Tharsus have recently been featured In HSBC’s winter 2014 Trade Radar publication – A double spread focused on innovative thinking and our route to market growth through the formation of our disruptive business model.
For many businesses an economic downturn can mean battening down the hatches and shifting into survival mode until prospects are brighter. Others will be more bullish and push for growth despite the challenging environment. North East Manufacturer Tharsus took a more radical approach when the industries it was supplying suffered heavily during the downturn. It undertook a significant shift in business model from a traditional ‘metal basher’ to an end-to-end designer, engineer and manufacturer. “The manufacturing industry has changed dramatically in the 50 years we’ve been in business,” says CEO Brian Palmer.
“Pressure from low cost rivals in the far east, coupled with the challenges of the recession meant we either had to reinvent the business or dramatically downscale. “
Reinvention was the chosen route and it has seen the business increase turnover fourfold to more than £11m since 2010.
Loosely described as a one-stop-shop for product development and manufacture, the strategy often sees the business take a written specification from a client through to supplying a finished product with the CE stamp ready to be shipped to the end customer.
“We had some very good people in the business and we built the model on the competencies that we had in house,” says Palmer. Those competencies came in large part from the automotive experience that is not surprisingly evident in a manufacturing company in the North East.
“If you think about a car and all the technology and systems involved then we can add value to any products that use those building blocks,” he adds.
In its new guise Tharsus typically produces larger electromechanical products with a business-to-business focus rather than business-to-consumer. Its markets range from industrial parts washing through to weed control and electric vehicle charging.
It is the company’s high level product engineering capability and its ability to provide an end-to-end service that really sets it apart and makes the model unique, says Palmer.
“With traditional business models, to take a product from specification through to final delivery, numerous different companies are involved, each focusing on their particular stage of the project.
“Because we design and manufacture, we’re interested in the long-term sales success of the product. The better design we create, the more our customers will sell and, in turn, the more they will need to ask us to make.
“So, we believe we’re more heavily aligned with our customers in terms of objectives and outcome.”
The model sounds straightforward and the benefits fairly obvious but such a major shift for a company is not easy and getting the message across to both staff and potential clients has been a challenge for Palmer and his team.
“When we first set off down this road, we struggled to explain exactly what we were trying to do with the business,” says Palmer.
“When there’s a big, wholesale change like this, leaders in the business can stand up and describe it but until they see in it action, people don’t really fully understand it.”
Getting the internal message across has been a gradual process with regular briefings and Q&A sessions to explain the direction the business is taking. Within individual teams Palmer says there is a healthy amount of debate about how they are going to evolve.
“The business model is only four and a half years’ old so we’re still very much an adolescent business,” explains Palmer.
“We’re still learning a lot which means there is a healthy amount of internal debate about how we do things, how we can improve and what the opportunities really are.”
Accessing those opportunities is a challenge in itself and the company’s unusual business model means it can struggle to access new customers.
“We have to market the company heavily to explain the concept and get more customers on board. That involves attending a lot of exhibitions and being very active in our chosen market sectors,” says Palmer.
“We actually need more competitors to enter the market to help raise the profile of this model so it becomes a normal way of developing products.”
Despite those challenges the company has enjoyed significant growth since it turned its business model around but it did take a while to build revenues in the early days, as Palmer explains.
“The really difficult aspect when you set out to build a new model is that you have an awful lot to learn and it’s also very expensive because you need to have, and develop, a capability that you’re not fully using commercially,” he says.
“You have to have a track record before you can properly charge for the service.”
That track record is now firmly in place but the nature of the business model means that revenue planning can be a challenge.
“Quite often it takes products a long time to get to market so we won’t see the real revenue from a manufacturing agreement until several years down the line,” says Palmer. “Depending on the success of the product, the revenue curve might not be quite as we’ve predicted but as we continue to add long term customers, we’re overlaying multiple curves, with some very successful products, so we’re growing year on year.”
At the heart of the Tharsus business model is the idea of collaborative advantage. A potential customer may have a product idea that it believes will give it competitive advantage in its own marketplace but won’t necessarily have the manufacturing or engineering resources to bring that idea
to fruition. That’s where Tharsus comes in.
“We hear a lot of about open innovation and collaboration and I believe that is the way forward,” says Palmer. “With our business model, IP owners don’t have to build up their own engineering team or even have a manufacturing capability, which is expensive and difficult to do, when you can find the right partner and collaborate with them to mutual advantage.”