Creating a sustainable business model

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David Pointer, managing director at Point Source, believes photonics companies should look beyond short-term gains

Photonics companies appear to be divided into two categories. There are those that focus on developing and protecting intellectual property. They expect their products to sell themselves, in the classic ‘technical solution looking for a problem’ syndrome. Then there are the copy-cat manufacturers that lack the creativity and ambition to innovate, and will do anything for a quick buck.

In both camps there are some that have chosen to compete on cost, even before a market has developed. During the telecoms boom, for example, products were regularly sold at negative gross margins in the hope of gaining market dominance. Good businesses adopted this strategy, but ultimately it didn’t pay off and many of them went bust, leaving their employees high and dry with worthless stock options.

Such irrational practice just doesn’t appear to happen in other business sectors. Negative gross margins means that you are guaranteed to lose money the minute you sell something so, in such circumstances, the most practical solution for business success is to fire your sales team!

Point Source managing director David Pointer

Real value

I believe that it is important to develop a sustainable business model – one that is less concerned with short-term gain. I believe in a business model that is looking to grow something of real value, not only for the shareholders, but for all the stakeholders. This is the principle on which I have based the development of my own company.

A sustainable business model is one that will survive the founders and current management team. It has long-term goals for factors other than finance. It is based on great ideas that can be turned into profitable products and services. It will create wealth and sustainable employment for the national and local economy. For example, it’s important to us to know that we’re making a positive difference to our customers and their customers. We aim to create opportunities for our employees and for our suppliers, and to have a positive impact on the communities in which we operate.

Fundamentally, we want to be the world’s best at what we do and, in our own small way, we want to make the world a better place. This

doesn’t mean we’re a bunch of softies – far from it! To do this we need to embrace business excellence and perform to the highest possible standards in all areas of our business.

Critical success factors

Profit, and the cash it generates, is the only way to invest in the future in the long term, but profit is the result of good business practice, not the practice itself. It’s very easy to improve profits and cash in the short term – by cutting overheads and investment in research and development for example – but this is a very short-sighted strategy.

What is really important is to identify the critical success factors within your business that will move you towards your long-term goals. Once these areas have been identified you can quickly move on and devise a measurement system of key performance indicators (KPIs) to monitor progress in each of these critical areas.

It is important to measure the right things in your business and choose parameters that can be used to drive action and change. For example, if customer retention is important in your business, then by all means measure it. However, by the time you have lost a customer it could be too late to take appropriate action; therefore it is better to identify factors of customer service and loyalty and use these as the measure. You might consider on-time delivery, fit-form-function compliance and product reliability. These are the factors that will affect customer retention and that you can do something about before it’s too late!

We have taken this methodology one step further by cascading the company KPIs down to a departmental and personal level. I am a firm believer that a happy, productive team is fundamental to the success of any business. The success of the individual IS the success of the business. We use the KPIs as the basis of a target and reward system for all employees. In this way we have translated our business goals and strategy into a system and language that every employee understands and can affect directly.

The end result of such a model is buy-in from everyone in the company. This leads to continuous improvement in employee, departmental and company performance, and ultimately, of course, improvement in profits and cash generation. By applying this model, we have achieved consistent growth since our inception in 1991.

Using this model you can reinvest in the things that really matter to you, make your business sustainable and in your own small way, make the world a better place!