October 27, 2017

Software: A business model propelling international expansion

By James Johnstone

The lure of conquering international markets has often been a tantalising prospect for Australasian businesses: Large markets many times the size of Australia, the ability to sell an existing product, and comfort taken from expanding within a familiar regulatory environment.

While these prospects are very real, Australasian businesses have often succumbed to the perils of entering a new market which casts aside even the soundest strategy. And while Australia can point to proud examples of businesses mixing it on the world stage, there is a long list that have been forced into a hasty retreat from their international forays.

The risks involved in international expansion are pronounced in traditional business models (think of the investment required to take the Bunnings business model to Britain), but newer digital business models have hallmarks that fundamentally lower the risk of expanding offshore.

Today’s digital businesses purchase their computing capacity on a variable basis from cloud infrastructure providers, deploy a single code base that allows them to distribute their software to any customer with an internet connection and can access those customers without hiring a sales force. This can all be done at cost that is a fraction of the potential revenue opportunity. The nature of these costs also means that software businesses can incrementally ‘test’ new markets, before making any substantial investments.

At Bailador we invest in Australasian technology businesses that are conquering global markets. Often these businesses start with a global first mindset from the very beginning. We are attracted to these businesses because they can grow rapidly in international markets without having to take dramatic risks that require comparatively large capital investment.

While technological advances have increased the ease in which software companies can access global markets, to be successful these businesses need to have an unrelenting focus on innovation and address the needs of a global customer.

It is in the area of innovation that a number of Australasian software businesses have excelled and used their product leadership as the platform for their international success.

Discussed below are some great examples of Australasian businesses that have successfully taken on international markets and won.

Xero: fundamentally improving the way accountants work

Launched as a platform for small business accountants and bookkeepers, Xero was founded in 2006 in New Zealand and has become one of the fastest growing software-as-a-services (SaaS) companies globally.

The cloud-based software platform is a simple and time-saving SaaS package that has vastly simplified the accounting process for accountants and business owners.

Xero pioneered the SaaS business model in accounting. In doing so it redefined and fundamentally improved the way that accountants worked which has given Xero a huge advantage against its competitors.

Xero Founder and CEO, Rod Drury, spoke at the Australasian Above All Human conference and addressed how the Xero product has had the ability to grow so rapidly: “In years gone by tech companies hailing from Australia or New Zealand wanting to expand or compete in international markets would need to shed their local identity and become a US-looking entity.

“Today, however, as more companies like Xero and Atlassian launch – and win – in the US, Asian and European markets, the need to be seen as a US company has lessened. In fact, it’s now more of an advantage to be seen as a global company… Launching world-class technology companies in Australia and New Zealand means you can build a solid, giant killing enterprise and largely remain undetected by the big incumbents while you’re scaling up.”

DocsCorp: enhancing productivity

Bailador’s portfolio contains a number of great examples of Australasian software businesses that have successfully conquered global markets.

This includes DocsCorp which was founded by Dean Sappey and Shane Barnett who witnessed the inefficiency in the way that accountants, lawyers and professionals were working with different documents. DocsCorp has now gone on to develop a suite of four cloud and desktop based products that help professionals work more productively.

Right from the beginning the DocsCorp team knew they were solving a problem that was being experienced by accountants and lawyers, not only in Australia, but worldwide, and that their company addressed a global market.

DocsCorp’s business model and product leadership allowed them to win customers in international markets from their Australasian HQ. The business has now reached a point where they now service over 320,000 users from 55 different countries and have offices in Sydney, London, Pittsburgh, Portland and Manilla.

DocsCorp is a great example of an Australasian software business that had its eyes on a global opportunity when it developed its product and leveraged the advantages of its business model to access these markets. With 80% of revenue now generated outside of Australia it is a truly international business.

The rate of International expansion will only increase

These are only two examples of Australasian businesses that have successfully expanded offshore, but there are many more and that number will only increase.

The tailwinds propelling international expansion opportunities are strong. Technology is continually reducing the cost of software businesses taking their product to the world while at the same time breaking down geographic trade borders.

At Bailador we believe that the prospects for the Australasian technology ecosystem are strong, fuelled by the ability to access international markets that are no longer restricted by the barriers of the past.