'In the first 18 months a lot of people leave of their own accord'
In a wide-ranging interview, Softcat chief Martin Hellawell opens up on expansion plans, how the VAR's staff feared its IPO - and why IT directors, not CEOs, are still the most important relationship
Even by its own madcap standards, it has been a hectic couple of years for Softcat. In October 2015, and following months of hints and speculation, the reseller filed for its initial public offering, and announced plans to float publicly on the London Stock Exchange the following month.
In March 2016 its performance in its first full set of numbers as a PLC brought not just impressive rises in sales, profit, and share price, but also the news that the company was to join the ranks of the FTSE 250. The following month brought more good news, as the VAR was crowned as the best employer in the large company category in the prestigious annual UK Best Workplace Awards.
The opening of Softcat's first office in Scotland - and sixth in total - followed in June, with the establishment of a base in Glasgow. And in September 2016 the company welcomed its largest-ever intake of graduates, as part of a headcount increase of 78 - taking total staff numbers past 1,000. All the while the firm has continued to post characteristically hefty growth numbers, with FY16 sales rising 13 per cent to £672.4m.
But, for a firm that prides itself on largely sticking with what it knows, at least one big change is in the offing, as last month brought news that CEO Martin Hellawell is to step down after 11 years in the hotseat. The search for his replacement is underway, with the likelihood being that an external candidate will come in, as the incumbent CEO steps into a non-executive director role.
Shortly before he announced his imminent departure from the top job, our sister publication Channelnomics Europe spoke to Hellawell for The European Elite - a major new industry report being launched early next week profiling more than 800 of the biggest and brightest channel players across Europe, including 144 from the UK and Ireland.
The Softcat chief talked us through a busy couple of years, as he opened up on the realities of life as a PLC, why many of the company's graduate recruits do not make the grade - and the importance of nude Christmas cards.
Another year, another set of huge growth figures for Softcat. Is it really as simple as keeping on doing more of the same?
Yeah, exactly the same old model! Just lots and lots of graduates coming in, and a lot of them making it through and becoming team leaders, or setting up an office. We also keep adding on bits and bobs - in the last 18 months we have grown our managed print business, and we are doing more and more on the contractual support services side as well. If we look at our existing customers, there are very few that are doing everything they can with us. So, there is a real push on helping our sales guys go back to our existing customers and ask those questions. It is quite a journey with the salespeople, so we have to support them, and train them. But that has been a real winner for them. That is the typical model - we just keep on trying to add to that portfolio. We listen to what [customers] are buying and scale up accordingly.
What are looking for in a graduate? Do you assess them with aptitude tests and detailed psychological screening, or is just a case of going on gut feel?
We have a big recruitment team, and they are the face of the organisation. We have 10 full-time recruitment people, and they do graduate recruitment fairs, and open days every Monday. They have a good sense of who could potentially be made of the right stuff. They will do the first screening and put them through to the second stage, where they will meet team leaders and sales managers. They can spot the right people that can work in the Softcat environment.
Having said that, in the first 18 months a lot of those people will leave of their own accord, because it is hard doing new business - there is nothing harder than doing new business. They have got to go and get on the phones, get on LinkedIn, find those customers and, slowly but surely, build their business volumes. When we win an account, it is extremely rare that they will say ‘I will stop working with Insight and move all my business to you'. It takes two or three years to build that.
After [graduates have got through] the first 18 months, they tend to stay for a long time. Firstly because those first 18 months are so hard, and you have to invest so much in terms of blood, sweat, and tears. But, secondly, because we try and make Softcat a good place to be.
Do you have to supplement the graduate intake with recruitment of experienced people?
The model that has probably worked best for us is that we have generally taken on somebody external [and made them our] subject-matter expert. When we decided six years ago that we wanted to go into the public sector, we took five guys who had been at other resellers at some point in their career and knew how that market worked. We have done the same thing with the managed print team - [we hired] one or two people who were very good at that, and then built a team around them. That is the model that has worked best for us. With new branches, we have always set those up with internal people - we have taken five or six internal people who have wanted to relocate and set up [the office], and build the team there.
Can we expect more expansion in the UK?
We did Glasgow last year, that was the last new office that we opened. I think we will probably do another one or two over the next 18 months to three years, but we are under less pressure to do it than we were before. Part of the success of each is about recruiting the sales team, and it is flipping hard to do. We are in numerous conversations, but most of our graduates want to live in Glasgow, London, Leeds, Manchester or Bristol. It is not like we need to do it - why we set up branches is, when we have individuals who want to start up an office - which is almost like starting a new company - it is a good project for someone. We haven't stopped but if, in three years' time, we haven't done any more [openings], that would not be a major disappointment.
And what about international expansion?
It depends how far forward we are thinking - most of my time is spent thinking about the next hour! When we do stand back, I think Softcat will, in time, start moving into other geographies. But, taking a football analogy, I would rather play at home than play away. And in Germany, France, or Ireland there are really good VARs out there, and we would be going to take on some established companies. Probably the return over the next three years would be greater in further UK penetration than it would be in going abroad.
