Low-cost, fast-track, global real estate

When Simon Baker took over the CEO chair at online real estate classifieds company RealEstate.com.au in 2001, he reckons it was weeks from collapse. He tells AMANDA GOME how he then spent the next seven years digging the business out of a hole and buildin

By Amanda Gome

When Simon Baker took over the CEO chair at online real estate classifieds company RealEstate.com.au in 2001, he reckons it was weeks from collapse. He then spent the next seven years digging the business out of a hole and building a global company. 

His first step was to cut costs by 55% and simplify the offering to the market.

In 2005 he began his global expansion. Realestate.com.au continues to grow fast and since 2005 has expanded into 12 countries.

Revenue for the REA Group, Realestate.com.au’s ASX-listed parent company, for the half year to 1 January 2008 was $71.3 million, up from $47.4 million. EBITDA was $14.2 million, compared to $8.4 million.

Baker’s philosophy? Australia was simply the stepping stone that has given the company the right to grow. He tells the Realestate.com.au export story to Amanda Gome.

Simon Baker is happy to answer your questions. Email feedback@smartcompany.com.au by 14 March.

 

Amanda Gome: You entered New Zealand with allrealestate.co.nz in September 2005. Was that a good place to start your global expansion?

Simon Baker: Yes. Basically we’ve got two ways you can grow this business. One is through organic expansion – throw up a new website and then start from customer number one. The other is through acquisition. Now in 2005 we weren’t 100% sure which was the best way to go. We were, in terms of expansion overseas, babes in the woods, so what we said was ‘well let’s do something simple’.

We had a very easy way in which we could approach the New Zealand market. We did something as simple as put a map of New Zealand next to the map of Australia on realestate.com.au. We hired a bunch of New Zealand backpackers in a call centre in Melbourne and got them to call in to New Zealand and we, for a very low cost, started with customer number one.

So absolutely, I think for us it was the right thing to do because it allowed us, at a low cost, to experiment into a new market.

How long did you spend scoping the New Zealand market?

About 30 minutes. We knew how many agents were in New Zealand because we just went and looked at one of the websites over there and then we rang a couple and said if we were to, for a low cost, give you access to the Australian market, for an investment into New Zealand does it make sense?

The quick market survey of five agents had them all saying ‘yeah, that would be sort of interesting, we’d pay a little bit of money’, and we said well let’s try it because for us the cost of putting New Zealand on the map, so to speak, and then setting up a team was very small.

How small is small?

Five employees on contract and a bit of development costs… I don’t know, less than $100,000. So small, compared to a business we were doing for the year ending June 2005, which was $34 million.

And that was when we said OK we’re going through rapid growth, let’s look at where we can go to next, and we then said let’s look organically at New Zealand because it made sense. Everything made sense. Even some of the franchise groups were the same over there, so this was a natural step out for us, so we literally did it at low cost. We got really good traction fast. That gave us the courage of our convictions that overseas expansion made sense.

And how soon were you profitable in New Zealand?

We’re just reaching profitability now. But the answer to that question is we have chosen to run at a loss to grow for market share. I could run profitable from day one, but this would have a much lower and slower growth rate.

Did you make any mistakes in New Zealand?

New Zealand was not a massively different culture but it is a little bit different. We’re dealing across time zones we already had, because of Perth, so that didn’t really change it. But we learnt about dealing with multiple websites linking each other. Just a whole range of how you deal with different currencies and so on, which then forced us to address underlying systems and technology issues that you need to have in place to deliver these things long term.

And was that costly then?

No it’s not, because it’s stuff that had to happen anyway. You can’t be on MYOB forever.

What did you move up to?

We moved to a thing called acpac, which is a midrange web based global multi-currency finance system, so that runs all our countries now.

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And is that good?

It’s great. The guys love it. So everyone in each country uses it, the same accounts, and we press a button centrally and we can roll everything up relatively easily.

Where did you go after New Zealand?

The United Kingdom. I don’t want to deal with multi languages so let’s go somewhere where we can actually speak the language that we have an innate understanding, have similar sort of property sales approach. So the natural one that comes to mind is the United Kingdom.

In the retrospect was that the right reasoning on which to make that decision?

Yes, because you want to go where, if possible, there are less barriers to operation; so ducking straight into dealing in Russia or somewhere, you’d better have someone who can speak Russian,and know whether you’re being told the truth or not. At least in the United Kingdom, I’ve lived there and other guys have lived there, so it became innate for us and we can understand how they work.

Our approach there was pretty simple. I researched the market, which was pretty easy to do. I found the top five players. I rang up the CEOs of those companies and said I’ll come to England for a couple of weeks and I’d like to meet with you, share experiences. So I hopped on a plane, went to the first meeting, and said ‘well you look pretty much like us, are you for sale?’

