Starter's orders

18 January 2007

Orderwork has grown rapidly since winning backing for its IT skills marketplace ten months ago. Chairman Toby Strauss explains why he went abroad for funding and shares his tips for managing expansion

Toby Strauss is executive chairman of Orderwork, an online IT skills marketplace he founded with Neil Bradford in May 2006. The company has brought together a network of nearly 800 suppliers across a wide range of IT, networking and telecoms sectors. Customers place a work order on the system, specifying the price they're willing to pay, and the order is routed to relevant local suppliers - whoever agrees the deal pays Orderwork a commission. Orderwork won seed funding from US VC firm Bessemer Venture Partners in February 2006, took its first work orders in June, and secured follow-up financing in September.

You've taken a different approach to starting new businesses in the past, preferring to work closely with established organisations. Why did you opt for a more traditional start-up model for Orderwork?

With my previous companies, I'd effectively grafted them onto the side of existing businesses. Charcol Online was part of John Charcol, a 20-year-old business. It went from four to 100 people in a year and I ended up running the whole thing as a 'bricks and clicks' business. Then I had the idea for a wealth management business that combined the advisory side with asset management - I got some backing and acquired John Scott and Partners. At the time it was a £5m business, now it's around £35m.

My co-founder, Neil Bradford, who was working in the US at the time, had seen some interesting businesses over there that were doing elements of what Orderwork does. We saw an opportunity to become the eBay for IT services. Since nothing existed like it, the only way was to start our own company. I suppose we could have bought an IT services business and done Orderwork on the side, but because we were creating a network of IT suppliers that would work on behalf of clients, there might have been a conflict of interest.

Why did you go to the US for the first rounds of funding?

We started off talking to Bessemer Venture Partners and a few other potential investors in the US and Europe. We found that the UK continues to be averse to investing in start-ups, whereas in the US, leading financiers are prepared to put seed money into ideas and see what happens. That difference in philosophy became apparent early on. But we were lucky in that we got an offer on the table from Bessemer quite quickly, so we let some of our conversations in the UK go. It was clear that Bessemer got it and they came up with a good offer, so we didn't need to keep looking.

We're moving into Germany this year, so we have brought in a German investor as well. Bessemer was very keen to follow on in subsequent rounds and if possible to fund the whole thing, so we had a healthy situation there.

What were the investors' biggest early concerns? And how would you advise companies to approach funding partners - would you err on the side of caution?

In our early conversations with Bessemer, their biggest concern was whether we could build the platform and get it to work. At Charcol, we'd built the platform in 8-9 weeks, though, and it was a similar level of detail in some respects, so I knew it was possible. My biggest concern was around building a pool of suppliers and clients that would buy from them.

I'd say be reasonable about what you can achieve. Some people are overly aggressive in their predictions and the problem is investors protect their downside position with warrants. They say: if you're going to be that successful, we'll give you great terms, but we'll also take out a bunch of warrants. So you might have done a great sales job and raised a lot of money through your valuation, but nine times out of ten it takes longer than you thought and the warrants kick on, handing the investors more equity. Then you end up with not so much in the long run.

We went the other way and were very conservative in the beginning. We said what we wanted was a fair valuation, with no warrants or overhangs: a clean deal. There's a downside to that as well, of course, but it means you're much less concerned about the numbers and you can concentrate on building a platform for the future.

You've grown relatively quickly from your initial concept in November 2005 - you're handling 80 work orders a day with 11 people, and you're aiming to handle triple the volumes or more by the end of this year... What's the secret to managing this kind of growth?

Personally, I'd forgotten what a hassle it is to set up the processes and systems you need for things like book-keeping, IT and so on. There are essentially two ways of doing it: you can either throw money at it or put the time into it and find good quality people or partners. I've found there's no substitute for taking the time to understand the processes and think about what you need, and really get into the detail. Then if you have the money, it's worth investing in working with third parties, as that allows you to focus on the core business, rather than looking at all this peripheral stuff.

A word of warning though. A lot of people want to help you out - but they come at a price. So make sure you're paying a fair price, while still working with good partners. We've been lucky in establishing a relationship with Deloitte in their Bristol office, for example. Obviously it's a great name, but because it's quite a small office, they have a full-service team there and we still matter to them.

You also outsourced software development to a firm in India. Would you recommend that course to others?

We weren't always confident it would work, I have to say. But again, because we have five and half named individuals doing our work in a company of 30 to 40 people, we're an important customer. We envisaged we'd bring it back in-house after six to nine months as it's a core strategic element of our business, but in fact it's not been necessary. What has been key, though, is having a dedicated person in-house who looks after all the project management on that.

And you've taken an interesting approach to recruiting companies to the marketplace?

One of the things we were concerned about early on was that while we knew the IBMs and Accentures of this world, there was a whole second tier that we didn't necessarily know so well. So we needed to find advocates and introducers. I rang up some journalists and asked them if they could recommend anyone, and we came across someone who used to run a telecoms distributor. He's been a good introducer for us. I do know situations where that approach hasn't worked, but the point is you need to be creative in thinking about how to solve a problem. Talk to people you know, particularly other entrepreneurs. It won't always work, but at least it gets you started.

Initially, in any business like this, the founders bring in the first customers. How difficult is it to let go when the time is right?

The biggest difference between OK-sized entrepreneurial firms and big ones is their ability to recruit and delegate to the next stage of management. But there is a balance to be struck. When I was at Charcol we grew quite quickly but I was still involved with key clients like Tesco, and even came in on Web development conversations. You have to stay involved in the detail at the level that matters, because those are the key drivers of your business, but you also have to recruit and give people authority.

Toby Strauss was talking to David Longworth of Webster Buchanan Research