Interview with Andy Phillipps

Andy Phillipps was born in 1968, in Woking, Surrey. He is the eldest of three children. His father was a lawyer and his mother worked prior to having Andy and his sisters.

Andy attended Allen House, preparatory school, followed by Bradfield College as a boarder. He describes himself as a generalist with a love of English, sciences and maths. He adds: “I’ve always been interested in science so that is the thing that I carried through to university.  I also wanted to do English A Level, but, and I think it’s probably still slightly true, that schools encourage you to focus on sciences or the arts. My personal belief is getting an exposure to both is really, really important. For my own children, I’m trying to encourage them to cover both disciplines.”

Andy’s first computers were the ones at school and a BBC Acorn at home, on which he says he spend hours writing “useless games”. He adds: “My first direct ownership was an Apple.  I remember it had a 40 meg hard drive, so I was desperately putting my PhD thesis onto extra floppies. I was doing a Monte Carlo model of failure of ceramics for my PhD and I wrote this code, it used to take three days to run, to get each result, which I’m sure was partly my code, but it was also the speed of the processor at the time.”

Andy was encouraged to apply to Oxbridge where his school had connections however, he was “determined to go to Cambridge”. He explains: “The reason I wanted to go to Cambridge was the Natural Sciences Tripos. I knew that I didn’t really know what I wanted to study, and so the ability to study multiple subjects at university really attracted me then.”

Having been accepted at Cambridge, Andy took a year out and worked for ICI in Runcorn for several months to save up money to travel to Hong Kong and Australia. In 1987, he went up to Cambridge to study for a degree in Natural Sciences, specialising in Material Science.

Andy says that his specialisation in material science came from a fascination by materials: “I got fascinated by materials, about why they performed as they did, how you could modify those behaviours and how instrumental they are. Everything involved in manufacturing and in IT ultimately comes down to the performance of the materials and its capabilities. I always liked applied maths where you could apply maths to real situations, and materials is a classic example of that. As you understand how the structure works, you can apply maths to try and optimise it. That’s becoming true even more as quantum computing comes through, but even at that time many of the big breakthroughs came through better understanding of behaviour of materials.”

On the future of quantum computing, he says: “There’s a lot of optimism that it can have massive implications for drug discovery and material optimisation et cetera.  I find it interesting that it’s beginning to work; we still don’t really understand how it works.” On the subject of investing in quantum computing, Andy adds: “I don’t like investing in stuff that I don’t understand in its entirety.  But that does limit my investment horizon quite a lot if I’m not careful, so, I would certainly look at it.  I tend to focus at that point on the credibility of the people who are looking at it, i.e. I want to know that they genuinely understand it, but also then the capacity of what it can do. I don’t tend to invest in pure blue sky research; I tend to invest in something that has an obvious practical application.”

Having studied psychology in his second year, Andy was encouraged to think for himself. He says: “The greatest asset I got from Cambridge is the confidence to think for myself. My tutor certainly instilled it and then lots of other people nourished it.”

Andy gained his degree, an MA and was then funded by ICI went on to complete a PhD in ceramic materials. He says: “The great advantage of ceramics is that they can operate at very, very high temperatures.  So they were trying to generate a combustion chamber that would reduce the amount of NOx that is produced during combustion which required it to operate at high temperatures.  Metals would melt so they had come up with a material that they thought could do this, it had a very reliable fracture behaviour, but also, if it did fracture it wasn’t catastrophic, but they didn’t understand how it worked . The project was to try and develop mathematical models to predict how it might fail, and to optimise its structure.  It was great and absolutely appealed to what I wanted to do; I had a fantastic three years.  I was very lucky because I managed to combine lots of other people’s ideas to generate something that was new in its own right and could optimise that structure.”

He describes his management style by saying that he “likes to work with people who are, and it sounds like false modesty but it’s not, better than myself. I want people in the room who know more things about different things to me, so I definitely want diversity in the room.  I don’t want someone who just says, ‘I agree with you’ here. I want everybody’s ideas to come through. Once we’ve considered all the options, I want a decision made out of that meeting.  I just don’t want procrastination.

“One of the things that running your own business gives you is the understanding that you don’t have the money to procrastinate; you have to make a decision here.  If you procrastinate, you run out of money very fast.”

