Vaughan Bowen has come a long way since his early days as a start-up entrepreneur. He talks to Angela Faherty about how he helped to build a billion-dollar company and what he has learnt along the way.
M2 executive director, Vaughan Bowen MAICD, has risen rapidly through the ranks of telecommunications executives from his early days as a start-up entrepreneur in Adelaide.
Following several years in Indonesia managing and profitably growing the South East Asian operations of Secure Parking, Bowen returned to Australia in 1997 aged 25 with itchy feet and a keen desire to go it alone.
Presented with the opportunity to invest a small amount of cash into an ailing digital messaging business called Message Mate two years later, Bowen found himself at the start of his entrepreneurial career and with the foundations for his future business at his feet.
“I took the two M’s from Message Mate and created M2 as I hoped that one day it would be more than a messaging company, and fortunately, it has played out that way,” Bowen says. “People always have this expectation that people who make a successful business have a grand vision, but that was not the case. I never thought that we would have this billion-dollar company and this terrific outcome at the start. I never envisaged that would happen.”
Within 18 months, Bowen brought the company from zero revenue to $2.5 million. “But it was never going to be the next big thing,” he says. “We thought these products were going to be perfectly suited for small business as they were phone system accessories that had voicemail capabilities and other bits and pieces, but the problem with running a business that just sells phone equipment is that you basically go from ‘hero to zero’ one month to another, due to the absence of recurring revenues.”
With an eye on expansion, Bowen bought a small business called SelectTel that had what he calls “the basic ingredients of a reseller telco”. It had a billing system, a supply relationship with one of the larger telcos to access wholesale line businesses, $41,000 a month in revenue and about 90 customers.
“The owners wanted to do something else so we took over the business and their three person team and got ourselves a starting point. We rebranded that business M2Connect.”
Reaching greater heights
For about five years the business grew organically to reach $35 million in revenue before it started on its aggressive and successful acquisition trail.
For Bowen, these organic beginnings are critical as they helped build the expertise of the executive team in driving a successful business growth strategy.
“It is a very relevant point that our business knew how to grow,” he says. “We had sales in our DNA and we affectionately refer to our business as a sales business that just happens to sell phone services.
“I do not have a telco background, my long-term head of sales did not have a telco background and neither did the CFO, it was basically a non-telco workforce,” he adds.
In October 2004, M2 listed on the Australian Securities Exchange (ASX) with a market capitalisation of $14 million and a profit forecast of $2 million for that year. The time was right, says Bowen. “The company had reached the point where an initial public offering (IPO) was seen as the way to provide liquidity to our seed investors and to create a platform for further growth. We still had ambitions to continue to grow and we thought that the business as a listed company might have greater leverage to participate in consolidation of the telco sector, via the rolling up of some of the other smaller players.”
However, the company missed its forecast that first year. It was the only ever downgrade in its 10 years as a listed company. “We missed it by 10 per cent,” Bowen says. “I look back at it now and wish I’d just put the difference on my credit card,” he says jokingly.
Today the company is a profitable and fast-growing national telecommunications company with a market capitalisation of $1.3 billion and in the space of the last seven or eight years has bought about 20 companies. Yet Bowen says that IPO taught him a lesson in running a listed company.
“The three rules are: You make your guidance, you make your guidance and then you make your guidance. You do not disappoint the market,” he says.
Since listing, M2 has grown significantly through acquisitions. Those deals have varied in size from $250 million 15 months ago when M2 bought Dodo and its sister company Eftel, as well as iPrimus for $200 million and Commander, People Telecom and a small listed company, Orion to name but a few.
It is a strategy that has served the business well, with the Dodo transaction in particular bringing a lot of benefit to the M2 Group.
“It gave us a lot of capability in sales and marketing and great customer service capabilities from a very big call centre in the Philippines where we now have about 2,000 of our team. Dodo brought us the contact centre capability and smarts in running an offshore operation. You can do them really well or really poorly and fortunately they were doing it really well,” he says.
More recently however, the last 12 to 18 months has seen the business turn its attention back towards organic growth. “You cannot keep relying on buying businesses, because at some point the music will stop,” Bowen says.
