As you may be aware we have been hosting a series of client “themed” lunches over the past year or so.  A recent host was Morton Dewar, formerly owner and managing director of Morton Young and Borland Limited, a textile manufacturer based in Ayrshire.  His previous lunch address had been so very informative and entertaining that we invited him back again.  This is his story of his company turnaround:

“My name is Morton Dewar and my whole business career was spent with one textile manufacturing company. When Tom Craig asked me to say a few words it was established that I would include the good, the bad and the ugly. The good was the opportunity to own and run my own business for the last 20 years of my business life, the bad was buying Royal Bank shares with some of the proceeds of the sale of the business, and the ugly is sitting at the end of the table, our host today.

I joined the family business of Morton Young and Borland straight from school in 1956 and,apart from 2 fantastic years doing National Service, I was there until 2002. The Company was founded in 1900 and as a result of careful and prudent procedures it had built up substantial cash reserves by the end of the 1950’s. Life looked very rosy for me and my colleague, both third generation family members, and so it proved until the late seventies and early eighties, by which time the traditional “clogs to clogs in three generations” syndrome was becoming a reality. He was heavily involved in bowling and greyhounds and I was heavily involved in golf and curling. We were not investing in design and new technology and the shareholders demands for traditionally generous dividends were rapidly eroding the cash reserves.

In 1983, the then auditor of the Company took me aside and warned me that, if nothing was done, there would be nothing left in 2 years. I was 44 years of age, with 2 wives and 2 families to support and my colleague was approaching 60. Neither my colleague nor I had any kind of alternative career prospects. Despite the semi playboy lifestyle, I had a genuine love for the business and I set about, with professional help, devising a scheme whereby I could buy the trading side of the Company, which was the only area that really was of interest to me. At this point in time there were 47 shareholders all descended from the original founders of the Company, and only 35 employees – a management nightmare.

There was still a substantial cash reserve in the form of shares held in quoted companies so I begged and borrowed enough cash to make an offer for the trading side of the Company, ie., the machinery, buildings, stock, ashtrays etc.. This offer was accepted by the shareholders and it enabled the old Company to sell off all assets, clear all debts and the shareholders received £6.85 per share, free of tax. I got the trading Company. They were delighted as in 2 years time they would have received nothing.

This all happened at the end of 1983 and all hands were on deck to advance the new concern. The days off for golf and curling were a thing of the past, being replaced by lots of travelling by the cheapest means available, and turnover had more than doubled by the end of 1985. Unfortunately, so had my exposure to the bank. This, in my innocence, caused me no concern as they had always extended the facility when asked. However, a request for an additional facility at the end of 1985 was rejected and I was mercifully helped out by a friend who loaned me £40,000, an act of generosity I have never forgotten.

Nonetheless, creditor pressure was relentless and two unseen factors had come into play. Margaret Thatcher was in office, and John Harvey Jones was in charge at ICI. We owed the Inland Revenue some 4 months back PAYE, and ICI some 4 months invoices for polyester yarn. Mrs. Thatcher and Mr. Harvey-Jones both decided, quite rightly, that the days of generous credit were over, and the pressure on our cash became very severe when the Revenue and ICI demanded that we return to normal trading terms.

At the end of October 1985, I was playing in the Silver Tassie golf tournament at Gleneagles, which is, of course, the kind of thing that one finds oneself doing when your business is in crisis. I explained my position to a fellow competitor, who worked for PA management consultants. He very kindly offered to give me an hour of his time on the Monday. This he did and made an excellent summation of the situation, whilst explaining that it was doubtful if PA could help as we couldn’t possibly afford the fees. He did, however, have a friend, who was ex PA and had set up on his own to target small companies who needed help. That friend was, of course, Tom Craig.

Tom came along and made an assessment of the business and, on Christmas Eve, at his home, he gave me the bad news. The business was certainly holed below the water line, but he felt it could not only be saved, but made to prosper. The terms of payment to Craig Corporate Management were such that fees would be paid on the basis of performance. This was probably a fairly risky strategy on Tom’s part but it gave me the assurance I needed that the business was viable.

I have to say that there was a degree of resentment amongst my long serving staff when he came on board. The resentment was not personal, but they found it difficult to understand that someone with no textile background could possibly be of help. There was also the widespread belief that the term “consultant” and the word “redundancy” were synonymous, and that long established working practices would come under scrutiny.

Tom’s analysis of the Company was that we could be likened to headless chickens, all running around, expending great energy, but with no particular goals. The staff were gradually persuaded to alter some very outdated working practices.

The first mission was to appease the creditors. Tom and I made a point of calling personally on all of the major creditors and our situation was made clear to them. We informed them of the plans we had and, such were the persuasive powers of Mr Craig, we came to an agreement, with one exception, that we would adhere to normal trading terms for all future supplies, and we agreed a repayment plan for the outstanding debts. The bank was obviously a key to the continuation of the Company and they agreed to support us, providing the position did not deteriorate. One rule was paramount – we told our suppliers and the bank no lies, not even white ones. There were no “your cheque’s in the post” or “we will send something before the end of the week”. No false promises were made and I am convinced that the confidence building began with that philosophy.

