Interview with Chris Phillips
Chris Phillips is a serial entrepreneur behind ‘Dot 5 Hosting’ and ‘Just Develop It.’ He was born in Portsmouth, England, and has been among one of the richest teenagers under 20.
What made you want to start a business at such a young age?
I was too lazy. I didn’t want to get a paper round, and I started off doing work in football and I was paying someone £20 a month to host it on the internet. And I looked at it and said I’m paying this person £20 a month and they were doing nothing, so I thought I would do exactly the same. I thought if I could get one customer each week over a year that would give me £20 a week – £80 a month – and I wouldn’t have to do a paper round. So I had a year to get four customers and it just so happened I got in at a lucky time – instead of having four we had about 15,000.
So the idea for the first business was to create a football website?
Yes, I was just going to deliver results and things like that.
That didn’t go to plan.
Then how long after that did you decide to start hosting?
About six months later.
Did you have to get any backing financially?
On my fifteenth birthday my Nan had always saved up so I had £1000. And with that I set it all up.
So what materials did you need to set it all up?
I just had a computer already, and my parents were totally into it.
That was it?
That was it. A little bit of wheeling and dealing telling people that if they designed me a website that I would be able to do this for them. If someone set me up with some billing software so I could take credit cards I could do this for them.
You offered them the hosting in return?
In the beginning you offered hosting?
Is that still the same as now?
Do you design websites as well?
We do a bit on the side but only like four or five a month, nothing very big.
Was there anything specific that went wrong with your football website?
I think there wasn’t the market for it really. There were already bigger ones and at the time I wasn’t particularly great at marketing – no one knew it was there.
How did you start marketing?
It was a lot of trial and error. I learnt by costly mistakes.
What were they?
I experimented with Google; you can have backlinks and you can sell your works throughout the list for free, or there is ad words, you can pay a cost per click. When I started doing that we wasted about £30,000 in a week where we generated about £5,000 cash.
So you say you wasted £30,000, was that money that you had previously taken or did you borrow that?
No, we never borrowed any. Another big problem we had was that no banks were interested, because I was too young. When we started getting all the big customers through, remember I had no outgoings. If someone like yourself started up a business and you made £10,000 out of that £10,000 you would have to pay for your car, house, kids, food. If I made £10,000 that £10,000 goes straight back in the business. I had no outgoings: my mum wasn’t charging me rent, and I wasn’t old enough for a car, so the money we made went straight back in. The bank, even though they could see loads of money coming in, they were like ‘this is great’, but I couldn’t even get a business account or credit card. And because of the way the internet was, no other companies I bought my hardware from would take cheques.
So you were a cash business?
Yes. I had to borrow my mum’s credit card because the bank wouldn’t even give me a Switch card, so I had to use my mum’s credit card then pay her credit card off.
Would you say that the Google mistake was the biggest mistake you made?
Are most of your customers in the US?
Did you specifically target America more than England?
When I started out America was a lot more advanced in web hosting than we were. England is still two years behind at least.
Yes. In 2 years you will see a lot more web hosting.
So you did a lot of research before you started?
I wouldn’t say a lot but a little bit. I always knew more people live in America. The sheer number of people.
Do you think it is the marketing and advertising that you have invested in that have contributed to such a successful business?
Marketing and advertising. We were just always one step ahead of everyone else; we were trying new things out and we were really dynamic. Although we were growing into a big company we didn’t have any hierarchy or managers – everything came through me so although we were big we could still move quickly. If we wanted to change our products, or our marketing strategy we could do it in 24 hours.
What strategies did you employ to reach the target markets you wanted?
Offering promotional services, free trials, different search engines, and in magazine print advertising.
So you did do the traditional methods?
Yes. We did all of those.
What was the most effective?
Probably the directories we advertised on like Yellow Pages online, and we used those. We had an affiliate programme which we were one of the first to offer. We actually paid $60 for a year, and we offered an affiliate programme if you signed up yourself. Then you get a special link like .five hosting.com/abc. If someone clicked on that link and then bought word posting we would credit them $60.
So it encourages other people?
Yes, we gave them 100% of the profit, so it was not until the second year that we started seeing the money come back. That then encouraged us to look after our customers so that we make sure they sign up for the second year and don’t go elsewhere. As long as you’ve got word of mouth, if you can get 10,000 people you haven’t made a penny from them but you have a customer base. Those 10,000 are going to recommend you; people generally recommend what they know whether it’s good or not.
Do you think that marketing advertising is an area worth borrowing money to invest in?
