Software innovator’s global gamble
Wednesday, January 9, 2008/
Success in Australia does not automatically translate globally. But know-how – and the gumption to give it a go – helped logistics software business CargoWise do just that. By MIKE PRESTON.
By Mike Preston
Tearing apart his company’s software product to rebuilt for a growing international market was not so much a gamble as a calculated plan for CargoWise chief executive Richard White. And it was a risk that paid off.
The founder of Sydney-based supply chain and logistics software business CargoWise edi, Richard White, has successfully gone global by being prepared to radically change his products and grow through acquisition.
CargoWise, founded in 1994 with “five employees and a credit card”, has close to 200 employees located in a dozen offices around the world.
Revenue grew from just over $13 million in 2005-06 to just under $17 million in 2006-07, and White says the company will make revenue of almost $25 million and profits close to $7 million in 2007-08.
White can’t tell you which countries are using his software – he’s not being secretive; it’s just not something he needs to know. “We almost always sell the product to a company in one location buy it usually supports a global network – in our recent deal with DSV [a global logistics firm], the sale was out of Copenhagen but the first installation was in Canada, and the next one will be in Germany and so on,” he says.
White says the international sales have created the company’s success, but it nearly wasn’t so.
Although modest, early revenues were sufficient to make a series of acquisitions that, by 1999, saw the business dominate the Australian supply chain software market. But White saw that to win clients beyond the domestic operations or local subsidiaries of multinational companies it would have to dramatically revise its key software product.
“It was a strong seller, but we knew it wouldn’t work for the international business, so we made the fundamental decision just to jump in and tear it apart,” White says.
The business threw all its resources into developing a new product based around White’s idea that international logistics companies would be increasingly integrated, creating demand for a product that could provide a single software entry point across all of their operations.
White acknowledges the move was not without its risks – not only were they moving from a proven performer to an untested new product, but the tens of millions of dollars in development costs required to get the new software off the ground almost sent to the business into the red.
In 2004 the software was launched. The company (under the name ediEnterprise) rolled the product out to all of its existing customers for no extra charge and was quickly able to get a foothold in markets in Asia and the US via the international arms of the businesses it had worked with in Australia.
While the development process of the new software was “painful and costly”, White recalls this early period of international expansion, opening offices around the world and hiring new staff, as one of his, and the business’s, most challenging times.
“Just understanding the subtle differences in each country is difficult. We assumed, from a position of dominance in Australia, that our product did everything it needed to do, but when you get down on the ground internationally you realise the issues are more complex and detailed than you thought possible, White says. “For example, we found US domestic freight forwarding was a big issue. We didn’t get it right originally, and it hurt just because we didn’t understand just how huge the internal market there is.”
Doing business on the international stage also meant battling it out with international competitors. In this case that meant British companies Kewill and Four Soft, the latter a global company listed and with most of its staff based in lower-cost India.
At the same time, Australia’s skills shortage meant CargoWise was finding it increasingly difficult to find the development talent to support the ongoing development of ediEnterprise as it rolled out to international markets.
The solution presented itself in the acquisition of a US business, Fountainhead International, in 2006. Along with a change of name to CargoWise edi – a Fountainhead product called Cargowise was well known in the US – the purchase brought with it a small team of developers in the Ukrainian capital of Kiev.
Impressed by the quality of their work, CargoWise edi increased its recruiting to the point where it now employs 40 developers in Kiev, its second biggest staff location behind its Sydney headquarters.
White says while it was not a necessity to grow its development team in a lower cost country, it was a nice tool to have.
“Our Indian competitor has that low cost advantage built in, so it makes some sense for us, but its just one piece of the puzzle,” White says. “Kiev is a development resource that’s not subject to the same pressures as in Australia, where availability is bad and wages are going up. With Kiev I can grow the business carefully without the pressures we have in Australia.”
CargoWise edi’s focus for the future is clearly on its international business – already the source of more than half its revenue – with Europe presenting the next big opportunity after a recent deal with Denmark-based global transport and logistics giant DSV.
But White is keen to emphasise that he believes the business’s headquarters – and its heart – will remain Australian.
“I’m Australian and I like it here. I love this country and I think it’s great we can base ourselves here. Smart culture and good people is an advantage, and that means we really do bat above average,” White says.
His antipodean attachment extends to another key prospect for the future that he says is currently “under active consideration” – a sharemarket float.
“The number of times I’ve been in front of audiences and industry and said how good it feels to be a successful Australian business, I wouldn’t be true to my word unless I said my great preference would be an Australian float,” he says.