Cities of Enterprise: AberdeenOctober 2015 | Viewpoint
At the last count, in the 2011 census, Aberdeen had a population of just over 222,000 people. On this basis, Scotland’s third-largest city just about makes it into the UK’s top 40, on a par with Barnsley in South Yorkshire and a few thousand behind Milton Keynes, home of the Open University. Yet these comparisons are misleading – Aberdeen may be a relatively small city, but in terms of its ability to create and foster fast-growing private companies capable of making the leap from small to mid-cap status, it sits firmly in the UK’s top tier.
There are plenty of ways to measure this – not least the fact that of the 100 investments that BGF has completed to date, seven have been in Aberdeen. In some ways, the city’s outstanding record as a birthplace of entrepreneurial businesses is directly related to its relatively small size. Aberdeen is a close-knit place that attracts entrepreneurs and offers a strong network to support them, says Paddy Collins, Chief Executive of specialist chemicals company Aubin.
“It’s not a very big place but there are a lot of people who are very well connected and a lot of people who are used to setting up businesses,” he says. “You’re seeing other people that you know setting up businesses and making quite a lot of money and you’re thinking ‘I knew him when he was in such-and-such a pub and if he can do it, I can do it’. It’s happening right in front of you.”
Of course, the major catalyst for Aberdeen’s emergence as a centre for entrepreneurship was the development of the oil fields in the North Sea during the 1970s. The discovery of oil transformed the city and opened huge new business opportunities, both directly and indirectly. The growth of the exploration and production industry centred on Aberdeen allowed a large number of smaller, specialist oil and gas services companies to grow up, providing support services to the oil majors operating in the North Sea. But equally, the growth of the oil industry produced numerous opportunities for enterprising people to build businesses in a wide variety of sectors, from leisure, retailing and hospitality to transport, technology and professional services.
Oil and later gas production from the North Sea were clearly the foundation on which a lot of successful businesses were built in Aberdeen, but many of them have long since expanded beyond the market on their doorstep, often by expanding their relationships with the oil majors into other markets around the world. In the case of Aubin, whose core products are chemicals that are added to the specialised cement used to construct oil wells and others that are pumped into wells to increase the flow of oil, the North Sea has never been the primary focus, says Paddy Collins.
“Although we’re based in Scotland and we do sell to customers in the North Sea, our main market has been in the Middle East from when the company was formed 25 years ago.” Aberdeen provided a rich source of skills, equipment and contacts, and so was a natural place to set up the business but its horizons stretched much wider than that.
So-called cement and stimulation remain the core of Aubin’s business, but today it is busy bringing a range of new chemicals to market and is again targeting customers thousands of miles from Scotland. For example, Collins and his team have invented a fluid that is half the density of water. For engineers undertaking today’s deep sea exploration, often at depths of 1500m or more, bags filled with this fluid offer a highly innovative way making large objects neutrally buoyant so that they can be manoeuvred precisely into position. “At the moment you need a crane to lift and move things and it’s very difficult to work a crane at those depths, so we’ve developed this chemical,” says Collins. “That’s taken us into a new area because now we’re developing engineering and project management functions to support the chemicals that we’re selling.” The shift from selling chemicals to providing complex value-added services, he says, is rather like starting off with a butcher’s shop and ending up with a restaurant. “It’s a well-known fact that people will pay more for services than they will for products,” he observes.
Collins argues that it is not just the concentration of skilled people and specialist knowledge that makes Aberdeen the ideal base for company like Aubin. “The people who work in Aberdeen then go off and work in other parts of the world,” he points out. “When I go to Houston, I will see three or four people that I know from Aberdeen and that helps your exporting because you’ve already got a relationship when you get off the plane. There’s a substantial diaspora and with LinkedIn and social networking you’re able to keep in touch very well.
“Because you’ve been based in Aberdeen, you’ve sat with people, you’ve drunk with people, your kid is in the same football team as his kid or you go to the same church as they do or you’ve met them over dinner or they’re your neighbours. There are all sorts of ways you can get connected.”
