Building an evergreen business

Podcast transcription - 23rd october

Alan Cowley:                    Hello you. I'm your host, Alan Cowley, and this week I'm excited to be speaking with Ronan Perceval. Ronan is the CEO and founder of Phorest, a business which has over 5,000 spas and salons as customers throughout Ireland, the UK, Finland, Germany, Australia, and the U.S. Ronan and his co-founder have built the business over the last 15 years, becoming a global software provider that's focused on helping in spas and salons grow.

                                           Now Ronan, Phorest isn't your first entrepreneurial venture. So before we go on to hearing all about Phorest, let's start with what led you to start your own business?

Ronan Perceval:              So, I've always been trying to start companies since I was a really young age. Even, I started things when I was in primary school and secondary school, but it was really in university where I met a couple of like-minded people. One guy was called Dylan Collins, another guy called Sean Blanchfield, and we started two businesses in college.

                                           One of them was a text message company. So this would've been back in around 2000 when text messages first started. And we collected a load of phone numbers from students in Trinity College, where we were, and basically allowed pubs and nightclubs around Trinity to advertise drink promotions and things like that to those people. And it worked really well, and we made a few quid from it.

                                           That gave us a bit of confidence to try something a bit bigger. And Sean was doing a PhD at the time in distributed systems, basically peer to peer networking. Things like Skype were based off that technology and Kizza. And some of the music download sites back then were based off that technology, and we decided to apply it to computer games, so to allow computer games to be played online on a peer to peer basis.

                                           So, I don't know if I'm getting too technical here, but basically, traditionally, computer games, and they still are now, but they would've been played through servers. So if you wanted to play online on your desktop PC, or it would be on your Xbox now, whatever you're connecting to, a server which is hosting the game. Or people are playing Fortnite; that's being hosted somewhere, right, on a server.

                                           So, our idea was that those costs were massive at the time, and they were impeding the growth of online gaming. So our idea was to allow the computers themselves to host the game so that you wouldn't need servers, and that would dramatically reduce the cost of providing a game online. So that was the idea.

                                           And so, we started a company called Demonware back in 2002.bAnd when we left college, we raised a seed round of about 700,000, which at the time was really, almost unheard of. There's not many tech companies raising seed rounds with a bunch of 23 year olds. It became a lot more common 10 years later.

                                           It turned out that idea didn't really work because computers weren't powerful enough, and the network wasn't powerful enough to be able to allow computer games to be hosted that way. But it led to another idea which took off and Demonware eventually was acquired by Activision in 2007 for about 20 million.

Alan Cowley:                    So, are computers able to cope with the peer to peer now?

Ronan Perceval:              Well, what's happened is the technology just changed. So servers and hosting games like that, the cost of that has just dramatically fallen. So with the rise of things like Amazon, AWS, Azure and all these kinds of things, the cost of computing power on the hosting server, it's minuscule on a per-unit basis compared to what it would have been then. And also the network is much stronger.

                                           So, you don't need to do it. It's fairly cheap. I mean, I'm not saying it's cheap. If you're the guys that are running Fortnite, and you've got two million concurrently playing, obviously, the costs are significant on that. But technology changed. It didn't matter.

                                           But what we did develop at the time, and I said the guys really developed rather than me because I'd left at this stage, but they developed a matchmaking service, which is basically what computer games used to ... would connect in when people all load into a ... You log onto a computer game-

Alan Cowley:                    To find someone to play, basically.

Ronan Perceval:              Yeah, exactly, find somebody to play and be put in the game. And that matchmaking service, that Demonware created is still used today. Well a new version of it, obviously, is used today in College and some massive games. So the technology is still alive even though the company was acquired many years ago.

Alan Cowley:                    Okay. So you were only there for about a year or so, weren't you?

Ronan Perceval:              Yes, it was a couple of years before. We were working together for a few years before that, and then I was there for a year of Demonware, and then I decided to leave. The reasons I left are the reasons of my philosophy around building a company and stuff like that.

