Jos White, Co-Founder | MessageLabs – How We Built, Grew, & Sold for $695 in Cash – SaaSGrowth2018

So my name is Jos white I am a entrepreneur turned investor I’ve co-founded three tech businesses the most recent one was called MessageLabs which was a early SssS business and now, I’m a partner with Chris who some of you may have heard from this morning: I’m a partner at notion. So I thought that I would tell my entrepreneurial story but focus mainly on MessageLabs given MessageLabs is a SssS business and this whole event revolves around SaaS. I’m then going to touch on a few lessons learnt that I’ve kind of reflected on or that we learnt from mistakes that we made along the way, and then hopefully if we’ve got time I’ll open it up and trying to answer some questions which is often where they’re the more interesting part of the session happens and hopefully I better answer most of your questions so think about that and we’ll try and stop after about 20 minutes and and do that.

So I don’t have a technical background I actually did an English literature degree at London University and then I went into advertising so a fairly unusual background for a tech entrepreneur, but then I I joined my brother Ben, with his early his first business which was buying in buying and selling secondhand IBM equipment. This was in 1990 I think this is a horrible business to be in so avoided at all costs, barely even qualifies as tech very narrow margins, I’m not really sure what I was doing is a graduate joining my brother in this business but he’s persuasive. But what it did do is it gave us an early view of the way the market was shifting away from IBM systems and towards networking and this thing called the Internet, and this company called Cisco seemed to be at the forefront of this shift away from IBM towards networking; we’re actually in 92 we got a call from one of our customers who used to buy second-hand IBM equipment of us which was a part of BT and they asked us for a Cisco Rooter and we were calling them Kisco we had no idea who this company was and but we supplied it to BT, and then a week later they faxed through – still using the fax ends a long time ago – they fax through a whole list of equipment we sold it to them at list price we’d bought it we’d sourced it in America 50% of list price we made like a hundred grand on the deal we never made a hundred grand on any deals that we were doing in IBM. And we realized that there was something happening here and there was a big big shift happening in the market so we turned the whole company on its head and we became a Cisco supplier to the early buyers of Cisco this was before Cisco even had a presence in the UK. And so the early buyers at Cisco like the telcos BT were having to buy from Cisco directly in the US, but the trouble is with that is kind of six to eight week lead time so there they really needed a local supplier that could actually provide equipment more immediately.

So anyway we’ve got the company up really successfully we were doing a million pounds a month within six months it was just crazy crazy days we were just flying on the coattails of this amazing growth in Cisco and the the wider growth in the internet that Cisco basically built the internet. So we built that company up into the largest Cisco distributor in Europe, we sold it to data tech in 1998, so we had a we had a really good exit; I was still in my 20s made quite a lot of money bought ridiculous cars and didn’t really act very responsibly with it, but fortunately we had another business so we kept us on the straight and narrow and we were supplying a lot of the Cisco equipment to the what was called then the ISP industry the internet provider industry now we just get Internet bandwidth from our telco, but back then there was a separate industry and we felt they weren’t doing a very good job they were very much focused on art this was kind of mid 90s they’re very much focused either on the large corporate side or on the consumer side, so we set up an internet provider called Star to focus on the mid market and try and provide some real kind of hand-holding to businesses to help them get set up with the internet because back then it was very very complicated to do everyone was running Novell Networks some of you might remember; you needed a mail server in a firewall bandwidth was very in short supply so we actually co-developed a single box with Cisco to connect any network to the Internet, which we sort of made a huge amount of publicity around you know there we’re an ISP but we’re in ISP that was trying to innovate not just offer a connection but really trying to innovate and offer real solutions to businesses to help them exploit their the full potential of the internet and most high speeds we’re not doing that they were just selling bandwidth very monetised.

