Matthew Riley: Daisy Group
The Daisy founder on a £200m flotation, taking on BT in the mid-market and working with Sir Philip Green
Daisy founder Matthew Riley on a £200m AIM flotation, taking on BT in the mid-market and being introduced to ‘another world’ by Sir Philip Green.
In 2004, three years after founding telecommunications reseller Daisy, Matthew Riley found himself wondering when all the effort he was pouring into the project would pay off. “My wife sat me down and said: ‘You do 14 hours a day, you work weekends, you go to sleep and wake up thinking about the business. When’s it going to end?'” he recalls.
Riley, from Barrowford, near Burnley, had given up a lucrative sales job at Deutsche Telekom to start a company that would cater to small firms disillusioned with the service being provided by incumbent giants, such as Cable and Wireless and BT. With much of the sector reeling in the wake of the dotcom crash, he spotted a timely opportunity to lure minnows onto the fledgling Daisy’s books, with heavy discounting and customer service tailored to meet their fixed-line, mobile, data and broadband requirements.
Despite impressive organic and acquisitive growth in the company’s first three years, when sales soared by 458% a year from £290,000 in 2002 to £9m in 2004, Riley still hadn’t taken a wage from Daisy when his wife confronted him. “As an entrepreneur, that’s when it starts to get really tricky,” he says. “You wonder when it’s going to happen. Finding the second wind to carry on and make it work is the toughest time.”
The 35-year-old says he was also struck by the loneliness of the position he’d worked so hard to reach. “I didn’t feel I had anyone to talk to. I couldn’t speak to the directors, because I didn’t want to spook them,” he explains. “It was a lonely time, but then it’s a lonely job. People don’t realise that when they see Dragons’ Den. It looks glamorous, but you don’t see the worrying at 3am when you’re wondering if you’ve got it wrong when people are relying on you to get it right.”
While Riley admits that he still feels isolated at the top of the company at times, and that the hours haven’t got much shorter, things have changed dramatically since he had his dark night of the soul five years ago. For starters, he’s got billionaire retail magnate Sir Philip Green on speed dial. “It’s very useful to have someone to bounce something off,” he says, with trademark understatement. Riley has managed to take some cash out of the company, too: £30m to be precise, following a landmark £200m AIM flotation in July.
Built for scale
Daisy has made its name through the remarkable speed of its growth and Riley’s insatiable hunger for scale, as he strives to give credence to his claim that the firm can “take on BT in the mid-market”.
At first glance, the Daisy story has the wing-and-a-prayer quality that makes its subsequent scale all the more remarkable. When Riley left Deutche Telekom in 2001, he started his new venture from a garage. If that conjures up images of Del Boy piling it high and selling it cheap, it was an incongruous setting for a company that was always built for scale. Ironically, it’s Riley’s cautious side that has helped the company cope with growing pains that would have finished lesser businesses.
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“One of the dangers I saw was just going off and getting loads of customers without putting the back office in place first,” Riley says. “It’s no good being this maverick who goes off hell bent if the company goes bust and you end up having a nervous breakdown.
“We incorporated the company in the February and didn’t start trading until the following September. I realised we needed to do the housekeeping first.”
That involved everything from establishing direct debit origination to developing a scalable billing platform, building relationships with carriers and even getting ISO 9001 accreditation. “As a sales guy, it’s easy to go out and start putting orders through,” says Riley. “But if you haven’t got the back office, the standards and the processes in place, it’s just going to fall off at the other end.”
The firm also achieved the Investors in People standard when it had just nine employees. “I’m a great believer in starting where you want to go,” Riley adds. “It wasn’t very expensive and you don’t have to put layers of cost into the business, but it gives you the right structure for when you want to go through that growth stage.”
With no desire to establish a network of its own (Daisy leases capacity from its giant rivals), the firm found that a combination of high-quality customer service and numerous minnows ripe for acquisition in a fragmented market allowed it to grow remarkably quickly and achieve attractive margins. It has gobbled up more than 20 resellers, and while the company often only acquires the customer base of ailing firms, it clearly has an aptitude for integration.
