From Newcastle to New York? Why Sage isn’t swapping London for the US | Boardroom Uncovered

Speaker A: Generally, if you want to be successful, you need a lot of persistence, you need a lot of resilience. We need government to create an environment where small mid sized businesses can scale. We're very good at ideas, we're very good at setting up businesses. We're not quite as good at scaling. It doesn't matter whether you're running a country or running a company. People get a bit bored if you talk about things, but they can't see the outcome. You know, if you've got a manager who says, we're going to win the championship and we keep finishing in the bottom half eventually, we don't believe in it. Small mid sized businesses are over half the GDP in this country. They create two thirds of the. Don't burden them with tax, don't burden them with regulation, make it easy for them to grow. You can't predict the market. But as we sit here today, I see no advantage whatsoever of going to the US.

Speaker B: Hello and welcome to another edition of CityAM's Boardroom Uncovered. With me, John Robinson. My guest for this episode is Steve Hare, the CEO of Sage. Hare joined the software giant in 2014 before taking on the top job of the FTSE 100 firm four years later. Voted the UK's top CEO in 2020. Haier is overseeing a successful period for Sage, but the company still faces its fair share of challenges. Without any further delay, let's dive in. Well, Steve, it's great to have you on board of Uncovered. Thank you so much for coming in.

Speaker A: It's a pleasure. Thanks for inviting me.

Speaker B: I can't believe it's been this long. Into the life of Boardroom Recovers for the guest to be from Yorkshire as well.

Speaker A: Yeah, it's fantastic. We're few and far between, aren't we, the uh, Yorkshire CEOs, but something to be proud of.

Speaker B: Absolutely. And East Riding of Yorkshire as well. I was born in Beverly, so it's got its own country.

Speaker A: I still live about 10 miles away from Beverly.

Speaker B: So yeah, it's, it's uh, a lovely place uh, in the UK. Rare I suppose. You know, you're leading a 10 billion valuation tech company but you're based in Yorkshire.

Speaker A: Yeah, so I'm uh, I mean I spend a lot of time in London, I spend a lot of time in Newcastle where our uh, uh, global headquarters is. But you know, Sage is a, is a very global business. I spend time where, where I need to be, whether that be with our uh, with uh, our people, with our colleagues, customers, uh, investors, et cetera. So um, you know, it's part of the fun of running a global business that you. Yeah, you get to meet lots and lots of, you know, really interesting people. You know, there's never a dull moment.

Speaker B: Yeah, absolutely. And I was having a look, obviously, researching the episode that you obviously hail from Yorkshire, but you moved to Hong Kong with your family, uh, in your early years. What was that experience like?

Speaker A: So it's funny. Yeah, we moved there when I was six years old. So my father was an engineer and, uh, he, uh, he always. He'd been in the merchant navy, and he had a bit of a passion for trying new things, going to new places. And I think. I look back and I think, you know, it's pretty brave move back in the 60s to sort of uproot, you know, young family with two kids. And I remember my grandmother saying that, uh, you know, when it happened, she. She looked round and said, well, where is it? Has it. Has it got any. Has it got electricity? Has it. You know, where. Where is this place? I've never. I've never heard of it. And my d. Originally that, um. Yeah, he was going to go for a couple of years and get a great experience, and he stayed for 25 years. So. So I spent, um, you know, most of my kind of formative childhood years there. And it was, uh. Yeah, it was a. It was a fantastic, fun. It was a really cosmopolitan place. Um, you know, very vibrant and, uh, a lot of energy. It was a very optimistic place. Growing up in Hong Kong, when. When I was 11, I went to boarding school. So from 11 to 16. So what that meant was from a very early age, I. E. From 11 years old, I was flying between, uh, London and Hong Kong. Uh, not completely unaccompanied because the airline used to make sure you were properly supervised, but without my parents. Right. So at 11 years old, I got on a plane for best part of 20 hours. So for me, yeah, that was a norm. And because my parents, particularly my dad, liked travel, we also. Every holiday it was like, well, where are we going? Where's the new place we're going? We. We pretty much never went back to the same place. And so when I started work, I was always very, you know, I wanted to work in the uk. I wanted to start my career here. But I was always looking for, you know, can I. Can I be involved in a company that's a bit more international? Uh, and as I say, I was. I was interested in spending a bit more time in Europe because I'd never. I'd really had no experience of Europe. We'd never really been on holiday in Europe because we tended to go to the US or Asia or, you know, places like that. It's the diversity of culture that I really enjoy.

