John Linton's Personal Musings

John Linton

.......after looking at a few very, very small/tiny companies recently my conclusion is that, if there is any value, it is only in one or perhaps two of the people - there is no value in their actual business.

I never thought we would reach a situation where we would consider 'buying' another company - principally because we have never had any money for such expenditures but also because it has always seemed to me to be a pointless exercise when you consider the more obvious transactions over the past 15 years or so of Australian communications companies buying other Australian communications companies. While these 'transactions' overwhelmingly involve the purchase of the 'distressed assets' of a small company that has gone broke or is about to go broke being bought out by one or other of the 'bottom feeders' of the industry which results in no-one gaining any benefit least of all the poor customers involved in those transactions even the larger transactions seem to generate no noticeable benefits for anyone.

Over the past two or so years Exetel has been approached by various brokers or, in rare cases, the owners of the small companies themselves to determine whether Exetel had any interest in buying out or taking over the customer base of various small telephone or internet providers. These transactions involve hundreds, or at the most 1 - 2,000 customers and the provided information rarely shows that the companies are even break even profitable which means they actually lose a lot of money (proportionate to their turn over). So they are never a financially attractive 'opportunity (at least they aren't for Exetel) but more recently we have been looking at such opportunities not in terms of their revenue, profit (there never is any) or 'boosting our customer numbers' (we could do that faster and less expensively by discounting) but in terms of whether the personnel would be a valuable acquisition.

It is a very strange thing to do - to look at the employees of another very small company and to try to assess their 'worth' to yourself as a possible future employer of them because, of course, you don't have the opportunity of doing an interview nor of observing them in their daily working environment but you do have the opportunity of 'seeing' them in the context of the time they've been working in the very small/mainly tiny company you have the financial records for. I don't have any experience at all of even knowing how to begin to form this judgment so it has been a very difficult, and different, set of experiences for me and I would be the first to admit that I have made absolutely no progress in reaching any sensible or even vaguely valuable conclusions....but what has almost always impressed me has been how the few companies I have looked at survived at all and I put that down to the one or two people who really made the company 'work' and while these one or two per company were sometimes the founder(s) it was more often the case that it was one or more of the 'early' employees who appeared to be what had kept the company operating as long as it had.

I have been surprised by that conclusion, and I'm not saying it is actually correct, because it just doesn't seem logical and therefore it's unlikely to be correct.....it's just been my view after looking at several 'opportunities' over the last few months but particularly the past few weeks. I have been looking for people within these 'opportunities' who, if we acquired the company would be good additions to Exetel without the need to introduce them to all the rigours and difficulties of working in a very small company and the problems of operating on ultra thin margins with no 'big company' comforts and the 'forgiveness' that goes with such management sloppiness. So far I haven't seen what I expected and am coming to the conclusion that I am somehow 'looking incorrectly'.

For Exetel to meet its plans and objectives and the growth implied in those aspirations we need our current employees to grow and develop faster than they have to date and we do need to acquire a wider and deeper pool of intellectual and creative talent to ensure that our small company continues to find the very best ways of implementing the best technologies that become available in the shortest possible time frames at the lowest possible costs - attributes that I would have thought would be the key characteristics of the personnel involved in running the tiny/very small companies that become available for acquisition from time to time......but I can't seem to find these people in the ones I have seen to date....doubtless my inability to see what's in front of my eyes.

While we will keep trying to find additional experienced people we will need to put far more effort in to developing all of our current personnel and, as far as that is going to be possible, increase our already very high hiring standards. We have a need to increase our Australian personnel from the current 30 to 55 by June 2010 which while very small in actual numbers is very, very large in terms of percentage and all that implies in terms of integration, training, supervision, management and financial control. It is easily the hardest thing we have to do this financial year, or for that matter any financial year in our existence to date, and it is the thing I am most concerned about.

I understand that every company deals with these issues on a day to day basis without giving them a second thought but I have no experience or competencies in handling these issues. Clearly my hope of finding experienced people by acquiring two or three tiny/very small companies has met with no success to date and the 'package' I read through yesterday evening doesn't seem to offer anything different. I'm not sure what the best way is to accelerate the growth of 'management' capabilities in our current people and our possible new hires over the coming months but it is clearly going to be the key to any future success that Exetel may achieve.

I would like to think it is going to be possible but I have some doubts about the time frame.