“I think that at the core, you need to know how to function organically because if you are buying businesses and bringing them into your fold, you have got to know what you are doing. You have to know what questions to ask and what gremlins to try to uncover and then when you bring the business into the fold, you have got to demonstrate to the team members who join from the acquired business that you know what you are doing.”
For Bowen, “culture” within an organisation is often an over-talked about and misused word, but he says it is critical when a mergers and acquistions (M&A) strategy is core to a business.
“If you are not demonstrating real competence in what you do to those people that you bring into your fold, you will very quickly lose their respect and once that happens you generally lose them as employees, and once you lose them as employees, you lose the knowledge,” he says.
“And in a business like ours, where the team we employ are our core intellectual property, our core asset, having that competence is critical.”
Bowen adds that another key asset of a successful M&A strategy is an openness to change. “If you have got a group of people that regard a new challenge or disruption as something that is just more work and a pain in the neck, then they are going to hate working for us. Without that mindset and a willingness to grab the opportunity and view it as another exciting challenge, we would really struggle.”
A change of direction
In 2001, after 12 years leading the company, Bowen stepped down from the CEO role at M2 to become an executive director. He admits it seemed an odd decision for those outside the firm, but for him, though spontaneous, it was a very natural transition.
“I was 38 when I decided to do the transition, so it was not a case of running out of steam or that I got too old,” he says.
“Nor was it in any way because I lost interest. I woke up one morning and just thought the business needed a very specific type of person to lead it through its organic expansion and the next stage of its journey into a genuinely large company and all the things that entails in terms of process and operations,” he says.
Bowen adds that his skill sets are more oriented towards uncovering strategic opportunities, so with the newly appointed Geoff Horth GAICD as CEO, he was able to focus on the M&A side of the business. “It was quite a natural transition. I just thought: ‘why don’t we make him the CEO and create myself a role that is absolutely dedicated to M&A? And, following a process of consideration by our board, that is what we did.”
His current role as executive director is to lead the M&A strategy, opportunities, identification, negotiation and the due diligence process that goes with it. The second is to be there as a confidante and sounding board for the CEO. “Having done the job for 12 years I am pretty familiar with the pressures and challenges,” Bowen says.
Until recently, the M2 board had remained unchanged for 13 years.
“I did what I am sure a lot of start-ups do when they are first trying to conserve money and have access to valuable advice, I appointed our then accountant and our then lawyer, who are both still on our board 14 and a half years later,” he says.
That “fairly junior” accountant was Craig Farrow FAICD, who has risen through the ranks to become chairman of M2 and last year, was also the president of the Institute of Chartered Accountants. “Unknowingly at the time, we definitely backed the right horse,” Bowen says. John Hynd MAICD who has remained a non-executive director since the outset, was the company’s lawyer.
“It was a small board initially of four or five people and over time that board has evolved, though not radically, as there is a long staying element. But as a little start-up, I think there is something in the fact that the board was essentially the founders of the company. “
Outside of M2, Bowen sits on the board of three other companies. He is founder, principal benefactor and chairman of the not-for-profit charitable organisation, Telco Together Foundation (Twitter @TelcoTogether), which has united the Australian telco industry in support of Australian communities in need across the areas of mental health, homelessness, refugees and indigenous communities.
He is also chairman of Aggregrato Global, a young unlisted prepaid telco company, which is 30 per cent owned by M2. He also sits on the board as a non-executive director for NIA, the first new private health fund to be established in Australia since 1979.
“NIA, which trades as health.com.au was established just two years ago and it is growing like the clappers,” Bowen says. “It has over $100 million in revenue now, all organically sourced, and most of its services get sold through comparison sites like iSelect. It is exciting because the insurance market is a bit old school, where there has not been a new ‘for profit’ challenger for 20 something years.”
With a seat on four boards under his belt, Bowen is certainly busy. But his vision is clear. “My base principle is I am only going to be involved in a board capacity for businesses that I have a vested interest in, either on a philanthropic level or on a commercial level. I am not looking to widen the net at present, but never say ‘never’. If Telstra asked me to be on their board in the future, I might just have to think about it, but I’m pretty sure I would be a tad conflicted right now,” he jests.
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