Ed (02:36): Paul, welcome to what is a very special episode of Scaling Up. We have so many wells to fish in today. I’m just going to get cracking straight into it.
Paul (02:47) Looking forward to it.
Ed (02:48): But I think it’s important to create some architecture for the chat because you have seen the full spectrum of the ecosystem. You were obviously a founder and a CEO of a public listed company for a long time in Seek. You’re a board member at the largest conglomerate in Australia, and now as a one of the godfathers of the venture capital scene in Australia, having started square peg with over a billion dollars under management. So, each, I imagine, has involved a diverse set of skills, but what I’m really trying to drag out today is how those skills have translated throughout time. Yeah, all those experiences that you had at Seek for what was nearly 15 years, how they have been put into practice in in later years. So, as I said, there might be some overlapping themes.
Paul (03:35):Yeah, that’s what happens when you’ve been around for a while. There’s a lot of, there’s a bit of experience
Ed (03:39): Indeed.
Paul (03:39): There’s got to be some advantage of age. There’s not much.
Ed (03:42): Indeed, but I thought I’d say that up front because this timeline leaping for listeners hopefully isn’t too confusing, but I think it’s really important to set that up front. So, let’s start with the founding story of Seek. I think that’s a great place to start.
Paul (03:56): Yeah, I mean the founding story sort of interesting. I mean the backstory if you like, was I was working as a lawyer, graduated from Uni 1991. For those that remember or students of modern Australian history, 91 was the last recession we had in this country before 2020. It was a really brutal time, in the Australian economy. So, I worked at a firm in Melbourne called Arnold Bleyer, a lot of high-net-worth clients, very entrepreneurial clients, a lot of them in a form of one form of financial distress or another 18% interest rates, lots of debt, people just taking on more and more debt to buy property because property values kept going up and up in the eighties. That was, in hindsight an amazing time for me to start my career and really had a lot of exposure to sort of a lot of entrepreneurial people, but also just getting a really good understanding of risk.
The second thing that’s really relevant there was probably 1994, maybe early 95, I would say Evan Thornley rang me up and Evan was an old friend from uni where at Melbourne Uni together studying, I think Evan did law arts, but both doing law. Evan had been president of the student union at Melbourne Uni, very involved in student politics, but he had gone on to McKinsey and then he rang me up one day and said, I’m coming back to Australia to set up an internet company. And I literally didn’t know what the internet was in late 94, early 1995, I had this vague notion of this this information superhighway thing.
Ed (05:19): Well, at the time there were probably less than 500,000 internet users in Australia?
Paul (05:24): Yeah, in that period, way less. I would say. Again, I don’t know the number. I’m guessing it’d be less than a hundred thousand in 94/95.
Ed (05:31): It’s hard to fathom.
Paul (05:32): It’s really hard to fathom. It really took off in probably late 95, 96, 97 and so on. But, but a tiny number of internet users in Australia. So, I started using the internet we didn’t have email at that point. I think it was around that time. We started to get email at work and started use email and I accessed the internet through my parents’ place, I would go around there because I didn’t even have a PC and kind of got blown away by the medium. It was a lot of fun acting for Evan in the early days of Look Smart, his business, which was an early search engine. So, I learned about the internet there and sort of got blown away. Then March 16th, 1997, my wife Sharon and I, Sharon was pregnant with our second child.
We were looking to buy a bigger house standing on auction. We’d only discovered this house on the morning of the auction just standing that auction and Sharon wanting us to bid and I’m like, oh, I’ve only seen this house for 10 minutes and we’re not going to bid on this. So, we’re sort of debating it on the spot. Just the whole frustration of looking for a house in the newspaper sort of came into my head and the idea of doing a real online real estate site came into my head. I chatted to my brother Andrew about it, who was then as a management consultant at Booz Allen, chatted Andrew about it. I remember getting onto the computer at mum and dad’s and kind of looking and I’m sure other people listen, have had this exact, the same experience.
When I had that idea, I was absolutely sure I was the first person in the world to have that idea. I was like, oh my God, Eureka, no one’s ever thought of it. So, I remember getting onto the computer and discovering there were lots of real estate sites. I mean, not hundreds and hundreds, but already there were online real estate sites locally and globally, online employment sites, online automotive sites. Anyway, cut a long story short, Andrew and I started chatting about it. We got really enthusiastic, excited by the idea. This was March, as I said. Over the next few months, we started working on a business plan for an idea which became Seek, which became focused on jobs rather than real estate. I won’t bore you with the detail, but we for a bunch of reasons were more attracted to the jobs market.
We were more nervous about the lack of fragmentation in real estate on the supply side. There was much, much more fragmentation on the supply side in jobs. We were more attracted to that market, clearly real estate.com.au being a what, a 15 billion market cap company?
Ed (07:45): They’ve done okay.
Paul (07:46): It would’ve been an okay market to go after, but we went after jobs instead.
Ed (07:49): Marketplace is winner takes most winner are all.
Paul (07:52): That’s exactly the philosophy. There are three reasons we started Seek, and this was basically three questions we answered during that phase of doing a business plan, which was, number one classified is an amazing business, winner takes all or winner take most economics, highly defense ball, lots of pricing power, et cetera, et cetera. The old rivers of gold that Sir Frank Packer talked about of the Fairfax publications.
Number two, we were convinced in 1997 that it was going to move from print to online. It was really obvious to us, and frankly, we weren’t the only people who had that insight. And then the third question, and the hard question was, why us? And we just decided, when we looked at the mark, we were like, look, there’s a few people dabbling. They’re probably not doing it as seriously as aggressively as they could be. Then you’ve got the newspaper guys, and we just thought the newspaper guys be fighting with one hand tied behind their back. The online classifieds market in Australia was probably less than a million dollars across jobs, cars, real estate, the print market would’ve been approaching jobs was about 800 million. So, the print market would’ve been a couple of billion. This is 23 years ago, really, really big market.
