would say that they will remain so for straightforward M&A for at least another six months and probably for the whole of 2009.’ For good businesses with strong intellectual property rights and technology, Williams says deals remain on the table, especially as ‘there are a lot of corporates with good balance sheets in every sector who can acquire smaller businesses’.

'Egos will have to be put to one side'

For the latter type of disruptive, fast-growth company, surrounded by corporate suitors, ‘standard EBITDA multiples or price-to-earnings (p/e) ratios have never been relevant other than as a background context. If a company creates a new technology that unlocks a market worth £1 billion to a Microsoft-type organisation, it’s never been about a ratio’.


When it comes to less revolutionary types of businesses, Williams also warns against looking at earnings multiples to get a sense of value within a sector. ‘I think it’s one of the worst times in history to use a p/e ratio,’ he states. ‘The pace of change in the market has been so fast, we do not have perfect information.’

Glasson says the earnings multiples of Gyro’s listed competitors are ‘clearly a nonsense’ at the moment, so they couldn’t be used as a reference point when doing a deal in the private sphere. In an age where cash has become the equivalent of a rare mineral, equity will be the mainstay of many deals.

Previously, where a deal might have included 20 or 30 per cent of equity, explains Glasson, it’s more likely to be 50 or 60 per cent now. ‘We haven’t done any 100 per cent equity deals, and I’d be a bit cautious about doing them, but certainly there are lots of those around at the moment, I think.’

Smell the coffee


Adrian Alexander, a partner at professional services firm Mazars, observes that there is less ‘room for gamesmanship’ when negotiating a deal, and that now is ‘the time for realism’. He says: ‘If you had a deal conceived pre-September or October, holding the price and structure has been difficult. People on all sides need to take a deep breath and figure a way to do it. If someone was slightly reluctant or half-hearted, then a deal falls apart very quickly.’

Assuming interest in a deal remains, then the structure may be altered. ‘So what would have been an all-cash deal now involves a loan note,’ he comments, noting that he fully expects a rise in strategic alliances, joint ventures and, like Gyro’s Glasson, mergers with no cash exchanging hands, so that overheads are cut and equity shared. ‘Egos will have to be put to one side,’ adds Alexander.

Whereas debt may have been taken for granted in days gone by, Alexander observes that now it’s the first thing to be discussed. ‘All conventional rules have gone out the window as far as funding goes; you have to get the [backers] around the table early and see what their appetite is.’

Clydesdale’s Cunning says that ‘we’re in a twilight zone’ when it comes to expectations and pricing. The danger is to hold out for the types of prices being paid 12 to 18 months ago. Cunning explains: ‘If I was an entrepreneur, the conundrum I would have is: my business certainly isn’t worth what it was last year. But to be honest with you, last year’s value wasn’t really real. It might have felt real at the time, but we were right at the top of the cycle. So they now have two stark choices. They either accept £12 million or £15 million for a company that had been valued at £20 million, or they trade on for a period and hope the market picks up.’

That uptick in value may not occur for some time. Both Cunning and Wignall use the term ‘reality check’, saying entrepreneurs must adjust to a different, harsher economic order. No one is suggesting such a shift is easy, especially if you’ve spent the previous five or so years building up your business and felt you had everything in place for a sale.

For those management teams that are maintaining or growing market share and remaining profitable, the best option may be to keep focusing on the business. Some would argue that’s what you should be doing anyway.

Dan Conlon, founder of data storage specialist Humyo, doesn’t believe in exit strategies. ‘Businesses are there to make money and as soon as people talk about the value of users or the strategic value of technology, I get extremely worried. The best strategy is to build a product or service that people want and value and are prepared to pay money for. That encapsulates all the other strategic elements.’

Although only 28, Conlon can speak from experience, having sold his first venture for £5.9 million in 2004. His ambition for Humyo is undimmed by the recession and he is confident he can tap the ‘huge potential’ he sees in his business.

While an exit is the last thing on his mind at the moment, he is adamant that creating a profitable concern, by definition, makes a business desirable, whatever the macroeconomic environment. ‘If you have a business that is profitable, you don’t need an exit strategy. It’s entirely up to you what you do and when.’

