Brennan IT's future is in the clouds
IT industry pioneer and survivor Dave Stevens
IT industry pioneer and survivor of the first dot-com bubble Dave Stevens is sceptical we’re in the midst of a dot-com II boom.
“I’m not seeing any unfounded valuations for businesses – multiples are high, but business models are credible,” he says. “The market’s a bit soft at the moment and we’re not forecasting massive growth – although we’ll take as much as we can get”.
Stevens is the founder of phenomenally successful technology company Brennan IT, one of only two companies to be named in BRW’s Fast 100 list for seven consecutive years. The company was a pioneer in its market, the first business to focus solely on selling IT services to mid-market businesses.
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After running IT training programs that attracted participants from small and medium-sized entities, Brennan says he started the business “after it finally dawned on me there was a yawning gap in the mid-market. There were suppliers selling software and hardware, but no-one was focused on helping businesses achieve the right outcome with their IT system”.
“I walked into an uncontested market and was able to come up with innovative products that met the market’s needs,” he says, explaining that one of his first products was a "service pack" for businesses, including pre-paid blocks of service time and guaranteed service levels, taking a consultative approach to working with its clients, something no other business was offering the smaller end of the market at the time.
It’s a strategy that has paid off. Stevens says in its first five years, Brennan IT at least doubled in size every year. “In a good year we’d increase revenue five times,” he says. The business now has 200 staff around Australia, a network of data centres across the country and its own IT network.
Of course, companies experiencing rapid growth naturally experience growing pains and Brennan IT was no different.
“My role changed from being a consultant and engineer to being the manager of the business. We also had to learn how to transfer the ‘recipe’ for the business to the next generation of people in the company, which slowed us down. We’d go through a growth spurt, then settle down for a while, then ramp up again,” Stevens explains.
A key part of passing on the business’s "recipe" was developing an operations manual called The Brennan Way, a document that Stevens says “outlines the subtleties about the way we operate, things like how many staff each manager looks after, the right attitude to have towards clients and our formula for success – it’s now hundreds of pages long and it’s the main document we use to train people”.
Asked what he’d do differently if he had his time again, Stevens says “I’d invest more heavily earlier on. We were fully funded with cash until we made our first acquisition, iExec, in 2006. Since then, the business has made a further three acquisitions, TSA Communications, S Central and Tele-IP Network Services.”
“We like businesses that are immediately cash accretive and that have recurring revenue. And we’d rather spend money upfront to get long-term cost synergies. The best deals don’t have large revenue streams that are one-off in nature – we prefer highly contracted and recurring revenue.”
A tough time for Brennan IT was the dot-com crash. Stevens says the business survived because “we acted fast and had a good handle on our finances. Although we didn’t really understand cash flow at the time – many businesses don’t”.
Stevens took steps like returning rented pot plants, and became more disciplined about collecting accounts and negotiating for extended credit terms with suppliers. “We became very savvy about cash very fast,” he says.
Presently, the business is keenly focused on the opportunity the cloud computing model brings to the business. Cloud computing is a new IT model where businesses only pay for the services they use, many applications and information are stored online and server space is shared and re-allocated to businesses that need it, rather than a business maintaining its own, generally under-utilised servers.
“The cloud boom is a real milestone,” says Stevens. “We started working on it around four years ago. But it’s fundamentally changing our revenue stream. Instead of receiving one-off million dollar payments, you might sign monthly, ongoing $20,000 infrastructure-as-a-service contracts. It’s a business model we’ve been using for 10 years but traditional resellers are going to find it a struggle. There’s no million dollar contracts with $100,000 profits – instead they are going to have to wait three years to accumulate profit from jobs.”
Currently, Brennan IT is investing 15 per cent of its revenue in its cloud platform.
“Cloud is so prolific – every project we do has at least one component in the cloud, and an increasing number of projects are totally in the cloud. Our investment in this space doubles every nine months”.
Stevens says there are no more acquisitions on the cards at present. “IT businesses went through a rough time in the financial crisis and they are not in a position to attract the value they want,” he explains.
And, despite favourable stock market conditions for IT listings, Stevens says an IPO is not on the cards. “We’re using our cash to build our cloud platform and there are no plans for a listing any time soon.”