                                           So, I guess what was really, interesting, obviously, at such a young age to be involved in fundraising and seeing the dynamics of that and what it meant. But I didn't feel fully comfortable with it. So I guess the big thing that happened was we raised that money, and then the next day it was like, right, what are we going to spend this money on to raise more money in a year's time? As opposed to, right, we've raised money, let's go and build a business. And that's the dynamics. Does that make sense?

Alan Cowley:                    Yeah, no it does. So around fundraising, your view is that fundraising is more just to meet your next fund, so a stepping stone to growth rather than ... Maybe I'm not worded that very well.

Ronan Perceval:              Yeah, I'm not saying that that's the case. Obviously, it's been about 15, 16 years since then, and my understanding the experience of building businesses is much bigger than it was then. There's different things. There's different horses for courses, let's say.

                                           But generally speaking, yeah, you raise fundraising, in theory, to build a business. But what I found was that on the venture capital trail anyway, it's you raise money to put yourself in a position to raise more money, to put yourself in a position to raise more money, to raise more money, to then get an excess.

                                           And the dynamics of venture capital lead to that, and I'm not saying every company goes through that. Obviously, some massive and hugely successful companies go through that, and they end up as powerhouses and everything like that. But there's an awful lot of good businesses, I would think, that go through that chain of events and end up getting acquired and disappearing before they can become a really great long-term business.

                                           And that affected me. I just didn't like it. I knew we were working with something exciting and everything like that, but that wasn't the kind of business I wanted to build. I've always thought about building something for the long-term, something like for 30 40 years, or maybe a hundred years. That was always my idea.

                                           And so, I knew that wasn't going to happen in those circumstances. So I left Demonware to start Phorest under that idea that we weren't going to build that kind of company. And as a result, we didn't raise any funds then for seven years because my understanding, at the time anyway, was that I would need to be bootstrapped to be able to make decisions for the business first, as opposed to for the investors first.

Alan Cowley:                    All right. So before we go on to bootstrapping, and also later on fundraising, can you just give us an intro to what Phorest is? When I first heard it, I didn't suspect what you did basically from the name.

Ronan Perceval:              Yeah. So Phorest is a software platform for salons. So, basically, it lets hair and beauty salons run their business. It does their appointment booking, scheduling, runs all the backend, like the stock control, running reports for staff. And then, in particular, the USB of why people would buy Phorest, because there's a lot of companies that provide those tools to salons. But our real USP is the marketing tools on top.

                                           So, we've developed a suite of very powerful marketing tools really specifically for salons and for the salon customers. So things like we give all our customers their own branded app in the app store. They can give their own clients that Uber experience of booking in.

                                           We give all our clients online reputation management. So that would be where we collect reviews from all the clients. And then those reviews, the good ones are pushed out to Facebook and Google to make sure that, if they're a good salon, that they appear high on SEO or in search rankings, and therefore they can grow their business.

                                           And then a bunch of other tools. We give them this really beautiful email marketing suites, so something like MailChimp, except it's just specifically for the salons. The templates are all ones that are around the type of treatments or services that they do, and that's all packaged for them. So it's really easy for them to get something really nice out to their customers. And then text messaging tools, and on and on like that.

Alan Cowley:                    Okay. A question is burning, is why salons and spas?

Ronan Perceval:              So, it's a long story. How much time do I have?

Alan Cowley:                    Can you do it in a minute or so or ...?

Ronan Perceval:              Yeah, I'll give you the minute version. So the first thing that, before I started, was that we wanted to tackle the no show problem for small businesses. So small business that took appointments, so that could be a dentist, doctor, salon, et cetera, people not turning up for appointments. And we wanted to send out text message, appointment reminders to help cut down on those.

                                           And so, we built a simple appointment software with texts reminders in it, which doesn't sound that ground-breaking now. But at the time, text messaging was only a year or two old. So no business was sent reminders at that time.

                                           And then we rolled that out. We ended up getting about 20 customers over six to nine months. We had a dentist, we had a doctor, we had the cherry-picking company. We had a restaurant, we had a salon, but we weren't getting traction in any of those sectors.

                                           We were too broad. It was too horizontal, and we didn't have enough features in each one. Dentists wanted other features, different ones to salons, et cetera. And so we realised that we needed to go deep in one of the sectors.

