Stephen Bates made the transition from corporate employee to CEO of his own capital markets software company, ITRS Group, in 1997. He started out with £30,000 in the bank, a small office in east London and a contact book bursting with names of people he had met whilst working for large computer companies in the financial sector.
Today, Bates’ company is thriving, but the journey has not always been easy; with UK tax regimes forcing ITRS to develop software offshore, global growth raising issues of local recruitment and rising revenue and staff numbers requiring not one, but two management restructures.
“I was about 44 and having lunch wit an old work friend. I had talked endlessly about setting up my own business and when he said I would never do it, it was red rag to a bull, the catalytic moment which ejected me from the corporate world into my own company,” says Bates. That friend was Kevin Covington, who 12 years later joined ITRS and is now deputy CEO.
Bates started the business with Misha Kipnis, now CTO of ITRS, but initially a contractor, as Bates could not afford to pay him a salary. Kipnis soon became a partner in the business and, recognising market demand for a real-time performance management and monitoring system for financial institutions, he and Bates developed Geneos, a product which has grown with the company.
Bates believes ITRS’s success is, in great part, about genuine relationships with clients and impeccable client service. He explains, “The real test is how a company mobilises when things don’t go well. We are geared up for customer service, but we don’t always get it right, so the test is how we respond. A close relationship with clients means we can track ahead of what they need, which is very valuable. I left the big corporate world because ‘the customer comes first’ is often a corporate lie.”
With a strong product and a true dedication to service, ITRS launched well, achieving a profitable first year and a turnover of £750,000. Turnover has since risen by 30 to 35 percent a year and profit growth has followed.
Bates has never borrowed money to support the company and says he never will, but he has hit financial hurdles, particularly the UK tax regime which, he suggests, does little to support UK industry and covertly encourages investment offshore where tax regimes are more lenient.
ITRS is defined by HM Revenue & Customs as a large corporation for tax purposes, making it a top tax payer in relation to turnover, despite its relatively small staff of approximately 100 across the globe. Bates says, “Politicians seem to miss the point that companies have choice. I would love to do all our development in London, but when the government of the Philippines offers a deal involving paying no corporate tax for the first 10 years and then paying a reduced rate, working there, rather than in the UK, makes sense as we then have money to reinvest and can grow faster.
“There is no question that my preference would be to expand from our home base, but we are heavy investors in R&D and we want to accelerate this to build products and move into broader markets. We need money to do this and the lighter fiscal touch of South East Asian countries is attractive. That is neither good for UK industry nor the global economy.”
Reflecting Bates’s views, ITRS is in the process of opening a tax-efficient base in Manila, where the company will handle some testing and non-core software development. The Manila R&D base is in addition to commercial offices in London, New York and Hong Kong; there are plans to set up in Chicago and Singapore.
ITRS had no choice but to go global in response to demand for local product deployment and service from the large international banks which are its customers. As a small company setting up its first overseas operation in New York in 2000 and its second in Hong Kong in 2005, ITRS struggled, like many, to get off the ground. Recruiting the right people was critical and Bates acknowledges that some mistakes were made.
Once the company’s global base was stabilised, it was time to return home for a close inspection of what was happening at headquarters. In 2008, Bates took the step so many small companies leave too late and called in the experts. Consultants from Deloitte were tasked with discovering what was needed to carry the company forward. The outcome was a rebuild of the core management team.
Keith Waterton, COO, joined from the travel industry and it was at this point Covington joined as deputy CEO. Inevitably, the restructure meant a few staff parted company with Bates, while others were relocated in the business. “We had the ‘this is how we used to do it’ dysfunction and we were not driving the company based on real knowledge, so we were making decisions on assumptions. That was not good,” says Bates. “The difficulty is that not everyone will still be fit for purpose when the company grows to a hundred people and ITRS’s best interests are served by having the right people in the right jobs.”
Bates has nothing but praise for his management team and tells a good few tales about the company’s commitment to customer service, not least the offer to refund tens of thousands of pounds when its software did not perform according to plan and an early decision to turn down a £1.5 million contract owing to concerns it couldn’t be properly serviced. “If the quest is for turnover for its own sake, it is time to change the CEO,” he comments.
Bates also recalls the 2008 financial crisis which threatened ancillary businesses. “I was deeply concerned as the dark clouds of recession gathered on the horizon. Our budget for the following year was fixed and I was seriously troubled about the ramifications of the bank crash. I decided not to change the budget and we had our best year ever as financial institutions focused on risk and their appetite for Geneos was increased. As per our strap line, Geneos allows them to ‘see more’ and mitigate risk. However, the number of companies which think they know what is going on in their organisation, but don’t really have a clue is a sobering thought.”
As ITRS grows Bates is going back to the drawing board and will be promoting Covington to the role of CEO in April 2011, allowing him and Kipnis to complete their first business cycle and return to creating vision for the company. “I have removed myself from an operational function and will now focus on developing the long-term strategy for the company, seeking routes for innovation and diversification. The next chapter of the ITRS book will be about developing areas of the business such as distribution channels, vendor relationships, service offerings which put our people on customer sites, and separate global services and sales divisions. We may make acquisitions which fit what we do,” he adds.
ITRS is expected to achieve turnover of £18.5m this year and Bates sees no reason why the company’s three-year roadmap will not lead it towards the £200m mark. Such success is not about alchemy or genius, he says, but the sustenance of vision, products, people, markets, service commitments, strategic relationships – and a touch of luck.