He said ‘well maybe’ and that was as quick as it got. We could see that they looked like we looked three years earlier roughly. Then we asked a whole lot of questions and rapidly worked out some of the stuff they were doing were the mistakes we made.

Such as?

Say, tele-sales versus on-the-ground sales. They were basically operating to break even rather than investing for growth, and that was in a competitive market so they were literally treading water.

And when you looked at the website you could see a number of usability issues on the website that stood out – such as how they searched on the website, how the results were presented etc, and how they drove leads off the back of that. You could see without even raising a sweat a dozen modifications that could be made.

How should they have been driving leads off the back of it?

It’s just about how you present forms and how much information you present. The quality of information, the reliability of their website, the volume of listings they had. How they marketed themselves, the use of SEO, which was very, very poor or non-existent. It is not a game of massive leaps – it’s about one percenters.

Were they the leader in the marketplace in the UK?

No they were fourth place. They were the only one that was able to be bought at a reasonable price.

What did you pay? And what was its revenue?

Call it £15 million. The revenues were £3 million. But it was running at breakeven – very very low growth. Nowadays, this year we will do £10 million revenue. So we’ve roughly tripled the business in three years.

What’s the loss like?

We’re running at a loss of whatever I’ve reported. I can’t even remember, but that’s reflective of the fact that we’re growing.

What did you learn and what mistakes did you make there?

We learnt a lot. Once again I don’t think it’s a case of making a lot of mistakes. I mean you make the occasional mistake, but none of them catastrophic. Just get used to lack of sleep, and get used to planes.

I mean I come from working in management consulting (at McKinsey & Company) where you get used to getting on planes and going. So if you’re going to run something in multiple countries just prepare to lose a lot of sleep and enjoy plane food, and that’s just life; otherwise don’t do it because you’ll end up being ignored by the other office because you’re not there.

So how many people does it take to colonise your overseas office. What do you leave here and what do you take over from Australia.

Less than 10%. It’s small; actually probably 5%. But you put senior roles in and that’s just initially while you find someone good, so for the first two years I had a guy from Australia that I trusted who understood how we worked, so we could have quick conversations and get to the points. At the end of his tour of duty we hired a local person to step in.

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What else did you learn in Britain?

One is about managing across multiple time zones. The second is managing across progressively different cultures – different work ethics, different pay structures, legal structures, different laws that you’ve got to deal with about employment.

Do you comply with different cultures or do you try and impose your own culture?

There’s some core cultural things that we do globally about having fun and how we operate, and openness, but then you have to tailor that based on country. Whether I’m working in Luxembourg or Hong Kong or wherever, there are things that are unique to those markets. You can’t force people to behave differently but what you can do is create an environment that is open.

Other things we learnt about is operating multiple websites off one platform, and how we do that. How do we manage expectations of the customer, so the customer in our situation here is the country. Because they all want to grow things rapidly and how do you work with a joint venture partner – we had a joint venture partner in the UK with News International.

Did you find your experience at McKinsey & Company was a big help in understanding how to grow a business or do you look back and think my God that was just such rubbish.

I did an MBA at the Melbourne Business School and then I went off to work for McKinsey – and it is like an MBA on steroids. So I reckon what I’ve learnt in McKinsey was invaluable.

It teaches you how to look at a problem, analyse it rapidly, identify a solution; and as long as you’ve got the bias to action then execute against it, and I do. That all comes together as being a way in which you can have massive growth and do a whole lot of stuff.

With my management consulting hat on I can look at a problem and come up with some solutions and recommend what I reckon you should do. But you do that in a sterile world of everything is possible. But then cold hard reality steps in where the line manager goes ‘well that’s great, but I’m going home to the wife and kids and I’ll be back tomorrow at 9am’. And that’s where you get concept meeting reality – sometimes someone truly grasps it and wants to do it, and passionately engages with it; it’s intellectually nice.

How do you overcome that? How do you pick the people that will passionately engage with it? I have built my team over years. And then it’s just a case of as you build up, you’re looking for employees, and the conversations you have in the interview process is really about identifying those who are there for the job, and then those who are actually there for the experience.

What’s your favourite question to ask?

I don’t have a favourite question to ask, but one interview technique is to not go through a resume. I take that as read. What I will do is just have a conversation and then throw out sort of case study questions. Then just through questioning and changing the situation, you get to see how dynamic people are, how passionate they are.

You work it out and at the end of the day… I sort of call it the beer factor. When all is said and done, would I want to go and have a beer with this guy or girl, or is it going to be one of these sort of relationships that are quite stand-offish.

We’ve got this really good culture, all with people I’d go and have a beer with because they’re passionate. They love what they’re doing. They’re all opinionated, which is what I want. They’re driven and they’re good people. They’re fun people.

