You don’t get many firebrand preachers operating out of their mother’s garage. But then Michael Malone was never the standard entrepreneur.
The iiNet founder happily describes himself as an “evangelist” for the internet. In many ways, he has had no choice – he started up the company at a time when the internet was barely in its infancy.
‘Get connected’ is a phrase that Malone is prone to using, which isn’t surprising given that he spent years urging people to get online.
The company’s growth, therefore, is not only testament to Malone’s belief in his product, but his belief in the internet and its ability to change the world.
In setting up his business, Malone had to convince customers they needed a product they had no concept of. In doing so, he’s created a business that has gone from humble beginnings in WA to a 12.4% national market share as of March 2010. The last financial year saw revenues climb to $473.8 million, with a total broadband customer base of 539,000.
The next big thing
Malone describes going into business as a “default decision”, having grown up in WA around his parents’ contracting business.
“If you’d said to my dad, you could earn a bit more money working for someone else, it would have been an alien concept to him,” Malone says.
“I was therefore always thinking ‘what’s the next bright business idea? What’s the one that’s going to work? What’s the next big thing?’”
“The next big thing” presented itself to Malone when he was 23. At the time, the internet was only available in certain academic environments including universities.
“I was graduating from university and I was going to lose my internet access. I looked at the cost of getting a link for myself and it was about $25,000 a year – this was in 1993 – to run my own link. It was a 14KB link to the US, so a very slow dial-up modem,” he says.
“There was no way I would’ve been able to afford that so I asked a few other students at uni if they would chip in. That was my market research. Two hundred customers paying $25 a month would cover my costs, so that was my business plan.”
Fellow uni student Michael O’Reilly asked Malone if he could come on board, offering his technical skills, forming an ideal partnership of entrepreneurial spirit and technical knowledge.
“Michael was the techie guy. Relatively speaking, I’m a bit technical but my degree was in maths so I didn’t know much about computing or IT,” Malone explains.
In order to fund the equipment and connection for the first six months, Malone combined $15,000 of his own money with a $10,000 loan from his parents. He says applying for a bank loan wasn’t an option.
“I had no assets. I was living at home operating a business that banks didn’t understand. There’s no way a bank would’ve loaned me money,” he says.
“The first hundred customers – half of them would’ve been people like me. People who had just graduated from university, people who had been in the hard sciences or people who were in really niche areas like language studies and genealogists.”
“No one had heard of the World Wide Web yet, but that changed in October 1994. A year after we started, there was a piece of [web browser] software released called Netscape, which changed everything.”
“When Netscape got released in late ’94, it had taken us a year to put on a few hundred customers and then we put on 1,000 customers in three months.”
From suburbia to CBD
The business began in Malone’s mother’s garage, which meant installing multiple phone lines. For every customer that called the company, there needed to be a phone line.
According to Malone, he took every opportunity between 1994 and 1995 to “evangelise” the internet.
“I spoke at education conferences, the local rotary club – any opportunity to stand up in front of a group and tell them ‘you’ve got to connect’,” he says.
“I’d always hand out brochures, with every ISP in the state that I was aware of in alphabetical order, so I made sure it wasn’t about joining iiNet but just getting online.”
“With each session, I’d come up with a bunch of applications or websites or chat channels or news groups that were relevant to that sector.”
“I wasn’t out there telling everyone to buy my product. I was out there saying ‘this can transform your life’.”
“Like any new technology, if you can inspire one or two people in each audience to give it a go, their words when they start telling everyone else what they’ve done are far more powerful than mine.”
Neither Malone nor O’Reilly drew any income for two and a half years. Their first staff member was Smith’s wife, who quit her job as an economist to handle the administration side of iiNet.
“Michael [O’Reilly] ran the computers and I was out there chasing customers, and was very passionate about the service side of things, but in terms of our books and so on, it was appalling,” Malone says.
“[The appointment of O’Reilly’s wife] was quickly followed by one of our customers, who came to us and said, I want to get into this. I’ll work for you on half the normal salary.”
By July 1995, there were two people working out of Malone’s garage and four people operating at desks in his bedroom. However, this was not the primary reason behind the company’s move from suburbia to the CBD.
“I’d love to say it was a plan but in reality, we had 300 phone lines coming to my mum’s house by then. Telstra were very accommodating but they ran out of capacity,” Malone says.
“Their recommendation was the CBD because it was the only place they felt they could cope with our growth.”
No woes in WA
Contrary to popular belief, Malone says it was far easier to start up in a small market like WA.
“I look at Western Australia with Bankwest and HBF – it’s an isolated environment and an isolated business community as well. It makes it possible for you to set up here.”
“[The isolation] allowed us to do things in Western Australia. We were oblivious to what was happening on the east coast.”
Malone says one way in which he grew the business was by setting up points of presence in remote areas outside of Perth.
“In Gingin (a small rural town) for instance, the local community up there gave us access to the police station,” he says.
“We got a room at the back of the police station, which was where our equipment and modems were located. This provided Gingin for the first time with internet access and that was a very powerful [concept] for such an isolated community.”
“It wasn’t ever part of our business plan or business strategy. It was because we had to bring ‘religion’ to the communities. In retrospect, it was good move and it helped us in establishing our WA credentials.”
Malone says it soon became apparent that hiring people purely for their skills was compromising the customer-focused nature of the business.
“We’d hire people that were IT grads or technical grads yet our primary job is to answer the phones. Even today, I’ve got 2,300 staff and over 80% of them are in our call centres,” he says.
“Within three months [of starting] the technical staff were saying ‘I don’t like talking to people. I want a dark office somewhere and I want to work on computers’.”
“[In late 1995], this guy Glen, who’s still with us, made the comment ‘you guys are idiots. You shouldn’t be hiring technical people – you should be hiring people from hospitality and you can train them on the technical stuff’.”
“So we shifted completely. We became a registered training organisation, we started hiring people from hospitality or tourism, and we have fairly intensive training at the beginning to bring them up to speed.”
“We did it for operational reasons [but] I think it really did a lot to reinforce that culture that we’re about service; that’s our number one priority so anyone in the business needs to demonstrate a background in service in some way or another.”
iiNet certainly hasn’t flagged due to the competition posed by other internet service providers. In fact, the fast-moving IT industry has provided the perfect landscape for the company to grow.
With products including broadband, naked DSL, voip and phone services, iiNet is now selling the ‘religion’ of technology to a national audience.
Malone says his advice to start-ups follows the Nike slogan “Just Do It”.
“I constantly meet people who have had great business ideas and there’s [always] a million excuses not to do it,” he says.
“All I can say is that every year it gets harder – I could not have done what I’ve done, today. I’ve got kids and a mortgage and things to lose now, whereas doing this at 23, what did I have to lose really?”
“If you’ve got a great idea, or you can see a product that doesn’t exist or a way of doing things, or you know you can do it better than the people out there, then just get out there and do it. The best business plan is to run the business.”