Aubin, which raised £2.25m from BGF to fund its expansion into new products and territories, remains very focused on serving the oil and gas industry as it grows beyond its roots in Aberdeen.
Inoapps, another BGF portfolio company in which the fund invested £10m in September 2013, offers a different facet of the city’s story. The business, founded by Chief Executive Andy Bird, specialises in consultancy and implementation of Oracle enterprise software. Not surprisingly, its early clients were oil and gas companies in Aberdeen but it has built rapidly on those foundations, helped by a series of acquisitions, and now has about 250 staff providing clients across the UK and internationally with the full range of Oracle applications – customer relationship management, enterprise resource planning, human capital management and payroll.
“Oil and gas is still important to us but we’ve broken into a number of different areas: financial services, engineering and construction, we do some work in the public sector, some in the high-tech space and in retail,” says Bird. “So we’ve got a broad range of products and industries and now we are focusing our growth internationally. We’ve got about 40 people in Asia in Kuala Lumpur and about 10 in Houston.” The investment from BGF – the first that Inoapps has taken – is helping to finance its strategy of consolidating its sector in the UK and accelerating its expansion overseas. The company expects group revenues of just under £30m for its current year and is targeting revenues of £50m and ebitda of £10m as its next goals.
“Aberdeen is a fantastically entrepreneurial city – I think it’s unlike any other city in the UK,” says Bird, whose father worked in the oil and gas industry and moved to Aberdeen when the Inoapps founder was still at school. “You just have to look at some of the businesses that come out of here and some of the start-ups that are around.”
The picture of Aberdeen that emerges from these conversations is a place that attracts skilled and enterprising people prepared to move to where the opportunities take them, often in the oil and gas industry. Perhaps not surprisingly, many of these people are ambitious to build and own substantial businesses and have plenty of examples close at hand of others doing the same. It adds up to a highly fertile environment for entrepreneurs.
Like Inoapps, Petrotechnics is another Aberdeen-based technology company and again it is focused on growing beyond its roots in oil and gas, helped by a £6m investment from BGF. Set up 12 years ago, Petrotechnics provides software that enables oil and gas producers to manage their workload efficiently and balance it against their operational risk.
“Eighty-five per cent of all work on production platforms in the UK North Sea is managed by our systems,” says Chief Executive Phil Murray. The company’s new software package, Proscient, is initially intended to enable big oil companies to manage their operations safely and efficiently in the new regulatory environment that followed the BP oil spill in 2010.
“We work with big oil companies but we also sit alongside some of the biggest software companies in the world – the Oracles and IBMs and the SAPs – and that’s why we recognised that there was an opportunity for a much broader new category of enterprise software system to plug into this space,” says Murray. “We had previously funded all our growth ourselves so we had no debt or investment, but we recognised that with this larger opportunity we needed to have the right capital structure so that we weren’t limited by our own reserves.” The investment by BGF was agreed in 2013.
But the opportunity for Proscient extends beyond oil and gas, into petrochemicals as well as entirely new industries, says Murray. Petrotechnics is already beginning work with Network Rail and has had approaches from companies in the nuclear industry. “We have to be careful that we don’t spread ourselves too thinly,” he says. “But the good thing about Network Rail is that it’s a different enough industry to prove the universal nature of the software.”
This type of expansion goes to the heart of why Aberdeen companies attract so much interest from potential investors. As Collins says: “You stroll up the road that BGF is on, Carden Place, and next to it is an accountant and then you’ve got another lawyer and then you’ve got another investment house.”
If the story of Aberdeen were simply about the North Sea, a presence like that would no longer make as much sense as in the past. Last year saw record capital expenditure in the North Sea, says Murray, along with record low production and production efficiency. “It is starting to go into decline although there is still a lot of activity,” he adds. Today, the lure of Aberdeen is increasingly about the ability of entrepreneurial companies that have grown up there to innovate and transform themselves into global businesses that work in numerous overseas markets and are capable of extending their reach into different industries. And that in turn is based on the growing strength of Aberdeen as a world-class knowledge and technology cluster.
This article was written by Andy Davies for BGF's Portfolio magazine, Issue 3.