Wednesday, June 6, 2007/
The IT financing and intermediary business ThinkSmart has just floated – very successfully. Founder Ned Montarello shares his journey with AMANDA GOME.
By Amanda Gome
When Ned Montarello floated his IT financing company ThinkSmart on the stock exchange last week, the market valued the company at $220 million. Not bad for a company founded just 11 years ago.
Montarello, 46 (right), who rejected a takeover approach from the late billionaire Kerry Packer seven years ago, made about $45 million from the listing and still holds 20% of the company’s stock and options, worth more than $40 million.
ThinkSmart, which acts as an intermediary between small businesses and leading national and international computer retailers, has gone international: to Britain, Italy, Spain and France. Montarello tells Amanda Gome his story.
Amanda Gome: You listed on 4 June and it’s been a spectacular success. Take us right back to where you started. What was the niche you saw?
Ned Montarello: Well, I kicked off RentSmart, as it was known then, 11 years ago and the niche was really about delivering quick easy finance for small businesses at the point of sale.
We saw there was a huge demand from the small business community – and by small business I mean one to five seats – for finance, and banks were unable to offer less than $10,000. I thought, well, if we can position something, behind retailers, at the point of sale where these customers shop then we’ve got a product that’s got some legs.
And what was the hardest thing about the business taking off?
It was just me, but I kicked it off nationally from day one so…
..you were based in Perth.
And how old were you 11 years ago?
Well I’m 46 now so 35… 34, 35.
And what was your background?
Well look, I’ve been self-employed since I was 24.
So this was a bit of personal experience coming in?
That’s right. I mean I come from migrant parents, very hardworking, three jobs and all that sort of thing, so small business has been in my blood. But before then, until the age of 21, I was doing music full-time. So the deviation from music into business was a bit of a change, but nonetheless it’s something that I’ve never regretted.
The float has left you a very wealthy man. The stock started trading almost 10% above the $2.15 issue price and you closed the first day at $2.35, which gives you a market capitalisation for company of more than $220 million. And you’ve cashed out half your shareholding which was worth about $45 million, and how much have you got left in the company?
With options, I’ve got still 20% of the business remaining.
And what are your plans now?
Well, I’m very much committed to the business. We have been trading internationally for the last four-and-a-half years and we’re about to kick off Italy late this year. So I see it very much as now being an opportunity to have access to wider capital markets and allow us to continue the export story.
Tell us about the export story. You went national from day one. Did you grow very quickly or was it a slow build for the first few years?
The first year, in particular, it was tough. I thought the niche really did have legs but I didn’t execute it well. I started working with a network of brokers rather than working direct with my own people on the ground. I changed that pretty quickly in the first year and started employing people all around Australia. Clearly that was a risk but shortly thereafter we secured [deals with] the Dick Smith group and then the Officeworks group.
How did you do that? Was it just cold calling?
Yeah, absolutely. It’s all about having a product but more importantly having a product that can add value to the partner you’re going to knock on the door of. So clearly it had to resonate with Dick Smith for them to take it on board; and here we are, 11 years later still dealing with Dick Smith and we’ve got a contract with them that expires in 2011 so it’s been a successful relationship.
Now overseas: how did you get in there? There would have been a lot of competition?
Well, actually it is a greenfield product.
As you travel more you recognise that the people that run the organisations you deal with have two arms and legs just like you do. And they have the same sort of appetite for growth as you do. It makes the world seem a little bit smaller. So it was again a very straight approach to the Dixon’s group. They are the largest electrical retailer in Europe.
So did you just pick up the phone?
And, go on… what happened?
Well you recognise you’ve got to add some value and you’ve got to speak to the right people. When you do, you’ve got your opportunity to present your wares. That approach led to a formal presentation where I presented to their executive.
You’ve got to remember that as this is growing I’m getting more and more people around me that have got better skills than me in different areas and so we’re now gathering momentum with the people that are supporting the niche. It’s very hard to stop a company, I find, when all are pulling together in the same direction.
So the approach was made to Dixons. The executive. They latched on to the value-add proposition. They saw it as a unique differentiator as far as their business was concerned and took the punt. Then we executed it by deploying 50 people into Manchester. Employing them. And again we just dived in. We were very considered about the approach and then started trading.
And right now, we use Manchester as a hub and we trade in three other countries around Europe and we’ll be looking at cutting into one extra territory per year going forward.
So Europe’s a really good market for you?
It is. It’s a very strong market: 400 million people and right now we’ve got access, with Italy, to 240 million people and about 17 million small businesses. So it’s a large market to be playing with.
It’s interesting because the small business market can be a difficult market to get. Many people target it and many people get very burnt. What have you learnt about targeting the small business market?
Well I think one of the real aspects of why we’ve been successful is that we look very closely at the markets that we go into.
We know the key indicators we need for a market to thrive in, but the partnerships that you form in that marketplace are what gives us our distribution channel. So our question becomes how well can we penetrate that market distribution channel.
