How to Net a family fortune

In only four years, two brothers have built up a multimillion-dollar computing business from nothing. BRIAN RUDMAN tells how the Wood boys discovered the Internet and made the big time.

Back in 1995, Nick and Tim Wood exited their downtown Auckland cafe venture with just the shirts on their backs. That's Nick's story, anyway: his father - and loyal financial backer - John suggests the brothers lost their sleeves as well.

Four years on and now seriously rich, they can afford to joke about past setbacks. Nick's immediate worry is how fast his Mediterranean tan is fading. Will it survive until his ski break in a few days?

This week the National Business Review annual rich list estimated their worth at $75 million.

Nick is just back from a six-week holiday in Europe which included a cruise with stopovers in exotic spots such as Turkey, Cannes, Rome and Barcelona.

He likes to take reasonably long breaks - "where they can't find me" - from the stressful, action-packed world of the Internet provider. That's the theory, anyway, but it didn't stop him packing laptop and cellphone with the sunscreen in order to check his e-mail daily.

The urge to stay in touch is understandable. Before he went away, Nick and his partners sold a 30 per cent stake in their four-year-old business, The Internet Group (Ihug), to Sky Network Television for a figure said to be around $30 million.

In its short life, Ihug has become New Zealand's second-largest Internet service provider after Telecom's Xtra with 65,000 customers here and in Australia and a staff of 200. Annual turnover has risen from zero to $30 million. In February, Ihug went in search of one or more large investors to fund expansion; it chose Sky.

Nick, aged 32, and Tim, 30, have always had a selling streak. Tim recalls how as preschoolers in Singapore they sold fruit from the neighbour's tree around their apartment block - until their mum, Jan, found out.

Back in Auckland, 14-year-old Nick grew his own potplants and sold them to raise money for his first computer - a Commodore Vic-20. John was then an Air New Zealand pilot and could buy one in Los Angeles.

Nick started reading programming books and was soon hacking into the primitive computer games then available to see how they worked. Then he developed his own.

John says Nick was "that sort of kid. He always had the clocks apart."

After creating his games - one was called Nicktron - he would copy them on to cassette tapes - the storage medium used before floppy disks - and pack them with instruction sheets coloured with felt pen.

"I flew around the country selling them, 20 at a time, to the computer stores. That's how I raised the money to buy my first IBM computer."

By then he was 18 and off to university to do degrees in commerce and computer science. He lasted just one term. Bored, he dropped out and set up his own catering business, using the kitchen of a friend's Browns Bay cafeteria after he had gone home for the day.

Like his computer skills, his cooking was self-taught.

Unsatisfactory hotel and restaurant jobs followed, then he headed for Los Angeles where his father had a three-month posting. Nick stayed for two years, partying, pumping petrol and working in a factory selling art prints.

It was at the print factory that he came across Compuserve - the unwieldy (and, to Nick, unfriendly) precursor to the Internet. He used up his boss' free hours learning how it worked.

Back in Auckland, he persuaded John, who had "retired" at 50 to develop a 50ha dairy farm at Kaukapakapa, to borrow money and go into partnership with him selling framed art prints from his American connections.

To begin with, no one was interested: at $19.95 for a framed print - which represented a 100 per cent profit margin - they were suspiciously cheap.

"So we doubled the price and they started selling like hot cakes."

When sales started to slump, they started selling door to door.

It was the idea of Nick's mum, who set off one lunchtime, catalogue under arm, to visit neighbouring factory cafeterias. She came back with 10 orders. Nick, who according to John shares Jan's can-do drive, was instantly on to Student Job Search.

"It became a huge industry. The students were making $800 to $1000 a week. They were laughing."

Nick left the Auckland business in the hands of his parents and expanded into Sydney. Melbourne and Brisbane branches followed.

His next venture was not so successful. He poured the proceeds from the art business into an underground bar in downtown Auckland's Elliott St and a restaurant in Queens Arcade. Nick ran the bar, Tim the restaurant.

The restaurant got off to an inauspicious start when dozens of police turned up on opening night and closed the place. Some technicality involving the liquor licence, says Nick.

After that, the police became regular visitors to Tim's Pelican Bar - a band venue for university students - in Elliott St.

"We felt quite grubby. Here we were trying to run a business and have a bit of fun within the law. It felt like you were being treated like you were a criminal."

They sold a house to clear debts on the restaurant business and retrenched into Elliott St. Towards the end, Tim and Nick were working 15-hour days and sleeping on the bar couch. In a last-ditch bid to attract trade, they installed three computers connected to the Internet for customers.

Nick had seen news stories about the emergence of the Net.

"I rushed around to see who was providing it in Auckland, got an account and, as soon as I saw it, I saw what was coming and said: 'This is it man, we've got to get into this.'

"It was quite funny. Tim and John were more into installing computer games because they were more visual. They said: 'We don't even know what the Internet is'."

The compromise was to install both games and the Internet. Then the money ran out. There was nothing left for promotion, but word of mouth was enough, and there were soon queues to use the bar's connection to the new mysteries of the Internet.

Nick's interest in computers rekindled, and he went on the road doing home installations for the Net.

With demand growing and the bar collapsing, he initiated Tim into the mysteries of the Web and put him to work as a home installer too.

In those days, connecting to the Internet was not for the faint-hearted. Iconz, then the only provider in Auckland, had little in the way of customer service. The Wood brothers, in Nick's words, "saw the future" and did a deal with Iconz. The Woods would set up Ihug - the Internet Home Users Group - and look after that side of the business for Iconz.

"We had 14 modems, one computer and a terminal server. That was Ihug. I was Web master, news master, everything," recalls Nick. "I scurried around learning as quick as I could how to operate the whole thing."

John came along for the ride. "The boys wanted to get into the Internet but they didn't have any money. I thought if I got in I could at least stop them going belly-up."

Soon, with 200 customers, they decided to cut links with Iconz and Telecom and strike out alone. Access to the Web came via the international communication network used by the travel and shipping industries.

Ihug also launched their now-legendary flat-rate charging system.

"It was $39 plus GST and I've never put it up," says Nick. "It's our selling point. At the time there were too many weird charging methods and people were very afraid of how much their bill would be at the end of the month.

"We wanted people to say, 'I'll take the risk because I can do whatever I like and it won't cost me any more'."

Sales boomed. "We kept waiting for the other guys to advertise but they didn't. We kept waiting for them to follow with a flat-rate service. They all said it wouldn't work. So we kept getting bigger and before we knew it we had 70 staff."

Ihug stands out for its innovation and experimentation. When the travel network could no longer handle Ihug traffic, it pioneered direct satellite links. From this came the high-speed Starnet service and the soon-to-be-launched 50-channel television service.

Unusual for such a high-growth company has been the lack of outside capital. Apart from an initial investment of $8000 from John and a later $10,000 topup, growth has been funded, apart from some short-term finance, from profits.

The cash injection from the new Sky link will aid the development and promotion of new technologies, says Nick. It also brings the television expertise Ihug lacks.

Part of Ihug's success is also linked to how well the Woods work as a team.

"Family businesses can either work or be a disaster," says John. He concedes there has been the odd shouting match, but decisions are usually reached "relatively quickly" and without a vote.

His sons have always been close, he says, recalling the time as youngsters they rebelled against plans to put them in separate bedrooms.

He says Nick is the driving force in this business, not only being good with computers but also having a good business head.