So star continued along this path as an ISP trying to innovate an ISP trying to offer additional services and one of the additional services we started playing around with around about 98 this 98 was there the first virus that worked out how to piggyback on email which is called Melissa. Who who remembers Melissa anyone few people i’ve quite a few people okay so viruses used to be just a sort of side issue that no one really cared about very much but once they worked out of piggyback an email became a much much more significant problem so we start we started building this kind of prototype service whereby we could actually scan the traffic while it was in transit so by the time it reached networks and individual pc’s it had already been scan. A bit like a water company scans it water, you turn on you tap in most countries anyway you turn on your tap and the waters been filtered, we thought as not as nice pee that would be an interesting proposition to the market, particularly now that viruses were riding on the back of email and they were spreading so much faster and so much more widely. 

And we quickly realized that the service that were developed potentially was actually bigger than than Star was bigger than the internet provider itself, and we were initially giving it away as a sort of value add to sell our bandwidth but that customers are often coming to us and saying well we just want your antivirus service we can’t deal with these email viruses but we’re happy with our internet. So we felt again that we were kind of in the right place at the right time we had a real solution to this growing email virus threat. And we set up message labs in 2000 to kind of scale up the technology and to really focus on the data, we realized that in moving the antivirus process into the cloud that we could deploy a more data-driven approach to recognising viruses to recognise a malware so we could look at which is often one of the advantages of a cloud-based businesses you have you exposed to massive amounts of data so we realized that we could look at things like the the reputation of the sender, like if it’s coming from China that would have a higher point score. We could look at their movement patterns within the email, so we realized when an email contained a virus it always followed a very distinct pattern and we painted a lot of traffic pattern recognition technology and we could look inside the email itself for any signs of a previous virus, because they’re always derivative of what’s come before. So by doing that we could actually predictively recognize new threats without needing traditional AV software works in a reactive way so it was designed in a pre-internet world you download software every 30 days which is a default window I think you download updates and the update looks for an exact match for a fingerprint of the new threat. But we realized by using the data we were exposed to we can actually identify new threats predictively and we could stop them from ever reaching our customers networks. And this was a huge breakthrough at the time we set up MessageLabs in January 2000, in May of 2000 was the lovebug virus probably the most famous email virus we actually we stopped that virus several days before anyone else in the world, we named the virus, we actually had a the The Times contacted us we were just in the middle of nowhere in Gloucestershire, we always joked that we we read the manual wrong and we instead of setting up in Silicon Valley we set up in Stroud Valley. So we were in the middle of nowhere and the time said oh we want to come and take a picture of the team that stopped the lovebug, we were on the TV and cannae getting some worldwide recognition and there was like seven of us or something and so we actually got all the people from all the surrounding offices together and we gave them all a MessageLabs a t-shirt and still to this day we’ve got a picture the front page of the of the times the team that stopped the love bug and I don’t know any of them but it was a massive effort for this tiny company in Gloucestershire it put us on the on the map it really put us on the world stage, and it was incredibly exciting times. And then we realized we went from antivirus to anti-spam, we realized we could deploy much of the same technology to spammers, we had two viruses.

I moved to the US in 2002 to run our us operation which was a big big challenge and an amazing learning curve for me, and I actually, I thought I’d spend a couple of years there and move back get things set up and move back and actually ended up spending, only moved back two years ago, so spending 14 years and Neil I had an amazing time. And we scaled the company up pretty successfully around the world.

So fast forwarding to 2008 we were gearing up for an IPO so we had about 600 people we were scanning we were the biggest processor of email in the world we were scanning about 3 billion emails every day, we had about 150 million dollars of ARR, so we were the third largest business in the world behind Salesforce and WebEx ,so we were gearing up for a big IPO. I’m not sure that we were ready to go public to be honest because we were still quite young and irresponsible, but we had a we had bankers appointed we had our s1 written, and then unfortunately it was 2008 and the markets crashed and we had we had to pull the IPO back two or three months before we ever ever got out there which was a real shame, because I think we we had a bigger vision to actually scan not just email but scan all forms of Internet traffic and I think we could have gone on to be like their consolidator, rather than the company being bought and really been a big, an even bigger public company public SaaS company that was built out of Europe, but it the timing was unfortunately against us. But we were we were kind of running a dual track process and we were talking to possible buyers at the same time as planning to go public and we were talking to IBM and Symantec and Cisco actually, and we ended up selling to Symantec for about seven hundred million dollars, right in the teeth of the of the meltdown in the financial markets which was kind of bizarre. We actually set the price in pounds which was four hundred million pounds, and then we had a lot of us-based shareholders and then literally within the space of about two weeks when Lehman’s went bust and the whole meltdown happened, the pound crashed the pan was worth we went from two to one to about one point four to one in the space of about three or four weeks and suddenly our US shareholders will saying well hang on now what I thought I was going to get in dollars has been reduced by about thirty to forty percent. So very very difficult negotiating process, our CFO Steven Charlie who is now another partner at notion brilliant negotiater, and managed to kind of manage it through I think it was strategically really important for Symantec to acquire MessageLabs, so and but we were kind of nervous all the way all the way to the actual day of signing that they make they might just turn around and say that they’re not doing deals right now, because the whole world was kind of you know in this full meltdown. 

