Michael Murphy: Murphy’s Law

It’s a brave man who becomes CEO of internet colossus Friends Reunited at a time when its phenomenal growth appears to be stalling. But from day one, Michael Murphy set about strengthening the brand, turning a potential one-trick wonder into an attractive acquisition for media giant ITV.

Friends Reunited has a presence in the national consciousness that other UK companies can only dream of emulating. Such is the power of the brand that most people, from most walks of life and generations, have either heard of the reunion website, registered their details on it or signed up to use one of its services.

The site has the eighth largest online presence in the UK and 15 million users – that’s roughly half of all UK adults with internet access. Those are the kind of figures that make marketing men salivate. At the helm of the enterprise is the affable Michael Murphy, the man responsible for making sure these figures are not just maintained but improved upon – a tough task in the crowded and ever-evolving media internet mélange.

‘Luckily, I’m pretty driven and not afraid of hard work,’ laughs Murphy, acknowledging the challenge he set himself by taking over from the founders of Friends Reunited to become CEO in February 2003.

Since then, he and his team have launched four new services, including Genes Reunited and Friends Reunited Jobs, more than doubled the number of employees and launched or acquired operations around the world. Profits lifted from £1.6 million in 2001 to £4.6 million in 2005. ‘The key to growth in this business is having a firm grip on the numbers. Every morning I look at the figures for how many new users we’ve got the previous day. Then we can react quickly to market changes.

‘There’s no point waiting until a monthly meeting to find this stuff out about your business. We have weekly, and sometimes daily, management meetings. I guess my background has given me a solid commercial awareness and financial understanding.’
Indeed, Murphy’s credentials are impressive and underscore why Friends Reunited is in safe hands. Born in 1965 in Lewisham, southeast London, he says his parents ‘were not at all entrepreneurial, though they were pretty brave.

‘My mum worked in social services, my dad was a lorry driver, and they came over from Ireland at a young age to get jobs, working hard to make ends meet.

‘As a result, I suppose the concept of making an honest living was instilled in me from a young age – I started working a milk round at 11 years old and by 14 had three jobs. At 15, I left school, believing as a young lad that earning money was more important than qualifications. I bought my first car aged 17, paid for with my wages, and my first house aged 19. You could say I realised the benefits of being entrepreneurial quite early on!’

Shaking up the media

At 18, Murphy joined Westminster Press, then part of the Pearson empire. That was the start of his meteoric career trajectory, becoming managing director responsible for 350 staff of the Free Press Group at just 30 years of age, followed by worldwide commercial director of Financial Times UK three years later and then managing director of FT Business, ultimately becoming COO of the Financial Times at 36. Along the way he grew FT Business, publisher of Investors’ Chronicle and The Banker, from £1 million profit in 1999 to record profits of £10 million a year later, and turned around the fortunes of the online edition, FT.com, which had been making an annual loss of £100 million.

‘I approached the chief executive at the time, Stephen Hill, and made the bold offer to buy FT Business!’ Murphy recalls with glee. ‘I said, “You don’t really want these magazines, why don’t you let me run them?” My entrepreneurial streak was driving me to own something.’

Hill and Murphy joined forces to try and buy the firm, leaving in order to do so, but the deal fell through in the summer of 2002. Rather than jump back into the business Murphy decided to take a break and seek other opportunities, teaming up with venture capitalists to look for an appropriate buy-in, which is how he appeared on the radar of Friends Reunited founders, Stephen Pankhurst and Jason Porter.

‘Within six months, I had two deals on the table,’ remembers Murphy. ‘One was an offer to run a major contract magazine publishing business in the North, the other was to lead Friends Reunited.’

Riding the deal rollercoaster
‘The contract publishing deal looked certain to go ahead,’ says Murphy, ‘whereas the Friends Reunited proposal raised concerns, bearing in mind we’d just had the internet boom and bust.

‘Private equity fund Porteous was backing the Friends Reunited MBI and was nervous about the downturn in the technology sector and the fact that Friends Reunited’s revenue growth was declining. Despite these misgivings, I believed there was considerable potential to develop the business. It was a fantastic brand, for which users felt immense loyalty and respect.’

