Monday, September 24, 2007/
Recruitment Systems founder Neil Bolton chats with AMANDA GOME about mistakes, lessons and frustrations.
Neil Bolton was a recruiter with Candle, but six years ago he took a dramatic turn in his life and started his own business – Recruitment Systems.
Start-up costs were almost $2 million and revenue is now $1.5 million a year. He expects to double the size of the business this year.
Neil talks to Amanda Gome about his mistakes, lessons and frustrations – being stuck in hotels with credit cards that don’t work does not sound like fun.
To listen to the lunch with Neil Bolton, click here.
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Amanda Gome: Why did you launch your own business?
Neil Bolton: I produced a system that enabled recruiters to do a higher quality job.
You sell software to recruiters that helps them manage their recruiting needs, handle the resumes, all that kind of thing – so recruiters can concentrate on the human face of the business. Is that right?
That’s exactly it.
Did you put your own money into it at the start?
It’s all our own seed money, so thank goodness I have been successful in the past because I wouldn’t have been able to do it otherwise.
How have you grown the business? What’s your strategy been?
The key to it all is recurring revenue. Four years ago we moved away from selling the software for $4000 per copy to having this bright idea of ‘hey, why don’t we rent it for $200 a month’. We actually had it called ‘rental’ first and no one liked the idea, so we changed the word to subscription and 90% of the people went that way.
So they don’t like rental but they like subscription?
Love it. It went from 10% rental to 90% subscription. Crazy.
Why not buy it?
Because most of our clients are the high growth companies and they’re the ones that really want good systems but also high growth companies are the ones that are cash-strapped.
Is it easier to upgrade if you’re renting or subscribing?
No, it’s purely the same product and same delivery, same everything – just the method of paying for it. We have clients that have now been subscribing for four years and we say would you like to buy it out, and they say no, we prefer the cash flow benefits of subscribing.
How do you get new clients?
About 70% of our sales calls result in a sale, so we’ve had to be working on the delivery model before we can ramp up our sales and marketing effort to over 90% of it. And 98% of our marketing is word of mouth. We spent an almighty total of about $200 per month on Google AdWords. We’d dearly love to be spending $20,000.
So it works for you?
It works for us, but until we scale that delivery operation completely, and we’re just about there, we can’t really turn on that centre part, the sales and marketing box.
You haven’t thought about taking external funding and expanding more quickly?
No, because the subscription model is now funding us well. I mean yes, we’ve done the ‘friends family and fools’ funding all the way along, but most of those people have been bought out. Everyone that’s been bought out had a handsome profit, but no, we’re self-funding.
What mistakes have you made as you’ve grown?
Everyone says seek good advice. How the hell do you know which is the good advice and which is the bad advice? You pay large lumps of money for advice and so you expect it’s good. But it doesn’t work out that way, so the biggest mistakes I have made have been to seek good advice, pay large lumps of money for it, and go against my gut feel.
And which area was this?
In accounting, in the structure of the business. In almost every way I have learned more and more to trust my gut rather than the opinions of other people, no matter how much money you pay for that advice.
What mistakes did you make with the structure of the business that people can learn from?
I guess initially I was trying to make it too complex, because one thing I do want to do is to have everyone who has a part in this business to have an equity share in the business. And that was becoming very difficult until I stumbled upon the idea ‘hang on, we can have Class B preference shares or something which are equity and dividend but not voting’. And until I came to that simple idea it was getting very complex, but that’s a typical example.
And how is that working now? Have you got shares on that plan?
Yes. The plan is to have everyone a part of an equity part of the company, but because I didn’t want to give up my majority shareholding obviously there’s a limit to that, but yes we’ve got 20% of total shares in the company allocated as Class B preference shares. The only difference is they’re non-voting and they are issued to the staff on a two-year qualification period as options.
Has that really helped with motivation and morale?
Oddly enough no.
What’s it helped with?
I think in the long term it will help with morale and incentive and so on, but up to now we’ve been going for six years and literally five years of that we were stoney broke. Literally stoney. I have been stuck in hotels with credit cards that don’t work.
But it’s working now I think. The staff tend to stay with me for some weird reason, and they’ve seen all the bad times and they’re only just seeing the good times now, so I think 5% of the company didn’t appear to be much value to them a little while ago and I think only now is it starting to be an incentive.
What else have you learnt along the way?