But we we got the deal done it was very very exciting I think it actually proved to be a very important acquisition for Symantec if you heard them on their quarterly update cause talking to the public markets they would always reference MessageLabs, MessageLabs turned into a Symantec.cloud; their whole kind of SaaS division was built off the MessageLabs platform, and I think they recognized that you know the traditional software market was in decline, they didn’t really have a SaaS story so I think MessageLabs really gave them a foothold in the emerging SaaS market, that they’ve really built up pretty significantly now, I think there’s no worth something like half a billion dollars, at a very very high multiple, so it’s a big big contributory factor to their overall valuation. So that’s a bit of a kind of entrepreneurial history where I’ve come from the kind of different businesses that I’ve been involved with MessageLabs was a was interesting for lots of different reasons but it was actually one of the world’s first SaaS businesses when we set it up the term shaft didn’t even exist so we’re actually we were calling ourselves a an ASP, which was an application service provider which was a market, which was a term that sort of came in and then disappeared again pretty quickly ,but this was around about the time when Marc Benioff the the founder of Salesforce was pushing this whole no software thing, and this the original Salesforce logo which they still use was a software, and a there was a circle around it with that kind of line sort of red line through software. And I remember him in 2000-2001 add an ASP conference ASP conferences didn’t last very long by the way, but yet one of the few ASP conferences he was walking up and down, with a sandwich board with the no software sign on it sort of you know predicting that the end the end of software was coming, the end of software is coming it’s going to be all in the cloud! And people thought he was just nuts this guy you know no one knew who he was Salesforce was still a relatively small company, but you know we were there really very very early in the market, it was just it was an amazing time looking back on it I don’t think we realized how lucky we were or how well we were doing until the market started to emerge and the multiples and revenue in the acquisition that we had, but it was a it was a thrilling ride and you know just is very very exciting, but we we we obviously and it all sounds very smooth sailing, but we we made a ton of mistakes and the business was hanging by a thread multiple times, but I think that you learn you learn more from your mistakes right than you do from what you do well. I think that we were good at certain things but we we were quick learners and we definitely made our share of mistakes.

So I just had a note here, and want to leave time for questions but I’m just going to touch on a couple of kind of lessons learnt there I reflect on a MessageLabs. The first one is that and I think you always need a bit of luck, so I think that you know that we as we had the ISP and then the first Melissa the first virus that worked at a piggyback an email, combined with we were based in Cirencester which is just so funny that we were based in Cirencester, because it’s basically a farming town, but in Cirencester there’s this place called QA training which is one of the top training centres in the UK they’ve trained a lot of the top CTOs and all other trainers have full-time jobs but they come and train part-time as well because they like to keep abreast of all the latest developments and everything. We got our top three techies from QA training so if QA training hadn’t been in cirencester, if we hadn’t had an ISP, if everything hadn’t come together in that way you know if the cloud hadn’t just been emerging and there’s a lot of things that came together, so you definitely you definitely need some luck I think in in in the success that you have. But I think that when you have that luck, you then need to really have the courage of your conviction and to really double down on it and just throw everything at it your time your money your belief, so I think it’s a combination of luck and conviction that can really deliver great results, but I think we’re we’re pretty humble at MessageLabs about you know we were lucky a lot of things came together at the right time and a lot of those we couldn’t control, but I think what we’re really good at partly because we’ve had we’d had some success before we were really good at seizing that opportunity and having that conviction and just going all out to take it take advantage of it. So that was the first one.

