Taking pain out of gain

Management: a graduate's hardest lesson was in keeping control. Now his electronics firm is heading for £1m

RICHARD COCKAYNE wasted no time in applying his degree in management sciences to the real world.

He had still to sit his finals at Warwick University when he set up a computer software business. It was the early 1980s and he and his partner were soon riding the boom in electronic games.

"Six months later we were making £10,000 a month," he recalls. "You get to the stage when you think that you're God's gift to business. Nothing could be further from the truth. We took our eye off the ball."

They were barged right off the ball in 1987, when Robert Maxwell's Mirrorsoft moved in to dispossess them. Mr Cockayne was prepared to learn from his mistakes. "We didn't have enough cash control. We hadn't taken a long enough perspective. We didn't concentrate hard enough on margins and our overheads were too high."

He was determined to get it right next time. Still licking his wounds, he spent months trawling around enterprise agencies, and scouring newspapers and magazines for a product with long-term growth potential. He came across an article on drug-free pain control through a "Tens machine" (transcutaneous electrical nerve stimulation), which transmits electronic impulses through electrodes. There were four manufacturers in the UK, all aiming at the medical end of the market.

Mr Cockayne saw its potential as a consumer product sold through mail order. And when his wife's troublesome back responded well to the electrode treatment, it fulfilled his first requirement for a new business: it was a good product.

In 1989 he set up Shire Design Electronics in part of a converted mill in the Warwickshire village of Little Shrewley. At the time, the total UK market in Tens machines was between 7,000 and 8,000. Today his company alone has 12,000 a year subcontracted to an electronics company in Coventry. Shire Design's turnover is expected to pass the £1m mark this year.

"I think we've developed as far as we can in the UK," he says. "It's difficult to increase our advertising (already running at £300,000 a year) without encountering the law of diminishing returns."

He has set up offices in France, Germany and Belgium. "Orders will be relayed back to a processing agency in this country. I want to cut out the distributors over there and just go for direct mail. I need to keep control."

This is important to him after his experience with the Maxwells. Gross profit margins, he feels, should be between 15 and 20 per cent. "Any more and you're offering too many opportunities to predatory competitors. Any less and you don't have enough for investment."

When turnover was still below £300,000, he spent £50,000 radically redesigning existing devices. It was a risk but it paid off. Shire's Tens is more compact than its competitors, which makes it easier to slide under clothing (and consequently lighter to send through the post).

So does he have a working knowledge of electronics? "No. But I know what I want and I'm prepared to ask silly questions of the experts. Sometimes you get the answers you want."

After Europe, he's planning assaults on the much tougher American and Japanese markets. "I've started learning about Japanese business culture," he says. "It may be that I'll have to make three or four visits there before I get a single order. But if you don't invest, you won't ever develop."

It seems unlikely that Mr Cockayne will take his eye off the ball again.