David Gittus: Just say yes

Jeff and David Gittus took industry consolidation to another level last July when they sold their life’s work, Active Display Group, to major marketing agency STW for $42.5m. The brothers had spent 29 years patiently building a small family sign shop into Australia’s biggest retail display printer, and though it now turns over more than $80m a year, it never really lost many aspects of the small business culture it started with. The owners still walked around the company’s production facilities in suburban Melbourne greeting every worker by name and knowing at least a little about their lives, and their door was always open for anyone to come in and have a word or make a suggestion. The acquisition was considered a perfect fit as it gave Active access to a long list of agency clients, a market it had never really pursued before, and the potential for massive growth around the region.

The deal was unquestionably a once-in-a-lifetime opportunity, but how do you hand over the family business you have spent three decades of your life building to a big corporate multinational? The Gittus brothers did what they have always done – they just said yes and got on with making it work.

 

Saying yes

Even the most eager businessmen are used to saying no to clients – we don’t have the expertise, we don’t have the equipment, the turnaround is too short. On the contrary, David Gittus says one of Active’s key strategies for building the business had always been to say yes. Jeff started Active in 1985 when he was handed a distressed company making metal price boards for petrol stations. Jeff handled sales, and David, an accountant by trade, joined him in 1987 as the general manager running everything else. They started with small format screen printing, displays, and canvas for awnings, but it wasn’t long before that list began to grow. David says in the early days Active grew by “Jeff saying yes to everything and then coming back and saying ‘I just told these people we do this’ and then we would get into it. To this day, we still grow by saying yes to everything if it is vaguely related. First by paying someone else to do it, and then bringing it in-house if it works out,” he says. “Any door you open for someone else to get into your patch and do something, who knows what other work they will get from it. You are much better off saying yes, closing that door, and maintaining end-to-end service than to be working with a customer that is also working with someone else who is driving a wedge between you and your customer to get other work. We like to be invaluable to our clients where they don’t know how to do business without us.”

Gittus says this was probably part of their personalities, but also a defence mechanism to eliminate as much risk as possible. “A lot of it is about control, not leaving things in someone else’s hands,” he says. “We are the ones who say we will meet a client’s timeline so we need to have as much control over the process as possible, because the minute you are removed from that there is risk – even if you have a great supplier – something external might happen to them that means we let our client down. Because a lot of what we do is tied into campaigns with all sorts of other components, if we are late it is a nightmare for them.”

To mitigate this, Active made a habit of acquiring numerous suppliers it had become the biggest client of, often 60-70 per cent of the supplier’s turnover. That’s how it got into acrylic fabrication, vacuum forming, timber cabinet making, and most recently bought its cardboard supplier Boxlink last year. “The strategy has always been to expand into related areas and later look at ‘who is our biggest supplier and can we bring that in-house’,” he says. Most of these businesses were already ‘part of the furniture’ and keeping the management team and let them run production autonomously, means they got their experience and they are much happier not being bogged down in admin. “Small business is just drowning in administration and regulation and they just want to do what they started out doing,” he says.

 

Growing up

Active had grown to about $5m a year by 1995 when it became a key supplier to cigarette maker Phillip Morris about the time the government started heavily legislating against tobacco advertising restrictions. “That took away out-of-home, TV, radio, and magazine ads so they had this massive war chest of marketing money, some of which they streamed into ramping up point-of-sale,” Gittus says. “So they were just throwing orders at us because the legislation was changing every few months and varied by state so it was just a crazy time.” He says the cigarette company was probably spending $10m a year across their point-of-sale suppliers. This increased demand helped Active build its vacuum-forming, acrylic fabrication, industrial design and print capabilities and created a lot of design work. But it was never going to last forever. “We never took our eye off the fact that it would be for a good time not a long time, so we had to make sure when the legislation finally shut it down we did not have a business where 70 per cent of the revenue suddenly vapourised,” he says. The work ramped up over the first two to three years and then tapered off to zero by 2002-3. Every year it would shrink by about 10 per cent, but Active would get more clients to make up for it and maintain flat revenue. “While we did not get a lot of growth while cigarette marketing  spends were in decline, we patted ourselves on the back that at the end of it, we had a much better business with a diverse client base where no single customer was worth more than 5-10 per cent of sales,” he says.

