Rhodesian born Greg Wilkinson began adult life as a global wanderer. He eventually settled in Sydney and founded a small software publishing company called Reckon. After much sweat and a little luck, Reckon Software grew into an Australian powerhouse, with small business accounting software Quicken the jewel in its crown. After a dot-com dalliance, a desperate IPO, a share price collapse and a recovery, Wilkinson now lives a life of satisfied semi-retirement. He chatted to Anthill editor Paul Ryan about an entrepreneurial life less ordinary.
Paul Ryan: Tell me about your life prior to founding Reckon in 1987.
Greg Wilkinson: I was a Rhodesian boy – it was still Rhodesia when I was there. When I finished school the only options available were to go to university or do national service, so I did national service and got stuck in a five-year war. I left just before it became Zimbabwe – it was all getting a bit dangerous. I left with $250, which was all you were allowed to take with you. My first job overseas was washing dishes in Austria. From there I ended up running youth hostels in London, teaching English in Italy, scrubbing yachts in Vancouver and helping people onto ski lifts in Whistler. I did long-range Land Rover trips through the Eastern Bloc countries and in the Middle East. Then I did a motorcycle trip from London to Cape Town. This was all on money earned by doing these odd jobs. It was a fantastic experience.
PR: That’s an exciting start to life.
GW: It was, yes. But it doesn’t look so good on the CV.
PR: That depends on the job you’re applying for.
GW: After all of that travel, my friends were largely Australians, because, of course, Australia is a nation abroad. On the African trip it struck me that I had to get into computing. I realised that it was going to become pervasive. That was about 1983. I spent a year in Australia before returning to London where I took a microcomputing sales course. In those days it was all about programming. I had no idea what a computer was for; I just knew that I needed to do something about it. So the sales course was ideal. They basically taught you how to use a microcomputer (as they called it at the time) and how to use a word processor, spreadsheet and database. It suddenly all clicked and I thought: ‘This is ridiculously simple. Everyone should be using this.’
I got a job with a software publisher called Caxton, based in Covent Garden in London. The operating system at the time was CP/M and the IBM PC had just hit the market. Basically, it turned the personal computer into a business tool. So all these programmers were frantically writing for PC DOS and, like most book authors, they had no idea how to get their programs to market. Caxton was one of the world’s first publishers. Their job was to take the product, package it up, market it and support it. That’s how I learnt the business.
I was always planning to come back to Australia so when I received my residency permit I went to the authors of the products I was selling in London and asked if I could publish their products in Australia on the same terms as Caxton. They said “sure”, so I signed up the publishing rights, came to Australia, went straight to the distributors and told them I was their new supplier. So we started publishing.
We didn’t have any money. I had enough money to buy a car. Phil Hayman, a friend of mine with whom I had travelled extensively, had a credit card with a $2000 limit. That was our start-up funding. The distributors, International Software Distributors, were based in Melbourne. So not only were they buying our product from us and distributing it throughout the country, but we also became their agents in New South Wales for the rest of their range, in order to make some money. Phil Hayman had no idea what the computer was for, so he became salesman of accessories. This was 1987. We were joined soon thereafter by a guy called Steve Rickwood, with whom I had worked in London. He was a very good salesperson. He became sales and IT, because he had done a computer science course. The first product Phil learned was an accounting product we were using called Desktop Accountant, so he became the financial controller. And I was the guy who was trying to pull together the products and run things. For the first two to three years we were in a little office above a real estate agent in Rose Bay. In our first year we turned over $197,000. By our tenth year we were on about $10 million.
PR: So the product development was all still being done in London? You were basically selling their product to the Australian market?
GW: Yes. In essence, until we acquired APS in 2002, we were exclusively a publisher. We never did any software development. There are a plethora of people writing products out there who have no idea how to get them to market. What we specialised in was localisation. If we were doing a CAD product that was developed for the US in imperial measurement, our job was to make it capable of being used in metric. If it was an accounting product, for instance, QuickBooks, it needed to be localised for Australian tax standards, etc. That’s where our speciality developed.
We were never just a distributor buying products from the US and UK, landing it here at a specific price, putting our margin on and then trying to sell it. The model was different. We said to them, “We’ll manufacture under licence in Australia. We’ll sell the product at what the market can bear. We’ll localise the software, package it and market it for this specific market. And then we’ll pay you a royalty of 20 percent of any revenue we invoice for the product. A lot of people didn’t go for that, for various reasons – they thought we wanted exclusivity, or to hog their product, or they didn’t want us to have access to their code. But those organisations that did go for it enjoyed market leadership here very early on, because we were able to do promotions like ‘buy two, get one free’. That wasn’t viable for the other distributors at the time. It gave us a strong competitive advantage and we’ve always maintained that model of publishing.
