by Real Business - Thursday, 30th August 2007

It’s been five years since Real Business tipped an unknown mathematician-turned-entrepreneur called Mike Lynch as one of Britain’s hottest young business prospects. So much has happened since then that the story of what Mike did next reads rather like the plot of a novel by Jeffrey Archer, another sometime Cambridge resident.

Back in 1997, Lynch had secured a £2,000 loan from the reclusive but fabulously wealthy businessman, Joe Lewis, to launch Autonomy. Lynch’s revolutionary software allowed computers to sort information written not in code but in human languages. Three years later, Lynch took Autonomy to the London Stock Exchange where it roared in to the top 100 companies with a market value of £5bn. At just 35, the fireman’s son from Chelmsford was a billionaire; loved by investors, adored by analysts.

Then came the crash. Suddenly, corporations were no longer quite so willing to splash out on clever technology. After one particularly gloomy trading statement in March last year, Autonomy’s share value halved in a single day. Lynch himself took a kicking from the pundits. In September 2002 the company slipped out of the FTSE 250 to a chorus of media catcalls. But the chief executive of one of Britain’s best-known tech stocks simply shrugs off the Schadenfreude. His theory is that the British press, who love a good story, are simply less well-informed than their US rivals. “It can be a bit soul-destroying when you’ve worked hard on something and then there’s some rumour made up because someone wants to make a quick buck somewhere,” he admits. “We would be called a dot-com or a search engine company. Getting lots of articles that mention you in the same breath as toothpaste-u-adore.com is not particularly useful.”

For the record, Autonomy is not a dot-com basket case. Earnings for the first nine months of the year were up 150 per cent and it remains one of Britain’s few profitable technology companies. Since the darkest days of 2001, Lynch has moved his 200-odd staff into shiny new offices on Cambridge Business Park. And, as he points out more than once, for its age, Autonomy is still the most valuable business is Britain.

“It’s a good time to be making progress because your competition is going out of business. You can win market share. You can hire great people who have been laid off through no fault of their own. And you are advertising when no-one else is,” he says. “You get a massive premium for just being here and being stable.”

This is just the next chapter in the amazing Mike Lynch story. “My history as an entrepreneur in the UK has been about overcoming the next barrier,” he says. In his early days there was very little venture capital for technology start-ups, so he funded his growth from profits. When he was barred from the main exchange due to a short trading record, he joined Nasdaq until London was ready.

This time Autonomy’s solution will be to sell its products wisely and well. As Lynch explains, his software can save customers such as Ford, AstraZeneca and the DTI huge sums by cutting the manpower needed to sort and action e-mails, orders and reports.

“In this country we tend to like quirky Tomorrow’s World technology like the bicycle that will ride across the lake,” he says. “But what we need is something that will give customers a return on their investment. People are still trying to market things on the basis that it’s the ‘best’ technology. They need to say it’s the ‘best’ because it will save you money.”

It’s a problem that Lynch encounters over and again among the bright new tech stars of Silicon Fen. He tells the story of some young entrepreneurs who came to him with a musical search engine that could recognise a tune and then find it on the internet. The technology was great – the profit potential less so.

“If you look around Cambridge, the companies have great technology and poor marketing. In Silicon Valley it’s the other way around. It’s a question of putting the two together. We all like to think that the best technology wins, but the realisation that marketing is so important can be a bitter blow.”

Lynch keeps a close eye on the clever start-ups and the bright young mathematicians that cluster around Cambridge. He is an adviser to Apax Partners and Carlyle Group, two heavy-hitting private equity firms. Last year Autonomy increased its research and development spending; some of its own £150m cash reserves are earmarked for buying new start-ups. One of his pet projects is a system that can recognise and sort voice data such as call-centre traffic. “Just think how many phone calls there are every day,” he says. “It will treat incoming phone calls like e-mail and process it at a phonetic level instead of using speech recognition.”

Lynch lights up when he talks technology. It is, he says, “the interesting bit.” He spends much of his day on “tedium” such as sales and stockmarket issues instead of new research and products.

What the young Lynch would have made of his current role is anybody’s guess. Not so long ago he was himself a Cambridge student, working on a doctorate in probability theory. During one vacation he took a job in his home town of Chelmsford at what was then GEC. It was there that he vowed to become his own boss. “It was the dullest, most boring environment. There was no meritocracy at all and it was very cost-accounting driven. I realised what it would be like working in one of these monolithic UK defence companies. So armed with something truly wonderful – the naivety of youth – I stared doing my own thing.”

He soon learned that copycat technology is rarely profitable. Its owners simply compete on price so that everyone loses. “I hear so many entrepreneurs saying they have a new, carbonated, sugary drink that’s much cheaper than Coca Cola,” he says. “But it’s irrelevant. If they took their drive and pointed it in a different direction they would be so much more successful.”

One of Lynch’s first sales was to a local police force. It needed software to sort and match fingerprints. He won the pitch because, even though there was room for improvement, his technology was faster and more accurate than rival systems. Speed to market wins sales.

“At entrepreneurial get-togethers the local law firm says how important it is to have your employment contracts and your patents correct. You do have to be careful about these things but they are not the priority – which is getting customers. Do things quickly rather than properly. You can come back and do things better later but if you’re too late to the market you’re lost.”

New customers are what Autonomy needs most at the moment. In the last quarter it clinched contracts with the US Office of Homeland Security and the communications group Hutchison 3G. But the deals haven’t dampened speculation that Lynch might return his firm to the private sector. With cash in the bank and a depressed share price he could reclaim his creation from ungrateful investors.

No way, says Lynch. “It’s very important to our customers that they buy from a financially solid, large, global public company. So the best thing for the business is to be public,” he insists. Whatever happens, it’s bound to be surprising. The Mike Lynch story still has a way to run.

BYTESIZE

On Silicon Fen:
“We have great people in this country and the university down the road is just as good as MIT or Stanford. I hope we’re now in the phase where we grow world-class companies and that some will stay here.”

On taking on the big boys:
“It’s incredibly difficult to overcome the momentum that established players have so you shouldn’t even start to market unless your technology is ten times faster or cheaper.”

On the other hand:
“You have to start out believing that you’re going to take over the world. If you don’t, you should go and do something else.”

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