Imagine that you’ve just invested your life savings to buy out your firm from its parent company – and then the economy you operate in starts to implode. That’s what happened to Sam Smith after she and her colleagues struck out on their own, just two weeks before the start of the global financial crisis. After graduating from Bristol and qualifying as an accountant at KPMG, Smith (now 41) was headhunted by stockbrokers JM Finn in 1998 to set up a corporate brokerage division.
By working with tiny Ofex companies – ie, those too small to list on Aim (formerly the Alternative Investment Market) – she built up a roster of clients. However, by 2007 she felt that there was still a gap in the market for firms that could deliver better service for these clients after they had listed. So Smith gave her bosses a choice: to put in the resources needed to develop her division further, or spin it off as a separate firm.
They chose the second option, so Smith and her 28 members of staff invested their savings in buying half of the new firm. Two weeks later the new firm faced its first challenge, when the failure of Northern Rock (which ended up being taken into state ownership) heralded the start of the “credit crunch”.
This evolved over the next 15 months into a full-blown financial crisis. While Smith admits that running a company during some of the worst market conditions for decades was “scary”, she didn’t flinch. As other brokers cut back their services to small firms, traditionally seen as the least lucrative clients, finnCap expanded, taking its pick of the corporate brokers fired by larger institutions.
With the number of companies listed on Aim falling by over a third in the space of a few years, this strategy could have backfired badly, plunging the firm into bankruptcy. Instead, it paid huge dividends. From having had only 28 clients at its inception as an independent firm, finnCap is now the single largest Aim broker, with a turnover of £16m. Smith attributes this success to the fact that the employees had a stake in their success through their shareholdings. This “helped keep everyone motivated, and boosted morale, at a time when our competitors were really struggling”.
Smith has ambitions for further growth, but she says that the focus will remain on small-cap UK companies, rather than international expansion. Indeed, she thinks that “the government seems to recognise the importance of Aim to the wider British economy”.
For her part, Smith is a big supporter of putting back into the local community and is involved in several charities. She is especially enthusiastic about getting children to consider setting up their own business as a career option, and she is a big supporter of “Stepping into Business”, a scheme to encourage primary school children to learn about entrepreneurship and teamwork.
Two rules Smith lives by are to “trust your judgement” and “be positive”. As a result, she’s “tried not to regret” the decisions she’s taken. However, she concedes that she should have negotiated harder for herself and other employees to take a bigger stake in finnCap at the outset. Doing so would have cut the cost of buying out the remaining half from JM Finn, which they did in 2010.