The original digital architect
Podcast transcription - 22nd may
Peter Cowley: Welcome again to another Invested Investor podcast. Today we have David Cleevely in his garden here. It's awesome and beautiful and the birds are singing in the background. So David, tell us a bit about your background.
David Cleevely: Well, I was originally born in Germany where my parents were over on the RAF base. Came back to England when I was about two or so. Grew up in southwest London, went to the local grammar school. Did a whole load of peculiar things like setting off rockets and stuff that you can't do these day. We were sponsored by a university, at what was then called Post Office Telecommunications. Learnt an awful lot about how telecoms networks work by actually doing some soldering and putting on wellies and climbing down into manholes, and all of that kind of stuff. Did a degree in Cybernetics Instrument Physics and Mathematics at Reading. Went to work for the Long Range Studies Division at Post Office Telecoms in Cambridge.
Peter Cowley: That long range as in distance within mast distance?
David Cleevely: No, long range as in what was going to happen over the next 20, 30 years.
Peter Cowley: Oh. Really interesting.
David Cleevely: Sadly, all of which is now in the past. So the stuff I worked on at the Long Range Studies Division was, what happens if you had these computers that can sit on your desk and you could actually type things with them and communicate with them and do calculations.
Peter Cowley: So, this was the mid, late seventies?
David Cleevely: Yeah, this is kind of, yeah, '76, '78. There were these things called Citizens Band radios, and I did a report saying there's this pent up demand for the idea that people could carry around devices that will enable them to talk to anybody without having to be connected to wires. It had the security classification, "The existence of this report is not to be acknowledged to anybody." I think in retrospect that was because somebody senior in Post Office Telecoms wanted to claim the credit for it. But, there we go. That's it.
So I cut my teeth on that stuff. It was looking ahead, it was a monopoly, telecommunications were a monopoly. So we looked at models of what would happen when competition was introduced. That was under a Labour government before Thatcher came in and began all that process. So, it taught me how to think ahead.
There was just one thing, if we've got time for me to tell you. I was asked to look at the prices of semiconductors and memory devices and to try and forecast how we are going to move forward. It was part of a thing called a Delphi panel. Delphi panel is where you get a group of experts together and they all put their views in and then they take the average and then they go back to the outliers and say, "Well, this is what we and other experts think. What do you think? Would you move your restaurants?"
Moore had just come out with his book at that point. So I read Moore's book and I did a bit of investigation and I got some 5-Cycle log paper. So, it's five decades of, five orders of magnitude and I drew some lines on it and submitted it.
And the guy came up from London. First of all, he was a bit surprised because I think I must have been 23 at the time, I was definitely in short trousers. And he came to see me after he got over the fact that I looked like I was too young to be doing this kind of stuff. He said, "Look, all the experts think that these prices will move by three to 8% per year. And you have these prices going down at 30, 40, 50, 60% a year. Not just one year, they go on and on and on." He said, "It's incredible. Do you realise you could store a whole A4 page ..." And over that he meant 10k bytes for one 10th of a penny. It's incredible. "So, explain the Delphi panel thing. So you're now going to have to move your estimate." And I said, "No." He said, "Well, I'm going to have to ask you to leave the Delphi panel." So I was booted off. So, the whole of the digital switching architecture of the United Kingdom was based on a bunch of experts who thought that electronics and memory devices would decrease in price around about 3% to 8% per year.
Peter Cowley: Rather than doubling or whatever it is every 18 months.
David Cleevely: And it taught me a very good lesson. One was, I was coming at this with no preconceptions, being in my early twenties. And so, trust people in their early twenties because they've got no preconceptions. They've seen what is going on. They can extrapolate from it.
Peter Cowley: Yeah.
David Cleevely: They may not have the business savvy. I mean, I didn't have any of the economics business savvy as you can tell. I mean, telling somebody much more senior than me that they were wrong and I wasn't going to cooperate.
Peter Cowley: Yes, exactly.
David Cleevely: And I left and went and did a PhD at Cambridge after that. But that was okay, that really taught me a lesson about how the older you get, the more hidebound you become about what you think is realistic or how the future is going to work out.
Do you want to know how the future is going to work out, don't ask somebody in their 50s. You can't ask somebody in their twenties, they might come up with some crack pot things. But if you're in your 50s and they're in their 20s you can probably interpret it better as long as you've got an open mind.
