Turning around a troubled start-up
Tuesday, January 27, 2009/
But a clear focus and help from investors such as the founders of Hitwise have turned the business around.
David Burden is the chief executive of small listed online development and marketing, Ansearch. The company was clocking up big losses until Adrian Giles and Andrew Barlow, the founders of global technology success story Hitwise, took equity positions in 2007.
When Burden came on board as chief executive in February 2008, he found a “mess” and had to work hard to turn the business from an entrepreneurial start up to a scalable business
It’s still hard going, but Ansearch stands out amongst a sea of small listed companies in that it is growing its revenues and profits.
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Amanda: Tell us about Ansearch, it’s the umbrella company for three other companies…
David: That’s correct. Ansearch is our publicly listed holding company. We have three businesses under that umbrella.
Webfirm is the first of those, which is a business that focuses on helping small and medium-sized enterprises do better business online by helping them develop their internet strategies, from developing their websites, through to internet marketing activities through search and the like.
The second business is called Searchworld. That is where we are seeing a lot of the growth in our business at the moment. Effectively Ssearchworld has got the rights to take advertising feeds from Google, Yahoo and a few others and make those available to our customers. We recently reopened our US operation and that’s going very well indeed.
And the third business is Ansearch Media, which effectively represents online publishers, mainly international publishers attracting large volumes of Australian eyeballs. We sell them media that the Australian visitors see when they visit those sites.
So that’s our three units.
You’ve had big growth in your revenue, predicting that your 2008-09 revenue will be 30% up on 2007-08 from about $12 million to $16 million?
That’s the guidance that we’re giving at the moment.
We had just over a $6 million loss last year. A lot of that was from the fact that we wrote down a number of our assets. To turn that back into a profit would certainly be a pleasing result because that’s a huge turnaround.
Before you return to profit?
The month of December was profitable and our quarter was 68% up in terms of revenue on the previous quarter. It’s a bit early to say but we’re certainly shooting for it.
This is the classic story really of the CEO being brought in to professionalise the start-up. And it was a in a bit of a mess before you came along. Tell us how you found the company?
A mess is a very good description. The business was very unstructured. It really didn’t have any long term strategies in place. It had acquired the Webfirm business less than 12 months ago and had really left it very much alone having its founder depart, so Webfirm itself was pretty rudderless.
Unfortunately the company before I joined had just been through a massive board shake out so the new board came onboard led by Andy Barlow, one of the founders of Hitwise. He brought Adrian Giles, his other co-founder from Hitwise, myself and Adrian Vanzyl who’s got a very long history in internet businesses. And we just went about rebuilding the companies. We started where most CEOs start and that’s looking at the resources in the business and making pretty severe changes in those resources immediately.
Now you had to cut out a number of non-performing projects and become more focused. How did you decide what had to go and what to focus on?
The real key for us at that time was to ensure that we were focused on short-term revenue. The business was losing money on a monthly basis and burning through its cash quite quickly. So any project that wasn’t delivering us immediate revenue or about to deliver revenue, I had to make the difficult decision to cut those projects and cut the teams.
Doesn’t that then hurt your long-term strategy?
Look, effectively it does impact on your long-term strategy but you must focus – or I found that I must focus – on the short term. This business had only a certain amount of cash and we needed to preserve that cash as much as possible. To do that we had to take the business back to basics as we call it, strip it out and just focus on the three things that Ansearch did and they did them very well. I talk about diamonds shinning through a wading pool that’s full of muck. Those businesses concentrated on were the diamonds.
Did your staff groan?
Did our staff groan?
Did they groan when you give them metaphors like that? Mine would.
We were very clear in that communication about what we were doing and what the future strategy and direction for the business was.
How did you decide who went and who stayed? It’s a question that a number of companies are grappling with now.
It’s always a difficult way to go and you may make some mistakes on that, but as long as you get 90% of those decisions right, I’m pretty happy. I think we got them right in terms of the end. We just had to look at who was performing, who could very clearly articulate what their job was, who could articulate what the strategy was, who understood where the revenue was coming from, if they understood the cost base of that revenue. People who didn’t measure up, we pointed in a different direction.
You made those hard decisions, what was the next step?
Well the next step was to actually focus on the operations of the business. To ensure that each of the critical areas of the business that needed to work was working. Let me give you some examples. I wasn’t happy with the structure of the sales team in Webfirm.