The why us was around, we just thought there was a once in a generation opportunity for a startup without any legacy to take advantage of the transition from print to online. Clearly, we wouldn’t have set up a newspaper competing with Fairfax and West Australian News and the news Corp publications. So, it was the disruptive technology of the internet that of course allowed this. I actually had a chat sort of right at the end of this process. Once Andrew and I decided we wanted to pursue this opportunity, I chatted to my boss Joe and Mark, who was a senior partner block level, and told them what I wanted to do. I wanted to be really upfront with him and asked him for leave of absence to kind of go and pursue this opportunity and mention that I’d approached some clients and literally the only people we approached were Irvin and Matt, who were longstanding clients and I’d got to know them really, really well and Matt was a bit sick of working with his dad and they were keen to back us. They wrote this first check, which was a million and a half dollars between them, and Matt joined us as a co-founder. And then we got started in November 97.
Ed (10:00): Incredible story where things to remember here you’re a lawyer, no internet experience, no startup experience. Yeah. There’s no pathway really to follow. This is at the very tip of what becomes the technology Yeah. Scene in Australia. So, I think that’s important for context. Yeah.
Paul (10:19): There weren’t a lot of peers at that point, and that made it harder, but I mean, everyone was competing, it was a level playing field in that sense. Absolutely.
Ed (10:25): Yeah, and what I’m hearing is you were solving a very real problem in a unique way. What I’m interested in and to make the first timeline leap is now looking back, how have you thought about investing in businesses, having reflected on your own founding story about what’s required, the tenacity, the IQ, the EQ to succeed, which you showed an abundance of. Do you gravitate to a certain type of founder that you can almost see, oh, hang on, that was us when we started Seek.
Paul (10:57): You mean lucky founders? Yeah, no, look, I think we spent a fair bit of time as a team at Square Peg. Just fast forwarding now 23 years, we spent a lot of time talking about attributes of founders and I think the starting point is that founders do come in all shapes and sizes and it’s really easy. The founder comes in the doors, come from central casting and you just gravitate towards that person. If you look at the founders in our portfolio companies, they have come from completely different backgrounds, diverse ages, diverse genders, which is obviously incredibly important. They’ve done very different things in their career. They’re very different individuals, but there are some attributes that we think are pretty common to a lot of founders. One is just doing your life’s work or solving an important problem.
And just that authenticity and passion. If a founder comes through the door and there’s all these pages on valuation and what exit multiples will be, and kind of, it’s a very investment banking approach that is a massive turnoff for us. Yeah of course, there is motivations around financial security, but generally speaking, the primary motivations are around solving a really, really important problem in some cases are very obsessive about solving that problem and understanding the founding story, understanding how it was they came to discover that problem and why they’re the right people to solve that problem is incredibly important. There’s pieces around resilience are obviously really, really important. There’s that mix of, and again, this is pretty rare, great founders obviously have a very, very high level of self-belief and self-confidence. You have to have almost a bit of hubris to think I can solve this problem better than anyone else in the world.
On the other hand, you need to have the humility to know what you don’t know. Number one, you need to be prepared to surround yourself with people who are smarter than you, perhaps more experiencing in certain areas. There’s a lot of different attributes that I think make up a great founder. And we certainly this is an art, not a science, but we certainly try to assess founders across, there’s about 10 attributes we look at, and there’s a couple of what we call showstoppers. Which for us, if we encounter those, we immediately sort of pull up stumps to.
Ed (13:14): Could you Give a little color to maybe one or two of those showstoppers?
Paul (13:16): Show stoppers are a lack of integrity, number one. We understand that there is a non-alignment between a founder and investor. When the founders try to raise money, we understand that they, of course they’re going to put the best foot forward. They’re going to talk about the things that are most positive, most exciting about the business. And of course, founders by their nature are pathologically optimistic. We expect that we look for that and that’s a good thing. But if there are experiences where someone kind of basically isn’t telling the truth, they’re dishonest learning about the business, learning about the team with incidents of just black and white lack of integrity, that’s really clear for us. We won’t go into business with people that we think lack integrity. And the other one, actually, it’s a showstopper of us, which might surprise people, is what we call lack of energy. You really, really need a big level of drive and energy to build a successful startup and so, for us, again, it is really subjective, but most of the founders that we meet are just such driven, passionate, energetic people. It might manifest itself in different ways. Some are very extroverted; some are very introverted. But, that level of energy we think is really important.
Ed (14:19): There aren’t many low energy high performers across all fields. A hundred percent, as you say, you can be introverted, extroverted, but that deep enthusiasm for what you are trying to do and that deep resonance of I’m going to do this, they will stop at nothing.
Paul (14:35): Yeah, exactly that’s right and then that doesn’t matter whether it’s people are very successful careers in investment banking or in law or in elite sport like you did, or in politics, in music, in arts, there is that drive, there’s that energy, there’s that obsessiveness. I mean, to be candid, sometimes the attributes that make someone incredibly successful in their career are attributes that make it difficult to live with that person.
Ed (14: 59): Absolutely, yeah.
Paul (15:01): There is something underlying driving, that energy, that sense of purpose.
Ed (15:06): Sometimes they can go too far, and you end up with a sociopath.
Paul (15:09): Exactly right.
Ed (15:10): That’s for another time. The last kind of theme around the founding story, I guess is it must have given you wonderful empathy for what the founders go through on their scale up or start up and then scale up journey and deeply understanding the pain points at each point in that growth curve.
Paul (15:29): I think so. I hope so. What I would say is, I think that it can go the other way. It can be like, oh, I’ve done this, I’ve built a successful business. It’s not that hard. And remember the story in a more linear, easier way than was the reality. I hope that’s not the case. I hope that I’ve got a lot of empathy for our founders, and I hope that they see that. Look, I would say though that I really think, and hope that’s common to our team and our team some of them have operating backgrounds, some have been founders, some have been in management consulting or investment banking or investing in other asset classes. So, there’s a real mix of people in the team, and I think hopefully saying it’s in our DNA at Square Peg is both a passion for the founding journey, but hopefully also real empathy because it is massive sacrifices that founders make.