The period was a significant milestone for Active and set it up for success in the 21st Century. “Phase one in the late 80’s was a small family business ticking along and, to a large extent, making it up as we went along, phase two was massive initial growth with Phillip Morris and diversification where we were hiring new people every week and ramping our capabilities and capacity up,” he says. “By 2003 it had become a full service point-of-sale firm with 100 staff with a $15m turnover.” The next year, Active acquired APG and 4-Colour Digital, both of which had owners who wanted out. These acquisitions more than doubled Active’s size overnight to $35m, and then to $45m within two years from cross-selling new services to old clients, and old services to new clients. Then in 2008 it bought 50 per cent of fabric printer AFI Branding, which gave even more cross-selling opportunities. The next year it opened a Hong Kong office to offer offshore production and get regional clients, and in 2010 bought Adval from Eye Corp. The Adval acquisition added to 30 per cent to its print output and took total staff to more than 400. “If you went back 10 years it was Active, Adval and APG as the big three, and by 2010 it was all under the same roof,” Gittus says.

It was then that Active could be said to have really started maturing as a business. Gittus says in the past five years it has shifted to marketing itself and what it can offer clients as an end-to-end provider, rather than marketing the product, which has led to better penetration into big clients. The biggest expansion in past three years is cabinet making and shop fitting, such as display home kitchens, as well as the signage for them. Gittus says these are growing areas of the business and give more opportunities for value-adding and higher margins. “We are trying to bridge the gap between just doing the graphic part and doing it all as a one-stop service,” he says. Printing is now just under half the business with everything else making up the rest.

At the same time, things were changing in top management. Jeff retired when STW bought the business, having been in more of a chairman role of networking and identifying acquisition targets, while David ran the day-to-day and executed the acquisitions at an operational and financial level. Over the past several years he had been stepping back from the day to day business and was working ‘on’ the industry as chairman of POPAI for the benefit of the point-of-sale sector – which benefitted  Active as the largest player. Two younger brothers have stepped up over time – Stuart is operations director and has been with the business for more than 20 years, starting from the production floor. In addition to managing the group’s operations footprint, he is working on a big project to streamline workflow and make it easier to manage the 5000 individual jobs Active produces each month – none of which is done twice as is the nature of retail display. “You don’t get the chance to say we will do it better next time, because it is already done so you need an agile system,” Gittus says. The other brother, Glenn, is plant development manager looking after maintenance, engineering, and troubleshooting on Active’s combined 37,000sqm of factory space.

Gittus says the people at Active are what makes it work. “We look after them and make sure they are properly rewarded for the effort, which is sometimes overtime for months on end. People are what make things happen, machines are just machines,” he says. “We regularly survey everyone on anything from the Christmas party to job satisfaction and production process, and we implement new ideas if we get consistent feedback on something.” Active also has a relatively flat management structure with only four layers from Gittus to a print operator. He says having a good team means he can focus on the big picture where necessary without it impacting on the business, like when he spent a year working on the STW deal. “My style is to give people the confidence to make decisions and the freedom to run their area independently, knowing I’ll be there if they need me,” he says. “Employees tend to stick around for many years, which is important as there isn’t much time to train new ones.”

 

The more things change…

There was always a chance that being bought out by a big multinational agency with no manufacturing background would irreparably change the family business, but Gittus says except in financial reporting, it has far exceeded his expectations on how little life has changed day-to-day, and Active staff now have access to a wealth of training and networking opportunities. “The danger was going from family owned where they know who they work for and why, to being owned by a remote holding company, but I don’t feel like there has been any big culture change and everyone is still working just as hard,” he says.

