12/11/2012 08:07 GMT Founder Explains How SME Businesses Have Saved His Company During The Recession

George Osborne might be pleased to read this interview, as Tony Rafferty, chief executive of has just announced he's rehousing his business in the UK, driven largely by Osborne's drop in corporation tax.

And AIM-listed, a £20m business with 270 retail outlets in the UK and Europe, is a 10-year-old business which continues to grow, despite the recession hitting his high street rivals such as Prontaprint.

In this interview, he discusses how he developed the business from a physical subcontractor to an online innovator, and why the government needs to go further with its EIS scheme.

Were you always an entrepreneur at heart?

When I was 14, my peers were playing computer games, but I was writing them for the ‘BBC micro’. Then when I was at university I became involved in promoting bands, events and the like.

After failing my degree, promoting club nights became the mainstay of what I did. Club nights needed flyers and that’s where the business gravitated to – producing nightclub flyers for venues around the UK.

How did you secure funding for your first start up?

For a year in 1992 it was scrimping around with meager cash flow as I ran a business subcontracting all the printing for nightclub flyers. Then I borrowed £3,000 from my father, rented a small office – one PC, one desk and things moved on from there.

Did you then diversify into other areas?

Over the next couple of years turnover grew to £200,000, £600,000, £1.2 million, £2.3m and then 'we got lost in the long grass'. We were trying to access the SME market, promoting the service – effectively mail order.

But effectively accessing the SME market, which is considerably more fragmented market, proved a challenge. We also tried selling to resellers, other design agencies and the like but we found the supply chain inefficient and cumbersome.

Then in 1998 with a client, we came up with the idea of opening our own stores. It’s easy to open up a printing store in the city in which your factory is (Manchester in our case) but by opening the first store in Edinburgh, 220 miles away we could test the robustness and scalability of the formula.

At the heart of our success has been our in-house software development. When we had good ideas we put it into software, when we found a way to stop problems happening we put it into software. So to make the store network operate, we had to extend the software to work over a wide area and cope with the limited bandwidth of the early Internet – hence was born.

Then what happened?

In 2000 did its IPO to fund the expansion of the company’s network of printing stores.

The simple mantra was always compare ourselves to the market leader - achieved higher sales per store with lower start up costs.

The higher sales were because we centralised production and could deliver a full colour order – flyers, business cards, leaflets, brochures (for about the price of a single colour job).

The lower start-up costs related to the centralisation of production, in that small format printing presses were no longer required in the stores.

That worked, (and indeed the stores were then offered as franchises) but we never got the formula quite as far as we thought we could. Still, to date we’re returned £9m to share holders, have no debt, a strong balance sheet and are now engaged in delivering the next stage of the formula.

And that’s what I’m involved in for the majority of my time. The lower sub segment, small office/home office (Soho) is going online.

To compete in this online market over three years we’ve developed is what we believe the next generation of online ‘editors’ so that micro-clients can go online and simply do far better artwork than they could do to date with alternative systems.

How have you found the past five years have treated your business?

Up until 2008, all the key performance indicators, sales per outlet, number of outlets were heading to record levels and then boom went to bust overnight with the Lehman Brothers disaster. Like for like, we were down 20%.

It’s hardly surprising that 90% of what we supply is used by our clients to promote themselves. So, wrong though it is, when confidence drops, businesses batten down the hatches.

Over the last five years the small business owners have continued to spend their promotional budgets on the internet and new media. Printing is still an important promotional media, but we have to face facts that there are other options.

But, particularly for small businesses that sell to their local community, know who they want to target and want to do that in a very direct way, then flyers and leaflets still have their place. A client, who runs craft activities for children, said to me recently that promoting her business was 'facebook and flyers'.

What advice would you give to people who want to start their own business today? where should they look for funding?

There’s no easy answer to this, but the reality is there never has been. I remember talking at an entrepreneur conference eight years ago sharing a platform with one of the directors from one of the big banks and my advice, which was echoed by the director, was 'don’t expect the bank to be a risk taker'.

Clearly, we’ve learnt that the banks were risk takers, but not risk takers within the small business sector. Personal savings, friends and family are still the only route to getting a business to stage one. After that, there are other options.

I want the government to enhance the Enterprise Investment Scheme. In addition to the established tax breaks for investing in early stage businesses, if an additional tranche of say £10,000 could be invested by private investors in businesses with less than five staff, offset by an enhanced tax break, this would encourage more people across the UK to put their case into early stage businesses.

What do you consider to be your greatest success?

In cold, hard business terms it would be the AIM flotation in 2004, but genuinely it’s the great people that I’ve been able to work with over the years.

What was the biggest lesson you've learned?

Never stop innovating. If you do, and you blink your eyes, the market will have moved and you’ll be left behind.