Speaker B: Yeah. And I suppose you still see that a bit with Sage. Obviously you got offices all over the, the world. Do you get to travel around and I do. And see all of them?

Speaker A: Yeah. I would say probably, you know, at least maybe, you know, some, probably a third of my time, I'm, um, I'm some. I'm traveling somewhere sometimes, obviously here in the uk. Spend time in say, Newcastle. Yeah, I like to be out and about and I like to, I like to spend time with our people, with our colleagues. Um, but also when I'm out, I like to meet with our partners. We sell nearly half our revenue, uh, through partners, through value added resellers. Uh, it's really, really important to keep connected with them to meet customers. I mean, We've got over 2 million customers globally. I can't meet them all. But as I go, as I travel around, I always try to meet some. So last couple of weeks I was in Madrid and then I was in Porto in Portugal. In both of them I did roundtables with colleagues, with partners, with customers. Um, because I think engaging, you know, we, you know, we sell to small, mid sized businesses. Small, mid sized businesses are not, they're not faceless corporates. Right. They're people, right. They're people who often have started a business themselves. It's their money, it's their passion. Um, you know, they care about relationships, they really do. And so it's important to, you know, to be out and about connecting and, and keeping your feet on the ground. I think, you know, as a CEO of a bigger business, often the biggest challenge is that you, if you're not careful, you know, you, you don't stay grounded. Right. You know, there's no customers and revenue in your, you know, shiny head office. Right. You can't get out and about and see what's going on.

Speaker B: So you're not going to set yourself a challenge then to meet or 2 million your customers?

Speaker A: I think it'd be tough. Although I do as well as meeting customers face to face, I do do a lot of calls because you can obviously get, you can get bigger reach. So, um, I used to do more, I used to do more mystery calls. Uh, so I'd get contact details and, and then ring people up, but doesn't really work because first of all, a lot of people don't answer the phone if they don't recognize the, the numbers, so it can be hard to get through. And then when you get through and you say, hi, this, you know, this is Steve, the CEO of Sage. You spend the next, you spend the next 10 minutes trying to convince them that that's who you are. So, so we schedule the calls now so that at least people know that it's, you know, it's, it's me that's going to call. And we explained that, you know, these are just very informal. They're for your benefit. It gives you a chance to, you know, tell me your story. And, um, that's kind of, that's the thing that I love the most. You know, most small business owners, they, they have a story to tell you. And, and most people, whatever they're doing today, it wasn't the first thing they tried. Right? And so most successful business owners, most entrepreneurs, they can tell you the story of the things they tried and it didn't really work out. And then they found something that they, they really loved. And then what I love is the stories about how in the early years, things never go to plan. Right? I mean, you know, you speak to the most successful people you can, who, you know, who've, who've, you know, just made huge sums of money and, and have become very successful. And they can always tell you in those early years, the things that were chaotic, the things that went wrong, the mistakes they made, and all of those are just massive learnings. And, and I think when, you know, when I talk particularly to, to young people who are working for Sage or thinking about embarking on a career, I always say, you know, you just got to be, you got to be bold, you got to try stuff. You know, you got to this idea that you suddenly have an amazing brainwave and it works first time. You know, maybe there are people like that, but generally life's not like that.

Speaker B: Yeah, there's a lot of people online trying to sell that. Uh, you just need one idea and you can do exactly what I did, and it's all easy peasy. But it's, that's not the case, is it?

Speaker A: Uh, not at all. I think, I think to be, to be successful and it doesn't matter whether you're talking about sport or business or anything in your personal life, generally, if you want to be successful, you need a lot of persistence, you need a lot of resilience, and you, you have to learn from stuff that doesn't go to plan.

Speaker B: We've got some quick fire questions for you now. Steve, are you ready?

Speaker A: I'M ready.

Speaker B: What was your first job?

