September - November 2005

By Michael Murphy

The wheels of change can sometimes turn While there was a danger the company was a one-hit wonder, I saw more than just a reunion frustratingly slowly in big organisations, where site, recognising the opportunity to grow revenues with a highly scaleable system and a layers of reporting and consulting can impede brand synonymous with ‘making connections’, progress, bring a halt to innovation and reduce past, present and future. At this time a number of companies were speed to market. When I set out in search of a interested in acquiring the famous reunion website, which by the end of 2002 already management buy-in towards the end of 2002 I had eight million members, but all potential buyers had the same questions over its was looking for what must be on the top of all sustainability and capacity to extend. There venture capitalists’ wish lists - a small was no proof the brand could reach into new services and the subscription model was company with huge potential for rapid growth, potentially of limited value after a member’s first contact with an old friend. There was also happy to embrace change and where a the issue of evolving from a founder-run business to consider and put in place a formal professional management team could have management structure. instant impact on the success of the business. I shared these concerns, but believed above all that the extraordinary power of the brand and size of the customer member base represented an excellent business opportunity. I found all this at Friends Reunited. Coming from a publishing background I

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(13th April 2005) in which he said that our OUR TEENAGERS “WANT NEWS THAT teenagers “want news that speaks to them SPEAKS TO THEM PERSONALLY”, ….. personally”, and suggested that newspaper websites need to meet these demands NEWSPAPER WEBSITES NEED TO MEET “especially in providing virtual communities for THESE DEMANDS “ESPECIALLY IN [their] readers to be linked to other sources of information, other opinions, other PROVIDING VIRTUAL COMMUNITIES FOR like-minded people.” The constant pressure for innovation [THEIR] READERS TO BE LINKED TO OTHER means that we have to act fast on new ideas. I SOURCES OF INFORMATION, OTHER do not believe in fancy mission statements or over-detailed strategy plans; from experience OPINIONS, OTHER LIKE-MINDED PEOPLE” these can actually be hugely restricting or simply left in a drawer and instead of offering could see that consumers’ media consumption direction can cloud vision. In this fast-paced was changing, rapidly moving in favour of Internet Age, potentially lucrative deals can be digital technology, as individuals demanded wrongly dismissed, if they are not deemed to greater interactivity with those making and ‘fit’ with the company’s long-term goals; it is breaking the news. Internet firms were absolutely essential to stay flexible and be constantly having to reinvent themselves just to receptive to new ideas. stand still and there were signs that online However, there is a big difference between social networking was really starting to take off. being nimble and being hasty. At Friends This trend was playing into Friends Reunited all new ideas are researched and Reunited’s hands and it was hugely exciting to thoroughly tested with the members before be a part of this. Indeed, I think it is fair to say going live. An example of this level of that Friends Reunited could not have existed collaboration was in the launch of a branded without the internet or have spread in popularity compilation CD; the members were asked so quickly. Today, the challenge is to continue which era they wanted the music to come from to expand the brand into new areas to meet and then which tracks were memorable for the ever-increasing demands of the consumer. them from that era. Members voted in their Gone are the days when you could set out a thousands and the 80’s CD, the first in the business plan and then sit back and wait for it series, went gold with over 100,000 copies to unfold. As American author Isaac Asimov so sold. Due to popular demand the 50’s, 60’s, eloquently put it, “It is change, continuing 70’s and 90’s have since been released. change, inevitable change that is the dominant Before venturing into anything new, I factor in society today. No sensible decision can always ask myself; “how are we going to make be made any longer without taking into account money from this?” This may sound blindingly not only the world as it is, but the world as it will obvious, but it never ceases to amaze me how be...This, in turn, means that our statesmen, our many leading executives get carried away and businessmen, our everyman must take on a launch headlong into the next big thing without science-fictional way of thinking.” first asking this fundamental question. No greater has this been felt than in When I was looking for an MBI, one of the newspaper publishing, where the pace of main attractions of Friends Reunited was that, change in recent years has been relentlessly unlike other dot.coms, it had not borrowed driven by the explosive growth of the digital huge sums of money without any clear idea of media industry. Simon Kelner, Editor-in-Chief future revenue streams. The founders had of The Independent, has suggested the term treated the internet like a traditional business. ‘newspaper’ should be replaced with Keeping this golden rule at the forefront, I set ‘viewpaper’ and Norman Pearlstine, Editor-in- about finding the right people to help take the Chief of Time Inc, has predicted that, if current company to the next stage in its development. trends prevail, Yahoo and Google will have more advertising than the entire US magazine BUILDING A TEAM industry by the end of next year. As the pressure to innovate became ever more Rupert Murdoch has certainly taken heed intense for internet companies, so was the of these warnings in his well-reported speech demand for people who could drive, inspire to the American Society of Newspaper Editors and lead that innovation. Future thinkers are

