All Aboard the Huddle
Huddle’s founder on breaking America, Snowden, and more
There’s more tech venture capital in a single building in Silicon Valley than in all of the UK, says this British entrepreneur. So what can be done about it? In this exclusive Q&A, Chris Middleton asks Huddle co-founder Alastair Mitchell why it’s so difficult to grow a startup from within the UK, how to break America, and what the government can do to support ambitious people with good ideas.
• European buyers abandoning US since Snowden says Mitchell – but the UK is buying more
• Believes the G-Cloud has lost its leadership, is polluted by mainstream corporate interests
• Says the government should mandate quotas for buying British
• UK can’t compete with US tech financing and shouldn’t try, he says
• Says the only way to break America is to go there and do it face to face
Huddle co-founder Alastair Mitchell was trained to design ships. Instead, this young British entrepreneur built a software house and sailed it to America, winning tens of millions of dollars in VC investment.
Cloud collaboration company Huddle is a rare UK success story in enterprise software. Founded in 2006 by Mitchell and EVP of strategy Andy McLoughlin, it now has 100,000 users worldwide.
These include: the US Department of Homeland Security; the UK’s Ministry of Justice and Department for Work and Pensions; the European Commission; KIA motors; the Civil Aviation Authority; Unilever, NASA; P&G; SEGA; Pearson, Panasonic; the Post Office; Johnson & Johnson; Comcast; Rockwell; and Centrica – a blue-chip client list that defies the commonly held belief that cloud tools have no place in large, security-conscious organisations.
Mitchell’s belief is that traditional business applications keep information out, and lock other information in, creating silos that prevent people from collaborating. Social platforms have “blown those walls apart”, he says, and the same is happening with enterprise applications.
“The technologies that people use at work are unanimously [sic] terrible. They’re boring, difficult to use, and often stop us doing the very things we want to do, which is our jobs, to work collaboratively and get stuff done. That’s why we called ourselves ‘Huddle’: it’s not to do with technology, it’s about helping people to work together. Huddle was founded on the idea of building collaborative tools to change the way that people work and share content across the firewall.”
Since leaving Southampton University 11 years ago with a MEng in Naval Engineering, Mitchell – who still has the air of a diligent, clubbable student – has set up an online media business, built and sold the first global soft commodities marketplace, spearheaded the growth of Dunnhumby’s marketing intelligence tool, co-founded Huddle, and set up the popular DrinkTank networking events with Huddle colleague McLoughlin. He’s passionate about supporting young entrepreneurs on the UK startup scene, especially in London.
The Strategist Q&A
The Strategist: You’ve opened offices in San Francisco and are growing the company from the US. So at what point do ambitious entrepreneurs hit a wall in the UK in terms of building a high-tech business and decide to head to America?
Alastair Mitchell (AM): “Actually, it’s easier than ever to grow a business into other countries from the UK – but that’s thanks to the internet, rather than to our investment culture. People are now much more accepting of buying technologies internationally.
“Our meeting rooms at our offices in San Francisco are named after British bands that broke America: the Beatles, the Stones, Led Zeppelin – and also Wham! and Rick Astley, which is my room. The point is that when even the Beatles broke America they had to go there on tour. To break America, to reach out to every single person there, you have to meet people. The US is still a very face-to-face economy. You still need to be onsite. If you’re going to work with big companies, then the CIOs of those companies want to know who runs the software.
“So for us, if we want to sell to the biggest companies in the world, and partner with the biggest software companies in the world, then we have to get up front and personal with them and spend time with them. It’s a simple as that. To roll out to 15,000 people in a US government agency, for example, or to partner with one of the biggest tech companies in the world, those deals and those partnerships and those rollouts are still only done face to face.
“But today there’s a new decision for ambitious young companies that want to grow: do you go East or West? Do you go through Europe and then to China, or do you go into the US market? In our case, we were pulled towards the US by our customers.”
Many business leaders, on both sides of the Atlantic, say that a ‘single Europe’ would make things so much easier commercially. Do you agree?
AM: “The simple fact of the matter is that Europe is still a hard market to sell into, because it’s multiple small, discreet markets with multiple language barriers, and increasingly also technology barriers – and some of those are getting worse, not better. And then there are the macroeconomic issues in countries like Italy and Greece, for example.
“Plus, the Snowden/NSA revelations have caused European tech buying behaviour to retrench and become a lot more local, not more expansive.”
Has the Snowden effect really been so profound that it’s changed strategic buying behaviour? People are pulling money away from US providers and buying more from Europe?
AM: “Oh yes, certainly in France and Germany, but not so much in the UK, which is actually going the other way.”
The UK is buying more software from the US in the wake of Snowden? Why?