Speaker A: So I was an audit trainee working, uh, for what was Ernst and Winnie is now Ernst and Young. And, uh, I started in Liverpool.

Speaker B: And was it the bright lights of auditing that's attracted you to the job?

Speaker A: Somebody said to me, um, what are you thinking of doing and in your career? When I was at university, and I said, I have no idea, but I want. I want a business career. I want to do something in business. And, you know, I'm pretty good at numbers and all that. And they said, uh, because, remember, this is in the early 80s, you should go and qualify as an accountant because it opens up all these doors. So I thought, right, okay, that's fantastic. I had no idea what auditing was. And I have to tell you, once I got this job in the first few months, I was like, wow, okay, so this is what I have to do now for the next three years until I qualify. I went to university to learn all these skills that. I'm here because these are the. I mean, this is going to make me sound very, very old, but these were literally in the days where you had a big piece of A3 paper and A calculator and you had to add up the columns and the rows.

Speaker B: Who inspires you?

Speaker A: People who are resilient over long periods of time. So there's a few. I mean, I think someone like Nelson Mandela, who, you know, if you read his book Long Walk to Freedom, uh, you know, those years he spent in jail, he had this vision, he had this dream, and he just kept working on it and working on it. And then when he was released, he could have easily pursued an agenda of persecuting, if you like, the, you know, the white population who had persecuted him. And. And he very much had an agenda. We're going to unite South Africa. We're going to be one South Africa. And, uh, I think that was incredibly inspiring. And then. And then if you look at, you know, some of the football managers, you know, really, really successful football managers, like your Alex Ferguson or Pep Guardiola at Man City, these are people who. They build over sustained periods of time, success, and they know when to make changes. M. You know, I think one of the things that's really hard is when you. When you strike on a winning formula is knowing that that won't last forever and being prepared to change it as you're going along. So almost when you are at your most successful, you still have to be thinking two, three years ahead of what does it take to sustain that.

Speaker B: Well, we're going to champion Sir Alex Ferguson on this podcast, but absolutely not Pep Guardiana. We're not having any of that Man City rubbish here.

Speaker A: I'm trying to be balanced.

Speaker B: We don't need to be balanced in that regard. Absolutely not. If you had to appoint a celebrity to your board, who would it be and why?

Speaker A: I want to pick someone I've met. Uh, so Brian Urbana.

Speaker B: I knew you were going to say him because he's only adverts.

Speaker A: He is a really, really great man. He's a great man and uh, he's got so many insights and, and of course he played rugby for South Africa. In an era there weren't really any, uh, players of color playing for the box. Right. And, and he was a superstar that, that came and was accepted. And I think he uh, apart from being an incredible player, he really changed the way that the box were, were seen and the whole kind of team dynamics. And when you meet him as a man, he's a really warm, nice guy as well.

Speaker B: Yeah, I knew you were going to say him. I could have put money on that. What's the best thing about your job?

Speaker A: Meeting people and yeah, hearing their stories. I always ask them, Hm, how did you, how did you come to be here? How'd you get here? You know, and where, you know, if you're running a business, where did your idea come from? And I think it's just so fascinating and every person you meet, you kind of, you learn something from them. You know, I'm in my 60s now and I, you know, I think you've got to keep learning. You've got to, you know, the world's changing very quickly, there's lots going on and uh, you can learn just as much from Talking to a 18 year old who's just set up a business, uh, as you can from somebody who's 50 and has been running their business for 35 years.

Speaker B: And if you were Prime Minister for the day, what would you do?

Speaker A: Oh God. Well, a day, A day is not very long in politics, is it? Um, but I think my big thing really is for us as a country to drive growth. We need a digital economy. So I think the first thing I would do is for all VAT registered businesses, I would mandate e invoicing because e invoicing, which is taking off across Europe, creates a digital, uh, environment which removes huge amounts of friction. People get paid very quickly. And um, you know, I'd, so I do that in the morning and then in the, in the afternoon. You know, I would create ah, an agenda to make it, make this economy a small mid sized business first economy. We need government, the government to create an environment where small mid sized businesses can scale. We're very good at ideas, we're very good at setting up businesses. We're not quite as good at scaling. And some of that is the environment. You've got a free red tape, you've got a, you've got to create an environment where people can flourish and there is the minimum amount uh, of friction.

