How Elizabeth Gooch came back to save eg solutions, the company she founded

How Elizabeth Gooch came back to save eg solutions, the company she founded

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Gooch set up the software company in 1988 but was ousted by a board she appointed

Elizabeth Gooch, founder of eg solutions, was ousted by a new chairman and ‘felt useless’

By Rebecca Burn-Callander

5:30PM BST 03 May 2014

Ousted from the company she founded by a board that she appointed. Forced to watch helplessly as sales tumbled. Her shareholding under threat. Elizabeth Gooch, founder of eg solutions, has had an interesting year.

Gooch set up her back- office software business in 1988. Growth was initially slow. “We were creating the market as we went,” she says. “I had invented a completely new product and it was a rocky road.” By 2012, however, the company had worked through its growing pains, listed on Aim, and was turning a small profit on revenues of £5m.

“We’d secured deals with three big, international banks,” says Gooch. “We had positioned the business for growth and built some solid foundations.”

The company was finally ready for worldwide expansion and the markets began paying attention. “It was great to have analysts writing about us as it gave us something to hang our coat on,” says Gooch. Then came a note from stockbroker Panmure Gordon that changed the course of the company’s history.

“Our broker recommended that we appoint a new chairman,” says Gooch. “My initial response was that I did need help, and I was very open to change. I’d had a board of bankers previously who were very conservative and didn’t like to spend money.”

Panmure Gordon recommended the appointment of John O’Connell, a software veteran who had co-founded, floated then sold Staffware to Tibco for $237.1m (£140m) in 2004. He joined eg solutions in March 2013.

O’Connell adopted an “invest to grow” strategy from day one and began looking at ways to raise capital. “He was a rock star of the industry 10 years ago,” says Gooch. “He wanted to prove that he could do it all a second time, I think. He immediately took a venture capital (VC) approach to flipping the business. It was really difficult. Like many VCs, he wanted to get rid of the founder – me.”

O’Connell devised a new management structure that stripped Gooch of nearly all her responsibilities. Despite inventing the product and negotiating most of the contracts – including a lucrative distribution deal with Aspect Software – she was demoted to spokesman.

Gooch realised too late that she was losing control of the company she had built up over more than 20 years. Old bonds mean very little when sizeable cash prizes are dangled, she admits. “As far as the investors were concerned, I hadn’t delivered the share-price growth that they wanted. Once John told them what he thought they should be making, they became dissatisfied. He held up a mirror and said, ‘This is what you could have if I took over’.”

Around 75pc of her duties were transferred to O’Connell’s former colleague Rob Glenn, who had been hired as COO, says Gooch. The other 25pc went to O’Connell himself. But by August, however, Gooch was back in charge of software development.

In October, O’Connell was appointed CEO. “He had a strong reputation,” says Gooch. “People believed him when he said, ‘There’s a massive opportunity here, and I’m the man to do it, not her’. “It was a massive confidence knock. I felt useless. I’m a strong person and I don’t easily crack, but it nearly destroyed me.”

By this time, Gooch’s 41pc shareholding was now under threat. “He was telling people that the business needed £1m to survive and it didn’t,” says Gooch. “His forecasting and cash-flow were off. All of my financial controls had been allowed to slide.

“There would have been a dilutive fundraising. And my hand would have been forced to agree to it or the business would have gone under. He wanted my shareholding below 20pc, below any control.

“If things had gone on another two months, that’s what would have happened.” Fortunately for Gooch, at this time the majority shareholders presented O’Connell with a proposal containing conditions for his continued role as CEO. The requirements were “onerous”, says Gooch, and demanded rigorous corporate governance and compliance.

“They also demanded that another board member be appointed. O’Connell turned down the proposal and stepped down on Dec 6. He had been CEO for eight weeks.

He has since joined the board of rival Active Operations Management International as a non-executive director. After his departure, Gooch immediately rejoined as acting CEO. “Nobody said, ‘We need you back’,” she laughs. “They said, ‘There isn’t anyone else’.”

Her first order of business: to find out if the company was insolvent. “I took an absolute flyer and said, ‘It’s not’,” she admits. “But we’d seen a massive drop in sales. We were 10pc down on the previous year and in the second half of 2013, we’d hardly sold anything at all.”

Gooch brought back daily cash-flow forecasting, demanded complete transparency from every department, and began calling up all the customers who had been neglected over the previous six months.

“I made sure that we cracked on with selling,” says Gooch. Shortly after she was reinstated, Gooch also hired a new chairman, Duncan McIntyre, the former CEO of Morse and a special adviser to financial technology company Monitise. The move was necessary to calm the nerves of eg’s shareholders but it was a frightening experience, she admits.

“We started working together a week before his appointment to find out if we could make it work,” she says. “Now I’m doing that across the board with all senior appointments. No more recommendations.”

Now, six months later, the business is back on track, she claims. The company is forecast to turn over £5.2m this year, up from £4.5m in 2013. “A large portion of that has already been closed,” she adds. “I turned the business around within three months. That felt fantastic. We’re stronger than we’ve been in years.”

The market seems to agree. Lorne Daniel, research director of technology at stockbroking firm Finncap, said in a recent note that the business had “emerged a stronger business after a challenging end to 2013”.

He added: “With four new customer wins, two additional partnerships and an experienced and impressive new non-exec chairman, it is confident of a return to growth this year.

“The original appointment was flawed. While the increased spending was planned, sales and cash conversion saw a downturn under his stewardship. We feel the swift course correction is beneficial. eg solutions has been built into a highly regarded global operation through years of careful and capable management by the founder, who returns as acting CEO. She is proven and committed and will now be supported by an experienced and dynamic chairman, respected for his time at Monitise.”

The whole experience was a valuable leadership lesson for Gooch, she says. “Just because you found a company and invent a product, doesn’t mean you’re the right person to run the company. I got myself some leadership training. Now I know I can do this job on merit, not just because I founded the business.”

Gooch is still only acting CEO, and there are no guarantees she will remain on board. McIntyre has the task of ensuring that eg solutions has the right management team in place to continue its expansion.

Gooch is sanguine about her possible departure. During her hiatus from eg solutions, she was approached to take up the CEO mantle at two other companies, so opportunities abound, whatever happens with her own firm.

“In some respects, when I came back I was disappointed,” she says. “There were so many other things I wanted to do. “If I’m replaced, it will be an Alex Ferguson moment,” she adds.

“I’ll have won the Premiership before I hand over the baton. And I know now that with the board I’ve created, my shareholding will be safe, even if a new CEO is appointed. And I’ll always have a role to play in this business.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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