Well, every salesperson we had in our Perth operation was commission-only and receiving a very healthy commission. While it was a structure that ultimately worked for the previous owner, it didn’t provide the sales guys enough comfort. So we changed that and we also changed a large number of the salespeople and got them a lot more focused into not just selling this immediate client in front of them but to start being a consultative salesperson, thinking not only about this sale but the long term future of that client within the business and how to grow the client over time – not just in that one meeting.
Which is of course very important for securing that relationship during the downturn. Did you give them good salaries and a much smaller commission?
Yes, we did reduce their commissions down to about 10-15% and we gave them a base salary and a car allowance, just to give them a little bit of comfort. And those guys that are still with us have really kicked on. And I’m pleased to say that most of our sales guys have got the capability and some are earning over $100,000 per annum now. It’s a system that’s working.
In addition to that, a lot of our leads are generated through telemarketing efforts and the technology provided inside the telemarketing teams was quite woeful. None of the telemarketers had a computer on their desk when I walked in the building and they were using physically the Yellow Pages and local papers for generating leads. None of that was being recorded so obviously that changed dramatically with a brand new CRM system and a lot better lead management, automatic email leads to salespeople so we could act a lot more quickly.
So as I said, the business was very basic so the focus back on operations was highly necessary. So we had to fix up sales, the technology that we were using in production needed to be upgraded so we could produce our products more quickly and more efficiently using less people. So we put in a raft of technologies to fix that. And then in the back end, in our accounts team, we weren’t being very innovative in terms of how we collected funds from customers. So it was pretty much a makeover through that whole business and that’s taken some time but it’s absolutely well and truly on track now.
Now what about expansion? Webfirm for example has expanded into Melbourne and Sydney. How did you go about that?
We looked at the basic business model and the underlying practices and we could see that that was very transportable in the way that the business operated. And we started off in Melbourne, we wanted a different approach to dealing with SMEs. We know that SMEs are very comfortable with bricks and mortar businesses so we opened up a bricks and mortar shop front in Melbourne and we recruited a very good team for that business.
Do SMEs come in and visit that?
We actually laughed. We thought it was a bit of a joke in fact that that would happen. But inside the first week we had three walk ins and three sales. And that sort of shut up my laughing.
And what percentage of walk-ins to sales do you have now?
Because our telemarketing is very active in Melbourne these days, it’s a lot lower. But we still get a couple of people a week walking in. Even if we’re not generating the walk in traffic we have a street presence on a very busy road in Melbourne. There’s a high visibility of the brand.
You think it would be easier buying an outdoor sign.
Yes, but it doesn’t have the same feel. An outdoor sign and a bunch of people sitting behind computers and telephones doesn’t give the same feel. Every one of our clients wants to come and visit us to review their website. And it’s just a lovely feel to be able to walk in.
What trends are you seeing for SMEs in developing their websites? What we’ve seen is that a lot of them are redoing their sites away from proprietary systems, tending to use more open source. What are you seeing?
Absolutely, SMEs definitely need to have flexibility and that’s really important. We see that e-commerce is becoming more important to them. Many of them are becoming a lot more aware that search engines are really their lifeblood for being found these days. So search engine optimisation, ensuring the sites appear and rank well in organic search engine listings is vitally important. And of course, search advertising is becoming more important as people are buying keywords relevant to their business, to make sure that when somebody is searching on tiles that their business is in fact found.
So what are you working on that will capture those trends?
The first new initiative is that we are relaunching our complete search divisions for SMEs so we’re going to have a range of new products and new offerings that match SMEs’ requirements in terms of budget spend. They’ll be at a lower management fee and operated across Google and Yahoo search engines, which are the two main search engines used in Australia with great success. So that’s the first thing. We also have a number of new initiatives so we’re revamping our email marketing platform and we’ve just signed off our new platform that will go live in the next month or so, which is a very easy way for generating newsletters and keeping in constant contact with customers through email marketing. So they’re the first two initiatives.
What’s been the hardest thing for you to come into this start-up and to take it to the next level? Do you describe yourself as a more established SME?
I certainly wouldn’t call us a start-up anymore. We’re cash flow positive at the moment. We have enough cash in the bank and obviously December was profitable for us so I think we’ve moved beyond start-up. Our business models are pretty secure and they’re working, so all that testing has been done. The hardest thing I think for me, as I’ve always started my own businesses, is to know what’s in the cupboard so to speak.
