Developing a profitable website design business

UNDER THE RADAR:John Mitchell, Strata3

WHEN IT comes to economic volatility, award-winning web company Strata3 has seen it all before. A pioneer of the business in Ireland, just two years after it opened its doors in 1998 it was riding the crest of the internet wave, with a staff of 30 and turnover of €1.2 million.

But not for long. The dotcom collapse laid waste to the industry, and by mid-2002 both business and staff were back to one-third of what they were just 12 months before.

That’s where managing director John Mitchell came in. Formerly a financial analyst with JP Morgan in New York, he negotiated himself an equity deal based on performance – and set about rebuilding the business.

“It’s been a slow, steady process, but we’re finally back this year to a turnover of €1.2 million – as the company celebrates its 10th anniversary,” says Mitchell (35), now Strata3’s leading shareholder.

It has been a tough journey. “The books were in a bad state,” recalls Mitchell. “The company was lossmaking, with annualised debt of around €500,000 accrued over the previous two or three trading years. There was nonpayment of tax to the Revenue . . . the usual.

“So we had to slash costs. There was absolutely no choice. That meant we had to let a lot of people go, which is always difficult. And as the business contracted, we started to get control of our costs.”

He worked closely with Strata3’s chairman, Seán Donnelly, formerly of the IDA, who became executive chairman for a period. “In 2002/2003 we hit the breakeven point and we’ve been in profit ever since. The company has really turned around,” says Mitchell.

But, he laughs, “it hasn’t exactly been a phoenix-like rebirth”. “There’s been a lot of what I can only call donkey work. But obviously the company is more profitable now with a staff of 13 than it was the last time it had a turnover of €1.2 million and a staff of 30.”

The strategy has been a combination of tightly controlling costs, consolidating existing clients and driving recurring revenue.

“One of the inherent flaws in the web-development business model is that it tends to be project-based and non-recurring,” says Mitchell. “It’s very difficult to build predictability into your numbers and, if you don’t have a recurring revenue stream, you’re always dependent on the next sale.

“So in 2002 we gave ourselves a target to achieve 40 per cent recurring revenue within a five-year period, and we’ve achieved that. I always think this is something businesses ignore at their peril.” Strata3 now has a healthy client portfolio drawn from the public sector, banking and telecoms, and is targeting small and medium-sized enterprises (SMEs) with a full-service package that includes website design and building, content management, annual hosting and support.

“Some of what’s on offer to SMEs at the moment seems to us to be less than clear in terms of price. So we’ve decided our strategy will be the opposite: to be totally clear and transparent on pricing and offer a complete deal which almost amounts to outsourcing.”

Mitchell has no illusions about the downturn, but he is optimistic.

“It’s going to be a challenging time for every company and every service provider. But I believe that this time we’re in one of the better sectors to be in – because it’s clear that there are substantial cost savings associated with doing business and communicating on the web. For instance, February was one of our busiest months in the past two years, particularly in terms of inbound calls requesting help optimising websites, though I’m not claiming this is the beginning of a trend.

“So yes, we are feeling some pain in terms of customers looking for discounts, but there’s no sign of overall web spend being curtailed.”

petercluskey@yahoo.fr

ON THE RECORD:

Name:John Mitchell

Company: Strata3

www.strata3.com

Job: managing director

Age: 35

Background: After a BA in economics at UCD and a master’s at UCD and the European Institute in Florence, Mitchell joined JP Morgan in New York as a financial analyst in 1997. He moved to Orbiscom as sales manager in January 2000, and in mid-2002 joined a struggling Strata3 as managing director.

The company broke even in 2002/2003 and will have a turnover of €1.2 million this year.

It won the award for best professional services website at the 2008 Golden Spider Awards and the award for best non-commercial website at the Digital Media Awards 2009.

Inspired by: Luke Taylor, chief executive of IconNicholson: “He took a web firm like ourselves and turned it into a global agency. I’ve met him once or twice and he’s been helpful in giving us a steer on development and strategy.

“On a more personal note, my grandmother, Ann O’Halloran, set up and ran a drapery and clothes design business in Cork in the 1930s, and I often think that must have been quite an achievement.”

Challenges: “We’ve had correspondence from some agencies in the public sector looking for reductions in rates and we’ve responded to that because we’re looking beyond this difficult period – but, by contrast, February was our busiest month in two years, particularly for clients seeking help optimising websites.”

Most important thing learned so far: “I was in my early to mid-20s when I started in this business, and now I’m in my mid-30s and I’m still learning. This is not the type of business where you can stand still and hawk the same product for five or 10 years. In terms of what I’ve learned so far, I would say the most important thing is to be flexible.”