FD Profile: Back to school

This year’s Who’s Who debut of Julie and Stephen Pankhurst, the couple who set up Friends Reunited in 2000, won’t come as a surprise to many people. Their website has taken the UK by storm. Friends Reunited tapped into the same national craving for nostalgia for ‘the best days of our lives’ that made the School Disco club nights so successful.

News of the revolutionary online service spread like a virus in 2001 when Radio 2 DJ Steve Wright listed Friends Reunited as his website of the day.

By the time Rob Mogford signed up as a member in August 2001, 18 million people had been swept along by the craze and registered with the site.

Tracking down old school buddies was light relief from his work in the corporate finance team at BDO Stoy Hayward, helping entrepreneurial clients through the mergers and acquisitions minefield and devising exit strategies for their businesses.

Little did he know that just two weeks later he’d be advising Friends Reunited co-founder Jason Porter on a possible sale of the business – a meeting that led to his current role as chief financial officer.

‘He’d been approached by a potential buyer and wanted some advice. We spent three months working on a deal, and sure enough it didn’t happen, but we kept in touch,’ Mogford remembers.

By the following autumn, not only had the site survived the collapse of the dotcom bubble (to the surprise of its critics) but it was, in the words of Mogford, ‘going like a train’.

‘The founders were earning more money than they knew what to do with – but I think they felt nervous about selling this thing that was so close to the nation’s heart,’ he says.

Generating interest among potential buyers wasn’t too hard – among them Michael Murphy, a 20-year veteran of Pearson and former chief operating officer of the FT.

‘Michael was working with a venture capitalist looking for a deal. The business was just 18 months old, 18 million people were registered and one million of them paying, but there was just one revenue stream and the VCs had concerns about how sustainable the business was.’

Eventually the pressure proved too great for the VCs, who pulled the plug on the deal. But Murphy’s business plan had caught the founders’ eyes, prompting them to abort their plan to sell to a trade buyer. ‘They called me on the Friday night to tell me they didn’t want to take the process any further. It was very depressing for me because it meant I wasn’t going to get my sales fee.’

The next Monday, Mogford received the telephone call that was to change his life. ‘They called me in for a meeting and offered me the job of FD under Michael Murphy. It took me about 10 seconds to decide. It was a bit of an unexpected change of career.’

As part of the management buy-in, Mogford, Murphy and marketing director Tim Ward took a significant minority stake in the business. Together with employees, they control 30% of the business.

For the last two years, Mogford’s focus has been on stabilising the core business by making sure it has the right controls and technologies in place. ‘They did a smart thing by outsourcing a lot of the functions, including customer support, PR and even finance. When I joined in February 2003 there were just 10 employees in the company.’

A series of smart decisions allowed the company to survive the turbulence of the dotcom era. ‘The founders were a lot smarter than most – from the moment they set it up with £2,000 and one server, it started making money,’ Mogford says.

PR activity has since been brought back in-house as a core part of the plan to make the business sustainable. ‘We needed to make sure the name was out there in the public domain so people would keep coming back to us.’

The software development team was expanded to cope with increasing technical demands of the site and the need to guarantee a 24/7 service – partly driven by the acquisition in June 2004 of a rival site in Australia. An in-house marketing team now works on campaigns to encourage the site’s current members to resubscribe. Mogford is currently overseeing a project to ‘insource’ the finance function. ‘That model worked well when the business was small and simple, but as things grow you need to be more hands on.’

It’s been a rollercoaster ride – fortunately with more ups than downs – but Mogford’s experience has cemented his views about the potential pitfalls of running an online business. ‘Building a business on advertising doesn’t work – it’s not sustainable. It’s the icing on the cake, but I’d never build an internet model purely on advertising. It’s a very fickle market.’

He admits that advertising on the site generates significant revenues for the business, ‘but paying subscribers don’t see adverts – they get a very clean experience.’

The other mistake many dotcom startups make, Mogford says, is thinking they need to spend silly money advertising their name and promoting their ideas.