“The key is getting rid of incumbent systems and dropping them onto one platform,” Riley explains. “A recent acquisition had eight billing platforms and 12 providers. We put it onto one platform with two providers. When you see something you like, replicate it on your existing system. I’m a simple Northerner, so I say: ‘Make it easy for me.’ The second you start to have complexity, things don’t get done. There’s a beauty in simplicity.”
Rub of the Green
It was this candour that appealed to Sir Philip Green when Riley found himself pitching to him as one of the finalists in 2007’s Bank of Scotland Entrepreneur Challenge. “We had 20 minutes to pitch and another 20 for Q&As. I’d been practising this thing for weeks. You can imagine how nervous I was,” he says.
The (pre-crunch) prize was £5m in interest-free funding and mentoring time from Green, so a thorough examination was to be expected. But it was Riley’s ability to think on (or rather off) his feet that saw him win through. “When I walked in, Sir Philip told me to sit down. I said: ‘Sorry? I’ve got to do a presentation. Do you want me to sit down and deliver it?'”
Green responded: “No, you’re not doing it. You’ll have been practising that for weeks.”
Instead, the billionaire “ploughed straight into the numbers with the attention to detail of a typical retailer”, Riley recalls. “He absolutely grilled me.” So what won the day? “I like to think it was because I knew the business back-to-front,” Riley answers. “I also think they liked the model – we sit on a lot of cash and we’re not exposed at any time.”
Some of Riley’s competitors were offended that the presentation they’d prepared was made redundant so abruptly. “I just took it that he’s the boss,” says Riley. I suspect this may have helped, but perhaps it was Riley’s plans for the £5m that tipped the balance: “We used it for acquisitions,” he explains. “Some of the other contestants were saying: ‘We might do this, we might do that.’ We explained exactly what we wanted to buy.”
Riley won the competition in December 2007 and by February, the prospective deals were done. “Sir Philip has seen that if we say we’re going to do something, we bloody well do it,” says Riley. “He likes that straight talking.” While Green was only contracted to give the winner four days of mentoring, he took a shine to Riley. Two years on, he speaks to his protégé on a weekly basis and they’ve become friends.
At the start of our meeting, Riley recalls sitting in Green’s office just after Peter Jones’ already infamous Moneysupermarket.com advert first screened. “Sir Philip knows Peter quite well,” he explains, “so he rang him while I was there and said: ‘What are you doing poncing around on a shopping trolley?’ I get stick if I say the wrong thing in the press, too.”
Riley says he has benefited from watching the way Green runs Arcadia, from the “flat management structure, so he gets information quickly” to a management team consisting of “people who are better than you in certain specific areas”. The billionaire retailer has also inspired his young charge to improve his reporting. “We now get a clearer view on numbers and cash on a daily basis,” says Riley. He still describes being welcomed into Green’s circle and rubbing shoulders with Kate Moss with the wide-eyed enthusiasm of an outsider who can’t quite believe his luck, but July’s flotation of Daisy should confirm his ascension to the entrepreneurial A-list.
AIM in reverse
Riley’s payday – £30m in cash, and shares worth around £70m – came when Daisy agreed to reverse into technology entrepreneur Peter Dubens’ AIM-listed Freedom 4 Group, a telecoms firm previously known as Pipex. The enlarged group, which also includes Vialtus, Pipex’s former business telecoms arm, was renamed Daisy Group, with Riley as chief executive and Dubens as chairman.
Riley had already completed 23 deals when the offer came in, so he was no stranger to making tough calls. But once he’d decided to go ahead, he was grateful to be able to turn to Green, a veteran deal-maker, to help him navigate through the complexity.
