As I sat down with Steve Melhuish, the affable co-founder and CEO of PropertyGuru, he made a confession.
“I had no passion for property,” he said, even though he runs the top property website in Singapore.
The irony doesn’t end there: He often advises participants in business competition to start something in a field they absolutely love.
And while he also told them to compete outside Singapore from the get go, PropertyGuru, which launched at the end of 2007, served only the Singapore market for a full three years before expanding to Malaysia.
This goes against the wisdom of some entrepreneurs who believe startups should expand outside of Singapore as soon as possible.
The British native sounded slightly embarrassed when admitting those things, but he’s certainly not ashamed of what PropertyGuru has achieved — it’s now number one in Singapore, Thailand, and Indonesia, and second in Malaysia. Their Singapore operations are profitable, and they are set to expand to a payroll of 200 staff.
Before co-founding PropertyGuru with Jani Rautiainen, Steve was a senior advisor a venture capital firm and the managing director of a consulting firm that assisted corporate clients who are developing new businesses. He also mentored several startup founders in Singapore after arriving here in 2005 — one of them even won the Red Herring Asia top 100 award.
The idea for his business came after he and his wife faced problems searching for a residential property: Online resources weren’t readily available.
He also found that in countries like the US and Australia, property websites are already up and running and attained up to one billion in market capitalization.
“I basically adapted the business model from other countries and applied it here,” he said.
But introducing a new concept to market is never easy, as they found out after approaching a real estate agency to sell their business listing.
“They gave us a blank look. Many of them were not IT-savvy. The first year was devoted training people to use the product and getting them familiar with it,” he added.
The business eventually did well enough to receive early-stage venture capital funding of S$1.8 million (US$1.4 million) in 2008. Soon came the challenging bit: Finding the right way to expand. But they’ve been successful so far.
Here are some lessons Steve has learnt along the journey.
1) Build a profitable business in Singapore before expanding to other countries.
Originally, they planned to expand rapidly to four or five different countries. But later on, they decided to take a more conservative approach by ensuring healthy profit margins in Singapore before expanding since they don’t have plenty of funding (unlike, say, Groupon).
The problem with expanding too quickly is that they would be forced to burn through their cash. ”We’ve seen our competitors expand, but in the end were forced to cut down some offices,” said Steve, “You can survive for two or three years, then burn out.”
Other than cashflow considerations, expanding more delibrately has other benefits too. For one, convincing a qualityemployee to join your team is much easier.
“We brought a potential hire down to our office in Singapore to tell him how we operate. So when they saw how well we’re doing here, they’ll be more convinced. It’s part of the persuasion process,” he said.
Top dogs in Singapore.
2) The right time to expand is the point just before growth starts to slow.
Angel investors or venture capitalists that fund startups expect high returns on their investments, which means these companies need to find ways to maintain their rapid growth rate.
PropertyGuru’s growth was certainly explosive from the get go. They become profitable in 2009, and from then to 2010, their revenue and number of listed property agents tripled. Steve needed to anticipate when the growth would start leveling off and intervene before that happens.
“It’s all about keeping the S-curve going,” he said, referring to the famous business life cycle of conceptualization, business development, and decline.
3) Do extensive market research, but don’t over-analyze.
Steve prescribes that at most three months be spent on market research. PropertyGuru also hired consultants to help them decide which country to expand into.
They created a long list of 200 questions, broken down into three categories: Industry related questions — such as how many property agents and developers are there; questions about the media industry, dealing with advertising rates, major players, and so on; and questions about competitors — how much traffic they’re getting, how strong they are, and whether they’re growing or declining.
The queries were then passed to consultants in eight countries, which took four to five weeks to do the research and find answers. While they didn’t need consultation to tell them that Malaysia was the next destination, they still had to figure out where to go subsequently.
Steve added that cultural, language, and legal differences are important factors that cannot be ignored. In Malaysia and Indonesia, people generally work at a slower pace than in Singapore. and language poses an additional challenge for Indonesians, since many of them do not speak good English.