Ed (16:19): Without doubt. One of the threads I want to explore here is around strategy and business models and let’s go back in time to the days that seek, and I spoke to a few of your ex-employees and they kind of noted around your strategic vision that not only did you run the best strategy sessions that’d ever seen, but you knew things intuitively that people now write books about. And that’s a direct quote, which is a nice way of putting it. But you saw immediate product market fit 15 million I think, in revenue in the first three or four years, and you transform the market, how people not only look for jobs, but how they advertise for jobs. Let’s just dig into the strategy at Seek and how that might have affected your views now on seeing the strategic decisions that other founders make.
Paul (17:07): Yeah look, I mean, I think a couple of things. Firstly, I was really lucky co-founder and Andrew who’s got incredible strategic insight and really, really thinks long term. And then Matt who kind of drove the sales organization. So, we had a couple of the big pieces covered in two of the three founders. But I think there were probably only two big, and again, to some extent I might be saying this a little bit of benefit of hindsight, but I don’t think, so there were two really, really big things. One strategic and one kind of culture. And again, I’m talking about the early years, the first two or three years. The strategic bit was, which sounds so obvious in hindsight, but was amazing that it was not obvious to a lot of our competitors and our investors and others.
These are winner take all or certainly winner take most markets, number one. Number two, we were seeing in disruptive change as a result of the internet appearing. So it was blindingly obvious to us even before we started that employment advertising was going to move from print to online, pretty much all of it, number one and number two that there was going to be a dominant player in given regions. Those were two insights were obvious to us. Once you’ve got those insights, and to be honest, we thought that 800 million might become 50 or a hundred million. We thought it would shrink enormously. As it’s turned out, it’s become an enormous pool of money. You haven’t had that kind of reduction the size the market that we would’ve expected in it more or might have meant imagine 97/98. But once you kind of understand those two things, that this big market is going to move from print to online, number one, and number two, someone’s going to dominate it, your strategy falls out of that.
It’s kind of pretty obvious. We’d go sometimes see some of our competitors, I remember one organization having a meeting company called employment.com.au. They had an amazing domain name obviously. They started really early and the founder basically lectured, Andrew and I one day I remember basically told us off for sort of wrecking the market for everyone and how do you think you can make money at these price points? And we’re like, Yeah, look you make a good point and we’ll take that board. The point being, we left that meeting and almost sort of certainly metaphorically doing high fives because the extent that a competitor was thinking about the market that way, that was like, wow, we don’t think that’s a great insight around how these markets work.
I think the other point also that Andrew really rammed home a lot and that was really, really important was the primacy of the job seeker, if you like. Again, I think the historically and traditionally in print, it was always about looking after the employer or the recruitment firm after the advertiser. Why wouldn’t you? They’re the folks who gave you the money, they’re the folks who pay you. Sometimes it’s kind of very often the interests of the job seeker and the employer recruiter aren’t in, aren’t in conflict, but they’re in conflict in two senses. One is sometimes when you allocate resources, whether you’re going to build a product for the job seeker or build a product for the employer, number one. But also, there were a bunch of things around processes and stuff like that, which actually there were decisions we had to make, which recruiters might, might have been asking, oh, we really want you to build this product, we really want you to do this, we really want you to insist on this as part of the workflow.
But we were like, look, our job is to deliver candidates to you guys and unless we make this compelling for the job seekers who we think are the scarce resource here, they’ll go somewhere else. Particularly the best job seekers will go somewhere else. If you make it like this ridiculously long application form that takes someone half an hour to fill in, they’re just not going to fill it in, or certainly the best job seekers aren’t. We would make a bunch of decisions that I think would prioritize a job seeker over the employers. And that was really important
Ed (20:35): As you grew in the vertical of jobs. I’m sure there were moments in time where there were some really big strategic big-ticket items and they might have been, do we move horizontally here and have a crack at cars or houses? Or do we own this vertical and try and create more value up and down the chain and we might need to look internationally. Big ticket items.
Paul (20:57): Yeah, they were big decisions. A part of the reason we called it seek, firstly we didn’t want to name that was too generic as describing you had mycareer, which was Fairfax’s site, you had careerone, you had employment.com, people kind of just got super confused. So, it was part of the reason using a name which was quite descriptive, it was quite a different name to the others. But truthfully, the other reason we called its was we assumed when we did the business plan that a year in or two years in, we’d expand to real estate and cars.
Ed (21:23): Interesting.
Paul (21:24): And we looked at expansion into other categories several times and each time decided not to do it and ultimately went down the path of expanding to education in international early on, I think a couple of things, we weren’t going to do it too early in terms of going to other categories because marketplaces are around depth rather than breadth.
Whether you’re talking verticals, whether you’re talking geographically, you’d prefer to be number one in one market than number three or four in 20 markets. The economics are just so favorable to being number one. So, we wanted to make sure that we maximized our likelihood of being number one. Number two by the time we kind of thought about that we probably had the organizational capability to go into other categories. Car sales, we became really close with the guys and real estate.com that you were both built pretty decent businesses. The question we had to ask ourselves is, what could we do to unseat guys who had a two or three- or four-year head start over us? But number three, we actually didn’t think we brought that much to bear.
We brought an expertise around building marketplaces. We didn’t really bring a domain expertise. I mean, each of those markets are different. The platform to some extent was applicable, but not that applicable. So basically, we bought the brand to some extent, we brought the relationships, the job seekers, but their relationship with us as was as job seekers, not as home buyers or as car buyers. Each time we looked at it, we consciously made the decision. We did seriously look at it a few times each time we decided, no, we’re not going to do this and then over time the evolution of the strategy was to expand internationally, expand into education. And that worked really, really well and Andrew drove that part of the business as sort of the growth side of the business. And we made investments in China, Brazil and Mexico, Southeast Asia in education with IDP. We started Seek learning, which came out of a small acquisition eventually Swinburn online, which was not long before I left the business. Basically, we thought by going to early-stage markets like China, which hadn’t yet been won, but we’re going to be very, very big markets, we could apply that same approach and methodology and expertise and hopefully become the number one player in a bunch of really large markets.