Speaker B: Have you seen anything over the last year or so of the Labour government that's giving you the impression that they are capable uh, of doing that and focused on that?

Speaker A: I think some of the things that were set out at the beginning, so some of what was in the early thinking around the industrial strategy, um, trying to free up planning rules, trying to do what I've just said really, which is remove friction and get the economy going. You know, I think some of that was, was really good. The, and, and the, the, the intent was definitely there. You know, it's not that different in a company. Executing against that agenda is often quite hard. And I think, you know, we're, we, we are definitely in a period now where there are lots of things going on where there is, you know, there's strong intent. Um, but we've got to, we've got to get, we've got to get them to outcomes. We've got to. Yeah, to use the old phrase, you've got to get some scores on the doors because people to, for people to believe and for people to have conviction, they need to see successful outcomes. And in the end, again, it doesn't matter whether you're running a country or running a company, people get a bit bored if you talk about things but they can't see the outcome. It's a bit like in a, you know, if you've got a manager who says we're going to win the championship and we keep finishing in the bottom half eventually we don't believe in.

Speaker B: As a long suffering United fan, I can relate hard to that. Yes. Uh, at time of recording, Amarin is still in post but we will see by the time this comes out. We've got the budget coming up on the 26th of November. If you could ring up Rachel Reeves now and ask her uh, for a couple of things that you'd like to see in that budget. What would it be?

Speaker A: Yeah, well, again, similar theme really. It's all to do with encouraging an environment where people set up and grow their businesses. So I leave it for politicians to kind of Figure out how they uh, raise the money they need to raise to balance the books. At the end of the day, if you want to encourage growth, um, more regulation, more tax does not incentivize growth. You've got to try and create an environment where people want to take risk. They want to grow businesses because small mid sized businesses are over half the GDP in this country. They create two thirds of the jobs. If you want this economy to flourish, you need to incentivize, uh, small mid sized businesses to grow, which means you need to give them the appropriate incentives which is don't burden them with tax, don't burden them with regulation, make it easy for them to grow.

Speaker B: Because the increase of taxes in the last budget of course is likely to be increase of tax in this budget. That's not going to help companies of any size, but particularly the SMEs.

Speaker A: Yeah, they've got to be very thoughtful about how they balance the books. And some of it's economic and some of it's political obviously. So I leave it to politicians to decide the political choices. It's just, you come back to the facts of how the economy works. Um, the economy will only grow if you incentivize SMBs in the private sector, uh, to grow and increase their capacity and whether that be employing people or whether that be adopting technology to create more capacity through uh, productivity. So you go, go back to things like e invoicing. You're trying to get small businesses, you're trying to get people in the economy to adopt the latest technology because we tend to be good in this country actually with coming up with uh, technology. Um, you know, and I've, I've said this when we've been talking to government that you know, you look at, look at what's happening in the UK in Sage, up in Newcastle, you know, we have you know, 400 engineers, you know, a high proportion of whom are working on the latest, you know, AI technology, producing real solutions for businesses which save you uh, know, which save them time and money. And actually last week we had Liz Kendall, the Secretary of State and also M. Kim McGuinness, the Northeast mayor came to our facility in the Northeast and we deliberately, I didn't host the visit. We deliberately made sure that they got huge um, exposure to our uh, graduates, our apprentices, all of these young people who are working for, for SAGE and, and should make us all very proud. But those are the same people who are thinking about do I set up my own business? Do I, you know, do I, do I go to do I go to America, Do I go to Europe? Do I, do I travel in my career? What do I do? And we need those people to feel proud of the fact that they're working in the UK and we want them to, to stay in the UK and uh, we need, we need a bit of optimism.

Speaker B: Talking of America, I suppose Sage is one of those rare beasts where it's say, a £10 billion valuation, member of the FTSE 100 listed in London, and you've not been snapped up by an American company. Happens more and more, isn't it? Our tech companies are being bought up and, you know, and being part of becoming part of an American group, um, I'm wondering if that sort of weighs on you.