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HANDING OVER THE REIGNS – THE FOUNDERS’ PERSPECTIVE

The idea behind Friends Reunited was devised back in July 1999 in a suburban semi in Barnet, North London by Julie Pankhurst, who was then pregnant with her first child and curious about what her old school friends were up to. She nagged her husband, Steve, a computer programmer, who together with his business partner, Jason Porter, built the site and launched it a year later. By the end of 2002 the reunion site had reached phenomenon status with over 8 million registrations, making it the largest in the country. Here, Steve and Jason reveal what was behind their decision for a management buy-in and what it was like handing over control. “I made a decision early on in my career as a computer programmer that I didn’t want to work for anybody or have anybody work for me; the answer was to go freelance. It was during this period that I set Friends Reunited up in my spare time with my business partner Jason Porter – what started off as a hobby soon developed into a full-time job and before we knew it the site had got too big for us to handle, as we juggled everything from programming through to promotional activity, payroll and PR. The first two years of Friends Reunited were like a whirlwind, as the site took off, and far exceeded our early expectations or anything we could have ever imagined. I knew the time had come to hand over the reigns, when I lost sight of my original aspirations to work alone as a programmer doing what I do best. Letting go of the reins was both the hardest and the easiest thing I have ever done; handing over something that we’d toiled over day and night was difficult, but I knew that making the break was the right thing to do for the business. Still, as I am sure is the same with all founder businessmen, Jason and I held a huge emotional attachment to the company and the option to retain majority ownership, while bringing in a professional management team was very attractive. With deals of this nature you can’t underestimate the importance of chemistry between the founders and the new custodians - we felt a sense of duty to our loyal membership base to ensure Friends Reunited was in good hands and the clinching factor for us was that Michael shared our philosophy of ‘no customer exploitation’.” Steve Pankhurst, co-founder of Friends Reunited

“It had come to a point where Friends Reunited had taken over our lives. We’d seen the company through an incredibly exciting time of rapid growth and recognised its potential to expand still further, but we were tired and lacked the skills necessary to take it forward. The MBI process gave us the time to sit back and look at the business and see where it was going. At no point did we doubt that Friends Reunited offered a brilliant investment opportunity, but we became aware of our own limitations. Acknowledging that we did not have the necessary expertise to take the company to the next stage in its development and letting a team of professionals make the decisions and manage the day-to-day running of the business was a major turning point, and, as a result, Friends Reunited has continued to flourish beyond our expectations. The transition from founder-operated to management-run has been smooth and the key to this has been trust and communication.” Jason Porter, co-founder of Friends Reunited

ONE OF THE GREATEST STRENGTHS OF OUR COMPANY IS THAT NO BUSINESS EXISTS IN ISOLATION, AS THEY ALL FEED EACH OTHER AND THE BRAND AND WE ARE ALWAYS STRIVING TO INCREASE OUR APPEAL

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Fig 1. Equivalent Advertising Value in a fun environment. There is no complicated hierarchy at Friends Reunited, so no time is wasted on internal power struggles. This creates a highly productive atmosphere where the staff are encouraged to run with their own ideas. For example, it took just one product manager and one developer six weeks to launch our dating site, which in less than a year became the fifth largest dating site in the UK and is still the fastest growing (see ‘Expanding the brand’ below). However, recruiting the right people for the job is one thing, keeping hold of the talent, which in a growing industry is in high demand, is another. I strongly believe that only when employees share in the success of the business and reap the rewards of their own labour are they truly motivated. As such all staff at Friends Reunited are shareholders in the company and are remunerated with a generous benefits package including a bonus scheme based on individual and company performance of up to 200% of basic salary.

BUILDING ON STRONG FOUNDATIONS With the team and incentives package in place we started to build on Friends Reunited’s needed in smaller companies where new ideas strong business foundation. The founders had are the key to staying in the race. fostered significant trust from the members, In setting up the team at Friends Reunited developing the site from a customer I threw away set job descriptions and looked perspective making it simple to use, quick with for self-motivated hard workers, innovators very few graphics or ‘bells and whistles’. with a zest for life, who showed they could Members had been afforded the utmost deliver what they said they were going to. commercial respect, having not been People who matter crucially can be found subjected to any pop-up advertising, unrelated anywhere in an organisation, so I applied commercial content or spam and this together these recruitment criteria to hiring all with careful pricing had created a community members of staff. Visitors to the office often feel, with vibrant message boards that we comment about the vibrant atmosphere wanted to propagate. when they walk in - the staff are very We had inherited a site that was tapping passionate about their jobs and enjoy working into Britain’s nostalgia boom, while fulfilling people’s curiosity and meeting their social need to reconnect. All this had led to a self- I WAS LOOKING FOR WHAT MUST BE ON promoting site with high brand recognition where word of mouth spread very quickly. To THE TOP OF ALL VENTURE CAPITALISTS’ date there has been over £50 million worth of WISH LISTS - A SMALL COMPANY WITH press coverage, and even today the media’s fascination with Friends Reunited continues HUGE POTENTIAL FOR RAPID GROWTH, unabated with at least 20 to 30 in the HAPPY TO EMBRACE CHANGE AND national and regional press featuring the brand each week (see Figure 1.). WHERE A PROFESSIONAL MANAGEMENT FOCUSING ON THE CORE TEAM COULD HAVE INSTANT IMPACT ON The first step was to improve the core reunion THE SUCCESS OF THE BUSINESS site: new features were introduced such as an

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Fig 2. Revenue Diversification on-site message centre to keep customers coming back to the site, areas for reuniting old neighbours, work colleagues and forces comrades were added and launching the service on Sky Interactive all led to an increase in subscription rates from 23% to 45%. We doubled advertising revenues with new formats and better targeting, focusing on yield without compromising the customer experience.