Friends Reunited began life in July 2000 from the back bedroom of Steve and Julie Pankhurst’s suburban semi in Barnet, North London. It soon captured the public’s imagination, capitalising on nostalgia and curiosity about the antics of old friends and work colleagues. News of the portal spread by word of mouth and the snowball effect soon became an avalanche. By the end of 2002 the site had more than eight million members and was a household name, mentioned regularly in the media as the instigator of happy reunions between long lost chums. This coverage equated to millions of pounds worth of advertising.

‘Unlike a lot of business founders, Steve and Jason were brave enough to recognise they’d taken the business as far as they could and weren’t enjoying it much anymore,’ says Murphy. ‘Even though it would cost them in terms of equity, they decided they needed someone else to come on board.

‘They’d treated the internet like a traditional business and, unlike other dotcoms, hadn’t borrowed huge sums of money without any clear idea of future revenue streams. It was one of the first websites to charge for its services, initally at £5 per subscriber, which was a bold move that paid off. So, although there was a danger that the company was a one-hit wonder, I felt only a fraction of the brand’s potential had been monetised.’

Initially, Murphy pulled out of the deal to pursue the contracting publishing opportunity backed by another VC. With their management candidate gone, Porteous had no choice but to pull out, leaving the Friends Reunited founders without a buyer, but Steve and Jason didn’t give up.

As Murphy recalls, ‘They called me and said, “Of everyone we’ve seen, you’re the only one we think understands what we’re about.” So I drove to see them and we talked it over. In a matter of hours, we drafted out an agreement, without lawyers or any of that nonsense, and that’s the deal we stuck to until the business was sold to ITV in December last year. Amazing really.’

Bought by the big boys

Broadcaster ITV bought Friends Reunited amid a media frenzy, stumping up £120 million in cash, with a further £55 million earn-out over the next three years, subject to hitting performance targets that, according to Murphy, ‘are tough but achievable’. The founders sold 100 per cent of their stake and pocketed £30 million each, while the company’s employees, who share 40 per cent of the business, also received major payouts.

‘Giving employees a return from the value they create is a fantastic incentive,’ adds Murphy. ‘We’d built significant revenue before we sold the business so staff did really well out of it. There were programmers on £20,000 salaries who received windfalls of £60,000.’

Murphy has stayed on to run the enlarged operation for ITV, which controls 50 per cent of the UK television advertising market.

‘Jeff Henry, director of ITV Consumer, and the rest of the management team recognise it’s best to leave us to get on with it. I think we’re lucky in that respect. I’ve seen plenty of instances where the parent company interferes so much in the vibrant business they’ve bought that two years down the line the entrepreneurial spirit has been sapped and it’s not performing – then they wonder why!’

Although Friends Reunited is being kept as a separate web presence, it’s hoped it will complement ITV.com in areas such as dating, recruitment and classifieds. ‘There are obvious synergies,’ asserts Murphy. ‘Media consumption is changing, as customers demand greater interactivity. Convergence is confusing the whole media market at the moment! Production companies are buying up online content providers, internet firms are having to constantly reinvent themselves just to stand still and online social networking is really starting to take off. Luckily, it’s a trend that plays right into the hands of Friends Reunited.’

Friends Reunited Dating, a new spin-off site launched in September 2003, is already the fifth largest dating site in the UK, with 600,000 active members looking for friends and possibly romance.

Murphy’s biggest success to date has been Genes Reunited. Representing 17 per cent of the group’s overall revenues for 2005, it has five million registered members and the names of 67 million ancestors, allowing users to trace genealogy online, exchange messages and search for relatives. ‘We bought the 1901 Family Archives consensus in August last year, and have now purchased births, marriages and deaths records. Genes Reunited will be bigger than Friends Reunited in the end,’ believes Murphy.

The most recent addition to the fold is Friends Reunited Jobs, following the purchase of TopDogJobs.com last year. Murphy is adamant about the potential and aims to make it ‘the biggest jobs site in the UK within a year.’ Industry forecasts suggest that the market for recruitment advertising online is set to grow from £99 million in 2004 to £183 million in 2009.

‘In my time here, we’ve diversified from one revenue stream to five. In 2002, the Friends Reunited core site accounted for 93 per cent of total revenue whereas last year it was 46 per cent, despite the site growing in that time. We’ve sponsored TV programmes, music CDs and have a database of millions of users, the potential of which has yet to be fully realised. I envisage a time when we’ll be developing community websites for TV shows and selling downloads. It’s a vast market to exploit, so I’m clearly going to be busy for a good while yet,’ he muses.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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