Do they tell you ‘no’?

Every day.

How do you work out which is sensible and when not to take the risk?

Gut feel. Gut feel. Like after doing this for seven years or so I’ve got a pretty good feeling for what works and what doesn’t work, and when someone says I want to go and do this, and I say ‘for Pete’s sake, that’s not how it works, sorry. I understand that’s how it works in the Belgian market, but give me a break. I don’t believe that number’. And as long as you trust your gut you’ll go a long way.

Back to your global expansion strategy. What happened after the UK?

In mid-2006 sometime I got a phone call from a guy in Italy who worked for News Corporation. He’s actually based in Paris and he said ‘I reckon you can go buy the number one website in Italy’. I said, roughly how much and let’s go and have a look. So we just tootled off to a place just north of Venice and met the guy who has the website there, and having done a bit of little bit of research – market size, what’s happening – had a conversation and ended up making an offer and buying his business.

How long did that process take?

There’s two jumps. One is a sort of agreeing on a price to sell, and then the next jump is executing the deal. Agreeing to the price took maybe a month, maybe a bit less. It wasn’t a massive amount. In fact I think we were fortunate there that I’m very good at getting them to put a price on the table initially, and I just thought OK, that’s too cheap. I had to then argue the price down a bit otherwise he would have realised it was too cheap.

I’m never bargaining with you.

We’re certainly not a charity. So he put, say, 11 on the table and I negotiated it down to 10.7 or something (million euro) but he was happy and I was happy with that price.

And then of course we had to negotiate with detailed contracts, and that took a few months because it was Italy, so lessons learnt are dealing in foreign languages. 

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Did you always have a translator with you?

I can’t speak Italian but he could speak English. It actually ended up being a pain became you’ve got to deal in Italian law and Italian law is different to Australian law. The funniest thing was when we came to finally sign the contract there was myself and there was the guy we were buying it from, Antonio, and about 10 lawyers. It was just ridiculous – they’re very formal in their legal approach.

At least you could drink good coffee.

The coffee’s great and the food’s great. That’s always part of the fun of doing that stuff. I heading off to Italy on Friday and I’ll be there for a week next week.

So now of course you are getting very good at landing in a country and buying a business…

While we were doing the Italian business we actually had another one come up on our radar based in Luxembourg, called At Home.

They made an information memorandum and I was sent it by five different people, because people know that we’re buying these things. I got it from Australia and from England and from the US and from Europe, and so it was just funny. So we actually did basically two deals in parallel. One was the Italian deal and one was the deal in Luxembourg, and so we had to negotiate them in parallel, and that was fun.

Luxemburg guys are much easier to deal with because they speak English very well, because if you’re born and bred in Luxembourg all your classes at school and high school are done in one of three languages. English, French or German.

So that was a really good place to go.

I like it because you’re now in the northern part of Europe. They’ve got a really good team that culturally fits with us. We own all the Luxembourg business. We own 60% of the Italian business. We own 50% of the UK business, and we’ve got some others that we own all of; so it’s all about building up these portfolio businesses but we control off of them.

That’s important, the control?

Hell yes. I’m not an investor – does that make sense? I’m an operator. And they’re very different skill sets and the guys we partner with are more investors than operators.

What’s been your biggest headache in each country. What do you find hard?

I think the headaches come down to first managing cultural differences whereas I’m used to dealing with people in some countries if there’s a problem they just tell me straight up – sometimes people don’t want to tell you the problem because of loss of face or whatever. So it’s about educating them (a) I will find out anyway so don’t waste my time and (b) it’s not about you, idiot. It’s about ‘let’s fix the problem’. And that comes through trust and time and conversations and being open with them. That takes time.

The second is probably working across multiple time zones and different country structures.

Have you just run on pure adrenalin for many years.

I think it’s pure passion rather than adrenalin.

That’s a good way to put it.

Because if you’re going to do this you’ve got to be passionate about doing it. This is not a nine to five job. If anything it’s not quite 24/7 because that’s not true, but you do end up doing a lot of crazy stuff and sometimes at very short notice hop on a plane to go somewhere to solve a problem or whatever.

As long as you are open about it and prepared to do it, then you get on and do it – and it’s not just you but it’s got to be a number of other people in the business who might be doing a similar thing.

Then you have to think about how you structure yourself internally, so we’ve got a little SWOT team of specialists who are really good people. So if a problem or an opportunity emerges in any country and we need someone to think about it from a consumer marketing or industry marketing or whatever perspective, I’ve got people who I just say ‘John, let’s go’ and bang they’re on a plane and they go. And they love it.

What people love is working for someone that’s market leading, innovative, rapid growth, expansionary, visionary, international. If you can offer that up to someone they’ll bend over backwards to join you.

