Phil Doye on his industry return, Mopane worm farming and the 'worrying complacency' of his competitors
Kelway founder unveils his growth plans for SBL following three years out investing in fields such as fintech, sharing economy, healthtech and consumer apps
Industry stalwart Phil Doye recently bounced back into the channel by acquiring Microsoft partner SBL.
Talking to CRN, Doye reflects on his growth plans for the York-based outfit, and how the industry has changed since he sold Kelway in 2015...
It's been four years since you sold Kelway. Why did you decide to make an industry return?
I am naturally inquisitive and during three years out, I really enjoyed looking at lots of different areas, investing in a whole range of things and discovering some of the areas that previously Kelway had provided IT to enable. These have included fintech, renewable energy, the sharing economy, AI, healthtech, biotech and a number of consumer apps and platforms.
I feel like I've got different eyes coming back into this industry
Although I remained in contact with people and kept a watching brief on what was going on, most of my time was spent just learning how to become an investor, rather than a manager of a business. If you want to know about reverse convertibles, credit default swaps or fx options then I am now your man. Servers and storage less so!!
There was always one thing that really nagged at me as the thing that I missed. I could make an investment in something and maybe that investment will go up and I'll be happy, or it will go down and I'll be annoyed. But it's very, very passive. I missed being part of a team, a company that actually was trying to do things.
I'm in no way coming back because I want or need to make money, although if we are successful then that will be a positive side effect of it. I wanted to be involved in something that gave me an opportunity see other people develop and achieve things.
Why come back into the industry that I originally left? I think there's a very simple answer to that. Although I've become an expert in other areas, I don't live and breathe that. I felt coming back into an industry which I really understand made more sense than trying to go and buy a business that was doing something completely different. Farming Mopane worms in South Africa (Doye pictured with Mopane worm, below) was definitely not an area of expertise!!
The other thing is that it's very difficult to find any other business sector that has the same potential market size as the market we exist in.
And why SBL?
I was approached by the managers or owners of SBL. SBL has been a mystery to a lot of people for many years. It's very York centric and doesn't really talk about itself. No one really knew what it did. They just assumed it did a huge Microsoft number in the public sector and predominantly in defence. And actually, as I got to know the owners, the management team and the business, it just felt like this is a place that is crying out for some ambition and some leadership. The exciting bit is all the things that it hasn't done, rather than the things that it has done. And if you look at the size, it's already a top 20 VAR by size. With the recent MoD contract, in terms of revenue - and you can take or leave whether revenues are important - it will be well within the top 20 in the CRN list: somewhere around £220 million revenue for this year. There weren't many businesses the scale of SBL that were available for a price point that I felt was competitive.
Can you quantify the opportunity you see at SBL?
It's clearly very well established and respected in the markets that it serves and has been for a very, very long time.
However, it has some very under leveraged parts of the business. Its services businesses is sub-scale, and there's an opportunity to grow that. The customers have a high degree of trust in SBL and are very prepared to work with [us] to create some new solutions and services, so there's a really good opportunity to grow within the existing customer base.
SBL is very York centric and doesn't really talk about itself. No one really knew what it did.
SBL sits on a large number of public sector frameworks and has various security-focused specialisations. As a result it is a leader in the defence market where some of our competitors have found it difficult to gain access to.
And I think because it's been under invested in for a number of years, there is an opportunity to almost bypass a lot of the investment that's been made over the last five years in resellers - which may or may not be the right investments - to create a much more modern business that addresses the customer experience in a different way.
I have had the opportunity, over the past three years, to explore so many business and technologies. I have seen where venture money is being spent and experienced first hand some of the technologies that will dramatically change our lives. I feel like there's so much more new tech that can be applied to a business like ours. And I think because there hasn't been a huge investment over the last five to 10 years in the business, we're not limited by legacy. We can almost jump straight to the next level.
And I think the second thing that has been relatively untapped is the corporate market. And clearly that's where Kelway was stronger. And I feel like there's a really good opportunity to create a compelling, commercial offering as well.
When you talk about making the right investments, is there anything specifically you're thinking about?
What I'm talking about is the customer experience. We want to enable our customers to work with us in a different way to which they can with our competitors. To do this we have to invest in solutions and services that are built on cloud and mobile-first infrastructure that utilises automation and ai to increase efficiency and insight. If you look at the traditional VARs, most of them are running their businesses on very old, legacy ERP systems that have almost become too big to address. So they all have challenges around how they evolve their platforms to meet the requirements of a more modern subscription-based consumption requirements from their customers.
How has the industry changed, if at all, since you sold Kelway and left to CDW?
During my experience outside of the industry, I've been looking at a lot more start-ups, scale ups and tech businesses and the first thing I noticed was how the majority of channel businesses in the UK are still run predominantly by the same aging white men. I know I fall into that category so accept that I am part of the problem.
There's obviously been lots of steps around diversity and women in tech, and CRN has led with some really positive initiatives. But actually, when you go to partner forums, you look around the room and you're still looking at the same set of people. I found it incredibly depressing - just coming back and thinking, 'goodness me, this hasn't changed; it's just the same'. It's not just gender diversity but also age and cultural diversity that needs better representation.