Yes definitely. I never borrowed but if I was in a position where I could have done I probably would have, and I would now. Marketing on the internet is a lot harder than it was. The cost to get a customer through normal advertising two years ago was about $30, so you can spend $30 on marketing and you would get yourself a customer no matter where it is. But now it’s about $120.
What’s that figure based on?
How much you spend in order to get a customer. It’s called a CPA rate. If you have $300, two years ago into marketing on the internet – say on Google – the chances are after spending that $300 you will get ten customers. That was the way it worked. So it was costing you $30 per new customer – now it’s $120.
Did you have anyone advising you?
My dad’s got a company and he sort of pointed me in the right direction with accountants and things like that.
Was it really all your decisions?
It was for the first year. He helped me out on the structure because the company went really bad after a year. We grew too quickly; I was only 16 at the time. We were one of the top ten fastest Ebay companies in Europe growing and it just went…we were getting more customers than we could handle and we didn’t have enough technical support. Too many things were running through me; I was getting burnt out. We were advertising, the cash flow was zooming up and down daily and we didn’t look after our customers the way we probably should have done.
So what did you do to change it?
We cut the advertising for a little while and tried to look after what we had. We weren’t billing customers; we literally didn’t have time to deal with customers from the year before – we couldn’t keep track of it all. We stopped and started to rebuild.
Did you lose customers over that period?
Yes probably 5,000-6,000.
Is there anything you would have done differently?
Growing too quickly is bad. Imagine you have a bike wheel and you are going down a hill. We were picking up pace, and loads of customers and it’s great and then all the spokes on the wheel are slowing, springing off and the wheels start going left and right and the engine has crashed.
So slow and steady?
Yes.Trying to move forward is the way, but at the same time trying to keep an eye on what you are doing.
Do you think outsourcing work to a different country puts you in less of a position of control for the quality of service you offer?
Not if you are working with the right people. Ours are good.
You really went to choose the right people and to check them out? I do understand in the IT industry there is a lot of outsourcing. Do you think it is something that works well for you?
Yes, if you are using the right company. They work hard. Some stay on for a couple of hours for free.
What point did you decide to outsource?
I started bringing in some managers in America and they didn’t work.
In what way?
They didn’t work. They were saying they were when they weren’t and the company was starting to get messy. Then I decided to bring in nine Indian guys, and they proved they are worth it. After a while they learned. We now have about forty. About ninety in Los Angeles.
When you sold, you sold 90%, is that correct?
80% or 90%. Then I bought it back, and finally they subsequently purchased 80% once again.
Were you approached or looking for a buyer?
I was approached, yes.
What made you buy it back?
They bought it and because it was coming into me everyone spoke to me; it was very central, when they bought it they had a bigger company than mine anyway. They broke it down into six parts, with managers in each part, directors in, and different technical support staff in straight away. The company had a hierarchy. Sales slowly dropped, and without the technical support the customers were unhappy, no-one could communicate and it was starting to become really uncomfortable. They told me I was guaranteed a job for three years, then they said we’ll kick him out. Two months later they called and said ‘sorry, but the company is going bad do you want to buy it back?’. I did, reorganised it and they called me and were really nice, and apologised, thought I was a bit lucky and said ‘can you come back to run the company for us’ so I did.
You now own what %?
So you sold it back to them again?
Yes, we got it better organised; they bought it back.
What advice would you give a young person wanting to start a business?
Believe in yourself.
Did other people doubt your idea when you started?
Yes. I had a lot of bad ideas that didn’t work. Everyone said you’ve failed in England. But I just got up and did it again and again. My dad and family didn’t even know about .five hosting for about six months. When I told mum it was ‘Yeah yeah, whatever – great’. Then six months later my dad said ‘have you still got that idea?’ I said ‘yes, look we have 10,000 customers’. He was like ‘Wow, he has got a good idea’.
People get the impression that it was the first big idea and it just went brilliantly, but it’s a case of getting back up again isn’t it?
I wouldn’t have thought anyone would have the first idea go bang.
So your attitude is what got you there, to keep getting back up and trying harder?
Yes. They weren’t even companies – they were just little things in school trying to sell mobile phone chargers and stuff on ebay and on the internet. All the things I did before that failed – that’s why I thought hosting was successful. You look back and think ‘Oh’. You learn a lot from it.
Do you think that there is still plenty of opportunity within the internet industry to make money or has it been saturated?
It’s still growing in England as well; it’s going to keep on growing. I think it’s going to change a lot; you are going to see it transform into something slightly different than what it is now. There is definitely a lot of room for growth. Hosting possibly not, there are 3000 new hosting companies every month joining and 99% of them fail after the first month.