                                           So, I ended up working in a salon for nearly a year as a receptionist. I had to try out one of these industries, and to see which one might have potential to really develop something more specific. The idea was I was going to work in a dentist, but I couldn't get a job in a dental surgery.

                                           And I ended up getting the job in the salon and I thought I'd just do that at first, but I ended up loving it, and really, seeing the opportunity and how big the salon industry is. I mean it is absolutely massive, and it's bigger than all those other industries.

                                           That's something that people don't really realise. I mean, you're looking at 60 million people working in salons as hairdressers or beauty therapists worldwide. On top of that, you're looking at another 40, 50 million people who work in businesses providing services or products into those salons. So I think if you're working in at a L'Oreal factory producing colour that's only available in salons to working in Phorest.

                                           So, it's over a hundred million people work in the industry. It's absolutely huge. I think it's the seventh largest employer worldwide, so it's a huge industry in its own right, which is not apparent because it's such a cottage industry. You know, only 95% of those salons are owner-operated, so it doesn't have the same presence on the high street or in people's consciousness about it being huge industry. And so that's great as well because that means it's a massive opportunity.

                                           So that's kind of some of the things that we found by going to work in the salon.

Alan Cowley:                    I'm staggered by the lengths of market research you went to. A year working in the salon to really understand it is, I've never heard that before. That's absolutely brilliant. And you obviously know the ins and outs of your industry so well now because of that year, I'm presuming.

Ronan Perceval:              Yeah, yeah. I mean there's more to it than that. We were broke as well, so I needed money, so I needed a job. So I could've gone and worked in a chipper or something and done this in the evening, but I decided to work in the salon as well. So we were hitting two birds with one stone.

Alan Cowley:                    Yeah, exactly.

Ronan Perceval:              So that was part of it as well, but I would recommend that. Having done that, it was like, wow. It opens up everything about how the salon works, about how hairdressers think, what's cool about the industry. You need to love an industry as well if you're going to spend your life in it, and I fell in love with the industry as well. There's some really nice aspects to it that aren't in other industries.

                                           People love coming into a salon. When you're standing at the front desk, people come in with such a nice attitude because they're looking forward to coming in. And then they go off and they spend a couple of hours having their hair done, or having a beauty treatment or whatever. And then they leave feeling even better about themselves than they did when they came in, and that creates this really nice atmosphere.

                                           It's very hard to describe to someone if you haven't worked in it, but it's kind of infectious and once you've done it you're like, wow, I love this. It's hard to go into another type of business after it. So there's things like that that you discover and that gives you the fuel, I suppose, to spend your life in an industry.

Alan Cowley:                    Yeah, that's really, cool. All right, so you've spent a year in a salon to understand that, and also get paid. Let's talk about bootstrapping and eventually fundraising. So what do you think are the pros and cons of bootstrapping, particularly? You did it for 10 years or so.

Ronan Perceval:              Yeah, so the big thing is it's really slow, and we would've undoubtedly gone much faster if we had raised money, because every cent does count. You're constantly only taking an opportunity if you can afford to. So you're saying no to lots of things that possibly would've been a good idea, or you're not expanding fast when you're hitting a vein of opportunity. So that's the big downside.

                                           The big positive is almost the same thing, but in reverse, that because you could only do certain things and you're so limited to what you can try, you really think them through, and you don't just throw mud on the wall, if that makes sense.

                                           You really want to be sure when you're spending money that it's going to work, and as a result, you probably do say no to a lot of stuff that would've been distracting. So that's a benefit.

                                           The other thing was we had to build a business that was self-sustaining. So it meant that we were constantly in control of our destiny. So we never had to go, "Right, we're going to have to raise money now". And then you raise it from somebody that maybe isn't aligned with your values, or has different expectations of what you're going to do with your business, which happens all the time when companies are funded, from what I can see anyway.

                                           I'm not sure whether you agree with that or seen that yourself. And when those expectations aren't aligned with the investors and the founders, that just leads to bad outcomes a lot of the time. Sometimes the business is good and it's got a good future, and has to get sold because everyone's fallen out in the shareholders, between the different people. And that's just a real shame, and I see that happen too much I think. Not all the time, obviously, but it happens too much. So things like that.

