The Business Of Successful Start-ups

Dr Juliet Bourke  00:02

In the early 2000s, Roby Sharon-Zipzer made a crucial decision that would change the trajectory of his life. Like a lot of young couples, he and his wife decided to buy and renovate an apartment. But Roby was no tradie – he was actually an accountant – but that didn't stop him getting his hands dirty.

Roby Sharon-Zipser  00:23

I was trying to get a cable so I could get internet to the other side of the apartment and in order for me to do it, I had to lay this cable into this weird substance on the floor. I started to drill holes and it just produced a huge amount of dust, and I remember my wife, who came into the apartment – I was caked in white dust – and she goes, ‘What the hell are you doing?’ And that moment then is like, I should not be doing this. I have no idea what I'm doing. I need a hand. I would have paid someone anything to do that job.

Dr Juliet Bourke  00:53

And so hipages was born. What began as a struggle with a drill while renovating his soon-to-be home would transform into a home improvement juggernaut, connecting tradespeople to homeowners in minutes through a marketplace app. So how did Roby evolve his idea into what would eventually become an ASX-listed company, featured everywhere from billboards to The Block?

This is The Business Of – a podcast from the University of New South Wales Business School. I'm Dr Juliet Bourke, a Professor of Practice in the School of Management and Governance. 

So Roby, when you came up with the idea for hipages, what was the problem in the market that you wanted to solve? 

Roby Sharon-Zipser  01:47

Okay, so it was an interesting moment. I had a previous business that I was looking to wrap up, I was finding it a bit challenging to get repeat work. We had just gotten married and we bought our first apartment but it was very, very dilapidated, rundown, and we always knew we wanted to do a bit of a renovation. And at the time, it was just really unusual. Like, the only real options you had was back in the day Yellow Pages, and the company that had the biggest ad in that book was the one that won the most business. And there wasn't really much else out there to find trades and it just felt like there was a gap. Like, how do you know that they're any good? How do you know what the rules are in an apartment about renovating? Who's going to project manage it? What do things cost? How do you get assurances on quality? Like, there's so many questions, it just seemed like there was just a massive gap out there. And this is even before ideas of ratings and recommendations and things like that were even available, they were just getting started. And how do you find these people? I'm sure there's a lot of them out there, you can see them all on the roads. How do you get them to come and do your job? So I think the whole idea was born from there. It just felt like there was a massive gap in the market, and we ended up creating hipages. Took me about two to three months to do some research, I spoke to a lot of homeowners and tradies, realised that homeowners had the same issues that I had. And I was speaking to trades and they also had a lot of problems – like finding the right type of customers, managing and running their advertising. The whole environment, the whole online digital environment, was changing so rapidly, they needed a hand with that. And I thought, ‘Oh, these guys could do with a bit of operational assistance’. So, if you think about trades – generally really, really street smart, really good at problem solving, awesome at their craft, but sometimes the gap in managing and running their businesses, the technology to run their businesses, how to be a sophisticated marketer, they don't teach those skills in vocational training. In terms of the TAFEs and things like that, it's not the priority. It's the craft that they're teaching. So there was a gap.

Dr Juliet Bourke  03:49

How did you get people to want to advertise with you?

Roby Sharon-Zipser  03:53

So I, as an accountant, am not a natural salesperson. I'm really analytical, really strong at reconciling things in mathematics. To actually pick up the phone and explain a service to a tradie and then ask them to buy something off us, that's not an easy thing to do, and many people that tried to do it in this category were not successful. They weren't able to take that leap from MBA, business school, postgrad studies to actually speak tradie. And for me, the way I overcame that fear – and maybe there's an opportunity to learn something from this – is I did a survey. So I did all the surveys myself. So I picked up the phone and I called a whole bunch of trades and did a survey. I think we called... I think I called about 40 trades, and I picked them randomly from all different sources – fridge magnets, flyers, magazines, the Yellow Pages – gave them all a call and I got really comfortable talking to them. So I asked them three foundational questions, explained the service that we wanted to offer. That was question one: were you interested in that? Yes or no. Really simple. Would you pay for that? Yes or no. How much would you pay for it? In this range or that range – yes or no. And then if we got you no work in the first year, because it was kind of reasonably priced, would you continue in the second year? Yes or no. That was it. And I just sort of built a survey and then I had like a comment section, because we were just having chats about some of the things that they were experiencing with advertising, technology, running their businesses. And I just wrote all these comments down. I still have the spreadsheet somewhere, and that gave me enough data to build the business plan, but also the initial confidence to speak to trades. And when we launched, we did this really cool thing where I was not comfortable to sell and I also wanted to create a bit of a network. And there's so many different trades and we wanted to get coverage across Australia. So I put 100 trades on for free for a year, 100 trades on for free for six months, 100 trades for free for three months, 100 for two months, 100 for one month. By then, to get 500 trades to take a free service up, I'd had to speak to about 2000 trade businesses, and I did that in the first two months. It was a lot of work, a lot of hours on the phone, but I was speaking tradie. So I'd spoken to a couple of 1000 trades. All on my own, I didn't have any help. Just did that by myself, and then by the time those 30 day customers were getting their free trial over, the opportunity to sell to them came up and the cycle started popping in. But I'd already spoken to them, so I got comfortable, and we've created that process. We still have that process today in hipages. We've been doing it for 20 years now.