Speaker A: Yeah, I think, look, we're, we're very proud of the fact that our roots, uh, uh, here in the UK and uh, in Newcastle, not, not just in the uk. And I've been asked many, many times, you know, you know, why kind of, why are you still here? Why, you know, why don't you list in the U.S. as you say, why don't you sell out to private equity, etc. And um, you know, we're, you know, we're on a mission to, uh, show that, uh, you know, most of our competitors are American. Half our, nearly half our business is in North America. And we compete against the big American players every single day. And, you know, we, we win, you know, and, uh, you know, this kind of idea that, you know, somehow you can't be successful, um, unless all the ideas come out of the, of the U.S. you know, there's. There's part of my kind of Northern stubbornness, I suppose, that wants to prove that wrong. And, and that's not to, that's not in any way to, uh, be negative about what's coming out of the US because we have engineers in the us we have lots of great stuff that's coming out of the US as well. Some of our best AI talent and some of our best engineering talent is in Newcastle, um, in Barcelona, uh, as well as the us so we feel that compared to our competitors, we're more global, I think, understanding different cultures all around the world and trying to get the best of being a global business. So, uh, leveraging off your global capability, but at the same time understanding that local differences, the local culture, the local compliance. I think, uh, that's kind of our usp, we're good at that. And all our local teams are local. Ah, right. So you go to Spain, you know, our MD is Spanish. Germany, our MD is German, France, our MD is French, etc. You know, we're very, we really pride ourselves in, we understand our customers and um, yeah, I want to prove that we can, that we can keep scaling there and we can be the big success story this side of the Atlantic.

Speaker B: Yeah, for sure. I mean, I assume that you want to grow more and more in America, but you've got big competition over there. Would you ever consider a dual listing on the nasdaq?

Speaker A: I think at the moment there has to, you know what you have to look at, what's the reason? So we don't have any issue with access to capital, so we can access the capital we want. We've done bond raises, um, no issue there. So the only real reason for considering, uh, listing in the US is if you thought you would access a different investor base or if you thought your valuation would change. Uh, we already have close to 40% of our shares are owned by US funds. So they don't need us to list to buy our shares. They're buying our shares. And look, we're one of, you know, on a PE price earnings ratio, we're one of the highest rated stocks, um, in the FTSE 100. I think we ah, are valued fairly, uh, for the position that we're in. And I think if you look at the FTSE 100, there are examples, um, whether it be Rolls Royce, whether it be relx, whether it be London Stock Exchange, that when you deliver a growth story, and the key word there is deliver, not just talk about it and post the vision, when you deliver, the market rewards you. So at the moment, and you, you never can say never because obviously you have to.

Speaker B: Not ruling it out is what you're saying.

Speaker A: Well, you can't, in the end you can't predict what will happen in terms of the, of the markets over the next few years. But as we sit here today, I see no advantage whatsoever of going to the us. The other thing as well you have to remember about the US, which people forget is here in the UK we're a member of the FTSE 100 index. If we went to the States, we wouldn't get in the index. We're too small, we're tiny on the nasdaq. We would be a small cap software, uh, company, Whereas here we're FTSE 50.

Speaker B: Yeah, for sure. Talk about the London, uh, Stock Exchange and the FTSE 100. And you mentioned in that, ah, previous answer about a fair valuation. It's not something that you could, that's not been the narrative really for the last couple of years there's been lots of London listed companies that have been bought up because the American firms in particular have said that they're undervalued. Is that a particular issue for the stock exchange still? And do you see that changing anytime soon?

Speaker A: Maybe the thing that makes the London market a little bit more difficult is you don't have the same peer groups. So again, if you take Sage, we are the only technology company really now, uh, listed on the, on the ftse, and we're certainly the only software technology company. So what that means is that, you know, when people are looking at comparators, they do have to look to the us they do have to look to different places to see, to kind of do, uh, that read across. And what that means is that I think if investors don't understand the story, then you can start to get dislocation in terms of the valuation. So the approach we take in Sage is we put a very significant amount of effort into explaining what we're doing, what our growth story is, what our investment case is, both to investors, but also to analysts, uh, to commentators, etc. And what's really important is that that story is consistent. We don't have one story for investors, one story for colleagues, et cetera. Right. There is a story that is pretty clear in terms of what we're trying to achieve. And therefore it makes it, I think, easy for investors to understand and buy into, whether they, you know, whether they believe in that. And therefore, I go back to, I think today we are very fairly valued for what we have achieved. The only argument would be, should we be getting any credit for what's coming in the future? Um, and my view on that is, well, once you start delivering it, you get credit. And I think if you look at these other stocks in the FTSE 100, I think, again, Rolls Royce probably the best example. I mean, their valuation really, really sunk. And then the new CEO, uh, came in and he has delivered. And as he's delivered, I mean, the shares have gone up tenfold.