It’s not a matter of going into the territory and then finding a distribution channel. We go there with a distribution channel already locked in so it mitigates the risk factors going into a new territory.
We’ve found that the small business community is a far less riskier community than dealing in consumer business.
I mean here in Australia we’ve got 20 million people and it’s a great market, but you get your economies of scale when you’re talking about 240 million people. That’s the opportunity presented when you start looking abroad. You look at your niche and ask whether the same key indicators exist overseas as have made us succeed here. If it does, then you go for it.
Are you surprised more small businesses here don’t go international?
No I’m not, but do I think that they should? Yes I do. I think that if you really believe in what you provide has got portability and is scaleable then…
My first business plan for the UK was written in 1999 and I started the business in 1996. We’d launched in the UK in 2003 so the eyes to look overseas has got to be something. It doesn’t just happen, you’ve got to plan it and you’ve got to go for it.
What’s the biggest mistake you made when you were expanding internationally?
We made mistakes but no horrific mistakes. I think that we’re very considered. We’ve got a very strong board and we do take a lot of time. We are very proactive in planning out what the next stage of our growth is so I don’t think we’ve made any real clangers as such.
[But] we may have over-engineered some of the support systems that we have and we own our own IT so it makes it easier for us to deploy. So there’s been nothing horrific but there’s certainly been learnings as we’ve gone through the process. The UK is a far more efficienct model because of the learnings we have in Australia. Spain is again a more efficient model than the UK one and each time you cookie-cut you get to a better learning and a better degree of execution.
What’s the easiest market? Would you still go in… going through Manchester and then the others again, or would you have maybe gone to the US first?
No, I have absolutely no regrets at all about Europe. I think it’s a fantastic territory and I think the partnerships that we’ve got there are also holding us in very good stead. We make no secret in our prospectus that we’ve got eyes for broader territories and the US is a territory that we are in discussions with and we see that as an opportunity as well.
And what about Asia?
No, Asia as well. I mean what you look to is we’ve got to look at population. You’ve got to look at the key metrics. Is there a healthy small business community? Is there a healthy appetite for technology. Is there a good retail network, etc, and then it becomes a choice. You’ve got to look at what resources you have and you then allocate your resources.
Whether you’re BHP or whether you’re ThinkSmart, you’ve always got limited resources. It’s a matter of where you point them and the choices that we’ve made so far are pretty well documented.
Just managing a company for 11 years of that growth; what’s been your biggest challenge?
Look the people are the key indicator to me in terms of success. What keeps me awake at night sometimes is really ensuring that you’ve got the right people in place to be able to execute your vision. And ensuring that those people are well motivated and focused and the skill sets are there. You’ve got to get people who are smarter than you around you to get value to the whole proposal. So the challenge is really about making sure that you are well resourced with those people.
It would be easier now because you’re a bit of a brand name; but when you were smaller: how did you attract the best people?
To be honest with you I don’t know. Look, at the end of the day I think the culture has got to come from the top down, and so people can see that you’re passionate about what you do and that you’ve got a vision, you’re prepared to actually put everything on the line to make a go of it. Then it’s funny, you seem to attract like-minded people and I think that’s what’s happened.
How’s your industry changing? What do you see that’s new that’s emerging and who are going to be the winners and the losers from that?
Well, I guess I see myself in two different industries: retail and financial services.
In terms of financial services I think there’s a lot of rationalisation going on. I think there’s a lot of speciality niche playing going on and I think that if you don’t have a very clear vision of what you are and what your product is then you will struggle.
In terms of the retail sector we are very much beholden upon the partnerships that we form and the best-practice, world leading retailers have got an enormous challenge in the way they present themselves. We ride off the back of their ingenuity so we look towards ensuring that we are integrating towards making it a seamless process in the in-store environment as far as the retailers are concerned.
That’s two challenges that we ensure that we’re on top of.
And just lastly, there is that wonderful story about how you rejected that takeover approach from Kerry Packer. Why did you do that and what did you tell him and how did it feel?
Well look, firstly let me say that it was an enormous. We were very flattered by the approach and I thought that it gave the business a lot of credibility.
We certainly entertained it seriously, but when it really got down to it, I felt that this business still needed to have that control mechanism in there and that perhaps partnering with the richest man in Australia wasn’t going to give me that. So I let the news be known on the phone call back to him and hung up and thought: ‘Mmmm, I have to think about that later on, if it was the right decision’, and I think it was.
Well it is. I mean your prospectus forecast puts your EBITDA at $8.1 million this financial year, doubling to $16.7 million 2007-08. Are you going to continue that kind of rate of growth of profit?
We’ve got a very high degree of confidence and we wouldn’t have put those figures into the prospectus if we didn’t think we can get there. In fact, I think it’s very well stated that 67% of the 2008 numbers are from contracts that have been pre-written by December 2006, so we have a high degree of confidence with those numbers. Clearly, we position ourselves as a growth vehicle and I think we’ve got a very strong international footprint to grow the business.