In the last three to five years it's been a golden time for the reseller world. The reality is if I had Kelway was sold. today, there's no question that it would have been worth well in excess of £1bn. The multiples that have been applied to traditional VAR businesses have been stretch beyond recognition. Don't get me wrong I think the channel has a unique position in the market and historically that has been undervalued however when Graeme [Watt] joined Softcat 18 months ago, the business had a market cap of £1bn. It's now close to £2bn. Are you telling me in 18 months that Softcat has become inherently twice as valuable?
Even against the backdrop of a sustained global economic growth and the longest bull market in history businesses like ours have been standout performers. You can look at Bechtle. You can look at Cancom. You can look at CDW. You can look at Softcat. All of those businesses have enjoyed a massive re-rating in value.
And because of that, and the incredibly positive market conditions, I think there is a latent complacency about what will happen if things aren't so good. Good times might be here to stay. But if you look at some of the businesses that you might have historically thought, they're not going to succeed, if you look at the last three or 4 years, they've all performed very well. Very few businesses have not grown and not improved profitability. It's been a golden time where all boats have risen on a high tide. And it's noticeable to me that there is a worrying complacency.
The IT marketplace exists in this bubble. When I look at other businesses I've invested in, they wouldn't have the requirements for an IT VAR in the same way that people with huge amounts of legacy IT systems have. For many of them hybrid is not even a question as they are all in on public cloud and SAAS. There's this very fast-growing, disruptive engine room of the economy with new companies that are doing x, y and z. And for the events I've gone to, it just feels like lots of people in the market just aren't aware of it.
I feel like I've got different eyes coming back into this industry.
Is there anything else that gives you cause for concern?
The other thing that has really benefited [VARs], is the very buoyant environment around workspace. Devices have proliferated and become more expensive by unit price. Who would have predicted the first £1000+ iphone? There's been a been a huge uplift in a part of the business that, five years ago, people were saying ‘why do you want to sell PCs or laptops?' Now people are saying ‘well, that's actually driving a significant portion of our growth'.
When I talk about complacency, the problem is you don't actually know when it's going to hit. People take the view that these market conditions will continue indefinitely. And I'm not convinced.
The other thing is, if you look at the new vendors that people need to partner with, the return with them is less attractive than it would have been historically with some of the traditional vendor. Whether that be Amazon or Google or whoever, they're seeing a path to using the channel to assist them but maybe not in the same level of profitability.
The market is now clearly dominated by a smaller number of larger partners. Despite our £220m, we're still relatively small.
Are acquisitions part of your plan at SBL?
The focus right now is on strengthening the SBL engine and evolving the ambition and culture of the business. Acquisitions are definitely on the agenda but timing is less certain.
We're not going to make any great claims about what we're going to achieve and by when. What we're really focusing on is evolving SBL, which was a very steady unambitious business, into an ambitious and high-performance company. And that's going to take some time. We need to change the culture in the business and we need to bring in more people into the business. There's no guarantee that what we're trying to do at SBL will be successful. I think we have a good roadmap of what we think we should be doing. To evolve the company in the way that we're trying to evolve it is not without its risks and challenges.
We brought in a couple of senior people from CDW. One has come in to head our corporate sales team and another one to head up our digital strategy around both cloud and managed services. We have also put in place a London office just to give us some presence. But there isn't any big bold statement about ‘we're going to do by x by this this amount of time'. So don't expect too much too soon.
You recently won a nine-figure MoD deal. How important is that for SBL?
It's worth £190m over three years and potentially £290m over five years. You'll see our numbers when they come out that [revenue] has gone from £150m to £220m but that profitability hasn't really changed. And that's because we took a very big deal at a low margin. It was a strategic decision to bid in that way and winning it was a big endorsement that SBL is a business people want to work with.
You mentioned SBL being York-centric. Is it easier to recruit talented staff in York than in London?
York suffers from the same skills shortage as everywhere else. We have made really good progress with establishing a partnership with York University. It is a leading university with a strong computer science department. CRN are always talking about skills gaps. Lots of students love York and would stay there if there were the right jobs ... we want to make that possible.
Has the competitive landscape changed at all since you sold Kelway?
The market is now clearly dominated by a smaller number of larger partners. Despite our £220m, we're still relatively small. So it's really hard to get the critical mass to compete with some of the larger players whether it's a Softcat, CDW or Insight. If you look at the resources that the vendors are putting into those businesses, it's significantly higher.
What's the most overrated buzzword around right now?
I think AI is definitely misunderstood and overrated in the industry. If you asked people to just explain what AI is, very few people can verbalise that in any credible way at all. We're great at these buzzwords - ‘we're going to be AI-first and we're going to do this we're going to do that'. Yeah, I would say AI is underrated long term, but short term it's overrated.
What do you make of the term ‘digital transformation'?
It's been a huge boon to everyone because every organisation is in a race against time to ensure they are taking advantage of the most modern and best technology to take their business forward. It comes back to my point about why I came back into this market. Because it has the market size, and digital transformation is just driving that market size to become even larger.