Disruption

How have you managed governance challenges in expanding overseas?

As we’ve grown into overseas markets, we’ve established corporate governance frameworks in those foreign jurisdictions. We have boards in each of the countries in which we operate and each has a similar framework to ours, each making their own minor adjustments to suit their particular market. They have risk registers and formal audit processes like ours, too. In order to manage the internationalisation of the business, the corporate governance frameworks have been replicated, and our overall risk framework has been expanded to include those offshore jurisdictions.

Australian Governance Summit 2019

What are the challenges of running an online business?

One major problem to be aware of, for any online business, is that there are usually very low barriers to entry. Anyone can set up a website, but the difficulty is how do you build an audience? How do you grow and then monetise your audience? There is a phrase – the “Virtuous Cycle of Online” – which describes the cyclical process of a startup building inventory, then an audience, then transactions. He who has the most inventory tends to win over time – but the challenge for us tends to be working on building, growing, improving that process in order to maintain what we have. We are a paranoid business. I’d say every business needs to be paranoid, particularly in today’s digital economy. You’re not just competing with locals, but with global competitors, and it’s crucial to understand your market, where you fit into it, what are your competitive advantages and how you leverage them. This market is easy to enter, but it’s extremely hard to be successful.

When in a business’s development from a startup does it become important to have formal corporate governance in place?

I think there are degrees of formal corporate governance, so from my point of view a business should have it in one way or another from the very start. When Carsales started back in 1997 (a public unlisted company then, and between 2000 and 2009) we had degrees of formal corporate governance. We had a formal board and company secretary virtually from the get-go, but we didn’t have an audit committee. We introduced an audit committee later in 2007. If I look at all of our startups that we have begun at Carsales over the past several years, or companies we have bought into, they've all had levels of formal corporate governance very early too. Our reasoning is that you have to set the business up properly from the start. If you get your corporate governance in place it becomes instinctive and natural. As the business grows you have that to scale with it – and it is much less of a burden when the business gets to a point where it requires a formal governance structure, because it's had it all along.

Australian Governance Summit 2019

How does a young organisation’s business model evolve as it grows?

With any startup or young organisation that’s been invested in, the secret is to be nimble. You have to be prepared to pivot constantly and make micro-adjustments until you get things right. These changes will be different for each business, but you have to be making constant change to your business model as you grow and develop. You have to be conscious of what’s happening in the market around you, changes in customer sentiment and technology, and potential competitive threats. Another thing I’d add is that you can’t be overly attached to the way a business is functioning – you must be prepared to disrupt your own original business model.

For example, when we started Carsales, we were a subscription-based model, like many classified companies around the world. Our customers would pay a particular monthly amount for the number of cars they had listed on the site. Three years into operations, however, our customers were telling us that the opportunities they were receiving through the site weren’t of a very high quality, so we decided to change our business model. We made all searches through our site ‘blind’ (meaning potential buyers could search within a particular area, but they wouldn’t know exactly where the car or dealership was located until they contacted the dealer) and we made the transition to a leads-based payment system. This was a significant change to make very early on, yet if we’d waited till now it would have been a much more difficult project.