Wi-fi broadband provider The Cloud has been through a radical overhaul in the past couple of years.
]Wi-fi broadband provider The Cloud has been through a radical overhaul in the past couple of years.
Entrepreneurs aren’t necessarily the safest pair of hands when it comes to running a business. When Steve Nicholson said ‘yes’ to private equity firm 3i’s request to take the hotseat at mobile wi-fi broadband provider The Cloud in January 2007, he quickly realised there was plenty of work to be done.
‘Prior to my arrival, you had two bright entrepreneurs who had really spent too much money and the business was a bit out of control. It lacked focus and direction and had poor operational processes and controls,’ says Nicholson.
A total of four VC backers had ploughed around £17 million into the company by that stage. Nicholson, who held executive positions at Philips, Hutchison and KPN prior to SPG Media, was charged with turning a good idea into a commercial and profitable reality.
That meant ditching a B2B offering and identifying the high-value opportunities in the consumer space. He explains: ‘The wi-fi market principally falls into two types of camps. There are retail locations, where people use the internet to browse, and typically they want to do this for free. Then you have locations where people are pressed for time, such as hotels, airports and main transport hubs. You will generate a lot more cash through your time-starved locations than your retail locations.’
The 2007 acquisition of Ganag, a Germany-based company that specialises in wireless broadband for four- and five-star hotels, demonstrates how the company is set to move forward. It’s seen the business, which has 90 staff, become profitable on revenue of approximately £18.9 million. ‘We’ve gone from consuming a huge amount of cash per month when I first arrived to generating cash every month.’
Back then, cash had to be The Cloud’s priority, says Nicholson: ‘The company was a jack-of-all-trades and master of none. I really think that to succeed long-term, a business has to be master of something.’
Inevitably, Nicholson also had to address the company culture by bringing in his own people. ‘We had an eclectic gathering of extraordinarily bright people who didn’t talk. Now we have a group of people who are a lot more experienced and mature and have come to build a career,’ he says.
Born in Baildon, Yorkshire, Nicholson’s mother was a probation officer and his father a salesman. His early passion lay not in business but on the football pitch, where he played in central midfield. As a 15-year-old, he had trials with Manchester City and played in the Leeds United junior team when the senior club was managed by the legendary Don Revie.
However, Nicholson’s father was worried about his son’s footballing fantasies impinging on academic success. ‘My father stopped me playing,’ he says. ‘At the time I was mortified, but now I completely realise he made the right decision.’
The company that made a lasting impression on Nicholson was Mars, where he spent six and a half years, eventually becoming regional manager: ‘It’s arguably the best company I have ever worked for. From a branding and product point of view, the fastidious pride Mars takes in its image and profile is phenomenal,’ he says. This high praise for the confectionery giant echoes previous Trailblazer and ASDA boss Allan Leighton, who described Mars as ‘one of the best management schools in the world’ (see Business XL November 2008).
From there, Nicholson followed his boss to a new business that had the idea of charging six times as much for a battery as the market leader of the time. ‘The new company was called Duracell,’ he recalls. ‘Of the 22 managers at Duracell, 21 were from Mars and the 22nd, who was the managing director, was from Cadbury’s.
We set about building this fantastic brand and company.’
This mix of experience has stood Nicholson in good stead at The Cloud, where he is tasked with growing a business in a space dominated by the telecoms leviathans. ‘The positioning of the company needed to be thought through very carefully,’ he explains. ‘You don’t want to be shouting from the rooftops that you are going to beat the big corporates. You want the power brands as your partners and not your enemies, otherwise they’ll kill you.’
Deals with Apple and McDonald’s have certainly raised the profile of the company. ‘McDonald’s was a breakthrough,’ he says. ‘We took them from BT and they’re now working very closely with us, and there will be new things coming through in the fourth quarter of this year. As a brand, McDonald’s stimulated quite a lot of interest in us from the retail sector.’ Subsequently other outlets have been signed up, including Pret A Manger and Eat.
These in-roads have made it easier to build relationships with the telcos, namely O2 (which has the Apple iPhone contract), Vodafone in Germany and a couple of the Nordic operators. He says: ‘Establishing a higher-profile network of retail clients has made the operators start to feel more comfortable working with The Cloud.’
Primed for a sale
Since 2007, the VCs have put in additional finances, bringing the total investment to around £37 million. It means the business has the financial firepower to both invest and acquire but, of course, with that freedom comes the pressure
to achieve a lucrative sale.
‘There isn’t much logic at all in setting a specific date for an exit,’ he reasons. ‘If you build a brilliant business that has strong traction, with purpose and direction, then it naturally follows that people will enquire about a sale.’
Given the scale of the investment and it being a buyer’s market, with businesses being acquired for three to four times EBITDA, now isn’t the time to sell. For Nicholson, the plan is to keep expanding over the next three years: ‘I would think that 2012 is probably the kind of window we’re looking at for an exit.’
In the short term, he just doesn’t see the economy improving. ‘For the UK, I don’t expect anything to happen until after the general election in 2010. It’ll be the tail end of 2010 before there is any kind of clarity about what is going to happen in this country,’ he says.
Over the next few years, Nicholson intends to grow the business’s turnover to ‘at least’ £40 million, with a margin on that of around 20 per cent. At present, the company has offices in the UK, Sweden and Germany, the last of these being The Cloud’s strongest market thanks to the Ganag purchase. The aim is to expand that range across Europe by providing more wi-fi in the hospitality and entertainment sectors.
As for adapting to the recession, Nicholson observes that there has been a greater emphasis on questioning whether purchases or investments are strictly necessary, although the VC backing means that the financial muscle is there when required. ‘The company is in a strong position because it has quite a lot of cash. It sets us up for when we come out of the recession – there will be many companies starving due to a lack of liquidity in the market. Any business that has a good, healthy balance sheet and piles of cash is going to be well placed to grow quickly post-recession.’
While there is much to be done at The Cloud if the big-ticket exit is to be achieved, the turnaround of the company’s fortunes by Nicholson’s strong hand is impressive. ‘The key thing is to provide strong leadership and to focus the business. We narrowed what we did and provided people with clarity,’ he says.
So far it’s working, and slowly the lofty ambitions of this company are proving to be more than pie in the sky. ‘The Cloud will be worth a lot of money,’ he predicts.