Phil Ruthven, chairman of online business data company IBISWorld, tells AMANDA GOME about how to expand internationally, and what the future holds.
Phil Ruthven, 67, is widely known as one of Australia’s best futurists and business analysts with advice for many entrepreneurs about how to grow their business. Phil is on the speaking circuit, but he is also chairman of the company IBISWorld, an online business data company.
So how has this chemical engineer turned economist gone about expanding his own business overseas? Amanda Gome puts him to the test, asking for his top tips and lessons when expanding internationally.
Phil is happy to answer your questions. Email [email protected]
Amanda Gome: Your revenue for IBISWorld is $14 million. Has it gone up and down?
Phil Ruthven: It’s never gone down.
Where did you get the idea for the business?
In 1967 I visited the US war room and I saw the enormous control of information given to the US Defence Force. And I thought if you can equip business with the right information they can make better decisions.
Did you always want to go global?
Always. I wanted to go global since 1971 when I started. I wanted to launch an online database straight away, but the business world was not interested. So I started my strategic consulting firm. But I soon realised I couldn’t compete internationally against the likes of McKinsey.
Changing from a consultant in late ‘87 to 1991 we almost went under, as almost all companies do. It wasn’t all misery, but it was very tough.
The business community started to get serious about hard stats in the 1980s. They could see they could refine their strategy and monitor progress with information about market share. Now it is a billion dollar market in Australia, which has more than doubled in the last six years.
But worldwide it is worth over $100 billion and growing at 10% to 15% a year.
Where did you go first?
Indonesia, and it proved very successful until the financial meltdown in 1996. We had banks as customers and the banks went broke. So we went for 12 months with no income.
After losing $600,000 we decided to franchise and it is still operating today.
Lesson 1. If you are going overseas don’t pick a country where the market is too small and vulnerable. Going to Indonesia was like adding the state of Queensland to your marketing plan.
Same with New Zealand. It’s like adding 15% to your market size.
And don’t bother with India either. It’s too bloody small to worry about. Everyone talks about the size of its middle class, but they are very poor by our standards.
At least with Indonesia we got the experience of being offshore, but it was an expensive lesson.
Where did you go next?
Taiwan. That was the same size as Australia and didn’t work out either. Our franchise partner didn’t work out. The Taiwanese operated on who you know, not what you know. So our partners were signing up clients but not enough to cover our costs. They didn’t know how to sell. Everyone sold that way: the British, the Australians…
What did you learn?
To stop fooling around and go straight to the US. We had been scared. We knew we had a great product. We had been nominated the world’s best online data company.
But we knew it would cost millions and we would have to amass a nest egg.
We were going to list in June 2000 but in April that year there was a meltdown and we missed the market. So we had to wait another three years to get the cash.
Do you regret waiting?
Had we listed, we would have got there in 15 months and been bigger, but we would have had to sell off half the company. It’s much easier to run and manage having kept it private. (Ruthven owns 100%.) However we were very concerned that our competitors would catch up, but they didn’t. The meltdown slowed them down. Also we tell clients to secure their home base first before going overseas, so we did that first very well.
How did you expand into the US?
We went in 2003. We employed a vice president who is an Amercian and whom we had known for many years. Then we built a big sales team. Now my son Justin is world MD and he lives in Los Angeles because he has four kids and it is a better environment to raise kids than NY.
But all the analysis of data is done in Australia because it halves the costs of hiring.
US is now responsible for about $5 million of our $14 million revenue in 2006-07.
Australia is now a branch office. We now have five offices; Chicago, NJ, Washington, Dallas and Philadelphia.
What did you learn about expanding into the US?
We wouldn’t have changed anything. It cost $6 million and it’s still not profitable. But we don’t care about profits. We care about the volume. We are going for growth, not profits.
Look at Amazon. At the start you are not interested in making a profit. All great online businesses are not interested in making profits. You focus on multiples of revenue and that turns into profit the moment you want it to. The idea is to force the growth, so you grow at 50% by pouring money into sales and marketing, and if you don’t force it the revenue still grows by 20% and then when you want it to, the money pours out like a jackpot.
Having said that, one of the things we would have changed is we would have done more PR. We knew the market pretty well and knew it was quicker to get customers on the web. We also went through distributors like Dow Jones. But PR is more effective than above-the-line advertising, which is so expensive in the US. You want to make sure every business journalist knows we exist, and we have a list of 60-70 publications; radio, TV and print.
What did you do really well?
You must have strategic alliances before you go overseas. We have quite a number of distributors through the US and they take a percentage of the sales. We have an alliance with Google that costs us a lot of money but gets us advertising and positioning. If you are a casual visitor looking for information on industry trends in the US you find us first.
We also have an alliance with the Risk Association of America – all the banks belong to that.
You didn’t do acquisitions?
We have been offered acquisitions many times but that represents diversification. We wanted to stick to our knitting and go around the world.
Your new markets?
We opened in China last July by doing a partnership. There is a big domestic market there but also the rest of the world wants to know about China. Our partner encourages the domestic revenue and we do the international revenue.
We have got a good partner and we provide full back up and training. We do have to work hard to train people to think in advanced western thinking and to write in commercial terms, not academic terms.
It will be three or four years before that is a substantial market for us. Europe is next, with 35% of the world market for online data. Then there is Japan. In the 1990s we made many visits there but the time wasn’t right.
What is it like having your son running your global company?
He is the best chief executive we have had. He has a higher IQ than me and is less interested in being the creator than the business builder. He also has enormous capacity to find and hire the right people. The current production manager running IBIS was managing a gym. My youngest son, 36, is the marketing manager of the West Coast in the US.
You were the founder. What is your role now in this global company?
To stay out of the way. I am chairman and there is nothing worse than an interfering chairman. The main role of the board is to hire and fire the CEO, act as a mentor and bugger off out of the way.
We are developing two other products over the next three years, either of which could be bigger than anything we have done.
Phil, do you do what you preach?
Absolutely. Twice a year we go bush, maybe to Red Hill or Woodend and we pull in people over from the US. We sit down and go through everything and question everything. What are our competitors doing? Do we have the latest technology? What’s new in technology? Is everyone up to speed? What are our new targets and objectives?
We look at our own rules and check we are following them.
Yes, we are sticking to our knitting, being the world’s best at one thing, spending a lot of money on product development, outsource all non-core activities, don’t own hard assets, have good and professional advice and excellent auditors – we have PricewaterhouseCoopers.
Know if you are in a fast growing industry that you have to put a lot of money into marketing.
Last tip Phil?
Lastly, always value leadership over management. Management ask for permission to do things. Leaders ask for forgiveness because they have always made the decisions.
When leader and managers have meetings, management does a straw poll, but a leader thanks everyone for coming.
Leaders are not psychopaths or arseholes. And eight out of 10 decisions they make are consensus. But two out of 10 are on your own. They should not be done by consensus. They are the decisions that lead the wagon train along the rivers and the tracks. And they are the decisions made by leaders not managers.