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Kelway’s Phil Doye: Now for the big time

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First of all, a quick résumé. A young man starts his own business at the age of 21, selling fax rolls, printer cartridges and cables to medium-sized businesses. Riding on the back of the technology boom, he grows it into a £12m business by 2000 and ratchets sales up to £45m by 2006. Then, he tries to sell the business – there are no takers except for a VC outfit, which values the company at £20m and takes a 25 per cent stake. Then he makes his first acquisition; the experience is brutal but transformational. Growth accelerates. In its most recent year ending March 2011, it is a £255m enterprise and is shooting for £320m this year with an Ebitda of £17m. Next stop, £500m. The young man – okay, he’s now past 40 – is now selling IT solutions to Microsoft, is feted by tech titans such as Cisco and Dell, and has 30 of the FTSE 100 on his customer books. “We are building a world-class company,” he says quietly, undemonstratively.

There is quite an entrepreneurial legacy in the business of selling computers to business. Think of Sir Peter Rigby’s giant SCH, founded in the mid-seventies, or of Philip Hulme and Sir Peter Ogden starting up Computacenter in 1981. 

Phil Doye and Kelway look well set to join this particular firmament. 

Doye’s is one of the most interesting untold stories in business today. There are many lessons for any entrepreneur building an enterprise of true scale but what comes through most clearly is Doye’s constant (even relentless) search to do things better and a fierce desire to confront his own – and his company’s – weaknesses. 

He’s a naturally shy man, the third (and least academic) of four siblings. His father was a merchant banker, so he was always exposed to business. He left school at 16 and had several years of knockbacks – a brief apprenticeship, dropping out of university, a trainee job in the City that ended in redundancy – before, almost accidentally, starting his own business.

Working as a sales trainee in a computer supplies business (which included being literally thwacked around the head with a ruler by his boss whenever he used a closed question in a phone call to a prospect customer), Doye started to go to an evening business class. 

“The boss said to me one day: ‘I hear you are going to set up on your own.’ I said: ‘Well, I have thought about it.’ He said I could either leave or become his sales manager. So I said: ‘Okay, I’ll leave.’ It was as simple as that: I left the company at about 11.30am that morning and that was that. I hadn’t planned it.”

In 1990, Kelway Computer Supplies was born. (The name is Doye’s middle name. All his brothers and children also have it.) The grafting salesman built it up tidily; apart from one year, it always grew. These were the learning years.

In 2000, with sales of £12m, Doye hired a quartet of new people – all of whom are still in the business – including Dan Laws, who is now Kelway’s managing director. The fresh blood charged up the company and the pace of sales accelerated.

For Doye, however, this period is recalled with a sense of personal frustration. “Lots of good stuff was being done but I was gradually becoming less operationally important. I didn’t do a lot. I was just sitting with the purchasing team, buying stuff. It was nonsensical.”

The crucial year was 2006. Kelway was pulling in £45m in sales at the time. Doye thought it was time to sell. (He had tried three years earlier but there had been nary a sniff of interest.) 

Yet again, not a single prospective buyer came forward. But Core Capital valued Kelway at £20m and offered to buy a 25 per cent stake. Doye accepted.

For many, a £5m cheque would have been ample. But it proved to be the catalyst for Doye to transform his business.

For one thing, he was angry. “The rejection of our business by so many of our peers sparked a burning desire to prove them wrong,” he says. The formal sale process taught him much. “If you want to know how to develop your business, try to sell it. That will tell you where you are doing things well and it will absolutely tell you where you are doing things not so well and where your competitors are doing things better than you.”

The acquisition journey

So Doye started to acquire. The first, Elcom in 2007, was the most significant. 

It was a stormy rite of passage. Not only was Kelway buying its first business – and one out of administration to boot – Doye and his young management team were being questioned by the new VC shareholders. At the same time, the main part of the business was going to pot as it continued to grow while their eyes were off the ball. He and Laws both recall the period with a shudder. “I felt completely unsuited to run a business of that size,” says Doye. “I felt entirely inadequate.”

“It was incredibly pressurised,” admits Dan Laws. “But the kinds of things we were having to do set the precedent. We came out the back of it stronger and more confident. Nothing was ever going to be as bad as that again.”

