Loki is a small, independent film production company working almost
exclusively in the advertising industry. As such Loki’s output is made up of
commercials, virals (essentially commercials for use on the internet),
promotional and corporate films for clients such as Sony PlayStation,
Google, London 2012, Disney, Eidos and Nickelodeon.
Loki was established in October of 2001 and is owned by managing director Bob
Ford. The company has enjoyed modest but consistent growth in each of its
six years and as a result has changed beyond recognition from the original
start-up.
Bob started Loki with only two years experience as a producer and at a
relatively tender (for production) age of 25. He had agreed a one-off
contract to produce a series of low-budget commercials for a golfing
manufacturer, a contract that could keep his fledgling company operational
for up to 4 months but after that he was on his own. So armed only with a
mobile phone and a borrowed lap-top computer Loki was born.
The initial contract ran smoothly and within six months Bob had generated
sufficient business to be able to bring in an assistant and move from the
living room of his flat to a shared office space in Soho.
“I remember the first couple of years as being very precarious,” Ford said.
“We could have a good month but it would only take one or two poor ones, or
one difficult production to see us right back where we started”.
When Loki first began Bob decided that the company would have to be
self-sufficient from the outset and have to survive on the money it
generated. Even now Loki has yet to borrow any money.
Ford said: “That has been the golden rule for me. The industry is hugely
unpredictable and bad debt is a reality so the principle of genuinely
limiting my liability has been essential to everything that we’ve done”.
Loki’s company history can be split into two distinct phases; the initial
start-up and then developing and sustaining a market-position.
In the first few years Loki’s clientele were essentially Bob’s contacts from
his previous producing job. This meant a steady flow of relatively modest
business but very little potential for growth.
Ford said: “As the company began to settle down I was able to take a more long
term and analytical position. It became clear that, in order to expand, we
needed to work with better directors and to would have a take a far more
involved and targeted approach to new business”.
The second stage of Loki’s growth was initiated by the careful development of
a much more considered ‘brand’ and identity. Bob worked with a small
branding company to identify a market position that Loki could claim as it’s
own and then to develop an identity and approach that would represent that
position to potential customers. The results were immediate and the business
began to transform.
Larger contracts led to Loki forming relationships with more accomplished
directors, a bigger and better client list and then to the ability to
embrace more sophisticated business practices; specifically significant
investment in office space, equipment and people in order to bring a
substantial percentage of Loki’s external spend in-house.
“Investing in space and equipment has been the catalyst for our most
substantial period of growth. We are now able to offer a far more complete
service which means that our clients get better work and we are able to
capitalise on the efficiencies,” Bob said.
After 6 years of growth Loki’s turnover has more than trebled to £1.5 million
and the company enjoys spacious offices in the advertising heartland of
Soho. The company has established firm links with key suppliers in every
department and represents a very strong group of directors.
“In many ways the situation is very satisfying,” Bob said. “The business feels
relatively secure, we do some nice work and the company continues to grow,
albeit at a slower rate than in previous years.”
However there is a perception that the company may have reached something of a
glass ceiling. The commercials production industry is notoriously
competitive with more than 300 companies competing in London alone. The most
high-profile and valuable work tends to be carried out by an elite of long
established companies whose reputations are based on the work of high
profile directors and their ability to identify and groom new talent.
“There is a sense in which we have been victims of our own success,” Bob said.
“We broke into the market place by embracing new technologies, offering
genuine value for money and working minor miracles when they were required.
We are now in a position where we need to expand to the next stage of
agencies, clients and of course budgets but we find ourselves pigeon holed
by our existing portfolio and to a certain extent limited by the brand that
we worked very hard to establish”.
One critical factor is the emergence of digital as a credible platform for
advertising. Current and rapid growth in this area has meant a tightening of
marketing budgets for ‘conventional’ advertising - including TV.
Ford said: “The industry has been waiting for this shift to happen and finally
it seems to be upon us. Loki’s way of working is perfectly suited to the
emerging digital market simply because our ‘cost per minute of product’
ratio is so much lower than the bigger, more established companies. However
what we are seeing is those companies setting up ‘digital specialist’
departments which effectively mirror our business model and then using their
existing reputations and contacts to leverage the new business
opportunities”.