Andy says that money is not a big motivator for him but adds that in business, money is a metric of success, saying: “I definitely want the businesses to be successful and money is a facilitator.  It enables you to invest more in expansion, it enables you to pay people well. There’s definitely a role for money. I’ve run out of money multiple times so I’m really not belittling money, and my current financial situation also enables me to be slightly above it. We need to recognise the value of money, but money in itself doesn’t bring happiness or a sense of success in its own right.  It’s what it can do both for the company and for other areas of life.”

In 1993, having completed his PhD, Andy went to work for the Cookson Group. The Group was initially a lead company, providing lead additives to paints, before becoming a materials conglomerate.

Despite being the worst paid of the job offers that Andy received post Cambridge, Andy says: “Having come from a materials background it was a natural fit.  I was working across a variety of materials.  I worked in the steel industry, which, for anyone who has never been round a steel plant, I would strongly urge you do it.  It’s a most extraordinary, almost mythical experience, just the scale and the ambition of what’s being produced. I loved the steel industry.  I worked with aerospace for a while, providing materials into the V-22 Bell helicopter aircraft that took off like a helicopter and then flew like a plane, at least when it worked. Then in the semiconductor industry for a bit, and in the pottery industry as well.”

His work with Cookson took him to Asia and Pittsburgh. In Pittsburgh Andy was placed for six months at Vesuvius producing equipment for the steel industry. He says of the experience: “I loved it; the real world application of knowledge. I also enjoyed the diversity of people; it takes all sorts to make a company work.”

This experience of having worked with a diverse range of people from those with manual roles to those who do mathematical modelling, helped Andy when it came to setting up his own business, he explains:  “It helped me develop an understanding of what motivates people at all level across organisations. I’m not saying I can do it, but certainly something that I’m interested in achieving.”

He adds: “Pittsburgh was a steel town, so it was very down-to-earth, it was hard-working, it was no bullshit, and it was very results-driven. It was a pretty good introduction to how to make a successful business.  I think it was also useful for me that, particularly going into the IT industry because IT often is associated with very large margins, and working in the steel industry absolutely makes you realise the importance of only spending money when you need to spend money, i.e. you have to keep the operating costs and your central overheads under control. In the steel industry, you’ve got no margin of error; in IT and marketplaces it’s still beneficial because, long-term, the people who generate the most efficient products at the best price tend to win.  So, actually working in a relatively undifferentiated industry probably helped me in a view of costs.”

Andy left Cookson after three years when the company was taken over and closing its research agency.

As Cookson was being taken over, Andy was concurrently approached by BOC Group. He says: “They were working in an area that was near to my heart then and now, which was trying to reduce the amount of toxic gases emitted into the atmosphere. In the semiconductor industry, you need an awful lot of very toxic gas in order to etch the required architecture on your silicon chips.” BOC Edwards, a division the BOC Group had developed a technology to filter the toxic gases.

Andy spent two years with BOC based in Bristol but with trips to but to Korea, Pittsburgh and San Jose to examine semiconductor production.  He says: “It was my first exposure to chip manufacture. Similar to the steel industry, it’s fantastic to go and see quite how sophisticated the processes are to produce the silicon wafers that we all come to rely on. I loved it.”

Having left BOC, Andy took a year out to study for an MBA at INSEAD at Fontainebleau. He says: “I had come from an environment where I understood aspects of technology quite well, but I really didn’t have any exposure on what made a business successful at scale. I wanted to get a better understanding of what happened in all those different facets of business.”

By talking to the diverse range of people on the course, Andy also found inspiration and insight into the idea of raising money for a start-up. He adds: “I think before I went to INSEAD I wouldn’t have had the confidence to go out there and try and raise money for my own start-up.  I’d have been terrified about losing it and I would also not have the confidence that I would be able to spend it sensibly. I’m not saying that everybody has to do an MBA to go and run their own business; for me though it was very, very helpful.”

After his year studying for his MBA, Andy and his co-founder Adrian Critchlow, set up Active Hotels.  Andy explains: “Adrian is very, very good at spotting the trends ahead of time.” Adrian had the original idea for the business but was running another business at the time, he invited Andy to be Chief Executive and he would be his partner. When the other business did not work out, Adrian joined Andy, and together they ran Active Hotels from 1999 to 2003 before Adrian left to launch another start-up.

The business model for Active Hotels evolved. Andy says: “It was chaotic for quite a long period of time and our original business idea was utter nonsense. In the first iteration of the business plan we were providing thin clients out to hotels because most hotels couldn’t access the Internet. It was a thin client provided by Alcatel which enabled them through our web page to advertise their room types, availability and prices.” Unfortunately, the ‘thin client’ was incredibly slow as it ran on a 28K modem.