PR: It seems to me that your strength, especially in those early days, is still one of the perceived weaknesses in Australia: taking great intellectual property to market – bridging the commercialisation gap. Over the years, have many companies with promising products come to you to help them through that process?
GW: Absolutely. I’ve had people call me up and say, “I’ve got a good idea but I don’t want to tell you about it until you sign an NDA (non-disclosure agreement).” I’d tell them to take their idea, spend $1 million developing it and when they had a finished product we might publish it. I’ve also had people present us with products outside the market we address. We’ve always addressed the small business and personal productivity market, mainly because I could understand them. I was a small business and I had personal requirements. Since we acquired APS we’ve branched out into the larger corporate market. But APS is totally self-run, it manages itself completely and I still don’t understand the business at all, other than the fact that it is very well run.
PR: You were focused on localisation early on. Was it always part of your strategy to go beyond the local market?
GW: Not really. In fact, the story of how we came to be publishing QuickBooks is a good example. We were publishing a product called In-House Accountant. We got hold of the product off a big software distributor that went bust. They were making all of their money selling high-end products like Lotus and Excel. They had these products that were specifically designed for small business, but they didn’t know how to distribute them. So we were literally buying their entire inventory and distributing it into our customer base. We did that for three or four months and then I contacted the publisher and asked how much product he had sold for the past six months. But before he could answer I said, “Don’t tell me. I’ll tell you.” He said, “How do you know?” and I said, “Because we sold it all, and your problem is that you have a distributor buying it from you, then they’re selling it to us then we’re selling it to retail and then they’re selling it to the end user. There’s a huge amount of money in the middle there that could be used for marketing to get you the market lead. So why don’t you just go the publishing model with us.”
In-House Accountant was a great little product that really took off here. I thought that it would sell really well in the UK. So I went over to the UK and did a feasibility study, got it all setup, came back to Australia, contacted the authors and told them that I would like to publish their products in the UK and Europe, but not until their Windows version came out. They told me that there wasn’t going to be a Windows version because they had just been bought by a company called Intuit. I realised that they were distributing what I considered our flagship. I went over there and met Intuit founder Scott Cook to figure out what we were going to do. We ended up with the publishing rights to QuickBooks and Quicken, which of course was a large stroke of luck and an absolute coup because they’ve become the worldwide gorilla in a market that Microsoft just hasn’t been able to penetrate.
That was our first for overseas, which didn’t work out. We did go in check at India a good 12 years ago and realised that that place would be ripe for picking. But, once again, it felt a little too hard. Australia is a market that you can get your arms around. We now have Australia, New Zealand and South-East Asia. Southeast Asia seems like a large market because there are a lot of people, but there are a lot of small countries that all speak different languages with different localisation requirements and different political issues. We have a distributor that is based in Singapore. They pay for localisation in the markets that they address and they simply distribute for us. We seldom product and they sell it on. For us, South-East Asia is a no-risk business, but not worth any more effort than what we are putting into it.
PR: You mentioned Reckon’s start-up capital, which was a $2,000 credit card and a loan against your car. In 1999 you listed on the ASX, but how did you fund the business between start-up and IPO? Was it all organic or did you go through other rounds of capital raising?
GW: No, it was through factoring. Because we grew so fast we often didn’t have the cash to buy product. Our suppliers were on 30-day terms and some of our retailers were on 90-day terms. We basically had over-traded. I always thought factoring was the last resort of finance, and while it is reasonably expensive, if you can keep it under control is a fantastic means of managing growth. A factoring company buys your invoices at the date of invoice for 80 percent of their value and then pays the other 20 percent when you get paid. And then they take a margin percentage. That really helped us a lot. You just have to make sure that the invoices you are selling to them had a very good chance of being paid.
PR: Was that a difficult learning curve?
GW: Yes. Because administratively we were never really hot. We had good external accounting backup, it was only really in 2001 when we were in a lot of trouble that I realised the need for very strong financial management. To any of your readers I would say get that piece in place from day one.
PR: How was the decision to go to IPO taken, as weighed against other options? And how did you find the process?
GW: Well prior to that, Intuit decided to get on the dot-com wave. They had hundreds of thousands of customers who used their software to manage their business and personal finances and it seemed at the time that the internet was going to be ideally suited for distributing these products electronically. We arrived at the same conclusions, so we decided that we would follow Intuit and start developing a financial services website where you could get a range of mortgages and loans, trade online, etc. It was all going to be part of Quicken.com.au. In order to do that, we needed to raise a fair bit of money. We needed to expand our footprint into New Zealand and South-East Asia. We had to firm up our agreement with Intuit so that it was perpetual – so the Quicken software and brand were effectively ours.