“He was very influential in all aspects of how the deal was structured and making sure it ran smoothly,” says Riley. “He’s a record-breaking deal maker. If you’re going to take advice, get it from the best. I was speaking to him every other day through the build up to the deal.”
Green says he strongly advised Riley to ensure the deal had a significant cash component: “You’re not in control of your own destiny once you’ve gone public. You need a sum of money to stop you getting seller’s remorse. We needed a deal that gave the business the capability to get to two or three times the size but at the same time gave Matt financial stability. This deal probably did both.”
Despite the depressed state of AIM giving Riley “reservations” about the flotation, he said the flexibility it gives to make acquisitions meant it was “the right market to go into”. The group raised £83m through a placing at 80p a share, with a market capitalisation of £200m at placing price. The listing gave the firm an acquisitions war chest of £50m and combined revenues of more than £100m.
Daisy Group has bought five companies in the past quarter, and Riley says a strategy of “focused consolidation” will continue once the latest assets, including data specialist Vialtus, have been fully integrated. He adds that the firm is “looking at a number of things right now”.
“There are still more than 500 resellers in the UK, so I could do three deals a month for the next five years and still not get anywhere near that. There’s a massive opportunity for us,” he says. “If we do get to a stage where we slow down with acquisitions, perhaps we may even look to move up to the main market.” Riley’s also confident of a good aftermarket for the company’s shares, adding that the firm “got a resounding yes” from institutional investors. “The take up of the stock was very good. We were oversubscribed,” he says.
If Riley was looking for advice on becoming a public company chief executive, he probably couldn’t turn to his primary mentor. Green’s only experience of public life was a bruising episode in the early 1990s at discount retailer Amber Day. It resulted in four years of arguments with the City and internal disputes that ended in his resignation.
Riley says he “hasn’t had much exposure” to the public side of the role, but plans to strengthen his senior management team to provide more support. He’ll get his first taste of it in December, when Daisy announces its interim results. “The biggest thing for me is to run the business, that’s what I need to focus on, while updating the City with the help of Peter Dubens and non-execs,” he says. “I should slowly ease my way into it.”
He admits to feeling extra pressure now his 100% stake has become a 24% share in an enlarged public group. “Now we have institutional shareholders, and individuals and friends have bought shares, to be honest, I find it hard” he says. “Before, if I screwed up, it was my money. It has been helpful having Peter to coach me. He said it’s good to feel that responsibility, because I’ll make it work.”
Daisy justifiably prides itself on its customer service levels, with a UK-based team achieving an average call-waiting time of three seconds and answering 95% of calls in under a minute. Riley says the company “acts like a small business”, adapting its approach to each of its customers. “You can’t expect BT to do that, it’s got a million small-business customers.”
The Nelson, Lancashire-based firm might be a long way off that kind of scale, but it is fast becoming a relatively hefty business in its own right. Research group Telecom Equity is predicting annualised revenues of £231m and net profits of £16m for the company, once new acquisitions are accounted for. It also has around 1,000 employees. If BT can’t match Daisy’s customer service levels because the latter is a smaller business, doesn’t the firm’s rapidly increasing size threaten its unique selling point?
“We’ve got to create enough acorns,” Riley offers. “We might get bigger, but let’s split the teams up, so they keep the mindset. Even if my product team grows by 10, I know the culture and ethos is ingrained.”
Riley also says that the care he’s taken to ensure Daisy’s systems are simple and built for scale keeps the firm fleet-of-foot. “Different operating systems that have been moved as you’ve gone along mean legacy issues,” he says. “If BT had to launch a new product across the UK on the amount of platforms it has got, and with all its divisions, that’s a logistical nightmare and one I don’t want.”
Inevitably, Riley has felt some of the strains of Daisy’s lightning-fast growth. He concedes that he made the classic mistake of over-promoting. “People reach glass ceilings. They get to a natural stage and you’re still growing,” he says. “You want to take them with you, but sometimes you can’t.” Where that did happen in Daisy, Riley says in most cases the firm had a good enough relationship with the employee to “move them back to what they were doing, and they’re great at it”.
