Hallmarq Veterinary Imaging - Interview with Chief Executive, Jos Belgrave

19 September 2017

There’s one prevailing characteristic which is absolutely necessary if a company is to continue to be innovative, according to Jos Belgrave. In a word, curiosity. And with that come something else. "Can you be curious without being enthusiastic?” asks the chief executive of Hallmarq Veterinary Imaging, which makes magnetic resonance imaging (MRI) systems for horses and other animals. “I don't think you can.”

Start-up companies are by their very nature innovative and enthusiastic, he believes. "It happens without them thinking about it, and it really drives the business. The challenge is how to keep that culture of curiosity as we grow.”

For Belgrave, a former equine vet, that culture is not an end in itself but a means to making a business commercially successful. “It’s having people who think ‘how does that work?’ and ask questions all the time, who want to take and solve real problems. The aim is to identify a problem and solve it in a way that makes money for somebody. If we didn't have a solution that others make money out of, it would just be an interesting research tool and we would not have dozens of these things around the world."

The business won an Institute of Physics Innovation Award in 2015 for its EQ2 imaging system, the first, and still only, of its kind in the world, which enables horses to be scanned while standing up. Previously the horse had to be wedged into a hospital-style scanner; this meant using anaesthetic, which can be fatal to horses.

So the procedure can save lives. Additionally, Belgrave adds. “Fractures in legs can often be the end stage in a progressive condition and MRI can pick up these changes early, and exquisitely clearly, before the horse gets into the danger zone.”

"This has completely changed the way vets diagnose and treat lame horses"

Importantly, the system is also commercially successful thanks to a novel ‘pay as you go’ invoicing model. Customers (generally large specialist vet practices, rather like specialist consultants in human healthcare, where vets send horses for diagnostics) pay an annual fee of £18,000 for maintenance of the system, then a fee of £500 every time they scan a horse. The end users tend to be ‘professional’ horses, such as show jumpers and race-horses, though the system could be used for family pets too.

Belgrave says the model is a win-win: vets don’t need to buy their own hugely expensive MRI imaging system and Hallmarq has more predictable revenue. He recalls the day when recurring revenue exceeded overheads for the first time. “That was a huge moment,” he says. It means there's far less risk, he points out. “I can tell you what our minimum revenues will be in three years.”

It’s rather like the software as a service model used in IT, says Belgrave, and that makes Hallmarq not just a technology business but also a service provider. “If we don't deliver great service we can't sustain long-term contracts. No one else in our industry works like this and vets like it.”

The company’s willingness to move to a pay-as-you-go business model, he says, was one of the things that attracted him to join it. He came on board when the company was six years old, having been through “a typical cycle of enthusiasm and then getting into difficulties”. It had been founded in the nineties by horse owner and scientist Nick Bolas, who had the original ‘lightbulb’ moment about the potential of standing equine MRI, and had subsequently been working on refining the idea for practical commercial use.

The company buys in the ‘shells’ (rather like horse-box-sized Portakabins) that house the scanners, but all the software and IT equipment is made in house. Similarly, all the systems at clients’ premises around the world are monitored from the headquarters in Guildford. “If something goes wrong, our engineers will spot it without the customer even knowing,” says Belgrave. “We can dial in from anywhere in the world to fix any problems.”

MRI is relatively new as a diagnostic tool for horses and has advantages over X rays, which examine bone, and ultrasound, which examines soft tissue. In particular, there is no other way of imaging a horse when it is standing up. "When I was in practice this didn't exist," Belgrave says. "This has completely changed the way vets diagnose and treat lame horses."

He says a huge amount of science and in particular physics has gone into creating the system. For example, there is a motion detector software which identifies and corrects movements by a horse during the process. The core chip used in the system has 1200 connections: a software package had to be developed just to design the chip.

One of Hallmarq’s challenges is getting more talented people, especially software programmers, on board as the business grows. Nonetheless, they can boast a “world-class” technology team of thirty-two, including five with Ph.Ds. “They are gurus in software, electronics, and physics. They have conversations I wouldn’t understand,” says Belgrave

The team regularly talks to vets about what problems Hallmarq might be able to solve, and ideas often come out of this kind of networking. “We’re very market driven,” says Belgrave. “We’re always looking to find out what customers find most important and I have always thought the hardest thing is working out what to say no to. I was in conversation with a professor of imaging from California and he said they were struggling to image shoulder joints in large dogs. The problem is that you can't see the soft tissue in large animals, which leads to misdiagnosis. I came back and talked to my team and within three months we had a solution that gives stunning images of large dog shoulder joints. We're rolling that out now. Maybe out of that will come new learning and maybe new treatments.”