Ed (23:33): And so, to pull on this thread, leaping forward now 20 years, I’m sure what’s become apparent is how critical timing is for success around these strategic decisions. If you’re too slow, you give others too big a head start, if you’re too quick and ahead of the market, it can fail to land. It sounds like that is almost like being a venture capitalist.
Paul (23:53): Yeah, there’s a lot of that in there. I mean, I think that’s right. Those sorts of decisions, obviously as a founder, as an entrepreneur, you make lots and lots and lots of different decisions. And we are focusing now on the sort of the important strategic decisions. But those sorts of decisions around allocating capital, allocating resources, you’re absolutely right. They’re, they’re very analogous to decisions we make as VCs. I think you touched Ed on timing. I think timing is the most underrated aspect of early-stage investing. And I mean, plenty of people don’t underestimate it a lot, but I think it’s remarkably important. We don’t spend enough time talking about why did the iPhone emerge in 2007. Now, of course part of the reason why the iPhone emerged, and it emerged at Apple was because you had this incredibly talented, amazing group of people who came together and built a vision of product.
But there were so many different factors that meant that the iPhone could work in 2007. Bearing in mind Apple tried to build the Newton 20 years earlier, 15 years earlier, complete, and utter disaster, complete failure. You couldn’t have built it three or four years later because it would’ve been too late. So, timing is incredibly important and one of the things we try to understand when we meet founders is kind of why now? What’s the catalyst? And often there is a technology catalyst, but there might be other catalysts Mindbody from memories a company you guys have invested in and, there’s probably a whole piece around rise of wellness and everything else like that. That was probably a big catalyst there. I don’t know Allbirds and other company, you guys are invested in there are catalyst for why now for companies usually not always, sometimes it’s just serendipity and it kind of happens then. But there’s usually important catalysts driving the particular timing and that’s a really important aspect of what we do.
Ed (25:40): And when setting the big-ticket strategic items as you did it seek, and now I’m sure you help shape with founders, we can dig into that. You don’t want, I guess an echo chamber of agreement at any stage. You want dissent, you want debate. And this is something that emerged from the employees I did talk to. Who said you were fantastic at encouraging spirited debate and great at saying no. Has that flowed onto how you think about the world when you are supporting these founders.
Paul (26:09): I reckon we could have been better at saying no that we’re no, look, I think we were pretty focused and pretty disciplined within a spectrum that it is the nature of a founder and I’m certainly guilty of this to kind of think you can do everything and be very optimistic and et cetera. But yeah, I think we were pretty good at saying no. And yeah, I think on the whole we did a pretty good job and I’m sure again, I’m obviously not involved in seat of other than as a shareholder, but certainly all the people I speak to and obviously chat to Andrew’s still very much part of the DNA, which is a culture that really encourages debate and good ideas can come from anywhere and that’s really, really important.
I think, again, there’s two underlying aspects to that as we invest in companies, we think about, and that’s both ability and willingness to surround yourself with talent and they’re two different things. Firstly, some people are just better than others at identifying really, really great talent. Some people just have a skill, whether it’s in sport, whether it’s in business, in whatever area of identifying really, really talented people. But secondly, there’s a mindset piece that you actually want to surround yourself with people who are going to challenge you, surround yourself with people who are incredibly bright, where you’re going to have these spirited debates. Is that the sort of organization you want? Everyone says they do. We’re never going to meet a founder, we are never ever going to meet a founder who’s going to say to us, Look I just want to surround myself with a bunch of idiots who are going to agree with me.
No one’s ever going to say that. So, everyone’s going to tell you what you want to hear on that point. So, a lot of it is just about observing the interaction with their colleagues, how they interact, the mutual respect between them, how comfortable the other members of the leadership team and other people in the organization are around, around the founder or founders, the share a voice in conversations chatting to founders about what they’re looking for in hires. And maybe we’ll come back that, I think it’s important to think quite consciously about hiring people across three attributes, if you like, values alignment, horsepower, raw talent, and experience and just thinking across those attributes and deciding quite consciously what you want to optimize for. Those things are very, very important part of what we do and when we invest in companies.
Ed (28:39): I think this is a great time to lead into people and culture and leadership lessons. I guess I’m trying to understand initially what was the culture you were trying to foster at Seek? I think we’ve heard a little bit of that the past employees had, no one ever wanted to leave Seek ever. Once you were there, you realized it was the best place to work in Melbourne and it was before culture was really a corporate word. It wasn’t banded around like it is today, and there was no glass door and there was no transparency around a corporate culture, and yet you decided that you were going to put this at the top of the tree. And that really fascinates me because that to me is what actually drove the success. The people inside Seek drove the success of Seek over the next two decades.
Paul (29:24): No question. Yeah.
Ed (29:26): At the time, I know you hired slowly, you hired very deliberately, and you optimized I think for raw ability, less so experience and the values piece. This sounds like a technology company of the 2000’s and later rather than something that was built in the nineties.
Paul (29:45): Yeah, no, I think I said at the beginning or early on that I think there were two big things and two broad things we got right and lots of detail in between that we got wrong. But the second big piece was around people and culture. And this of course was a journey. I meanbear in mind when we start, I was 29, I worked as a lawyer. None of us really managed people before. None of us had technology backgrounds, et cetera. So, we sort of learnt on the job. A lot of us was first principle learning frankly and learning through trial and error, lots of iteration. But I think there are a couple of points of really important. One is to some extent all of us in our previous careers, there were elements of the culture where we worked, and I certainly remember this where there were lots of great things about the cultures where the three of us worked.
