ONLINE GRAPHIC DESIGN BUSINESS RETURNS 'HOME' AHEAD OF ASX LISTING

Written on the 25 October 2017 by Ben Hall

ONLINE GRAPHIC DESIGN BUSINESS RETURNS 'HOME' AHEAD OF ASX LISTING

ONE of the world's largest online graphic design marketplaces, 99designs, is set to move its global headquarters back to its hometown Melbourne ahead of a planned IPO on the Australian Stock Exchange (ASX).

For the past seven years, 99designs has operated out of Oakland in the US, with an office in Berlin, as it pursued its international growth strategy, and the company's CEO Patrick Llewellyn will return to Melbourne to oversee the move towards listing.

Founded in 2008, 99designs connects a global community of freelance designers with businesses of all sizes to complete their design needs.

The company says it has helped more than 400,000 businesses around the world find and hire a graphic designer online, with a new design uploaded to the marketplace every 1.5 seconds.

The online business has achieved its first year of profitability with a revenue run-rate of US$60 million and achieved US$200 million in payouts to freelance designers on its platform since it launched.

Business News Australia spoke with Patrick Llewellyn about 99designs' return 'home' and why now is the time to list on the ASX.

Q: Firstly, explain the move back to Melbourne?

Look, a myriad of reasons. Obviously, we've been pretty open about the fact that we see ourselves, long term, being a listed company on the ASX. That's what we aim for. For us, we've been transitioning as a business to making sure we are masters of our own destiny and to make sure that we can be a self-sustaining business and not have to rely on any market or external investor to continue with our vision of creating the most trusted place online for designers to find and do work. So, we need to reposition the business, focus on moving our business to profitability, which we've successfully achieved this year.

Q: Has moving into profitability given you the confidence to go down the ASX listing path?

Yep, and then we were like 'great, now that we've got our feet under us, we're profitable, now, over the next one to two years, let's position ourselves to do a good public offer'. We're an established business, we've got scale. Our revenue, run-rate is around US$60 million at the moment. We want to do it right and there's a lot of prep to do that.

So, coming back to Melbourne is the first step. It'll allow me to be closer to institutions and the media and now we can think about team structure and learn from the established players.

"The big question is 'why the ASX?'. The ASX is a closer, more addressable opportunity for us. To be put on the NASDAQ, well you you wouldn't want to list on the NASDAQ at anything under a billion dollar market cap."

Whereas on the ASX you've seen a lot of businesses use the ASX very successfully, where they've gone out at the $300 million to $500 million market cap, use that momentum, use their position on a public market and make acquisitions and grow and grow effectively, well over that billion dollar market cap and start to initiate quality coverage and get true institutional support, etcetera. I think for us, that paradigm just feels closer. So, it makes sense.

Q: You're originally a Melbourne boy, are you getting a bit homesick or missing the place?

On a personal level, I've been in the US for seven years and I have a pretty substantial family and so I sold it to my wife originally that we'd go for three to five years. There was a little bit of that 'if we don't move back now, we never will'. On a personal level, my son is going into year seven and so the notion of establishing him early into a high school here would make a lot of sense.

Q: When you head towards an IPO, you say you have a one to two-year time frame on that. What will you be looking to do with the raised capital?

We feel like we've got a good handle on our growth drivers. We want to refine our model. We've been seeing really strong opportunity in the way in which we approach agency businesses, in particular digital and interactive agencies. They are from a fast-growing customer segment of ours.

The types of entrepreneurs that we help are getting their businesses off the ground, need a website, need us to help them and that's our bread and butter. What we do see is that the people who are on-selling design, be it a digital agency or maybe I'm a creative business and need to refresh my creative greeting cards, T-shirt, whatever the case may be, then they can be a user on an ongoing basis.

At the same time, we're investing in continuing to create new ways of engagement for our community, so we've got our project product, which allows you to work one-to-one. We're doing a lot with our data to make sure we do a better job of matching designers with the right opportunities so that we can make them more efficient, increase their earning capacity and make their time on 99 Designs more fulfilling. As well as, obviously the upshot of that is customers get a more efficient staff match with the right designer.

That's a lot of our organic activity, circling back, on what would we would do with raised capital.

"I think there's a lot of acquisition opportunities in the market. I think we'll not only see consolidation of like-businesses, but we'll also see an opportunity to look at other parts of the creative suite. Areas outside of our core design focus."

To be a business of our size, relatively small, we haven't raised a lot of primary capital over our time. You need to be pretty focused. You have to apply a laser-focus to what you're doing. If we were to go to an IPO, an IPO would allow us to extend our reach and start to apply our businesses that have been focused on other segments. Video is a good example, of an area that could be of interest and one where there is increasing demand. That's an example. We might find other triggers that we may be able to use capital for, like one of these new market opportunities accelerates and we've got a clear acquisition strategy that requires up-front investment and that'd be another sort of thing we'd look to fund.

Q: This 'steady-as-she-goes' strategy is a little unusual in the tech startup space ...

As it stands right now, we're focused on operating our business within our means, continue to expand our own organic growth drivers and continue to refine and improve the quality of our community. Improving the work environment for our community and the way in which we connect them with opportunities so that they recognise that 99designs is the most efficient and trusted place for them to do work, and then just see that expand. I think the reality of it is then that online work is still relatively in its infancy.

These work models have been around for a long time, but I think it's really taken the consumer push of demand over the last three to five years to start to bring it front and centre in people's consciousness. We're starting to hear, and big corporates and smaller corporates and agencies are reaching out to us because internally people are like 'there's gotta be an Uber for design there's gotta be so what's my on-demand option for this kind of work'. Obviously 99designs has been this on-demand option for this kind of work. So, I think it's becoming more broadly accepted in the consciousness. We'll only continue to see the opportunity for connecting a global workforce ever increase.

Q: I understand you're looking now to drive the business towards agencies, is that the future for your business?

Yes. We're never going to lose sight of our entrepreneurial roots, that will always be a very important part of our business, but one of our growth drivers coming into 2018 is refining and better understanding how we can engage with digital agencies.

There's a real place in the world to delineate design thinking and 'design-doing'. I think that 99designs has shown that a global community can create really high-quality designs at scale on time and at the right price point. I think that there is an opportunity, and we see this, our best customers are digital agencies who incorporate us into their workplace so that they can deliver better outcomes to their customers and scale their businesses effectively, up and down, with demand.

"One of the truisms of the agency world is that there's always been big booms and busts. Big client comes in, it's all hands on deck, lots of work on. Lose the client, 'oh dear, what are we doing next?'."

I think our model, agencies who are affected easier, realise that we either are a great augment for their internal resources, others just incorporate it full-time into their resources.

Q: How important has word of mouth been for you, and will that change?

Word of mouth is the number one channel for us. Probably over 40 per cent of all of our staff come through word of mouth. In the early days we relied on almost 100 per cent on word of mouth. We didn't actually spend anything on our provision and over time you know we've obviously got better at using other mediums but word of mouth is by far and away the biggest driver of our growth so far.

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Business News Australia

 
Author: Ben Hall

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