Growth through external investment

Ambitious growth plans with an injection of 'wisdom' as well as money.

There’s a kind of symbolism with Memset in being sited on the business park on an aerodrome; after fifteen years as a family-owned firm, founders Nick and Kate Craig-Wood are looking for the cloud hosting provider to really ‘take off’ through external investment.

In the beginning

Memset was founded by the brother and sister in 2002 with a view to building to sell in about five years. But, as Nick Craig-Wood explains: “At the beginning, the ambition was to conquer the world and then sell. My sister in particular was extremely ambitious. But as the business kept growing we discovered that there was more we could achieve so we decided to carry on.”

Looking to the future

Craig-Wood wants to double turnover in the next three years. It sounds ambitious but he says they have had faster rates of growth than that in the past. However, he is conscious that it carries the risk of running out of capital, hence the interest in external investment. Such funding, probably private equity, would enable shareholders to see some money; though the Craig-Woods own most of the business, some of the non-executive directors have a small percentage and several senior staff have share options.

But Craig-Wood wants an injection of “wisdom” as well as money. “It’s useful to have because we can’t know it all… much as we might think we do, which is typically an entrepreneur’s failing,” he admits self-deprecatingly. There’s some other adjustment which might be necessary. “Entrepreneurs aren’t necessarily very good at listening to advice either,” he points out.

Looking back

Had memset taken private equity earlier, the company would have been much bigger today, he believes. “We would now own a small slice of a much bigger pie. But when we started we wanted to keep control, build it and sell it. And it’s been great growing organically because, apart from the preference share owners, we have no one to answer to.”

He’s now comfortable with the lessening of control that will inevitably come with external investment. We have been through the ‘awkward transition’ of having to create a management team and delegate to them when the business got to about twenty-five staff (there are now fifty). That delegation in itself is a loss of control, he points out, admitting that he found it difficult to step back.

“I could have done that transition, introducing a layer of management, a bit better,” he says. “There were too many things going on and it was stressful. I could have given people more responsibility and reward earlier, essentially set them free, held them to account for their decisions, and told the staff that they should ‘speak with their manager boss about that’. I think it turned out alright in the end. But we had a couple of years of turbulence which could have been avoided.”

The vision

Craig-Wood handles the technical and innovation strategy while his sister manages business strategy and customer experience. When they started Memset – “in a garage, as is traditional,” recalls Craig-Wood – they fulfilled a long-held ambition to run a business together. They saw an opportunity for a service that fitted the gap between very cheap cloud hosting, costing a few pounds a month, and a dedicated server which significantly more.

The business has grown profitably right from the start by providing virtual private servers, adding firewall suites and later its own data centres, network and fibre and becoming a Microsoft partner. Memset were possibly the first in the UK to run Microsoft products on a ‘virtual’ basis.

Building customer relationships

Customers are free to ‘come and go’, says Craig-Wood. “We don’t lock them into long contracts, although those customers who have them have preferential rates. It means that customers can pay for a huge computing facility for just a month, or even just a day if they need to. Helpful hosting is our ethos. Doing what the customer actually needs rather than what the ideal for us would be, because a happy customer is a loyal customer. We understand governance issues and the risk profiles so the customer doesn’t choke on the complexity.”

Memset
Business planning

The ambition now is to provide something more. “Very reliable and affordable infrastructure hosting at scale is our core,” says Craig-Wood, “but it is a thin part of what a customer’s business needs to operate, so we are moving towards being a core IT company doing business networks; it’s more holistic. We realise we can’t do it all, but we could partner with other companies of our size to provide a really interesting solution.

“We have to recognise our limitations.

Previously we took the view that we build it ourselves or we don’t do it at all. But now I see an opportunity to provide a suite of services in partnership with other IT companies of our size and ethos.”

Innovation

The use of open source software – Memset’s infrastructure is based almost entirely on open source –  is a prime example of such collaboration at work. While Memset have ten developers, if they wanted to really scale their capabilities rapidly they would have access to thousands through OpenStack, an open source community.

Craig-Wood adds: “In think IT people realise it’s in their interests to collaborate on software. Just about every company of note has been contributing towards the development of OpenStack.  We contribute ideas and new bits of code that competitors can use; but it’s a bigger win for us because we get back a thousand experts-worth of input.

The challenges

One of the challenges is the “universal problem” of cyber security. Craig-Wood says that today, one of the roles of a business such as Memset is to be a risk aggregator, removing the risk to companies of running their own data centres and taking on the cyber security risk themselves as the hosting provider.  And that has resulted in Memset developing something for the SME to address a particular challenge they face.

“A smaller company which is storing medical data or providing services to government will know that it’s conceivable a crime gang might want to knock them out. But it probably doesn’t have the money or expertise to address it effectively,” Craig-Wood suggests. “Big security vendors are not used to the SME market; they will offer a product with all the bells and whistles which is beyond the customer’s comprehension to run. But we can simplify things and say that’s the bit you need, providing the necessary for compliance which they can run for 20% of the cost.”

Stepping back and looking at the bigger picture

“Our heads are just starting to poke above the parapet now; we are at the stage of our development where we can evaluate what we are or could be doing, determine what is it commercially viable, cull what isn’t and focus on what is.”

A more dynamic business

A consequence of that process is that Memset are looking at adding an element of consultancy (on a paid basis) to their role. “We already provide advice but I think it would be interesting to provide a level of more formal consultancy,” says Craig-Wood. “We could devote one day a week to it, which would enable our IT to get out of the echo chamber; if they are talking to customers on a regular basis, that will make our business more dynamic as well, and our own IT resource can then become revenue neutral or even a profit centre.

“The market is massive. More businesses are moving everything to the cloud because it’s cheaper, more efficient and secure than having their own data centres. There is still a big enough slice of it to go around. We just need to stay focused and better than the competition.”

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