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May 9, 2007

Small Business Review – Wordtracker

Background to Wordtracker

Andy and Mike Mindel’s introduction to entrepreneurship and starting a business was the business equivalent of being given the keys to their father’s car and driving into a motorway (highway) pile-up.

Immediately after graduating from business school the now Wordtracker (wordtracker.com) brothers were put in charge a small photograph storage business (Arrowfile) that their dad had invested in all of his working life.

Arrowfile was a victim of the dotcom rage and the business became redundant as its business model went out of sync.

“We know what it’s like to sell a business, we just don’t want to go through that again”, says Andy, who as a child spent weekends working with his dad.

Fast forward ten years of the dotcom rage and the experience has shaped Andy and Mike Mindel in a positive way resulting in the creation of Wordtracker, a world beating internet business from their North London home.

Despite US success the brothers prefer to live in London.

“We like being back in London because it keeps us real”, says Mike. “We work with level headed people. It is much better than playing the fame game.”

Wordtracker As A Business Idea

The idea of Wordtracker came to the brothers while they were running Arrowfile and were trying to attract people to the web site.

Break through for Wordtracker was to be seen as the first to market in the US where they are treated like rock stars.

Brief Profile

Seed capital invested in the business by father: £20,000 ($38,000)
Turnover (sales) £1.3m ($2.3m)
Profit £492,000 ($960,000)
The US accounts for 85% of sales
Google search on Wordtracker throws up half a million results.

Wordtracker pinpoints the best keywords to use to attract people to a web site by developing complex software tools that can analyze the most popular phrases keyed into internet search engines.

Management

Chief Executive: Andy Mindel
In Charge of technology: Mike Mindel (older brother)

Inspiration

“Our father has inspired the entrepreneurial spirit in us”, say Andy. “He has made us believe that we could do it.”

Business Culture

Given the growth of search companies such as Google, it’s also surprising that the Mindel brothers have not turned Wordtracker into a much larger company.

“We don’t want to get too big and impersonal”, Mike says. “One of the things we enjoy is our Wordtracker culture. People thrive here. They don’t feel like a cog in a machine.”

Working at Wordtracker has its perks, not least a company policy that ensures none of the 15 employees need to work longer than a four-day week.

Several of the employees use the time to run their own consulting business. The brothers admit “we encourage people to have their own outside interests because we benefit from that”, says Mike, noting that it was one of these days off that a senior programmer hit upon a new data mining technique that helped Wordtracker become 700 per cent more productive at spotting search trends.

Future Plans And Aspirations

Over the next few years Wordtracker is planning to mine the data gathered on web user’s behavior by internet service providers (ISPs).

Unlike the data they’ve been using, which just shows what searches took place, the ISP information shows what websites people visit after doing a search.

The new opportunity created by this kind of information should enable Wordtracker to increase sales from about £2m ($3.7m) in 2007 to £20m ($37m) in 2011 and double its workforce to 30 people.

The brothers are still reluctant to make Wordtracker too big.

“Making a mistake is not a travesty when you are this size, making a high profit margin is”, says Mike.

Business Direction

The most important question Andy and Mike Mindel must ask themselves is what they want from the business personally and where they want to go.

“It looks like a perfect little boutique business”, says Mike Southon, a serial entrepreneur and co-author of the Beermat Entrepreneur, a guide to running startups.

‘it is a personal question for them whether they want to keep turnover less than £20m and have fun with it for the rest of their lives, or push it past £25m ($47m) when they will have to hire pointy-headed people who have worked for large corporations to do all the boring stuff of creating systems and processes.

“If the business no longer interests them they could then cash out.”

David Glassman, a fellow at Cranfield University wonders whether the Mindel brothers need to raise their aspirations, especially if their business has the stamp of approval from of the world’s largest internet companies.

Mr. Glassman believes they could benefit from an “inspirational mentor”, who could stimulate them to think bigger.

Financing Growth Plans

Both Mr. Southon and Mr. Glassman believe there are better ways for the Mindels to raise £2m than a private equity (stock) funding, where they will have to sacrifice some of their stake in Wordtracker. Mr. Southon suggests bank debt. “This is a cash generating business, so they should be able to service the loan themselves.

Incentivising and Skill Retention

Howard Hackney, a part-timer at Grant Thornton, the accountancy firm, believes the Mindels need to think about incentivising their staff with share options.

“They are going to be fairly dependent on their staff, who could easily walk out the door and set up in competition to them,” he notes.

A simple enterprise Management incentive scheme, which would allow employees to buy shares (stock) at a fixed rate and avoid capital gains tax when it is time to sell, should cost between £10,000 ($18,000) and £20,000 ($38,000) to set up, according to Mr. Hackney.

“It is an easy way of bonding people into the business and rewarding them.”

Posted by David at May 9, 2007 11:31 AM