I think there’s a lot of people that want to work for companies like that. It’s a fantastic kind of atmosphere to work in. So what is the structure? You have a big management team at the top?

No, there’s a little management team at the top. The structure’s a pretty simple one. We have three types of building blocks. There are countries and we’ve operate in 12 countries and they get grouped together by regions. At the moment we’ve got Europe, Middle East, Africa or Asia Pacific.

So you’ve got those two grouping structures, and then there’s countries and the countries are all about having their own sales, marketing, product management, finance, debt collection, all that sort of stuff. They’re self sufficient except for product development.

We have a centralised product development team because if you build one website and you can use it multiple times, there’s no use having different things. So we have that; the product development team. And then we have a corporate team and the corporate team is quite small.

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It’s 20 of us and our job is to finance, track, monitor, perform – just make sure that the right people at the senior roles are in the right spots to do business development, looking for new opportunities and assure that every country is financed, does the budgeting properly, is performing up to scratch.

How often would you personally catch up with everybody in these countries.

Every two or three weeks. We don’t treat everything equally. You have to work out what matters and invest time there. What’s interesting is even though I’m based in Melbourne, in theory some of the UK and Europe probably get more attention from me than the Australian arm, because the Australian business just ploughs on. I’m not going to add any value, I’m out at the periphery around it, so I will spend a lot more time chatting to Jillian in England than I will spend talking to, I don’t know, Andrew in Hong Kong or Michael in Dubai or Patrick in Luxemburg.

Where are you now?

I’m in Dubai at the moment; we’re holding our global budgeting meeting here. For us it makes sense. We’ve got guys from around the world, we get them all together. We can do budgeting in four days for the whole group, which I’d rather do in four days than spend two months of pain doing it. We don’t finish it all but we’ll get the lion’s share done very very quickly and we can see everyone face to face. People operate in different countries so they get to [test] our experiences and all that stuff.

How many will you have at the meeting?

Fifteen… no, 18.

From how many countries?

In terms of P&Ls we’re looking at, it’s 10 different countries but there’s about six people responsible for that. By the time you bring the finance people across as well, plus some corporate people from various areas, it’s about 16 or 18 people.

Is it possible to be the dominant player across the major markets?

Everything’s possible. The aim is to be number one or number two in the markets we choose to serve. Now no one else is taking a multi-country approach to this. We’re the only ones doing what we’re doing in the world. But we passionately, crazily, fervently believe that it’s do-able.

How many more countries will you add to your list?

I actually don’t know the answer to that question. It could be none or it could be many. It depends on the opportunities that arise, what’s the best acquisition opportunity to move into them and so on. We won’t do too many organically I don’t think.

We will do some more countries because by definition I’m sitting here in Dubai. We just bought a business here. I’ve got Michael here. I’m asking him to think about how he goes into other Emirates, Abu Dubi, and how is he going to go into Amman and Qatar and Bharain and wherever.

So by definition I will have more countries but they’ll be within the umbrella of existing operations. And then the question is do I do anything in other markets and the answer is probably yes I will. Which one, I don’t know. It just depends on what opportunities arise.

Is the US completely different? You won’t go there?

The US market is very different, but never is a long time. You’ve got to have the right opportunity and the last thing I want to do is go and do something that’s going to lose everyone money. I mean that’s just in the category of stupid.

How long do you take a loss in a market?

It varies country by country absolutely. So for example we’re doing budgeting at the moment. Some of them we’ve said no, let’s see if we can get to profitability this year, so three of them maybe, or whatever number we end up with, and some are saying ‘no I like the long term prospects of this’ and given the market dynamics we’re happy to invest for a couple more years. Just market by market.

What’s changing in technology that’s blowing you away… that’s making it easier to run a global business?

Nothing has blown me away. I thought the iPhone was pretty cool but then I stopped using it because it gave me the s##ts. It’s no use for email. So I’d rather use a BlackBerry. Nothing blows me away. We use Skype. But this is all bread and butter stuff right now.

We have an intranet, we use blogs. We’re using things like Facebook and MySpace to drive traffic and create awareness of who we are. We’re open in the business, some companies block all their stuff. We don’t. We just leave it all open.

So you’re just waiting for the next big thing actually?

The technology’s there. What’s going to make my life a lot easier? Not video conferencing, because I know what these guys look like. The only thing that would make my life an absolute screamer would be some sort of teleporter. I could walk into and out of simultaneously in another country. If someone can invent that… I’m not going to be the first to use it by the way, but I will be once it’s tried and proven.

I’d become a fervent user; but realistically it doesn’t change that face-to-face operating in another country and understanding both the customer and your employees is important. Unless you’re face-to-face just give up, because you’ve got to be leading this charge. Lead from the front. Be there. Be visible. And have fun.