Published in Megabuyte, November 2012. Original article here (£).
The Megabuyte Interview: Martin Leuw
It must be good to be Martin Leuw these days. Looking back, he has a decade of overseeing IRIS as its annual revenues grew from £9m to £120m in 2011, making it one of the UK’s biggest private software groups. This is a pretty decent CV to flaunt around as Leuw decides what he wants to do next. “My canvas is gradually being filled up,” he says as we are discussing his various projects, of which there are many – but it’s clear the businessman is excited by the relative freedom he is currently enjoying.
“I decided to leave IRIS because I wanted more variety,” says Leuw as I ask what it’s like to start afresh after such a long and involved task. We’re in a café in London’s West End, where Leuw likes to go because it’s good for work and has WiFi. He’s in a sharp suit, but his elegant cufflinks are contrasted by a sporty wrist watch and a saffron-coloured string bracelet. Leuw’s morning has taken him from his North London home, where he works in his garage office, to a meeting at the Prince’s Trust, and later he has a business lunch and a meeting in South London. One day a week he goes to Clearswift’s offices in Theale near Reading: “My life is very mobile, which is what I like.”
Growth and talent
Leuw joined Clearswift last November as a “significant minority” when Lyceum Capital backed the management’s buy-out. Leuw is acting as executive chairman until a new CEO is appointed, news on which should follow shortly. “What I’m looking for is a small number of businesses that I can invest in at the early stage, or mid-market companies like Clearswift. I’ve also invested in a start-up investment scheme as effectively an angel investor. I’m really looking for a mix of opportunities where I’m backing talent and putting money into areas with good growth potential,” says Leuw. While he can see himself as an active investor in several companies, Leuw’s aim is to be involved in about three companies, meaning there should be more board roles to come: “But most important is to make a difference, personally. I want to back talent, and I want to be in businesses I can be proud of and excited about.”
This potential is one Leuw sees in Clearswift, which he considers to have a significant opportunity to become a notable player in its particular slice of the security software market: “We’re in the contents inspection and data part of the market, focusing on helping organisations protect valuable IP such as confidential records and customer data from leaving the organisation, as well as providing protection from external threats,” says Leuw, describing the business model as one he knows well: “It’s a high growth business based on subscription, so about 80% of revenues comes through regular contracts.” Leuw was drawn to Clearswift, which generated £19m in revenues last year, because it already sells to Government, defence and other major organisations: “It’s a blue chip customer base you’d give your right arm for. But the business was nowhere near as differentiated as it could be, so a lot of the work is about pulling out those key areas and seeing where we can better meet market needs.”
But back to leaving IRIS. Leuw is only 50, so does the fact that he’s not looking to be CEO again mean there is a limit to how many times you want such an undertaking? After all, raising a family is rewarding, but maybe once is enough? Leuw laughs, before conceding it takes a lot out of you emotionally to grow a company from 100 to 1200 people. “The big challenge wasn’t moving from one business to another, but from one business to nothing. When I left IRIS I thought, ‘Now what do I do?’ It was like starting with a blank canvas, having a rough idea what you want your painting to look like but not having put in the details,” says Leuw, who is learning to paint and draw. “My aim is to spend, very roughly, a third of seven days on office and business activities, a third on charitable activities and philanthropy, and a third on leisure.” The latter is the purpose of Leuw’s upcoming trip to China, one of many things he’s always wanted to do but never had time for.
Focus on people
IRIS wasn’t the first company Leuw grew, though. Before arriving at the business software group in his mid-30s, he ran a small cartoon animation company which he turned around from being lossmaking. He then created and rapidly built Access24, an award-winning corporate venture within PPP Healthcare, before running venture capital-backed dot.com Medidesk. “The most important thing I learnt along the way was really about developing a vision and a strategy for a business. So if you’re a David in a market full of Goliaths, rather than going head-on, how can you find ways to differentiate? You want to be running rings around the giant, throwing stones rather than being squashed.”
Throughout our chat, Leuw keeps coming back to the importance of creating a strong management team. Leuw’s IRIS figured out it could gain market share through selling software on subscriptions way before Saas was a thing, not to mention how the IRIS experience has instilled in Leuw lessons about providing the sort of direct service that makes customers recommend you to others. But the end it’s all about who you surround yourself with:
“The big, big lesson for me was about people. If I look back, quite often when you’re growing a business it’s very easy to fall into the trap of taking on people who are good at the time but don’t have the capacity to grow. […] I’m a very strong advocate of developing people and teams, but at the senior level it has to be people with the capability to take the business forward,” says Leuw, who recently spoke at a conference where most of the 100 CEOs present conceded to having significant weaknesses within the senior management, but practically no one had plans for how to fix it.
