Tomorrow, the newest company on the London Stock Exchange’s AIM market will be blur Group, a cloud-based B2B exchange platform and the epitome of the lean start-up.
There’s growing confidence that this could be a major British tech success story. The man behind the crowd sourcing marketplace – Philip Letts – will stand vindicated, following a fundraising of £4m, with the business valued at £20.1m.
His idea was to build a place where the world’s best creative and technical minds would come to pitch for projects posted by the globe’s biggest companies. Everything, from creating briefs through to project delivery and payment would run through the site.
As slow-burns go, the modest London and Dallas-based blur Group has positively smouldered its way to a successful UK tech IPO (initial public offering), watching overnight sensations catch light, blaze away then fizzle disappointingly when the big moment came.
Playing the long-game
The company has been seven years in the making, which in itself is not indecent, but was not officially launched for transactions until 2010 after spending five years in blissful hibernation, with a small army of pre-vetted creative service providers snuggling up within its confines using features as they were added.
The secret was not over-engineering, he says. “Lotus cars were designed to get to the finish line and not beyond. Once they got beyond the finish line, the wheels would come off; it would collapse, but wouldn’t matter. Everything you do, you do it fit for purpose for the next stage.” But that doesn’t represent the full story and, quite possibly, wrongly suggests the company existed in a state of lethargy.
On the contrary, Letts has played a long-game, while all about him were chasing the fast money. A 30-strong collection of patient angel investors, including ITV chairman Archie Norman, were Letts’ preference over the demands of venture capital firms intent on a timescale that spelt ‘boom’. There’s good reason for this. Letts has been around the block a few times already. Ever heard of Beenz.com?
Those intimately acquainted with the dotcom boom-to-bust period will recall the largesse of the lavishly funded websites of the late 1990s.
They will also recoil upon recollecting how many of those companies wastefully disappeared without trace. Beenz is remembered as one of them. And Letts was CEO of the rudely ambitious web currency, which was awarded in exchange for personal information and could then be used to purchase real goods from online merchants. The company raised around $90m and had glamorous names such as Apax, Oracle’s Larry Ellison, and Vivendi Universal as backers.
The inside story of Beenz.com
It was a company he joined as its Oxford-grad creators Charles Cohen and Neil Forrester struggled to get the concept off the ground in 1998. He turned his back on a job with a large American software company and signed-up “initially as a non-exec and potential investor” before taking the reins as CEO. Notably, he describes it as “modest” in comparison to its peer Amazon, which famously sustained a staggering $1.4bn fiscal loss in early 2001 before generating profit.
The distressing level of profligacy he witnessed after his departure, tainted him by association, in some eyes – despite the fact he left, post-crash, having raised another $40m and with Beenz valued at $340m. There were 6.5 million Beenz users at a time when the world’s web population stood at just 100 million, he says. When it was sold to Carlson Marketing Group a year after he departed, the company had revenues of $15m but didn’t have the cash to sustain itself.
Beenz was one of the few European start-ups to take the Silicon Valley approach of the time. As well as dual headquarters in London and New York and a split management team, Beenz had offices and localised websites in 12 major countries. It had its lawyers meet with European finance ministers to assure them the currency was virtual. It was shooting for the stars.
Upon its first anniversary and reaching a million users it hosted near-simultaneous parties around the world. At London’s The Lloyds Building body-painted models dispensed canapés and a full-scale cashless casino provided the late-night entertainment. Letts himself flew across the world, making use of different timezones, to act as host across continents.
“I could only be there for a few hours because the next day we had our New York party and then we did a San Francisco one – it was the anniversary of our launch and a celebration of us reaching a million users,” Letts recalls. There were parties in Sydney, Hong Kong and Paris too. “It was a bubble. I think what’s different now is the internet is like a mature cow whereas it wasn’t 15 years ago.”
Letts maintains that in today’s mobile world it would have worked. “It would have been a wonderful mobile application.” Before he departed he closed a deal with Mastercard which briefly saw Beenz card holders turning virtual cash into real money at the ATM machine. “It was a wild concept, but we did it! I was the first one to do it!”
It’s a source of frustration for Letts that what he achieved with a wild concept is dismissed as folly because of mismanagement after he departed. “I don’t think my success was acknowledged and that is a story that I have never told and I don’t particularly want to tell because I don’t particularly like it.
“I left it with $17m and 18 months later they managed to turn it into zero – mainly because they didn’t listen to the main thing I made the board agree to before I left, which was that they would employ an industry leader from the US. Unfortunately that didn’t happen.” The ordinary shareholders were left with nothing. You can sense Letts wants to say more, but leaves it there.
Silicon Valley turnaround
Post-Beenz, Letts beat stiff competition in Silicon Valley to walk through the doors at private equity-backed B2B bartering exchange Tradaq, which housed 200 developers. He had been personally courted by legendary Silicon Valley venture capitalist William ‘Bill’ Draper III.
It was a turnaround situation and Letts arrived with the mentality that the company could no longer invest so far ahead, something he’s employed to good effect at blur Group. “I walked in and they had made the decision before they’d launched that they were going to build something big and had 200 developers,” he recalls. “They attached about $20m to building that up over two years. The first thing I did was pull the plug on the entire thing, shut the place down and rebuilt it with 10 people.
