Richard Tang reveals

He set up in 1994 with £20,000 borrowed from friends and family and now turns over £38 million. Elizabeth Donevan takes up the lotus position and prepares to be enlightened as Zen Internet boss Richard Tang reveals...

In 1994 a skint, 28-year-old Richard Tang returned from a spell travelling and, despite still owing his mum £500, was intent on starting his own business. So he began working as a software contractor and put away £5,000. Another £20,000 came in loans from family and friends and in 1995 he and his brother Daniel set up as an internet service provider.

Zen Internet operated for four years from managed workspace in Rochdale before, Tang says, it “came of age” in 1999 – its first year of profit (£100,000 on a £929,000 turnover) – and had outgrown its rented premises.

Initial talks with an architects’ practice based in the same industrial unit led to Tang commissioning a purpose-built head office with capacity for 65 staff. He secured a loan for £900,000 from Natwest and a £100,000 grant and took £250,000 out of the business to pay for the £1.25 million project on the Rochdale Canal. In 2001 Zen moved in.

The building’s 9,000 sq ft accommodated Zen’s growth for less than three years. By 2004, Tang had taken on more managed office space in Rochdale, and he contacted his architect again to discuss the building of a second HQ on a much bigger scale.

“At the time Kingsway Business Park in Rochdale was beginning to take shape. We got talking to Kingsway Partnership and the NWDA and we engaged the same architect,” he explains.

But the project was very slow to progress. However, the delay – one that racked up £750,000 in design fees over four years – was a blessing in disguise.

In the summer of 2007 travel company My Travel was acquired by Thomas Cook. The deal left its Rochdale premises empty – and gave Tang an idea.

He says, “We contacted My Travel in the autumn to ask what was happening with the building and we ended up coming to a three-party agreement that involved us buying the freehold from the finance company because My Travel still had 19 years to run on its 25-year lease.”

Tang paid £18.7 million for the building itself. Fees and stamp duty brought the total to around £20 million and Natwest again stepped in with a loan of £14.5 million to close the deal in April 2008. “We had to find £5.5 million so we took that out of the cashflow of the business and that pretty much wiped out our cash reserve. So it was quite a stretch to get into the building but we really have got an absolute bargain.”

Tang says walking away from the delayed project and finding the alternative building is “undoubtedly” his best deal. “We hadn’t actually put any foundations in the ground at that point and I think completing that building would have cost us about £25 million. Even though it meant writing off three quarters of a million pounds, the opportunity to buy this place more than outweighs that loss and it’s double the size of what we had planned.”

Zen’s as-yet unaudited accounts for the year ending September 2009 – the first full financial year in which Zen has paid for the new HQ – put turnover at just over £38 million and after-tax profits at £848,000. In 2008 profits were £2.2 million on a £35.9 million turnover.

“Profits are down and I’ve already told staff that I’m absolutely delighted with the result. We have been paying for a building that can take 1,000 people and we are only 350 people so there are increased costs and we have also made a big investment in the next generation of broadband. And we are in the middle of the worst recession that I can remember so the fact that we are still growing and generating cash and making a profit is wonderful.”

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