The dotcom crash is a distant memory. The survivors were those companies that use the internet's power to connect people - and that have good financial control. Just as Rob Mogford, FD of Friends Reunited, does

The first thing you notice when you visit the Friends Reunited offices in Oxted is that, well, it’s in Oxted. Located just outside the M25 in the heart of Surrey’s commuter belt, it’s a not the first place you’d look for a pioneering company that can reasonably claim to have changed the way we think about our schooldays. Given that the company is a genuine success story from the dotcom boom, you might expect a Soho office, funky furniture, lots of chrome and exposed brick.

No such airs here, though. Aside from the sign on the door, you wouldn’t know you’re about to enter the home of arguably the UK’s best-loved website.

Rob Mogford has been FD here since joining a management buy-in team in February 2003. It’s obvious that he’s delighted to have left behind his “corporate suit” role at BDO. Not that things are overly relaxed here. “When I arrived, the business had no accounting function, no PR, no HR, there were no real systems or checks,” he says. “The site had been created and was being kept going by two developers. And there was the risk that the thing could just wilt on the vine and become nothing.”

But since then, 12 million people have visited its sites, and revenues hit £9m in 2004. And consider this: the overall margin is 60 per cent. So who says you can’t make money on the internet?

8.45AM It’s an early start here. Most of the staff live nearby, and Mogford’s in already. Although Friends Reunited (FR) eschews the more pretentious dotcom trappings, it’s still a very relaxed office. No suits or ties: Mogford’s every inch the modern FD with open-neck shirt and a desk in the middle of the office.

Before his first meeting with some tax planning advisers from PricewaterhouseCoopers, the FD gets the chance to explain a bit more about the company’s success. “There was a lot of money around during the internet boom,” he says. “There were thousands of start-ups saying ‘this great new idea – it’s going to be a million-pound business’. Six months later they’d gone bust. The crash got rid of all that noise.” Friends Reunited, on the other hand, having started out much more modestly (in a front bedroom in Barnet, north London), is thriving.

9AM Karen Armstrong only recently joined as financial controller, so she sits in with Mogford and the auditors for the tax meeting. The FD runs the PwC guys through progress on FR’s most recent web launches. Its dating site is doing better than expected, as is the genealogy site, Genes Reunited. But all this growth places a burden on the FD to make sure the group is properly managed and structured.

From a legal perspective, FR presents a peculiar challenge. The business has been carved up into discrete units to avoid any possibility that a major problem in one area might bring down the other parts of the group. When you’re allowing people to “publish” their thoughts and messages on different websites, for example, there’s a danger of libel – or worse (as we’ll see later). Those kind of risks need to be ring-fenced.

Mogford is also keen to get a head start on IFRS. FR isn’t quoted – yet. But he’s determined to get the business into the right shape for any eventuality. Potential buyers and investors will want to see that corporate governance is up to scratch. The approach fits with the forward-looking ethos of the company – which is ironic, given that Friends Reunited reinvented the way people relate to their past.

The FD values this input from advisers. “My philosophy’s always been, ‘don’t ever assume that you know everything’,” he says. “We need people who can deal with all the core stuff, but who aren’t afraid to go out and use advisers when they need to.” That way, fixed costs are kept to a minimum: “why spend money on something we don’t need?”

10AM The auditors agree to report back on the issues he’s raised. We’re already into a packed schedule, but the FD takes five minutes to check his emails before his next appointment. This time it’s a representative from a firm hoping to partner up with FR.

Spotting and evaluating JV opportunities is a major part of Mogford’s job – he seems to revel in it. But it’s also clear that protecting FR from the more shark-like businesses looking to cash in on the brand is a full-time job. All kinds of people want a piggyback to sell their products or get access to FR’s user base. With so many millions of users registered, getting the endorsement of such a popular service could make a huge difference to any fledgling web-based venture.

The team has a set of basic criteria for assessing whether or not a venture is right for them. “These meetings clear out a lot of the rubbish,” says Mogford. “We won’t even look at something if it hasn’t got at least a six-figure profit potential – it’s got to be generating at least £200,000, and preferably more than £500,000. I’m not into buying things that are heavily loss-making or require a huge amount of investment. We just won’t entertain it. It’s got to have a tangible revenue stream that can come online quickly.”

The “new business” meeting lasts an hour. By the end, the chances of it coming to anything are slim. “There aren’t that many internet businesses making money,” says Mogford. “There are three things that make money on the internet: sex, gambling and Friends Reunited.”