“Trade continues to be very good for Loki, but looking to the longer term I
can’t help but feel that if we are to make significant in-roads into
existing or emerging markets and genuinely compete with the bigger companies
we need to change something and perhaps be more aggressive.”
www.lokiltd.com
Loki’s objectives
1. Start to compete with larger and more established companies.
2. Make inroads into new markets – both at home and abroad.
3. Refresh the brand.
4. Maintain financial even keel while continuing to grow.
5. Develop a more aggressive sales strategy.
The Expert View
Banking: Sam Kerr
Sam is the Head of New Business Bank of Scotland Business Banking (part of
the HBOS group)
From a banking perspective it's very encouraging to see a relatively new
enterprise trade through those first few perilous years & grow to a
point where moving the business to the next level becomes a key objective.
For Loki, in this particularly competitive industry, there could potentially
be a number of options a bank could offer in support of this expansion.
Banks are always very focused on the individuals who run & manage
businesses; Loki could look to recruit industry talent from well established
industry competitors, which could bring rewards in terms of marketplace
credibility and also potentially new clients. The right individual could
bring links into new sectors and help develop the more aggressive sales
strategy that Loki is looking for.
There would be an obvious cost to this.
Whilst Loki are currently averse to borrowing money, a trading overdraft may
be of use to cover any short term cash flow issues with this recruitment
(recruitment consultancy costs, advertising costs, remuneration costs)
before the benefits of increased trade emerge.
In the Post Production industry, with new technology & digital post
production equipment being so crucial, Loki could look to upgrade to the
latest equipment. With this investment in technology there comes potential
improved efficiencies & also increased credibility.
As some of the latest equipment can be very costly, Asset Finance could be
considered to spread the cost of the investment over a number of years. This
would enable immediate use of the newest technologies whilst protecting Loki
from any potential strain on cash flow which is common from a large capital
investment.
In banking, the age old adage of 'cash is king' & firmly applies, so
careful planning is required for any expansion of this kind to assess any
potential cash flow shortfalls & ensure continued profitability.
Detailed cash flow forecasts, operating budgets, P & L forecasts should
be produced. Loki's accountant would be able to assist in this.
Advertising and Marketing: Ben Fennell
Managing Director at advertising agency BBH London
Film production is not an easy business to make money in. Or so we are told!!
Revenue is hard to predict and always project-based, margins are low and
talent expensive. Add to that a business environment where marketing budgets
are under threat, and where production budgets are under microscopic
scrutiny from procurement.
I imagine that Loki, like most of its competitors, plays a constant game of
'cat and mouse', trying to attract the best creative talent and thereby
catch the very best briefs. Any communications business needs both to
succeed.
My advice to Loki, if they want to step change their growth, is to build their
business strategy off three key pillars:
1. Invest in new skills
The media environment has changed beyond recognition over the last 7 years,
and yet the production community looks and feels relatively unchanged. Film
is now created and distributed by all manner of people at a speed and cost
that one just couldn't imagine at the turn of the century. Good bits of film
are being made for £50K rather than £500K . There is a window of opportunity
for a brave production business to get very famous by becoming a high speed,
high quality provider of film for the web. Loki should ask itself what new
skills it needs to become the most creatively interesting digital film
producer in the market?
2. Make your costs more transparent
Clients are looking for greater value and greater transparency of costs, and
the production industry has been slow to respond. Procurement is here to
stay so get on board and put some market leading innovation into play. Loki
should look at how it could differentiate its revenue model from the rest of
the pack?
3. Really listen to your customers
Clients and agencies will partner with companies who understand their needs
and who deliver against their agenda of quality and transparency. They will
even pay a premium. I would urge Loki to get out on the road and listen to
its clients. Too many business plans are written without the external filter
and consent of the paying customer. Loki needs to ensure that the business
it is building is one that will create client demand.
Loki could start this journey by coming to show BBH its credentials, we are
ready and waiting.
Finance: Tony Cohen
Tony is Head of Entrepreneurial Business at Deloitte, the business advisory
firm.
Growth appears to be Loki’s key challenge, and this should be achieved from a
combination of volume growth and competitive pricing.