We sold 35 percent of the business to South African investors for $6 million. It was a very easy negotiation. The organisation wasn’t, on paper, worth that at the time. But they thought it was a good punt and set about getting the money out of South Africa. So we started developing. We opened offices in Singapore, Hong Kong and Auckland, which was very expensive. By the time we were due to get the money from our South African investors, we had spent the money. And then the Russian economy collapsed. The Russian economy mirrors the South African economy, in terms of resources, so the South African economy also started to collapse. It meant these investors had too much invested outside the country, because you could only have a certain percentage of your nett asset value outside the country. There we were owing the bank somewhere between $4-6 million, and the likelihood of our funds not coming through. That was fairly traumatic. They set about finding other ways of getting the money to us, because they were men of great honour. They succeeded, but they were also quite concerned because they realised that the money was pretty well spent and we were going to need an awful lot more.
It was at that point that the dot-com window opened. We didn’t want to sell off any more of the company, so listing really was our only option. The major banks jumped at the chance to help do the first serious Australian dot-com listing (because the Quicken brand was behind it). Here were these two massive banks (Warburg Dillon Read and Merrill Lynch) doing joint lead management on a listing for a company that was turning over $17 million at the time. It was all completely out of proportion, but I certainly didn’t mind because we needed to get up and going. The listing process was very quick and efficient. I was amazed by how long and hard the bankers worked to get things done. I wasn’t overly pleased about how much they cost, but that’s what was negotiated. But once the listing happened, they were gone… as quickly as the dot-com bubble was gone. I realised that to get where we wanted to go we would need to raise another $200-500 million. When the dot-com bubble burst, there was no way we were ever going to be able to raise the money. So we stopped the whole dot-com process, other than those things that were successful at the time, and reverted to becoming a software publishing company again.
PR: Did you find, however, that getting all of your affairs in order was a useful exercise in terms of making sure all aspects of the business were sound?
GW: The whole dot-com experience became really awful. Because we were making the losses that we predicted in our prospectus, we thought we were still comfortable. But no, those losses started to become compared with MYOB’s profit, and MYOB wasn’t a dot-com company – it was a software company. So by the end of that process I just became known as a bloody liar. That wasn’t a comfortable place to be, but I literally had to take it on the chin. Our share price went from $2.90 to $0.07. So we just put it all back together and soldiered on.
PR: I often ask entrepreneurs who go to IPO whether there is a temptation at that point to move on to another challenge or stage in their life. It sounds like that wasn’t an option for you.
GW: No. The psychological danger is that the IPO sometimes feels like the finish line but when you get there you suddenly realise that it’s the start line. So you have to rejig your psychology to the fact that this is serious. This is other people’s money. This is public. I could go to prison. I need to make this work and I know now that it’s not going to because the market has lost its bottle. So what to do? It really became a very hard climb out of a very deep hole.
PR: In the transition from private to public company, other than pressure, how did your day-to-day managerial life change?
GW: Quite fundamentally. Prior to IPO I was CEO of an operational organisation – and not a very good one, I have to say. I’m fairly good at picking where the market is going. I’m not very good at managing the company at all. So when we listed on the stock exchange the whole focus became convincing investors that it was a good idea to stay in. In some places the infrastructure was falling apart, because we became so disparate (we had offices in Hong Kong and Singapore that were costing us far more than they should have been). The underlying management of the organisation wasn’t very strong. Basically, once we went down to $0.07 per share, we went back underneath the radar. No one cared about us. Everyone thought they had lost all their money. That was perfect because it allowed me to strengthen the management and rejig the entire organisation to get back to where it is today.
PR: Another salient moment in your career was the introduction of the GST. I imagine it did wonders for your business.
GW: Mate, it could not have been worse. That was, in fact, where it all went horribly wrong. Because we decided we were going to become a dot-com company that sold software, the only part of the software piece we wanted was the development and localisation. We had outsourced the manufacturing, sales, distribution and support. The GST hit and for us it went off like a nuclear explosion. In July 2000 we sold more software in one month than we had in our entire history to that point. So the manufacturers could not manufacture fast enough for the distributor, and the distributor could not get software fast enough to the retail channel. So everything went into overdrive outside of our vision – all we were doing was invoicing. We planned for the amount of software that was sold, but we didn’t plan for the amount of software that was going to be demanded by the channel, because they didn’t think it would stop. Harvey Norman was ordering massive amounts of software on a sales or exchange basis. The distributor was ordering and the manufacturer was manufacturing to those requirements.