Wednesday, March 11, 2009

Job vacancies in the Solar Industry

To help my friends, once in a while I will post jobs that are available and live and I have had direct contact with the recruiter or line manager.

Todate:

1) Senior Device Manager role located in the Far East
2) III-V process / device / modelling role in the UK
3) Thin films process roles in the solar industry located in Germany (previous solar / PV experience required)
4) R&D managerial process role in the solar industry located in Norway (previous solar / PV experience required)

If interested drop me a note and I will connect you to the company

Best Regards

Gordon

Tuesday, March 03, 2009

Innovation in business today Part V


Innovation in business today Part V


By Dr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com

In the first four articles in this series, I discussed the difficulties of cultivating and maintaining innovation in a corporate environment. In this article, I would like to describe two companies. They addressed the challenge of cultivating innovation from two quite different directions. The first was a case of too much innovation while the second was the more traditional case of too little.

The Story of Company A

With this company, the balance was all the way over to innovation. Almost the entire team - with the exception of clerical support - was PhDs. They jokingly referred to themselves as a ‘dysfunctional gaggle of a-social eggheads’. Their windowless office space was in the basement of a building. Most of them arrived before dawn and left well after most other offices had closed. The strength of the organization was innovation - they were incredibly prolific. Advance after advance flowed from teams that were attacking difficult problems with apparent ease.

However, there was a major problem - they were not turning their innovations into revenue. None of the team had any experience with negotiating agreements and the ones that they had negotiated had turned out to be unproductive at best. Many of their attempts at ‘technology transfer’ were stillborn - generating no revenue at all and tying up the technologies under unproductive agreements. Further, no one on the team who had the slightest interest in gaining the abilities needed - they were all having too much fun ‘tinkering and creating’. Reality, however, was pressing in - the bills had to be paid and less-than-desired levels of compensation were an ongoing issue.

Working with this company presented a particularly delicate set of challenges. The first rule in any intervention is, ‘do no harm’. In this case, that meant avoiding any actions that derailed the culture that was producing so many great advances. That engine was delicately tuned and any damage might be impossible to repair. A core of team members realized that the commercialization of their advances was critical. With that support, it was time to try something new.

A first step was to open a ‘store front’. As it turned out, there was open space on the ground floor of the building. The idea was to move the innovations from the basement to the shelves of the storefront and to staff that part of the organization with ‘sales people’. Eventually they joked about putting in a ‘dumb-waiter’ to accomplish the transfer.

A key hire was what we came to call the ‘translator’. This person acted as liaison between the storefront and the basement and was the key to making the structure work. One of the principal difficulties in monetizing the innovations turned out to be the tendency of the team to loose interest in the innovations as soon as the ‘problem’ was solved. This meant that they usually stopped working short of ‘proof of concept’. The translator’s job was to set the ‘state of development’ required before the new product became commercially interesting. Once the new organization was in place, the storefront’s ‘shelves’ became stocked with lots of interesting and commercially viable products. The sales force began to make much more attractive arrangements and revenues increased significantly. The PhDs kept working and producing. The cars in the parking lot became newer and more upscale.

The Story of Company B

The organization and culture of this company was very different from the first one. It focused on extracting value out of a series of products developed by the founders more than a decade ago. The founders had retired and the remaining team had continued the business. Over the years very little innovation had occurred. The company was facing a gradually declining revenue stream. The team focused tactically. No significant forward investment occurred.

Although customers were constantly telling the team about new functionalities which would be desirable or new problems that they would like the company to address, the opportunities for new revenue streams was being lost through inaction. The initial establishment of a research and development department was problematic for two reasons. First, it was prohibitively expensive. The second was that the culture of the company would militate against its success.

A first step involved the outsourcing of the development. The company formed a partnership with another company focused on innovating. The resulting arrangement worked well because the ‘innovation’ culture was ‘out there’. Although the initial investments were modest, almost immediately the results were clear and significant. Customer concerns and needs were better addressed. New products and updates of older ones began to flow into the company’s offerings. The acceptance of the need to innovate came easily.

After a few years of this partnership, the team decided to develop an ‘in-house’ capability. They were able to do this through a merger with their partner. By this time, the team understood the need to allow and support this different way of operating. The senior teams of both organizations merged and a new culture of innovation emerged within the company.

