Executive manager Todd Lynton bit the bullet and bought into an ailing lighting business in 2007. He reveals the strategies he employed to stave off disaster and deliver 30 per cent year-on-year growth.
It was a risky move that could have ended in disaster. Just months before the GFC, and having no real SME experience, corporate marketing and executive manager Todd took a 50 per cent stake in troubled Sydney wholesale and retail company Special Lights.
However, using a combination of his corporate skills, wits and sheer perseverance, Todd and his business partner were able to survive the tumultuous events of 2008 and transition the business to a position where it is now set to deliver a 30 per cent increase in turnover this year.
Todd sits down with My Business to reveal what made him move from the security of a corporate role to the SME world, exactly how he transitioned the business to boost growth and what other business owners can learn from his experience.
“I had no idea what I wanted to do.”
Buying into an SME
“I worked mostly in consumer electronics, so I’ve worked for NEC, Panasonic, Polaroid Cameras, Olympus, Imaging, Cisco Systems and Fitbit – I started Fitbit in Australia – and Samsung, and run divisions and so forth. After I left Olympus, I thought I’d like to apply all of these skills of launching brands, launching products, growing markets to my own business,” recalls Todd.
“I had no idea what I wanted to do.”
Having worked continuously since finishing university, climbing the corporate ladder, Todd decided to take some time off work to refocus his efforts and priorities and figure out what his next venture would look like.
It was several months into this 12-month break that he first stumbled across Special Lights.
“I was reading The [Australian] Financial Review and I saw an ad in the paper that basically said: ‘need help, need business partner, got good products, been around for 70-odd years, and it’s a lighting retail business (at the time), and want a partner to invest something and we’re struggling’,” says Todd.
“I thought ‘Look, I’ll go and see this guy; I know nothing about lights, I know nothing about the building/construction industry, but it said we’ve got some good brands and agencies that we import from Europe’, and having a base of an exclusive brand or product provided its differentiating and desirable, is a good base.
“So I went and met this guy and one thing led to another, and a few months later I bought in half the business, and that was, I suppose, 10 years ago now. And we’re still business partners half and half.”
“Yeah we got turnover through the store, but some people would be buying a light bulb or a $30 lamp, and occasionally you would get other customers.”
Analysing business performance
As part of his due diligence, Todd had a thorough look into the business and found plenty of opportunity to turn things around. And once on board as a partner, he immediately set about investigating these opportunities in more detail to see where real change could be delivered.
“I looked at the business – it wasn’t going well, it wasn’t making money at the time. But in looking at the customers and staff, the first two things I did in the first year was I looked at the brand and what the brand stood for, and … the suppliers,” explains Todd.
“It was trying to be everything for everyone, so it was a largely retail lighting business. It had two retail outlets – one in Surry Hills and one in the Moore Park Supa Centa.
“And when I looked at the suppliers, we had products that were $50 – so we had people coming in buying bargain basement products … and then we had imported European products that might be $5,000 to $10,000 for a light.”
This mishmash of customer types simply didn’t warrant the high overheads associated with a retail store.
“Yeah, we got turnover through the store, but some people would be buying a light bulb or a $30 lamp, and occasionally you would get other customers.”
However, the diversity of customer types ran much deeper than whether they purchased high or low-value items, as Todd discovered while digging more deeply into the business’ customer base.
“When I looked at the sales, some of the customers [would] come in and buy, and we didn’t have any good record keeping of who the customer was or where they came from or what segment. But actually some were existing light shops that were buying our exclusive brands to resell through their retail outlets – that was a very small portion, which was effectively doing wholesaling in that model.
“[And] some were interior designers or architects, so they are like specifiers that recommend lighting products to whether it be residential or commercial.”
“We separated the wholesale business and we created a separate brand.”
Transitioning a struggling business
With a solid understanding of the make-up of his customers, Todd set about transitioning the business to reflect the diverse needs of these very different segments.
“The initial changes I did was to define the brand, change the logo, kind of relaunch the brand and actually shut down the retail business in the super centre – it wasn’t making any money. It was pure low-end retail – and look at our differentiation,” he says.
“Our differentiation was in the higher end products, and the brands that we imported specifically from Europe. So I got rid of anything low-cost out of the store, so when people walked in and said: ‘Have you got a table lamp for $100’, ‘No, we can’t help you – please go somewhere else, that’s no longer our business’.”
Such a change meant that far fewer customers ventured through the doors at the remaining city fringe store, but when they did come in, they were buying “several thousand dollars worth of products”.
That took care of the retail side, but catering to the resellers required a different approach, which led to a split of the business and its operations.
“We focused then on our wholesale business – so for all our operational purposes, we separated the wholesale business and we created a separate brand which was Form Lighting, and Form Lighting is a distributor now to a network of specialty lighting stores around the country, in every state, and it’s a separate brand,” Todd explains.
“So [Special Lighting] is our company that basically will supply to specifiers or end customers, and [Form Lighting] is effectively the wholesale business which [not only] supplied to our reseller business but also to other resellers all around the country.”
A third business was also added to the mix, offering customers a full design oversight service to effectively project manage lighting design and installation in new builds and large-scale renovations.
The whole process took three years to implement and get to a point where revenues began to go grow once more.
“Before I bought the business, when I asked to supplier agreements, there weren’t any.”
Protecting supplier agreements
A key asset of the business is the exclusivity of the products it stocks, and so for Todd, bedding down those relationships became a primary focus to ensure the sustainability of the business going forward.
“Before I bought the business, when I asked to supplier agreements, there weren’t any. So it was like ‘Oh, I’ve just been dealing [with them] for a while’. But when I dug in deeper, the suppliers, the brands that we had, were turning over relatively quickly – in other words, we’d be their representative for a couple of years and then they’d for whatever reason choose they’re not happy with that scenario and they’d go to someone else,” notes Todd.
“But being verbal, there’s always risk of course that that might end tomorrow. So I said ‘I’m drafting up a contract’.”
Those contracts provided his business with some certainty around both the longevity and exclusivity of products as well as warranty support, but he sold the idea of formal contracts to the suppliers as a means of formalising their commitment as buyers.
“[I said]: ‘Here’s a contract that just firms up for the next three years that we’re exclusive distributor; we’re expected to do this, this and this, and buy a certain amount of product and turnover,” he says.
“So we put those in place and made them realistic and focused on them, made sure we fulfilled our commitments, which then led to much longer growth relationships with those brands.
Todd adds: “It doesn’t mean that you’re going to always maintain them … but in eight years as an importer of eight or nine brands, a couple of new ones have gone in and a couple have gone out, but we’ve maintained those core brands through.”
Fast facts: Special Lights
Established: Around 1942
Location: Sydney, NSW
Industry: Retail (sister brands operate in wholesale and consulting services)
Employees: Nine, with plans to grow this to 11 or 12 by the end of 2017
Customer base: Predominantly greater Sydney, though Form Lighting operates nationally
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.