The best thing about the recent AIM flotation, Riley says, was seeing an employee who has risen through the Daisy ranks get some cash through his participation in an EMI scheme. “He’d started at 18, has gone through the business and now has a critical role in the group,” Riley explains. “I’ve got a picture of him holding the keys to a big new house with his girlfriend and babies. That was better than pocketing the money myself.”
Having enjoyed such a close relationship with his staff, Riley feels a certain remoteness now that it’s impossible to know each of his employees personally. However, he passes his own hands-on approach down to his senior managers. “If you’re a director of part of the business with 100 people under you, I expect you to know everything about them,” he says.
With the necessary systems in place and further acquisition targets identified, the company’s mercurial growth shows no signs of abating. So is an even bigger exit on the cards? “If I exited the company, I’d have six months off, get bored very quickly and then think of something else. I’m not ready for retiring and playing golf,” says Riley. “I’ve got no imminent plans. Daisy is a very, very big job, but if we get this right the payday will be fantastic. It’s nose to the grindstone and keep going really.”
In his own words
On his school days
“I couldn’t stand senior school, so I was the typical kid burning the tie on the last day. I think the teachers were pleased to get rid of me”
On his first enterprise
“When I was a kid and it snowed, I’d get friends digging out people’s drives. They’d give you some sweets and perhaps 50p. I’d give the guys the sweets and I’d keep the money”
On his career at Deutsche Telekom
“The politics frustrated me. I’ve never been a politician within a business. I hate all that backstabbing. Also, you were never asked to challenge the norm. You weren’t rewarded for doing anything that was out of the normal boundaries, even if it meant you made a lot more money”
On integrating acquisitions
“When we buy a business, I make a point of getting around it and making a cup of tea. You’ll find out more about a business over a cup of tea than you will by having a meeting”
On Sir Philip Green
“He has never taken a penny out of helping me. I think he gets a kick out of passing his experience on. He’s got an incredible enthusiasm for business, and that’s infectious”
On the £30m cash windfall he took from July’s AIM flotation
“I’ve not done anything with it. I’ve put it away somewhere safe on the advice of Mr Green. But that’s not the exciting part. I’ve still got a huge chunk of a business that can be a real threat to BT in the mid-market”
Green on Riley
Arcadia-billionaire Philip Green explains why Matthew Riley won the Entrepreneur Challenge, how he helped him put his £200m AIM deal together and Daisy’s prospects.
“It was an easy business to understand. On the judging day, he showed us a chart with all the big whales on it, the likes of BT and Deutsche Telecom, all the big people who have capability and capacity in an area where billions have been thrown at it, probably with pretty crap returns. I could see how someone with entrepreneurial skills would be able to fish in that pool. He seemed confident and he knew his business which appealed to me. I liked him, he’s a nice personality, he has a charm about him. That was the starting point.
“We struck up a good relationship. He felt comfortable with me, he knew I could open doors that would take him a long time to open, he knew I didn’t want anything from him. I was happy to fight a few battles for him and develop his business, which I did. I’ve taught him to present things in a simple way, what the real things you need to understand about your business are and not to complicate things with corporate speak. Keep it simple. He’s a good learner.
“With the flotation, we discussed very early on what the game plan was. I said, ‘you might not get any more money [after the flotation]. You’re not in control of your own destiny. It needs to be a sum of money to stop you getting seller’s remorse which is what happens afterwards. We needed a deal that gave the business the capability to get the business to two or three times the size but at the same time gave him the financial stability so it’s a win-win. This deal probably did both.
“Telecommunications is not my sector. It’s a fast-expanding, fast-moving world. Matt’s sharp enough to be in the right place at the right time. He’ll develop his business as the market develops, which is what Daisy depends upon. It helps that people like him. He’ll be at the forefront of the telecoms market as it develops.”