A new breed of techno tycoon is emerging in Britain. Today's software programmers are focused, young and very rich.
If you want to get rich quick, join the IT industry. Skills are in short supply, salaries are soaring, and the flotation of a raft of computer companies has created a new breed of multi-millionaire techno tycoon. While the rest of industry teeters on the brink of recession, IT companies can barely keep pace with their own phenomenal growth. In the UK alone, the market this year will rise 10% to £35.6 billion, says leading industry expert Richard Holway.
Much of the money is being spent eliminating the millennium bug, which threatens to throw computers into chaos in the year 2000. Programmers willing to travel can currently earn £3,000 a day in the US on millennium bug projects, plus four trips back a year on Concorde. As the critical date change moves closer software contractors are increasingly able to name their price.
Software houses and consultancies are cashing in on the opportunity and their growth is being reflected in sky-high stock market valuations. Worcestershire-based Misys recently became the first UK IT company to enter the FTSE-100. London Bridge Software's share price is rising so fast that its founder Gordon Crawford saw his paper fortune climb by £1 million a day during the first few months of the year. Private IT companies should cash in on the sector's 'exotic' rating, says Holway.
Nor is it just the date change that is fuelling growth - companies are also having to fork out huge sums to adapt their systems to the euro and to exploit the commercial opportunities of the internet. Andersen Consulting, which specialises in these areas, last year turned over £445 million in the UK alone.
Financial success is enhancing the social status of IT. The image of the nerd in an anorak is gradually being eclipsed by the Armani-suited Porsche-driving 'techoon'. IT entrepreneurs have particular cache. Although not yet as visible as the pop stars and landed aristocracy with whom they rub shoulders on rich lists, they are on the way. 'IT people used to have an image of not being very interesting or fun to have at dinner parties,' says social commentator and research consultant Peter Wallis (aka York) from SRU. 'Now everyone knows that Bill Gates is very, very rich - IT entrepreneurs in the UK gain a bit of glamour and social magnetism by association.'
Just as the Californian PC pioneers championed a new dress code for the industry in the 1970s with their jeans and sneakers, today's youthful software developers tend to be 'loose and cool'. Those over 30 are positively geriatric - the average age at Demon, the internet service provider recently sold to Scottish Power for £66 million, is 24. Marketing and sales people tend to be older and more conventionally dressed, but long hours and workaholism are common to all age groups. Mike Norris, 37-year-old chief executive at Computacenter, rarely takes holidays or leaves the office before 9.30pm, and regards dinner at home as a lost sales opportunity. Graham Wylie, 39-year-old director of Sage, the accountancy software firm, was sent back to work by his wife when he took a week off because he became bored so quickly. Software gurus often work through the night.
So what are the options for today's IT whiz-kids? Many are tempted to set up their own companies or to become consultants. Newcastle-born Iain Barker, 34-year-old founder of Team 121, did both. Barker, who couldn't wait to get away from Newcastle, began his career in the management information department of Esso Petroleum. Ready for a change in 1987, he resisted the blandishments of the Big Six consultancies or the prospect of earning £200,000 a year contracting, in favour of setting up on his own. Team 121, which specialises in the commercial software system SAP, now employs 400 people, has sales of £35 million, and is doubling in size each year.
Barker, whose energetic approach makes him a hard taskmaster, began recruiting almost immediately and set out to build a portfolio of clients. 'My advice to anyone setting up contract services is to do it in a group,' he says.
'The big mistake when you go it alone is to get locked into a single client. People want 100% of your time and you have no opportunity to build the rest of the business.' It's not all work, however. Newly married Barker still supports Newcastle United, takes regular trips to the ski slopes, and phones for the cricket scores when he's travelling abroad.
Some create opportunities, others have them thrust upon them. This was the good fortune of three senior managers at Workplace Technologies, the networking division of ICL. 'In 1995, we were all pretty set on a career in big business,' says Andy Vaughan, managing director. Then ICL decided to sell the business so the three put together a bid. 'We didn't want to work for ourselves or start a business,' says Vaughan. 'We weren't entrepreneurs, but the opportunity presented itself. It wasn't a long-term gain plan - we just grasped the nettle.'
Backed by 3i, they acquired the company with its £40 million annual sales and 150 employees. Within two years, however, 3i wanted out. The choice was between a trade sale and a flotation. 'If we'd just wanted to get out and sit on the beach, a trade sale would have been the answer,' says Vaughan. 'But we all still love the business and there's nothing else we'd rather do.' So they opted for flotation, each netting £3.5 million - 'small change compared with what some people in IT are making'.
Even modest flotations give Rob Baldock, a senior partner in Andersen Consulting, a few tinges of regret. 'I'm almost exactly the same age as Bill Gates and we were both boy programmers, but the difference is he's now the richest man in the world.' By most people's standards Porsche-driving Baldock doesn't do too badly, with an annual salary in the region of £320,000. If it ever fell behind, he could easily jump ship - head-hunters are on the phone every couple of days. 'It's a hot market and you get reasonably well known through the work you do. But it would have to be a huge challenge to attract me.'
