Hewlett-Packard may now have severe doubts about the sales figures of Autonomy, the British software firm that HP bought for $11-billion last year. What it cannot deny, however, is that Autonomy's former chief executive and founder, Mike Lynch was a star at selling the company.
This is an old-fashioned story in two parts. The first is a fairy tale about a charismatic entrepreneur who left Cambridge University and set up a business with two friends and a £2,000 ($3,180) loan. He designed some revolutionary software and watched his business grow and grow and grow. The second part is a cautionary tale about a venerable but tired old company, struggling to make a living selling yesterday's product – electronics in boxes – and that, in a desperate attempt to reinvent itself as a new, dazzling and sexy business, buys itself a software company.
Autonomy's big idea initially came to Mr. Lynch while he was doing his doctorate at Cambridge when he came across the Thomas Bayes, an 18th-century vicar who attempted to use mathematical probability to prove the existence of God. Mr. Lynch used this as a springboard to develop a software that could sift through unstructured data and find patterns. His invention proved invaluable, initially to the police force, where Autonomy was able to help search fingerprint data. Then it was used for random police reports and witness statements. Now Autonomy is widely used to monitor and analyse reams of texts, conversations and unconnected bits of information for myriad organisations.
Meg Whitman, HP's unhappy chief executive, has not just called Autonomy a dog, she has called Mike Lynch a lying dog, accusing him of cooking the books. Speaking to the BBC yesterday, Mr. Lynch shrugged off the accusation and remarked that HP had "paid a very large amount of money for Autonomy," the implication being that the American company's management now regretted its generosity.
It's a remark that will cause teeth to grind in the HP boardroom, but we can be sure that Mr. Lynch does not care a damn about offending a few Wall Street types. He has spent most of his career offending people in the City of London, who were not entertained by his confrontational personal management style and bumptious confidence.
In Britain, Mike Lynch is regarded either as a hero – he has been likened to Britain's Bill Gates – or a zero. It's not just Ms. Whitman who has a bone to pick with Autonomy. Mr. Lynch has had regular bust-ups with analysts who dared to question his style, not to mention the numbers. In 2010, a warning about disappointing revenues provoked a tirade from Deutsche Bank: "The management structure, control and systems at Autonomy are more representative of a startup than a major global player."
HP ought to have heeded the warnings of Paul Morland, analyst at Peel Hunt, who, when the takeover was announced, commented that the price "defied logic" and hinted heavily that Autonomy was not the money machine that HP wanted to believe it was.
Mr. Morland said, "HP shareholders should be worried . . . Even before you consider the very high price, what are they going to think when they realise that margins have been contracting, profits are growing in single digits and for some reason those profits aren't converting into as much cash as they should?"
Still, the Autonomy founder would regard all this criticism as nothing but dull quibbles from small-minded City scribblers who failed to get the big picture. His reponse to the Deutsche Bank criticism that he treats Autonomy like his own personal business was dismissive: "Should the organisation be run like one of the boring, large software companies?"
Idiosyncratic might be one word to describe how Autonomy was run under Mr. Lynch. Other people might suggest Dictatorial. According to Mr. Lynch, he would have two meetings to discuss new ideas, one in which you were only allowed to say why it was a good idea, and a separate meeting to discuss problems.
The point is that Mr. Lynch had a very big idea which took off like a jet. He would call it his "unfair advantage." According to him, businesses should always exploit their unfair advantage to the hilt, or – to use another one of his aphorisms – "You should always take a gun to a knife fight."
Perhaps the question that HP failed to ask itself when it was mulling over the purchase of Autonomy is what would be the next unfair advantage to be exploited by the extraordinary Mr. Lynch. If they had bothered to ask, they would surely have realised it was the sale of the business for $11-billion.
Carl Mortished