‘If it’s good, word gets around. We get approached by masses of internet businesses and the big mistake they make is gearing up as if they’re a multimillion-pound corporate. Having huge overheads from day one is crippling. My advice is to test the idea and make sure it works first.’ And, of course, there’s nothing like ‘eating your own dog food’ to test out the product.

Mogford has used the site to get in touch with old workmates but so far, he’s only met up with one old buddy from his schooldays.

‘We got very pissed one Saturday afternoon and it was really nice to catch up. But I’ve never done a reunion. There are probably only two or three people from school that I’d want to get in touch with,’ he admits.

The Friends Reunited success story has not gone unnoticed, as a host of pretenders attempt to tap into the nation’s lust to reunite with lost acquaintances. There are hundreds of sites following the Friends Reunited model – but aimed at niche markets. IT contractors and members of the armed forces all have their own sites to rekindle friendships with people they met on their travels.

Mogford seems unconcerned by their presence. ‘It’s healthy and flattering to have pretenders – but we’re so dominant now, it’s not a problem. Our closest rival only has a few people signed up.’

But he’s not resting on his laurels. And with membership for the last two years stable at around 12 million – nine million of those signed up to receive regular communications – Mogford believes the opportunities to set up complementary products and cross sell to existing customers are huge.

In the last 18 months, two Friends Reunited offshoots have emerged. Friends Reunited Dating is looking to tap into an online dating market in the UK, estimated to be worth £50m a year. Meanwhile, Genes Reunited is a geneology site that helps people trace their family roots and reunite with lost relatives. ‘Genes Reunited now generates revenues of well over £1m. And 35,000 people sign up to the site every week.’

The site continues to generate new interest and money – last year the company generated pre-tax profits of around £5.3m on turnover of around £9m. And it’s certainly generated its fair share of headlines (see box). But Mogford is too busy planning the next wave of expansion to be distracted.

‘We want to grow 20% each year over the next three years, we’re looking for business development opportunities and bolt-on acquisitions, and we want the French, German and Dutch businesses to be independently sustainable over the next three years.’

And then? A sale or flotation is definitely on the cards (the former is most likely, Mogford says). But from a personal perspective Mogford has no grand plan.

‘It depends how much money I make. I’m having so much fun. If I could do any job, I’d be a carpenter, but if I have to stay in finance, this is the best job in the UK.’

ROWS, AFFAIRS AND HAPPY ENDINGS
Chances are, if you were to conduct a straw poll of your work colleagues, you’d unearth some great stories of old buddies rekindling friendships. But not always. Earlier this month, a man was sentenced to three years in jail by the Old Bailey after a drunken argument led him to repeatedly stab a long-lost best friend he had traced via the Friends Reunited website.

But it wasn’t the first time the site had been embroiled in controversy.

In September, relationship experts at Relate said that the increasing number of people going to websites like Friends Reunited to look up old flames may be adding to the UK’s rising divorce rate.

A drug dealer was jailed after boasting about selling cocaine to old school friends, and postman Stephen Williamson became embroiled in a Child Support Agency investigation following a claim that he was the father of a child belonging to a woman he had never met.

The site has been accused of being wide open to abuses of ‘identity theft’ – just for the record, CFO Rob Mogford trained with Arthur Andersen in the early 1990s where he qualified as a chartered accountant. Stories have also circulated that the site is widely used by recruiters to get the lowdown on potential recruits – the combination of the two is, of course, potentially explosive.

Mogford is philosophical about the potential pitfalls. ‘As long as people don’t offend individuals, we try to take a relaxed view, and we try to be as lenient as we can in this litigious world. In some respects, it’s the lifeblood of the website.’

And let’s not forget the heartwarming tales – the one about sisters Pat and Ivy who hadn’t seen each other for 57 years after Ivy was adopted. They were reunited thanks to Pat’s whimsical visit to the Friends Reunited site.

‘I love the product and it’s made a lot of people really happy,’ says Mogford.