Click through to page two to read the Softcat CEO's thoughts on the firm's expansion into the enterprise space, its employees' fears about becoming a PLC - and why the VAR still focuses on IT departments, not boardrooms
'In the first 18 months a lot of people leave of their own accord'
In a wide-ranging interview, Softcat chief Martin Hellawell opens up on expansion plans, how the VAR's staff feared its IPO - and why IT directors, not CEOs, are still the most important relationship
Do you see yourself operating more and more in the enterprise space over the next few years?
It is very interesting - both upwards and downwards - in segments of both the B2B and the public sector markets. Traditionally we have dealt with the mid-market. But as we get bigger, most larger organisations will have two, three, four or even five different suppliers, then we become a natural [player] in those larger organisations. We are certainly going after the lower enterprise market at the moment - the 2,000- to 10,000-seat [segment] is a focus for us, and we are making good headway. We are going into the larger accounts space naturally.
And we are trying some other stuff too. We have been taking on apprentices, and using them to sell into accounts with less than 50 seats - we can try and use that workforce to target some smaller accounts. But what we are absolutely not trying to do is move out of that corporate mid-market to transition into either larger or smaller accounts. We absolutely love that mid-market, we still think that part of the market is the best area of the market for us. But there is additional profitable business for us [in other sectors too]. Likewise we are doing more and more services, but we are absolutely not trying to get out of the product reseller business that we know and love.
A little over 18 months on from the IPO, has life as a public company been what you expected? It has probably been slightly better. I did go through this at Computacenter, I have seen the transition before, and so we were probably very sensitive to [the dangers]. If I am totally transparent, there was quite a lot of nervousness from our employees. Our employees are engaged and invested in the organisation, and our fear when we became a public company was that that [would be threatened]. But we made a concerted effort to show them that we haven't changed. We have carried on doing things like the naked Christmas cards, and the incentive trips, and the parties, so we won't be accused of becoming boring. We survey our staff all the time and, in the three months leading up to the flotation, there was a definitely a fear - but very little has changed. The only tangible thing that has changed - and not for the better - is that we cannot be as transparent with people about performance.
How have you found answering to the Stock Exchange once a quarter?
I have been pleasantly surprised by the whole investor world. [Before the IPO] I probably listened to too many stories about investment companies being very short term - and maybe that would be the case, if we hadn't done what we said we were going to do, and a bit more. But I look forward to going to see investors; they are supportive of the business and do not pretend they know about the VAR world. But they ask questions that make you think about the business.
Do you see your vendor mix changing and will partnerships with the cloud vendors such as AWS, Salesforce, or ServiceNow become more important? If you look at certain cloud providers, we have been selling their stuff for many years, before the term ‘cloud' was even invented. We have been Mimecast's largest partner for 10 years now, and it has always been provisioned through the cloud. In terms of other providers, where Softcat is very good - for better or worse - is where the decision maker is IT. With Salesforce, we have done a bit, and we will probably do a bit more. But generally the person making that decision is sales, just as the decision maker for Sage is not the IT manager, it is the finance director.
The relationship where we are strongest is where we are working with IT, that is where we naturally play. Everybody that is in that [cloud] market are not always our most natural partners. Microsoft is our most natural partner, and we have worked with them for 23 years. Our Azure sales are fantastic and going through the roof - that is the vendor [product] we would naturally sell. But where other customers want AWS, we will sell them AWS… They are a great organisation, and their growth is phenomenal. Our partnership with them is small numbers at the moment, but it will grow over time.
It is interesting to hear you say that, because you hear so many people nowadays claiming that the channel needs to move away from simply selling to the IT department, and begin selling to senior management…
It depends what you are selling. If it is big transformational IT projects, then I totally agree. But if you look at what most IT VARs do, it is selling IT infrastructure; if you talk to the CEO about networks or datacentres, or what version of Microsoft they should use and how to license that, they are just not interested. They are not the decision maker for that, and they do not want to be.
You only have so much resource; if I were to say to my guys: ‘let's go and focus on selling Salesforce, or selling Microsoft CPM to marketing managers', I am sure they would be successful. But that would take time away from selling to the IT people who know and love us. And I am a great believer in sticking to your knitting and doing what you are good at.
The European Elite is a major new project from Channelnomics Europe, the centrepiece of which is a report profiling the 200 biggest and brightest companies currently operating in the European channel - as well as 125 Ones to Watch, and 500 Best of the Rest. With more than 800 resellers, MSPs, ISVs, system builders, outsourcers and other technology specialists featured, the document provides a comprehensive overview of the players that are currently defining and shaping the market across Europe, as well as those that will do so in the years to come.
The 60-page report will be available in full - free of charge - early next week, so make sure you stay tuned to Channelnomics.eu