                                           So, we created a culture internally in Phorest that was incredibly cost driven. Everybody just minded the cents. I didn't have to worry about anyone in the organisation spending money when they shouldn't have because everyone was, basically, as tight as you can imagine.

                                           And that was the kind of culture, and that's an amazing thing to build an organisation on top of, to have that trust between everyone that everyone's going to look out for what they're going to be spending money on.

                                           Also, when we did finally raise money, we got to choose who we raised money from, and make sure that we chose some people that were aligned with us, and we could take our time. Because we were profitable, not massively profitable, but because we weren't losing money, we were never pressurised into raising money from the wrong sort of folks.

                                           And that has led to a really good position now I think in the company. Granted it's taken us 15 years to get here, but it's a good position where the investors we do have, for a start, they don't own the majority of the business. So we still have majority control, and they don't have any strange kind of terms in the agreement that would force us to sell our shares or anything.

                                           They're kind of, they're in it for the long haul as well. And the way their money is structured is that it's basically family money that can go on for as long as we want to as well. And they're under no pressure to get a five year return or a seven year return. So it's worked out very well in the end.

Alan Cowley:                    How much have you raised now?

Ronan Perceval:              So, we've done ... In total, we did a seed round back in 2011 for a million Euros when we were seven years old as a business. And that seed round did us all the way to last year. We did a 20 million round last year, a lot of which actually was used to give those investors from 2011 a return if they wanted to leave. Or some of them wanted to stay on for the journey as well. So it allowed us to do that, and then have some money to put into the business too.

Alan Cowley:                    Okay. You touched on a company culture of costs driven but also trust. So you've got over 120 employees now.

Ronan Perceval:              We've 200, yeah.

Alan Cowley:                    Oh, you're over 200. Oh, sorry. What process do you use for hiring and firing and keeping that culture then?

Ronan Perceval:              I guess we have a set of values that we identified really, early. So I just, by luck, would have it, I read a book called Good to Great, which is quite well known. But I read it really early in the Phorest journey, and that's all about building culture and having set of values, and building your team around that.

                                           So, we set about those values that we'd created in 2006, they're still the values today, and they're just sort of pervasive throughout the organisation. Everybody, when they're being hired, we have tests that we've built to allow people who are hiring to understand whether someone has those values or not. Or at least to give them a really good pointer, whether they have those values or not.

                                           And then in terms of when they join, within six months if they don't have those values at the six, month review, then it's set up that those people don't continue in the organisation. I mean it doesn't happen that often because we're quite good at identifying that people do have them at the beginning.

                                           So, there's things like that, which just mean it's like a gatekeeper, just to allow that only the right sort of people join Phorest. And when I say right sort of people, I don't mean right generally. I just mean right for this organisation. I mean there's plenty of probably amazing people that mightn't get in here, but they'd be brilliant somewhere else in a different culture.

                                           So that hiring processes is very developed I think for a company of our size. And then also, in terms of the employee development, we think a lot about giving people opportunities to develop their skills, develop their career, if we know people have the right values.

                                           So, there's a lot of movement between different departments in here for opportunities. Just because you're in customer support or in marketing doesn't mean you can't end up somewhere else if you have the right values. And somewhere else may be better suited to your skills or where you want to go. So there's lots of that.

                                           As a result, we've a very low staff turnover, and one of the highest ratings in the UK, of Ireland, of any company on Glassdoor, which is where employees rate their company and what it's like to work for them. We have a 4.8 score.

Alan Cowley:                    There's a lot of focus from you and the top-level team to do that. So over the years, over the last 15 years, if you haven't taken investment, what sort of advisors, mentors have you had to help you along the journey?

Ronan Perceval:              I didn't really have many mentors, to be honest, up until about 2011. In 2011 we got some great angels. It was mainly a syndicate of angels that we got on board, and there was some great angels in there. There was a fund as well, which was really helpful, a seed fund by enterprise equity.