“We achieved with probably half a million dollars what they’d spent 20 million on in nearly two years. I put 200 people out of work but interestingly I keep up with a lot of them and now they say ‘you did the right thing, I’m not sure anyone inside Silicon Valley would have been able to do that so I get why they hired you’.”
Within nine months Letts got the company to break-even. Just as the dotcom crash smashed confidence in online investment, 9/11 had a huge impact on Tradaq, which survived largely because of the austerity measures Letts had imposed. “The whole marketplace was just pulverised and Tradaq maintained. It merged with the other player and it carried on as a private business for five years with hardly any funding,” he says.
What his experiences ultimately inspired has been rolled into blur Group. Proving his business mettle again, he determinedly put foundations in place, resisting the temptation to generate the exposure a major investor and expensive marketing campaign would bring.
The lean start-up
“Having done two B2B exchanges before, I got to learn the dynamics that I thought weren’t good about it,” he says. Put simply, one group has to interact and buy from the other group. This leads to a chicken and egg scenario of needing a strong supply side at the same time as delivering sufficient demand for suppliers to buy into the value of the exchange.
“In a normal B2B if you are venture backed then you actually have no choice but to try and do both at the same time. No one has got the patience to do it.” Spurning venture capital was odd for Letts as he’d always worked closely with the investment community, but experience told him that “if you raise the money, you are on an exit path within the next two or three years” in which time you have to prove everything.
He ruled that it would be “technically, mathematically, and physically impossible” to get the fundamentals of the business right in that timeframe while having to spend double the money. “eBay are the exception to the rule and they will probably remain the exception to the marketplace rule for the rest of their lives.”
He solved the problem of keeping the supply side happy by using social computing. Six years ago, he says, the concept of building a social marketplace without a transaction element was alien on what purported to be an exchange. Instead, designers networked, shared work, projects and ideas with peers. “What’s the value of that?” Letts asks, before responding. “Well if you are an independent creative or small agency, it has great value for you to join a community. So that’s why they joined and hung around for two and a half years. We designed a B2B Facebook and that was one thing we learnt – that designers like hanging out with designers.”
And, adds Letts, quality creatives hang out with quality creatives, so blur encouraged its reviewed and approved experts to invite their peers, securing in excess of 20,000 experts, agencies and service provider firms. The community of communities now comprises designers, marketers, copywriters, artists, IT professionals, innovators, lawyers and accountants across more than 130 countries.
But, rather than open the discourse in a smorgasbord of a social media platform, Blur Group built in verticals for different service provider types. It has eight communities today – the legal and accounting platforms are in the formative stages – with plans to increase that number to between 12 and 16 to cover all the major types, Letts says. Noticeably, each platform has social aspects that distinguish it for its audience – some highly graphical and visual, others more functional like LinkedIn.
The roll-out of broadband since 2005 has helped enormously too, he says. And the steady ‘build it and they will come’ approach to community ensured the demand developed organically as word spread. “We said to ourselves that because we had got so good at social computing and built up such a community, the customers were going to have to find us. We weren’t going to spend a penny on marketing.”
It took two weeks for the first brief to be placed, rising to a couple a month, and then one a day. The likes of Disney, CNN, and the AA are among the many blue chip users. “It was just linear, which said to us there’s a market here because they’re finding us. They’re not being afraid to put a brief online, which had not been done before.”
The creative industry is notorious for briefing over lunch or coffee and rarely committing to anything formal. “So we said to ourselves ‘our system relies on these people who have never written briefs before’, but they did it!” This, says Letts, helped to refine one of the USPs for the business. blur Group created an intelligent brief writing widget that even the most fervent of face-to-face operatives adjusted to.
Today the average brief placed on the exchange is worth $11,000, up from $1,500 in 2010. Buyers pay 10% of the brief’s value for listing or a minimum of $375 to cover use of the platform’s software, access to its experts, and support. Additionally, blur collects project fees and passes on up to 80% to the expert supplier, taking a cut of the project’s margin for initiating, managing, and processing the work.
More than 1,000 briefs have now been submitted from all over the world worth a combined $15m. This has translated to half-year revenues of $1.5m – a healthy 75% like-for-like increase on 2011. While still making an EBITDA (earnings before interest depreciation and amortisation) loss, blur’s directors are confident the market opportunity is substantial.
Spend on advertising is forecasted to grow 10% to $600bn by 2014. Meanwhile the IT services market is expected to grow to $1bn by 2016. With blur expecting that large incumbent suppliers will retain 80% of the market share that 20% up for grabs – a total of $120bn of advertising work by 2014 and $200bn of IT services by 2016. No wonder investors were quick to subscribe to the AIM listing.
The IPO will help to fund growth, raise profile and pursue longer-term goals through technology, sales team, support and marketing investment. At some point next year Letts says the company will introduce a premium subscription-based model for buyers to access the entire platform. “But the core revenue for the business and the core earnings for the business is all about the transactions and we just give them great software.” The better the software, the higher the conversion rate.
“Our ambition has always been to build a UK global technology success story and the IPO is a key part in helping us to achieve that goal.” There will undoubtedly be challenges ahead. Well-funded competition may well emerge to usurp a pioneer. Shareholder demands may test lean principles. And the diversity agenda that Letts has resolutely pursued – where 60% of blur’s board has been female pre-float – may be harder to uphold. On the plus side, Letts has never been happier than in building blur. “I’ve had the most fun I’ve ever had.” Let's hope it continues.