Having programmed since the age of 14, Baldock was keen to escape from software when he joined Andersen from university in 1976. 'I fancied the idea of going into boardrooms, telling them why their businesses were screwing up, jumping into a fast car and driving off.'
The firm had other ideas and asked him to develop the IT side of the business.
The real excitement is the variety, Baldock says. 'The notion of being at one desk day in day out makes me shiver. Consultancy gives you the chance to explore more companies in more industries solving more problems than two people would encounter in most lifetimes.' What's more, there's no need to travel. If you want to be a pioneer programmer you're better off in Silicon Valley. 'But if you're interested in the application of IT then the UK is at the leading edge.'
Being at the beck and call of clients is stressful, so Andersen consultants are encouraged to have personal trainers and gym equipment at home and to pursue other interests - Baldock has a passion for Formula One racing.
Family life also gets the firm's nod of approval. 'It's a very helpful way to maintain perspective and encourage interests outside work,' Baldock says. Although a typical week may be 60 to 80 hours, he seldom lets it intrude on his weekend. Like most of his colleagues, he plans to retire in his early fifties to make way for young blood.
So what about the technical high-fliers who have no ability or desire to get into management? For them the richest rewards are in contracting.
Contractors typically earn twice what they would bring in on staff jobs, says Robbie Cowling, managing director of JobServe, a web-based service advertising contract and staff jobs in IT. 'If you are a permanent member of staff in a large company, it's very hard to be rewarded for technical ability,' says Cowling, who used to be a contract programmer himself. 'Hopping from job to job lets you push up your rates much more quickly.' JobServe advertises 500 new jobs each day.
Contracting, with its lack of security, is not for the faint-hearted.
In addition, it can be difficult to keep up-to-date with fast-moving technologies.
Few companies pay their contractors to take training courses. It can also be difficult for those with family life. On the other hand, for the young and unattached, it offers the chance to see the world and be paid handsomely at the same time.
Steve Newman, senior partner of Theaker Monroe & Newman (TMN), a global search and selection company, recently conducted a survey of perks worldwide.
He found IT people being offered a second company car, in some cases fully financed for private as well as business use. This was in addition to standard benefits such as subsidised mortgages and the payment of outstanding loans and education costs. 'The real talent knows there is a skills shortage so candidates can pick and choose where they want to go and what they want,' he says. In the UK, most IT contracts are between three months and a year, whereas in the US people tend to go for a semi-permanent contract of two years.
It's never been easier for computer people to move abroad. The UK should be aware of this as the IT industry becomes more service based, warns Barker. 'Otherwise people will just pack their bags and go elsewhere.' Being in charge of a fast-growing company makes him increasingly nervous about talk of recession.
'That's why we're going international, so that we can offer people the possibility of living abroad.'
Not everyone is motivated by money - many IT people choose to live abroad for cultural or political reasons. Hugh Hendry, formerly of IBM, has already taken the plunge - earlier this year he moved his family to the Netherlands where he has set up two IT service companies. 'The attraction certainly wasn't money because tax is relatively high here at 60%,' says 40-year-old Hendry, who comes from Scotland. 'But the economic environment is much more stable and at least you know where you are. Start-up companies need to plan for the long term, but this is impossible in the UK because interest rates keep changing.'
Another drawback of the UK in Hendry's view is that people have not moved with the times. 'There's a lot of tunnel vision and people are incredibly frightened of being made redundant so they don't take chances,' he says.
'Even IT managers are petrified of losing their jobs and instead of working an eight-hour day they'll do 12 or 14 hours which is not productive.' Economic uncertainty may be feeding their fears, but a dogged addiction to work looks like it could also be a classic IT personality characteristic. According to Bill Shipton, managing director of PeopleBank, an internet-based recruitment specialist, IT people tend to be introverts, especially on the technical side. 'In psychometric tests, they display steadiness and compliance rather than dominance or influence,' he says.
But while some people are leaving the UK, others are coming in. Indeed, recruiters report a net gain in the IT skills base. 'People see the UK as a very attractive place to come,' says TMN's Newman. 'Most of the work is still inbound.' As for IT entrepreneurs, there are more than ever.
And the big difference between the situation now and five years ago is that investors are beating a path to their door. 'It's like the Gold Rush,' says Michael Jackson, founder of London-based Elderstreet Investors' Club, which provides funding for hi-tech start-ups.
Jackson sees up to 30 business plans a month, many from people in their mid-twenties. Youth is not a problem, he says, and the sheer energy of their activities he finds unsurprising. 'It's the easiest way for a young person to build something in the back room and make millions.' What he looks for is management ability and 'one overwhelming reason to invest'.
Software ideas tend to make the most attractive propositions. 'The trouble with hardware is that prices tend to come down.'
