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In Conversation With: John Bates, on the Future of Software, and the opportunities ahead

May 26, 2021

 

In this interview, Drax’s Ruby Sheera speaks to John Bates about the future of software and the opportunities ahead. John has developed and sold four software companies, and he has also spent over a decade working with the companies that acquired them.

– The first company John developed was Apama, which was built on his research from his PhD in Computer Science at the University of Cambridge. It was the first company in the space of ‘streaming analytics’, which is applying machine learning techniques to find patterns in fast moving data and act on them very quickly.
– It was sold to a US public company, called Progress Software, where John went for a number of years, based in the US. He became CTO & Head of M&A at Progress, before working in Software AG.
– John then left to start an Internet of Things company called PLAT.ONE, which was about building Internet of Things applications and managing them at runtime, which he then sold to SAP.
– Having then spent a majority of his career in the US, John recently moved back to the UK, as the CEO of Eggplant, a leading company in intelligent software test automation. Eggplant was acquired in June last year by a company called Keysight Technologies.

Ruby Sheera: Why hasn’t the UK created some of those massive stellar international software companies? What prohibits us?

John Bates:
– The UK has got amazing innovation, there’s absolutely no doubt about that. Where the UK has lost its way since the Industrial Revolution is in commercialising that. But I think we could be at the cusp of all of that changing.
– The market now for tech is hot. Private Equity has a lot of money to invest. The UK tech scene, and particularly in FinTech, is growing and London’s popular location to be based.
– But most notably, is the fact that Joe Biden is about to make a big mistake with his tax plan. He is about to implement a capital gains tax increase, which will put it to almost 50% for many high earners for anything over a million dollars. So if you look to develop and sell an asset in the US, suddenly you’ll pay 50% tax.
– Now, if you’re a UK based expat in the US, why wouldn’t you come back to the UK, and pay 20% and build your company here instead. The tech scene has been developing in the UK and is looking pretty good. It’s not a bad place to be. So I think we might see a reverse brain drain about to happen.

Ruby Sheera: Looking at the US software industry, what learnings do you identify for UK & Western Europe to offer more sustainable platform for growth for these companies?

John Bates:
– We actually have a pretty good environment, certainly in the UK, there’s a reasonably good tax framework for capital gains. But it’s more about attitudinal changes in Europe that needs to happen.
– I am a massive fan of the US way of doing business. We just need to get into that mojo in Europe if we want to make scalable businesses.
– The UK has amazing technology innovations, the universities are amazing, and the heritage is brilliant.
– But the UK is not great at sales & marketing, compared to the US. The US maximises technology with product marketing and they tell the right story. So if there’s going to be a reverse brain drain, hopefully we’ll get some talent back in this area.
– The US has a ‘can do’ attitude, where they will make it work. So the UK has to embrace vision, which is the most important ingredient of a software company.

Ruby Sheera: Culturally speaking, what do you think other geographies other than the US do well at? What other elements do you think we should be pulling through as well?

John Bates:
– Germany’s a very interesting geography. So I’m the Chairman of a of a private equity backed German headquartered software company, and Germany gets things right. You can draw an analogy with Mercedes and BMW and the way they’re sold in the US, where people aspire to have a Mercedes or a BMW, because they see it as quality German engineering.
– Quality engineering, that’s part of the brand of German software, as it’s well engineered is maybe an advantage that it has over US software.
– If you look at the cultures in Asia, for example, they work super hard, without complaining, they’re pushing themselves forward.
– If you can get a combo of the good vision, good work ethic and a brand around quality engineering, you’re not far off.

Ruby Sheera: From the investors that you’ve worked with previously, what have you seen work well, or what would you like to see more off?

John Bates:
– Being involved in the executive side of a company, I like private equity, because everyone’s interests kind of are aligned. And they’re aligned in maximising the value of an asset over a period of time.
– I’ve worked with the Carlyle Group three times now, and as an example, I like them because they’re a known quantity. I’ve worked with a co-head there Michael for 20 years. He’s tough, but he’s honest, and he’s brilliant at spotting diamonds in the rough and turning them into great companies. He actually understands the market products and people, and we need more of those skills in Europe.
– The Carlyle Group backed me most recently at Eggplant, to come in and do what was necessary to transform that business. And we transformed the vision, the messaging, the products, the go-to-market strategy. We built the right product platform, and Carlyle was rewarded for this.
– I think you’ve got to give management teams a chance to execute and take risks, and even make mistakes. It can’t all be fast growth, high profit and highly predictable. The UK has to embrace software more, and embrace the concept that it is okay to fail, but as long as we adapt quickly and learn, that’s the most important.

Ruby Sheera: You’re a strong advocate for growing and scaling up, and hopefully seeing in the next decade, some of the largest software companies in the UK. So you’ve sold four companies, but why did you sell them and not grow them further?

John Bates:
– For each of those businesses that I sold, there were reasons. Eggplant, the most recent, we thought would go all the way, and we more than tripled the revenue in three years from when I joined, made it highly profitable and increase its values we talked about.
– When we were looking to sell one of the businesses, we decided to test the water; it was a good market and to see what was happening, because we were at a point where it was a growing pain and we’d reached a certain phase, and the next phase was to go through more aggressive M&A, and more aggressive growth strategies. This would involve bringing in more talent and restructuring, as well as having a larger fund with more money in order to invest.
– With Eggplant, we had offers, but then Covid happened and the world froze. So I thought that was the end of that. But we went back to running the business, and it improved and we were ahead of budget. We were lucky that the PE firms came back with compelling offers, and as we didn’t know how long things would last, so we thought best to take the offer. When the market suddenly shot back up, yes we probably should have waited, but hindsight is 2020.

Ruby Sheera: What advice would you give CEOs of software businesses who are looking for the opportunity to grow their business? And is there anything you would have done differently in your experiences?

John Bates:
– Mainly if I could do something differently, it would be not selling the Eggplant business in the midst of Covid, which I don’t know quite how one could have predicted that but if I had that time again, I would have waited a year.
– In terms of advice, I think the key decision point to make is, ask the following questions: Is this a good time to sell? Do you want to get out totally or do you want to stay in the business? Are your investors the right investors to take you forward?
– You have to have confidence, don’t be too hasty or try to sell too soon when people come knocking on the door. Remember not to beat yourself up too much, because there’s often a crash or a downturn in the corner.
– Remember, your career is a marathon, not a sprint. Don’t burn yourself out too early, you’ll never be perfect. And if you, your team and the shareholders make out well, then you’ve done your job.

Ruby Sheera: Do you find the future is bright going forward into this post pandemic climate for software and tech in the UK?

John Bates:
– Yes I do, I do think there’s tremendous pent up demand, but I also worry about what happens when all this furlough is removed and how much is it propping up an edifice.
– And the travel rules going back and forth, this has a tremendous impact on not just the airlines but the whole ecosystem. The UK is a very service-oriented economy, and this backwards and forwards business could cause a lot of damage.
– But it will be good, and I just hope everyone can hold it together until we get out. I also think the government needs to be a little bit clearer and a little bit stronger and have a bit more of a thought for businesses.

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