But how does this happen, I ask; these CEOs aren’t oblivious to their problem? Leuw explains how this is a risk particularly with growing companies, as the team can be fine one day, but when growth changes things, this may no longer be the case. “A focus at IRIS was developing the team leaders and middle-managers along the way, so we had the strength throughout. Often when people get promoted, businesses don’t put in place the framework and support to help the person move into that new role.” Business culture is a key focus for Leuw, who sees this as crucial for building a sustainable business with happy customers. “If you’ve got highly motivated people coming into work who love what they’re doing, they will provide really good service to their customers.”
The private equity experience
IRIS underwent a number of changes in terms of backers while Leuw was at the helm, having first joined during the tenure of Lloyds TSB Development Capital. Hg Capital backed a buyout in 2004, then Hellman & Friedman came along in 2007 and majority-funded an IRIS enlarged by merger, before Hg Capital returned in 2011 and created two separate groups, IAS and CSH. When asked whether it is conducive to a company’s development to keep changing its backers like this, Leuw compares it to how a stockmarket-listed company won’t change the way it’s run just because someone buys or sells shares: “Quite often what people don’t realise is that generally speaking, the same thing should apply with a mid-market private equity house. […] One of the lessons I learnt when I was first running a small VC-led business is that you can’t let the institutional shareholders drive the strategy too hard. Their focus is quite often on exit, but you have to be careful not to let that get in the way. An exit strategy is very much a shareholder strategy; a business strategy needs to be driven by a chief executive, with help from a chairman, as I’m doing now.”
In the current climate of companies increasingly choosing private over public life, Leuw continues to be a fan of the private equity model because it allows for a longer-term perspective: “In the mid-market, you often need to make changes and invest for growth. The challenge of running a [smaller] public company is how your market doesn’t like short-term reductions in profit while you’re building up.” Clearswift is now undergoing significant changes in terms of management and product development: “It would be much harder to do that in a public company environment.”
The key to thriving as a privately-backed company is choosing carefully who your backers are, emphasises Leuw. “At IRIS we didn’t say, ‘Who is going to pay the most money?’. We focused on which investors would work well with us, and add the most value. Obviously price came into it, but we wanted to ensure we would have investors to take us on the next phase of our journey. It’s a bit like a dating agency. You’re meeting different investors and you’ve got to decide: Is the chemistry right? What kind of investor are they? Are they hands off? Hands on? Do they have sector experience? Would they add value? Have they got deeper pockets to provide follow-on investment?” Not to mention how they had behaved with previous companies, especially at the point of exit, adds Leuw, who’d collect numerous references to answer this question.
All about the challenge
Right now, Leuw is looking at a range of ventures he considers to be potentially disruptive to existing marketplaces. “I think this is a really exciting time. The economic climate is driving people to do things differently; they say the best time to start a business is during a recession because it drives change and evolution that much quicker. I’m coming across a lot of young [business] people with new ways of doing things.”
One of these young industrious people is Leuw’s 23 year old daughter, who is launching her own web-based business to the pride of her father. “Often what holds us back is our own fear of failure. In my 20s I kept meeting people who lacked some expertise, but they got a long way with confidence. Believing in yourself is one of the most important things. I have also learnt not to be shy about networking, and not to be scared of reaching out, because you’d be amazed by how many people are willing to help.”
Leuw has a business degree specialising in marketing from Manchester University, after gaining his first arbitrage lessons as a teenager when he sold first-edition books to West End specialists after having seen them cheaper in the suburbs. He then trained as a chartered accountant, before earning his first director role in his late 20s and running his first business at 31. A key influence was Leuw’s grandfather, an East End immigrant who built a series of ventures before going on to found a business school at a college at Oxford University: “He was very provocative, innovative and did things differently.”
Quick to credit mentors with helping him developing a mind for business and introducing him to people, part of the reason Leuw wants to step into an advisory role is a desire to do the same for others. But ultimately, Leuw likes to create things, and he likes a challenge: “If someone tells me I can’t do something, I take it as a red flag to do it. It’s quite interesting! When I started at IRIS they’d just done a £30m buyout, and I said to my shareholders: ‘I really think we should set a target for £100m when we come to exit.’ I was told, ‘Martin, please don’t say that publicly because it’s a big stretch.’ But I told the whole company. I always wanted the business to be the best rather than the biggest, but in terms of the size, that’s where I wanted to get. Any area I go into, I like to challenge and provoke and do things differently.”