AM: “It’s partly because of [Cabinet Office minister] Francis Maude, in terms of his [IT procurement] cost-cutting strategy, his opening up of the UK market to buying new technologies and not being as sensitive to where data is stored, such as just in the UK. The government buys software from some companies where data is stored in the US – which not everyone agrees with. The UK government is doing that, but other European countries definitely aren’t.”
Cloud computing is not synonymous with the internet, as many people think. It’s not something ‘in the sky’, it’s about physical datacentres that are based on land, under local laws. So how worried are you about the tension and the increasingly nationalistic tone of the cloud debate – between the EU and the US, for example, over data protection and hosting laws? [For more on this see our separate report, The World Data War, HERE.]
AM: “I understand where it’s coming from. I don’t agree with it, but I think it’s going to continue for the next couple of years. There’s a big wave that’s building, and over the next couple of years it’s going to get stronger, but eventually its going to break. Because if you look at the way that trade has evolved over time it’s become more international and these barriers have been broken down.
“But for now there’s still this fear of the US versus Europe. And what’s happening in Russia exacerbates that fear: it’s almost East versus West again. Then there’s the Snowden stuff, the increasing power of the EU in terms of managing data, and so on.
“But at the same time the cloud is becoming more prevalent as a way of delivering software, so people are worrying more about ‘Which cloud am I in?’. How we at Huddle respond to that is by being able to serve people in both clouds, if you like, so if you’re in the EU and you want to store data in an EU cloud, then we have an EU cloud. And we have a US cloud.
“A lot of US companies that come over to the UK struggle, because they don’t recognise these issues. A company like Salesforce.com struggled for years to get into government in the UK – and into Europe at all – because of not being able to provide a European datacentre under European rules.”
[Salesforce.com is opening two UK datacentres this year, and datacentres are planned for Germany and France next year, according to the company.]
Aside from the cultural, political and macroeconomic issues you touch upon, the question of why high-tech startups and ambitious digital enterprises head to the US is often about access to investment: the massive, portfolio investment culture of the US that pours capital into these and related sectors. Is it impossible to grow British technology success stories from within the UK, and to hothouse UK talent without setting up shop in San Francisco?
AM: “There’s a place called Sand Hill Road in Silicon Valley – a long road where all the venture capitalists have offices. It’s just a series of low, sandstone, two-storey buildings most of which have four offices in them – two on the ground floor and two on the first. But in those buildings are billions of dollars of venture capital money that is invested every day into startups and fast-growth tech companies.
“And if you just take one of those buildings [Mitchell names a specific address] there is more money controlled by the funds in that building than there is in all of the UK [for investing in tech startups]. And so the fact of the matter is, if you are trying to build a big software business, you need a lot of capital: tens of millions of dollars, if not hundreds of millions. And that money simply isn’t available in the UK [to high-tech startups].”
Will it ever be available in the UK?
AM: “It’s cyclical and it’s getting better. But the UK is a long way behind: we’re talking single percentage points of what’s available.
“The UK environment is fantastic in many ways: there’s lots of angel money, investment schemes by the UK government pushing seed money into tech startups, there’s Tech City and Silicon Roundabout, but unfortunately there’s not much money at that end of the scale.
“And right at the other end, there’s private equity. The City is huge in private equity; some of the biggest private equity funds in the world run out of London. So the real problem is that there isn’t much in the middle of those two extremes. That’s the crunch point. You can raise £250,000 from seed or angel investors and from friends and family, but if you want to raise £25 million to expand into another country or internationally, then that’s very difficult in the UK. It’s not so easy to play with the big boys.”
Another problem is surely that many investors in the UK are innately conservative. UK investment funds see areas such as financial services, big pharma, aerospace and – incredibly – oil and tobacco as being safe investments. They’ve always performed well, and so some financial advisors push people towards making the same ultra-conservative investments. Meanwhile, digital, high-tech and new media ventures are seen by many major funds as being speculative and extremely high risk. As a result, potential UK success stories may never get the boost they need into the big league. Part of the problem, then, is a cultural one: it’s about being risk averse. Do you agree?
AM: “That’s exactly it. That’s the problem. You’ve summed it up. It’s partly cultural, and I agree that it permeates all levels of society. The US is more comfortable with risk because of the way it’s grown up: bigger risks, bigger resources, the American Dream. But you can’t blame everything on that. I don’t think when you get to the highest levels of finance that it’s so much to do with cultural differences, because the guys running those funds have spent time in the US, they’ve spent time in the UK, they’re culturally ambivalent.
“It comes down to the fact that, for a UK company to be successful, we’ve only got a small, homogenous domestic market. So if you want to sell to millions of people, you’ve got to go to the US. The UK struggles simply because of its size.
