Richard Muirhead: Big ambitions

There must be easier ways to make a living than creating a global software company in the UK. The chief executive of Tideway Systems, Richard Muirhead, wouldn’t have it any other way, as Marc Barber reports

Richard Muirhead was still in his early 20s when he and his brother, Charlie, created software company Orchestream. In the space of five years it went from angel funding of £20,000 to a dual listing on Nasdaq and the London Stock Exchange, with a market cap of over £1 billion.

‘That was $1.4 billion back then,’ says the older brother, ruefully. ‘When you think of the exchange rate now, it’d be over $2 billion.’

As impressive as this may sound, Orchestream, which managed and secured online networks, is now synonymous with the imaginary boom and all-too-real crash of the dotcom years. ‘In spite of what we did achieve, the company wasn’t a full success. By being more fine-tuned in our strategy and not getting distracted by growth for growth’s sake, we could’ve weathered the storm successfully,’ he insists.

Clearly, Muirhead has mixed emotions about what happened between 1995 and 2001. He’s quick to note that the product sold by Orchestream – which was bought by Metasolv in 2002 for a relatively humble £6 million and then sold to Oracle in 2006 – is still going strong, and is used by the likes of Vodafone and AT&T.

In hindsight, the two brothers were not victims of a faulty, over-hyped product, like so many of their contemporaries at the time, but of their own sizeable ambition.

Although investment from backers including Intel, Amadeus and Deutsche Bank provided the funds for growth, it meant that the founders lost control, and this proved to be their undoing when a Full List IPO was on the cards. ‘The investors didn’t all have board seats but there was a certain burden there,’ he concedes.

In 1998, a mentor was brought in for Charlie. Inevitably, that person went on to become the chief executive, leading to the younger brother’s departure, while Richard found himself with various titles ‘of arbitrary distinction’ before leaving in April 2001.

Young guns
‘I was 26 and Charlie was 23. The board members wanted more experience,’ he says. ‘I was working hard to build the value of the company, but the song and dance of the markets and financial engineering were, to me, a distraction from the nitty-gritty of creating a successful company. I think I was proven correct.’

For Muirhead, it’s been a lesson in how to manage a growing concern. ‘You can be led astray by raising money and talking the story that investors want to hear. It’s the dichotomy of business – you have shareholders and stakeholders who want to benefit from share price gains, but actually it’s by looking after your users and customers that you can do that. But there can be issues of time lag or conflict of interest between all of those things.’

The picture today for Muirhead – who has an MA in engineering from Cambridge University and is a former consultant – is infinitely brighter; and the experiences with Orchestream stand him in good stead for his software company, Tideway Systems.

Indeed, when we meet at his office just off the King’s Road in Chelsea, he’s in high spirits after a meeting with US venture capitalists – who’ve pledged $25 million (£12.2 million) in a third institutional round of investment for the software company he set up in 2002.

The additional funds set the seal on an excellent year. Tideway has bagged a range of awards and recently made number 11 in the Sunday Times Tech Track 100. Turnover has risen 82 per cent to £10 million and some significant partnerships have been formed with the likes of consulting giant Capgemini and software provider Sun Microsystems.

Muirhead is targeting sales of £15 million to £20 million for year-end 2008, assuming the new investors formally agree the deal. ‘We’re in due diligence so I don’t want to jinx myself,’ he says warily, adding that the ‘funding should finance our growth to break-even point’.

That rings alarm bells. The company is five years old, there are a number of backers who are making significant investment, and yet profits remain elusive. While all this may sound a little too familiar, Muirhead is adamant that the company is going in the right direction.

‘We’ve bounced close to generating cash a couple of times but we’ve continued to re-invest,’ he comments. ‘About 18 months ago we were nearly there and we’re close again now, but by design we’re continuing to grow the business.’

The software provided by Tideway tracks the performance of various business applications within an organisation. ‘Think of it as a Google for your data centre, with its own spiders crawling to find out what’s going on and tracking this over time to provide meaningful information. It helps IT departments make better decisions.’

Overseas expansion
According to Muirhead, 50 per cent of the company’s revenue now comes from the US, and this has been achieved by targeting financial institutions like UBS, Credit Suisse and Goldman Sachs. ‘From day one I knew we had to choose our customers correctly. When you’re trying to build a global software company, you need to get into the US and establish a foothold – the investment banks provide that opportunity. The nations of the City and Wall Street are more tightly coupled than the nations that are the US or UK.’

Given the atomised state of business applications, Muirhead is confident that the need for Tideway’s software can only continue to grow. ‘There is a lot of pain in IT departments at the moment. They’re dysfunctional due to a lack of shared intelligence, and the categories of product out there are continually evolving. The problem isn’t going away, if anything it’s getting worse over time.’

If the demand for the types of applications supplied by Tideway is so acute, one wonders how accurate is Muirhead’s assertion that the company has outlasted its direct competition. ‘Partly due to the nuclear winter in technology-buying at the turn of the century, none of our competitors achieved the commercial success we did, and so got bought up by the big guys.

‘One thing that’s a truism in new technologies is that the big guys don’t
come up with groovy stuff. What we’ve observed is that companies that acquired
our competitors have withered on the vine whereas we’ve continued to innovate.’

Muirhead, who remortgaged his apartment to launch Tideway, still retains that sense of ambition he had in his 20s – what he wants to achieve is to build a great UK software company. Ideally, he admits, it would have been preferable not to go down the VC route again, but he adds that, by its nature, the software market needs substantial capital.

‘Not only do we have to keep ahead of the game with regards to global competition, but the inherent value of what we do is in the software we’re building. We’re investing millions of dollars and re-investing in that. Normally, you don’t get that right until the third attempt – that’s just the nature of software.’

This need for capital – and, as time goes on, the hankering from investors for an exit – means that an IPO is a likely option in the future. ‘I would consider the public markets again. In terms of financial performance, we’re way beyond where we were with Orchestream when we listed. If we were to do it, I’d go for either a Full List or Nasdaq.’

Muirhead has the air of a man with a point to prove. ‘If I was only interested in money, given that I have an engineering background and was a management consultant, I could easily go out and earn some.’

Not that an ordinary career would be acceptable in the Muirhead family. His brother Charlie has gone on to be a serial entrepreneur, as has youngest brother William. It’s easy to imagine awe-inspiring levels of competitiveness and one-upmanship between the three of them, plus a genuine appreciation for what it takes to set up and run your own business.

Go for it
It’s a mentality and approach to taking a chance that he finds lacking in the UK. ‘The often-heard statement is that more support is required from Government, or you need more people to invest in ideas to encourage entrepreneurs. In reality, what’s missing is the willingness to give it a go, manage risk appropriately, and cope with and benefit from your failures. People are so recriminatory when a project doesn’t work out; they’re unable to see it’s not all bad.

‘In the Valley, when they look for the ideal entrepreneur to back, they often go for someone with the battle scars of failure as that person will still have the hunger.’

With Tideway and the lessons learnt from Orchestream, Muirhead may just come through without another scratch.