ILT016 Andy Walters on Building Quartix: Subscription Model, Growth Choices, and AIM Listing

Andy Walters: Foreign.

Rosemary Barnyard: Did you make that conscious decision to go down that subscription route?

Andy Walters: Yeah, that's a really good question because for me I had spent 15 years in Schlumberger where I firstly worked on the sale of big ticket items where the difference between three or four unit sales and five or six was huge. And so every month you started not exactly with a blank sheet of paper, but you didn't have that recurring revenue element.

Narrator: Hello and welcome to season two of Investing for the Long Term, hosted by Downing fund manager Judith McKenzie and investment consultant Rosemary Barnyard. In this season, Judith and Rosemary continue their journey through the investment landscape, speaking with leading fund managers, company founders, CEOs and CFOs from across the industry. And in today's episode they are joined by Andy Walters, founder and chief executive of Quartix plc. They discuss the early years of building Quartex, including key growth decisions along the way, the evolution of its subscription based model, and the company's journey to listing on aim. Um, now, uh, just before we get started, please remember that all opinions and information are for educational purposes only and do not constitute investment advice. Investing carries a high level of risk and is not right for everyone. Always do your own research and seek financial advice from a regulated financial advisor in your country before making any financial decisions. With that being said, let's get started.

Judith McKenzie: So today, Judith and I very pleased to have on the podcast Andy Walters. Now I, um, have known Andy since before I was 21. So he and I were both at students, uh, at Clare College, Cambridge. Andy read engineering and was the uh, year above me. My main memories are of him being the social secretary of the boat club. Uh, at what point would you say that you thought you might be an entrepreneur?

Andy Walters: It might have been quite early. But I do remember at school buying and selling 35 millimeter film cassettes, which was a very odd thing to be doing in the playground. But anyway, that uh, that's a very long time ago. I think it was. Eventually it took me 20 odd years to take the jump really and become an entrepreneur. I think by the time I was about 10 years into my career, I wanted to have a business of my own. I'd become quite a workaholic by then and was starting to think, well, actually I could be doing quite well for myself if instead of doing this for somebody else, I was doing it for myself. So that was probably about 2/3 of the way through my career with Schlumberger. I was with Schlumberger for 15 years, so it was probably about then.

Judith McKenzie: Yeah. Okay, you went To Schlumberger from university?

Andy Walters: Uh, no, I. From school. Cambridge offered me a deferred place, so they said they would accept me in 1975 instead of 1974, which meant I had to go and find a job somewhere for a year. So I went and worked for Plessy Co. In Hampshire. So I moved away from home, worked there for a year and then I was contracted to come back during the summer vacation. And then at the end of the university I stayed for as long as I had to and no more. I really hated it. And I found an opportunity to move down to Dorset because, as you know, I met my wife at Cambridge. She was working down in Dorset. I much preferred, well, basically the environment in Dorset, the countryside, the coast and so on. And that's where we are now. And I was actually doing a consultancy project for a division of Schlumberger and I happened to see they were based in Dorset, so I wrote them a letter and got a job there. That was how I ended up down in this neck of the woods. And then at schlumberger I spent 15 years with them, working my way through engineering roles and then into marketing. They moved me to France and so on.

Judith McKenzie: I'm right, you lived in France for some years. And so only, yeah, it was only