The second one is raise money raise the right money from the right people so we were fortunate of message elves that we only we only actually raised one funding round and we raised it in 2000. Again kind of lucky but just before the dot-com crash but what we did is we had stars in our eyes, and we just chased after the investor that was prepared to give us the highest valuation because we thought that that was just amazing, but we actually, now that I understand the investment market much better we didn’t really know the investor market at all, it’s actually a combination of raising the right money at the right valuation but also the right people so we chased the valuation we then ended up with one investor, our lead investor was a private equity company called Madison Dearborn they knew nothing about tech they had entered venture capital because it was .com boom everyone was into entering venture capital they backed out of ventured venture capitalist as quickly as they came into it we were left as an orphan in their portfolio, we didn’t have any support it was it was difficult and and and they the other investor were supportive but they were they all had a kind of financial background, and so they they weren’t able to kind of support us on that operational level, so I think a lot of what we did was kind of in isolation. I think we were quick learners but I think when I look back on it we didn’t have a lot of outside help we didn’t have a lot of outside mentors or reference points, or you know investors that we could lean on in that way, and I think it would have really helped us if we had So I think there’s more to raising money than just the valuation.

Third point is is focus. This is a really obvious point but we got very carried away at message ads about delivering additional services. Our average revenue per user started to dip because the market became more competitive we thought oh we gotta add more products, we gotta add more products, so we added an encryption service we added an archiving service and actually they were massively distracting, and I think they took us away from our security focus which is what we were known for what, the whole brand was built ran security and I don’t think it was the right thing to do I think we should have the market for antivirus anti-spam is it was was huge it is still huge and I think we could have continued we could have continued just focusing on security and I think the way we strayed away from that wasn’t wasn’t a good idea. I always reference the story that I i heard Johnny I’ve from Apple talking about what the biggest thing he learnt from Steve Jobs, and he said the biggest thing I learned was the importance of focus. And that Steve would come around every week and he’d asked me you know you are focusing on this aren’t you Johnny? And he said of course, and you know Johnny and you know anything else that he kind of was looking at, hide away when Steve was coming to see him and then Steve Jobs would say okay well if you really are just focusing on what what you should be focusing on you know tell me what what have you decided not to do, what have you discarded, and then you say oh god I wasn’t ready for that so he had to always be ready with not just what is focusing on but we decided not to focus on. So everyone talks about focus and it almost becomes such a vague term that you can’t get your you can’t get your you know sort of you can’t get a grasp of, but I think it’s important to think about not just what you’re focusing on, but what you’ve consciously decided not to focus on, and whether that’s your target market you know chasing after customers building different versions of the product can generally be a disaster or whether that’s your product strategy you know for us staying on the security strategy. I think that the importance of focus true focus and that kind of discipline is really really important when you’re going to be surrounded by so many options and opportunities.

Product strategy so this is something that we had a big problem with at MessageLabs; I think that we we invented this new thing which was cloud-based antivirus anti-spam but how we then iterated the product I think you need to take all kinds of input so your take inputs from your sales team, your marketing team, your product team, you take inputs from the market, from customers, from partners from analysts, from media, and I think that we weren’t fully ready for that and I think we we had so many inputs coming into our kind of product development product roadmap process that the whole thing just kind of ground to a halt. And we found the decision-making around what to prioritize and what not to prioritize very very hard, and I think that over time we learn to deal with that and I think the best thing you can do with that is to decide on what your longer-term product strategy is. You know for us what MessageLabs it was all about security we want to be the best at protecting our customers we want to be the best at identifying threats, stopping them reaching our customers so we are prepared to compromise on the user interface with prepared to compromise on you know some of the some of their kind of user experience or some other kind of side functionality, what we’re not going to compromise on is is is the security protection aspect so I think once we kind of distill that down that really helped us with our decision-making about what to prioritize and what not to prioritize on, but actually we hadn’t done that work, and when we hadn’t done that work, we found it incredibly hard to kind of synthesize all these inputs and make sense of them so I think that’s that’s a big learning, and I think also if you’ve got a clear long-term product strategy this is what we’re going to be the best in the world at this is what we’re okay just being on market you know, just being sort of average at this is what we’re okay bringing in third party products if you’ve got clarity around that you can then get alignment with your customers and with your partner’s so when customers say, oh you need to build me that, or you need to build me that you say well hang on we had this conversation you know what our product strategy is you know what we’re you know we’re we’re we’re not going to compromise, and this doesn’t fit with that we’ve we’ve had that you can refer back to the conversation that you had, which helps I think with the customers you then you know once something that’s specific to them, but maybe it’s not going to help your customer base.

