Jos White: How I made $700 million
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Jos White, co-founder of MessageLabs, tells GB about the company’s big-ticket sale to Symantec and explains why he’s spreading the proceeds among young tech businesses through his VC firm Notion Capital.
Jos White, co-founder of MessageLabs, tells GB about the company’s big-ticket sale to Symantec and explains why he’s spreading the proceeds among young tech businesses.
When Jos White finishes his hour-long talk at London Business School, he is immediately mobbed by a horde of excited students, many of them established entrepreneurs themselves, all of whom want to hear more about how he pulled off one of the most celebrated exits in the UK technology industry just 18 months ago.
The reaction is natural given the inspirational tone of his talk. ‘Being an entrepreneur and true love are similarly unpredictable in their natures,’ is how he kicks it off. Later, he advises his audience to be ‘cocky’ about their business and to stand firm against the strong-arm tactics of bigger competitors. ‘The reason they try to bully you is that they’re scared you’ve got something that’s better than they have,’ he remarks with his piercing, transatlantic twang.
Ignorance is bliss
There’s more to the lecture than generic inspiration. He is brutally honest about how little he knew about his industry when he started (he used to call Cisco “Kisco”), and he doesn’t hide mistakes he made or the lucky breaks that are essential for any successful entrepreneur.
At the same time, he conveys how he and his brother Ben were able to grasp opportunities – the explosive growth of the internet, the pressing need to combat malware, the scalability of software-as-a-service (SaaS) – while competitors, both small and large, were left behind.
His story starts in 1992, after leaving university with an English degree. ‘I had no idea what I wanted to do with my life,’ he admits. So he joined friends in Bangkok, where he soon realised the £300 he had with him wouldn’t be enough.
‘I embarked on one of my early entrepreneurial ventures,’ he deadpans. ‘I went and bought a fake English teaching certificate. I thought I had the right to do that as I had an English degree.’
After a stint ‘teaching Thai air stewardesses English’ on the island of Koh Samui, White returned to London, where he had a less happy time working at a big advertising agency. He soon joined brother Ben and his business partner, Rory Sweet, at a company they’d founded called RBR Networks selling second-hand IBM equipment. ‘It was a horrible, cut-throat market where the margins were very tight,’ he recalls. ‘And not terribly interesting.’
It became a lot more interesting when RBR sold its first Cisco router to BT for a 100 per cent profit. It was a case of bare-faced cheek being rewarded: ‘We thought, let’s just try; they’re a big company, they probably don’t look at things too closely – and they said yes.’ But it wasn’t just a one-off. Demand for Cisco’s products was rocketing, led by early enthusiasm for networking and the internet.
‘Within about six months we were turning over £1 million a month in Cisco equipment. We were buying Cisco-approved memory for about £100 and selling it for £2,000. It was one of those times when you can’t hire people quickly enough; you can’t quite believe it’s happening, but you know you might not get another opportunity.’
The problem was that Cisco saw things differently. ‘They quickly established distributors in the UK and we got rude letters from their lawyers saying, “We’re going to shut your business down.” They wrote to our customers telling them not to buy from us.’
RBR held out well against the US company’s offensive, but it couldn’t progress further without an official mandate. So the two companies cut a deal that saw RBR become the main UK distributor of Cisco products. After 18 months, annual sales hit £90 million, but with that success came enormous cash flow pressures. When White and his partners saw the opportunity to cash in by selling RBR, they took it, making about £40 million.
‘We probably sold a little bit early,’ says White. ‘At the time, we couldn’t believe [our luck]. We were young guys and were really only interested in sales – we didn’t really understand about cash flow and things like that. I think it was the right thing to do.’
The White brothers still had one iron in the fire: an internet service provider (ISP) they’d set up in 1995 called Star Internet. As an ISP, Star was never going to deliver the kind of growth they’d seen with RBR. But out of it came opportunity number two.
‘As a water company, you filter water by the time it comes out of the tap so it’s clean,’ says White. ‘But with viruses that wasn’t the case. You had to download special software onto your PC to deal with viruses, which was very complicated. And it became even more complicated because in 1998 viruses figured out how to piggy-back on email. That became a major problem because they could spread so quickly. We were moving around tons of email, so we thought, why not scan it for viruses before delivering it?’
