A strong acquisition strategy and bold ambition has helped make WiseTech Global a truly international company, writes Leon Gettler.
Software developer WiseTech Global is expected to list on ASX later this year. WiseTech specialises in making freight and logistics software under the CargoWise brand. Its customers are asset-based providers – trucking companies, rail companies, airlines and shipping companies, and asset light companies such as freight forwarders and customs agents.
The company, which has appointed a leading investment banker to work in-house to prepare for listing, employs 425 people. It’s on an acquisition spree so it should have around 600 people on its books by 30 June.
In Australia, it is adding 10 people a month. A truly global Australian company, unusual in the high-tech sector, it has customers in over 100 countries.
This year its end-of-year annual revenue will be a little above $70 million and its run rate will be in the range of $90 – 100 million due to organic growth and acquisitions adding to the company’s revenue incrementally across the year. Annual revenue is what the company books for the whole year, and its run rate is the last month number multiplied by 12.
WiseTech had modest beginnings, starting in the mid-1990s in founder Richard White MAICD’s basement. At the time, it was called Eagle Datamation International (EDI). Working with co-founder Marie Isaacs and chief architect Brett Shearer, White jokes that he started the company using his credit card.
Finding a niche
White and Shearer wrote the original software that the company sold in Australia. It had found a niche and was very successful, becoming quite dominant in the Australian marketplace by the end of the 1990s.
But by 2000, White realised that global ambitions and changes in international logistics would require something much more powerful. They started looking at how to globalise the business and build the application of the future.
Thus in 2002, White started working on a new product, this time by building a new team and leaving the existing business as it was. The new product was released in 2004 and was a runaway success.
By the beginning of 2006, the company, still operating under the name EDI, had built a massive presence in Australia and New Zealand, and had a growing Asian customer base.
That was the year they attracted two investors: Charles Gibbon and Mike Gregg GAICD. They took around 10 per cent each of the company. Gibbon eventually became chairman and Gregg a non-executive director (NED).
White increased the company’s global reach in 2006 using the money that he had raised to buy a business in Chicago called Fountainhead. It had a product called CargoWise Forwarder and White decided to name the global business CargoWise, primarily because it was recognised in the US as a strong brand, making it perfect for global expansion.
Most of its American customers believed it was an American company, which for a small Australian company that had no brand or international reputation, was a good thing. It also set up operations in the UK that year and started growing the business globally.
Growth for the business accelerated in 2008 when it changed the business model to create a new “on demand” licensing model (well in advance of the cloud and software-as-a-service revolution) that allowed customers to install and use the software without upfront costs or complex licence controls and conditions. Because of the on demand model, the company grew around three per cent per month throughout the global financial crisis (GFC) while others languished and shrunk.
In 2011, the company changed its name from CargoWise to WiseTech Global after it realised the name CargoWise left most people outside the industry thinking it was a logistics company, not a software business.
The name WiseTech Global was chosen because the word “wise” was seen as the linking word that put all its components together, “tech” because it was a technology company and “global” because, uncommon for Australian tech companies, it was a true global business. It also changed the name of the product to CargoWise One to link the strong existing brand and the product.
Here is an edited version of White’s Company Director interview:
Company Director (CD): How much has the cloud model driven the success of WiseTech?
Richard White (RW): I would have to qualify what we mean when we say “cloud”. We have a licensing model which we call “on demand” which allows customers to pay for the usage. We think that’s been an enormous driver of competitive advantage. If we hadn’t done that through the GFC, we would have been in serious trouble.
Many software companies were very badly hit during the GFC, while we grew strongly. It was quite unusual, everyone was shrinking and going bankrupt and we were growing reliably. Our real secret is not cloud-driven or software-as-a-service, however.
Our real secret is that we put “productivity at the centre of everything” when designing our software. It’s potentially possible to save enormous amounts of cost in the logistics business but you need a software solution that builds this in from the ground up, not as an afterthought. Our competitors are mostly functionality driven and users get lost in complex functionality that does not consider ease of use or productive outcomes.
CD: WiseTech has staff shareholders. What was your thinking behind that? How many staff shareholders do you have?
RW: About 130 staff have shares. If you have one in three staff members with shares, you have got a completely different business. It’s a very driven, high quality culture. It depends on the kind of person they are as to whether they have a preference for this; that’s why there’s 130 people and not 370. People who want to be an investor in their own career can opt to get shares and they do that through performance bonuses or salary packaging.
CD: How did that contribute to the growth of Wise Tech?
RW: It wasn’t the sole reason, but it certainly gives one perspective of why growth is sustainable. You need more than shareholders to make a company grow. You’ve got to have a great idea, a vision for the future and you’ve got to have motivated people. It is easier to do that with staff shareholders who share your mission and are motivated.
CD: How did it contribute to the listing?
RW: We considered our four reasons to [launch an] initial public offering (IPO). When you do an IPO, you build your brand tremendously because people see the transparency, the visibility, access to capital and strong governance as a valuable thing.
The second point is that if you have 130 staff shareholders, then you have to eventually give them a valuation and liquidity mechanism for their shareholding. They may not want to sell their shares, but it’s much nicer to know what your shares are worth and know that you can sell at a market price. Number three is, we have acquired 11 businesses over the period of the company and view this as a skill we should leverage to grow further and faster. A public company is able to issue shares as a form of cash and raise money on market much more easily than a private company.
