‘You are a salaried prisoner’: Why Ian Whitworth rallies against private equity management

Ian Whitworth’s Undisruptable: Timeless business truths for thriving in a world of non-stop change is funny, smart and direct in its advice.

Whitworth says he wrote the book to correct some of the biggest misconceptions he had come across in business.

“When I started out in business, all the advice I got was wrong. You’ve got to get external investors! Grow your business! IPO is the ultimate goal! It turns out that all of that was wrong,” he says.

After a private equity firm took over a company he was working for, but had no ownership in, Whitworth said they destroyed it with a range of ideas that killed the company’s soul.

That was the catalyst for Whitworth and his business partner starting Scene Change, a high-end audiovisual events hire company that now pulls in $20 million in revenue per year.

Whitworth’s overarching strategy was to do the exact opposite of what the private equity firm would have done.

And it’s worked.

This exclusive extract covers two of the books recurring themes: disdain for private equity firms, and why getting paid needs to be the first priority for all businesses.

As Whitworth told me in an interview earlier this year: “If all you have is user numbers, you’re a gamer and not a business person. It’s all about getting people to pay what your work is worth.”

No credit for you, scumbag

Giving customers credit is like habitually using a hair dryer in the bath. You know how to hold a hair dryer. You’ve done it a thousand times. But you only have to drop it in the bath once. There is no business topic with such a galactic gap between what people know they should do versus their actual behaviour.

You can create a winning business over years of dedicated work and the whole lot can be brought down by one bad debt, just because you gave some scumbag credit. Because ‘they seemed trustworthy’. And then you’ll be a Deliveroo rider, if you can salvage ownership of a bicycle from the wreckage. 

When I talk to other business owners it’s the topic that reddens their angry glands like no other. Because a bad debt is, let’s face it, stealing from you. There’s so much wounded pride when you fall for the bait. The customer’s plausible manner, your desperation to plug the revenue gap in a slow month, the lure of ongoing work from a shiny new client, then realising you’ve paid them for the privilege of working for them. You got shaken down like a country teenager who just got off a Greyhound bus in the big city. 

Why should your business be any different? Giving people credit removes your only bargaining power: that they want something from you. After that, you’re powerless. If they decide not to pay you, what are you going to do? You’re going to consume a vast amount of your own valuable time, that’s what. Placing calls they won’t answer. Emails they ‘didn’t get’. Wasting all your time blows out the amount they’re stealing from you. When you’re angry, you’re less productive, so it gets even worse. 

The first law of credit is: the creditworthiness of a customer is inversely proportional to how aggressively they demand credit. When you hear ‘Don’t you know who I am?’, ‘I’ve been in this industry much longer than your business’, ‘All your competitors give me credit’ and that sort of puffed-up chat, you’re getting to know a future rogue debtor who will be even more of a dick when they’re avoiding your collection calls. 

Then it’s all ‘We can’t pay you until our customer pays us’. And you know their customer already has. They’ve spent the cash.

The usual source of bad debts is salespeople granting credit because they really wanted to make the sale. You can’t let that happen. In an SME the only person granting credit should be you. You can do all the credit checks you like but, like all references, they’re hardly going to put you on to someone who’ll say bad things. My friend with the asphalting business is addicted to the CreditorWatch website, which pings him updates of clients being taken to court and other interesting dirt. It is terrifying how often a client is plausible in person, then it turns out they are literally in liquidation, making their credit request a crime. Laws don’t seem to bother these people at all. 

Our general approach is: you get credit after trading with us reliably for a year. Or if we’ve known you personally for years and can vouch for your morality. It keeps the bad debts minimal. A lot of bad payers rely on credit timelines formed in ye olden days of commerce, when invoice processing involved months of literal rubber-stamping, then more weeks for the cheque to be ‘in the mail’. Call their bluff.

Now you can just get their credit card, PayPal or other payment details instantly. Convenient new payment systems launch every week. No corporate card? Make them put it on their personal card and they can handle the reimbursement battle. Your customer’s internal processes are not your problem. We now live in a golden era of getting paid on the spot. Claim what’s yours.

The buy-out: Meet your new overlords

There might be private equity outfits out there that are honourable and want to help you build a great business. Just none of the ones we, or any of our friends, have been involved with. Once you sign the deal, you are hostage to a gang of ex-private schoolboys. 

They heap scorn on you and your staff for having no high-level business skills, even though those staff created the growth that made you worth buying. In the eyes of the finance lads your people have antiquated skills, equivalent to blacksmithing or apothecary. They get persecuted until they leave, and are replaced with MBAs. 

Your new overlords will apply a terrifying range of charges and fees for their services that you don’t fully understand. They will extract their purchase money from the business on about day three and ratchet up your debt to the point that if you were a developing nation, Bono would take up your cause. 

All the time you used to spend looking after staff and clients you now spend filling out reports. Dozens per month. Writing reports is your new business model. Once a month, you have a board meeting where you get berated for your cautious financial projections because they want bigger, faster growth. They demand you add extra fees and charges, like a ‘service fee’ on every invoice, which will royally piss off your dedicated clients and drive them to your competitors. 

You are a salaried prisoner in your own business for a minimum of the three years they like to hold you captive. All for a payout of three to four times your annual earnings. You could have kept the business and in a few years you would have had the same amount of money you got for the sale. Plus you would have had zero meetings with the private equity boys. Why did you even take the call from these tapeworms? 

Now it’s time for the debt-financed acquisition spree, where they snap up similar businesses with all the discerning caution of pro footballers on Mad Monday. Companies that were once sworn enemies are bought and clumped together around the board table like your worst Christmas dinner ever.

Above is an extract from Ian Whitworth’s Undisruptable, published by Penguin Random House, with an RRP of $34.99. You can purchase the book here.