Co-Op Model Works For Agile Networks
Formed from a 2011 MBO, most staff in Agile Networks are shareholders, and the model is working wonders for profitability.
The decision of Belgian telco firm Telindus to pull out of the Irish market in mid-2011 prompted some deep thinking by the six Dublin staff whose jobs were on the line.
The business had been in Ireland since 2007 and the six staff were given an ultimatum: choose redundancy or relocate to Telindus's UK office. Country manager Darragh Richardson (45) proposed an MBO instead, resulting in the formation of Agile Networks.
It proved to be a good buy. Agile's staff complement has grown to 16 and the turnover forecast for 2014 is €7m. The company designs, builds, and supports IT networks through an operational model that Richardson calls focal engineering.
“This means having the same dedicated technical team throughout the whole lifecycle of a project, which avoids silos and the finger pointing you sometimes get in complex technology projects,” says Richardson.
Having started with seven customers carried over from Telindus, Agile Networks now has over 50 clients, including Hutchison, the HSE, ESB, GE and Abbott Laboratories.
The MBO amounted to something of a gamble for Richardson and his fellow staff, given the financial state of Telindus's operation in Ireland.
“It was definitely a risk,” says Richardson. “The business didn't have many customers and the margins weren't great. Aside from the facts and figures, the buyout also had to feel right.
"For me, it came down to my family and friends urging me not to end up in a what-if situation further down the line if we didn't go through with the MBO,” says Richardson.
Darragh Richardson (right) with former
communications minister Pat Rabbitte
Another kicker for the Telindus team, according to Richardson, was the interest of a private investor in the business at the time.
“I wasn't interested in giving him as big a stake as he was asking for in the business, but his interest alone convinced me that it had the right potential.
"We saw a gap in the market for a niche high-value networking company that competed with much bigger firms by employing the best engineers and focusing in on a small number of relatively complex customers.”
Streamlining Agile's business meant ditching a lot of the ICT services that Telindus previously offered. “A big aspect for us was making the business repeatable,” says Richardson.
“With Telindus, we offered a huge range of ICT services, which is fine when you have hundreds of staff as they did in the UK. We dropped around 70% of our portfolio and focused on the remaining 30%, the IT networking side of things. It's a classic case of sticking to your knitting.”
The lack of an export focus means that the Blanchardstown-based firm can't tap Enterprise Ireland for funding, but Agile did draw down €80,000 in funding from Fingal County Enterprise Board in 2012.
“That support was important. It helped us from a cash point of view and was a vote of confidence from an external body, which is good for a startup for receive,” says Richardson.
Agile Networks has ten shareholders. Richardson and his wife Francoise, the sole directors, own a majority shareholding, with seven staffers also having equity in the venture.
This type of business model is still relatively uncommon among Irish SMEs, and Richardson says that the employee-as-shareholder arrangement has its pros and cons.
“On the plus side, employees have more of a sense of ownership and responsibility in the business and its prospects of success. When they have a shareholding in their workplace, they behave in a different way than just as employees,” he says.
“The challenges mostly come down to leadership roles. You need have a more consultative style of managing the business and that means involving more people in the decision-making process than you might like.
The business is not just your own vehicle; you have to factor in other voices in the firm. I prefer a consultative style anyway, so the set-up is not a problem for me.”
Richardson adds that the IT industry has tended to be a frontrunner in this heterogeneous system of management. “The idea of employee stock options is more heavily ingrained in IT than it is in other sectors and we use shares to attract talent to Agile Networks.
" For the staff, separating the fact that they're employees from the fact that they are also shareholders is difficult. They need to have something of a dual personality. For example, they might want pay increases but they also don't want company costs to mount.”
Operating such a model in larger companies doesn't work as well, Richardson argues. “It works best for companies with less than 50 people. When you get to bigger companies, you're given shares but all you're really interested in is their value and whether you can sell them.”
However, Richardson can expect rising pay expectations in the firm after shareholders peruse the latest accounts. After booking a net profit of €302,000 in the year to September 2013, Agile Networks booked a net profit of €460,000 in the six months to March 2014.
Debtors at the end of March stood at €1.5m compared with €325,000 eighteen months previously – firm evidence of the company's fast growth.
Agile moved to a new Blanchardstown office recently to cater for staff expansion, and Richardson didn't mind splashing out a bit.
“It's worth spending a bit more on a good office for the impact it has on your key asset – the employees. I am puzzled when I see companies scrimp on facilities and then wonder why they struggle to recruit better people or keep staff motivated,” he says.
Richardson says that there are three long-term possibilities for the company: geographic expansion, technology expansion or merging with another firm.
“We are currently working on a three- to five-year plan but you always have to keep an eye out for opportunities, as the market is constantly changing,” he says. (August 2014)