Podcast Ep 151: Nostra’s Kevin O’Loughlin says a tech reset is underway and opportunities actually abound for indigenous firms.
The ongoing rollcall of job cuts may sound like bad news for the tech sector but the reality, according to Kevin O’Loughlin from Nostra, is that tech is ingrained in every business. If anything, he believes the recalibration of global tech giants spells good news for growing and scaling indigenous Irish tech firms on the talent front.
Nostra itself is on a solid growth trajectory. It grew revenues to €18m in 2020 from €11m in 2019 and is forecasting double-digit growth year-on-year to bring it to its goal of €50m by 2026.
“I don’t see the tech sector being in a crisis at all. I just think it impossibly over-hired and now it has to make a correction. But the fundamentals of most of the companies are extremely strong”
In 2021 the business revealed plans to create 120 new jobs, bringing its total headcount to 270 people.
Big tech’s reckoning comes with a silver lining
Founded in 2006 by Kevin and Barry O’Loughlin as well as Gary Byrne and Senan Finucane, the Dublin business provides full cloud-based IT support to 250 companies including Boyle Sports, Dawn Farm Food and Avolon.
“We’ve had a really interesting couple of years and in 2022 our business closed up just shy of €40m in revenues.
“If we go back to 2017 we have grown 6X since then. So it’s been great, but it’s been a tough environment. The past 12 months have been particularly challenging emerging from the pandemic.”
The current downturn in tech – dubbed the “tech wreck” in the media – that is seeing businesses from Amazon to PayPal, Spotify, Microsoft and others begin to downsize, is a consequence of an end to the hypergrowth that many global tech businesses saw in the pandemic.
This correction or rebalancing could play into the hands of indigenous tech companies that are still growing and that had to previously compete with big tech businesses offering ludicrous salaries and perks. Big tech’s reckoning, he says, is an opportunity for small and medium-sized indigenous firms.
Being a cloud business meant that when lockdown happened in 2020 Nostra didn’t miss a beat as staff simply brought their laptops home.
“But the new norm is that companies are still struggling to come back from that.”
O’Loughlin likes coming into the office. “You build relationships, you build lifelong friendships by meeting people through your work.
“We are people-centric and I think I’d prefer to make less money and have everyone meeting up on a regular basis that sitting at home isolated. I don’t think it’s good for people to be at home unless you have a strong family base around you and you’ve got a really good space to work. I think human interaction can’t be replicated through any form of technology.”
The scale of hypergrowth in tech wrought by Covid-19 was apparent for all tech firms, some of which were growing at 120% a year. “Before the pandemic we would have sold 100 VPNs (virtual private networks) a month, or 1,200 a year. In the first six months post Covid we sold 10,000 licenses. We barely sell VPN licenses anymore because everybody has them. Four or five years’ worth of business happened in a very short space of time.
“There was this assumption that this growth was going to continue. But what happened was that you had this massive jump where everyone who wanted to go digital in the next five years did it instead in a very short time, and now the industry has to contend with really slow growth.”
But the reality as O’Loughlin sees it is that while the large tech businesses are recalibrating, the fundamentals are still strong. “I heard this really interesting stat recently whereby even after all the tech layoffs occur in Ireland, the tech companies are still going to employ more people than they did in 2020.”
The main culprit has been the war for talent with an over-hiring spree seeing big firms gobble up all available talent by offering eye-watering salaries and perks that local businesses would struggle to match.
“They’ve been hiring beyond where it should have been and they need to reset.
“I don’t see the tech sector being in a crisis at all. I just think it impossibly over-hired and now it has to make a correction. But the fundamentals of most of the companies are extremely strong.”
So is there a silver lining for the Irish indigenous tech sector in all of this?
“I don’t think you’ll speak to any indigenous Irish company who will say they weren’t impacted by the crazy hiring of the big tech companies. There wasn’t a week that went by where someone on my team got approached or got a job offer from a big tech business. And that was a consistent challenge at our doorstep for an 18-month period. These companies had a budget that was far more than our customers would even pay us, so therefore we couldn’t compete.”
Despite the cutbacks many of those affected will stay in tech. “I think that’s going to create a significant opportunities. We’ve been inundated with job applications from people who had been laid off from big tech companies in the last couple of months.
“Their salary expectations, however, aren’t going to be matched by indigenous companies and there’s going to have to be a correction and I don’t think the majority of people in that space are ready to take a correction just yet. So in the short term I don’t see any major boost. But in the long term, a lot more people will be in tech, a lot more people will be available to us, and hopefully they’ll come back to a normalised salary.”
Looking to the early days of Nostra, O’Loughlin jokes it took the business 10 years to be an overnight success. There were some initially strong years revenue-wise followed by some very tough years. But crucially it boils down to investing in people. “If we had had an injection of €1m in 2012 our growth would have been faster. But any time we had some profits we invested it all back into hiring more people, and people equals growth in our industry.”
Nostra’s ambition is to become a €50m a year revenue business. To achieve that means focus and acquisitions. “We’ve done four acquisitions since 2016 and we are going to do another four acquisitions in the next 12 months.
“Our growth is going to continue and it is about having the financial horsepower to do it. Bank of Ireland, particularly in the last five or six years, has been an amazing supporter. They’ve banked all of our acquisitions and are going to bank the next four as well and having those partners behind us has been really phenomenal.
“We have never massively diversified. We know what we do really well and knowing that allows us to be very focused on what we do.
“Ultimately we allow companies to outsource their IT to us but also their IT department. We provide the full solution to our clients and that gives people who are trying to run a business the ability to just go and run their business, sell more food or cars or financial services. They’re not worried about the infrastructure. We take that on and that allows them to do what they need to do to grow faster.”
His advice to other firms is to have a relentless focus on client retention. “We don’t do much marketing or advertising. Our focus is on retaining customers. All new business comes in through existing clients. A customer often calls and says ‘a friend of mine is having this issue, would you send somebody in?’ And that for us is what success looks like.”
To hear more about the origins of Nostra story, listen to the latest ThinkBusiness podcast.