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FORTUNE FAVOURS THE BOLD

Using courage and decisiveness as his personal compass, Karim Hussona built his business to become one of New Zealand’s smartest, most diverse Internet and telecommunications service providers. It’s a story of unwavering determination.

By Glenn Baker, Editor of NZBusiness

Like all inspiring business stories, Karim Hussona’s began with a dream, was fuelled by passion and a team of dedicated supporters. And yes, there was an element of luck too.

For the Group CEO of Compass Communications it’s been a remarkable ride from uni-graduate in the UK to respected entrepreneur and business leader in New Zealand, heading an enterprise with 100-plus staff and turnover of around $70 million.

Compass is not a publicly-listed company, so its story is largely untold. We open with Karim, British-born son of an Iraqi engineer, raised in England, Iraq and Kuwait, graduating from university in the UK with an electronics engineering degree.

His first job was for newly privatised British Telecom, “then a huge, lumbering state-owned telco employing around 230,000 people”. It was followed by a stint with Cray Research, a US ‘super-computer’ manufacturer for the likes of NASA (“its hard-drives provided less storage than today’s average smartphone!”), and subsequently a job at Cable & Wireless – which had interests in telcos worldwide.

The latter was a job Karim enjoyed. The focus was managed fax products – a leading technology in the early 90s. It was there where he developed a system to exploit new technology and regulatory opportunities in order to deliver a wholesale service to operators that dramatically reduced the cost of sending faxes. In the early 90s, sending faxes was as prevalent as email is today.

Unfortunately the project turned into a political football.

Karim became disillusioned, but was unaware that his life was about to be turned completely upside down by a Kiwi woman.

That Kiwi was Erica – on her ‘Big OE’ working as a temp at the same company as Karim.

The attraction was instant. Erica introduced Karim to New Zealand, the second love of his life, over several short holiday breaks. But he still remembers that first visit most vividly.

“At the end of a business trip which took in Hong Kong, Tokyo and Sydney, I remember flying into Wellington from the Cook Strait end, looking at the little houses on the hills and the tiny control tower, and thinking is this really the capital city?”

He remembers the friendliness and openness of Kiwis on that first trip too – it was a far cry from the anonymity of London.

During the following months, the idea of developing his wholesale fax service project himself, and in New Zealand, began to materialise. Back in the UK, he ran it by work colleague, another Kiwi, Paul Carter, who immediately wanted to help get it started (Paul quickly came on board as co-founder, investor and director).

It was time to put a business plan together, and take it to the other side of the world.

So in 1994, for three weeks over New Zealand’s comparatively quiet Christmas break, the 30-year-old presented his plan to anyone who’d listen, including Trade NZ.

“They all said the same thing,” Karim recalls. “A nice idea but we don’t invest in start-ups.”

The one exception was Bill Kermode at Direct Capital, who recommended chairman John Fernyhough as a potential private investor. After Karim returned to the UK, the two communicated (by phone and fax) over subsequent weeks and an agreement was reached.

“While I had another syndicate in the wings, John grasped the concept really quickly; he was so decisive,” says Karim.

“We shook hands over the phone. I resigned from my job, sold my house, put my entire life savings into the business and moved permanently to New Zealand.

It was April 1995. Compass Communications took flight.

On a shoestring

Compass was built on a shoestring. “I was staying with Erica in Wellington and would catch the overnight InterCity to Auckland, stay at a back-packers, do a few appointments and head back,” Karim remembers.

He finally met John Fernyhough in person for the first time, and although there was still no formal agreement signed, Fernyhough wrote a cheque for $20,000 to get things rolling. Such was the trust between the two men.

“John was without doubt the biggest influencer in my business life,” says Karim. “Even though he wasn’t heavily involved in the daily running of the business, I learnt a lot from him. He was a wonderful man.

“Looking back he was a pretty courageous guy when it came to supporting start-ups.”

John Fernyhough passed away in 2003. “Sadly he never lived to see the company really take off,” says Karim.

In a matter of weeks after meeting Fernyhough, Compass had its own Auckland office.

“I was the first employee, Erica was the second, and Paul returned to New Zealand shortly after to handle finances,” says Karim.

“For the first two or three weeks we actually lived in our office. We slept on a blow-up mattress. A chilly-bin was my desk, and a stack of phone-books my seat. All we had was a laptop and printer.

“If a supplier wanted to come and see us, we’d insist on going to them,” he says. “It wasn’t exactly a good look when trying to negotiate services, contracts and payment terms!”

On a roll

Business progress came quickly for Compass.

In 1997, long distance voice services were added to the business. “We’d just about reach break-even point, and then we’d start another initiative,” explains Karim, who, the following year, was named Ernst & Young Entrepreneur of the Year in the New Business category.

Two years later Compass purchased an ISP and began offering Internet services. In 2000 they launched their own pre-paid calling cards.

Then in 2002 Compass launched another business and spun off Ezi-Pay from the calling card division.

“We developed the ability to use an Eftpos terminal to liven value up on a card. The technology was offered to Telecom and Vodafone as a means to top up their cards.”

Vodafone quickly saw the potential and signed up. At Telecom, in pre-Spark days, there were a lot more people to deal with and negotiations dragged on.