Andy Walters: a couple of years. Really thoroughly enjoyed it. So my career in Schlumberger was. I started out as a software engineer. I worked my way up to become a sort of team leader. And then I was given responsibility for a special engineering department. We were working on telecoms contracts. So I was doing. Already doing quite a lot of. That was the mid-80s. I was doing quite a lot of traveling. So one of the most successful contracts we had was with Samsung, uh, telecommunications in South Korea. So I spent quite a bit of time in place called Gumi south of Seoul, uh, implementing that system, commissioning it and so on. And then when it was felt that this was a product we could sell more broadly, I was transferred across to marketing in a sort of product management role and then took that product to a number of other telecoms companies. And that. Well, because the company has actually derived a lot of its revenue from the defense sector up until then. And then of course, then we had the fall of the Berlin Wall in 1988. Uh, that coincided with. Generally we were doing capital equipment which was testing electronics manufacturing at the end of the product production line. And that was something that was rapidly becoming obsolete because firstly, uh, manufacturing techniques were becoming far more reliable and it didn't need this expensive piece of kit These bits of kit at the time were costing sometimes half a million, three quarters of a million pounds, something of that sort. And principally the organizations that had budgets for that were defense organizations. And then suddenly after 1988, uh, there wasn't as much demand from the defense sector. And I had come up with my team a product that we could sell to the telecom sector and that started to look a lot more exciting. So we did a lot of business with Samsung, Ericsson, Alcatel, ATT and so on.

Judith McKenzie: But after Schlumberger, am I not right that you, even at that point you didn't launch out on your own? My recollection is you did a spell at um, what I remember as Fairy.

Andy Walters: Yeah, yeah. Which beginning Spectrist. So, yeah, Schlumberger, yeah, transferred me to France to work in the telecoms business. So that was smart cards and payphones. So I spent a couple of years there, thoroughly enjoyed that. But a huge amount of travel, uh, which was starting to really get to me. There, uh, wasn't a week going by without me flying off somewhere. And with a young family, that's a bit trying to say the least. And I also had an ambition to actually run a company rather than being marketing director. I wanted to run a company and I was approached about a job in Cambridge. So going back to Cambridge, uh, running a small business, which was part of what was then Fairy and became Spectris, and um, we had a couple of business operations in the States as well. So I ran that. That I. From my perspective, that period was about five years, was actually quite a good apprenticeship for starting your own business because I had always worked in this large corporation, Schlumberger, and almost from day one with this small company, which I didn't, I didn't really enjoy that much running this small company because it needed a lot of sorting out. But on the first day, I just remember I had to lock up and set the alarm as I walked out the top. And I'd never had to do that at Schlumberger. So there was an awful lot of elements of that of running a small business, which probably served as a bit of an apprenticeship for me in running my own business.

Judith McKenzie: Yeah. Because Spectris was well known for being very decentralized and the MDs had a lot of, um, autonomy. So. Yeah, that sounds right.

Rosemary Barnyard: And when you went out on your own and when you founded Cortex in 2001, I think was it. What problem did you think you were solving at that point?

Andy Walters: So I think coming back to Rosemary's Point about When did I want to become an, uh, entrepreneur? I think from that period of 1995 when I was working for that small business in Cambridge. From that point on, I really desperately wanted, wanted to set something up of my own or do something entrepreneurial. And I had a series of different ideas of what I was going to do, some of which I won't repeat here because they were never going to go anywhere. But I think this was the first time that something struck me as being something worth quitting my job over. And in that job in Cambridge, I had a mobile workforce. I had salespeople out on the road. And there was a company called, uh. Oh, crikey. I think, Rosemary, you had shares in them at the time. Minor Planet, that's the company.

Judith McKenzie: Oh, yes, Gosh, yes.

Andy Walters: And, um, they were really strong in the UK market and they pestered me to look, uh, at their tracking systems. And so I registered an inquiry and two of the people came down to see me and talk me through the product, talk me through the pricing. And it just seemed that they were missing a trick in a number of ways. So I saw there being a real opportunity for what they were doing. It was a real financial benefit for anyone who had people out there on the road. But the way they were doing it just looked to me like it was going to get super succeeded pretty quickly because at the time they were installing servers for the customer, so that was the first thing. They were putting PCs at the customer site, installing those servers, having to support that software. And they were transferring the data across those servers by a VHF radio link. So when the vehicle returned to base, the data was being transferred across to that server. And both of those things to me just seemed like they could be superseded by a mobile data transfer on the GSM M network and be putting it on the web. So we decided to go after an Internet based system, entirely browser based, which used the GSM M network. And I saw it was never in doubt for me that there was a financial benefit to be had for customers in knowing where the people were during the course of the day. And I just thought we could do it in a smarter way. And that was. So that would have been. That was in about 2000. What kicked it off was I registered the inquiry because I think there was a full page spread in the business press about them one weekend. And I read that and I thought, right, I need to find out more about that. That could be, frankly, that could be something. It's worth quitting my job over.