Loki needs to review its customer base and channels to market as well its
product offerings and pricing strategy. In terms of customer base and
channels to market there is a need to aggressively attack the ad agency
channel to create greater pull through demand. This will require further
emphasis on positioning the Loki brand as a high quality product, associated
with the most innovative and price competitive offerings in the digital
arena.
In terms of new markets, serious consideration should be given before
undertaking targeted overseas expansion as this is expensive and will
require local knowledge. Perhaps, in the short term, it is better to create
demand in the home market and respond to any overseas business which is
generated by reputation and referral.
To continue to expand into innovative products, further investment may be
required, particularly as this has reaped rewards for Loki in the past.
Money could be sought through equity, in keeping with Bob’s philosophy of
limiting debt. However, for Bob to maintain absolute control, a well
structured debt arrangement could be sought, based on the six years of
demonstrable trading experience.
Sales: Simon Hughes
Simon is the Director for Small and Medium Sized Business at Microsoft
It's important to sell on your unique proposition. You have genuine expertise
in this growing niche market and you should make prospective clients aware
of this.
To develop a more aggressive sales strategy you need to know who you're
selling to, when you last spoke to them and to make sure you're following up
with them when you need. A good way of achieving this is to put in a
customer relationship management system.
The right customer management system can keep you up to date on all your
customer interactions and you'll never lose a sales lead. By effectively
capturing and analysing your customer information you can also better target
your existing customers and maximise the opportunity from your existing
client base.
You should also consider linking up with other businesses. We recently ran
some research with the Future Laboratories which indicates that rather than
try to do it all yourself, you can really benefit from outsourcing your
non-core expertise to specialist partners.
This can also work well with overseas business. By working closely with
foreign companies you can satisfy accounts that might span a number of
countries, splitting the opportunity where necessary without losing any of
your sovereignty as a brand.
Congratulation on a great success story thus far; continuous growth, no
borrowings and a very impressive client list. Moving forward your objectives
all point towards growth and accelerating your current success rate. I would
be looking at maximising your strengths – embracing new technologies, your
knowledge of the digital advertising space and your prestigious existing
clients.
Management Consultant: Andy Lees
Heads the private sector practice in the UK leading a team of 180
consultants for Atos Consulting
The key success for the digital advertising space is to understand, target and
excite the consumer. How will you get information to come alive? You just
have to look around to see that the 18-25 year age group communicates in a
different manner heralding the advent of a “digital native” that has grown
up immersed in internet, mobile phone, MSN, YouTube, and other forms of
digital technology. They're already busy adopting new systems for
communicating (instant messaging), sharing (blogs), buying and selling
(eBay), exchanging (peer-to-peer technology), creating (Flash), meeting (3D
worlds), collecting (downloads), coordinating (wikis), evaluating
(reputation systems), searching (Google), socialising (chat rooms), and even
learning (Web surfing). How will they best receive content in the future?
The emergence of these new consumption channels back the advertising
forecasts. A recent report by PWC showed internet based advertising will
achieve a CAGR of 18.3% up to 2011 against and industry average of just
5.4%. I would focus on differentiating yourself from the “elite” by
stressing your ability to focus on these new trends, backed by your track
record of adopting new technologies and your “low cost per minute of
product” operating model.
To drive growth I would then look to establish alternate routes to market.
Given your desire to be sensible around risk and maintain a stable financial
position. I would look to partner with other organisations either to
complement your creative skills in the digital media space or to look at
growing you capability further down the value chain. Organisations
specialising in consumer targeting would be an idea. Partnering has the
advantage of opening up alternate channels whilst avoiding the expense of
acquisition or the commercial risk of merger. I find Innovation forums such
as Library House (www.libraryhouse.net) a great source of ideas and is very
well represented by technology based companies, with a similar track record
to yourself, that are seeking to make inroads in the digital media markets.
On a final point you mentioned your desire to look at new markets both at home
and abroad. The biggest predicted growth markets for media will be Asia Pac,
estimated to grow by 12.9% (exc Japan), compared to a global average of
6.4%. Within Asia Pac China is heading for more traditional internet
connectivity whilst India favours mobile penetration. A potential route
could be to explore creating mobile adverts to help fund user expansion
within the Indian developing mobile market. We have seen operating models
such as Sugar Mama - 1 free minute of talk time for every minute of
advertising consumed and BLYK - the new advertising-funded mobile
