Hugh and Donald Smith

This short case study profiles father and son, Hugh and Donald Smith, and outlines the origins, growth and eventual demise of the family business, Albyn Combs. The company, founded in 1973, manufactured handmade, natural horn, hair combs for a niche consumer market and would later diversify its product range across the retail pharmaceutical industry. This case can be used to form the basis of debate around the nature of the entrepreneur,

and entrepreneurial behaviour. Hugh Smith Born in 1928, in Coatbridge, Lanarkshire, Hugh Smith’s early teenage years were marked by the loss of his father; killed in a work-related accident. This tragic event carried with it further unhappy consequences as his father did not hold life insurance1 and the family were left facing significant financial difficulties. With no income, living in a company house, it was a matter of months before the family were asked to move out of their well placed home and had no option other than moving to a slum. As the only man of the house, Hugh felt an “extremely strong responsibility”2 to help provide for his family. He contributed to the family income in whatever way he could, including decorating plates to sell as ornaments, until he was old enough to leave school and gain full time employment. On leaving school at 15, he served an engineering apprenticeship at Lustroid Limited, Coatbridge and paid for evening classes to help him gain further qualifications; an Ordinary National Certificate. His hard work and determination were rewarded, facilitating his promotion to Works Manager age 20.

In 1964, at the age of 36, Hugh was married with his own family, and a strong determination to provide a financially secure environment for his wife Chirsty, and sons Donald and Alex. When the company he was working for bought Aberdeen Comb Works in the North east of Scotland, Hugh was asked to move up North to run the newly acquired company. He eagerly grasped this opportunity. As Managing Director of the Aberdeen Comb Works, Hugh was running a company with considerable history. Founded in 1880, Aberdeen Comb Works bought together a number of cottage industries under one roof and was one of the first factories in Scotland. At its height, manufacturing hand-made, natural horn, hair combs the company processed more than 5 million buffalo horns and won awards for innovation in production.3 The drive and determination Hugh showed in achieving his career goals typified his work ethic. As an example, his son Donald identifies the occasion in 1967 when a fire destroyed the Aberdeen Comb Works factory and his Father managed the extraordinary feat of getting production up and running within 10 days. The fire was to prove a significant event in Hugh’s life. In discussing the options for rebuilding the factory, the Board of Aberdeen Comb Works decided to cease manufacture of hand-made combs and re-build their factory to cater for another growing source of revenue; making bottle tops for the whisky industry. Ironically, at around the same time, Aberdeen Comb Works was approached by GB Kent, a key consumer brand in the comb and brush industry, with a manufacturing contract offer. Given Aberdeen Comb Works new focus, the opportunity was rejected. This was fortuitous in relation to Hugh’s growing passion for traditional comb making in the North East and his ambitions to be “Master of his own Fate”2 Hugh persuaded GB Kent that he could deliver the

1 His father’s religious convictions prevented him from holding life insurance 2 Quote from a phone interview with Hugh Smith in November 2009 3 The manufacture of hand-made combs was an expensive and labour intensive process producing a comb with a superior, smooth finish to the injection moulded combs that are favoured today. Handmade combs are still made today, and whilst manufactured from plastic, produce a product of similar finish to the original horn combs.

contract independently and in 1973, despite some reluctance from his wife Chirsty, Hugh set up Albyn Combs as the vehicle to deliver this contract promise. Using a loan secured against his house, and the shares he owned in the McFarlane Group, which owned Aberdeen Comb Works, Hugh was able to rent a factory in Stonehaven, Aberdeenshire and buy equipment. Hugh laid the foundations of Albyn Combs whilst working his 6-month notice period with Aberdeen Comb Works, and by the time he left employment, Albyn Combs was up and running, manufacturing hand made combs for GB Kent. Throughout his career, Hugh had developed some firm ideas about what constituted effective management practice and Albyn Combs presented him with the opportunity to freely enact his ideas. Many of these ran contrary to common practice and management fashion of the time. For example, he did not understand why hourly staff had to ‘clock-in’ but monthly staff did not. When setting up Albyn Combs he determined that the practice would apply to everyone or no-one. Contrary to the conclusions of his peers that he would suffer attendance problems, he successfully managed his team of factory workers, none of whom had to clock-in. Similarly, at a time when small companies did not tend to consider the use of Non-Executive Business Advisors, Hugh, recognising his own weaknesses, and lack of formal education, appointed a Lawyer and Accountant onto the Board of Albyn. A Finance Director was to follow at a later date. Whilst Hugh regrets his relatively limited education, he believes there have been positive as well as negative outcomes: “If you don’t have a good formal education all you have is your wits. You can become quite streetwise and quite resourceful (more so than if you have been through the education system) but you don’t have the tools to do the things you want.”4 It was in 1977 that the company made the first of many strategic changes to their product range. OGEE, a large distributor to the salons had indicated to Hugh that they saw growth potential in the new Afro combs and Hugh took a “leap of faith”5 and invested his time and money creating a mould for an afro comb. With this, he was able to secure a contract with Boots and the huge success of this allowed the company to wind down their contract with GB Kent. From then until 1998 when Hugh’s son Donald took over the role of Managing Director, the company diversified its product range across the hair care industry and into other areas of the Retail Pharmaceutical Industry; sourcing or manufacturing a range of lice detection and prevention products and dental hygiene products. Their customers ranged from Boots and Superdrug to suppliers to the Airline Industry. Hugh’s son Donald describes his father as a visionary with a high tolerance for risk; someone who is able to see opportunities and is willing to take them. The story of the company’s diversification into head lice products would seem to reflect this. On reading an article in the Sunday Observer on the subject of Head lice, Hugh called the Doctor who had written the article and proposed they combine their expertise to make a unique range of lice detection and removal combs; combs that did not compromise on design to ease the task of manufacture. Hugh’s own reflections on entrepreneurial behaviour portray an accessible version of the entrepreneur where persistence and determination are key: “….finding solutions, going over, under or through obstacles, that’s entrepreneurial.” Now retired, Hugh identifies his key career motivation as the need to provide financial security for his family. This pursuit, ironically, called for significant sacrifice in terms of family time and Hugh is aware that the business often took priority over family. He was incredibly focused on the business; leaving early in the morning before his children left for school and coming home to eat before returning to the office.