In August 2000, it ended. And when it ended, the retailers and distributors were stocked to the absolute gunnels and the manufacturer had produced enough software to last the whole year at that rate of distribution. They all turned to me and said, “This is your problem.” Our call centre was costing us $250,000 a month because it couldn’t handle the support required for the GST transition. So here we were with an $8-10 million problem that we had to solve. The manufacturer wanted to sue us, even though we hadn’t placed single order with them – the distributor had. The distributor was saying you can’t get out of this distribution agreement without buying all of the stock back. And Harvey Norman was saying we will never buy another unit off you unless you take all of this stock back. We had to get our call centre back in-house, which meant training up an entire call centre without any calls coming in. We smoothed things over with the distributor by guaranteeing business over a set period of time. And we took all of our stock back from Harvey Norman and slowly but surely supplied them with stock until that debt was paid off by them. That was the GST for you.
And whilst all of this was happening, the dot-com bubble was popping. We went from $40 million in the bank to about $5 million. Our share price plummeted from $2.90 per share to $0.07. We really needed a knight in shining armour, someone who could really manage the operations of the business. The Clive Rabie came along and he is a machine. He is now CEO of the group and a master business manager. He started to turn things around within days and I went back to what I was good at.
PR: What have been the pertinent moments since that time?
GW: The first was a move to profitability in the late 2000 – 2001 was our first profitable year in a long time. Our share price started to rise. The original investors sold the rest of their stock to Clive and I thought $0.10 a share. We got back into acquisition territory and acquired APS. We bought them for $10 million (half cash, half shares), and the share price was $0.53 at the time. Those shares are worth about $1.30 now, so they’re very happy. We were quoted this year as one of the top 20 stocks to watch on the ASX.
Personally, it’s been very satisfying for me to be able to take a back seat with a confidence restored in the organisation.
PR: What do you think are the most common misconceptions held by Australian entrepreneurs? What advice would you offer them?
GW: The key lesson for me is integrity. Never do anything that is going to impact on your integrity at any point in the future. If there are options that may help dig you out of a hole now but might come back to bite you in the future, don’t take them. Don’t make a move unless you can back it up. The dot-com thing put a lot of people in prison and in bother because they pursued a greedy opportunity but couldn’t back it up. You have to be honest because if you aren’t you could end up dealing with ASIC or you could end up dealing with Mick Gatto.
Don’t ever use the phrase “if we only gain one percent of the market” when trying to raise capital. It’s hackneyed. Actions speak louder than words.
All markets are different, so be prepared to adapt as you expand. You’re only as good as your last sale. Exporting is often ego-driven. If you are going to expand overseas, do it with minimal risk. Get a distributor over there. Get them to pay for the goods before you ship them. Make sure they’re on your side.
Also, there’s an awful lot of luck involved in business. Any successful businessman out there who says he did it on pure skill is lying to you.
And I can’t over-stress the importance of financial control and a strong business plan, year-on-year. Nail those things and you’ll do okay.
PR: In your experience, how to Australian entrepreneurs perform in other business cultures?
GW: I’ve found that New Zealand entrepreneurs often come across to Australia and feel as though they have to puff out their chests – small man’s syndrome – and there’s no need for that. New Zealanders are fantastic entrepreneurs in my experience, because of their situation. Australians often fall into the same habit in the US and UK. They tend to feel like they need to prove something to the people they are selling to or buying from. It’s taken us a long time to build up relationships in the US and they have only come about purely because of runs on the board. Puffing up your chest doesn’t work. It’s all about the scoreboard.
PR: You mentioned how much you have enjoyed being able to step back from the day-to-day running of the business. Entrepreneurs often struggle with their work life balance – often they just don’t know when to go home. Can you offer some advice on getting the most of all of your life and not just being a slave to your desk and BlackBerry?
GW: It is a case of understanding that there are people out there who can do what you to but do it better. It’s also a case of understanding that there are people out there who are prepared to do it for you rather than for themselves. A very low percentage of the population are entrepreneurial – people who are prepared to take a risk, have a go and not be too afraid of failing. That is a great benefit if you happen to be one of those sort of people, because you will have people out there who, if they get paid a good wage and they work in good conditions, are willing to put their life into your vision. I always found that very surprising because I’ve never been able to say, “Right, I’ll bust my butt for you.” So if you can find people that you can rely on and trust (and that’s only going to come about if you provide the right conditions), let them run your business – especially if they’re better at it than you. Once you accept that, it’s quite liberating. As I loosened my grip on the business, so it took off. It sounds like I planned it, but I’ve just been a very lucky human being.