But there were elements where it was like, I remember quite specifically even having conversations with people when I was at Bloch Leibler, were saying, oh, if I was running this place, I wouldn’t do it this way type thing. Once you’re running your own business and literally you’ve got a clean sheet of paper there’s no excuse, you can’t then sort of say, oh, we haven’t got the money to do this, et cetera, et cetera. That’s probably point 1. Point two was, and again, I don’t think you hear this that often now, but you certainly heard a lot then was like, oh, there’s a tradeoff between having a great culture and being profitable. On the one hand you can have a really great culture where everyone kind of feels where it’s inclusive and people get their say and it’s a great place to work, et cetera.
But that’s so expensive and it’s easy for you guys, et cetera, et cetera. But how do you do that in a low margin retail business or whatever? From our perspective there, there’s no trade off at all. Great cultures lead to great outcomes and people I think confuse the causation. They kind of think, oh, well this company’s profitable so they can spend a lot of money on things around development and culture and whatever those things are and pay people really, really well and whatever. It’s almost always the causation is the other way. That’s the sort of the second point. Third point was is that we were competing against Fairfax, we’re competing against news Corp, we’re competing against monster.com that had come to Australia before we launched Hot Jobs and other US player, a bunch of startups in Australia.
We didn’t have much money; we didn’t have much experience the only thing that we had was attitude and mindset and drive and perhaps clarity of vision. The core asset in our business wasn’t the website of the platform. The original platform took us three months to build it was harder then to build it than is now, but it wasn’t that hard three or four months. The only thing that we had was just people who were aligned, passionate, motivated, driven you mentioned about people not wanting to leave Seek, in investment banks, people resign on mass after bonus season. At Seek no one would resign before the Christmas party, that was such a fun highlight of the year.
And then those relationships that was the thing that I guess is most impactful for me. I’m catching up tomorrow night with a six or seven former colleagues from Seek and we catch up a couple of times a year when I’m up here and they’re lifelong friendships. Yeah. And that’s really, really special. I think number one, it was a key element to us being successful, but number two, you spend so much time at work, like why wouldn’t you want to have fun? If you’ve got two groups of people, everything else is the same and the first group of people, they love working with each other, they have a high level of mutual respect, they support each other, they have a lot of fun, they laugh a lot. And the second group, it’s just that they don’t really like each other, they’re sort of forced together, that’s just the way it works but they don’t really enjoy it. If they had a better job opportunity, they’d get out of here tomorrow, which organization’s going to be more successful? I mean, the question is so obvious, the answer is so obvious. I don’t know why everyone doesn’t do it.
Ed (33:34): Yeah. That it’s the same experience that I had playing cricket. You could play for multiple teams around the world at almost simultaneously. You’ve got this great compare and contrast of different team cultures at the same time, which was a really unique perspective and exactly that would happen. One team would be a fantastic group of people and would win substantially more than the team of great players who hated playing cricket or hated playing with each other and the outcome would be the opposite. You could get a very fast snapshot of what great cultures look like.
Paul (34:06): 100%, I remember actually one night up in Sydney and caught up with some of the team up here and one of our team up here her partner, few partners came out with us, and he had met anyone from Seek before and he said to me during the night, you guys are like a cult. And I think he meant it as an insult, but I took it as a compliment. I was like, yeah, it was amazing. Like, yeah, that’s pretty cool, hopefully a good cult, not a bad cult no drinking the Koolaid or anything like that.
Ed (34:34): And what about your own leadership style? Cause it has been described as hands off, you let people run at problems report in when you feel like you need some assistance or report back if you feel like you’re going off track at all. But a lot of rope was given to people that you deeply trusted in not only in those early days, but as the business scaled. Was that something that you deliberately decided to instill or was that just Paul?
Paul (35:03): I think number one, it’s an insight you’d get better from asking others and from asking me, I mean there’s obviously questions of sort of self-awareness bound up and that I think to some extent my leadership style has too much been sort of one or the other. Yeah, look, if I’ve worked with someone closer and I have a really, really high level of trust, I will give them a lot of autonomy perhaps at times, give them too much room and space. One of the things I actually learned from my first boss as a lawyer, he was amazing at kind of identifying when I was floundering. And hopefully I’ve developed to raise my antenna for that where the person needs help or where they need a bit of encouragement or need a bit of support.
But certainly, there are times, I’m an operator at my core and so there’s definitely times where I think I probably too get too involved in the detail of things. At Seek, for me that manifested itself probably most in the product. And secondly, customer interaction, that was the stuff I spent a lot of time on. Yeah, look, I don’t know, I don’t think my skills as a leader are, I think I’m very good at identifying talent and what I’ve always optimized for values alignment and raw ability over experience. I think experience is the most overrated attribute in hiring. Not that it’s unimportant. If you want someone hiring a pilot or hiring a surgeon.
Ed (36:25): I’d want them to know how to fly a plane.
Paul (36:26): Exactly right. Experience is really important, but a lot of areas we just over index for experience, not that it’s unimportant, but we just over index for experience. I think I’ve always been good at talent identification. I think I’ve been good at giving people the opportunity to be successful, hopefully creating clarity around vision and direction supporting them. I would say I’m probably a better leader than I am a manager. I’m not sure I’m a great manager.
Ed (36:53): That’s hard to do both at the same time.
Paul (36:55): Yeah, no, they’re different. They’re very different skills.
Ed (36:58): So, having understood more deeply the culture that you did build at Seek and how you thought about that, how do you now leapfrogging to the present, try and evaluate the people and the culture of the portfolio companies that you’re invested in or potentially looking to invest in?
Paul (37:15): It’s really hard question because the trap of course would be, oh, look, unless, both as we evaluate companies and as you serve on boards, et cetera, to basically say, Hey, well these are the cultural aspects that should be important. And of course, that’s not the point. Every company, every group of founders and teams, they get to decide what their culture is going to be, number one. We’ve got to find the right balance between not trying to interfere and not trying to tell people, well, your culture should be more like this, and this is what we did at Seek. The last thing people want to hear from me saying, well, this is what we did at Seek and this is what you should do, oh yeah, that was in the stone ages mate.
Ed (37:53): That’s an important shift in mindset as well from a hundred to investor.
