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FT.com / Companies / IT - Software sages of Newcastle

Software sages of Newcastle
By Chris Tighe

Published: April 19 2007 03:00 | Last updated: April 19 2007 03:00

Ambitious young accountant arrives for life-changing job interview at small software company, and finds the boss has forgotten the meeting and gone to lunch.

Had Paul Walker been more pompous, and his forgetful interviewer David Goldman less charming, their reconvened meeting might never have happened. As a consequence, millions of businesspeople worldwide would today carry out their work somewhat differently.

Fortunately, Mr Walker's enthusiasm for the job - "Software sounded a bit more sexy than being in a firm of chartered accountants" - outweighed his consternation at the shabby industrial estate location of Mr Goldman's main business, a printer's.

Fortunately too for north-east England's economy, Mr Goldman was not only an entrepreneur but a judge of character. He assembledand inspired a team that transformed his Newcastle start-up, Sage Systems, into a FTSE 100 company.

Today, Mr Walker is chief executive of the Sage Group, the FTSE 100's only technology stock, and earns a basic salary of £700,000 a year, plus the same in bonuses for hitting annual targets. He travels globally for Sage but his home is just a stone's throw from the head office. "I can leave the house at 8am and be here for 8.15 - it's a big plus," he says, speaking at the company's headquarters.

Sage, still headquartered in Newcastle but in stunning new premises, now employs 13,000 people in 19 countries, and last year made pre-tax profit of £221m on turnover of £936m. Its marketcapitalisation is around £3.38bn.

From grotty industrial unit to purpose-built £70m HQ, where blue skies shimmer through the glass roof and massive boardroom doors glide back like a stage set: if economic development officers dream, it is surely of transformations like this. It parallels the journey the region's economy has taken from traditional industries to, increasingly, white collar activities.

The company's contribution to its home area has been substantial, through the wealth generated, the jobs created and the kudos of having spawned and retained a FTSE 100 company (see below).

Today, Sage sits alongside Microsoft, Oracle, SAP and Intuit as one of the world's top five suppliers of business management software and support to small and medium sized businesses.

It has 5.2m customers worldwide; every day, 30,000 people call it for help with business transactions. Products range from back office applications - one in four people in the UK arepaid using Sage Payroll - to front office activities suchas payment processing.

Yet of the big Newcastle HQ's 1,350 head count, just 21, plus five PAs, make up the group executive team; the rest work for Sage's UK and Ireland business.

Sage is heavily committed to decentralisation. It has four regional managers, who have great autonomy, covering the UK and Ireland, North America, mainland Europe and Asia, and South Africa and Australia.

"One of our key strategies continues to be that, while we are a global business, having local personnel, local autonomy, is our big differentiation," Mr Walker says. "The products in France are French; they aren't UKproducts shoehorned into French."

The devolved structure gives Sage a more entrepreneurial flavour, he says. "I have a team of entrepreneurs helping to run the business rather than people carrying out procedures from the centre." But, he adds: "Ultimately, the auth-ority rests with me".

He is friendly, down to earth and, by FTSE 100 standards, informal. At lunchtime, he saunters down-stairs with Paul Harrison, the finance director, to queue for a snack at Chill, one of the HQ's food outlets, run by a local entrepreneur. Mr Walker looks less smartly dressed than some of the nervous recruits touring the building.

The genesis of Sage's remarkable growth story was Mr Goldman's inkling in 1981 that computers could help automate his printing business's estimating.

Well before universities were seen as a resource for growing businesses, he and Paul Muller, an ex-Nasa mathematician who had moved to Tyneside, paid Newcastle University students to develop softwarefor estimating and basic accounting.

The next step was selling software to other companies. One of the students, Graham Wylie, joined Sage after graduating and became UK managing director; he left in 2003 with a shareholding of more than £100m.

Sage moved to better premises and won £320,000 venture capital backing but the company nearly went bust in 1985. Then came, says Mr Walker, "a defining moment". Mr Goldman spotted the potential of the new Amstrad computer as a software platform. Sage took off and floated in 1989.

Growth has been helped by 104 acquisitions since 1982. A devolved structure helps assimilate such acquisitions. But, as Sage grows, potential predators, whether industry rivals or private equity, will inevitably evaluate whether decentralisation spells strength or weakness.

The belief in being close to local markets, however, is unshakeable. "We mustn't centralise to the extent we start to generalise," MrHarrison says. There is in Sage "this intense desire to preserve entrepreneurial spirit".

Mr Goldman, who diedin 1999, would have understood this. "A lovely man - my mentor," Mr Walker says.

Mr Goldman, sage indeed, spotted the transforming power of software. Sage grew from that vision. Ten years from now, Mr Walker anticipates, transactions will be seamless, with less human intervention. But he cautions: "Thinking about the future, you have to leave behind today."

Spin-off benefits to home region

*TSG. Founded by north-east miner's son Graham Wylie, who left Sage with £100m in 2003. Newcastle headquarters,

12 offices across the UK and 440 employees. Claims to be the UK's fastest growing medium-sized IT company. Provides and supports IT services for SMEs. Forecast 2007 turnover of £38m. Also has leisure and retail interests and a stable of race horses in County Durham, trained by Howard Jones.

*Tom's Companies. Founded by Tom Maxfield, Sage sales director who left in 1998. County Durham HQ; top-class hotels/spas and restaurant in the north-east and Lake District, including Seaham Hall and Serenity Spa. His facilities have helped improve the region's image, offer top facilities and attract high spenders. Maxfield has said he is worth £40m-£50m.

*Substantial endowment by David Goldman's family to Newcastle University. This funds, at its business school, the David Goldman Chair of Business Innovation, a visiting professorship, research and annual young business person's award.

*A £6m contribution to the Sage Gateshead Music Centre, the UK's biggest single contribution to the arts by a private sector company. A landmark £70m Norman Foster building; part of Newcastle/ Gateshead's cultural resurgence.

*Prestigious FTSE100 headquarters located in Newcastle; 1,350 direct jobs, including higher level R&D and managerial/executive, contributing salaries, aspiration and expertise to local economy. Sage uses, wherever possible, local suppliers.

*Building private sector strength: Paul Walker chairs Newcastle Science City and the Entrepreneurs' Forum. These aim to strengthen, respectively, the area's science and entrepreneurial bases.

Copyright The Financial Times Limited 2007