A NEW SMALL BUSINESS MODEL FOR THE POST-COVID WORLD

Entrepreneur Callum Laing is pioneering a new business model that aims to reconnect small firms and investors. Here he explains how it operates and why it is so appropriate for today’s business landscape

SMEs account for around half of the UK’s economic output. They deliver essential day to day services, such as housebuilding, catering and childcare, and they play a critical role in creating jobs and driving innovation. Yet so often they struggle to access the investment they need as they are considered too risky or illiquid for most investors.

I have been running businesses since the age of 12 when I started selling home-made ice-cream to local restaurants. I understand the entrepreneurial mindset and the frustrations of trying to find funding for growth. So when I first entered the world of investment, I was puzzled to find the biggest challenge was finding companies to invest in.

Why was it so hard to connect money that needed a home with the people who needed it? I was sure there must be a better way and set about looking for solutions. The outcome was the Agglomeration™ business model which aims to reconnect and create value for both sides.

The model allows SMEs to enjoy the benefits of being a listed business while retaining the autonomy and the agility that comes with being small. It also helps attract investors by reducing the risks associated with SME investment.

With the launch of MBH Corporation plc in November 2018, we put the model into practice.

Business owners who join the group simply swap the shares in their business for shares in MBH. They find they can win bigger contracts and grow more effectively as being part of a plc levels the playing field with the big corporates which are very often their main competitors.

It also means that intelligent investors can now support small businesses in a way that offers the upside of ‘scale-ups’ but with a more predictable approach.

One of the benefits of the Agglomeration model is that each time a company joins the group, it creates an immediate uplift in value, because listed businesses have higher valuations than private ones. For example, a private company with an EBITDA of £1m may be valued at £5m – five times earnings – but it may trade at 15 times earnings as part of a listed company. Each new arrival also increases earnings per share.

While the Agglomeration model does have some precedents, including Rockerfeller’s Standard Oil group in the 19th century, it is very different to traditional SME investment models. Unlike equity firms, we are not looking to ‘strip and flip’ our businesses or merge them all into one brand and centralise control. And in a downturn, we are not forced to sell companies to return funds to investors. We are the ultimate in patient owners!

The MBH Corporation now acts as a holding company for 10 small businesses in sectors including health, education and construction and new companies are joining regularly. All new businesses are established, debt-free, profitable and undergo strict due diligence.

In the current climate, our companies have been feeling the benefits of being part of a bigger group.  Running a business can be a lonely job but exchanging ideas with like-minded business owners can be a valuable support.

We didn’t develop the model with Covid-19 in mind and we couldn’t have foreseen the current events. But the crisis has placed much greater focus on the need for business resilience. With small firms set to play an even greater role in the future economy, we need new and more creative models to support them and allow investors to tap into their potential. MBH Corporation aims to be part of the solution.

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