Paul (37:56): 100%, on the other hand if there are attributes to the culture that we think are toxic or are problematic, I mean, number one, we won’t invest in a company like that. But also, it’s really important to support our portfolio companies who are having challenges and issues and so it’s a hard balance. What I would say is I think a company needs to be crystal clear around what its values are and what its culture is and execute on that. I think that’s the most important thing. There is no point, as part of an interview process, sort of saying, we have a really, really inclusive culture and we give you lots and lots of autonomy. If the reality is different, you’re just going to track the wrong people into the organization and they’re going to get frustrated, they’re going to leave. If you’ve got more of a command-and-control culture, for example, it’s not something that I kind of get energized or passionate by, but if that’s the nature of your founders and that’s how they operate and that’s how the organization’s going to evolve. That’s okay.
Ed (38:51): It must get a sniff though that that isn’t necessarily going to get the best outcome.
Paul (38:56): Well, it’s may well be, not be a company that we are going to invest in. But the point being is lots of companies have been successful with lots of different cultures, even cultures that you or I might say, oh, that’s, that’s really not for us. Or I would argue in some cases companies have been successful in spite of their culture rather than because of their culture. But the most important thing, clarity around what that culture is, what those values are, being very explicit about it and orient the organization, whether it’s in relation to performance management, whether it’s in relation to reward and recognition generally, whether it’s in relation to strategy to ensure that there is an alignment between that culture and how the organization operates. That’s really, really important and it is hard if you want to have a highly autonomous, inclusive, fun culture, it’s not easy. You’ve actually got to work incredibly hard at it and we worked unbelievably hard, and we certainly work perfect that we made lots of mistakes.
Ed (39:50): I think that’s the point that the culture is a living organism. It needs to be tended to the whole time it’s not, here’s the culture and we’re going to live by it. People need to be actually putting things into that pot and making sure that it is sustainable for the long term. So, these cultures that might succeed because of the culture actually might not be that durable.
Paul (40:12): Yeah, absolutely and what I’d sort of say to any, any founder who’s listing or any me members of leadership teams or aspiring founders, et cetera, is just think about a normal sort of startup. Let’s just say for example, you are, I don’t know, you’re going pretty well. You’ve raised a series A, you’ve got 50 people in your organization, let’s just say for arguments sake, you have 20% turnover in year, which is quite high, hopefully be lower. Let’s just say you’ve got 20% turnover in year, that’s 10 people. That 50 becomes 40, let’s say by the end of the year you’ve gone from 50 people to 80 people 40 of those the 30 new hires plus the 10 replacement roles, 40 out of 80 people in the organization are brand new to the organization within 12 months. By the way, that’s exactly what we’ve got at Square Pe at the moment. I want to come back to that.
That’s kind of just a pretty common example. There’s a lot of times in your organization’s history, maybe as you get bigger and grow more, that those numbers will come off a little bit, but there are going to be a lot of periods where you look forward 12 months and actually 50% of the people in the company will have started that 12-month period. If you go a little bit off with your hiring, if you go a little bit off with your onboarding, with embedding the culture, embedding the values you hire in a team of eight or 10 people, someone who’s just a really, really bad fit, these things can change overnight. They are not set and forget. You need to be working on them and managing them all the time and it’s great if you’ve got an amazing thought leader in HR as a partner, but this is something that the founders have to own, I think. This is absolutely critical to the success of your organization, but also you want to be proud of what you built and being proud of what you built is not just having a company worth a lot of money and making a lot of money personally and having articles about you. You want to build those lifelong friendships. You want people to be incredibly passionate advocates for your organization. Those things, I think for most people are really, really important and you got to work at them. They don’t happen by accident.
Ed (42:06): It’s wonderful advice. The next theme I want to explore is the role of a high functioning board and excuse my lack of corporate governance knowledge of mid 90 startups. But I’m going to assume that your first board was investor based, probably low value add and then that got upgraded over time as you move to being a public company and now, the board speaks for itself, but just that experience of upgrading a board, what does a great board look like to you not only in those early days but the growth stages and then as a business is scaling and what does a great non-executive director look like?
Paul (42:44): Yeah, I think the first thing for me, the starting point’s always been a lot about alignment. I say this to founders all the time. If your choice, and hopefully it’s not your choice, but if your choice is between an investor who’s a complete idiot, who’s just incredibly supportive of what you do is there in the hard times there, in the good times really supporting you passionate about what you do and they don’t really add much value above and beyond that is better than an incredibly smart, incredibly experienced investor who is just basically undermining you or always being critical or you feel like they’re on a different side and you’re accountable to them rather than everyone being on the same side and working collaboratively. So, they’re your choices. If it’s that binary, I think it’s a really easy choice.
Of course, what we want in a perfect world is someone who has very, very high alignment and adds enormous value and that value could be added in lots and lots of different ways. It could be strategic value; it could just be what great advice it could be access to their networks. There’s a whole lot of different things board members can do. Most boards evolve and certainly as Seek did was it’s like with investors come you directors and there’s a couple of problems with that conceptually. One is just the numbers keep growing and, we looked around one day as like 46 people around the board table, maybe not quite, but you know what I mean, it kind of got a bit big and bit clunky, number one and number two board members come with new investment rounds, then the mix of skills and you
Ed (44:11): Like an operator now.
Paul (44:13): Yeah, all those things you don’t necessarily get a great mix. So, number one, be really thoughtful about when you’re talking to someone it’s really tempting. It’s like you’ve got three venture funds really, really keen and one of them is offering you valuation, a pre money valuation of 80 million and another one’s offering you a pre-money valuation of 60 million a temptation’s always to go where the guy’s 80 million. By the way I’ve been a founder as well, of course you want less dilution and in a perfect world, the best investors, the person offers the highest valuation, a perfect world, but it doesn’t always work out that way. I had a great conversation with the founder a few years ago Yaron Galai who was the founder of Outbrain. And he was very clear about what he was looking for from investors.