Peter Cowley: Yeah. And then you moved on to your PhD. So you left the Post Office, came here to Cambridge.
David Cleevely: Yeah, I was interested in developing countries particularly. Again, this is incredible to think, at that point most aid was focused on big irrigation systems and dams. That kind of stuff. Nobody thought telecommunications was important and everybody thought that phones were a luxury.
So, if you're a developing country, you shouldn't have phones, you should have sprinkler systems.
Peter Cowley: Water and food.
David Cleevely: Yeah, yeah. Blah, blah, blah. Right. Well I mean it is incredible to think now that that's what the attitude was. So my PhD was part of changing that attitude. It was called Regional Structure and Telecommunications Demand: A case study of Kenya.
So I did a lot of fieldwork in Kenya. I did some spatial mapping. I develop some theories about regional structure and how it worked and changed World Bank policy. Because I did some stuff for World Bank as an economist on a couple of missions, one to Kenyan and one to Algeria.
And shifted World Bank policy away from just investing in capital cities and also thinking of telecommunications as something that, if you had access to it then actually the economy could function better. And that meant also residential people having access to telecoms.
Peter Cowley: But this was copper and fixed line, wasn't it? Not mobile.
David Cleevely: Oh yeah. I mean, that's way back. Yeah, it was all copper stuff. So this is early eighties. I mean, mobile stuff had just started. I got very excited at the end when I was at Long Range Studies Division about that mobile telecommunications.
And I'd actually been in touch with Marty Cooper at the time, because he was the guy who started to talk about cells and how they were going to actually make mobile communications the architecture of the network, actually make it happen.
And I kicked off a project on that in fact, did some work on it. But the full scale of what that revolution was going to happen, it was kind of in the air. You knew two things. You knew this data stuff was going to make a big difference, and you knew that the mobile stuff is going to make it a big difference.
Because I was doing this thing on semiconductors and I knew which way they were going, I was pulled down to London, I think it must have been '77, '78, early '78 probably to get a presentation from a mad professor at UCL who wanted some money from us and from this very strange American agency associated with defence, to do this weird thing called packet switching, which they were going to do by satellite across the Atlantic.
And then we were going to play with it. And they wanted to try and do voice and video and various other things and experiment. And my head of division turned to me, and gave him good credit for this because " he's an interesting chap. And he said to me, David, should we fund this?" And I said, "Jim, we should fund this because someday all communications will be by packet."
And the reason why I said it was, and having done the study about where the electronics and memory costs were going, it just seemed to me that the economies of scope and scale that you got when you went down that digital route, and the ability that they then had.
I had seen the architecture, this is the first time I'd ever actually seen the internet and it wasn't really quite pure TCP IP at that point, but it was getting close. And then I went, "Okay, yeah, I've got this. This just unlocks everything. You can just churn this stuff out and plug and play." That's going to be any circuit switched system by a country mile, which is why I said it.
Peter Cowley: Yeah, but you're obviously involved with mobile telecoms AMPS now in developing worlds. So what happened straight after Uni then? Did you go into a corporate role?
David Cleevely: Yeah, well I'd left Long Range Studies Division to do my PhD. So, I then went down to work at the Economist Intelligence Unit, or as one American client I talked to said, "The communist what?"
The Economist Intelligence Unit is part of the Economist Newspaper Group. And they were set up because people were asking economists for lots of data. So they started to do a little bit of consultancy and they publish things. And they had a little consultancy doing information communication technology, and I joined them. Then I got promoted to be the divisional director for telecoms, which was a bit of a massive set of responsibility given how little experience I had.
I made some money for them, I made lots some money, I acquired clients. And I, basically after a couple of years, I realised that I could probably do this myself. I wanted to do my own thing and because The Cambridge Phenomenon book had been published and got a lot of press, I thought, "Well, I'm fed up with the community. I'm going to set up my thing in Cambridge and I'm going to do it on the science part because that's the way in which we'll have queued offs and cache."
So I shared some premises with a chap called Mike Gardner, now sadly passed away, who had a company called Out Communications, and kicked off my consultancy company, Analysys, in '85.
Peter Cowley: All right, okay.
David Cleevely: First of all, most of it had got off the ground by doing contracts for the beloved European Commission, that was because at the Economist Intelligence Unit, I'd done a bit of work for the European Commission and there were people there who liked what I did. So when I went somewhere else, they started to give me some bits of work.
