Outsourcery: Piers Linney

How a mobile reseller business became £44m cloud computing firm Outsourcery


Piers Linney explains how he turned a mobile reseller business that “looked like an Argos catalogue” into £44m cloud computing firm Outsourcery.

“I never meet myself,” says Piers Linney, when I ask him about what’s inspired his work with the government-backed Reach programme, which aims to provide positive role models for black pupils. As a former City lawyer, investment banker, venture capitalist and now owner-manager, it’s understandable if the 39-year-old has few contemporaries, but his point is a fair one: “Some professions, like law and banking, have very high hurdles to get over. If kids don’t see people like themselves in those positions, they think, ‘why should I try’.

On the other hand, the joint chief executive of £44m communications and IT firm Outsourcery gives the impression that he’s learned to enjoy being different. Linney, who was the only black pupil at his comprehensive school, now boasts of wearing jeans to small business summits at Number 10 and, during the photo shoot when we meet at his West End offices, becomes the first Growing Business interviewee to offer to ride a mountain bike off a patio table.

 

The son of a Barbadian mother and a father who was one of the first working class boys to win a Cambridge scholarship, Linney grew up in the Lancashire town of Bacup. “Kids always look for differences and mine were pretty obvious,” he recalls. “But it wasn’t this dour upbringing with people throwing bricks at you.”

It took him “a while to focus” on exams, but he was ambitious. “I wanted to be a businessman but I didn’t know what it was,” he says. “The closest I could equate to it was being an accountant or something like that.”

He studied law and accounting at Manchester University and went on to land a job at City law firm SJ Berwin. In the first example of a recurring restlessness that punctuates Linney’s career, he quickly found himself “more interested in why people had done the deals than what it should look like in a contract after the event”. On qualification, he left law for investment banking, taking an M&A role at Barclays de Zoete Wedd (BZW). When it was acquired by Credit Suisse, a mismatch in management structure propelled Linney to a more senior position focused on cross-border M&A and leveraged buyouts. “I was one of those guys who’d work 16 hours straight and do one all-nighter a week. I missed out on a lot of family life but I loved it.”

In 2000 however, a nagging desire for a more tangible relationship with business than the ‘helicopter view’ banking delivered drove Linney to walk out of Credit Suisse, bonus in hand. He survived launching an online marketing business just before the dotcom crash, became the COO of a VC-backed dance music firm led by former Radio One controller Matthew Bannister and then, frustrated by a lack of equity, left in 2003 to launch a venture capital firm which became Tower Gate Capital.

The fund evolved into the UK’s first private placement agent, bringing the US concept of Private Investment in Public Equity (PIPE) funds to the UK, a method by which small listed firms can quickly raise further finance without going back to the market. “It’s like venture capital but you can get out by selling your shares,” he explains. While it became one of a handful of European specialists, Linney admits the concept proved “quite a hard sell” but insists a “big opportunity” to exploit it in the UK remains.

Along with Simon Newton, a colleague and friend he’d met on his first day at BZW, Linney kept his hand in on entrepreneurial ventures by investing in and mentoring start-ups, often converting fees to equity. In 2007 the pair heard that electronics retailer DSG International wanted to sell Genesis Communications, which provided mobile and data services to small businesses. DSG wanted to move quickly on the deal, so Linney and Newton, by then managing director for corporate finance at Dutch bank ING, structured a management buyout of Genesis in under three weeks, completing their own due diligence and beating a number of larger rivals to the punch.

“The opportunity we saw was that a FTSE 100 company wanted to sell a business it didn’t really understand. It had revenues, it had customers but it also had a very high cost base which we thought we could do something about.”

The firm, rebranded as Outsourcery, turned over £44m last year, up from £33m in 2008, but under Linney and Newton’s leadership, its story has been as much about restructuring and turnaround as growth.

Repositioning

Their initial plan was to keep their day jobs and leave the existing management team in place, but following an appraisal of the operation, they soon changed their minds.  Genesis was too committed to selling “commoditised products” – including pure mobile, fixed line and ADSL. “As it was, the business looked like an Argos catalogue. It was dying. We were never going to achieve our vision unless we took control.”

Their plan was to reposition it from being a mobile reseller to a diversified seller of ‘unified communications’, ultimately positioning it halfway between an IT firm and a traditional telecoms business.

“I was very interested in how we could do something new and interesting. We stopped selling all the traditional stuff apart from mobile and instead decided to focus on hosted IT and cloud computing. Software companies struggle to do telecoms, telecoms firms struggle with software. But they’re all heading in the same direction: converged or unified communications. Rather than coming up the side of the pyramid through a specialism, we decided to build the end result at the top and build backwards.”

Linney claims that by June, Outsourcery will have “the broadest and deepest software plus services product set in the UK”, which includes hosted IT, a full phone system via the internet including video links, smartphones, CRM, email and collaboration software, with the option to have all of the products customised, integrated and synchronized. Customers pay nothing for maintenance, online support, or crucially, upfront investment in an IT infrastructure.

