April 30, 2006

Turnover up 69%, profit up 39%, consultancy and services revenues up 75% and software business revenues up by 50% – these were the headlines from Tikit Group’s latest results (up to the end of 2005). It is no wonder that I found Chairman Mike McGoun, MD David Lumsden and Finance Director Tony Pearson in a relaxed and mellow mood when I spoke to them on 23 March (the day of publication of those results). Tikit has grown and grown over the last few years both in financial terms and in terms of the breadth of its operations and that growth has been highly profitable. In a period of very substantial change for the business, marked by but not limited to a rash of acquisitions, David Lumsden was clearly especially pleased to be able to reel off a list of awards won – recognition of innovation of the year and a 10-year contribution to legal technology among them. Frankly it is hard to write a balanced piece about something so obviously successful.


Wangs to Riches


Tikit grew from a handful of people involved in selling PC-based sytems to law firms at a time when a significant number of firms using IT were using Wang systems. The realisation that they could provide a leading-edge machine and all the trimmings for less than was being charged for a Wang maintenance contract was a central plank in the establishment of the company. In the seed is the flower – even that genesis demonstrates what has been the key to Tikit’s success. They trade on two essential factors – an understanding of what large law firms need, derived from years of experience and constantly renewed by staff moving into their ranks from law firms, and a knowledge of what is available out in the wider world of technology. Their most marketable skill has been matching the one to the other.


The strategic switch of Tikit from a company that was essentially a software supplier, providing services on the back of sales, to an all purposes services and supply enterprise was prompted by a bump in the road. The outlook for IT in law in 2002 was bleak – and software sales were low. That situation was met with a rethink of the company and the level of diversification is reflected in the fact that the company’s revenues are now dominated by consultancy and services (£13.5 million) as opposed to software sales (£5.7 million).


Acquisitions and Growth


Tikit’s recent history is marked by a rash of acquisitions of companies in the same or complementary fields. LecSoft SAS (a Paris-based provider of consultancy and software to European law firms) was acquired in August 2004, Solution 6 Network and Integration Services Ltd in December 2004, ResSoft (Tikit’s primary UK competitor in some fields) in February 2005 and Shamrock Marketing (a data management consultancy with some specialist knowledge of CRM in law and accountancy practices) in September 2005. Of the recent growth the majority is the product of these acquisitions with only 22% (of the 69% growth) being organic.


Tikit express the view that all these acquisitions have been successful. But the expansion in staff numbers, effectively doubling in just over a year, certainly was a cause for concern. Mike McGoun is “comfortable” with the situation now but freely admits that the pace of growth through acquisition was much quicker than was ideal – he sees the difficulties of integration as being about hearts and minds and the cultural mix rather than being a financial issue but is unstinting in his praise of long-standing Tikit staff for the welcome that they have offered to the new boys and girls.


David Lumsden and Mike McGoun share an unshakeable confidence in the prospects for further growth. They point out that their basic market sector, the big law firms, shows an increase in overall revenue from 6.5 billion four years ago to £10 billion now – leaving plenty of room for increased IT spend. In addition, Tikit’s acquitions have given in an entry into non-legal markets and mainland Europe markets which are ripe for further exploitation.


None of my attempts to identify threats to their position seemed to cause any concern. As Mike McGoun pointed out, their market is partly protected by their specialist understanding as law firms jib at (effectively) paying general purpose software companies to learn about what law firms do. While there is always a potential threat from a big US software company and recent reports of a “super-supplier” may have some force, the moves from legal publishers to expand their offerings are seen to be entirely compatible with continued prosperity for Tikit and could indeed lead to improved linkage for KM products across the board. Even I am bound to concede that the general threat to legal software suppliers from generic offerings which can be tailored to fulfil a legal function  is not a live threat to Tikit’s business – these are systems which require a lot of hands-on configuration to do a job for a law firm and Tikit can make more in bespoke configuration than ever they could from selling tailored software.


Outsourcing of IT functions is seen as a potential growth area. Increased complexity in software products means that it is not cost-effective for smaller firms to manage networks and all that goes with them. David Lumsden feels that the large firms are relatively slow in exploiting the advantages which can come from outsourcing limited functions.


The Future


Despite the many changes in focus and the massive growth, the great majority of the seven founding influences are still with Tikit or its associated companies. That reflects an inner stability which balances and enables change – and all the senior managers are looking forward to changes in the market.


In the short term, David Lumsden sees a number of opportunities for new relationships with supplier organisations, focusing especially on productivity and management software solutions and document integrity (the buzzwords for 2006/7). There is also a recognition that practice management needs to be capable of producing simplified but perceptive reports, facilitating simpler management which focuses on billing targets and obvious problem areas. Enterprise searching is seen as a big topic for 2006 but the continued growth of mobile technology will probably continue to top the list.


My guess is that the challenge of non-legal work, which currently represents only 10-15% of turnover, will draw more and more of Tikit’s attention. The danger in that diversification is that they may lose their focus on law firms and thus one of their main selling points but it is a danger that is no more than a speck of cloud in a blue-sky future and even that “danger”, if cleverly handled, can be a plus in an era when professional services practices are likely to become more closely aligned.