But we built up commercial stuff with BT and various others. And at the end of the 1980s, beginning of the 1990s, we got a big breakthrough doing some modelling work about the future of telecoms investment in Europe, which was for 1990 to 2010. So it was playing on a lot of my modelling skills, a lot of the stuff I'd done at Long Range Studies Division.
And that turned out to be quite an important piece of work, not only because of the ground-breaking nature of it, but also because it got us in front of all the telecom operators in Europe, who at that point were all struggling with the notion of, what happens with competition.
And then began a long run during the 1990s, Analysys was becoming the place to go to if you wanted to understand about the interaction between technology, economics and business in telecommunications. And as one M&A person said, there wasn't a deal in Europe going on at the end of the 1990s that Analysys wasn't involved in on one side or the other.
Peter Cowley: So, were you competing with, KPMG specialist department?
David Cleevely: Yeah, we could just knock them out the way. I mean, the thing is that there were specialists departments, but really, they had nothing like the depth of knowledge that we had.
And one of the things that I did at Analysys, and probably I could have made far more money than I ever made even with Abcam or anything else if I'd really taken this one seriously, is I built a whole series of web based knowledge systems to underpin the consultancy.
So before anybody else was doing this, we had a CRM system that we built ourselves. We were managing documents and working papers. And so where anybody was in the world for Analysys, and we were operating in loads of countries. We had offices in Washington and Kuala lumper and Paris and Munich, and so on. Wherever they were in the world, we could access all the central database and this was way ahead of anything anybody else could do. And all projects that we'd ever done, we're always available to all the consultants and all the contacts and everything else.
So we were significantly more efficient and had greater depth of knowledge about telecoms than anybody else. What I didn't understand was, towards the end of the 1990s, as this first internet bubble took off, how many charlatans would then pile in and how the valuations will go up through the roof. How everything would basically be set fair for falling apart. I really, I just didn't get it.
Peter Cowley: How did that affect you within Analysys and your consultancy?
David Cleevely: Yeah, well, first of all, I should have accepted the offer.
Peter Cowley: Probably sell out at some point.
David Cleevely: Probably sell out for at least 70% more than I sold out for in 2004. I should have absolutely done that because I would've got four years of my life back and they turned out of course, after a collapse like that, turns out to be three or four years, where your life is pretty, stressful. Got to get the company through those things.
Basically it affected us by people doing crazy things, investors putting a lot of pressure on us to drive up valuations, which we were not prepared to do.
Peter Cowley: Did you have any external investors at that point?
David Cleevely: No. no, no. We were doing this, so, somebody who was bidding for a telecoms licence in India for example
Peter Cowley: A higher number, right. Okay, yeah.
David Cleevely: And you go, "Well, actually that's how much it's worth." And then they lost it and then they come back and blame you because you didn't put a high enough valuation on it. And we'd say to them, "Look, if we put a high enough valuation on it for you to have won that, you'd be bankrupt."
Peter Cowley: Yes.
David Cleevely: "You know, we saved you. So, we were the rational people in the game, but when everybody's mad, the rational person suffers.
Anyway, what happened was, we were the last people standing effectively cause everybody else got swept away, which enabled us to survive and enabled me then to actually finally sell up to the company who had offered a lot more money in 2000, and sell it to them in 2004.
Peter Cowley: Excellent. And how big were you at this point, say people or revenue or something?
David Cleevely: Oh, 13, 14 million pounds. About 130 people.
Peter Cowley: You were still based in Cambridge and all over the world, yeah?
David Cleevely: Cambridge, London, Glasgow, Milan, Madrid, Munich. Those are all the ones that begin with M.
Peter Cowley: And obviously, entrepreneurs and to some extent the people who listen to this podcast, like the concept of being able to exit, as we all know. Let's talk through that.
David Cleevely: Well, let's talk about the exit. The point about that was, that in 2000 I hadn't really prepared for exit. It was dependent on me. I managed to do some sales of some big consultancy projects after that collapse, as everybody else was going out of business. But that really made me very concerned because if it was dependent on me doing the sales and we had a problem.
We had these systems in place which enabled everybody to operate things. So, basically I began a programme of three years of devolving stuff and making myself entirely replaceable. So by 2004, when it was time to step away, I actually could leave the company with cash in my pocket. Which is something that you very rarely do, if ever, with a consultancy company.
