When Seattle-based Microsoft bought into ‘Sleepless in Suffolk’
The deal remains a rarity - an East of England acquisition by Microsoft. And at that, an acquisition of a software company headquartered in a town in Suffolk that the giant US Corporation had probably never heard of.
Amy and Ran Mokady built one of this region’s hottest software businesses, STNC Ltd in Bury St Edmunds.
Microsoft came calling in July 1999 – two years after STNC’s VC round – although the amount paid for the company has never been disclosed. STNC was only Microsoft’s second acquisition in the UK – four years after the first, and only its third in Europe. Some kudos for a company turned down by Barclays for a £3k loan when it started out!
Like most things life has thrown at her, co-founder Amy Weatherup – as she is now – took it all in stride. Then she appears to have had a firm grasp of a lot of things from an early age. As a 10-year-old, she learned to make soft toys in school and decided that she would make them when she was older – and sell them in her own shop.
“This was before the internet existed, of course; nowadays I would have planned to sell them online,” she adds.
One fundamental principle has remained inviolate: “I always viewed the divide between home and work as arbitrary and wanted to have my life which included all of it mixed in together. I couldn’t imagine anything worse than having to do work which I didn’t enjoy,” says Amy.
“When I was 14 I got my first job working in an old-people’s home. The owners were self-employed and had always worked from home in a variety of businesses – including high-precision manufacturing. I saw this as an ideal way of life.”
At around the same time, Anita Roddick came and talked to Amy’s school about her experiences in setting up The Body Shop – she was an old girl. “I still remember her talk in great detail. I was struck by how normal and matter-of-fact it all was and thought – if she can do it, then so can I,” Amy said.
Within eight years she had proved her point. “My first actual business was founded with my husband Ran Mokady, who had also always intended to work for himself. It was just a case of us waiting for the right opportunity. We always joked that we tried being married first to make sure we could survive running a business together.”
When the seeds of STNC were sown in 1993, a 22-year-old Amy was living in Cambridge and studying for a PhD in Fluid Mechanics at the Physiological Flow Studies Unit at Imperial College, London – “which I never completed since our startup took over too quickly.”
Ran was working on computer networking for the iconic Acorn. Amy recalls: “We were both early and avid users of email and newsgroups and saw computers as the obvious future of communications. Our initial goal was to make email available in the new market for portable computers (then called PDAs – Personal Digital Assistants), which were predicted to be the future of computing. From the start we developed software and licensed it to hardware manufacturers, sometimes for a fixed fee and wherever possible for a per unit royalty.
“When the internet exploded in 1995-6 we added web browsing products as a natural extension to our range. We transitioned easily into the emerging data phone market as mobile phones gained data capabilities and became more powerful, eventually working on the earliest smartphone models.
“As the market matured and consolidated – which happened very quickly – we also worked directly with the emerging smartphone operating system companies and platform providers, such as Symbian and TTPCom.”
STNC did not have a formal business plan initially because it was self-funded and both founders were in full-time employment – anything earned by the business was a bonus. In fact the founders used the proceeds of STNC’s first customer deal to pay for their first ever car.
“We started running formal budgets and monthly cashflow forecasts when we were thinking about taking on our first employee – in 1995 – and then put together a detailed business plan when we started looking for investment in 1997. We wrote it entirely ourselves and included the information that we thought would be most important. We had always written our own product specifications and sales & marketing information, so in many ways this was just an extension of those.”
STNC was funded entirely from sales for the first four years, by which time the company was eight people. “In our first year, we asked Barclays Bank for a £3,000 loan secured against outstanding customer invoices, which they refused, so we didn’t even use overdrafts or short-term loans,” Amy says.
“We raised £1 million of investment from 3i in 1997 and had grown further to 10 people by the time the investment round closed. This was a very large first round in the UK at that time.
“We had a strong customer base and pipeline of well-known UK and multi-national electronics companies so it was easy to be very credible. We also genuinely could have continued to run the business without any investment.
“The 3i cash was purely to develop new products and grow the business more rapidly so that we could keep up with the market as the internet ramped up around us. The internet exploded into public view in 1995-6, at which point every electronics company needed a web browser and email client on their products.
