My CEO Life

A couple of weeks ago, i wrote the first in a series of articles on going global.  In the first article, titled Going Global – Organic Growth Case Study, i talked about how the REA Group organically entered New Zealand through the establishment of a new site from scratch. The next step is to now look at acquisition based entry to new markets.   

Over the last 2 years, the REA Group has acquired 15 different businesses.  These acquisitions split broadly into capability enhancement, consolidation of existing markets and the entry into new markets.  The acquisitions that were entries to a new market include propertyfinder.com, casa.it, the atHome Group, propertyfinder.ae (UAE), and squarefoot.com.hk.  The first acquisition based entry to a new market was the purchase of propertyfinder.com in the UK. 

The initial experiments with moving into New Zealand demonstrated that there was the chance of creating value in these new markets.  However we also realised that organic entry was really only appropriate where we had an asset that we could leverage (e.g. the traffic to the Australian site) or where the market structure was early stage.  (See Analysis – Four Types of Property Portal Markets on our sister site – www.propertyportalwatch.com)

Therefore we identified that the next step in overseas expansion would have to be through acquisition and that due to the uncertainty associated with early stage markets, we focused on the maturing markets.  

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McCain & Palin

I thought i would follow up my entry the other day (The Art of Decision Making) with some more thoughts on the topic.  In particular I was listening to a podcast about John McCain and his selection of Sarah Palin for his Vice President running mate.  In McCain’s case, Sarah Palin was a selection that almost no one saw coming.  She has little experience and evidently the decision made by McCain was based on minimal research and appears driven by political requirements.

So what does someone’s decision making processes tell you about the person and your confidence in the person to do their job?

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A reader in India has sent me a question all around business valuation and more specifically he asked, how do you value a Web 2.0 business. 

At the REA Group we purchased 15 different businesses and during that time used a number of different valuation approaches.  These approaches included market values (ie comparative sales), discounted cash flow, revenue multiples, net earnings and EBITDA multiples, and value per customer. 

The objective in the valuation of a business is to work out the value in the hands of the current owners and then the value in the hands of the acquirer.  This give you the overall range and the negotiation objective is to agree a price as close as possible to the value in the sellers hands.  (Otherwise you are giving away too much value to the seller)

However, valuing a web 2.0 business is a different kettle of fish.

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When i was the CEO of the REA Group, i was frequently approached with new business ideas.  In fact, since leaving the REA Group, i have been inundated with new business ideas.   Each day i receive an email from someone with the next best thing since sliced bread.  Often i receive just an email or even they find me on linked in or face book.  More often then not, they are looking for finance and sometime just free advice.

Now i don’t mind helping these guys out.  I think it is fun to look at new business ideas and to think through what they could become.  However, when looking at businesses to invest in, well i need a lot more than i often receive.

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I have received the following question from Alain in Europe.

As a manager (thus as well as a CEO), the biggest part of your day is consumed by taking decisions. We can take decisions in different ways:

• by stupidity / lack of knowledge (very bad)
• by influence from others (bad)
• team decision (respect of others’ views)
• by “just the facts, facts, facts!”
• by gut feeling

The question is : how do you balance “facts, facts, facts!” and “gut feeling”, because obviously, they often are opposite to each other. When do you know when you have to just look at the facts, and when you should trust your feelings even if the facts tell a different story? I reckon that experience plays a big role, because your gut feeling builds upon past good and bad experience. Sometimes, though, you’re up to an all new situation and you can’t really look back at anything similar in your past, but again, your belly somehow tells you what to do…

Decision making (along with communication) is probably the most important skill a CEO can have. First and foremost, a CEO needs to be seen as decisive. If they are not, they will be seen as being weak and the employees will be unlikely to support the CEO when the going gets tough.

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I received the following email from a reader in Italy and i thought i would reprint it as i think it is a well thought out piece on the importance of culture and how many companies are approaching the management of people. I would love the thoughts on this article. Here it is …

While reading about your experience, I’ve been strucked by how you point out not to the fact in itself (indeed the risk is part of the game) but on the way things have been managed, fully conflicting with the culture you had been building within the company over the years.  Not a question of “what”, but of “how”.

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During my time as CEO of the REA Group, we grew the business from a small operation based out of Melbourne, Australia with 25 people to a global business, operating in 11 countries and 720+ employess.  In the process we increased revenues from $4m p.a. to over $155m p.a. and went from a loss to a strong profit.

One of the most frequent questions i am asked is how did you take the business from a purely Australian operation to a global focus.  This is not a simple question to answer so i thought i would write a series of blogs on this topic.  The first blog is about organic growth and how the REA Group entered the New Zealand market.

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A month or so ago, in one of my other blogs My Travelling Life, i talked about how i thought the service of Qantas was slipping.  In particular i talked about a flight i recently had from San Francisco to Sydney in which a fellow passenger spilled water all over me and the Qantas guys really didn’t seem to care too much.  (Read entry)

However, imagine my surprise on the next international Qantas flight i had from Sydney to Los Angeles via Auckland that i ended up on one of the oldest 747-300 (yes 300 not 400) between Auckland and LA. Now you know its old when the seats in business class barely recline and the concept of inflight entertainment is 10 channels.

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How often is it that you get invited to a meeting that goes on and on and on.  You get there and there is no formal agenda, the other attendees are late, some don’t know why they have been invited, there is no real leader of the meeting and an hour or so later you leave with no real outcomes and you are left wondering what that was all about.

Well i think there should be a different approach – the 30 minute meeting.  In fact, if it can be shorter, thats even better. 

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A couple of weeks ago a reader asked me the following “I would love to know how you had such certainty about the vision for REA. Well, not certainty about the vision, but the ability to remain steadfast in the face of adversity.”

Great question. For me, in the early days of the business, the vision needs to be something that is achievable and as the business grows, the vision changes. So, for example, the vision from REA went something like this (very rough)

“Achieve break even financial performance and rapidly reinvest for the future”

“Become the leading residential real estate site in Australia”

“Become the leading online real estate services player in Australia”

“Become the leading online real estate services player globally”

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