What seemed like a nice add-on became a spectacular success. MessageLabs was ‘the only company in the world scanning email at the internet level’ in 1999, when it was spun out of Star Internet. With tools that detected virus behaviour patterns, rather than simply spotting known malware, it was the first company to stop the infamous Love Bug virus, which was spread around the world via emails bearing the message “ILOVEYOU” and including a malicious attachment. In fact, White claims the honour of having given Love Bug its name.
Two decisions cemented MessageLabs’ market-leading position. The first was to offer a ‘100 per cent guarantee against all known and unknown viruses’. It was an audacious claim that left competitors aghast and led to a fresh deluge of legal letters, arguing that such a performance was utterly impossible in the unpredictable world of malware. ‘We told them where to put their letters,’ reflects White with satisfaction.
The second was expanding into the US, and in a big way. MessageLabs invested $15 million in the move and accepted that it would take them two to three years to hit profitability in the country. ‘[US customers] expect major support,’ White says. ‘They don’t expect you to be a UK company with a few sales guys in the US – they want to be talking to someone with an American accent.’
Errors of judgement
With rapid expansion came some acute growing pains. ‘We hired some pretty terrible people,’ White admits. ‘We got a bit taken in by candidates who gave us the corporate speak, very smooth and polished – the kind of people we wouldn’t normally have [hired] but felt we needed as we were growing. That set us back, and I regret that we didn’t follow our instincts a bit more.’
There were also some technical errors. MessageLabs scanned emails for viruses before it applied the spam filter, whereas going about it in the opposite way would have saved time and processing capacity.
Whatever the stresses behind the scenes, what the world saw was a fast-growing, innovative company that was listed in the Sunday Times Tech Track 100 for five years running. It was only a freak event, in the form of Lehman Brothers going bust, that put paid to MessageLabs’ planned IPO. But a number of potential acquirers were already circling the company, namely IBM, Cisco and Symantec.
‘[Symantec] didn’t have a SaaS story at all and they really needed to get into that faster-growing part of the market,’ says White, who adds that the company was always ‘further ahead’ than its two rivals in the negotiations. The final price agreed was $695 million in cash, five times MessageLabs’ annual revenues at the time. Completed at the nadir of the global financial crisis, the deal turned White and his brother, who had a 26 per cent stake between them, into multi-millionaires. Jos wasn’t even 40.
‘I hope I haven’t changed very much,’ he reflects. ‘Having made a bit of money from RBR, we went through the stage with the Ferraris, the Lamborghinis. Lots of ridiculous things happened then. I like to think we got it out of our system.’
Jos’s relationship with his older brother, Ben, has clearly been central to their success. Ben is ‘a bit of a lunatic’, according to Jos. ‘He thinks you almost have to be naive to be an inventor. Otherwise people tell you that things are not possible and you get put off.’ Jos sees his role as shaping Ben’s ideas into a coherent strategy. In the early days, he also provided the word skills needed to create a professional impression, dissuading Ben from naming their company “R&B Resources”, which he thought ‘sounded more like a mechanics’ yard’.
Despite the occasional digs, the brothers’ relationship seems symbiotic, even after the trials and traumas of founding three companies together. The two of them, plus three other former MessageLabs executives, have now founded Notion Capital, an investor in businesses that offer ‘internet-driven services’. The five partners have committed some £30 million to the project, and are considering raising a further fund of £100 million by bringing in outside investors.
Notion’s aim is to use the knowledge of the founders to be ‘the entrepreneurs behind the entrepreneurs’. Four investments have already been made, including innovative insurance provider Selfnet and Cellcrypt, a specialist in the encryption of mobile phone conversations – ‘the last insecure frontier’.
White’s own experiences of raising external finance have been mixed. Although MessageLabs secured £25 million of venture capital in 2000 from a range of investors, he says, ‘None of them were entrepreneurs. They were supportive as investors, they did what they could in terms of introductions and helped on the budgeting side, but we couldn’t draw on their expertise to prevent us making some of the mistakes we did.’
Certainly, when it comes to understanding what it feels like to run a fast-growing business, few put it as well as White: ‘Being an entrepreneur is like a boxer entering the ring. You’ve got to be ready. If you’ve got any doubts, you’re going to get found out.’
Year of birth: 1969
Place of birth: London
Marital status: Married, one son
Favourite book: Anna Karenina
Favourite place: My great-grandfather’s holiday house in North Devon. It was made of asbestos but had an amazing site overlooking the sand dunes. Ben and I rebuilt it in a “New England” style with big windows
Extravagance: My house in Manhattan, and old watches