How I changed my export business to handle the rising dollar
Thursday, April 12, 2012/
Papercut is a software company with a distinct purpose – to help companies stop wasting money on paper. Founded by Chris Dance and Matt Doran over 10 years ago, the company has been growing steadily, with revenue of $5.3 million.
Papercut is a major exporter, and has been subjected to the turmoil that’s come with the rising dollar. It’s been a challenge, but Dance says he’s been able to keep the business growing by being nimble and adapting to long-term change.
So how’s the business been going?
Very well, we’re growing strongly. Our rate of growth is tapering though, because we’re all about growing the company at a good pace. We’re letting ourselves dictate the plans, not the growth rate, and we’re moving from a centralised structure of being able to be more micro managed.
It’s hard for one individual to be across things, and we don’t want to lose any quality in that. It’s a good position to be in with all this growth.
You had revenue of $5 million last year – any update there?
We’re well in excess of that now, we’re aiming to double every year.
You have customers in both the United States and Britain, as well as Australia. Australian software companies tend to have a global strategy – is the same true for you?
Very much so. If you’re in the software space, everything is global. There are no shipping costs or barriers to entry, or trade tariffs or logistics. There are certain barriers, of course, but with software you have to be thinking about the economy of scale otherwise you just can’t compete.
Probably the biggest hurdle to overcome is this level of trust you have to build. You have to leverage the internet to get a presence. Before the internet existed or was popular, you had to fly around the world and build relationships and open local offices. Now, you can still do that, but there is a trust gap if you’re only online. People have a tendency to think of a company as a small entity from Australia.
Can they trust what happens if there’s a problem?
That would have been hard as a start-up.
When we first started selling the product in 2001-02, it was just a single person company. When I brought in a mate from university, we were trying to present a more professional picture than what we were. It was all about building that trust.
There were a lot of late night phone calls, and that’s just something you need to accept. You have to be on around the clock.
Now because of all that, the rising dollar would have had a massive impact on your business.
The rise of the dollar has had the biggest impact. But the other thing has been a slight increase in competition, because effectively, the opening up of Eastern Europe in commerce has really given new opportunities for companies in the region with a low cost base.
What sort of effect has that had?
It was then when we went for the big shift, we first started when the dollar was at about 50 US cents. Now it’s between $US1 and $US1.10. Our cost base was essentially half the price it is now.
It was expensive to enter in the United States, but the cost base was very, very low there. And then suddenly when the dollar rises, you’re dealing with the fact that salaries are more expensive, you can’t go to trade shows, and it’s hard to turn around to your employees and then ask them to work twice as hard because the dollar has gone up.
It sounds like a massive shock.
It’s a huge shock to the business. We could see this coming and we had a buffer in the business, so we could modify our plans to accommodate it. We had that buffer for growth, which helped us a lot.
So how did you first respond to all this?
The first thing we had to do was get some of our cost base into foreign currencies so we’re not exposed as much. So we invested in some staff overseas, and that was a huge advantage. It allowed us to get more of our staff in foreign currencies.
We also indexed our budgets to the US dollar, so that changed the mindset a little bit to make sure we’re spending money effectively. The money we’ve allocated to spending on marketing in certain regions was changed as well, as a result of that.
This sounds like a long-term strategy.
Yes, we wanted to put in changes for the long-term. And that’s always going to be there. Those good days are not going to come back, and it’s all about just understanding how to deal with that and letting the business grow to accommodate it.
Does this all make you question how the business is to continue if the dollar keeps rising?
Yes, if it was continue to be this way. We would have to restructure our business in other ways or reduce costs permanently. But at the same time, I think we have great resources, including our people, which we need to protect as an asset.
But yeah, it’s factored into our plans about this being long-term.
When you approach a situation like this, with a long-term effect forcing you to change your business, how do you respond? What’s your mentality?
The other thing to highlight is that despite this being a difficult time, it’s full of opportunities. Change is an opportunity for those that can adapt and we’ve had huge changes due to both the internet and the dollar, and it’s forced us to change.
We’ve been able to get a better reputation overseas due to expanding there more quickly, so companies like Xerox, or Toshiba, they know us and know we have a global footprint. That’s resulted in partnerships.
A little bit of change forced on you, if managed, can be seen as a great opportunity.