Speaker B: You'd like a bit of that success?

Speaker A: I would. I mean, I have huge respect. I mean, I would definitely take a tenfold increase in share price.

Speaker B: You are going to turn it down? Yeah. Um, let's talk about Sage. I'm interested to know what you think the company's biggest challenges are for the next five years or so. Is it as obvious as AI or is it something else?

Speaker A: The challenge now really is, um, building the, the trust with both existing customers and potential customers so that they adopt the latest technology that is powered by A.I. uh, that they adopt that and drive, they take the benefits of both personal productivity, but also the productivity of the enterprise that they work in. It has been described, AI uh has been described as being game changing. And I think what you've got to do is kind of separate the, the hype so that you know, when there's a latest release of, of, you know, one of the, you know, one of the large language models like chat GPT and then someone goes, yeah, it only took me 30 seconds to get it to tell me something that's not true. And so that kind of uh, makes people uh, wary of adopting that type of technology. We've, you know, we're building our own large language model, our own domain specific model that leverages off the bigger LLMs. But because we work in an environment, finance, HR, payroll, where it's got to be accurate, we can't allow the model to guess. We have to make sure the model does it properly. Um, and then what we have to do is convince our customers that that's the case, right, that you can trust it, it's accurate. You know, it's like having an extra pair of hands. And so I think our biggest challenge is not, is actually not making that uh, technology available because we're working on it, it is available. It's getting better all the time. It's convincing customers that you can trust us and that we're the default. You need to come to us, uh, to help you drive uh, your um, productivity, particularly in finance, HR and payroll.

Speaker B: Steve, I always like to finish every episode with this question. What does it take in your opinion to be a good CEO?

Speaker A: Actually I'll answer this partly by saying that I um, think. I uh, think it takes, it takes a while to settle into the role. So I've been CEO for seven years and I think in the first few years I found it difficult to be myself. So that's the first part of the answer. I think if you want to be a good CEO, you want to be a good leader, you need to be the best version of yourself. And what I mean by that is sometimes when you get into senior positions and um, particularly once you become the CEO, uh, um, there are some people who, who try and turn you into something you're not, right? And, and that doesn't work because if you're not true to yourself, you're not authentic. People see through it, right? And people don't, people don't connect to you, people don't follow you. If you, if you're not authentic. Um, so you need to keep your feet on the ground. You need to be authentic and you need to be prepared to say things as they are actually, particularly when things aren't going to plan. Um, I think it's very easy to be someone, it's very easy to deliver good news. We all, you know, we all love delivering good news. Uh, you gotta be prepared to confront things that are not working and you've gotta be able to explain. So a good example of that is when I first became CEO, uh, we had a 28% operating margin in Sage. And over a couple of years, um, I took that down to 19% and I had advisors around me saying, you're a public company, if you reduce profitability like that, it's suicide, you'll have activist investors, etc. And I said, no, we have an issue that we need to fix and if we don't fix it, Sage won't survive. And I believe if we explain that clearly in terms that people understand, they'll support us. And they did. So, you know those big moments where you've got to, you've got to have quite a lot of self belief, but you have to be patient and you have to be prepared to invest the time to take people with you. So whether it's your colleagues, your customers, partners, investors, kind of charging off to the hills without taking people with you doesn't work in the long term. So it can be tempting sometimes, I think, for CEOs, uh, not to invest that time because they're so busy doing other things. I believe you've got to be really thoughtful about how you spend your time and you've got to take people with you.

Speaker B: Brilliant. Steve, thank you so much for coming on the show.

Speaker A: Thank you.