KÜRT – Data Recovery and Information Security

Securing data in central Europe

Business Hungary
Marth 1. 2006

Kürt launches regional expansion. Sándor Kürti and his brother János founded Kürt in 1989 based on their experience assembling and repairing computer data storage systems, and built the company into a world leader in recovering lost data. As part of our Tycoons series, a look at Hungary’s top entrepreneurs and business leaders, Kürti spoke with Business Hungary about the company’s growth prospects and ambitious expansion plans.

How did you start off in the field of data recovery?

This is actually my second life. I worked for 15 years at the oil refinery in Százhalombatta as an engineer, after finishing the university in Veszprém. The reason is simple: at home we were so poor that my mother organized my workplace contract before I started university in 1966, and so my studies were sponsored by the oil industry. I left the refinery in 1985, when I was sacked after defending my boss when he faced corruption allegations.
At the age of 42 I became a first-generation entrepreneur, and founded Kürt together with my brother János for the repair of data storage media. In western countries, nobody repaired storage media, because people could buy replacements. In eastern Europe, the lack of convertible currency and America’s COCOM restrictions on technology exports made repaired storage devices a marketable product.

Since then, your business has grown very fast. Were you able to maintain that growth in 2005?

We consider three basic parameters – turnover, profit and company value. Every year we aim to increase each of these by at least 22%. But in the last five or six years, including last year, we have grown by 30% in all these areas.

Our other basic rule is not to grow much faster than this. The most important thing about our business is that it is knowledge-based: we constantly need to work out new technologies in both data recovery and data security. It’s impossible to double our business in a year, because it takes several years for our employees to begin doing really valuable work. The high level of entry knowledge required for the business also helps protect us from large competitors, such as hard drive manufacturers, who focus on billions of dollars of turnover rather than millions. It’s also not easy for a new player to come into the market, because they would have to learn everything that’s happened in the last 20–25 years.

What kind of knowledge does your business require? Is it proprietary technology? Because if not, it seems you are at a risk of a disgruntled employee leaving the company and taking the knowledge with him to become a competitor.

Yes, this is always a possibility. Employee turnover is basically zero at Kürt, but it happens sometimes. But it’s not too big a danger for us. The employee has some knowledge, but the advantage of the company is in research and development. The technology changes so quickly that a former employee could stay a competitor for a half year, or at most one year. The amount of knowledge development is so intense that one person cannot keep up with it.

Who are your customers, and what is your position in data recovery worldwide?

We serve mainly multinational companies, especially in the financial sector. Our capacity in Hungary alone is about 2,000 data recovery cases per year. Our German subsidiary can handle about 5,000 cases. That is our current capacity, but we experience growth of about 20% in terms of cases per year.

We’re not too far from the world number one. We think our technology is already number one, but there are other parameters such as profitability and revenues, and in these areas our American competitor, Ontrack, has many advantages. For example, at the time of 9/11, the US homeland security establishment got a huge sum of money and started buying companies through the FBI. Our whole European network, 16 companies performing marketing and sales for our services, was bought up by the US at that time. We lost our European market very quickly, and the US company gained in market share. That’s what led us to establish our own subsidiaries in Germany and Austria.

This year we will open up subsidiaries in another 10 countries in central and eastern Europe. There are some clear reasons for this expansion – for example, to serve our multinational clients including MOL or OTP Bank. We’ve recently signed a contract to provide them our services in these countries too.

Will these services be in data protection or data recovery?

The two are linked, because data protection is a fantastic tie-in business with data recovery. When somebody loses data, in the next minute it is easy to sell him data protection. From the other side, it’s impossible to eliminate 100% of the risk with data protection, but it gives you additional insurance if you know that part of the service you receive could be professional data recovery.

You have mentioned expansion in Asia, including China, as well as the US. What are the plans there?

We have also started to move to the Far East – we already have a contract to do business in Vietnam. We sold our technology as a franchise, and have concluded a long-term contract in which we agreed to forward our research and development results every year. The initial income from this agreement was $350,000, and there will be ongoing payments for our research and development.

China is a goal, but we’re not quite ready for that yet. We will be focusing on the 10 new countries in this region first. In our strategic plans, we have a list of 10 targets we’d like to achieve, and entering China is number nine on the list. We have some real contacts and connections there, but we will probably start activity in the US before that.

In America, we have a reputation because we participated in the recovery after 9/11. We would probably enter in the context of a specific project before establishing a subsidiary, and we are in discussions with a company on the east coast. One of our colleagues was invited to spend three to six months at a major data protection company there, and that company has offered us a partnership, dealing with marketing and sales while we perform the business. It will be important to understand the differences in the business culture before we go, but I hope to open a US subsidiary in the next one to two years.

I understand you are also looking into either an investor or a stock exchange listing to bring in capital to grow the business further.

This is one of the basic questions facing the company today. Until now, growth has been based only on our profit – we never used any external financing. This was a good policy in the 1990s, because inflation and interest rates were very high. But for the future, we need to think about what kind of financial background we need. We are considering government-supported credit from the Hungarian Development Bank (MFB). The interest rates are 5–6%, which is fantastic with inflation at 1–2%. Or an investor is also an option, as there are always people interested. We even had lengthy talks on a possible merger with Ontrack in the late 1990s.

But there is no hurry. None of our owners is nervous. We will decide on this in the next 2–3 months, or in a half year. We want a well-established decision, which in our case means remembering that the real value of the company is knowledge. All decisions require detailed discussions with the employees as well, because they own 40% of the company. It’s not a typical case where the owner can simply decide to sell the company and go away. We like to be independent, and we’ve learned how to manage a company that has an unflinching desire to be number one.

What are the advantages and disadvantages of a stock exchange listing?

This has a lot of advantages – especially that we could remain independent. The disadvantage is that our company is too small to be a real player on the stock market. With low capitalization, our shares could be at risk. Our employee shareholders could become nervous if the share price falls too much. Our capitalization today is about $30 million, according to a PricewaterhouseCoopers valuation. Our turnover is about $10 million, and profit after tax is $2.5–3 million. This is small for a listed company. But we have worked out a strategic plan to double the company’s value in the next three years, independently of what kind of financial form we choose. That is our next real task, and we are confident about it.

Theodore Fisher

Staying Alive
Sándor Kürti, 58, says he has lived “half a lifetime of adversity.” He thanks his brother János for coming to the rescue twice in his life. First, in 1944, when János was four months old and before Sándor was born, János got hungry and starting crying when his mother was to have been put on a train to a death camp. “My mother slipped out from the line into a doorway to feed her crying baby. By the time János had filled his tummy, the others were on their way to Auschwitz.” His mother and brother then survived the war, hiding out in sympathizers’ homes. Later, János gave him a job after his release from the Duna Refinery.
Kürti knows Russian well, having lived in Russia for two years. “But I only started learning English after I turned 40. I took a two-week course in England, which was fantastic. About 50% of my English is from that. Most of the rest, about 40%, is from the John Travolta film Staying Alive.”