INTERNATIONAL EXPANSION We then turned our attention to international expansion, but we were behind the curve at that point as lots of people had caught on to the school reunion idea and were trying it. We also learnt early on that the model does not work in every country. Attempts to move into mainland Europe were unsuccessful and after ‘testing the water’ in Germany we pulled our plans and quickly sold our operations there to focus on English-speaking countries. We bought the Australian Number 1 player ‘School Friends’, the New Zealand player ‘Find a Kiwi’ and set up operations in South Africa, creating one international database. This has enabled members to reunite with friends from across the globe all from the one site and for one membership fee.

EXPANDING THE BRAND The next stage in the company’s development came, when we officially launched our family tree-building site ‘’ and ‘Friends Reunited Dating’, an online dating site (not about dating your old school friends), diversifying the revenue streams for the first time in the company’s history (see Figure 2.). The key goals for Genes Reunited were to raise brand awareness and appeal to the mass market offering an easy and engaging route into a hobby for beginners. Within 12 months the site had close to 1 million members and had moved from fifth to first place in the Hitwise online ‘family and lifestyle’ category. At the end of May 2005 it had over 3 million members, growing at a rate of 150,000 a WHILE THERE WAS A DANGER THE COMPANY month, and 35 million names listed, with two WAS A ONE-HIT WONDER, I SAW MORE names being added every second of every day. It now has a 61% share of the market THAN JUST A REUNION SITE, RECOGNISING (Nielsen/NetRatings), six times that of its THE OPPORTUNITY TO GROW REVENUES nearest rival and at the current rate of growth looks set to become as big as the parent site. WITH A HIGHLY SCALEABLE SYSTEM AND A The dating site operates in a far more competitive market, but still has over 300,000 BRAND SYNONYMOUS WITH ‘MAKING active members. It is simple to use and the CONNECTIONS’, PAST, PRESENT AND FUTURE strictly controlled content and pictures ensure its

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SWOT ANALYSIS AT THE END OF 2002

Strengths Weaknesses

• Leading online community in the UK • Danger the service was a ‘one hit market wonder’ • Strong brand recognition and identity • Subscription model potentially of • Fast growing customer database limited value after first contact • Subscription based revenue model with • Low advertising revenue in comparison strong cash conversion with page views • Low-cost base • Declining revenue/profit • Small number of employees • Some core competencies subcontracted • No management structure • No proof that brand could extend into new services

Opportunities Threats

• A brand with great extension potential • Large US competitor (Classmates) • 8m customer database – cross-sell showed interest in UK market • The potential to grow revenues whilst • One of the large UK portals could have retaining value for money credentials created a rival product • Press would quickly have become bored of Friends Reunited as a news item

no business exists in isolation, as they all FUTURE THINKERS ARE NEEDED feed each other and the brand and we are IN SMALLER COMPANIES WHERE always striving to increase our appeal. Friends Reunited is a fast-growing and NEW IDEAS ARE THE KEY TO dynamic business, which has evolved from a STAYING IN THE RACE reunion site into a brand synonymous with making connections. There is enormous members are genuine people trying to find that potential to grow revenues as the brand special ‘someone’, and all without the stigma develops with new products and services in sometimes associated with online dating. the UK and abroad. In March 2005 we moved into the jobs market with the launch of ‘Friends Reunited Jobs’ and have also recently launched Michael was appointed Chief ‘Friends Reunited Connections’ a social Executive Officer of Friends networking site, enabling members to meet Reunited in February 2003. Prior with new friends with similar hobbies and to this appointment, Michael interests. In its first month the site had over previously had a twenty-year 50,000 registrations with no marketing other career with Pearson plc, than promoting it on the sister sites – an culminating in being Chief example of how powerful the cross-sell Operating Officer of the Financial Times. He left the opportunities remain for the Group. FT in April 2002 to pursue a management buy-out of This has all lead to profits increasing by one of its divisions. When this failed to materialise in 50% a year from £1.6 m in 2001 to £5.2m in July 2002, Michael continued to work with a number 2004 (EBITDA). of venture capitalists to find a management buy-in We are constantly looking for new opportunity. He can be contacted at opportunities, but always stick to the key [email protected] principle of no customer exploitation. One of the greatest strengths of our company is that mCriticalEYE (Europe) Ltd. 2005

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