                                           But a couple of key angels became members of our board. One of them was a guy called Pat Garvey, and he was a serial entrepreneur and built a big company in the '80s and '90s called Sharp Tacks, which he sold for 400 million in 2000.

                                           And he'd been the chairman of the tote and all sorts of companies, so huge experience. And so he became chairman, and he's still chairman today and I work really closely with him. And he's been a great sounding board and mentor for building the business.

                                           Prior to that, I didn't have that. I basically just read books, so things like Good to Great or ... There wasn't that much blogging then, but some blogs and stuff like that I would've followed. So reading business books really beforehand, but it does make a big difference having someone like that on board.

                                           You can see the company's growth just starts to take off after about 12 months of those guys coming in. It went to a whole new level because our decision making got better and we had access to more advice.

Alan Cowley:                    I'm presuming you don't regret this, but do you think that you maybe should've got some advisers earlier on then?

Ronan Perceval:              I don't think so because I think there was a lot of benefits from being bootstrapped. So we've got the benefits of being bootstrapped, and then we got the benefits of bringing on funding. We got the best of both worlds.

                                           The company today is thriving. It's doing brilliant and I'm loving what I do, and the team here is loving what they do. So I think that doesn't happen to everyone. So we're lucky and feel privileged to be in this position. And we're in this position because of having been bootstrapped, and then also having had the advice as well.

                                           So, if we'd had the funding earlier, we might've just crashed and burned, who knows, you know what I mean? So I don't regret it.

Alan Cowley:                    Yeah, no, that's fair enough. There's a company we interviewed a couple of years ago that purposely didn't want to take too much funding because of the similar sort of reasons that you're saying, and to actually bootstrap themselves and stuff like that. And they're like you; they're a success as well. What are the biggest challenges do you think that you faced along the journey?

Ronan Perceval:              So, I mean, thousands of challenges. The big ones are when you're starting out, you don't know what you're doing. Not that you know what I'm doing now either because it's new now. But I didn't really have an idea of where we were going. I'd have a much clearer idea of where we're going now, if that makes sense.

Alan Cowley:                    Yeah.

Ronan Perceval:              So, we were just trying it and seeing what happened in those days. So I think getting that direction has really helped a lot. If you're very clear of where you're going, you tell that to other people, and it's much easier for them to follow you if you're clear about where you're going.

                                           And so that's something when I meet a lot of people starting start-ups now, that are similar to where I was then, is that they're not really sure where they're going with this. They just want to be doing a business, and they're raising money or whatever because they think that's what they need to do.

                                           So, I always encourage them to just take time to think about where they want to go with it. Because if you do want to say, to have a business that's going to last a long time, just going to raise money early on will actually mean that you won't be able to do that, necessarily. It's going to be a lot harder unless you have some massive idea.

                                           So, people are clearer on what they want to do. Do they want a business that's going to last a long time or that they can do for 20 years, that maybe they need to take a bit slower at the start?

                                           And other challenges were around people. Obviously, hiring good staff; that's a never ending problem. It gets harder if the economy is going well, so they are huge challenges. We had never raised money, so how did we attract good people into Phorest because no one knew who we were and we didn't have a profile or anything.

                                           So that was a big challenge, then hanging on to people when they're with you. When the economy went bad in 2007, because we were bootstrapped, we didn't have really any money in the bank or anything. So that was a huge kick in the teeth to have to deal with. So yeah, there's been loads of challenges between having money and people, I suppose probably being the main challenge.

Alan Cowley:                    It usually is. So in terms of the strains that it's been, it's been a long journey, although you wanted it to be a long journey. Are those strains on you, as a founder and your co-founder ... Did you ever envision the sacrifices that it took to grow a business to this size?

Ronan Perceval:              Yeah, I think I was aware of the sacrifices and are prepared to do them. My dad had his own business, and it was only a himself working in it. He had a food delivery business in the west of Ireland growing up. So I'd seen him working 90-hour weeks all through my teens and before then.

                                           And I'd be helping him out in the summers, load the van and go out and deliveries with them and like that. So I knew what it took to have your own business inherently because I'd seen it in front of me from a very young age.