What else have I learnt? The biggest thing I’ve learnt came from recruitment. If you ask someone what do they do for a living, they actually don’t answer that question. You say ‘what do you do for a living?’ and they say ‘I am a recruiter’, for instance. But there’s also a subtext to that. If they’ve done one placement a week for the last three years what they are saying is ‘my identity is this; I am a recruiter who does a placement per week’. And so until you change that person’s mindset, because they’re talking about their identity, you won’t get greater performance out of them. No matter what good systems you give them. So you actually have to play with what’s between their ears.
So what should they be saying when you ask that question?
Well they should be saying that is their identity, but the manager’s job is to say ‘yes, OK, you are a recruiter that does a placement per week but actually that was back then. I reckon you can do five placements a week’ and that’s exactly what I’ve been doing in this business. We just got back from Dubai. I took two of my new starters over to Dubai to the [Dritex] trade show and the reason I took them there wasn’t to sell software but so that I could open their minds to think anything is possible. Anything is possible.
Now it also plays with my own mind, so I’ve now come back knowing that it’s even bigger than I thought, so we’re going back for another conference there in two months and I have ridiculous targets for that conference, and I expect to meet them. Dubai is a fantastic export market for us.
What in particular did you see as opportunities for your software?
There’s a lot of buildings going up that need a lot of people in those buildings working at desks. I first went to Dubai four years ago. After this trip I realised that the actual rate of growth, the acceleration of growth in Dubai, is increasing and it’s beyond belief. But it’s not just Dubai, it’s the whole region. Qatar, around Libya, and very definitely Saudi Arabia. So one of the first steps that we’re taking is Arabising our software. Not necessarily because people need an Arabised version of our software, but more as a note of respect for people in that region.
Now 40% of your revenue comes from export. Why is that? You said before that you had problems selling in Australia.
Well it’s not so much problems selling in Australia, but if you do a presentation to someone overseas they’re more likely to say ‘yep, that looks good, I’ll buy it’. Whereas in Australia you will do that and they’ll say ‘yep, that looks pretty good. You better come back six more times and we’ll talk about it’. We have clients in Australia that we’ve been working on for four years and they haven’t yet bought.
Why? What’s the difference in attitude?
I think in Australia we have this perception that if it’s overseas it’s good and if it’s Australian it’s some sort of cottage industry. But in the software industry, as you would probably know, we actually in Australia build the best of the best.
We have fantastic software in this country. But that’s not a bad thing for you to be going overseas.
It’s brilliant. I’ve just got to keep the mantra going – ‘bad exchange rate good; good exchange rate bad.’ No it’s phenomenal, and we’re just about to open an office in Dubai probably in December, but we’ve also got in the next six months offices planned for Auckland, Hong Kong and Manchester. So it’s going to be fairly busy for us.
What do you see as the risks of this fast expansion overseas?
I think we’ve mitigated most of the risks, but we’ll find out. We’re going to do it piece by piece. Basically what we’ve been building is a box. I call it the box. I can place this box in or I can open the lid up and the first page says ‘OK, this is the person you hire to be the sales director and this is where the offices shall be, and this is what the salesman learns on the first day’, so that basically everything is systematised – almost like a franchise model except we don’t need the franchise funding, so we don’t need to sell it. And if we get it right then it’s an utterly scaleable business because the marginal cost is zero.
Can large companies use this too?
Yes, but because of our credibility issues, the only large companies that are using it are overseas companies. Isn’t that crazy?
But you’re still working on the market here.
Oh yes, very much so. But large companies in Australia tend to buy overseas software. No one ever got fired for buying IBM.
Why didn’t you stay with Candle? What was it that made you actually go out and start your own business apart from seeing a niche?
I am a terrible person to have working for you. I did not do what I was told. Absolutely. I built the software while I was working for Candle and three times I’d asked permission to do it and three times I was rejected. So I imported a couple of Russians and did it anyway. You get the impression. I’m not a good person to have working for you.
What do you see as one of the biggest challenges for SMEs in Australia? You said particularly in software, people want to buy offshore. What are some of the other challenges that you’ve come across, just running an SME here?
Actually I think it’s fairly simple. I don’t believe there are that many challenges. I really don’t think it’s hard. Yes it takes incredible perseverance and all that sort of stuff, and you’re always broke and you work seven day weeks and it’s crazy, but I honestly don’t think it’s difficult.
And on the good side, what do you love about it?
We’re going to own the world. I mean basically everywhere we go our eyes get opened up. Partnerships get opened up for us. In Dubai last week the opportunities particularly into Saudi Arabia are just astounding. Can you imagine, there is no Arabic language recruitment system yet. And Saudi Arabia is the country in the world that finds it most difficult to recruit people. They need a system that allows them to do it in a quality manner.