Okay I’ll just touch on a couple more and then would do some questions, and people, Chris probably talked a lot about this but I think they’re them when we were growing really rapidly we were taking on I don’t know 10 20 people a month, something like that it was just crazy, and I think over time certainly in certain departments we started to compromise on the quality of the people, because you said we just would you kind of throw people at it we’ve got to get more and more people in. But I think that the the early hires that it’s it’s so much more important to think about quality then think about quantity, because the early hires really sets the DNA for the organization; if you get those people right they will then reinforce that approach with the people that they hire, and you’re building that kind of bedrock of the organization. And I think that when we did thats, they went on to do great things in the company, when we started to compromise on the quality or compromise on the kind of cultural alignment we often found that we had we had we had trouble, not just with the people that was brought in but then the people that they would hire, and before you know it you’ve got a little Enclave in the company, that doesn’t reflect the the values doesn’t reflect the mission that you’re on so I think that both the quality and the cultural alignment is really important particularly in the in the early days. We actually were desperate to get any engineers into Gloucestershire difficult thing to do, and we started to really compromise on the cultural alignment and before we knew it everyone was that the engineers were literally not all the engineers there was a group of engineers literally as soon as the second hand hit one o’clock would all just disappear and sit in their cars, reading the newspaper ,and eating sandwiches until the dot of two o’clock and they’d come back in. And no one else from the company then the early did no one had even read their employment contract well you know we’re on a mission this is what we’re all about and it really shocked us like suddenly there was a little kind of Union in the in the engineering team, and once you get that very difficult to fix it, very difficult to fix it so I think that that culture alignments very important I also think that if you aim to make a kind of game-changing hire at least one game-changing hire every year so someone break the bank, break the mould, do whatever you need to do but someone who changes the game, changes the trajectory that you’re on. You can see when they joined and the impact that they had they raise the standard for everyone they make everyone strive high or reach higher, so I think that that that is that is really important 

So I’m just going to mention one other thing which is that we we had two main competitors one was a front bridge which was acquired by Microsoft in 2005, I think, and then we had our competitor who was based in Silicon Valley called Postini, who actually was founded almost exactly the same time as us and we brought business twice the size of them so it can be done out of Europe. Postini was acquired by Google in 2006, so and I remember I was talking to someone in a bar in New York and it hadn’t I hadn’t really played it back to myself but they say oh you know what do you do and I said oh we do you know we do this cloud base antivirus, ah right that’s interesting who are your competitors and I said oh and Microsoft and Google and I remember them looking at me just game, right well good luck with that and actually not only that but Google then I started offering the service for free, and I remember for several weeks we were walking around MessageLabs thinking well that’s it you know we’re done we can’t compete, what are we going to do and actually it helped us in both cases it helped us because most of the best people left, Postini had to move to Mountain View Google in dropping the price just lost all credibility for the service we started talking about well you know if you’re offered cut price brain surgery, would you take it? And so we had this whole theme around security, and being enterprise strength and Google’s not then press company and you know these big companies are just not focused they’re not focused they’re not agile they’re not quick moving enough that I’m the same kind of culture that you can happen as a smaller company, you just need to take advantage of that. So my lesson there was big competitors and not as scary as you think they really are not it’s almost always a good thing when you’re when your competition gets bought by a big competitor I think you can then leverage your advantages and you can you know you can compete effectively.

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