"We're very market driven. We're always looking to find out what customers find most important"

The challenge, he says, is to give the ‘brains’ the time to pursue ideas so that they can give practical and not just theoretical answers. “That’s the challenge because we work at a pretty hot pace here: probably driven more by us than by the clients.We have to capture the moment when we see an opportunity. Google does it by giving their people free time to look at anything they like. Another company I read about gives employees a share of revenue that comes out of ideas they come up with, and that's something we're thinking about."

The big challenge for young tech companies, he says, is finding focus and getting the timing right for diversification. Finding new uses for the technology, particularly for existing customers, is, says Belgrave, a “holy grail that everyone tries to grapple with”.

In particular, the idea of providing full body imaging for cats and dogs is gaining traction; the latest product, has great growth potential, Belgrave believes, and his personal goal is to build the small animal business to the same scale as the equine. But Hallmarq will continue to focus on vets because of their established relationships with the profession, which enables what he calls “peer selling”.

“A constant hazard though is that being busy today means that a company can fail to keep ahead with technology,” avers Belgrave. “The biggest risk is that we fail to spot something that can be used in diagnosis, perhaps something that could do the job better for less money or something that could replace CT or MRI,” says Belgrave. “But we have a strong protection against that through our relationships with customers, which are very intimate and symbiotic, so at the very least we would probably hear of anything left-field from them.

"You never know what you don't know; you can be blind-sided by something you didn't even know was being worked on, but we have a grip on the kind of technology in our sector. People talk about six degrees of separation and I bet in this industry it's actually only one. We probably have the names of every equine hospital consultant in our database."

He has struggled with the dilemma of whether to patent the developments, knowing that it would mean putting a lot of detail into the public domain. “Shareholders love patents for some reason I don't quite understand,” says Belgrave. “But how many UK technology companies could afford to defend their IP in China, for example.”

He prefers to rely on what he calls “state secrets”, keeping things as private as possible by only incorporating the cleverest bits of technology at the last minute, just before the systems are sent out to customers.

"I came back and talked to my team and within three months, we had a solution that gives stunning images of large dog shoulder joints. We're rolling that out now. Maybe out of that will come new learning and maybe new treatments"

One of his hobby horses is the fact that the government gives incentives to start-ups but not to growing firms. “Start-ups are seen as sexy and people love talking about them but most fail. Scale-ups, companies like ours, which survived start-up and are growing at 15% a year, have the real potential,” he says.

Unusually for a small company, Hallmarq have a significant number of shareholders - some 125 - including, from the early days, friends and family of the founders, to venture capital trusts. The company is now growing at such a rate, 15% a year in value, that the shareholders will be seeing their first-ever dividends.

Belgrave says that at some stage he will need to create a “liquidity event” and says: "I have a lot of people wanting to put money in, I get calls from private equity companies every week.”

He also keeps getting “pestered” by those wanting him to float the company on AIM but believes that at this stage market capitalisation would be too small. “Anyway,” he adds, “we are cash generative so at the moment we are in a position where we can keep on ploughing our own furrow.”

The business has an interesting way of raising cash. Wealthy individuals offer loans with the company’s expensive equipment as security. Because the very assets on which the loans are secured are themselves cash generators, the company is able to pay the loans off from cash flow in about three years.

"We're innovative in technology, but also in our approach to business and that's just as important"

The scheme is handled by a finance subsidiary and marketed through boutique banks. "It means we don't have to touch high street banks which will loan money but want every asset available for security,” Belgrave explains. He sees the “really innovative structure” as reflecting the business’s overall approach. "We’re innovative in technology, but also in our approach to business and that's just as important."

Turnover is £6million and Belgrave’s target is for 20% a year on year growth. Sales are being made in twenty-three countries, the latest being Australia, where Hallmarq have just set up a subsidiary. Its biggest market is the US, where some high-profile fatalities involving race-horses have made the veterinary profession very interested in ways of diagnosing and treating lameness. Hallmarq are currently installing equipment in Las Vegas and Florida for “an incredibly well-known” client.

With the business having won two Queen’s Awards, one in innovation and one in international trade, Belgrave wishes the achievement had more responance in the US. "One of my bugbears is that the US doesn't understand the Queen's Awards. They get the Queen bit but they don't understand the rest of it. Our government has failed to build the brand and I'm frustrated by that missed opportunity.”

The challenge of operating in the US is the varying tax regimes in different states so the company has set up an American subsidiary to handle all of that. In the wake of the EU referendum, Belgrave worries that similar tax differences could arise from Brexit, which contributes a third of revenue. "I don't want anything that will impede our progress in Europe," he asserts.