Dr Juliet Bourke  06:18

So the business started off as sort of home improvements. Was it always going to be home improvements? Was it going to be more general than that? What did you have in your mind?

Roby Sharon-Zipser  06:27

So when we started, we had a natural health directory and we had the home improvements directory - which HI stands for, home improvement, so hipages – and we went into pets. We had a generalist directory over time, but about 10 to 12 years ago we realised that to be broad based was very, very difficult. Multiple brands in market was very difficult. And what we realised was we were neglecting the biggest category of all, which was the trades, the home improvement category. So we stayed very focused on home improvements. People like to think of categories or think in categories. So if you think about category design – and the best example of category design is when you go to the supermarket and you think about the aisles and how food is organised. People like things to be organised in that way and in Australia, we're very much in line with how we think about services as well. So property... you think about, there's a category specialist there. You think about employment, category specialist. Cars, there’s a category specialist. We see ourselves as the category specialist in trades. So we had to modify our strategy and we divested ourselves of all of those minor categories, and we decided to focus on the biggest category. Which is huge, by the way, it's massive. There's something like $140 billion spent on trade services in Australia per annum. Australians do something like 70 to 80 million jobs per annum with trade services. The advertising space, just for the trades – just that one segment which we operate in – is $1.4 billion. So it's a big category. We didn't need to be so generalist and be everywhere. We wanted to be the leader in one category, which has been working for us effectively. The thing that people don't appreciate about the trade space is in every state and territory there's different rules and regulations on licensing for trades, and we want to be the expert in that. So we have an internal expert group of service providers that understand all the licensing, all the regulations around trades, and so we're the best at that.

Dr Juliet Bourke  08:21

So how does the technology behind hipages work?

Roby Sharon-Zipser  08:25

We started off as a directory, classified. What you'd expect – the old Yellow Pages. Still can get classified directories out there. But what we did is we realised that Google was coming along and doing Google Local and doing it really well, and it was going to be hard for us to compete. So what we did is we flipped to become a marketplace. And what that is is, instead of human beings that are like the homeowners that want trades would go around through a list and call around till they found someone to connect with that would give them a quote, come to their house and do the quote, check on what they want to get done – that kind of thing, that's very manual process. So what we did is we introduced an algorithm, a matching algorithm, which allowed the homeowner to go on to hipages, fill in a form in terms of what they need to get done, answer some questions, add a picture of the work that they want to get done, write a longer description. We ask those questions and then our algorithm would take all of that information and then find the trades that said that they wanted that type of work and connect them almost in real time. You as a consumer today, when you post a job on hipages – so a job is anything that you want to get a trade to do something for you – our algorithms will connect you within a minute, literally a minute, with a trade, within probably two to three minutes a second trade, and within 10 to 15 minutes a third trade to give you three quotes on the job. And they can do the quotes through our messaging application. But lately, we've introduced a platform which allows trades to do the job management so that allows trades to do the scheduling, the quoting, the invoicing, accept the payments, integrate with accounting software, provide them with some business intelligence about how they're tracking and performing as a business. That's all available now in an application, which we call hipages tradiecore. So we have the marketplace, which is the Connection Machine, and we have the software piece which assists the businesses, the trade businesses, to do their matching. So it was a major pivot for us as a business, we had a directory and we transitioned to a marketplace in 2012. We still offer the directory, it's still part of the service, but Google Local... like everyone's going through search. So after you see the paid ads on Google at the top of the search bar, then you've got Google Local usually, and then you've got the free search. How do you compete against Google in that way? So for us, we had to have a differentiated product for the homeowner and a differentiated product for the trade, and then we had to build our brand and we've invested quite heavily on our brand, certainly over the last six years. 

Dr Juliet Bourke 10:44

Do you have any competitors? 

Roby Sharon-Zipser  10:45

So the interesting thing is, we do have competitors, but it's not what you think as the main competitor. So in terms of the main competitor for us it's word of mouth. This is where you go to your friends or your dad for a tradie you use. Now it doesn't really make a lot of sense to go to them, because they're not going to give you any sort of support if something goes wrong. They're not doing the checks on the trades, whereas we do that. So that's our main competitor – referrals from other trades, referrals from friends, family. Actually 61% of work – those big numbers I said earlier in the session – 61% of that work actually is generated from word of mouth.