You certainly don't need to be a boffin to make a fortune from IT. In fact, many of the richest people in the computer industry are in marketing or service and support. Take Computacenter, whose co-founders were worth more than £300 million each when the company was floated in May. 'Computacenter is not in IT, it is in service,' says John Bates, director of the foundation for entrepreneurial management at London Business School.
This looks like being the big growth market for some time to come. This year, UK spending on contracting out IT services climbed 17% to £1.7 billion according to Holway. He expects the sharp rise to continue, putting the sector at £4 billion by 2000. There is still money to be made from the millennium bug and some experts are expecting the clean-up operation to last for at least five years into the next decade sorting out the problems that weren't spotted or fixing the repairs that didn't work. But the real challenge is to look ahead for the next ocean roller.
'Copying others is a recipe to lose money or make very modest returns,' says Bates. Instead he recommends looking for changes in demographics, legislation or technology. Role models could include Peter Wood, who set up Direct Line Insurance, David Potter, founder of palm-top computer maker Psion, and Dan Wagner who created MAID, the online information service now part of Dialog.
Some IT pioneers from the UK have made it big overseas 'Essex-born Nigel Morris co-founded Capital One, a credit card company in the US which now has 13 million subscribers. Others have stayed at home 'Steve Shirley set up the FI Group when she had to give up her former career to look after a young family. She is now worth more than £82 million. 'Would-be IT entrepreneurs should aim to be the first across the chasm between where we are today and what's coming in future,' says Bates. The internet offers some of the biggest opportunities at present.
So if you make your fortune in cyberspace, can you look forward to photographs in Tatler and write-ups in the gossip columns? Such fame may still be some way off, reckons SRU's Wallis. 'When I go out into society, I don't meet groovy young rich software people except perhaps those who are developing artistic software such as animators.'
Ultimately, the sheer invisibility of software may be a barrier, he believes.
'There's no visible hook or cultural artefact with which they are associated, except in the case of Microsoft.' This will continue to exclude them from the ranks of first division footballers or rock stars, he believes. 'But eventually it will come - in sociological parlance, cultural hegemony follows economic hegemony.' Then the techoons will really have taken over.
Getting old at 31, but running a cool company and worth a fortune
At 31, Mike Lynch knows he's getting old for the IT industry. 'I'm already over the hill,' says the chief executive of Cambridge-based software house Autonomy. 'Our programmers play incredibly loud techno music while they work - but it just sounds like banging to me.'
However, Lynch, whose company was valued at more than £100 million when it floated in July on EASDAQ, prides himself on having a youthful, pioneering attitude to business. 'We're considered informal by normal UK standards - we don't believe much in hierarchies: it's all hands to the pump when there's a job to be done.' Autonomy was included in a Fortune Magazine Cool Companies 1998 list.
When Lynch completed his doctorate in engineering at Cambridge University he already knew he didn't want to work for an electronics company. A summer job at Marconi had showed him what it would have been like. 'The trouble was, it was the dullest, most boring place you could imagine,' he says.
'After two summers I was about to do what all the engineering graduates from Cambridge tend to do - work in the City where salaries are three times those in engineering.'
Instead, he decided it would be more exciting to try and make a lot of money with his own venture. However, when it came to starting his first company, Neurodynamics, raising funds was virtually impossible. 'Money for technology start-ups was virtually non existent,' he says. 'There was very little seed capital. In the end we borrowed £2,000 from an eccentric investor.'
Within two years, Neurodynamics was turning over £100 million, making it relatively easy for Lynch to raise £9 million for Autonomy. Autonomy develops systems that apply computer analysis to text. The fact that the business is based on technology makes it relatively unusual in Europe where most IT companies focus on services or distribution, says Lynch. 'During the last couple of years there has been explosive growth in this market.'
Autonomy's need for cash to exploit this opportunity was behind the decision to float. Lynch chose EASDAQ for its compatibility with NASDAQ where he plans to have a parallel listing In addition to making Lynch a fortune, the flotation generated hundreds of thousands of pounds for many employees in their early twenties. Financial incentives are crucial in nurturing innovation, reckons Lynch. 'Our management strategy is very different from traditional UK companies which are all cost-accounting driven rather than opportunity driven,' he says. Companies should be less concerned about having to pay a new recruit £50,000 and more concerned about how they are going to get him to make something that will really generate money, he argues. 'That's how it is in the US, but it's completely different here.'
However, there are signs of improvement. 'The UK is moving in the right direction - it's way ahead of France and Germany.' The problem is that Silicon Fen still lags far behind Silicon Valley in attitude. UK graduates still believe they should work for a big company to get experience, whereas in the US they are looking at joining a start-up or starting one themselves, Lynch says.
As for his new fortune, he hasn't had time to think about spending it yet. 'Success in engineering is all about watching planets to see when they align and then firing rockets - I'm very busy firing rockets at the moment.'.