And the fourth reason is entirely personal, not something driving the IPO decision. I have never listed a company and I would like to do [so], plus a lot of people advise that an IPO is hard so I am motivated to make this IPO a great result for all the shareholders.
CD: When was the board formed at WiseTech?
RW: There has always been a board of directors and we have audited accounts for 15 years. The board processes became formal in 2006 when we brought Gibbon and Gregg on board. They are both non-executive directors and Charles is chairman.
As shareholders, their agreement gave them no right to be directors of the company, but we mutually agreed to strengthen the board and build “public company-like” processes inside our small but growing business. The board has regular monthly meetings. Sometimes if we can’t meet, we will do it by phone or Skype but most of the time it’s been face-to-face.
The board has been [regularly meeting] since 2006 and it includes all the standard board processes. We have a compensation committee, a risk committee and audit committee. I have a very strong working relationship with my chairman and with my co-founder.
A lot of people do these things just prior to an IPO. They create a board process for an IPO, they hire new and untested directors, they suddenly become audited, they suddenly build compensation and audit committees and they’re not used to these processes and when the IPO comes around, they are tearing themselves apart with new and possibly bureaucratic processes because they don’t know how to design, build and run these things. We have taken a well-governed lightweight set of processes and created very functional, richly valuable governance outcomes.
We did the big work in 2006 and did it very gently and we are still working with the results of that. The board will have to change over time but it will change for the right reasons, not because we are in the middle of an IPO process. I am disinterested in taking on directors designed to simply impress markets. This is an extraordinary company with many talented people who add value. This does not preclude adding talent to the board, but it has to be merit-based.For instance, we are looking for a talented director, perhaps a senior chartered accountant with strong technology, and mergers and acquisitions (M&A) experience.
CD: What guidance has the board given for making the transition from a private company to an ASX publicly listed company?
RW: Mike Gregg was the chief executive officer (CEO) of Health Communications Network, which he took public and Charles has sat on a number of public and private boards and is an excellent chairman.
I think that sort of experience brings the requisite knowledge of the positives and difficulties of an IPO and how to transition to being a public board. We are already a public company in everything but title. We have all the core public company processes with agility and effectiveness in mind.
CD: How do you get the most out of your board? What advice would you give entrepreneurs with boards?
RW: You have to be very careful in choosing the right people, skills and personalities. Boards can be very dysfunctional or strongly add value. I had the benefit of sitting on a board for a not-for-profit which was, in my view, a dysfunctional board, riddled with personal interests and unstated conflicts.
I think that coloured my attitude and so when I took the investment from Charles and Mike, there was no obligation cast into the shareholders’ agreement for me to put them on the board. We had meetings that were informal non-board meetings until I felt comfortable that these two people would add significant value. It doesn’t mean that their 10 years in WiseTech Global was a free ride because we passed through the GFC, we passed through other tough times and we learned and grew together.
For example, I had to make some changes to the management team. Originally Charles and Mike had assisted with [recruiting] a senior manager and I found that senior manager unsuitable. Mike was quite stunned with my choice, but supported me because he saw the logic and the issue, and the impact of the change was positive in driving the company’s performance. You have to understand the underlying model of the technology company.
That’s why so many technology companies are so well run by founder technology people. You see this pattern over and over, whether it’s Atlassian or Freelancer, Borland or Oracle, Apple or Microsoft. The people that run the business the best seem to be founder technologists.
CD: You come from an entrepreneurial background. How important has that been for you as a CEO?
RW: There’s four pieces to my background. My mother who I am very close to, is a born salesperson and she taught me many things that influenced my attitude and my enquiring mind.
My father was an engineer so he gave me engineering skills and experience working with him when I was still in high school. I used to mess around in his factory every chance I got and I actually worked for him for a few years when I was young.
My grandfather, who ran a large reception centre, gave me a paid job washing the dishes from the age of 11 and gave me a small pay packet every week and worked me quite hard. I enjoyed it immensely and I watched him and my grandmother run the business and I learned many aspects of the business including bar service, waiting tables, selling and reception. That was very powerful.
Finally in high school, I decided I wanted to be a musician. I was reasonably good at guitar and became a professional musician which pays very poorly even for talented people so I learned what hard work was and the life of a musician isn’t necessarily great. I made a very smooth transition from musician to guitar repairer to building lighting control systems and then writing software. I learned a lot along the way in terms of embedded system design and software engineering. I taught myself a lot of those things as I am a very active learner.
I love learning new things and I love reading complicated books on how things work. I learned how to work with people and how you manage work and relationships when you are in an ensemble or talented group of artists.
The environment at WiseTech Global is very different to a bank or insurance company. For instance, I am sitting here at my desk, I am in the middle of the development area opposite my chief architect who has been with me for more than 20 years. We have literally sat one desk apart for the whole time.
If you want to manage a large group of talented technology people, the best and most proven way is to be one of them, with the ability to relate but also create a vision for all to follow. If you look at our credo and core values you can see this embedded in our DNA.
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