“We are where we are now because of those horrifically bad times,” adds Doye. “It forced us to learn very quickly. When you see everything that you’ve worked for in your company go a little bit awry, you have to make really difficult decisions. That ability has stayed with us.”

And the numbers told their own story. The acquisition of Elcom allowed Kelway to double in size. Coinciding with stronger organic growth, Kelway broke through the glass ceiling of its industry – the £100m turnover mark – and started to recruit sales people from its competitors.

Other acquisitions followed. But the most important transaction since Elcom has been its most recent – that of ISC. It doesn’t just continue to bulk up revenues – adding another £55m – it’s how ISC changes the shape and knowledge base of Kelway that is important. “ISC brings new skills, new relationships with vendors, and a knowledge of cloud computing. It contributes to the platform that we want to build over the next 12 months,” says Doye.

Doye is bracingly honest and bold in addressing Kelway’s human and market challenges. Being ready to change is his constant theme.

For example, his stated aim is to make Kelway “the number one provider of IT managed services to the mid-market within two years”. From where Kelway is right now in that space, he has got a lot of catching up to do. 

Providing and delivering the required quality and array of services means a big investment in change. It’s a completely different ball game from delivering products. Deliver a computer late, and your customer may forgive you. Bring down a customer’s email infrastructure for a couple of hours, and your customer may never forgive you.

Doye acknowledges that not every single member of Kelway’s current sales team will be up to these changes but he thinks that most of them will rise to the challenge: “There is a desire among the sales team to really develop. Smart sales guys realise that they can’t just stick to the status quo. They have to evolve.”

Is Kelway ready for the “consumerisation” of technology – where iPad and smartphone-toting employees are no longer willing to put up with creaking old corporate networks?

“The challenge is to enable businesses to give their staff access to their systems through consumer devices, in a way that is more user-friendly. At the same time, we have to consider data and systems security. You can’t just open the front door and let everybody in.”

Cloud on the horizon

Cloud computing is a massive disruptor for the IT channel market. New competitors have emerged. Amazon will generate $1bn of revenues this year from providing cloud computing services. 

Says Laws: “Imagine the scenario: ‘I was going to buy a load of servers from you last week but then I realised I could buy them from Amazon in their virtual cloud for £1.99 per week.’ It’s crazy. And that’s £50,000 of revenue… gone.”

Three years ago, not many technology resellers would have perceived an online retailer as one of its potentially biggest competitive threats.

There is a big “however”, however. Cloud computing provides Kelway with a whole new business opportunity and financial model. Damn the torpedoes, cloud could be Kelway’s next battleship. 

“Cloud means that we can talk to customers in a different way. They don’t need to make a massive upfront capital outlay for technology that might soon be out of date. We can own the infrastructure and manage both the hardware and software application layers. For the client, this moves IT from a capex to an op-ex model. For us, it means recurring, contracted revenue – and the value of our business will shoot up.”

All of this depends on the growing army of Kelway employees. With the ISC acquisition, the payroll is now roughly 750.

So Doye’s question now is: “Do we have enough talent? No, we don’t.”

An Arsenal fan, Doye laments the trophy-less years of his club and draws an analogy: “They haven’t recruited the right type of talent.” It’s not a mistake he intends to make. As a pride of lions shows no mercy to one that displays weakness, so Doye doesn’t flinch from removing people “who cannot go to the next level”. He adds: “That would only hold our business back.”

Interestingly, he won’t graft on senior management from those companies he has bought. In fact, the opposite. The guillotine comes out. 

No earn-out burn-out

“We don’t hang around. Out of all the acquisitions we’ve done, not one of them had an earn-out. We felt they would be dysfunctional. We will pay what we think is the value and we will build the upside. We won’t rely on an existing manager to do that.”

The challenges that Doye faces are about how Kelway becomes a big company…without becoming “a big company”. How to retain the passion? How to remain agile? How to hunt out exceptional people? How to differentiate from the competition?

Such adventures are never easy. But Kelway looks good for it. It is now a player of scale; there aren’t many orders it can’t go for. Large private-equity houses are queuing up to provide funding. Higher margin services now contribute 20 per cent of sales – and that will grow. International revenues are already ten per cent of turnover, extending Kelway’s footprint among global corporations. 

And it’s got that most precious commodity – momentum. “This is a work in progress,” he says, with a hungry, fixed stare. You bet it is.

Read the outtakes from our interview with Phil Doye here.

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