11.15AM After a quick tour of the office – mainly 20-something engineers and coders – Mogford heads into his daily catch up with fellow directors Michael Murphy and Tim Ward. The three have developed a great rapport in the two years they’ve been working together (see box, Managing the buy-in).

The FD briefs them on the pitch he’s just taken – but the three of them can spot a non-starter at a hundred paces. Most of the ideas they hear fall into that category – “the majority of the opportunities are dogs,” says Mogford. But occasionally they are interested.

What comes across most acutely in the course of the meeting is this determination to protect the Friends Reunited brand. It’s about managing growth without jeopardising the goodwill FR has built since its launch five years ago. “We’re providing a service where people actually think, ‘I’m getting fair value here’,” Mogford explains. “It’s quite emotional – we’re putting people in contact with their past. Some people might pay £100 a year for that, but I think they might feel ripped off, they’d begrudge it. And lots of our customers wouldn’t subscribe again. Right now, people really do trust us. So although we can’t always be the best service in the world, we only charge £7.50 a year. That’s good value.”

More than 18 million people have visited an FR site, and around three million have subscribed to one of its services. “I wouldn’t really compare us to easyJet,” says the FD. “But we’re more like them than we are like British Airways – more no-frills that paying for bells and whistles. I like to think we’re a bit classier than some really ‘cheap’ brands, but the model’s there. We give them a service that does what they want at a fair price.”

12.30PM Mogford stops by Armstrong’s desk for a quick run-through of FR’s revenue recognition policies (it’s a subject he’ll come back to later). With the growth of Genes Reunited, the revenue streams have become more complicated. “Making sure that everybody who’s in a product management position understands how the numbers work, and what the key performance indicators are, has been an education process,” he says. The accounting function has historically been outsourced to a firm in North London, but Mogford’s looking at bringing it back in-house as the business grows and they need this more sophisticated level of understanding.

1PM It’s off to the pub for lunch. The pace of life is considerably less hectic in this corner of Surrey than it is in London, so the FD can structure his days to be more... convivial. All three of FR’s management team have young kids, so they’re all out of the office by 6pm most days. Then from 9pm or so, they can catch up on any calls from home.

Not that it’s a doss. Mogford’s two years on the board have been hard work. For one thing, his remit is much broader than in previous posts. “When I arrived, I found I’d done everything I had to do at some stage previously in my career,” he says. “But it was the first time I’d ever had to do it all at the same time. Most days I’m flat out.”

The expansion into dating and genealogy has seen to that. Fortunately, both businesses have met expectations and the FD has high hopes for the next venture – online recruitment, which he reckons could be the biggest site yet. But with any luck, it won’t be so much work. The team has now perfected the launch of new offerings on the back of the existing FR infrastructure.

“We’ve built a model that means we can bolt on new businesses quite easily,” says Mogford. “With a few tweaks from the developer, we can spend as little as £10,000 or so and have a good common job site up and running, probably in four or five weeks. So far these spin-offs have contributed more than £1m in their first year, with costs below £100,000. They make 90 per cent margin – just by hiring a couple of people for each one.”

2PM The FD gets back in time for a meeting with Jane Bradley, head of customer support. Much of FR’s back office is outsourced. But dealing with customer queries and complaints is core.

Today’s issue is a problem with the FR message boards. The feature is a hit with users, who seem to like the community FR has built up both from schools and independently. But they’ve created a potential risk for the company: some unsavoury messages have been posted. The team has to make sure they keep any potentially libellous or defamatory statements off the site in case they get sued. Mogford wants Bradley to come up with an action plan he can take to lawyers to demonstrate FR is managing the risk.

Alongside the positive press the company generates there are some less savoury stories associated with the website. The rash of “Friends Reunited Ruined My Marriage” headlines may have dropped off recently, but safeguarding users’ privacy and keeping the boards free from abuse is a tough job. “It’s a big site and we believe in freedom of speech, in bringing people together,” says Mogford. “We have to try not to be Big Brother.”

3.15PM Rhoda Moore drops by. She’s head of romance (yes, that’s her job title). That means she heads up FR’s dating offering, which has gone down well with users. It’s run along the same lines as the reunion site: low registration fee, low-tech – but successful. Moore’s been in discussions about a possible joint venture on the dating side of the business and wants to run through the financials. As usual, deciding whether the venture would be a success depends not only on the potential economic benefits, but also on whether it’ll bring headaches for the brand.