They also tried selling hotel rooms to the American audience but realised that US tourists really only visited London, Oxford and Cambridge, while Active Hotels was selling rooms in Blackpool, Scunthorpe etc. Andy adds: “There was a complete misfit between what we were doing and actually what we should have been doing. We nearly went bankrupt and then we completely pivoted.

“Ultimately, the differentiator was a booking process designed by a production engineer. We had dynamic acquisition of supply of the hotels, dynamic pricing of the supply, and dynamic generation of the demand.  We generated a marketplace such that if we knew that people were starting, literally that second, looking for more hotels in Manchester on the 13^th June, we would have a team that would automatically get better supply for 13^th June in Manchester, including signing up extra hotels if needed.

“It meant that we were always in a situation where we had the best conversion rate on the website, and if you’ve got the best conversion rate, it means you can pay your demand partner the most to acquire it, whether that’s advertising or whether it’s working with an affiliate partnership group, and once you’ve got the best demand, you can get all the hotels.

“So, by trial and error, we generated a proof that showed that we could actually make money out of slightly marginal hotels which traditional travel agents would never have touched, but also generate this completely dynamic platform for acquisition and fulfilment of those hotels.”

Andy says he grew into the role of Chief Executive adding: “I grew into it as I recruited people around me. There were definite cultural changes for me that Adrian tremendously helped with. I had only really worked for large corporations, and if something didn’t work in a large corporation, broadly speaking if you went along and said, ‘The reason it didn’t work is this; I’m really sorry, it will work again next time because I’ve learnt from this experience,’ it’s fine. The slightly strange thing when you’ve got your own company is, no one cares what the reason was; you just have to put it right.  Putting it right fast is really important.”

Andy says that as a result, the way he made his decisions changed from an academic approach to a business approach. He explains: “So, the PhD and the level of analysis was really valuable in intellectual horsepower to track issues, but in business I don’t need 95 per cent certainty; I need 51 per cent certainty that this is probably the right thing to do and to make the decision fast.  So I switched from making well-considered defensible decisions to fast decisions that I thought were probably right, and then changing course very, very rapidly if it turned out to be wrong.  We had a massive focus on getting stuff done rapidly.”

As well as investing their own money, Andy and Adrian also raised money from investors, he says: “In retrospect, it felt like we raised a huge amount of money, but we raised, around £400,000 in the first round, and then in total I think we raised 3.7 million. I deal with businesses now that would routinely raise ten, 20, 50, 100 million.  So it was very, very capital-efficient in retrospect.”

Andy and Adrian always knew they would sell or IPO at some point; that point came when larger US players in the field looked to enter Europe in the early 2000s. The company sold to Priceline for around £160 million.

Andy adds: “You can look at it now, and in the current framework that would be a relatively small exit, but at the time; I think it was one of the largest exits that year.  …  I remember the investment banker said, ‘You should always leave some value on the table for your acquirer,’ and certainly us and Bookings left some value on the table for the acquirer.”

Having stayed with the company after its sale, Andy co-led the acquisition Bookings BV and subsequent merger with Active Hotels to form Booking.com. It has been described as “the best acquisition in internet history” and is believed to be the most profitable ever in the digital travel market. Today, Booking.com’s market cap exceeds $50 billion, employs over 10,000 people and processes 100 billion dollars of bookings in 220 countries.

Andy attributes their ability to survive the dot.com bubble to having very good control of costs in the business.  He explains: “Lots of other businesses, including people like Lastminute et cetera, had raised quite large amounts of money. If the money supply starts to dry up a bit, as it obviously did in the dotcom collapse, you have an overhead that you’ve got to feed, whereas we were always very stingy with our overhead.”

In 2005, Andy became Chairman of Toptable, an online restaurant company run by Karen Hanton. Andy says of the experience: “It was great fun working in a sort of analogous industry where I could take some of the learnings and combine with Karen’s knowledge of the restaurant industry.”

Initially Andy found the switch between Chief Executive to Chairman difficult. He says: “My instinct, certainly for the first couple of years, was always to still make the decision and I had to force myself to zip my mouth and wait for the chief exec and the team to come to a decision on their own. Occasionally you have to intervene, but it’s a very different role.  You’re there as mentor, coach, and occasionally, if things are not working, you are also the person who wields the hatchet and says, ‘Right the chief exec or his team is not working out.  We have to change the management here.’  So it’s a very different role.”