Peter Cowley: There were 130 people. So, I can imagine you had a set of lieutenants that could step up, presumably.
David Cleevely: Sure, yeah. Well, which I did. Of course lieutenants is one way to put it. You know when you go around and ask people how much percentage of the company they would want and you end up with a number that's about 350 or 400% of the company when you add everybody share up excluding your own, you can see the tensions arise in that second.
Peter Cowley: Did you proactively sell or reactively? I know there's when you did the exit, did they come back, did you keep in touch with them?
David Cleevely: No, we did ... It was basically the core strategy of the company, after the 2001 stuff, I'm going to set this up for sale, right? I know I'm going to get the team, so they're all incentivised to do that, which meant giving them some equity. I'm going to get the thing making profit. I'm going to make sure the turnover goes up. We will be set fair. That's how we're going to do it. And I will step away. So my promise was to do that.
Peter Cowley: Okay, fine. And you handed over completely in 04’?
David Cleevely: Yeah.
Peter Cowley: And went on to a very interesting part of the rest of your life with huge amounts of different directions. Let's just talk a bit about the other company helped set up of course, Abcam. That is your other major company that you've built, isn't it?
David Cleevely: Yes.
Peter Cowley: So, we've talked to Jonathan Milner, so we've got some of the story, but can we just spend three or four minutes on how that went for you?
David Cleevely: Yeah. Well, I have an interesting saying, as Paseur says, "Chance favours the prepared mind." Jonathan and I had that conversation over dinner, which was as a result of our wives knowing each other because they were working together.
And the conversation was between somebody who had developed a whole load of web technology and run a business, and somebody who was a researcher in antibodies and was fed up with the quality of antibodies. He knew how antibodies got produced, I didn't. I understood from talking to him what the economics of antibodies were, and I couldn't believe the 20 Pound note.
Peter Cowley: Margin, exactly.
David Cleevely: A 20 Pound note was left on the pavement. I mean, I remember saying to him, "There must be something wrong here. You can't ship these out of the laboratory." And he said, "Oh no, you can seal it in an envelope and they'll survive two, three, four days in the post." I went, "Bloody hell, we've got a business."
Peter Cowley: Right. So, you were a co-founder.
David Cleevely: Yeah.
Peter Cowley: You put money in, some money in.
David Cleevely: Oh, quite a lot, yeah. I mean, Abcam hadn't had a trouble-free history. When Abcam nearly went bust in 2001 again, when all this crisis was developing. No 2000, I predated some of these other bits and pieces.
I put £420,000 of my pension fund into Abcam, which was the majority of my pension fund. So I bet the majority of my pension on that one company.
Peter Cowley: Did you have an executive role? Probably not because still running Analysys at this point, you haven't handed over?
David Cleevely: You can see from where we're sitting, listeners, you won't be able to see it, but just through there, there's a gazebo which will be forever known as the Abcam mentoring gazebo. And every Saturday for three or four hours, I would sit with Jonathan, well, certainly in the summer when the weather was like this, we'd sit there on a Saturday morning and I'll talk him through how the company was going and what to do.
So, I was dedicating, even when I was doing Analysys, I was dedicating several hours a week to doing it. So yeah, quite a lot.
Peter Cowley: And you stayed on the board through the flotation?
David Cleevely: Yeah, I was chairman. I took it through flotation and then for about three years through flotation after that, I stepped down. I mean, the company was changing. There's need for growth, there's all sorts of stuff needed to happen and I think you need to recognise how that change has happened.
I mean, Jonathan himself stepped down as chief exec a little while later and a new chairman, new chief exec in there, and you know, companies change.
Peter Cowley: It's market cap was over two billion at the, moment?
David Cleevely: Yeah, that's right.
Peter Cowley: Are these your two main entrepreneurial journeys, do you think? Or have you got any others to talk about now before we move onto investing?
David Cleevely: Entrepreneurial journey as well. I mean, I think really the focus that I've got at the moment where I've got a number of companies and I'm nurturing through, I'm very, very closely involved. I mean, I've taken the view a bit like you Peter, with the Invested Investor.
It's all very well having a punt through EIS and getting some tax relief. Chances of anything good happening with that are pretty remote. Unless you know the other investors and you know other people are taking an interest.
