| Enterprise Network - An advertisement for texting |
| Saturday, 18 September 2004 | |
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Sunday Times - Flytxt, a firm that runs ad campaigns over mobile phones, has yet to make a profit but its founders are already planning a sale. Report by Rebecca Hoar. FLYTXT’S CHALLENGESTo spot growth opportunities in new sectors To plan the company’s growth and an eventual exit strategy To manage expansion in America TAKE four friends in their twenties, add a mobile-technology idea, some venture capital and a timeframe of early 2000 and it would appear to be a recipe for another doomed dotcom start-up. Yet Flytxt and its creators are now reaping the rewards of backing what at the time was seen as an outsider in the communications race — mobile text messaging. Today the company, which runs text-based marketing campaigns, has some 75 clients and brings in almost £3m a year. But Flytxt does share one characteristic with the failed dotcoms: it has yet to make a profit. For it to do that, Flytxt has to keep a step ahead of its competitors, roll out its service to a global audience and look for new ways to cash in on the founders’ technical know-how. Carsten Boers and Lars Becker, two of the founders, met while studying philosophy at the London School of Economics. “We became the best of friends,” said Boers, 29, now chief executive. “We knew even then that we wanted to do something entrepreneurial.” Great thinkers they may have been. What they lacked were the technical skills and cash to finance the business. They obtained them with the other two founders, Pamir Gelenbe, who met Becker while working at Morgan Stanley, and IT expert Thomas Schuster, a childhood friend of Boers. “In 2000 the internet hype was dying,” said Boers “We decided to concentrate on text messaging. It was a brave decision as people were talking of Wap phones being the new sensation.” The gamble paid off. Early Wap phones were costly and disappointing, while texting was fun and cheap. It meant Flytxt could offer clients such as Emap and Chrysalis the chance to reach consumers by running text campaigns that involved voting and competitions. Then came television text campaigns such as Channel Five’s Movie Bonanza, where viewers of Channel Five films could answer a text-message question about a film for cash prizes. Soon non-media companies such as Cadbury and Carlsberg were signing up to the Flytxt service. Cadbury’s Txt‘n’Win campaign aimed to increase chocolate sales to teenagers who were spending money on mobile-phone cards instead of sweets. It produced 65m chocolate bars, each with a unique code on the wrapper. Consumers texted in their code to see if they had won a prize. Cadbury received more than 5m responses and was able to gather data on consumer habits while boosting its sales. More recently Flytxt ran the Orange Wednesdays campaign, a tie-in with Orange, the mobile network. Customers text the keyword “film” to a central number and a mobile voucher is sent back enabling them to get two-for-one cinema tickets every Wednesday night. Orange expects this to increase customer loyalty and attract new users. Flytxt also runs one-off campaigns so clients can target their consumers with text messages. Magazines or radio stations, for example, can provide content through mobile phones. Finally it has a technology arm that works on the infrastructure to underpin the campaigns. As these different areas are distinct in terms of clients and revenue structures, the company is divided into three units: mobile marketing; media and entertainment; and technology. When it was launched, Flytxt received funding of £1.3m, mostly in venture capital. Last August it raised a further £2m. Turnover for 2003 was £2.9m — almost double that of 2001. Yet last year it made a loss of £101,000, an improvement on the 2002 loss of £206,000. Boers predicts that the company will become profitable by the first quarter of next year. To do that, though, Flytxt needs to ensure that potential clients know what the company has to offer. But raising awareness of its services costs time and money. Talking to potential clients takes up valuable staff resources, and if the client then says no, Boers sees that as time and money wasted. Flytxt needs to work out how to identify and target potential clients more accurately. It is also too easy for a rival company to let Flytxt do all the groundwork before coming in with its own offer and poaching the client. Boers is trying to head off this problem by charging for the initial advice. So far, the company has grown organically. However, as the three business units become increasingly separate, there are options for growth through joint ventures, mergers or acquisitions. “I expect the business will split into three, each following quite different paths,” said Boers. But the issue needs more thought. Although Flytxt is a strong brand in the mobile industry, other players are muscling in. “We’re small,” said Boers. Flytxt must decide when it is time to grow non-organically with a merger or acquisition. “It’s a critical challenge,” he said. Meanwhile, Flytxt has opened an office in Seattle in the hope of repeating its success in America. Unusually for the world leader in high technology, America lags behind Britain in mobile phones, said Boers. The company entered the United States with only one client, attracted by the bigger marketing budgets and the apparent openness of Americans to new ideas. Yet, as a new player with just five employees, Flytxt is vulnerable. “We’ve heard all the warnings. Going to America is clearly one of the biggest challenges a business can face. So many fail,” said Boers. “We find it reasonably easy to do business, but it’s a tough market. Competition and pricing are fierce.” Boers said that Flytxt will move cautiously in America. Yet, as part of the £2m venture capital raised last year went towards the American expansion, investors will soon be looking for a return. Despite the youth of the four founders — the oldest is just 32 — and their big plans for the future, they are already thinking about their exit strategy. By splitting the business into three units, they hope to create three distinct and attractive assets. “We will probably exit in the next 24 months,” said Boers. Whether this means a full exit from the entire business, or a sale or merger of part of it, remains to be seen. Answers on a text. © Copyright Flytxt Ltd 2006. Unauthorized use of any content constitutes a material breach. |
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