In 2010 TopTable was sold to OpenTable which then became part of Booking Holdings.

In 2010, Andy decided to become an angel investor working with entrepreneurs to help them develop their businesses. To date, he has actively invested in 70 start-ups whose combined market cap now exceeds $10 billion and employ over 5000 people.

Asked what he brings to entrepreneurs, he says: “If I ask entrepreneurs what I bring, it’s probably different to what I think I bring.  I think I bring smarts and some experience of having been through situations that they are going through.  I also like to think that I can apply some kind of intelligence to strategy et cetera. It comes down empathy and a colleague that you can have a completely honest conversation with, that will give them a sounding board for decisions that are hard to make. I realised when I was chief exec that because virtually all the time you are selling to someone even when having a conversation with the staff or the team, you can’t always have a completely honest conversation.  If you’re running out of money in a month’s time, you can’t necessarily say that to the receptionist because it causes panic. Similarly, you can’t always say how precarious the company is to customers. So actually just having someone you can say entirely honestly, ‘This is the situation at the moment.  It looks quite bleak.  How do I get through this?’ is probably the thing that I bring that is most valuable to chief execs.”

Asked about his success rate, Andy says: “It’s almost exactly what the industry statistics would suggest it is, which is deeply depressing because I always hope that I’m better than everybody else and that I can go in and make investment more intelligently.  You realise that all those people who have been doing it for years, are the people you really should have listened to in more detail.

“The cliché is always that angel investing is a power law game and all your returns are made from two or three investments out of 50.  In material terms, it’s probably slightly more than that, but really not very much more, but, I probably have 50 per cent or so that have or will go bust, another 30 per cent will survive, and then all the returns come from the 20, ten, five per cent long tail, which make really disproportionate returns.”

Andy believes in investing in people, he says that he “I want to believe that if this person is successful, both with their business but also themselves, that the world will be a better place.  I don’t want to work with people whose values I don’t respect. That’s not necessarily an investment decision, it’s just that I’ve got the luxury of determining who I’m going to work with.”

He adds: “I want someone who’s intellectually smart, i.e. they’ve got the ability to absorb large sources of complex information and try and distil that down to actually what matters.  I need to believe that they can motivate and recruit a team around them.  I need to believe that they have that strange mix of ego that will enable them to make decisions that are difficult at speed but simultaneously be able to listen to diverse opinions. They’re not so determined about their ability to make a decision that they don’t engage with other viewpoints, but they have the ability to distil that through to a rapid decision.”

Asked what kind of technologies should people be considering for start-ups today, Andy points to the UK’s ability to come up with very good innovative ideas and initial research but a historical failure to commercialise and develop it in the UK.  He explains: “So my personal passion is, which is why I’m working with IQ Capital and angel investing, is to try and find people who have brilliant technology coming out of universities here and enable them to commercialise it, and hopefully realise some of the value for the UK as a whole.”

He adds: “Normally I look for product market fit of some shape or form; I don’t just tend to do blue sky stuff.”

Asked if he is currently investing in Blockchain, Andy says: “I will put money into blockchain when the benefit meets a customer need.”

However he is interested in companies that are trying to develop better AI methodologies.  Andy says: “I’m absolutely not an expert.  I’ve just done a course out at Stanford on AI taught by Ronjon Nag, who is fantastic, because he’s been through the previous waves of AI. This is the third time that AI has been hyped and I’m beginning to think that this one may be valid.  It’s definitely got limitations, but it’s also got really compelling use cases that can begin to operate at scale and virtually every business is beginning to use it in some shape or form.  I was slightly a sucker for it, but having done the course at Stanford, I realised that it’s involved but not always that complicated to use AI, it’s making sure that you are using a methodology that genuinely brings some value from AI and has an appropriate dataset.”

Andy lectured at both INSEAD and the London Business School between 2006 and 2019.

Reflecting on his career, Andy says: “I certainly procrastinated too much early on. I tried to analyse everything, and I worried about decisions too much.  I’ve come to realise that actually, however long I think about this, I will not get a better opinion than I’ve got now.  The downside of waiting longer is that you are wasting time. In IT businesses, it’s a very competitive environment, you have to get on.”

Interviewed by: Richard Sharpe

Transcribed by: Susan Hutton

Abstracted by: Lynda Feeley