Rosemary Barnyard: Fascinating. Yeah. As well. A brave. A Brave move to make. But at the same time being able to identify the market need is quite a talent, isn't it? So one of the beauties of the business is that the reoccurring revenue, which we all know now is err, or whatever you want to terminology you want to use, and that tends to get valued higher by potential buyers of the stock or the shares, but also potential trade buyers. At uh, the time did you make that conscious decision to go down that subscription route? Was that?

Andy Walters: Yeah, that's a really good question because for me I had spent 15 years in Schlumberger where I had, well, firstly worked on the sale of big ticket items where frankly just selling three or four units in the month, the difference between three or four unit sales and five or six was huge. Uh, and so every month you started not exactly with a blank sheet of paper, but you didn't have that recurring revenue element. And then in the company that I was running in Cambridge, on the one hand we had this kind of embedded processor business that we were selling processors to OEMs who built them into their kit. So that did have a recurring element to it. But we stumbled, I stumbled across a small company in France, uh, which was setting up to provide patient billing systems for GPs across France, or the equivalent of GPS using our embedded processes. And they were going to sell that and use it as a recurring revenue business. So we ended up buying that. What I liked was generally the business model of selling somebody a product and then charging them for using it. Frankly, that was so different from what I've been used to. That, that really appealed to me. So I wanted that recurring revenue model. We had it as a subscription, but because we were bootstrapping the business, we couldn't go wholeheartedly into a full, you know, 100% subscription model. We had to sell people the hardware, but then we charged them about 10 pounds per vehicle per month, which was pretty much the same sort of fee as we were charging in that previous business, Doctors in France. So it worked quite. I mean the economics of it were very, very similar to the business I've been running in France. And so in a way I had a business model that was looking for a problem, really. And um, that appeared when I read that sort of full page spread in the weekend newspaper. I thought, that's it. I can apply this business model to that opportunity.

Judith McKenzie: Talk a bit about the early bit. So how long was it before you were uh, making enough money to live off?

Andy Walters: Yeah, the old cliche that, you know, I told my wife we Would be making money by Christmas, but didn't specify the year. Inspectors were very good actually in, I quit in December 2000, explained what I wanted to do and I said I will work my notice, my six month notice. Nobody would know that I was leaving the company. But uh, could they in return give me some part time work beyond that? So they did. They gave me I think two or three days a week which phased out over a period. So in the second half of 2001 I was still working for Spectrus doing some um, consultancy work for them at head office and presenting reports on various companies they were looking at and so on. And that worked really well. And then so I phased out of that by the end of 2020so I had some income. Um, and my co founders did something similar. We managed to get the company off the ground with our own funds basically. And it was probably the end of 2002 before we were starting to make money. In those days we could get a decent price for the tracking system. So we were charging about £750 for the tracking system and so decent orders were helping us and we were getting then the building up the subscriptions as well. So by the end of 22 we were able to even take dividend out of it pretty quickly in the first

Rosemary Barnyard: sort of few years, those sort of defining years. Um, what early decision turned out to matter more than maybe you realized at the time was the one crossroads that you can identify that was it just a culmination of a number of decisions, good decisions that got you where you were.

Andy Walters: Some of the things that were really important to us. One was I again going back to that business that I had been responsible before in France. I was really struck by what you could do with relational databases, with SQL databases we wanted to offer. So the whole service was going to be based on the Internet based that we had. As far as the customer concerned it was browser based. But underlying that then all of the data was stored in Microsoft SQL Server, um, databases and served up in that way that the way it is still today. We also made sure from the outset because a couple of us had some background in reliability engineering and so on. We had dual active redundancy, meaning we had two separate sites of servers providing a complete backup actively the whole time. And I wanted to make sure that our marketing systems used the same technology. So I wanted to use the same database technology in what we're delivering to customers as we were using in our back office stuff. And we developed our own ERP system using SQL Server in 2002. And in fact I took a month out, a month or so out to get that going, which is a bit nerve wracking at the time when we weren't really selling or whatever. But we put that in place and that served us extremely well. We now link that with Salesforce, so we're still using that database. It's been greatly enhanced over the years, but it linked and synchronized to our Salesforce front ends that our salespeople use. So that, that was pretty important. And the other thing that really helped me get the business off the ground was direct marketing, which it's probably not as effective today, but I just started ramping up the amount of direct marketing, which meant that with relatively low number of staff but significant investment in marketing, we could get the business off the ground and we were rapidly getting return on the direct marketing that we were doing. Yeah, I mean, when I started it would be getting the stuff together, getting all stamped up, addressed and so on, and cycling down to the post office and dumping that stuff at the end of the day and then getting back to doing a bit of coding.

Rosemary Barnyard: Yeah, marketing is always a difficult one to actually see the return on, isn't it? You throw money at it and then it's very difficult to see that. But I guess when you're literally putting stamps on envelopes and, and then hopefully seeing phone calls coming in, uh, is far more tangible, isn't it?

Andy Walters: Yeah, it is, yeah, yeah. And it's very rewarding. Uh, marketing is far more complex these days.

Judith McKenzie: I think there was a point at which you started to go international and I'm fairly sure that France was your first, uh, international venture, which given you lived and worked at, perhaps is understandable. I mean, there are a lot of businesses try and max out in the UK before they think about those things. So talk about the thought process of going international when you still have loads of potential in the uk.

Andy Walters: Well, I think that always had been part of my plan. I came across not so long ago, the Original plan from 2000 and I thought at that time that we were going to go into France within a few years. In fact, it was 2010 before we went there. And I had a very strong background experience, I suppose, in Schlumberger, which was very, very international. It was a business in which only a tiny percentage of turnover will be in the UK or in home m country. And that was even the case with the business. I worked in France, so I really wanted to achieve that. And, um, it was 2010, what, 2008, we had the credit crunch in 2008, 90% of our business was in the construction building related services in 2008, something of that sort. And our customers were hurting quite badly. We had lots of direct debits being canceled. Businesses that have been going for 30 years or more suddenly going out of business. And we needed to find ways of diversifying. And um, we basically there were three areas in which we diversified. One was we started doing a lot more with the public sector. Two was we thought young driver insurance programs could be an opportunity for us. And three, we launched in France and we did all of those three things within a couple of years. Uh, which was at a time when our customers were under pressure. But anyway 2010 we, we got underway in France quite quickly with finding distributors and similar kinds of marketing methods that we used in the uk. It took a while to take off but obviously is now a pretty significant market for us.

Judith McKenzie: Later uh, you uh, entered the U.S. yeah. Which is um, very tough to do for any business. Talk about how, how that's how you found that.

Andy Walters: I mean. Well I'm given a constant reminder by uh, fund manager work knowledge, doing as well perhaps as we might have expected uh in the States yet. That sounds quite odd after 12 years. But it is I suppose tougher in many sense. We haven't given up on it yet. I still think we have potential there. As you know I dipped out of the company for a couple of years for my retirement. That turned into a sebasticle and during that time they rapidly scaled back the resources that we had dedicated to the States and I've picked that up again since. So I still feel confident that we can make progress there. But I'd be the first to admit that we're certainly in the city that still has started to wear a bit thin. We have as we've talked about in our results, some exciting new product developments coming through. One in particular I think will go down very well in the States. So uh, a very neat self installed product which we haven't had for the American market up until now. So I think that will help us a lot. And we had made some more recruitment.

Judith McKenzie: So you said earlier that um, you and your uh, co founders founded a business and you didn't have any other funding and you were paying yourself dividends and with the blip of the financial crisis things were going pretty well. Let's talk a bit about floating on the AIM market, why you did it and how you found it.

Andy Walters: Well as you know we had taken something off the table as you might put it in 2008 when we had an investment from the bank of Scotland, the kind of an equity release type thing. So they, they put together, I think it was called a management buyout buy in. So it was an opportunity for the shareholders to take something out. But that involved all of us moving in lockstep really and beyond that. Then once we had done that within the shareholders and we had four of us as founders and we had, we brought in other shareholders in2010, it was quite clear then that different shareholders might have different timescales for exit or uh, different plans for the rest of their lives or whatever it might be, want to retire early. And AIM seemed a really, for me at least AIM seemed a really good option because then each shareholder could take care of their own affairs. So it would be a matter for the market. Uh, if they wanted to sell some shares, they could go to a broker and sell them rather than if you did something with private equity, you'd all have to move together and agree who was staying, who was retiring and so on. So found it a perfect solution for us really. 2014.

Rosemary Barnyard: AIM has maybe had a bit of a rough ride and some of the criticisms are that it doesn't necessarily provide the liquidity platform that you would hope it would. And sometimes your share price or company can end up being undervalued because of lack of attention. How was that journey for Quartix?

Andy Walters: I think for the most part it was pretty good. And we've had some very supportive institutional investors. It hasn't always been easy for founder shareholders to sell down some of their stock. There hasn't always been a market, but they've managed it one way or another. And so I feel it's been pretty good generally. Obviously the situation changed a bit over the last couple of years and then people ask me about, well, why, why didn't you go private equity? Well, we had effectively pseudo private equity with the bank of Scotland integrated financing between 2008 and 2010. And that's not, that's not a walk in the park.

Rosemary Barnyard: Glad you say man.

Andy Walters: I think I always tempt people. Tell me, oh well, what about the regulatory burden? What about all the different things people throw up about the hassles about being a public company? Honestly, we have found, um, the investment community in London to be very supportive and um, I think you have to experience both to know.

Judith McKenzie: Interesting comment.

Rosemary Barnyard: I mean just turning on its head a little bit. Um, what do you think shareholders underestimate about founder led businesses?

Andy Walters: What do they underestimate? I, they underestimate the ability of the management team underneath they over estimate overstate the importance of the founder. I think sometimes I think we've done an awful lot in the last couple of years but it's been the team largely what I've done since I've been back at the business is allow the company to get on with doing what it always used to do and what it does well. And I think people overdate or um, over emphasize the importance of the founder in some ways thing as you said

Judith McKenzie: you uh, tried to retire and didn't work out and you came back and I was reflecting. You're, you're by no means alone in that. I was just thinking, you know that uh. I can think of at least two companies, YouGov and Restore, where the same thing has happened that the person that's built the business went off and then came back. So you know, it's more common than you might think. Whereas you reflect on that what things might you have done differently or what would you advise others having gone through that experience.

Andy Walters: It's funny but uh, in theory the market or it's not good governance for and um, to go from CEO position to chairman position. But on reflection I think it would have been better if I'd done that. I was looking at the time, I was looking at the time out. My frustration was being a non executive director, uh where effectively my exposure to the business really became that board meeting once a month and that was it. And so I had my little input to the board meeting but I didn't really have a direct relationship with the chief executive or the cfo. And I think it would have been beneficial if I had. I mean it's very difficult if you have a chairman and then you have a non exec who's constantly talking to the CEO. That's not really very helpful because it undermines the chairman. But that I think in our case was what was necessary and I think things could have turned out differently had that been the case. So the business got really off track. And as I said before it wasn't because of the management team beneath the PLC board level. It was all at the PLC board level.

Narrator: Yeah.

Rosemary Barnyard: That's interesting actually.

Judith McKenzie: Yeah, it's very interesting insight.

Rosemary Barnyard: Yeah.

Andy Walters: You let that unfortunately then breaks governance. Uh, yeah.

Rosemary Barnyard: It's maybe something to think about though isn't uh, would have been a natural evolution if you think about it sensibly. That's what you probably do in a private company. Yeah, yeah. And I'm quite interested to understand the aspects of culture especially in a Growing business. Because when you started off it was a handful of you. Not even a handful perhaps. And as you grew, what aspects of culture were just absolutely non negotiable? What did you make sure was instilled throughout the company. And it's quite difficult to do that as you evolve and grow as well. But what was important to you?

Andy Walters: I suppose the way in which we deal with our customers, the way we treat and respect our employees, that there are a number of things I don't know, it's very difficult because, you know, if I start saying, oh, we're good at this and we're good at that and this is what we stand for and so on, you know, that, that, that doesn't really count for a lot, somebody saying that. But I, I do feel that there is a culture within the company of, you know, respect for each other and respect for our uh, customers. And there are certain bound, I suppose around what we will and won't do for our customers. Customer service is paramount importance to us really and treating all customers in the same way, whether they have one or two tracking systems or whether they have a hundred.

Rosemary Barnyard: And did you find that there were various kind of crunch points where it does start to become a larger business and it's more difficult to control and certainly keep the elements of culture. Are there, were there certain numbers where you thought, oh my goodness, all of a sudden this is a big company, uh, as opposed to something that been founder led and quite small. Can you put numbers around about it? Some people say it happens at 50 and then 150 and employees. But did you experience anything like that?

Andy Walters: I think for us a lot of that happened because of COVID It was a combination, I would say, of Brexit and Covid. I mean the two combined. And perhaps to explain that I'd always wanted to set up a business model in which we didn't end up with lots of fixed operating cost in each country. And so even in the previous, the business, uh, that was part of Spectrus that I was running. When we sold our product internationally, we did so from Cambridge. So we recruited salespeople, young French nationals, German, Italian, Spanish, and they would work in the office in Cambridge selling into their home country. And that worked incredibly well. And so I brought that model to Cortex as well. So we recruited people. So our main uh, headquarters was in Newtown in mid Wales. We would manage to recruit international staff in Wales because they were either already in the UK or we could recruit them in from France or Italy or Spain or Germany. And we recognize that Those people may only stay with us for a couple of years, but nonetheless it was that free movement of young people. And that worked exceptionally well. It was a great spirit and culture and it meant that you didn't end up with a kind of division between the different nationalities. You didn't have a regional general manager, you didn't have, uh, an accounting department in Italy dealing. Everything was being dealt with out of the UK. And what happened firstly was the Brexit vote in 2016. That had an impact because I remember going to Newtown and remembering the French staff saying to me, actually, I know it's not for a few years yet, but now actually we don't feel like you want us here anymore. So that was the overarching sentiment of our international staff, was we feel like we're no longer welcome. That was before, uh, we got to the implementation of it. Then we were trying to persuade employees to, to apply for settled status and they just thought, they didn't really want to bother, really, you know, they weren't welcome. They were coming to the end of the two years or whatever. And then Covid landed. So these young people who were working for us now suddenly were forced to work from their home, which their home in the UK was typically a rented room somewhere, maybe in Shrewsbury or, you know, train. And they just didn't want to be in a small room somewhere on their own without any social contact. And they tended to go back home to work. So a lot of those people went back to France, Germany, Italy, Spain, worked from there. And over time, also following Brexit, the difficulty of recruiting and bringing people here, we eventually set up a subsidiary in France to recruit. So any, anyone selling into Italy, Germany, Spain, I mean a lot of those now are uh, working under French contracts. So we have shifted quite a bit of employment to France as a consequence of Brexit. But we do try and get, we get the whole company together in September, whether this year will be December. So we bring everybody into Newtown from the States, from all around Europe and we have a couple days where we share experiences, presentations made about product, uh, roadmaps and so on. So we do try to bring people together and maintain that culture, but it is tougher when people are dotted about. So it wasn't necessarily a number that drove that, it was a combination, as I said, sort of Brexit and Covid.

Rosemary Barnyard: Just going back to the AIM question again, if you, if you were advising a founder led business about coming to aim, what advice would, would you give them?

Andy Walters: What would I give them? I, uh, tried not to get too carried away or let it go to your head that you're a quoted company because you know, after all its aim and it's meant to be, it's meant to be a market for smaller companies like ours.

Judith McKenzie: Ah.

Andy Walters: And you still have to focus on the business. And I think we do try to condense as much as we can, uh, in terms of the meetings with institutional investors. We make sure we have one to one meetings with the principal shareholders and try to do as many group meetings as we can, make sure we get the message out there. But the chief executive and CFO certainly should try and make sure that they still focus on the day job. Really?

Rosemary Barnyard: Yeah. How often do you look at the share price?

Andy Walters: Quite often at the moment, actually, probably more because I mean we've come way back. 3 pound 40 down whatever. 2 pound 35.

Rosemary Barnyard: Yeah, yeah, it is, it's frustrating, isn't it? You know, we see companies that are putting out good news releases to the market and the share price goes down. So you must feel pretty despondent sometimes when the fruits of your good labors don't get reflected on that price on screen.

Andy Walters: So I came back to the business in late September, uh, 2023, the share price was £2. Um, when I came back to the business and on the eve of our results this week it was £2.12. And I thought, I'm sure what I've done for the last two and a half years is worth p, but there we go.

Rosemary Barnyard: I wouldn't take it too personally. I think we can blame somebody else.

Andy Walters: Yeah.

Judith McKenzie: Come to ask about the dreaded fixation of AI, you know, the opportunities and threats for quality fix that.

Andy Walters: I mean I, I use uh, AI quite a lot. I've used it for a lot of different things and we use it a lot in increasingly, obviously code generation is a really important thing since it's just to cover the external thing. I don't think that AI is a threat. I don't see it as a significant threat to our business model. I know that all software subscription businesses have been hit quite badly uh, because of perceived threat, uh, of AI, but I think we've all been tarred with the same brush. We don't have a per seat model. So firstly, in terms of the business model, we're not charging per user, we're charging per vehicle. So uh, that's one thing. Secondly, the software service that we provide is heavily linked obviously to the hardware element that we install on the vehicle. So we have 330,000 vehicles under subscription Every one of those has one of our devices fixed to it. And you can see in our annual report our expenditure on R and D is not huge. So our largest investment is in sales and marketing. It's finding customers and acquiring customers, servicing them, uh, and so on. And that we need to use AI in helping us do that. So the two areas principally at the moment that we're using AI and are helping us better target our marketing and secondly in co generation I talked earlier on about the whole, the whole direct marketing thing that I used to start the business. In some ways we're going back to targeting lists or data concerning our industry but using AI to help us target so that uh, our marketing is much more targeted at people who have a real need, who generally have a small fleet of light commercial vehicles. And preferably over time AI will help us in targeting them when they're looking at the moment they're looking because as Judith said, it's very very difficult to measure your return from marketing. But one of the biggest ways you can improve the efficiency is not spending money on marketing to people who aren't interested in buying. And that's where I think AI we hope this year and next will help us.

Rosemary Barnyard: And just on that kind of capital allocation point I think that's a really important thing for founders and any business really to, to look at capital allocation. What would you say has been what financial discipline have you stuck by all the way through uh, the years? What's been the most important?

Andy Walters: I mentioned earlier on minor uh, Planet Systems, what I could see when I started the business was that actually it was a very attractive business to get into but they were messing it up by just being overstuffed. So it was overhead. So people talk about our business being competitive and because they have seen on the market companies come and go and m maybe they're more familiar with the sector but and they will have seen private companies that have come and gone over the last 20 odd years. Those companies in my mind have not failed because of uh, weak gross margins. They have failed because they've been overstaffed. So it is control of overheads, operating expense and in particular in the last two and a half years since I've been back at the business is being making sure that that OPEX is going in the right places. And for us for the last two and a half years that has been sales and marketing and then beyond that making sure that your sales and marketing is effective. So making m sure that that investment is in the right useful areas in order to acquire new Customers I think those are m really important things. And from the outset that whole basing our business model on ah, as a relational database SQL set, trying to automate as much as possible helped us I think enormously in the early days to slow down the rate of recruitment in the early days which meant we were cash generative and I think again AI was hopefully it's going to help us enormously in terms of our business processes there as well.

Rosemary Barnyard: And I suppose the question that everybody asks on AI is that I think we all understand that it's improving processes but nobody can really at the m moment quantify what that might mean ultimately in terms of headcount going back to that point on keeping the workforce as slim as possible. Are you in the same boat there?

Andy Walters: Yeah, we are, yeah we are. ERP system vendors are ah, trying to sell people AI add ons and uh, it is the tough thing there in areas like that. The toughing is how you bolt AI into existing processes, existing ERP systems and so on and do that effectively. What is simpler is using it for code generation because that can be picked up right away. And what is also simpler, some of the initiatives that we have which are quite distinct from our existing systems, uh, in terms of targeting or researching, accessing data, targeting, filtering to try and see who are the people we should be marketing to. So anything that's kind of new in the business in my mind anyway, it's easier to apply AI to something that might be new within the business. It's not quite so easy to build it to. Exactly. Systems.

Rosemary Barnyard: Yeah, that's understandable. We often have a moment of uh, reflection with our guests and if you had to start again today, what would you do more? I'll ask it in a different way. What would you do more slowly? Uh, not what would you do differently but what would you take maybe more time over if you had your time again?

Andy Walters: Well, I mean that's quite an interesting question because I think we, you know, I think we should have gone faster in the number of.

Rosemary Barnyard: That's good, that's good.

Andy Walters: So that's not the question you asked but um.

Rosemary Barnyard: No, no, that's actually, that's interesting in its own right the way you've answered it there. So what, what, what areas would you have gone faster? In benefit of hindsight, I think as

Andy Walters: a management team we have always been relatively prudent. So I think other businesses would have invested faster in those early days said we're really onto something here, Internet based vehicle tracking. Let's raise some big money and um, dominate the market, whereas we did it under our own steam, which kind of worked, uh, out okay for us. But then also, you have to take into account that's probably not in our DNA. Maybe it's difficult to do something you're not careful. But I think we probably had a much bigger opportunity in 2001, 2002, than we realized.

Rosemary Barnyard: Yeah, yeah. To land grab to a certain extent. Yeah. Okay. I think we can probably finish up now and ask the usual question. Is there a current book or podcast that you're enjoying that you recommend?

Andy Walters: We just returned from a couple of weeks in Egypt and looking at the sites and the museums and pyramids and so on. So I'm fascinated by a book by, you will know, obviously, Rosemary, Toby Wilkinson Wilkinson, which, um, explained effectively the history in the 19th century of the discovery of all that stuff. Prior to that, I read a couple of William Boyd books, which I thoroughly enjoyed. I mean, he's been out for a few years, Gabriel's Moon and then the sequel to that, which was the Predicament. So I thoroughly enjoyed those, particularly the first one, and then a slightly wackier one just before I went on holiday was Bob Mortimer's second book, Hotel Avocado, which is, you can probably read in a few hours and quite moody.

Rosemary Barnyard: Easy reading. Yeah. Well, that's been a fantastic insight. Uh, I think for us as shareholders, sometimes I've had good and bad experiences of investing in founder led businesses. And I think where it's been good, it's been where the attitude of the founder is very collegiate and aligned with shareholders in general and where it's, as you pointed out there, you know, it's not an ego trip. It's not about being on the market and having a share price and it's really about running the business. And I think that comes across light and clear in what you've talked about today. It's very clear.

Andy Walters: Thank you very much. Nice talking to you both. Thanks very much indeed.

Narrator: Well, that's it for today. Thanks for listening. And in our next episode, Judith and Rosemary will introduce you to another key person from their extensive network from across the investment sphere. If you liked what you heard, please subscribe and leave a comment. And to learn more about Judith, Rosemary and Downing, please visit www. Downingfundmanagers.co.uk all the links are just below in the show notes. And thanks for listening and we look forward to speaking to you in our next episode.