An analysis of our sales and margins revealed the extent to which our attempts to increase sales had eroded our gross margins. I had been discounting our cheaper end product in polyester curtaining in order to compete with our much larger competitors and the increasing quantity of cheap imports. Tom began asked me why we were selling to these people at less than break even prices. The apologetic answer was that we wanted to keep the machinery running and increase turnover. This was not a satisfactory or sensible answer so the discounting stopped and we began to concentrate on selling the better margin items, albeit at lower volumes.

We were fortunate in that we had two products which were targeted at the top end of the home furnishing market. One was called Madras and we were the only producers of the genuine article left in the world. The gross margin on this product was mouth watering and we eventually managed to establish a customer base which included the most famous names in interior design such as Laura Ashley, Anna French, Nina Campbell, Liberty and Osborne & Little, Peter Osborne being the father of the current Chancellor of the Exchequer. The more exclusive product was also finding favour in the States and other overseas markets. Whilst the polyester side of the business was in decline, the efforts on the quality product were paying dividends.

Meanwhile, Tom and his colleagues were fine tuning the production processes on the high quality produce, all of which was being manufactured on machines which were more than one hundred years old. Luck plays a part in the success of a business and so it proved with us. A gentleman by the name of Michael Litton knocked on the door and asked if he could rent one of our Madras looms as he had been commissioned by a company called Air Bags Ltd. to develop a seam free air bag. He needed a very slow weaving machine for experimental purposes and our Madras looms were ideal for that purpose. We agreed that he could have the loom free of charge and, in return, he would give us technical consultancy free of charge. Purely as a matter of interest, the first seam free air bag ever to be produced was made in our factory, and you are all surrounded by half a dozen of them when you get into your car.

He advised us that he could install an Italian loom that would replicate our Madras product. The old loom produced 50 metres per week; the new loom would produce 850 meters per week, but it would cost over £110k which we didn’t have. Tom’s colleague, Paul Yacoubian, then guided us through the grant maze and enabled us to obtain the necessary finance to purchase one machine. There were many teething troubles but eventually the machine came up to all expectations and it was at that point that the milk pan began to boil over.

Turnover and profitability blossomed. More machines were purchased, we started our own Computer Aided Design Studio, new customers were found, the polyester side of the business was sold off, we paid a substantial sum into the Final Salary Pension Scheme and we were in credit at the bank. I took the greatest of pleasure in writing to the bank asking them to lodge the title deeds of their premises as collateral against the amount of money that they were now owing me.

By this time our association with Craig Corporate had become less hands on and a personal friendship with Tom had been established which I hope will continue until I am stabbed in the back by a young jealous husband when I am 82. They still had input, but it was more of a touchy feely input and, no disrespect to those involved, I felt that it was not the kind of input that suited our particular company.

Information Technology had been an important introduction in the early days and was becoming increasingly so, and that was the issue that caused most trouble towards the end of the nineties. Our long service Finance Director had retired and the new incumbent was persuaded to replace the existing IT package. She, in turn, persuaded me that it was a good idea and, as I presumed that she knew exactly what she was doing, I agreed to the upgrade. That decision nearly ruined the company and I have to accept ultimate responsibility for failing to ensure that the project was properly policed.

The lady in charge signed for colossally expensive and totally inappropriate installations. Our reporting systems were producing rubbish numbers, we had no idea of our true trading position and money was disappearing like snow off a dyke.

Eventually the bank came to me and said that they were getting very concerned at the cash position and, in order to resolve the position, I gave a personal guarantee to them for an additional facility. Not a pleasant decision to make in one’s late fifties.

The person in charge of the finances and the installation was removed, a new credit controller installed and a much modified IT system installed. , much to the annoyance of the suppliers who thought they had found a gravy train to end all gravy trains. The lesson learnt was that when dealing in matters of technology, always double or triple check that you really need all that is being sold to you.

We recovered and I told my staff that I was planning to work only 2 days per week. They were to run the business on the assumption that I did not exist and all decisions were to be made by them under the direction of my successor. The response illustrated beautifully how much people appreciate being given responsibility and the Company continued to do well.

In August of that year my successor approached me and asked if I would sell him 10% of the Company. I told him I would give him 10% of the Company, but as I still had 90% it would only be worth something to him if the business was sold. He came back three weeks later and asked if I would sell the whole company. I agreed and we shook hands. Three weeks later 9/11happened and we did not receive an order from the States for three months, so they deal had to be amended.

I finally sold the business on 31^st January 2002 and it still survives well, 111 years after its foundation.

And that, fellow lunchers, is a précis of what happened to me. I consider myself most fortunate in that, for 47 years, I never once woke up and said “I don’t want to do this”. There are some simple rules I think should apply to any business. These are as follows:-

• Never shirk an issue by telling a half truth or putting off a decision. Issues do not go away.
• Reward you employees before you reward yourself.
• Make sure you have good advisors in legal affairs, accounting affairs and technology. You don’t have to employ them. My company has never ever employed an accountant, but we have sought outside accountancy advice.
• Pay for a top class credit controller, not necessarily an accountant. A good failed one will do the job.
• If you have a hankering for a flash car, try to resist it. If you do buy it, leave it at home and go to work in the Mondeo."