Now the only stuff I'm doing now is where I would describe myself as having an almost half executive role and stuff where I'm coaching, mentoring, I'm deeply involved to the extent that, one of our mutual companies' controllers, I was up in Thetford couple of days ago walking through the product plan with Simon for a new product. And literally going through line by line what the features were, what the BOM cost was and what we could price it at and how that pricing would then be placed in the market. That's fairly detailed stuff but strong mentoring.
Peter Cowley: And you worked for the MOD in quite a senior role, didn't you? While you were still at Analysys?
David Cleevely: My name had got around a little bit in a very oddly ... People from the MOD started turning up at conferences I was speaking at and then quietly having words with me over coffee, trying to persuade me to join the board that was responsible for all of the IT and communications for defence. I had no idea what they were on about really. It was surreal, I think is the way to describe it.
It included a trip down through the Box Tunnel works. There's two and a half million square-
Peter Cowley: Corsham, is that? Yeah, in Wiltshire.
David Cleevely: Corsham. It's two and a half millions square feet of tunnels under there-
Peter Cowley: Storage?
David Cleevely: I got a guided tour. Well, in the Second World War, it was used for storing ammunitions. It had enough ammunitions down there to supply the war for all the allies for 40 days. So, it gives you some idea about how big an area this was and the railway marshalling yards under the tunnel and all this kind of stuff.
Anyway, they pulled out all the stops to persuade me to join this board. And in the end I did. I thought, "I can't stand it. I don't want any more brigadiers turning up at my speeches and trying to persuade me."
Anyway, it was a very interesting experience and I stayed on that board for its existence. And by the end of it, me and another chap Will Roger, were the longest serving members of that board and we're kind of its memory and experience and expertise.
Peter Cowley: What was the remit?
David Cleevely: Well, we were just looking at what their plans were and how they were thinking about investing in projects. The budget was 1.7 billion, something like that. It's a fairly, sizeable budget and we were just there to make comments and make suggestions.
I'll give you an example again. It goes back to the Long Range Studies Division, that really was a formative experience. If you're thinking about defence, you are thinking of 15, 20, 25, 30 years and you've got to think about that kind of long-term way.
So, when you're then engaging with contractors who were supplying the USA with telecommunication services, they're not thinking in those terms, but you need to sign contracts that might go out that distance. You have to frame the conversation in a particular way. And my contribution to that was to suggest to them that they went back to their contractors and said, "What happens if our demand for bandwidth is 100 times what we say it is?" Just imagine that we've told you this is our future demand for communications. Now just multiply it by a hundred and let's have a discussion about what that will be, right.
And the result was that we changed all the contractual arrangements because one of the things that you get with the public sector is you do a contract with somebody, it's not the cost of the contract that is important, it's what's the marginal cost of change. And so what we did was we then changed the marginal cost to change. I did a few other bits and pieces but, getting to do a price list of actually what were the services and bits of kit that we were offering and could you actually get more of a market internally in the MOD for doing these kinds of things.
That was interesting time, I learned an awful lot.
Peter Cowley: Frustrating at times?
David Cleevely: Oh yeah, unbelievably frustrating. Unbelievably frustrating. You could say things and you'd no idea whether they ever have any impact or not. But it was, for me, I don't know whether I made a difference to defence and I did make things a bit better. But for me, I learned an awful lot about how government works and how in particular, large contracts and large organisations work.
We oversaw the reduction in size of that part of MOD from a head count of about 5,400 to a headcount of 1,800 ,with a huge increase in the services and equipment that was deployed. So that was over an eight year period. I'd never been part of a programme like that and seeing how that operated. And the rebuilding of Corsham, which we had to do as well, complete rebuilding of the site.
And that for me was a great learning experience about how large entities, organisations, can't say corporations, how large organisations need to deal with things. And the difference in dynamic between that and when you’ve got a new start-up and you've just got four people.
Peter Cowley: Yes, yes.
Alan Cowley: Wow. What a journey David has had. Thank you for taking time to listen to David's incredible story from Post Office Telecommunications to the Department of Defence, while he was making a name for himself in Cambridge. For ventures such as Cambridge Network, Cambridge Wireless and Abcam.
We hope you enjoyed it. Listen out for part two in which you find out his top tips for entrepreneurs and investors.
Peter Cowley: Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website investedinvestor.com or via a number of podcasts platforms online. Remember, you can order our book online and be sure to follow us on Twitter, LinkedIn, and Facebook to get the most up to date, interesting and insightful content from the Invested Investor.