“Our customers were crucially important. Psion and then Symbian (co-founded by Psion) were repeat customers throughout the lifetime of our business. We also worked with Ericsson, Brother, Sony, Microsoft, TTPCom and many others.
“Most of our customer relationships were long-term investments which needed to build up over 2-3 years before they resulted in large contracts so we also fostered close relationships with Nokia, Samsung and Motorola, although they had not yet converted into paying customers by the time of our acquisition.
“We were fortunate that the UK was a leading developer of PDAs in the early 1990s (with Psion being an industry leader) and then for smartphones (Symbian, TTPCom, ARM, CSR). This meant that we could secure early customers close-to-home, and easily maintain strong relationships with them.”
Amy recalls that the process of scaling the business was often very stressful but swiftly adds: “Running a business always is if you take it seriously. We were constantly running internal forecasts to show when we would need to make people redundant if we didn’t get the customer deals we were working on – which is a very good way to keep you focused on getting deals closed.
“Our business was based on small numbers of large contracts, which made it very lumpy and very dependent on individual customer’s timescales. Fortunately we always managed to balance hiring and customer deals so that we never had to make anyone redundant. This was despite one customer who changed their mind on a deal after we faxed them the signed contract and after we had spent over three months negotiating that contract with their lawyers. Despite all the stresses it was one of the best experiences of my life.”
Recruiting also proved occasionally problematical. Amy confides: “We made a few poor hires, especially when we were under pressure to get people through the door quickly to get the work done.
“The important thing was to review new staff and deal with these sooner rather than later and to always take up references. We also very quickly introduced a difficult coding test for engineers to make sure that they could handle our type of embedded, highly-efficient software.
“The most difficult hiring challenge was expanding the senior management team beyond the two original founders. We managed this on the software development side, which was the vast majority of our staff, but didn’t manage it on the commercial side.
“This was not a problem at the stage that we exited but was something that we had identified as needing to address in the next year or so had we continued on as an independent company. Among the toughest challenges in building the company were the inherent uncertainties and being responsible for the livelihoods of all our staff and their families.
“Managing staff was stressful, especially when we made hiring mistakes and had to resolve the situation, but the most stressful part was keeping customers happy and balancing the cashflow on a day-to-day basis.”
Despite the strains and occasional struggles, Amy certainly had no regrets: “We never wondered why we had bothered. It was what we wanted to do and we believed in our vision of the future that we were helping to build – the vision of everyone having an internet-enabled device in their pocket.
“In the end it took until 2007 for our vision to hit the mass market, when the first iPhone launched, but we had been working towards it since we started the company.”
STNC actually scaled very successfully, doubling in size every year ahead of the acquisition by Microsoft. “By the time of the acquisition we were 55 people on two sites in Bury St. Edmunds and The Quorum in Cambridge and had a seven-figure turnover,” Amy says.
Networking and building solid contacts was part of STNC’s DNA. Amy says: “Networking was business as usual for us. We worked hard to build strong relationships with our customers based on trust, and this led to new business opportunities over time. We naturally networked with our customers and potential customers at industry events, and because we were part of our industry – which was very small in the early 1990s – we knew what was happening and who was doing what before things became public knowledge.
“Good examples of this were the development and launch of Windows CE and the formation of Symbian. We were not directly involved in the Cambridge cluster at the time, despite being located here, except through friendships and former colleagues.”
There has certainly been a life for Amy since the Microsoft takeover. She is an active business angel, having made multiple angel investments, and holds a number of board roles. Echoing her work-life ethic, these roles include advising several charities as well as two schools.
Just a sample of her paying-it-forward roles would leave some entrepreneurs gasping for breath. In 2002-3 she became co-founder and marketing director for Pogo Mobile Solutions,which designed and built a fully functional reference design from off-the-shelf components for an internet-enabled smartphone. This was four years before the first commercial iPhone was launched.
Amy says: “We made the mistake of getting too far ahead of the market and building the product that WE wanted – the product solved problems that we knew were there but which mobile operators and end users hadn’t identified yet.
“There was also no viable route-to-market for the product. We only later understood the background dynamics in the VC industry at the time where the US VCs basically put all their eggs in one basket to fund Danger Inc. for consumer smartphones (Danger was eventually acquired by Microsoft, and their founder set up the Android group at Google), and Blackberry for business smartphones, while the Europeans were still very cautious following the dot.com crash and weren’t funding much at all in 2003.