                                           One thing I've noticed is that a lot of entrepreneurs that are successful in tech often come from families that have had small businesses. So they know the hard work and the sacrifices. They inherently know them. That's one thing I've kind of noticed actually over the last 10 years when I look at people who've made it.

                                           So yeah, you need to be prepared for that sacrifice, but if it's part of your upbringing, it doesn't feel like a sacrifice. It just feels like something you've going to do anyway. So that was where I was at with it.

                                           That does take a toll if you do it for more than about 10 or 15 years. So I was lucky in that I started a business in my early to mid-twenties. So I didn't have a family or a responsibility, so I could do 10 real hard years of 90 hour weeks, but you can't do forever, and I don't do it anymore. I work 9:00 to 5:00 now, and I have a family and they're a priority for me, and so I want to be able to do that.

                                           But luckily, I've done the 10 years, and Phorest is a point, it doesn't need me doing 90-hour weeks anymore to survive. It's a thriving businesses in its own right. But yeah, obviously building a business requires massive sacrifice at the beginning, for sure.

Alan Cowley:                    No, that's some great advice for entrepreneurs that are just starting out their journey. Okay, so Ronan, let's talk a little bit about what the future looks like then. You've been with Phorest for 15 years now, and although you've always had a long game in mind, what does the next 15 years look like?

Ronan Perceval:              It's a really, good question because I always thought long-term all the time. But then you get to a point where you've done the hard slog and the business is going well, and you do think maybe this is time to go and do something else or take it easy for a while.

                                           But I don't feel like that at all. I feel more motivated and more excited about Phorest than I ever have. And actually, the potential of the business seems bigger to me now than before. So a couple of things, the reason, I'll explain that.

                                           So, one, I think the salon industry is absolutely, huge, and I didn't understand that before, how big it was. And when I was giving you numbers earlier, they're numbers I've really come to understand in the last couple of years. So that's one thing. So it's this huge industry, it's really unpenetrated with technology.

                                           It's a cottage industry, and the people working in salons don't have access to the kind of tools or systems that large corporates would have had access to for 20 years. And so we want to be able to give them those tools, and if we can enable salons to have access to the same tools that the big guys have, they're going to be able to have much stronger businesses as well.

                                           So that's one thing I'm very excited about doing, and I think that's going to take place in the form of a platform so that they use our software to run their business and do marketing, but then they have access to apps that cover anything in the salon. So from HR things to selling more retail, whatever it is that helps them run their business better.

                                           And so I'm really excited about doing that, and I think we need to get maybe 10 to 15,000 salons, which we will do over the next two or three years, to have enough salons that you have critical mass to encourage people to build those applications for a salon.

                                           And we're starting to see that happening bit by bit already, even at the 6,000, salon level that we're at right now. So yeah, I'm really excited about doing that and building a platform. In Ireland there hasn't been many companies that have built a platform, a proper platform. I can't really think of any, actually, off the top of my head. Maybe Hostelworld with hostels. They're a public company in the UK that started here in Dublin.

                                           There's not many, and if you can build a platform business, that's a business that will last for decades and decades. And that excites me to try and build that out of Ireland. It hasn't been done.

                                           I think if you look at other industries, the big guys like Kerry Group or Ryanair or CRH, you're looking at companies that have come from Ireland that have really become dominant international players in their own area. So once a decade that it happens really, so we'd like to give that a go. Even if we don't get there, we'll give it a really good go trying.

Alan Cowley:                    You've got some serious drive, determination, and passion. And as we saw from having worked in a salon and decided to do that over any other job, you're dedicated, hugely dedicated to the business. And it's something that entrepreneurs that, hopefully are listening to this will take on board. And really understand the sacrifice it takes to succeed, and the patience as well. So Ronan, it's been absolutely brilliant to have you on. So thank you very much for chatting to us today.

Ronan Perceval:              Great. It was my pleasure, Alan. Nice to meet you.

Alan Cowley:                    Thank you.

Peter Cowley:                  Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website, Investedinvestor.com, or via a number of podcast platforms online. Remember, you can order our book online, and be sure to follow us on Twitter, LinkedIn, and Facebook to get the most up to date interesting and insightful content from the Invested Investor.