Number one was the individual who was leading around, who was going to be serving on, on his board and going to be his partner for the next 5, 6, 7, 8, 9, 10, 12 years. Huge period of time. Number two was the firm itself. He was conscious the fact that yeah, it’s great to have a terrific relationship with Ed, you’re going to add a lot of value, et cetera, etcetera. But I want to know about the firm. I know as a partnership, as a firm, you’re going to be making investment decisions. I want to understand how that works. I want to understand what the dynamic is. I want to make sure you have the appropriate influence within the firm, et cetera, et cetera. So that’s secondly is the firm, third was the terms, and fourth was the valuation. Now I’m not saying that’s the right framework, that was his framework. The point is that when you think about investors and you think about who is going to lead your round, just make sure you give appropriate weight to all the factors, including, I’m going to be partners with this individual for the next 5, 6, 7, 8, 10 years. I want to make sure this is someone I like; I trust who’s going to add value. Then there’s an element around making sure that as your board grows, having complimentary skills, complimentary backgrounds, very aligned in terms of the vision and the purpose and what you’re trying, where you’re trying to get to, but quite different and complimentary in terms of the skills and mindset and the things they bring to bear.
Ed (46:11): Yeah, I think just zooming out of the startup world and moving up the growth curve a little bit, it becomes harder in many ways to align interests. And having experienced the Wesfarmers Board, you get into these big ASX companies and the boards, they actually say, we want to be independent. We don’t want to own shares in the business, we need to be independent of shareholders. And in my mind, it’s like well that’s the worst possible situation. You want to be independent of management, you want to be heavily aligned to shareholders.
Paul (46:41): Yeah. No, absolutely. Look, I think my West Farmer’s experience was great. I mean, other than Seek where you’re a founder, so it’s very different and evolved differently. Wesfarmers is the one public company experience I’ve had, and I really enjoyed it. I think Wesfarmers is a unique animal because, the thing that I loved about my involvement there was I remember even the first time I went I met with the board, they were having their offsite I flew up to the Hunter Valley. It was a very modest, humble culture. Those days of a farmer’s cooperative, which ended in the mid-eighties, I think when Wesfarmers listed was still a little bit ingrained in the DNA, so it was a lot of humility in the culture and also thought everyone was there for the right reason.
They weren’t there because for ego reasons or to have a supplement their income or whatever. They really cared deeply about the business. So that part I really, really loved. But the whole way in which public company boards come together and the incentives to public company directors are just wrong. If you think about it, just purely, I remember actually chatting to Allan Moss after he left Macquarie was chatting about what he’s going to do, and I said, oh, well, are you going to go on public company boards and he’s just like, that is the last thing I’m going to do. It’s like the risk reward trade off and I think we just need to be careful about that in this country. I mean let’s just say you’ve basically got a nominal amount of shares in a company you paid, call it $200,000 a year, which absolutely is a lot of money.
And I don’t want to pretend it’s not, not a lot of money to be on the board of a large public company, but your upside is known as in you learn $200,000 a year, you’ll make a little bit of money from the few shares you own, et cetera, et cetera. There might be compulsory aspect of some of the board fees going to buying shares, et cetera. It’s going to be fun being involved in a successful company, your downside is essentially untapped. It’s like being a short seller. I mean, your downside is untapped. Worst case, very, very worst case you could end up in jail. That’s obviously, fortunately, incredibly rare, but your reputation could be damaged. You could be caught up in some big scandal and you have to give evidence to a Royal commission or inquiry. Your career might be over after this.
As an investor, we look for asymmetrical risk. When we invest in companies, we are looking for asymmetrical risk to the upside being a public company director in, concept. As I said, I had amazing experience of Wesfarmers I loved it and is a brilliant company. But if we’re just talking conceptually the model of public life generally, not just public company boards, but let’s talk specifically about public company boards. The model of public company boards is broken. The asymmetrical risk to the downside is when you think about it logically and rationally is just so extreme. And no wonder boards just become incredibly risk averse because the list of things that can go wrong for them personally and for the business is just so big. It’s just not worth the risk.
Ed (49:23): It feels like we could have an entire podcast episode on this because there are some deep beliefs on this side of the table that I’d love to discuss another time, but this is probably not the forum, but well said. The last theme I want to explore is around fundraising. And you mentioned that the Rockman family were the first source of funds. I think there was another one and a half million dollars that went in. You then were thinking about listing the business only after two and a half years, and you had the 2000 dot com complete bust, and there was Armageddon and you were left sort of scratching your nose wondering where your next dollar was coming from, when the capital market shut. I’m interested in that experience and how it has shaped your views now as a someone who’s writing the checks, but I think more interestingly is maybe the discussion around the compare and contrast between 2000 and what we’ve experienced during Covid, where the capital markets have remained open and in some cases, very frothy, and yet there’s this sort of dislocation with the world.
Paul (50:24): Yeah, look, if I think about my arc of my career, it’s been sort of four major crises. 91/92 recession at the start of my career I mentioned 2000 dot com crash, GFC 2007/2008 and really, the ramifications continuing for many, many years afterwards. And of course, this year, and it’s really easy to draw conclusions and I think certainly some of the things that we said and thought kind of turned out not to be correct. Part of the issue is that every crisis is different, and you’ve got a data set. Well, now my data set is four. It’s a pretty small data set. Most other people in Australia, their data set is way smaller than that. Dot com crash was pretty seminal for us the big difference between 2020 was 2000 was all about the overhyping of technology, the failure of technology.
If I think about the arc of us as founders it’s like late 97, early 98, what’s the internet? What the hell are you doing? Why are you trying to get your idiots, why are you competing with Fairfax News then, like your absolute geniuses the whole dot com thing became incredibly hot.
Ed (51:28): The back slapping
Paul (51:30): Yeah, let play back slapping. And then in 2000, again, April 2000, you’re an idiot again. And certainly, the genius part wasn’t true. Hopefully the idiot part wasn’t true. The truth is always, the truth is always more boring and more mundane than that and it’s somewhere in between. Of course, 2020 to some extent is about the kind of the rise of the internet and we’re 25 plus years into the story of the internet. But that’s been the great theme. The two great themes the past 25 years have been the rise of China and the rise of the internet and the digitization of everything.