“We flew the staff here and back to Indonesia to conduct training. They nodded their heads when talked to and we thought they understood. But none of it stuck. We simply assumed that they could speak English or understand what we’re saying,” he added.
The legal environment in Indonesia is also tricky. Unlike Singapore, laws governing businesses are incredibly vague and it’s hard to get a sense what kind of companies entrepreneurs can register and what sort of certification was needed.
“We consulted different lawyers, and even they gave different answers. We’ve wasted a lot of money and time,” he said.
On hindsight, Steve felt they could have spent a bit more time speaking to entrepreneurs in Indonesia to find out how they registered. Although it would take a bit more of their time, it beats paying $50,000 for a lawyer.
4) Hire a strong country manager to take charge, and pay him well if necessary.
So, once the research has been conducted, and the decision on expansion made, the next step would be to engage a quality general manager who possesses intimate knowledge of the country.
Hiring a native helps PropertyGuru to achieve a balance between the expertise gained in Singapore and the local knowledge needed to succeed in Malaysia. While startups have to work with a tight budget, Steve believes in going all out to get top talent to head overseas expansion, paying them an attractive salary and good benefits if necessary.
“We also needed someone who’s willing to go through the stress,” Steve said.
Their first staff member in Malaysia was a former general manager of a popular jobs portal. Since both companies do classifieds, he hit the ground running since he understood the business model well. He was also willing to start from scratch and build up the brand in Malaysia.
If a good first hire is made, everything else falls into place. The country manager will be able to find employees to complement himself and set the tone for the new office.
5) Leverage on partnerships to compete with the big boys in foreign markets.
The decision to pick Malaysia as their first overseas market was an easy one. Besides geographical reasons and some existing brand recognition, they already have a solid relationship with the real estate industry there, since many Malaysian agents advertise their properties in Singapore.
“We were like number five, and had to fight very aggressively to emerge,” said Steve.
Their first step: Remove a competitor by acquiring it.
After entering the country, PropertyGuru bought up Fullhouse Media, which owned North Malaysian property site Fullhouse.com.my. This gave Steve’s company a foothold in North Malaysian states like Penang by inheriting over six years of experience, assets, and priceless relationships with the real estate agents and developers in the area.
They also embarked on a joint venture with Redberry, a Malaysian media company which owns two newspapers, a TV station, and outdoor advertising platforms. He received free advertising up to RM12 million (US$3.8 million) in all these channels, in exchange for a small equity in the Malaysian entity of AllProperty Media.
Steve believes strongly in these kinds of partnerships, especially when taking on bigger companies.
For example, Singapore’s real estate advertising space was dominated by Singapore Press Holdings, which has over 90% of market share through their newpapers.
To take away some of their revenue, Steve partnered with other websites like sgCarMart, eBay, and Mocca. PropertyGuru entered into a barter agreement with sgCarMart, getting banner space, visibility in their newsletter and usage of their email databases.
6) Expect clashes between old and new staff
Managing close to 200 staff is not easy, and Steve freely admitted that he still struggles with it.
Some conflict exists between the old and new staff; the folks who were with the company right from the beginning and are filled with passion but lack experience and skills, versus the new faces who possess plenty of corporate experience, skills, and discipline but lack loyalty to the business.
“The new ones do complain why I am so nice to the pioneer guys,” he said.
Steve hopes to get everyone to meet in the middle: He’s encouraging the pioneer staff to become more process-oriented and disciplined, while getting the new folks to become more relaxed.
Meanwhile, he hopes to steer the overseas operations towards profitability within one to two years, after which he will target new markets. He’s also planning to launch an IPO or exit within two to three years, with a target valuation of S$500 million (US$381 million) by 2015.
Steve and Jani certainly didn’t bring their company to where it is today without making a boatload of mistakes, and he didn’t shy away from sharing about them. Which is fitting, considering this advice he gave to current and aspiring entrepreneurs:
“Don’t stop making mistakes,” he said.
Now here’s a rule that’s impossible to break.
Update: Steve clarified with me that while he had no passion for property at the onset, he subsequently developed a passion and interest for the industry as it is “incredibly dynamic and exciting”.
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