Gittus says STW is hands-off day-to-day and is still getting used to the metrics of the business. Active’s Sydney sales team has moved into the STW offices and are working on building relationships to get more business from the agency’s clients. “We are on track getting into the areas we want, getting access to clients and agencies to provide our services, and are working with their agencies on joint pitches and packages to give more value to clients,” he says. “There are three reasons why I think there is a lot of opportunity in there. Firstly, business that the agencies are already doing in our space, we should try to bring in-house – if we can do it, it makes sense for all the profit to remain in the group. Secondly, clients where an STW agency is only providing part of the required services for their client, we can try to get more of it for them. Thirdly, we are working on creating new business together. The market has become fragmented and a lot of work is going to specialist agencies so we are helping them get some of it back by being full service.”

After only six months Active and STW are helping each other out on pitches and Active is able to say yes more often to the range of creative and research work STW agencies provide and send it to them. “We are trying not to just be takers but givers as well,” he says. Together they are making progress filling in the gaps in STW’s offering to clients and are getting business that agencies would have previously directed elsewhere.

According to STW’s annual report, Active contributed $43.3m to STW’s revenue for the six months since STW acquired it on July 1 last year, a bright spot in an otherwise poor year for the agency. Gittus thinks work form STW is already adding 10 per cent more growth to the business every year than it would be generating independently. The extra work Active has been getting since the STW takeover is across the board in temporary and permanent point-of-sale, store fit-outs and in digital content delivery systems.

The company added a 5m Uvistar and bigger finishing kit late last year to boost the jobs sizes it could handle in vinyl banner work. This also allowed Active to bring work bigger than three metres back in house, which has made it even busier.

Gittus thinks any increase in capacity can be met by upgrading to more efficient technology or adding an extra shift rather than buying additional machines, but expects to make new hires as production grows. Active is cautious about new technology and is rarely a first mover, waiting for the business to be in a position to make the best use of it. To this end, he keeps up to date with what is in development to make sure the company is positioned to use the technology when it becomes available. At the same time they try to predict what the market will look like in years to come and what clients will want. “We need to factor in the future into what we are doing today so we do not wake up one day and realise we are missing out an opportunity because we don’t have that capability,” he says. This includes keeping up to date with emerging technology that is making applications like digital point-of-sale devices and augmented reality more popular, and to tie them into cross-medium campaigns. Gittus thinks being part of STW will make this easier to realise.

To stay ahead of trends towards imported print, Active uses its 10-staff sales and sourcing team in Hong Kong and mainland China to offer a blended offering of local and offshore production. Often the offshore printers Active uses are in remote areas and barely speak English so the production costs are lower while still being good quality. Gittus says having a local, Chinese-speaking team allows effective communication with these suppliers that would not be possible otherwise. He would like to sell more in Asia, but says as it is easy enough to outsource there using the company’s current model, there are no plans for Active to own its own production facilities in Asia. The growth strategy for Asia is to use the STW agencies in Southeast Asia to replicate the same full-service offering Active has in Australia with a regional rather than country-by-country approach. He sees Hong Kong, Singapore and global brands operating in Asia as the most promising targets.

 

Learning lessons

Gittus says one of the best decisions the company made was pushing through when the economy was bad and only tightening belts to a limited degree. “The best way to fight a shrinking market is to increase market share. After the GFC we had one of our biggest growth years in 2010-11 because we had gone after new business so when they were ready to spend again we had a bigger share of a recovering market,” he says. But the main thing he has learned in the past 30 years is that you need to keep reinventing yourself, even if that means selling your company. “You only get to sell your life’s work once but STW was the best fit we could have hoped for, so we wanted to do everything we could to make it work. Both sides immediately saw the enormous benefits, and there wasn’t another business like Active to buy,” he says. “I think the first six months have shown it was the right decision.”

This article has been updated from the print version with some clarifications and to better reflect the role of Jeff Gittus in building Active Display.

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