Tuesday, 22 September 2015

We need better business skills if ECF is to work

Basic business skills are not out of the reach of anybody willing to do the graft. But you cant just make stuff up and hope that when it comes to the crunch it will just work like magic. Throwing a couple of eggs at the cooker will not make you an omelette.

The latest pitch to launch on Crowdcube looks quite promising in a small but compact way. Timbergram have a track record of three years of climbing sales, they have made profits and the team are ideally suited for the product. They have a non ludicrous valuation, which makes a change.

However, when you are attempting to drive your sales in such a cut throat mature market, you do need to spend some money on marketing. And if you are going to service customers at a level which helps your growth (rather than one that hinders it) you do need to spend money on staffing and administration.

This company currently sells 100,000 'cards' pa and is looking to increase this over 3 years to 1m. The marketing, administration and personnel budget only increase 2/3 times with this growth and that is from a small base. The sales increases are largely driven by overseas markets which in effect will be far more expensive to service.

Ignoring the ambition to increase EBITDA from Yr1 18% to Yr3 48%, partly as a result of the non spend above, would be foolish if you were an investor. Likewise making the mistake of using mass market card sector data to project potential growth when you have a niche, up market card come gift offer, would be the same.

We see no reason why this outfit shouldnt do well but it will not follow the projections on the Crowdcube platform. A basic understanding of how these things work is essential - just plugging in the same expense figures for 3 years for key areas like marketing and customer service is a little daft when the sales figures are flying.

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