Lessons Learned

Each situation is different - each company starts from a unique place. Efforts to cultivate a culture of innovation always require accommodations to the reality of what is necessary to reach that goal. There is no one-size-fits-all solution - only results that are productive or unproductive. It is not ‘rocket science’ but it is a terribly delicate dance.

Monday, March 02, 2009

Innovation in business today Part IV


Innovation in business today Part IV


By Dr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com

In prior articles in this series, I focused on the management culture that establishes and maintains innovation. My focus was on the interaction between the tactical visions of the CEO and senior management team and the strategic visions of the Chairman of the Board and members of the Board of Directors. However, successfully managing the mixing of these ‘analytic’ and ‘creative’ types is only the first step in the process - one that enables but does not accomplish the cultivation of an innovative culture.

The core of any innovative culture is what we called the ‘beehive’ in one of my companies. This was innovation central. Its denizens were the deep thinkers who spent most of their time thinking outside - and sometimes way outside - the box. I admit that I found wandering into the beehive. I was exhilarating at times - you never knew what they were thinking about. I also realized that many of my ‘operational’ types found the experience somewhat unsettling. After one such incursion, my COO stopped by my office. “Chief, I hope the hell you know what is going on down there. I feel like I just fell down the rabbit hole.” She had it right. This was wonderland and just as dangerous.

The experience was often akin to herding cats. The management of the inclusion within the broader culture of the company presented a challenge. I divided the challenge into two distinct areas. The first was focusing on managing the beehive - or herding the cats. The second was managing the delivery of innovative thinking into the mainstream - into the parts of the corporate culture that specialized in converting ideas into revenue. In this article, I will focus on the first and return to the second in the next article.

The first hill to climb was making sure that the tendencies of the ‘creative’ types were focused in areas that were of interest to the company. The danger was that, without such guidance, the wandering tendencies within the beehive would produce ‘innovative’ ideas that were less useful to the company. We solved this problem by organizing a regular series of briefings - show and tell session - during which the senior team reviewed the ‘wins and losses’ that had resulted from recent deliveries from the beehive. A team from the operational side of the company also came with a shopping list of new ideas that they could use. This part of the meeting focused on the experiences that were coming from client interaction as well as new initiatives from our competitors. During the last part of the meetings, the beehive got to show off their ‘newest and greatest’ ideas. Some were welcomed with a hearty ‘wow’ while others received a polite yawn.

Meetings within the beehive and the senior management team followed up these sessions. Initially we scheduled these monthly, but in short order, we ended up running them twice a month. There result was an improved relevance of the production of the beehive and a more rapid translation of innovative ideas into revenue.

The second hill to climb was the efficient management of the beehive itself. Innovation and innovative cultures are much more difficult to manage than production lines or service delivery. You never know when one of the ‘creative’ types is going to get a good idea. It is also difficult to predict how long it will take to develop that good idea into something that can be transferred to the operational side of the company. However, you do need to establish a set of metrics that can be enforced. Efficiency has to have meaning inside the beehive. The key to this challenge turned out to be selecting the right person to manage the ‘creative’ types. It had to be someone who shared in the joy of discovery, had no trouble thinking outside of the box, spoke their language and both accepted the need for and had the ability to enforce performance metrics.

The third hill involved the migration of ideas from the beehive to the operational side of the company. With the beehive operating, we turned quickly to managing the evolution of ideas to the point that they could be shared with the operational side of the company. Bringing them out before they were completely formed produced less than optimal experiences and a lot of frustration. Groups of ‘advocates’ from within the beehive were tasked to develop their idea to the point that it could be described to a team or operational types who involved was a series of meeting with the operational types pushing for more refinement and additional functionality. The operational team leader and the beehive manager often had to work overtime to keep things from exploding. Frustration was a constant result. However, after a few experiences, both sides educated each other and the process came to work relatively smoothly.

One issue that constantly came up - and that I will address later on - was the question of compensation. Although the inhabitants of the beehive were more idealistic than those on the operational side, they did have a practical side - both in terms of compensation and budgeting. Solving that problem presented some interesting opportunities for experimentation.