“In the end it took the financial and brand clout of Apple to make the smartphone market a mass-market (in 2007). The decision to wind up Pogo was probably the most difficult business decision I ever made.”
Since 2005 she has also been involved with Light Blue Optics in Cambridge. Amy worked for them for a year as VP of sales & marketing and helped the company secure its first investment round from 3i.
“LBO was working on new technologies for miniature projectors. I am still an investor and they now have paying customers, albeit in a completely different market area.”
Showing a keen eye for disruptive startups, Amy has also been involved with sound technology pioneer Audio Analytic since 2008. She says: “I first met the founder, Chris Mitchell, in 2008 and then joined as an investor and board member in 2010. The company has grown steadily since then and its first consumer products – for home automation – are on the shelves this summer.
“Audio Analytic licenses software sensors to hardware manufacturers to allow different types of sounds to be detected, for example glass breaking, babies crying – and a number of security applications.”
As well as pure business ventures, Amy evangelises across a much broader church. Since last year she has been involved in a different kind of startup – as a trustee of the much vaunted University of Cambridge Primary School. The school opens in September and Amy says the past year “has been a very busy one, going from a handful of Trustees with a vision and a paper plan all the way to a fully-staffed school with a custom-built building and children registered to start.”
And so, since 2006, to her own venture – the i-Teams programme at the University of Cambridge (www.iteamsonline.org) which supports the commercialisation of new technologies and trains post-graduate students in hands-on business development skills. “This year we launched a second programme, called Development i-Teams, which looks at taking new technologies into the developing world.”
A passionate gospeller for enterprise, Amy urges budding young entrepreneurs to follow their dream. “If you see an opportunity, then go for it,” she says. “The worst that can happen is you lose some money and the best is that you turn your vision of the future into reality.
“I would advise them to always value their staff – you are not the company, they are. Give everyone share options and be generous with them – it doesn’t cost you anything but rewards the people who put in the effort and it really does make people more loyal to you.
“Surround yourself with people who are better than you in some way; listen to them and let them do the things that they can do better than you can. This is much harder than it sounds!
“Also, listen to your customers – and to the market – and then combine what they say with your own gut feel about the future. But don’t try to get too far ahead of what the market will accept unless you have investors with very deep pockets.”
Amy believes the UK environment is fertile territory for building new companies although more could be done. She says: “More flexible office accommodation and more large-scale office developments where it is easy to grow a company while moving within a single site would help the scale-up stages a lot.
“We had four different offices in four different towns or villages from 1995-1999 to accommodate our growth and by 1999 when we were 55 people we had two separate sites 30 miles apart, which was not ideal but was all we could get at the time.”
She says the Cambridge Cluster needs a new cohort of serial entrepreneurs if more companies are to scale globally. And she believes more could be done within larger businesses to allow ambitious and entrepreneurial individuals to spin-off their own ventures – a strategy made flesh by Microsoft, for example.
She says: “I don’t think people’s ambitions are limited at all – every entrepreneur wants to change the world. The practicalities and the difficulty of doing so is what stops them, as well as the sheer hard work and effort that it takes.
“Eventually it becomes easier to exit and in many cases the financial rewards of an exit mean that they would be foolish not to take it. What is missing is the infrastructure of people around our entrepreneurs who have built large-scale businesses, to act as role-models and to show the right and wrong paths to take.
“We don’t have enough repeat entrepreneurs; a profitable exit is an excellent result for all concerned, especially if the founders can then use their knowledge and experience to start another company. We don’t have enough people leaving larger companies to found or join startups, which is the mechanism in the US that has fuelled many new and large-scale startups – think of the number of ex-Microsoft employees that went on to found their own ventures.
“Perhaps our larger companies don’t foster an internal entrepreneurial culture in the way that US companies often do, or perhaps they are just not large enough themselves yet. The point is that, realistically, Cambridge is too small to do it alone – we don’t have a large enough local talent pool of people who know about managing and growing companies and it is too hard to move people into the area.
“We also need to understand founding TEAMs better and not focus so much on the CEOs. Companies need 2-4 founders to be able to grow, and they all need to be fostered and developed as the company grows, not discarded along the way.”