In turnover terms Karim says Ezi-Pay was massive. “It became the child that outgrew the parent, and it was a lot of fun to operate in a less regulated sector,” he says. “We ended up with 50 percent market share, and a turnover of the best part of a quarter of a billion dollars, albeit very low margin.”

Off the back of Ezi-Pay the company launched gift cards – the idea originally being spawned by a ‘light bulb moment’ at a Las Vegas trade show. Karim flew back from the States and informed staff that the ‘gift card station’ idea would be their number one project. The goal was to be live in shops by Christmas to beat any potential competition.

“We had to build the technology, find the retailers and the product suppliers – and we succeeded.”

Karim remembers a great sense of accomplishment in seeing the gift station idea come to fruition, because there was a lot riding on it.

As that side of the business grew, Compass employees peaked at around 200. Not surprisingly it proved too big an attraction for investors, and eventually Ezi-Pay was sold to epay NZ in 2012.

Compass has since renamed it’s prepay division Activata.

More milestones

Compass entered the rural wireless market in 2005 when it purchased Wired Country, and now offers fixed wireless broadband around the country on an open platform. It has also made a number of small acquisitions in the ISP space.

On the home front, Karim and Erica have raised three children – Lucy (18), Tom (16) and Johnny (14). Erica has long given up her involvement in the business to be a full-time mum, while Karim has long since switched allegiance from England to the All Blacks.

He’s also amazed at how the business not only grew, but also diversified. Today the Group owns Activata, Wired Country, Data Vault (two purpose-built, carrier-neutral data centres in Auckland and Hamilton), and a number of commercial buildings.

Today, Compass Group has three owner operators: Karim, Paul Carter who handles the finances, and Dave Spicer who joined in 2001 following Compass’ acquisition of Emphone which Dave part owned.

Dave provides the sales and marketing input, which greatly facilitates Karim’s strategy and engineering expertise, and he is CEO of Activata.

Karim’s excited about the impact of fibre on New Zealand’s telco landscape, which he describes as high-performance and highly reliable. “Fibre’s fantastic for all sorts of reasons. Chiefly because it provides a level playing field. We enjoy the same commercial terms and service terms as the biggest operators. There’s no vertically integrated monopoly anymore, so we can truly compete.”

He says fibre opens up cloud-based services to small businesses. It means cost-effective, scalable and reliable access to software and systems – all of which is managed by the service provider.

However, its Achilles heel, he believes, is the poor management of Wi-Fi routers, not to mention the way fibre has been physically delivered to homes.

Testing times

Of course, no business journey is without its challenges. Karim recalls two that tested their resolve.

The first was four to five years in when the business still hadn’t quite broken even and required another injection of capital. Karim remembers sitting down with Paul and John and setting an ultimatum. “We gave ourselves three months to achieve a $50,000 per month turnaround on the bottom-line, or get out.”

Being faced with the prospect of failure wasn’t a pleasant feeling, he says. Thankfully, after setting that target to focus on, they pulled through.

The 2006 Auckland power blackout was another stressful time for Karim and his team. At the time they had a small data centre on the 8th floor of a Queen Street building.

“We put a generator on the roof and for the next three months, every six hours or so we’d have to take cans of fuel up the stairs, because the lifts were also out.”

He says the blackout put the whole business at risk. “But it was a great example of the team coming together to overcome the odds. We also learnt some valuable lessons about making sure that everything we do is resilient and fault-tolerant. We’ve since bought our own building and installed our own data centre downstairs, and ensured that it’s bullet-proof.

“In the past 12 years we’ve not had a second of downtime.”

What now?

After 22 years of building a company based around “doing the right thing”, Karim feels it’s time to step back and start handing over some of the day-to-day management responsibility. He’s ready to travel more, and is keen to invest in technology start-ups.

When NZBusiness caught up with him in late October, there were moves underway to recruit more senior people, and a GM had already been appointed.

Looking back, he acknowledges his good fortune in coming to New Zealand and he’s immensely proud of his company’s achievements. Success has come through having “diverse, positive income streams”, as well as associating with the best people possible, including equity partners and suppliers – his key piece of advice for other business owners.

“Remember that loyalty pays you back in many ways. New Zealand is a small economy and reputation counts for a lot.”

Success has also been aided by New Zealand’s open, trusting, egalitarian, uncorrupted business environment, he says. “It’s an easy place to set up and get going, and there’re lots of early adopters.”

Being small, nimble, and quick to seize on opportunities, no matter where they come from, has also been key to success. Karim remembers one Point-of-Sale product devised by one of his employees that went from idea to green-light in less than a week. “We’re now dominant in that particular market.”

That said, he says every investment “has to wash its face”. “We don’t, and can’t, afford to get into the ‘loss leading’ business.”

Karim says since the unbundling of the copper loop six years ago there have been some dramatic changes in New Zealand’s telco space, which has enabled or destroyed various business cases. Pricing set by the Commerce Commission on both copper networks and fibre has made life challenging for the players involved. “Innovation never stands still,” says Karim. “You can now get copper-based access technology which outperforms some entry-level fibre products, but we’re convinced that fibre is the way forward, and we’re aligning our business accordingly.

“The key is to keep moving forward, keep innovating. You sometimes pick a winner, you sometimes don’t.”

For Compass it would seem, the wins have far outweighed any losses.

For its founder, the big win was meeting Erica and making that first flight into Wellington.