Since this has happened, business has boomed.  We are working on 5 different countries on a range of problems from new market entry to international expansion to new site development.

Here is our press release.

Classified Ad Ventures Pty Ltd today announced the launch of an expanded business offering to service the global real estate industry.   Leveraging the team’s extensive knowledge and experience working within the real estate category, the Classified Ad Ventures business provides digital marketing solutions and consulting services to portals, franchise groups and market leading real estate agents who are looking to stay ahead of the game in the highly competitive online market.

Classified Ad Ventures was founded in September 2008 by Simon Baker, best known for his eight years as CEO and Managing Director of the REA Group (www.realestate.com.au ).  During his time at the REA Group, Simon grew revenues from $4m in FY 2001 to $155m in FY 2008 and grew EBITDA from -$6m in FY 2001 to $37m in FY 2008. Most importantly, Simon delivered great returns for shareholders by increasing the market capitalisation from $8m in June 2001 to a high of $900m.

Baker has brought together a team of highly experienced professionals from his time at the REA Group, across key specialties including business management, sales & marketing, web design & development, project management and mergers & acquisitions.  Their combined hundred plus years of experience extends across both portals and agencies, in all major international markets, including Europe, Asia, USA, Australia and New Zealand.  No other team is better positioned to assist the industry in optimising its digital marketing mix to drive business success.

The team at Classified Ad Ventures includes Chris Vulovic, the former CIO of REA Group, Anthony Herman, former Head of Corporate Development in the EMEA region for the REA Group, Kelly Millar, former Consumer Marketing Manager for the REA Group, and John Hart, former Industry Marketing Manager for the REA Group, amongst others.

Simon Baker, CEO and founder of Classified Ad Ventures today stated:  “The incredible rate of innovation in the digital landscape presents opportunities for business never seen before, especially in the real estate sector.  The significant shift of consumers from print to online for their real estate needs requires businesses to adapt their marketing strategies.

Whether you are a portal, franchise group, broker or agent, success is determined by creating value for your customers and ensuring you are competitive and clearly differentiated in the digital landscape.  Our team’s track record in building a highly successful business for the REA Group gives you access to unmatched experience and insights into the category.”

Classified Ad Ventures current clients include some of the world’s major property portals, franchise groups, brokers and market leading agents.

Classified Ad Ventures online marketing services include business consulting, online marketing planning, website design & development, eMarketing, search marketing, editorial and video content, social media and display advertising.

More details about Classified Ad Ventures services can be found at www.classifiedadventures.com

Just take the online real estate advertising business.  Ten to 15 years ago, everything was advertised in the paper.  Now classified sections have shrunk to former shadows of themselves.  If you are looking for a flatmate or a rental, you wouldnt even consider buying a paper, Craiglists or one of the thousands of niche sites out there provide a far better service.  The same is happening with homes for sale … it is just a matter of time before more and more papers either reinvent themselves or just disappear.

Therefore it was with interest that the following article came across my desk from the Wall Street Journal about the Blockbuster thinking about entering bankruptcy protection.   No wonder businesses like Netflix (USA), Lovefilm (UK and Europe) and Quickflix (Australia) are growing at ever increasing rates.

It will be interesting to see which other busniess and industries give up holding back the tide and are swept away by the continuous onslaught of the internet.

Blockbuster Considers Bankruptcy Filing (Source: Wall Street Journal)

Blockbuster Inc. again warned it may have to file for bankruptcy protection as the movie-rental company remains unprofitable. In its annual report filed Tuesday, Blockbuster said its declining sales and cash flow, coupled with increasingly competitive industry conditions, “raise substantial doubt about our ability to continue as a going concern.” Blockbuster provided similar warnings nearly a year ago before it was able to refinance its long-term debt in the fall. Nonetheless, the latest warning reminds investors of the serious challenges that the company faces—challenges that have increased in recent months with the rapid pace of change in movie distribution. Movie studios are showing increased willingness to release films via video-on-demand on the same day they are released on DVD, which threatens what Blockbuster had claimed as one of the remaining competitive advantages of its store base. As of Jan. 3, Blockbuster said, the company’s total liabilities were $314.3 million more than its total assets. Blockbuster is scrambling to expand in new distribution channels as rentals and sales at its 6,500 stores world-wide continue to decline amid intense competition from mail-order movie-rental services such as Netflix Inc. and rental kiosks. Blockbuster has its own mail-order service, as well as a brand of kiosks that are owned and operated by NCR Corp. Blockbuster also has worked with TiVo and other electronics makers to boost its digital-download offerings. But those businesses so far haven’t taken off quickly enough to offset the declining rentals and sales at its stores. With its growth efforts constrained by debt and declining cash flow, Blockbuster is closing hundreds of underperforming stores, including 500 to 545 this year, and has outlined $200 million in fresh cost cuts tied to staffing and advertising spending. Since last year, it has pursued options for overseas assets, selling its business in Ireland in August for as much as $45 million in cash, but it so far has been unable to close deals on other divestitures.

Disclosure: Simon Baker invests in and is a Board Member of Quickflix.

To answer this question, I came across a presentation from Sequoia Capita on startups and the economic downturn.

Here are the key messages:

1. The recovery will be long – dont expect a quick turn around
2. There are new realities – raising money on high speculative valuations is a thing of the past and series B and C funding will be very very tough
3. Customer take up of businesses will be slower than projected
4. Expense cuts are a must
5. You have to become cash flow positive

The presentation then goes on to talk about specific actions businesses should take.