Dr Juliet Bourke  11:21

How do you compete with word of mouth? For Roby and hipages, the answer is to offer a more complete service than one that comes through a friends and family recommendation. But how? Barney Tan is Head of the School of Information Systems and Technology Management at the UNSW business school. He's done research himself into how platform services, like hipages, work and their key benefits. 

Professor Barney Tan  11:47

One of the major benefits of a platform based business model is that they tend to be a lot more scalable. If you think about examples – like, for instance, Uber, Airbnb or even Amazon Marketplace – for these businesses to relocate from one region to another it's simply just a matter of replicating their business model. They do not have to source for products to offer to the market, right? What they do is to basically look for a pool of suppliers who are willing to onboard onto their platform. And this is a major advantage that really translates to great scalability, because all the costs of maintaining those products and services are shifted to a third party. Another major advantage of platform models is that there are low marginal costs. In other words, once you have the right infrastructure in place, the cost of serving additional users is relatively low. Unlike conventional businesses that actually have to invest heavily in production or inventory to scale, platforms mainly need to maintain their technology to facilitate those interactions between providers and consumers. This allows them to scale at far lower cost compared to traditional businesses. In the case of Roby, hipages algorithms can match homeowners to trade people without significant incremental costs. So it doesn't really matter if they are facilitating 1000 transactions or 10,000 transactions, the costs will not differ significantly. And I guess one of the final things about platform is that if you have grown a platform to a sizable state, it's important to lock the entities into the platform, and this is done by really holistically catering to their needs. In one of the studies I conducted, for example, it was a platform that offered loans, micro loans, to consumers. And what happened with this platform is, after they grew to a certain stage, what they realised is that consumers could still leave the platform if they have needs that are not being fulfilled by the platform. What they've tried to do is that, you know, instead of just offering the individual loans, they offered them an outlet for their loans as well. If they are borrowing money, where are they going to spend the money? And if they spend the money, where are they going to earn the money to repay their loans? So they started looking at holistically the lifecycle of the consumer, and they tried to cater to every need within the platform itself, so that the platform becomes a closed loop ecosystem.

Dr Juliet Bourke  14:28

So you pivoted to a marketplace in 2012 what was the next evolution for hipages?

Roby Sharon-Zipser  14:34

Our next big pivot happened in 2022 we looked at what was going on in our marketplace... and I think one of the catalysts for this was the macroeconomic environment. We were subject to major swings in the environment in that, covid was really good in the beginning but then got really bad. So in the beginning, trades were deemed as an essential service and no one could travel. So there was a lot of discretionary money floating around, government stimulus was floating in people's bank accounts, so they started to spend money and trade had capacity. They weren't fully booked. And we were able to leverage that and we listed hipages on the ASX around that time. What then changed for us, though, is the Delta strain. The Delta strain resulted in trades not being allowed to be deemed as an essential service. Not good if you're running a marketplace business. And so we sort of learned from that and said, I don't want to be running a company that's so impacted by macroeconomic conditions. It's incumbent on me, in terms of developing strategy, to ensure that we protect the business whether the economy's up or down. And so the way to do that is, firstly, to ensure that you have a subscription product that gives you a lot more protection. We're already transitioning to a subscription product. What it does is it gives you certainty of revenue streams, but also allows you to invest on more marketing and more technology in a sustainable way. But then also, what we wanted to do is we wanted to start providing more services to trades, help them run their businesses better, be more productive. It's super competitive out there, so what we wanted to do is give them the tools in their hands, which is in the app, and soon we'll have a desktop solution, but the app that gives them the ability to do better scheduling, more accurate coding, invoicing and collecting payment right after they finish the job. It's one of the major issues that trades have is they don't get paid fast enough after they complete work. Integrate that into their accounting solution all seamlessly, all in real time. And so the big shift for us was to launch a product called tradiecore, which is effectively at the core of the tradies business, is to help them manage and run their business. And in April of this year, we did an amalgamation of the marketplace – which is the lead generation for the trades – and the software solution – the job management solution – into a single app. We rolled that out in Apil, and that's becoming now available to all our tradie customer base. So what we're trying to do is not only help the trades be better marketers, better business operators, but give them all the tools they need in one application to run their businesses brilliantly.

Dr Juliet Bourke  16:56

And subscription just walk me through that. What are people subscribing to?

Roby Sharon-Zipser  17:01

Oh okay, so just to be clear, they're all on subscription. So we moved everyone over in 21/22 to a subscription. 