It’s a question of balancing control with competitive pressure. A constant theme during the day is guarding against rivals coming in and “eating our lunch”. After all, apart from the brand, the actual mechanics of the business are relatively easy to copy. The meeting ends with the FD promising to put together some figures for Moore to take back to the potential partner.

3.45PM The FD checks his emails and returns a couple of calls. The office is open plan so the three directors can bat ideas back and forth. Discussions are open-ended and there’s little of the secrecy or compartmentalisation that characterises many companies. Freedom of speech is encouraged as much in the office as it is on the message boards.

Then Carolynne Bull-Edwards, FR’s recently appointed press officer, taps up the FD for a bit of advice. PR is a full-time job at FR, but the notoriety of the brand has generated a nice little bonus for the FD. “We don’t have to advertise,” he says. “There are eight million people out there using the site – they’re already there.” Indeed, the company calculated that in November 2004 alone it received press coverage equivalent to around £800,000 of paid advertising.

4.15PM Toby Reid, one of FR’s top programmers, arrives for a meeting on user numbers. A systems error has led to an alarming hole in the accounts and Mogford wants to know exactly what happened. Luckily for the FD, Reid has all the answers. It seems that users registering in the first few days of the month weren’t being recognised in the financials database. So five days of every month’s revenue was being left out – hence the hole.

“The way we recognise revenue is tricky,” he explains later. “Typically, if someone takes out an annual subscription, you’d spread the revenue and the costs across the year. But while our business is subs-driven, members use it in a different way from a magazine subscription, say. You have this core of people who make loads of contacts, but the majority only make one or two. That means it’s not appropriate to spread all that value throughout the year. So we recognise our revenue in a slightly different way. Then you get this type of glitch in the system – it looked like we had a £300,000 hole in the revenues.”

So it’s no surprise the FD breathes a sigh of relief when the problem is resolved. Mogford arranges for the programmers to explain the situation to PwC – the audit team was a little worried when they looked over the online revenue stats on their most recent visit.

4.45PM Last meeting of the day – for me, at any rate. Mogford’s got time for another chat with Armstrong, this time about staff bonuses. They’ll need to be recalculated now that the revenue glitch has been cleared up. Mogford and the other directors are on the ball with HR issues. Recruitment and retention is serious stuff here – the majority of employees have been with the company since the beginning.

The FD has an interesting way of getting the people he wants. “We know that if they’re prepared to work in Oxted, then they must be committed to the company,” he says. But the bonuses might have something to do with it too. 2004 was a great year for FR, so the most loyal employees are looking at something like 50 per cent of salary as a reward.

And the future looks pretty rosy for Mogford and his staff. Registrations are holding steady and with the job site in the pipeline, Friends Reunited shows no signs of running out of steam.

In many ways, Mogford’s got the dream job: he’s an entrepreneurial FD with opportunities to grow the business without huge pressure from shareholders or venture capital backers. He’s also working with people he obviously likes and respects. And he’s home by 6.30pm. It’s almost like being back at school.

Managing the buy in

Mogford took over as FD in an MBI in February 2003. When he was at BDO, he’d been advising Friends Reunited founders Steve Pankhurst and Jason Turner over the possible sale of the company. “Talking to venture capitalists was very frustrating,” he says. “And, in any case, the initial discussions we had on selling the business didn’t come to anything.”

So Pankhurst and Turner went looking for a management team to do partial buy-in and run the business. Quite naturally, Mogford wasn’t far from their thoughts. “We’d stayed in touch because we got on really well,” says the FD. “They’re very down-to-earth guys. So when they asked whether we could put another deal together, I didn’t hesitate. I knew how good the business was thanks to my previous dealings with them – the site was going fantastically, they had money just pouring through the door.

“We talked to various firms about backing somebody to come in, and a few of them got excited about it. But it didn’t come to much until former Financial Times COO Michael Murphy came into play. The guys really liked Michael, and since there wasn’t really a credible trade buyer on the scene any more, that option was put on the back burner. They decided at that point, ‘why don’t we just offer Michael some equity?’

“They offered him the job – I think that was on the Friday night. Steve called me in on the Monday morning and offered me the job as FD. It took me about ten seconds to decide. Tim Ward, a colleague of Michael’s at the FT, also came on board and the team was complete. Since then, we’ve upped staff levels from 12 to 35.”

So the new management team have a dynamic business and some equity to play with. The company is expanding, and the founders are still reaping rewards from their creation. What a great deal.

Related tags: friends reunited, rob mogford, internet, revenue recognition,