So the hardest thing for me, in the first six months for the management of the new executive team that we built, was coping with those skeletons that kept popping out. Now you think that you have that door locked shut, then a new skeleton comes out to divert your time and attention away from everything else. I think that was the hardest part because there was just so many of them and cleaning that up has been a big job. And Damien Element our CFO and the management team, have worked very hard on those aspects.
What was it like turning morale around or rebuilding different visions?
There was pretty much no morale when I joined. The company had been through a lot and the employees looked a little tired and lifeless. But the other thing that hadn’t been done was they hadn’t been communicated with. They didn’t understand the vision; they didn’t know where the business was heading. And I operate from the premise that the team must know where we are going otherwise it’s very hard to trek the same path. So unless everybody understands a very, very clear vision and communications are regular and honest, then it’s pretty easy to turn that around and ensure that you can get the employees back on track. The employees are the most important part of any business and ensuring that they are fully bought into the future is absolutely vital.
Briefly tell us about the other businesses you ran personally. You grew one and sold it. What are the big things you learnt doing that that you’re applying now? And what have you found that isn’t relevant?
Firstly we acquired a business called Legion Telecall and turned it into Legion Interactive which was the biggest SMS, mobile, online and telephone marketing based company, mainly focused on media and business applications. I joined that in 1994, bought that and then eventually sold that again to the Photon group. That was a pretty wild ride. Again that business, we bootstrap funded pretty much from the start. When we acquired that we brought in an equity partner and we had a very good life with that equity partner. They did very well out of it as well when we sold that business.
What did you sell it for in the end? How many million?
A lot. Unfortunately it wasn’t all mine, I had some very good partners in that business as well. The management owned 45% of the business.
What was the revenue when it sold?
Revenue was around $20-something million. So it was a good, profitable business.
And what are the big key things you learnt from that?
I think the key thing that I learnt was the relationships with customers is absolutely vital and we worked very, very hard building those relationships. We were involved in a number of very, very competitive tenders within that business, and this is to do all the interactive work for say Channel 10 for example. The reasons why we got that were obviously our service delivery was important but it was also the relationships we built. I think the second thing, was the importance of honesty in those dealings. When we first won the Channel 10 business, Channel 7 was in fact one of our shareholders and for us to be able to win the Channel 10 business, mainly came down to the fact that we were very, very frank and honest about the way we would deal with 10 and the way we would deal with 7 and what we would do inside the business to protect each other from those two customers.
That’s quite amazing, isn’t it? And that worked?
It worked very well and we never had a complaint. We never had a question thrown at us and we were dealing at that time, you know the voting results for Australian Idol and Big Brother were obviously huge secrets. We had some interesting developments through those, but it all worked.
Of course when you sold you could have gone on like Stephen who we interviewed from Quickflix and go and lie on a beach but you haven’t. So what drives you?
Well, I did take three months off. I was planning to take 12 months off but this opportunity with Ansearch came up and I’ve spent quite a bit of time looking at the business and talking to those in the business and talking to Andy Barlow and Adrian Giles about it. And talking about the plans we had for it. It was effectively our online vehicle that we could do several things with.
If you had your time again would you have started something similar instead of taking on something like this?
That’s a hard question. I was contemplating a start-up at the time but I also really was looking forward to rounding out my professional career with an opportunity to run a listed company. I hadn’t done that before, so I’m really enjoying that challenge and the challenge of having shareholders and people having a go at your share price and all the other fantastic opportunities that come up when you’re a listed company.
Talking of your share price, what did the company list for and where is the share price? And do you think it’s getting a fair hearing?
I can’t remember what the company listed for, it was five or six years ago and it’s certainly been through a rollercoaster of share prices. It’s been through a number of different consolidations and different capital raisings before my time. The current share price, last time I look – and I don’t look everyday – was around 7 cents.
It doesn’t reflect the true value?
I don’t even think it honestly reflects our net worth, it’s not even one-times revenue. It’s difficult because investors look at the profitability and the track record and we’ve given effectively now, one positive quarter. We wouldn’t be expecting too much to happen until we deliver our January results for example and investors see the second quarter. I’m pretty confident we’re building a pretty good business here and I know all the directors this week have hopped in and bought more stock on the market. And I think that shows a positive sign.
Thanks very much for your time David.
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