Dr Juliet Bourke  17:08

Did you lose people?

Roby Sharon-Zipser  17:09

Yeah, we did. We did. There were some customers that weren't prepared to commit to the subscription, but it was really an economic decision. First of all, we wanted to make commitments to invest in technology and build our brand so that people would know who we are. And we were very honest with customers, like it costs us – to bring you on, set up your profile – on average $400 to $500, but if you're only prepared to spend $300 a year with us I can't support you as a customer. And what we found is that customers that were on a subscription were paying us about $1,000 a year. So it worked for us. And we weren't making any money. Last year, in 20 years, was the first year we actually made a profit. So we were always investing in the technology, investing in building brands, and we've reached that sort of inflection point in the business in the last year where we actually became profitable, which is great. That's what businesses are there to do. You got to be probable after 20 years, mind you.  

Dr Juliet Bourke  18:00

After 20 years, can we just pause on that? That is a long investment cycle. 

Roby Sharon-Zipser  18:04

It is yeah, it's huge. But it's not unusual, especially if you think about marketplaces. So marketplaces are one of the most complicated businesses to run in the world. First of all, you have to create what's called the network effect. So the network effect is where you actually have a network of homeowners and trades that can meet the demand, and every new additional member that joins the network adds more value to the network. So creating that network effect is incredibly hard. So you can go anywhere in Australia right now and find any type of trade, even regional areas, and hipages will likely be able to help you get that connection with up to two to three trades. That's really, really, really hard to do. And then the second thing you have to then do is build a brand. And that also costs a lot of money to build a brand, so people know that they can come to your marketplace.

Dr Juliet Bourke  18:53

Were you always intending to list on the stock exchange? What was your original – when you're standing in the apartment with your wife thinking I'm gonna do hipages...

Roby Sharon-Zipser  19:02

Absolutely not. I didn't think we were gonna list. I thought we would do this, like probably most founders think, we would do it for about six to 10 years, someone would buy us and then, you know, I'd move on to the next thing. Our story didn't turn out that way. So the way our story panned out is we took on some initial investors with that type of intention in mind. I think we never really spoke about it, because we were so busy working in the business. My partners and I, we were just full throttle – speaking to customers, you know, 70-80 hour weeks, working weekends, working late. We didn't have that in mind. But then we had different types of strategic investors in the business over time and our pathway was almost set in that we were waiting for certain stars to be aligned. In our case covid was one of those events that sort of brought the alliance of stars. We had strong supply of trades, we had strong demand from homeowners, and our economics as we were migrating customers to that subscription model meant that we were starting to grow quite rapidly, and we had a sustainable, predictable model. So one of the really important things is, when you do a prospectus, if you really want to get institutional support is you need a strong, stable, predictable business. And we had that. We were able to do some very predictable forecasts for the business, and we were able to get meaningful institutions to back us. And so we had to go down that path of an IPO, and that was where we created the most value for shareholders. So we've been listed now since... 12th of November 2020 is when we listed. So it's getting close to four years now.

Dr Juliet Bourke  20:35

And so what changed for you to make you want to do that? Was it just about raising capital, or what was it?

Roby Sharon-Zipser  20:41

Ah so, one of the things is it was important that we had a lot of people back hipages over the years – like really put a lot of capital behind us, took a lot of risks with us – and for me, it's important that we provide a return to those people. As a founder and as a CEO, I have a lot of respect for people that believed in you and also people that took the risk and they put money behind you, and that's really precious. There's more things more precious than money, but the trust and the fact that they backed you and believed in you, it's important to give them a return, something back. And so for us going to do an IPO and being listed on the ASX was one of the quickest ways, after quite a lot of time with that backing, to get that return back to those people that supported you in those early years.

Dr Juliet Bourke  21:31

And how have things changed for you as a human Roby, going from founder to CEO?

Roby Sharon-Zipser  21:36

I suppose one of the nice things to have as a CEO of a listed company and pass through many of the hurdles, is to have a high-quality management team, a high-quality executive that can help you run the business so that you as CEO - and this is not a cliche – I was always in the business doing work, finding fires to put out and work on those, but I actually am working on the business as a CEO and refining our strategy, thinking about our strategy, looking for opportunities that can make our business better and stronger. And also, the nice thing about being listed is you also have a whole bunch of governance that goes behind the business that allows you to have a whole bunch of directors that ensure that you have proper audit and risk processes, you have proper remuneration processes, you have ESG, you're compliant with all the laws and regulations of the country. Privacy laws are all new things coming, and having a good governance framework allows external, independent people to help make sure that you as a business is building that into your organisation and creating a sustainable business for the future.

Dr Juliet Bourke  22:42

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