An so, what 2020 has been about is of course if Covid had occurred in 1992, 1993, our ability to operate as a society would’ve been disastrous. No school, no work from home, no ability to buy groceries online, et cetera, et cetera, et cetera. We know the whole story, the progress made in terms of innovation last 25 years has made this year, of course, more manageable, not withstanding, it’s been an incredibly brutal year for so many people in so different ways, but it’s made it more manageable. Of course, it’s also seen in a lot of areas, a decade’s worth of disruption, whether it’s in education, whether it’s in healthcare, whether it’s in remote work. I laughed, I was cleaning out my office in sort of May, just pre lockdown and I was cleaning out my office and reading small articles and stuff like that.
And I came across two things in one go. One was a time magazine cover story from 1997, which was about the it was, I think called the Death of the Death of the Mall, The Death of the Shopping Center. And the other one was actually a screenshot of the Seeks homepage. The very, very first homepage where there was an article, The Rise of Telecommuting. And it’s kind of quite funny because I mean both of those were kind of more or less 20 years ahead of their time. And so, this year has been of course about the acceleration of technology trends. Technology companies are perceived as winners plus evaluations have gone up even more in the listed space because of course people have said, where am I going to put my capital? And they’ve directed towards tech companies. I think we’ve got to all got to be really, really careful that we don’t that there’s not too much hubris, we don’t get too convinced things go up, things go down. But what doesn’t change is the indexable trend of innovation and disruption and what that means for countries, for companies, for individuals in their career. And that’s the story of our life, or one of the stories of our life. And it’s not going to slow down that innovation and the disruption that comes with that. Yeah.
Ed (53:59): I’ve heard you say we could well be entering the greatest phase of innovation of maybe this century. But I’m curious just to zoom in very quickly as to that period after the 2000 crash and now the empathy that that’s given you for maybe founders who are trying to raise money in a not so hot space, but might have a wonderful business, of the last six months.
Paul (54:21): Yeah, and I think and again, you would have this Ed in your portfolio, and we certainly have it in our portfolio, which is there are companies that are absolutely flying as a result of covid companies like Fiverr, Canva, et cetera. And to some extent this crisis is accelerated. There are other companies WeGo is a great example, an online travel business through no fault of their own it’s been an incredibly tough year even with Rokt, which is a business that we’ve both invested in, it’s a tougher year this year. And they’ve done an unbelievable job where travel and entertainment obviously been really tough categories and retails just become so much for more important category for their business. And as a general proposition our march April was just about spending as much time as we could with that portfolio from a capital perspective, from a mindset perspective, from a strategy perspective, making sure they were well placed to bear the wins.
The other thing is real interesting, and I don’t think that mind me saying there’s a couple of our portfolio companies who had exposure to categories like retail and hospitality. Vend would be a good example, Deputy is another example where I think we probably would’ve thought, and the founders would’ve thought, this is going to be a really, really tough couple of years or so. And for some of these businesses, the low month was April, oh, sorry, may it was a big fall in April, fell a little bit again in May and started growing again from June. I’ve actually been really, really surprised for a lot of these companies that were exposed to some of these markets were very, very hit by Covid. Actually, the downturn’s been much slow and expected, but it’s been an amazing year for some companies. It’s been a brutal year for other companies. We’re blown away again and again by the resilience for a lot of our founders who have been caught in the crossfire. Our job is absolutely to support them in every way financially and with advice and input and in any way we can on their journey is there dealing with stuff outside their control.
Ed (56:12): Well said. Let’s wrap this all up in a bow. You’ve been so generous with your time. Ask the same question of all my guests and that is, looking back 20 years when this whole journey started for you a little bit longer for you, but not much longer. Is there any one piece of advice that Paul Bassat in 2020 would give his former self in 1997? But I’m also going to add another little trick question if that Paul walked through the door to Square Peg and ask for that first check would you have funded him?
Paul (56:45): Oh, that’s a really hard, really unfair question. I hope so is the answer to the second question, but it’s a great question. I have asked myself that a couple of times and it’s important to remind yourself of that because we’ll see across the team, we will see 1500, 2000 companies a year, and every single founder is incredibly passionate and energized and often it’s the most, well usually it’s the most important thing happening in their world. You need to be empathetic. We say no to a lot of people. We need to be really honest about the reasons why we are saying no. Hopefully out of every conversation they can take something, whether it’s an introduction or just an idea or a suggestion, but it’s a great question and saying important for us to remind ourselves, but the answer is, I hope Square Peg would have backed Seek but who knows?
First part of the question, I think I’ve thought about career in a sort of, to extent I think about career in a non-linear way. For me it’s sort of a much more organic thing than a linear thing. And I’ve been incredibly blessed and incredibly fortunate in my career, but the only career advice I ever give, because people sort of say, should I take this job or should I do this, I should start this business. I’m happy to ask them a bunch of questions and get them to play back their thinking to me. But I’m never going to tell someone whether they should take a job or not take a job. It’s not it’s not my place to tell them. What I would say is, when you think about career, it doesn’t matter whether you’re a founder, it doesn’t matter whether you’re working for bhp, whether you’re working a small business whatever, whatever your job is for me the definition of career success is really, really simple.
If you can find the intersection of something you enjoy and something that you’re good at, keep doing it. If you’re not in that space and you’re not particularly good at what you do or you’re not enjoying what you do, whether it’s the company or the job, do something different. And it’s so cliche, we only get one go at it, but you’ve got to be authentic and true to yourself and don’t do something because it’s the right thing to do or that’s what your friends are doing, or it has a higher income. Do something because you find it incredibly rewarding. You love the business you work in. You’re good at what you do and if you are lucky enough to have found something like that, like do that for the next 40 years. If not, go find something else.
Ed (58:52): Well said. Paul, thanks so much for your time. This has been an absolute treat.
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