Unlike many cloud computing firms, Outsourcery hosts its own data, a move Linney describes as bold and expensive. “We decided to own all of our own infrastructure so we can move quickly. It cost us £10m. That’s where the market’s going, we just got there faster.” Its two data centres, in Leicester and Manchester, are mirrored, which he claims offers a level of data security ‘on premise’ systems, or even most hosted options, can’t hope to rival: “If a meteorite hit one of our data centres, you’d never notice. Small businesses, and even most corporates, are unable to afford the kind of infrastructure we have.

“Other firms say they have back-up of all your data. That’s fine, but if they lose the application servers it’s like having a VCR without a TV. It could take a month to rebuild the applications. Simon and I took the decision to build this in such a way that we could offer our services to our friends in the City and look them in the eye with full confidence that their data is secure.”

Mobile still represents the bulk of the firm’s revenues, but the investment and restructuring is gradually changing the mix. Genesis had 285 employees, all mobile focused, and Outsourcery added a further 85 people when it acquired THUS Mobile from Cable&Wireless last year. Now, of a total headcount of 230, it has 120 people in its mobile business.

Security and control

Other than a handful of large utility companies, the majority of Outsourcery’s customers are small and medium-sized firms. The recession has made ‘the cloud’ and its associated cost savings an easier sell to these businesses, Linney says, but he admits there’s still a certain amount of mistrust in the concept. He’s a proponent of the well worn argument that the movement to the cloud is a similar process to the one that saw the adoption of national utility infrastructures.

In a blog for Reuters, he wrote: “When industry first started using electricity, each business had to build a generating plant. This model was replaced with large centralised power stations with electricity distributed using the National Grid network – providing customers with ‘on-demand’ power without any investment or maintenance costs and billing based on only what was used.”

The parallels are clear but electricity is a one-way flow, whereas engagement with the cloud requires the submission of intellectual property and operational business information; doesn’t that justify entrepreneurs’ concerns about security and control?

“It’s an objection we come across quite frequently,” he says. “But it’s an easy one to answer because it’s a complete fallacy. I’ve worked in start-ups and had a cleaner kick a cable out while we were away in business, which resulted in no access to email. I’ve had a corrupted drive and failed back-up tape so we lost all of our data. These kind of things happen to small businesses. We spent millions on our infrastructure; it’s our business to make sure your data is secure.”

It’s a moot point. Some still insist that data is more secure when managed internally, while the cloud’s evangelists suggest that providers need to maintain trust and as such invest in a far higher level of security than most businesses could afford. In any case, with a plan to win over doubters by offering incentives for “man in a van” IT technicians – often the biggest obstacle to Outsourcery winning new business – to become resellers, Linney expects revenues in hosting to double every 12 months for the next three years. “If the hosting business is roughly half the size of the mobile business, it makes as much money. The margins are higher. We’ve made the investment so now it’s a case of filling the empty vessel. The incremental cost of adding customers is quite small now.” Contrastingly, mobile has 10-15% margin pressure year-on-year, “which is just the nature of the industry.”

For all of Newton and Linney’s desire to quickly restructure and rebrand the business they acquired, they also recognised that the working culture they inherited needed a drastic shake-up. “No one really cared and it wasn’t going anywhere. There’s no point spending a lot of money on a new brand if you don’t back-fill it with the culture that reflects that. Otherwise, you’re just putting a new lick of paint on an old car.”

All employees are now shareholders through the Enterprise Management Incentive (EMI) programme and there are also company-wide bonus and commission schemes. Linney expects business improvement ideas to come from everywhere in the business. “We don’t say, ‘talk to your line manager’. There’s no hierarchy when it comes to good ideas. We’ve also instilled company values in everything we do. Everyone is clear on what the ambition is and that’s to be number one in the market.”

Social accounting

As well as the Reach programme, Linney sits on Lord Davies’ Small Business Forum and Black Entrepreneurs’ Roundtable. During a pre-election meeting at number 10, he told Gordon Brown and Peter Mandelson his views on the Small Business Credit Adjudicator announced in the last budget: “As a panacea, it’s not going to work. It might help in a small number of situations, but can’t be expected to forcibly adjust a lender’s overall risk appetite.”

Linney might be protective of the City (“a lot of middle managers in not particularly exciting businesses earn similar money to relatively senior bankers”) but there’s a tension in his political views between encouraging business growth and social equality. We meet before the election, and he won’t tell me who he’s planning to vote for, but he does say: “It’s interesting to balance your interest as somebody who owns a business and has capital wealth with the social good.

“I’m a believer in capitalism. But how can you structure capitalism so it factors in public costs without over-regulating? It’s a difficult balance. I haven’t got any answers, but I have ideas.” He’s even written a thesis on how to make the accounting system encompass all public and private costs; “social accounting rather than financial accounting,” as he puts it.

He also thinks the recent National Insurance Contributions (NICs) row – with the Tories pledging to axe Labour’s planned 1% rise, due in 2011 – smacked of political sophistry. “It’s a nice issue to have a bust up on. Looking at it as a separate issue is dangerous. You can’t just look at what changes they’re going to make to NICs and then make an assumption on how that’s going to affect business and the economy.”

Still, a benefit of standing out is that you can feel at home in all sorts of company: “Whoever’s sitting in Number 10, it doesn’t change my thoughts on how government should engage with business and people. I’d still like to be listened to.”

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