Why do you think that?
The problem is your start up costs for about your first year, plus you have to have staff 24/7 and no staff can support about 20,000 customers. If you have one customer making you £20 or 10,000 making you half a million a month your outgoings are still the same. You have to have 24/7 support. You have to have servers and somewhere to work from. If it is the internet at home your outgoings are still the same. My outgoings are still the same as when I started.
Why do so many fail?
For that reason, their outgoings are too high. My own outgoings a year ago would have been the same as a new starter; they may have £5,000 going out a month, I may have £5,000 going out a month but I have 10,000 customers and they have one. If customers have to call technical support staff and they take their telephone support down during the evening, then they have two customers that call their hotline during the evening and my hotline, then they come to me and my base is still going to grow. You have to have 24/7 support.
What age did you start getting involved in the internet at a more advanced level than the average user?
I didn’t have a computer until I was 15. I haven’t got a clue. I can’t design websites – I can just about manage Windows. I can just sit and chat. If someone said ‘here is one of our servers that you have all your hosting clients on – you need to fix it’, I would not have a clue.
So you are more the business head?
Yes. All I can do is talk to people, get deals, buy things in.
You’re known for putting customer service as a high priority with the business. Is there a lot of competition with that, how do you stand out as being one of the best re customer service?
We didn’t to start with, I just learnt a lot of lessons when it all went bad. We now make sure all of that is analysed. We have a guy in LA to analyse response times – all of our support staff are on A B and C grades. Anyone that is C for two months in a row we lose. So it depends on how well they are doing.
That is the key is it?
You can’t base your company on marketing – you will lose money. You have to focus on filling gaps. We have the customer base – now we have to make sure we keep our customers. It’s easier to keep a customer than to get a new one.
Is there anything that you attribute your fast success to?
Dedication when I was younger. Working and I could work from home. Before I had all the outgoings I couldn’t have done it.
Starting a business young is an ideal place to start?
It’s perfect. All the people I started with – different companies – and they have all failed now. They had to take out a little bit for their kids and family.
How long was it before you drew a salary?
Even now a lot of it goes back in. I do have a house now. Probably about a year and a half.
People shouldn’t expect to be drawing salaries?
You can but I wouldn’t be as big as I am now.
Can you tell me about what you were like at school? Academic, or wheeling and dealing?
I’m not very clever at all; I didn’t get any GCSEs. I tried hard and went to college last year, did my homework and revised and I came out with Ds. I’m not particularly thick and I tried really hard, but I find academic learning really hard. In school I was more interested in playing football. I wasn’t there much in the last year.
Was that out of too much to do with the business?
Yes. I have changed a lot now but then I was really focused on that and really confident it was going to work. It wasn’t actually the business that I did when I left school which worked so I was wrong but I just didn’t care – I wanted to go and work straight away so I did. That business didn’t do very well and I was really lucky on my second one. So I definitely advise people to go to school and not do what I did.
How important do you think education is? What would you advise young people to do if they are in education but they feel they want to start a business? Would you advise them to still get qualifications?
Definitely get the qualifications, I wish I did now. It’s nice to have something fall back on. If my business fails now I would have nothing. I wish I had carried on in school and got some qualifications. It would help with the financial side. The money and the sums – I wasn’t too good.
What would you say to young people who feel that starting a business is something that older people do and business people do and they have backing behind them etc? They don’t feel it is something that is open to them – under 18?
It is hard for people under 18. There is not much; there’s the Prince’s Trust – but just go out there and try and prove people wrong if you have an idea. I still don’t think now there is anything particularly special about what I do. I think anyone can do it. If you have an idea go out there and give it a try. Eventually you will have one that works, keep trying.
Is there anything I haven’t asked you that you feel young people should know before starting a business?
No. I think after you have started it it can get a bit much for you. When you are 16 and dealing with lots of money it can get a little bit…I think it’s best to get help; I didn’t get help quick enough.
Help from whom?
An adult or someone who can point you in the right direction. I got too big too quickly and it all was like hundreds of thousands of pounds. Obviously it didn’t turn out too badly and you learn a lot, but I think it would have helped if I went to someone sooner.
Did you have a mentor, someone you looked up to?
No. I don’t think anything I did was particularly great. I didn’t think I wanted to be Richard Branson; I did it because I wanted to make some money and I thought it was fun.
So in the future do you see yourself carrying on with .five?
Yes. I am contracted for three years. I am not allowed to do anything else. I will be here for at least three years, probably longer.