John Rothwell is a self-made man. But unlike the stereotype, he is not ruthless nor is he arrogant. He runs an internationally successful boat building company based on respect for his customers, his employees and his partners. In return, he has acquired the unreserved loyalty of a management team that has stuck by him for almost 30 years.
According to Rothwell, “I’ve tried to avoid the ‘big business’ bureaucracy that can so often infect a company as it grows, and I do this by keeping my management structure as simple as possible.”
The results of his convictions are only too apparent. Austal Limited started with $200 thousand and five people. Today, it employs more than 1,800 personnel, is capitalised at $153 million and operates four international brands, with a current contract order book of over $455 million.
So why, then, would a man so clearly intent on maintaining simplicity in business choose to use venture capital for growth and, ultimately, accept the complexities of running a publicly listed company?
For Rothwell, it was a matter of finding the right balance between company ambitions to grow and a personal desire to preserve Austal’s small company culture.
Arriving in Australia as a Dutch migrant at the age of ten, and leaving school at age 15, Rothwell is an entrepreneur of humble beginnings.
A number of casual jobs led to an apprenticeship. At age 24 he founded a small structural engineering business. This became the platform for Star Boats, a boat building company, launched in response to demand from supportive family and friends in 1972.
It was at this time that Rothwell made the first of many creative decisions that came to set him apart from others in the game. While the common practice of boat builders at the time was to use fibreglass, Star Boats decided to build a hull made from heavy-plate aluminium.
“The strong and light boat quickly found a market in the Australian cray fishing industry,” says Rothwell. “In our first year, we built 29 boats, and this gave us what we needed to expand nationally.”
By the time he sold the business to the Quintex Group in 1984, then partly owned by Christopher Skase, Star Boats had three operating facilities in Australia, two in Western Australia and one in Queensland. Rothwell identified China as the next big market for high-speed ferries and with four ex-Star Boat employees set up Austal Ships.
It is often said that success happens when planning meets opportunity. According to Rothwell, sometimes the process can work both ways.
“Star Boats and the decision to build strong aluminium hulls was a matter of opportunity rather than planning. It was a hobby that I turned into a business. But it created the time needed to develop the vision and strategy to create the fast ferry business,” says Rothwell.
“We were a young group. Apart from me, the oldest in the team was 28. The youngest was 24. We had very little capital. Only two of us were able to underwrite our ownership.
“Our objective and the reason for the structure we chose was to build and sell high speed, aluminium passenger catamarans to the world market with the initial focus on China.”
High ambitions were met by solid interest. Negotiations with the Chinese Government took 11 days and a contract was signed for a 40-metre ferry for approximately $4 million US dollars, but subject to the provision that Austal provide a bank guarantee for the amount of the contract as security in default.
“This contract was the breakthrough that Austal needed. It could be used to cut our teeth. But, of course, we did not have the securities for the US$4 million bank guarantees required for the contract. I guess you could say, this triggered Austal’s first foray into the capital raising arena.”
In 1988, with the conditional China contract in hand, the buoyant fledgling company hit the Perth banks. The response was less than reassuring.
“No one would take the risk. The big banks were too process driven and none would give us a second look, despite the fact that we had this big contract.
“Eventually, and it was our last option, we went to the Standard Chartered Bank. They sent the State Manager and his Commercial Manager out to our site and a short while later we were given the green light.
“Within a matter of months we won our second contract with China and, again, we had to visit the SCB. They said, “We’ve just given you security for four million dollars. Eight million’s not much worse. What the hell – why don’t we do it again”.
“With that reasoning they backed us and we have never looked back. If it hadn’t been for that we wouldn’t have sent 29 boats to China. It was honestly our last call.”
Unlike most companies that secure venture capital, Austal Ships never went looking, and when the decision was made to accept private equity, Rothwell had a number of suitors to choose from.
“People started approaching Austal. We were operating by the seat of our pants. We didn’t have any debt but we didn’t have much cash either. We reasoned that it would be nice to have money for growth but, at the same time, we weren’t keen on the idea of external interference. I was worried about getting a couple of bankers on the Board that may stifle the entrepreneurial culture in the company.”
What, ultimately, caused the Austal Team to change its opinion?
“In the end we didn’t go looking for money. I thought long and hard about whether we needed or wanted venture capital at all. We went looking for partners that could bring new skills to the company, and this is advice I would give to any company.
“We chose Australian Mezzanine Investments, because Bill [Ferris] had an entrepreneurial spirit. He’s a smart guy in a functional way, with a lot of professionalism. He became our partner with great contacts and great structural experience. He brought more than cash to the table.
“In the end, you don’t want just any money. You want smart money.”
In 1988, Austal Ships listed on the Australian Stock Exchange. Again, John was forced to weigh up the benefits of greater access to capital versus external interference.
“I kept wondering whether the whole thing would be a distraction, but in the end I became convinced that the smartest way out was to give those people who wanted to exit the best opportunity to do so.
“All entrepreneurs will face the downside of growth at some point. The challenge of any entrepreneur is to recognise good processes and empower your staff through trust, to fight against those things that stifle efficiency and disrupt creativity in a business.”