What would it take for you willingly to hand control of your business to someone else? What if it were to the man who played a prominent part in the success of online phenomenon Friends Reunited and its eventual sale for £125m to ITV?
For every entrepreneur, their business is their baby, and Paul and Jennifer Nikkel were still students at Sheffield University when cashback site Quidco was born in 2005. Noting the rapid rise of online shopping, they realised the potential of a site which offers deals from online retailers, and then, rather the pocketing the commission, gives it back to the shoppers. By 2009 their instincts were proved correct, with Quidco having amassed an impressive 700,000 members.
At this time, Michael Murphy, previously COO at the Financial Times, had just come to the end of a three year earn out at Friends Reunited, the firm in which he completed a management buy-in in 2005 before growing it to 15 million members.
Looking to bring some experience the board, the Quidco entrepreneurs pitched their business to Murphy. “It had a lot of similarities with Friends Reunited,” he says. “They were both founder-run businesses, and like Friends Reunited, Quidco had a really good database and there’s a lot you can do with a good database.” Unsurprisingly, the man who introduced the subscription model at FT.com was also impressed by the subscription model already in place at Quidco. “Nowadays it’s very difficult to make money from an advert-only model,” he explains.
Resigning himself to a few more years off the golf course, Murphy agreed to return to the online start-up environment. His condition though was that he took the CEO and chairman position. “Once I heard what they had to say, and what it was all about, I went to them with a plan. I said I liked the idea but wasn’t sure about the way they were going about things.” Another management buy-in then saw him join the founders as a co-owner of the site.
A year later, and Quidco’s profits had doubled, and are set to double again this year. The business’ main revenue stream is based on £5 per year, per member. The first fiver ‘earned’ by users of the site is kept by Quidco; the remainder goes straight to the user, and on average each member receives £250 in a year, according to Murphy. The concept of ‘free money’ is an appealing one and makes it obvious why word of mouth recommendations are such an important driver of traffic.
Though Quidco’s proposition doesn’t have the same pleasingly voyeuristic or social attractions as Friends Reunited (launched before Facebook, Friends Reunited was on the cutting edge of a seismic shift in how people conduct relationships online that even the founders couldn’t have anticipated), it is still receiving between 70 and 100 articles in the press each month. “But we still need to make people aware of Quidco. We’re spending a lot of money on search engine optimisation and above the line advertising.” Social media is also crucial, with Facebook the second biggest driver of traffic.
Quidco’s real mission is to educate people about the cashback model in general, as it is by far the dominant player in that space. The founders’ savviness in spotting the opportunity quickly, and being able to capitalise on that, means that today it’s one and a half times the size of its nearest competitor, bigger than the top nine cashback sites combined, and gaining 40,000 new users each month.
Timing helped too – launched a business in 2005 was tough for many entrepreneurs, but those that took advantage consumers’ the increasing desire to save money couldn’t have launched at a better time.