“And it becomes a self-perpetuating, circular problem. If there isn’t much money, everyone has to make the most of what they’ve got. If you’ve only got a £100 million fund – which in VC terms is relatively small – you’re going to make some very considered investments and you’re not going to risk that money. But if you’ve got a billion-dollar fund, then you can afford to invest £50 million and not get anything back. It’s about scale on both sides, at every level. After all, these are essentially bets.”
As you’ve indicated, the UK government is making a lot of the right noises about opening up the domestic IT procurement market to SMEs, via the G-Cloud framework and the Government Digital Service, but in terms of growing a truly entrepreneurial digital economy, what should the UK be doing?
AM: “We should be playing to our strengths and investing in technology startups that are to do with the services industry, to do with finance, to do with banking. That’s a boring answer, but it’s a way to be really successful.
“There’s a lot of fantastic talent in the UK, and there’s a lot of talent right across the European Union – which is a huge strength for the UK too. Let’s deploy that in areas that we know best. We shouldn’t copy Silicon Valley. We should be our own version of it.
“We also have strengths in science and technology, with spinouts from universities. Cambridge is an amazing hub: I was there the other day. Phenomenal. It’s very distinct from London.”
Again, the G-Cloud has been modestly successful in opening up the UK’s biggest IT market, government, to innovative SMEs. But since it was taken into the Civil Service, it’s profile has been much lower. How worried are you that a lot of the progress it’s made may be lost? [For more on this, read our G-Cloud progress report HERE.]
AM: “One of the good things they’re doing is ripping up the bad old days of the 10-year, locked-in contracts. The overall initiative is great. I applaud the fact that people are able to purchase cloud technologies from SMEs, giving government better costs, more efficiency and better product. That’s all great and it’s helping the UK economy.
“But I have two concerns on the G-Cloud. They had a leader for it when it was a distinct group, and definitely you notice that that doesn’t exist anyone. I am concerned about that. It still exists as a framework, but it’s not being pushed anymore or led from the top. And this is down to Mr Maude [to fix], and I told him this when I met him recently, to push it back onto the radar, because it had such promising beginnings.
[The Cabinet Office is a customer of Huddle, and the company is also part of The Future Fifty programme, launched by George Osborne in April 2013.]
“The other thing that I’m concerned about now , from the UK plc point of view, is that the other thing the British government did [until recently] – and this stems back to the days of Labour before the Coalition – was they very heavily promoted SMEs. They said ‘If you’re an SME and you work for government, we will pay you faster, which is transformational for a small business. And they set up frameworks, such as the G-Cloud, to make it easier to transact with government.
“But since it’s lost its leadership, the G-Cloud has opened up to everyone, and that means that suddenly you’ve got Oracle and IBM and Salesforce.com and all the big guys invading the space, which was originally designed for the purchaser but is now being taken over [by large corporate interests].
“It’s just become an amorphous cloud tool, which means that the original benefits are being lost. You’re buying from the same big companies that previously you were trying to get away from. And from an SME perspective, you’re losing the benefit of government buying from that sector.”
So what should the UK government do to make things better for homegrown startups and entrepreneurs?
AM: “The thing I’m most passionate about is this. Government is 44 per cent of GDP [and falling, according to Treasury statistics for the current financial year]. You can put in all the initiatives you want around getting more money into the sector, but the simplest way to get government to drive innovation and startups is to invest in UK businesses.
“Because if you represent such a high proportion of GDP, then the best thing you can do is invest that money in buying British technology. You can put about £10 billion of spending into a sector. That’s phenomenally powerful. And it’s not new money, it’s money that’s already being spent.
“So I would do two things. One is a top-down mandate that X per cent of services should be bought off the G-Cloud within three years, and the other is that they have to be bought off British-based suppliers.”
That sounds protectionist – and we’ve been talking about that. Is it?
AM: “Yes it sounds protectionist, but the UK is the only market that doesn’t have that approach! In the US, they have a very direct mandate, such as a certain amount of money being spent on veteran-owned companies, or on minority-run companies, or on US SMEs. So if you’re in those categories, you get dramatically better access. And they define the number of tenders that have to be sold to veteran-owned companies, or to minority-run companies.
“So it’s not about being protectionist, it’s about using that 44 per cent of GDP to drive the economy and reinvigorate particular areas. And that’s much more effective than doling out money into investment programmes.
“So the British are going against things – the British are always very fair. But all the other governments we work with have very specific rules about using that huge spending power they have. The French don’t play fair, the Germans don’t play fair, the US doesn’t play fair, you know what I mean?” TS
• At the time of this 2014 interview, Mitchell was CEO of Huddle. In February 2015 he became President and CMO.Tweet
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