What I’ve Learnt: Nick Melvin, managing director of delineo
“If a business, particularly a communications business, is built on just one person, it’s not sustainable or scalable in the long-term,” maintains Nick Melvin, the founder and MD of the 55-strong agency group delineo.
Melvin, 52, believes he had a very privileged childhood although he suggests this was due to love, attention and stimulation rather than material matters. In terms of cash, he says it was a bit of a hand-to-mouth upbringing.
His parents were young when they decided to emigrate to Canada, it didn’t work out and they duly returned.
His father was a golf pro and a golf pro’s existence in the 50s and 60s was quite different from now: the clubhouse, for example, was a place reserved for members... golf pros weren’t allowed to enter.
Melvin Jr recounts a tale of when Bob Hope was playing a round of golf at Formby accompanied by Melvin Sr. Afterwards, Hope wanted to buy them both lunch in the clubhouse, but club protocol wouldn’t allow the club pro to take lunch in the clubhouse. So Hope duly ordered up the club’s finest silver salver lunch and escorted the waiter out to the workshop where he and Melvin Sr enjoyed their feast privately.
A lasting distaste for elitism
“That, among other things, imbued me with a deep sense of distaste for elitism,” says Melvin.
He recalls his time at secondary school as being at an “uninspiring school within an uninspiring educational system in the UK”.
As soon as he could, he quit school to start working at Bradford market, helping out on the stalls, but was persuaded by his headmaster, who was friends of the family (and a keen golfer) to restart his education. He went on to secure a degree in business studies and marketing from Huddersfield Poly.
“I actually regretted doing a degree in hindsight. I'd always worked for my dad from the age of nine, cleaning golf clubs and selling golf equipment. My dad always wanted a bit more from me, and he always encouraged me to make more cash and do it for myself.”
But his four years at Poly, he feels, gradually knocked out the growing sense of entrepreneurialism that had been building up within him.
“All I really wanted to do was to make my fortune at the age of 19. But I came away from Huddersfield Poly feeling I couldn't work for myself anymore and had to enter the world of commercial employment. I'd somehow lost my spark at Poly.”
He got a marketing job with BT and then a more senior role at Siemens before joining P&P (Pete and Pam) Computers in Rossendale. He recalls the jobs at BT and Siemens proving much more enjoyable than he‘d envisaged but his real break came when David Southworth, then the newly-installed MD at P&P, recruited him as marketing director. The two of them have remained friends and business partners ever since.
He joined P&P in 1989, a year after the company had floated on the main market. He stayed there for nine years.
David Southworth, formerly a management consultant at Coopers & Lybrand, was the first of a new generation of professional managers at P&P. In contrast, BT and Siemens were very much typical corporate beasts, says Melvin, with lots of hierarchy and politics. And P&P proved to be a revelation as David Southworth began to introduce new and basic reporting structures and disciplines into what had been an unusually entrepreneurial company, set up by a former social worker with an eye on importing cut-price US computer consumables; Pete Fisher and his then wife Pam. “It was,” says Melvin, “fascinating and exciting.”
When he left, turnover had risen to £380m with sales across Europe and P&P had become a FTSE 500 company with 1,500 employees.
His time at P&P re-energised him and gradually his desire to run his own shop was reignited. With a track record that included BT and Siemens and now a high-profile job at P&P, he was constantly approached by head-hunters but he wasn’t interested in another corporate role.
Then in 1997, he decided to take the plunge and he spent a year outside work hours with a wealthy individual based in Jersey who had made his cash building and selling ad agencies in the 70s and 80s. The premise was that they would build a new agency funded by Melvin’s benefactor with the said benefactor owning 67% and Melvin the balance.
With everything ready, Melvin went to see his friend and boss David Southworth to hand his notice in. “I was determined not to let him talk me out of it, which I guessed he would try to because we were already such good friends at that stage.”
However, what Melvin had thought would be a brief but tense session turned instead into a more reflective meeting as “we talked long and hard”.
My start-up ambition was misconceived
Southworth volunteered an alternative scenario in which Melvin was doing it all entirely wrong and cited two key issues: Melvin’s plan was based on setting up a new agency from scratch, and it also meant that as a minority shareholder, he didn't have control – or enough skin in the game.
Southworth persuaded Melvin to stay one final year at P&P to complete the task at hand and in the meantime, Southworth would help Melvin to find an agency to buy with funding which Southworth would raise and he’d also be able to take the P&P business at the end of the year. And in terms of shareholding, Melvin would have 67% and Southworth 33%.
“He talked me out of my idea in an hour,” says Melvin, but “the subsequent conversation with my Jersey financier was painful, he was mightily pissed off with me.”
So he stayed for a year and they approached the Steve Rothwell Agency, an artwork studio in Chapel Street in Salford. Melvin knew Rothwell as P&P was already using his shop and a deal was duly struck without any due diligence.