It is all about survival for your business. To do this, you will need to:

• Have a “must have” product
• The revenue model must be established – no time for speculation / experimentation
• You must be realistic and understand market uptake
• Cutomers must be able to pay for the service
• Cash is king
• Have to become cash flow positive

In cutting costs, they suggest the following areas be investigated:

• Decrease engineering head count
• Reduce the features of new products to those that are essential
• Measure and cut those marketing elements that are not working
• In sales and business development, are you getting the returns on any investment
• What does the sales pipeline look like and are they realistic sales
• Delay payments to manage cash burn
• What other costs in the business are just not essentia

I think their summary is great – here are the main points:

• Perform a quick situational analysis
• Adapt quickly
• Use a zero based budgeting approach
• Make cuts
• Review salaries
• Employ a heavily commissioned sales force structure
• Bolster balance sheets
• Become cash flow positive as soon as possible
• Spend every dollar as if it is your last

The best part of the presentation are pages 39 – 56 (Read it here)

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.  

When we did a high level scan of maturing markets, it was clear that the UK was the most attractive.  Firstly,
it had a similar agency structure to Australia, secondly it had a similar property portal market with sites operating the same way as in Australia, and finally, we were able to operate seamlessly in the market as there was some experience in operating a business in the UK and of course language was not a problem.

The next step was to identify the potential targets in the UK and this was a relatively simple task – we just looked on the net.  Research showed that the major players were rightmove.co.uk, findaproperty.co.uk, primelocation.com, propertyfinder.com, and fish4homes.co.uk.  We sent each of them an email and set up meetings over the course of a week.  During the course of these meetings, it became apparent that the UK property portal market was very similar to the Australian market and in some ways, a couple of years behind in development.  It also became apparent that propertyfinder.com could be purchased as it was majority owned by a UK VC fund and they were considering exiting the business.

At this point we decided to bring in News International as a partner on the deal as to help reduce the risk and to gain the support of a local media company.  Having negotiated a deal with News International we then negotiated the rest of the deal with propertyfinder.com and conducted due diligence.  Our preferred method here was to have local consultants do the legal, financial and tax due diligence while a dedicated internal team does the technical and operational due diligence.  It was through this approach that the REA Group acquired 50% of Propertyfinder.com (with News International acquiring the other 50%) and the business was integrated into the REA Group.

Once we had acquired propertyfinder.com and focused on building out the business, we then started to have new opportunities pitched to us.  We therefore became aware of casa.it and the atHome Group based out of Luxembourg.  Both of these were analysed based on their market potential and the value that the REA Group could bring to them.  Both turned out to be good acquisitions for the Group with casa.it being the market leader in Italy and the atHome Group delivering strong profit growth.  There were other site referred to us however they didnt fit our expansion criteria and we walked away from them.

Following the acquisitions in Europe, we started to think about emerging markets and what we do there.  In the property portal game, emerging markets are about longer term investments and that means understanding where the basics are strong, investing in a business in that market, and then watching very closely.  We took this approach with the United Arab Emirates and with Hong Kong.  In both cases we identified targets and then took equity stakes in them.  In the case of the UAE, the REA Group now owns 51% of this with the founder working an earn out while in Hong Kong, the REA Group has now acquired 100% of that business.

In going global through acqusition, the key lessons we learned were:

• Select your markets carefully however nothing is better than spending the time in the market
• When you have selected your target move quickly and negotiate with purpose
• Conducting of due diligence will require time and effort and you need to have a dedicated team to do this – one that does not impact the current day to day operations.
• Partnering is an acceptable way to reduce risk but you need to select your partners carefully (more about this in a separate posting)
• Once you have acquired a business you need to move fast on integration and you also need to have a dedicated team to oversea this.

Firstly i think outsourcing is a great idea for certain jobs, not all of them.  In particular i think outsourcing in the technology space makes alot of sense.  However, what is required to make outsourcing work?

To me outsourcing is like any other relationship – it has to be built on mutual trust, understanding and respect.  When selecting an outsourcing partner, no matter where they are in the world, they must have these characteristics, as well as the skills, to complete the task at hand.

At the REA Group, we used the team at EarlySail in India to do a chunk of the IT work.  Now this relationship has been built up over a couple of years and was started based on a relationship between my CIO, Chris Vulovic, and a Director of EarlySail – Push Mohta.

We started the relationship by giving them relatively simple work in doing express changes and then slowly ramped it up from there as they became more and more familiar with the REA Group systems and processes.  In addition, we had a team at the REA Group head office that did QA on the work from EarlySail.

The relationship has progressed now to the point where the EarlySail guys are helping with QA and are considered as part of the team.  They have visited Australia and some of the team in Australia have visited them.  Above all, we treat them as any other team member, including inviting them to the annual conferences.

I have so much confidence in the EarlySail team that i am commissioning them to build out the next generation of my latest site www.propertyportalwatch.com.

So any approach to outsourcing takes time and has to be built on trust, understanding and patience.

So i thought i would give you my 10c on this hairy topic.

I think the answer is simple – what are you trying to acheive?

If you want to build something that is strategically important and provides a competitive advantage then you need to either  build it or buy it (as in a business) and own it, or at least have an option over owning it.  The last thing you want to do is allow your competitors to have access to what makes your business tick.

As for all the rest – let someone else do that hard  work and just implement the results.  E.g. who would want to build an accounting system.  That is why the JD Edwards of the world make money – allowing you and me to customize what they do.

Much of the value is created in how you use a product or a service not the product or service by itself.  A great example is Google maps.  Let them do the hard work and you incorporate them into your site in a way that you think will create the most value.

Suffice to say you can apply the same logic to acquisitions.  You don’t have to own it all today especially if you lose the passion and excitement of the owners / entrepreneurs who will make it happen.