4 Phone interview with Hugh Smith, November 2009 5 Interview with Donald Smith in October 2009

Donald Smith The impact of the business on family life was compounded by the loan secured on the family home. Hugh’s younger son, Donald, recalls how strained family life could be when the business faced difficult times. Donald feels these experiences of the family business shaped his attitude towards risk, making him risk averse. Donald does not appear to have been particularly drawn towards enterprise and entrepreneurship at an early age; he recalls viewing his Father’s entrepreneurial career path as “just what he did. I didn’t really think anything of it”.4 Perhaps as a result of this, as a boy, Donald had no particular plans to get involved in the family business, or indeed follow in his father’s footsteps as an engineer. At school Donald describes himself as a typical schoolboy, playing football morning, noon and night, with a Saturday job in his father’s factory “doing the jobs no-one else wanted to do”. He was not particularly inspired by his academic studies and at one point fully intended to leave early and pursue a career as a van driver. Hugh and Chirsty did not explicitly push their sons down a particular career path but it was apparent that Hugh in particular, was keen for them to persevere with academic qualifications and go to University. Hugh encouraged Donald to consider the realities of life on a van drivers wage versus life on a graduate wage. It seems that the “dirty, boring jobs”4 Donald was asked to do at his father’s factory were part of a master plan intended to instil an appreciation of the benefits of study and self-development! This seemed to be sufficient motivation for Donald and he remained at school to gain the Higher Qualifications that would help him gain a place at University. In 1978, he began an engineering degree at the Robert Gordon Institute of Technology (RGIT). He had been accepted for both engineering and business, his decision to choose engineering was prompted by a number of factors; his brother was already at University studying engineering, his father was an engineer and one of his hobbies was working on his motorbike. Donald found his University course very challenging and by the end of his first year had two papers to resit. In an effort to improve his chances, he sought the help of a neighbour, an engineering Professor from Aberdeen University, and took his two failed papers along for review. Donald describes the response from the Professor as life changing; on looking through the papers, the Professor exclaimed “You failed this?!” Despite his anger at such unhelpfulness, these comments spurred Donald on to work harder and he graduated with a 2:1. On graduation Donald started a job as a Design Engineer at Baker, the first graduate engineer Baker had ever hired in Aberdeen. Whilst he enjoyed the job, he was dissatisfied with the lack of promised training, in particular, a promised 3-month secondment to Houston. He had worked at Baker for two years when the Chairman of the family business, Albyn Plastics as it was then called, asked Donald to come and work for the company as Production Manager. Despite some protests from his mother, but with his father’s support, Donald joined Albyn Plastics in 1984. Donald’s formal role was Production Manager, ensuring that the product went out on time, though Donald describes his initial role as being little more than a glorified foreman. Initially, he had a team of 12 to manage and despite having no management experience Donald had no doubts about his ability to do the job. He puts this initial confidence down to the arrogance of youth, though it is apparent the job was not without its challenges. Donald feels he was viewed by many, both internally and externally, as little more than ‘the boss’s son’ and this prejudice made it harder for him to succeed in his own right. Indeed his father Hugh admits to higher expectations of Donald than other employees. There were no particular expectations on the part of father and son regarding Donald’s future within the company though it was clear that the company Chairman hoped to gain a long term commitment from Donald. He was afforded some excellent development opportunities and was encouraged to develop networks, joining business networks such as Junior Chamber and attending trade events. Donald was quite happy to engage with these activities and he still clearly