The agreement was that Melvin and Southworth would pay £230k for SRA with the payment deferred for two years while Melvin spent two years at SRA. At the end of the period, assuming both parties were happy, the cash would be handed over and Steve would then decide if he wished to continue or leave.
Melvin was advised by others that some form of due diligence was required, but Southworth’s view was “that you could do all the dd in the world but actually me spending time in the business would be much more productive”.
At the end of 2000, they handed over the £230,000, the cash having been raised from Southworth and some bank debt. Unfortunately Rothwell died from cancer before the two years were up but the deal was honoured.
Over the two years that Melvin had been in the business, SRA had grown from six to 14 staff and had gone from loss-making to profitability, “a thriving little agency”, says Melvin, turning over £1.2m and making c£200k profit.
In 2004, with agency life productive and profitable, Melvin and Southworth felt that the challenge and perhaps ambition they had begun with, wasn’t as sharp as it should have been. They found a new shareholder, Philip McDowell, who bought 15% for £150,000. “This became our experimental period which lasted through to 2007,” says Melvin. A period which simply proved to be unsuccessful and deeply unsatisfying.
They bought an agency in Bolton and opened further offices in Leeds and Sheffield.
The model was to establish half a dozen agencies of between 10 to 20 staff, all entrepreneurially led by experienced and ambitious ad men with minority stakes. The half dozen agencies would be anchored by a central service and admin system in Manchester which handled finances and support.
“It was jointly conceived by David and I,” maintains Melvin. “David in particular felt the business model was not sustainable as the business relied too much on me. My response was that there were many more folk out there like me but I had been fortunate that David had backed me. So the idea was to try and back others and that's why we introduced the fresh capital.”
Folk with talent and drive do it for themselves
Unfortunately, Melvin et al gradually discovered that those folk who had talent and drive were actually doing it for themselves, “without our help and they didn't want or need us”.
Over the three-year period, the business went backwards, fast.
At one stage they had five micro-businesses, each employing around 15 staff and having previously enjoyed consistent buoyant profitability, losses began racking up reaching around £200k in 2006.
The business was unravelling and required drastic surgery if it was to survive.
The agencies in Sheffield and Leeds were closed, the first Bolton agency was sold and the core agency in Manchester cut right back.
The remedy also called for Melvin to go back to being the agency MD, earning fees rather than operating as head of a central services unit. “It was a painful period in 2006-7, even more so than in 2005 when we began to realise the concept wasn’t working, but at least there was optimism that the new, or as we then called it, the old business model would work.”
And it did as delineo as it was by then called, crawled back into profit.
Melvin remains highly appreciative that throughout this tumultuous period, his relationship with McDowell and Southworth remained strong. “When things are going well, they challenge me and when things are tough, they fully support me."
In 2007, with the business stable again and delineo scaled back to 15 staff, they asked themselves 'what next'?
Expansion hadn't worked but the issue remained that the business was not sustainable if it was just based on Nick Melvin. How could they ensure that they build a scalable, sustainable business?
Their conclusion was that big agencies worked because they were big. So the plans since 2007 have simply been to build a bigger agency.
A commercial director was hired in 2008, then a creative director, a client services director, a digital director and a planning director.
In the seven years since 2007, the business has tripled in size having gone back to 2000 levels in 2008.
An EIS scheme has been introduced and a formal management structure, all anchored around Winning Pitch's High Growth Programme.
The agency reported sales of £3,668,167 for the year to March 2014 with shareholder funds now standing at £514,553. A happier place for Melvin et al after a painful and instructive few years. In addition to the 45 staff employed at delineo, there are further nine staff at Portfolio, a sister agency based in Bolton.
So what's next?
“The exit I suppose is me going,” says Melvin. “I'm 52 but ideally I'd like to retain a financial stake and David and Philip can make their own decisions about whether they remain involved or not. By 55 I'd like to be a non-exec.
“But the last 15 years have taught me to always expect the unexpected. Profits have been suppressed because we invested in staff, a bold decision we decided on even as we entered the recession. We've come out of the downturn with more clients than we've ever had, and much more of our income is now derived from fees rather than commissions or mark-ups.”
Melvin is a big advocate of boards and independent non-execs. “You need conflict - that's when they're useful, you can't always get along and be co-operative. That was hard for me initially to accept, particularly at times when we were prospering and I couldn't understand why I was being challenged so much by my colleagues. But I've learnt that being challenged is absolutely vital.
“I also think that our industry, the communications industry, is one largely built on style but in reality in the long term it's the agencies with substance as well as style that will last longer and win in the end.”
Melvin’s hero figure is an unusual figure – Boxer from Animal Farm. “I have a lot of time for him,” he says, “the defiantly hard-working animal who works his arse off and believes in the system.”
But when Melvin is reminded that Boxer becomes pet food in a most cruel manner, he dismisses that ending, “it’s his work ethic I admire, not the way he dies”.
Other interviews in our What I’ve Learnt series include: