Mike Wroe is Non-Executive Chairman at proSapient and has several IPOs under his belt as Chief Financial Officer, including Just Eat’s listing on the London Stock Exchange. He talks to Erevena’s Hugo Darby about the opportunities and pitfalls of taking a company through hypergrowth offering sound words of advice to CFOs on the journey to IPO.

What’s your background in finance leadership?

I originally trained as an accountant at what was then Touche Ross (now Deloitte) and spent some time there as an audit manager post qualification. I’d been interested in accounting since the age of 15 and was fascinated by business, my mum having been instrumental in building a strategic  consulting company from scratch while I was growing up. After a stint in New York, I joined Whitbread as an operational auditor, a role that fed into the company’s wider accountancy organisation. However, I soon realised that the job was not for me. I felt it was all about how to get promoted from grade B to grade C, rather than being about the business. So, after 18 months, I moved on.

What did your next role bring in terms of building your experience?

I joined a smaller company called Servisair as their regional airports’ finance manager. The business managed things like check-in, aircraft despatch and baggage handling, operating with tiny margins in a competitive market. I learned some real down-to-earth operational skills, while also honing my people skills there. Servisair was a people business, with the baggage handlers being an almost industrial workforce, while others were very much front-of-house teams. So, I was dealing with both ends of the spectrum across up to 26 airports.

How did you move from a small company into the world of joint ventures?

I think I was a good accountant and have always been able to see patterns in numbers. At the same time, I’m quite personable, so I found that people talked to me about the business and I learned a lot. This enabled me to progress in Servisair and I ended up working in a joint venture with Air France at Heathrow. And that’s where I met my first inspirational boss, Peter. He was very much a diplomat and showed me how to get things done by bringing people with you on the journey rather than just telling them. With his support  I was promoted into my band of competence. What do I mean by that? While I am good at numbers, I have a low boredom threshold and wouldn’t have lasted long as a financial controller. Instead, I was made finance director at the age of 28 and found I was good at dealing with both people and complex challenges, so ultimately became a CFO.

Your next step was to a ‘purportedly’ growing company – can you tell us about that?

It was a small facilities management division of a listed group that I joined as FD under the assumption it was both growing and profitable. However, within about three weeks I had to tell the business that it wasn’t going to grow or be profitable! The managing director left shortly afterwards and that’s when I met my second inspirational boss, Bryan. He had a completely different style to what I’d become used to and I wasn’t sure I would like it at first. He’d come from the construction industry and appeared as “hard as nails” and drove people relentlessly to  get things done. But, he was also one of the fairest and  (behind the scenes) most caring and supportive bosses you’d ever want. As an example, he had to fire some good people for purely business reasons but was quickly on the phone to contacts in the industry to try and find them jobs elsewhere. He brought discipline to the business that had been lacking, he trod that perfect line between fear and respect in a truly tough industry.

You mention having to fire people – was that part of turning things round?

Yes, as part of restructuring the company we had to close down six offices, but it helped us get the business to profitability. I spent 18 months there and on the day I resigned (we closed down the office I was based at!) CEO Bryan and I presented an ambitious three-year plan to the group. What’s great is that three years later, Bryan called me to let me know that the company had not only hit that plan but was slightly ahead of it! He didn’t have to make that call three years after I’d left but he did and it made me feel great, another lesson learned – that small of moments of thoughtfulness can make a big difference to the people around you.

Was your journey into tech and IPOs a smooth one?

Initially, yes. I joined a tech company called Innovision that was working on NFC (near field communication), which is something we all have on our phones nowadays but was unheard of then. We quickly floated the company and our share value went up from £1 to £1.50 per share. Then the market crashed and those same shares were worth just 9p! But we were delighted to have hooked up with Nokia who had developed Bluetooth and were working with third parties on NFC with the idea that within five years by 2007 it would be in every phone. This was way ahead of its time as it wasn’t until about 2015 before this concept became a reality. We ultimately were sold to Broadcom and my next foray into tech was as CFO of a software company that had clearly been given too much money too quickly. My initial instinct on discovering this was to leave but I’m not a quitter and we took it through to a sale 18 months later.

You then joined fledging Just Eat – what prompted this move?

It was first and foremost the people. At the time, I was looking at several opportunities and when I visited the Just Eat office it was in a grotty, cheap building – but there was an exciting buzz about it. I met the CEO, the UK MD and the founder and could see they had real energy. My kids also gave me insight into its potential when they expressed their surprise at me ordering a takeaway by phone and asked why I wouldn’t do it online! And I was always buzzing when I came back from an interview with Just Eat. So, while I was offered 40% more money by one of the other companies I was looking at joining, I opted for Just Eat, who also gave me more shares instead – which turned out to be the right decision!

What was it like being in at the start of Just Eat in the UK?

I joined in 2008 when there were just eight of us in the UK and 20 in Denmark where the company was founded. Yes, it was a tiny business but the team running it was smart. They recruited two or three senior people early on, which was unusual at that stage of a company’s growth. It was like being on a rocket ship as we grew like wildfire. We floated the business in 2014 with £100M revenue and were highly profitable. This was a true growth story and some months we would double in size in 30 days.  October was especially good for us with students returning to university no longer having their meals cooked at home, so they were ordering from us. By the time I left in 2017 the company valuation stood at £4.5 billion!

How important was Just Eat’s decision to hire leaders early on?

It can be regarded as a gamble to invest in proper leaders at an early stage. However, my take on it is that if you believe you’re going to get a £100M business, why not put your money where your mouth is and invest in two or three experienced people who have been there before? They will attract other good people as they help you build the structure you need for growth and ensure you’re less likely to make mistakes – although there will always be some mistakes. That’s what Just Eat did. And while we can’t claim to have been a mature business, we were a young and happening company that was smart enough to look 6-12 months ahead in terms of our recruitment. I helped drive the hiring of great lieutenants who, two years in, would take us to the next stage of growth.

How do you build out the finance function as the company grows?

You have to accept that things change at different stages of the company’s maturity – and that’s OK. So, for example, I hired a number of key lieutenants into the finance function in those early years who were right for a particular phase of our growth and then moved on. You may have to have difficult conversations with people when the job they were brought in to do has outgrown them even if they’ve been brilliant at delivering it, it’s part of ensuring you are ready for the next phase just ensure you always treat those people who have helped you on the journey with respect.

What do you look for in hiring for a strong finance team?

Good recruitment takes 6-9 months. That means you should start recruiting long before you want the role filled. If you don’t, you’ll have a gap just when you need it. In finance, there are elements where you need a certain skillset, such as a technical accountant or your group finance controller. But within the broader team, I’m a massive believer in recruiting for attitude and enthusiasm, rather than skills. If you get smart but flexible people with the right attitude, they’ll grow with the business. I was really fortunate in that I had around half a dozen people I recruited early on at Just Eat who grew wherever they were put. Yes, we supported them, and yes, they made mistakes but because they had the right attitude of giving it their best shot, 9.9 times out of 10 it worked!

How do you tell at interview if you’ve got the right person with the right attitude?

I rarely look for an MBA or somebody who’s done it before, because there are very few jobs that require that level of direct skill. At an interview, a candidate’s reaction to hearing that their job description will probably only last 24 hours into their role because I’d rather they did what they had to (morally and legally) to get the job done, will tell me if they’re right! If they’re excited when I say they might be heading off to Spain to look at what’s being done in sales within 48 hours of joining, then that’s a good sign.

Why was Just Eat so successful in the early days?

There was an element of right place, right time, but essentially Just Eat was run by decent people. We worked really hard, seven days a week – and they were long days. We all worked as a team and it came together at the right time.

The ‘luck factor’ came on February 14th 2010, which was due to be the UK’s busiest day of the year for takeaways. We were prepared for our best night ever when, at one minute to seven, our system just died. It had been built for the much smaller Danish market and simply couldn’t cope. Not only that, but we couldn’t get it back up and running. We had one main competitor called Hungry House and at that time we were just creeping ahead of them in market share, so this was a nightmare for us because it would give them an incredible advantage. Then, suddenly at three minutes past seven, their system crashed too as our frustrated customers visited them en-mass , so the night wasn’t the big win for them that it could have been – thankfully for us. We ended up buying Hungry House in 2016.

How did Just Eat turn that system crash into a business advantage?

We spent the next 18 months rebuilding our platform, but this was during the time when apps were becoming the big new thing. Everyone was building them and our investors were shouting at us to do the same. However, we needed to build the platform first and missed the first phase of apps. That turned out to be lucky for us as many of those early apps were not good. Nobody had built an app before and lots of them were just weird versions of their websites. So, six months after everyone else, we were able to look around at the first-generation apps and identify the best ideas and great developers. So, our first-gen app was good from the outset. It was stable and it operated as an app, not as a website.  That horrible Valentines Night in 2010 meant we ended up in a far, far better place 18 months later.

What did you learn from your first IPO compared to the successful Just Eat one?

One of the biggest things I learned early on was that the demands on you as the CFO at a public company are far greater than you will expect. Everyone tells you that it just requires a bit of extra reporting here and that there’s no big time commitment if you get someone to cover investor relations – but that’s untrue. You need to be properly prepared for all that it entails and have a strong self-sufficient team behind you. We rushed through the first IPO I worked on because the market was open and we had the opportunity to list. But we weren’t prepared in terms of our forecasts, which put us into a spiral of missing our numbers that was difficult to pull out of. Goldman Sachs once said to me that if your miss your numbers, it can take 18 months to two years to rebuild confidence in your business, a lifetime on the public markets.

Can you tell us more about the importance of forecasting?

I received some great advice about growth forecasting from someone who ran a technology investment trust. She said that if you had two identical companies, but one  forecasts 10% growth and the other 15% growth, when they both achieve 12.5% growth,  the one with the lower forecast will be valued significantly higher by the market – numerically illogical but she was making clear the importance of “confidence” in management in driving valuations.

Investors push you hard to deliver what you promise, so even if you you’ve done brilliantly and delivered a 14.9% margin, if you’re 0.1 of a percentage point below your 15% forecast, they’ll see it as a failure. I encourage people approaching an IPO to think about this, because it’s better to under promise and over deliver than it is to over promise and miss your numbers even slightly. This is a really challenging mindset shift from being owned by VC or PE who want you to shoot for the stars with your budgets and are delighted if you get close! One particular challenge is where a big investor is a seller at the time of listing and pushes you to over promise at IPO – you really need to be strong enough as the CFO to push back and put out good numbers but ones that you can reliably deliver because the valuation will be much better 12 months later once you have that confidence from the market and it’ll be you who’s hung out to dry six months later if you miss.

In the current climate, is this the best time to plan for an IPO?

It is precisely now that you should be planning. The market window will open again, maybe in 12 or 18 months, and when that happens it tends to happen quickly.  So, as a CFO, you need to start preparing and doing some of the hard work so that you’re ready. Start thinking about converting your accounts to international finance reporting standards, what controls you’ll need and how you might report your numbers quicker each month.

What advice would you give a CFO ahead of an IPO?

Along with starting your planning as early as possible, I’d advise bringing in a company to perform a pre-IPO review for you. Yes, it will cost you to do this, but you’ll end up with a list of everything you need to do to be ready. We discovered after going through a pre-IPO that it wasn’t all about finance. Everyone assumes it is, but there are legal and contractual requirements and HR ramifications that you also need to consider. Technology too should form part of the pre-IPO review to ensure you’ve got good data protection and security controls in place – all mistakes will be public after IPO! You might already have these controls in place for a small, unlisted growth company, but they typically won’t be fit-for-purpose for a listed business.

Also, when you’re choosing advisers ahead of an IPO, pick ones you’re happy to spend time with. Go to the pub with different advisers and see how they get on with your team because you’ll be spending a lot of time together – often late at night when very stressed. I call it the ‘beer test’!

Who else can the CFO talk to when preparing for an IPO?

I’d advise you to find somebody you like in a big bank and just start talking to them. Ask them to introduce you to some investors who you can get to know and talk to every quarter. This will enable you to get into the ‘pre-look’ mindset of what an investor is looking for. You can then feed back into the wider business so that any remedial action can be taken sooner, rather than later. You don’t want to discover just before an IPO that a senior leader’s contract isn’t right or that there’s an anomaly in your share cap table or option arrangements because it could take six months or more to fix and the windows closes as soon as it opens.

You’re now a non-exec chairman – how did you find the move out of an operational role?

It was really tough, if I’m honest. And that’s partly why I’ve ended up in the private equity world where I am 50% chair and 50% growth adviser to the management team. I’m still able to help with day-to-day problems, which keeps me interested, although nine times out of 10 it’s just confirming that the team has got it right. If I were in a publicly listed company, my instinct would be to fix things that I saw were wrong and I would find it hard if they chose to ignore me. So, I recognise that a public company NED role is not for me at this time.

What next for you?

Post Covid, I’ve been indulging my passion for advising growth businesses and mentoring CFOs. There aren’t many mentoring schemes for CFOs wanting to move on to the next step of their career and this is a sweet spot for me. I was fortunate to have been on the Just Eat rocket ship and now I’m giving something back. I’ve had a great career and although it’s now taken a different direction as a chair and in an advisory capacity, I expect to do more of the same over the next few years, as well as fitting in some travel.

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Hugo Darby, Principal

Specialisms: Consumer & Digital, Finance, Technology, General Management, EMEA & East Coast

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