remembers his first business travel overseas, to a plastics convention in Dusseldorf, as a highlight of his early career. With hard work and commitment which, like his father, necessitated the sacrifice of a significant amount of family time, Donald’s role grew and evolved from Production Manager to Works Manager to Manufacturing Director, by which time Donald sat on the Company Board along with his Father and three other Board Members. By this time Donald’s role had grown to encompass the operations of the entire factory. As Manufacturing Director, Donald was responsible for production planning, purchasing, equipment, logistics and customer liaison. In liaising with customers Donald demonstrated a particular talent for sales and Hugh encouraged this, seeing Donald’s social skills and methodical nature as ideally suited to sales and business development. When Hugh retired in 1998, aged 70, Donald had the family’s support to take over as Managing Director, though there was a transition period during which Hugh continued to play a significant role within Albyn. Hugh did not retire completely until 2008. As Managing Director, Donald had some clear ideas regarding the company’s future though his ideas were, at times, in contrast to his Father’s, and he often felt he had little authority to execute his plans whilst his Father was so actively involved. Perhaps for this reason, Albyn changed little during the first four years that Donald ran the company. However, in 2002, external pressures forced Donald to execute the first major shift in the company’s strategy. The company was finding it increasingly difficult to compete on price with manufacturers in the Far East and began to reduce its production volume, buying in low cost products from the Far East. This trend continued until, in 2004, the decision was taken to outsource all Albyn’s manufacturing to a company in Ireland, with purchases from the Far East also growing significantly. With hindsight, Donald reflects that this move was made a few years too late, as his father had identified the potential threat from China in 1999 but the issue had never been discussed by the Board and no action was taken.6 At around the same time, Donald had proposed to the Board that the company split into two entities, Albyn Sales and Marketing, and Albyn Production. The Board did not approve Donald’s proposal but it was to prove prophetic. In 2004, as a result of moving production to Ireland Albyn had closed its factory and moved to the Aberdeen Science and Technology Park where it rebranded as Albyn Limited, focusing on sales and marketing in the Retail and Pharmaceutical Industries. Albyn Limited built up a reputation for itself as a product researcher, designer and procurement business for the hair care industry, which included growing existing product lines in the Head Lice Detection and Treatment Industry. These tumultuous events had a significant impact on the nature of Donald’s role as Managing Director. The physical move introduced geographical distance between the company and his fathers home reducing the time his father spent at work and the move out of manufacturing freed up a lot of management time. Donald was able to focus on the strategic direction and growth of Albyn. He felt strongly that the company should be market, rather than product, focused which meant a focus on the hair care industry, leveraging existing resources, including relationships with companies such as Boots and Superdrug. Donald feels strongly that “If you sell the customer one product and they like it, you need to be able to sell them something else.”7 It was this rationale that encouraged Donald to pursue opportunities in the supply of electrical hair care goods. Whilst Hugh was concerned about the risks involved in supplying electrical goods the company won a lucrative contract with Boots at the beginning of 2007 and Donald gained the Board’s agreement to progress with this.

6 Hugh had prepared a paper analyzing the potential threat and this was tabled for discussion by the Board. At the time, other matters took precedence and the Board ran out of time to discuss Hugh’s paper. 7 Interview with Donald Smith November 2009

Unfortunately, this opportunity was to prove the source of the first, in a series of unfortunate events. Shortly after the product was released, and despite the product having passed all industry and customer testing, the discovery of a design fault meant the entire product range had to be recalled, and without relevant insurance in place, this had to be done at Albyn’s expense. The product recall dominated 2008 and severely damaged Albyn’s cash flow. At the beginning of 2009, when one of Albyn’s biggest customers, Bayer, lost a significant contract with Wal-Mart, the consequences for Albyn Limited were devastating. They lost over £1 million in business with Bayer. As Donald puts it “we were unable to square the circle”8 and in May 2009, despite Donald’s best efforts to find a buyer for the company, Albyn Limited went into liquidation. The same month that Donald began working with the liquidator to maximise creditors’ returns, he set up the Health and Beauty Company to “design and supply health and beauty products that enhance customer's brand reputations. With particular expertise in the design, sourcing and supply of products in hair care…”9 Donald explains the speed with which he built up a new company by alluding to the need to protect the market share Albyn had established: “If I didn’t have a go at this I would have regretted it. There is a window when a company goes under….the opportunity to win business…if I didn’t leap through the window somebody else would.”10 Just a few months later in October 2009, with just £200 in start-up funds, Donald expanded into the consumer market, using his experience and expertise to create an entirely new Business to Consumer web site. BlitzLice11 provides head lice detection and treatment advice and related products to parents. Donald is pursuing various opportunities in relation to both the trade and consumer business, including linking up with the manufacturer that was one of Albyn’s biggest competitors in China and building up relationships with schools to reach parents with his BlitzLice offerings. Despite having set up a new business, and new consumer web site, in 2009 Donald does not see himself as a typical entrepreneur suggesting that “I will only take calculated risks...........the closest I get to entrepreneurship is finding new ways to sell things or new markets to sell them into.“10

Key Questions

1. What you have learned from this case study?

2. Apply major definitions of entrepreneurship to this case study with justification.

3. Three major themes of entrepreneurship: Innovation; opportunity recognition and risk-taking should be pointed out from the case study with examples.

4. Compare and contrast the key entrepreneurial characteristics of Hugh and

Donald Smith.

8 Quote from an article in the Press and Journal, 23/06/09 9 http://www.thehealthandbeautyco.com 10 Interview with Donald Smith December 2009 11 http://www.blitzlice.com