Emerging from the shadow of the dotcom collapse, one Scottish techy has faced tough decisions. Gordon Stuart tells Ian Fraser how he managed
THE traditional lament about Scottish technology firms is that their founders “sell out” before they have the chance to realise their full potential.
The founders in question are then given a token role by some overseas or UK buyer before disappearing into relative obscurity. Sometimes they quit to resurface as “business angels” using the pile of cash made from the sale to reinvest in fledgling Scottish technology firms.
Gordon Stuart, the 49-year-old founder and managing director of Livingston-based software business Spektra Group, does not quite fit this mould.
He was presented with the opportunity to follow the herd just as the dotcom bubble started to lose air – although not everyone in the sector realised it at the time – back in early 2001.
Stuart says: “A Nasdaq-listed company made us an offer of $20 million (£14m) in cash and shares in early 2001.”
He adds: “It was certainly a tempting proposition – but we felt it would be entirely the wrong thing to do at the time. We felt that we had not yet achieved everything we felt we needed to do.
“Nor did the bidder feel like the right partner. It would have been a bit like getting married for money rather than love.”
Three-and-a-half years on, Stuart is in some senses regretful that he spurned that offer, which he concedes was way in excess of what Spektra was actually worth at that point.
In the late 1990s, Spektra, which owed its origins to the management buyout of Swiss lift-maker Schindler’s Scottish research and development arm in 1996, chose to focus on the niche market of developing e-commerce solutions for the life and pensions sector.
It seemed like an astute choice of niche. The life and pensions sector was pretty much in the dark ages where information technology and particularly e-commerce was concerned. Livingston-based Spektra also had the advantage of having a number of heavyweight national players on its doorstep. Further, Stuart, an affable and dynamic Kirkcaldy-born father of three, is one of the best networkers in the business.
He served on the court of Heriot Watt University, and on the boards of Scottish Enterprise Edinburgh and Lothian, West Lothian Chamber of Commerce and the Scottish Software Federation.
Companies Spektra targeted and won significant contracts from included major players such as Standard Life, Scottish Widows, Aegon UK, Abbey National, Royal Bank of Scotland and Bright Grey.
All were in need of systems that would enable them to communicate more effectively, and cheaply, with intermediaries – which include independent financial advisers and other distribution channels – as well as directly with customers.
In its peak year of 2001, Spektra hit annual sales of £5 million and total staff numbers rose to 60. It seemed like it was on a roll and was widely seen as one of the few Scottish technology firms with staying power. Stuart and his three Spektra co-founders – Mark Phillips, Russell Brodie and Euan Robertson – believed they had found a lucrative niche, where demand for their services would be constant and increasing. With a strong Scottish life sector on their doorstep, they could hone their skills before branching out into global markets and seeking work from global insurance giants such as Germany’s Dresdner Allianz, France’s Axa, and the UK’s Prudential and Aviva.
Unfortunately, the bear market in equities kicked in soon after the millennium broke to spoil the party.
Stuart explains: “We became well known in the life and pensions market as the people who provide e-commerce solutions. The trouble was, the market fell away quite dramatically as the financial stability of the life and pensions came under question following the stock-market crash.
“All the players in that sector, without fail, stopped their discretionary spending, which hit us and many others hard.”
Stuart says that by 2002, when most life companies were effectively in intensive care because their assets had taken such a hit, the figures going forward looked dire.
“We had a very objective way of looking at the company in financial terms. We always had very accurate forecasts of what the future held, through a mixture of very good historic accounts and a disciplined approach to financial forecasting. It was not a pretty picture.”
Stuart and his team recognised they were faced with some tough choices. They could sell the business for a significantly reduced price. They could plough on in the hope that business from life and pensions players would somehow pick up. Or they could refocus on another market sector.
But none of these options seemed appealing. In the end, Stuart and his team opted for a fourth course of action. This was to wind down the business in a controlled manner and in the least painful way, effectively making an orderly retreat.
Stuart says that the first phase of redundancies – he laid off 14 staff including software engineers in late 2002 – was particularly painful. He had devoted seven years of his life to building up Spektra, and it had earlier been named as one of the UK’s 100 fastest-growing companies. Now he was having to put the company into reverse gear.
“It was the most difficult thing of my entire working life,” he says.
Stuart says he was told at a board meeting by a fellow director that redundancies would be necessary. “But that’s not our ethos,” he remarked. But his colleague replied: “No Gordon, that’s reality.”
Recalling that time, Stuart adds: “I formed my views at a time when redundancy meant something different. But in fact the staff did not take it nearly as badly as I had feared.”
Now all 59 of Spektra’s employees have been laid off and all have been given what are seen in the industry as generous terms, with some allegedly given six-month pay-offs despite waltzing into other jobs. Stuart says: “We did everything possible to honour our commitments. I don’t think you can be too honourable in such circumstances. It’s not altruism. It’s about the reputation of the company and ourselves going forward.
“I am very pleased that we are perceived as having treated people properly. I am also delighted to say all 59 found positions.”
He adds that at least six former Spektra employees have gone on to found IT businesses across the central belt. These include David Thomson, a former senior software engineer at Spektra, who left in 1999 to found Livingston-based Games Kitchen. He also recently signed a licensing deal for Spektra’s open transaction server (OTS) technology with Vebnet – the listed Edinburgh software firm in which Sandy Nairn, chief executive of fund management group Edinburgh-partners, has an interest.
Now Stuart is embarking on a new career, with parallels to that adopted by Ian Ritchie after he sold off Office Workstations Ltd in 1989. Already a member of the Braveheart business angel syndicate, he is now advising the Livingston web measurement specialists Scalar Technologies on its strategic direction. He also serves as a mentor on Scottish Enterprise’s international preparedness programme, and a mentor to the Edinburgh Pre-incubator scheme, a joint venture between Edinburgh University and SEEL.
So despite the fact Spektra is more or less dormant now, Stuart seems determined to put something back – and to boost Scotland’s chances of creating another, even bigger, global player in the IT sector.
13 June 2004