MYOB’s CEO says he doesn’t need to go global to grow

Since its founding in 1991, Mind Your Own Business, or as it’s more commonly known, MYOB, has become one of Australia’s biggest tech success stories. Today it employs about 860 people, and the 12 months to September generated $212.7 million in revenue.

The custom of small businesses and accounting professionals pushed MYOB founder Craig Winkler onto the Rich List, but the history of the company has had its ups and downs. At one point its stock sold for nearly $8, but in 2009 it sold for a measly $437 million or $1.12 a share.

Today, it’s headed by Tim Reed, who took over from the highly successful Winkler. Despite the big shoes he’s had to fill, Reed seems self-assured. Under his tenure, the value of the company has gone steadily up.

He hasn’t always been so successful. Long before he was CEO of the company, now owned by private equity firm Bain Capital, Reed was vice-president of an American company on the brink.

“If I look back at when I felt the worst about myself, when I most questioned my own performance… it was then,” he tells LeadingCompany.

Until that point, Reed’s resume showed the conventional trappings of success. He graduated from Melbourne University with an honours degree in commerce. He joined strategic consultancy LEK, and after a few years was accepted into Harvard Business School to do an MBA.

From there, a summer job helped him realise his future lay in technology. “I knew I wanted to be a manager,” he says. “An operational, hands-on manager. I didn’t want to go into consulting or banking, which are the big things people go to from an MBA.” While studying, Reed spent his summers working at a vitamin manufacturing facility in southern Los Angeles. He was bored. “I wanted to be in an industry that was rapidly changing, where strategy development really defined the success of the company… an industry that was breaking new boundaries and doing new things. Tech married all that together.”

Reed says he was enamoured by Silicon Valley, and the model underlying start-ups and venture-capital, where 70% of start-ups failed. “That seemed to me to be quite gutsy – to get into business where you knew there was a huge chance of failure. When you knew, if you succeeded, you could change the way people lived, worked and related to each other.”

His initial forays into Silicon Valley proved a roaring success. Reed joined the leadership team of Internet Profiles Corporation. It was the first company to measure traffic on the internet. Its customers were the major advertising-based websites, then search engines such as Yahoo as well as major publishers such as The New York Times. In much the same way as television and radio audiences were verified, it acted as an independent body that could verify impressions to advertisers.

A year and a half after Reed joined, the company was bought out by Engage Technologies. “We were 200 people then,” he says. “Two years later we had 4000 people and were bringing in $500 million in revenue. That was a huge, huge success story.”

The fortunes of the second company Reed joined were quite different, and it was when he suffered his career low. DoveBid was trying to make money as a business-to-business auctioneer. The idea was that businesses with excess capacity or resources could action them off to other business, similar to the way things like Amazon worked for consumer-to-consumer auctions. It overextended itself, and was close to the brink in the early 2000s, during the carnage that followed the dotcom boom and bust.

It was a reality check for the gung-ho entrepreneur. “I was really attracted to that ‘live and die by the sword’ idea: that it works or you go out of business. But it’s very difficult being in a business that is failing. It’s very difficult remaining upbeat, and driving and trying to get to an outcome, when, for example, the company you’re in is losing money and you’re not sure you’re going to raise the next level of funding.

“The company was losing money and customers, and we had 90 days before we wouldn’t be able to make payroll, and we were burning more money than we were taking in … they were probably the worst moments of my career. I learnt a lot from it, which is the other side of that.”

Luckily for Reed, redemption wasn’t far away. He was headhunted to lead accounting software company Solution 6, which was bought by MYOB in 2004. The sale brought him into MYOB’s leadership team.

MYOB was then led by one of its three founders, Craig Winkler, and was expanding globally. By 2008 it had divisions in the United States, China, Hong Kong, Singapore and Malaysia.

That year private equity firm Archer Capital offered to buy MYOB for $736 million, valuing the company at $1.90 a share. Winkler rejected the takeover offer, causing a majority of shareholders to vote against Winkler’s remuneration package at the company’s April AGM. Archer eventually managed to buy MYOB in late 2008 for $437 million, or $1.12 a share. Although MYOB’s board said the price was a “substantial discount to comparable transaction multiples”, the company dropped its opposition to the offer fearing further shareholder dissent.

By the time Archer finally got its hands on MYOB, it had been led for six months by Reed, who took the helm from Winkler after completing a review of the company’s strategy. He believed it was geographically overextended.

“When I came in, our primary growth strategy had been one of expanding into international markets. My belief was that our next wave of business growth would come from our core markets, in Australia and New Zealand. I believed we needed to invest more in the next wave of technologies to be able to deliver what Australian and New Zealand businesses really need from us.

“Fortunately, I was given that opportunity to try those ideas,” he says.

Reed is referring primarily to online connectivity: MYOB’s newer products help its customers save time by automating processes. “Rather than being a little silo on the desktop, where the software could only interact with itself, now we have things like daily bank feeds, so someone no longer needs to enter those transactions manually, so they could flow those in from what had already gone through their bank account. And a whole raft of things around that vision, that our products are far more powerful if they’re connected to other people and other data sources.”

Reed says six in 10 Australian small businesses use accounting software, and of those, 70% use MYOB’s software.

Growing in such a market is a tough ask. But Reed thinks the business could grow to be three or four times its current size in Australian and New Zealand if all goes to plan.

“It’s about rethinking the solutions we bring to bear in the market. By doing that we can grow. For example, your mobile phone is very different to the one you had five years ago because someone rethought that solution, and got a better product to you, which has caused you to increase your spend and re-enter that category.

“There’s a lot for us to do in that vein. Our category is business management solutions – so, we put in a large investment in technology to be able to provide lots of small businesses the benefit of our investment.

“In financial management, which we started in and have strong market share in – there are innovations such as integrating with banking, allowing people to make invoices on mobiles, enabling people to scan invoices to automatically enter in data … We could reduce the time it takes for SMEs to do their books by 80%.

“By driving that productivity, we have an opportunity to win new customers and add value for our existing customers. So I think there are lots of opportunities for us to continue to extend our footprint. Not just in accounting – we’re looking at inventory management, payroll management, and we’re also making websites for a large number of Australian businesses. We keep adding to our solutions.”

Reed says he has no plans to extend overseas again, preferring to focus on current operations.

When Archer capital took over, the company supported Reed’s strategy. In August 2011, Archer sold MYOB to Bain Capital, reportedly for $1.2 billion – nearly three times what Archer paid just four years earlier. This led many analysts to conclude that Australian investors did not sufficiently understand how to measure value in IT companies.

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