An Australian legal software maker has learnt valuable lessons about how to get an international operation up – and running.
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Entrepreneur: Tony Kinnear, CEO
Company: Softlaw Corporation
Business type: Software development and related services
Founded: 1989
Employees: 90 staff in group (12 in Britain; four in US)
Turnover: (2002 - 2003) $17M
Head office: Canberra
Contact details: +61 2 6270 3200
The Softlaw Story
Softlaw is the brainchild of two Australian National University academics: lawyer Peter Johnson and software engineer David Mead. It is engaged in an ambitious growth strategy, based on overseas expansion. The company’s December 2001 listing on the Australian Stock Exchange raised $5 million to fund the establishment of its two overseas offices: London (opened in May 2001) and Arlington, Virginia, near Washington, DC (opened in July 2002). But opening these offices has taught Softlaw the importance of its Australian operation for recruiting staff for its overseas operations and for locating strategic partners.
The company’s key product is a form of legislative rulebase technology called Statute Expert. Johnson and Mead developed the software to ensure that people on government benefits were receiving their just entitlements. Mead says: “LRT makes legislation work automatically. Through an interactive interview with a user about a client’s circumstances, it can then work out how a body of legislation or business rules will apply in each client’s case.”
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Key learning points:
- International office staffing - Use proven staff from your home office in key roles. They need to have an intimate understanding of your company and the technology or product/service that you are selling.
- Global partnering - Large international partners can open doors to big prospective clients overseas. Forge such partner relationships in Australia to lay the groundwork for international expansion.
- Revenue sources - Never rely on one big customer. Softlaw had one big project - for Centrelink - that accounted for about 60% of its revenue. When that work ended six months ahead of schedule, Softlaw had to shed 30 staff. No client should make up over 30% of your business.
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The software is mainly used when legislation affects eligibility or entitlements. Typically, for Softlaw, this involves social security, entitlements to housing, or taxation rights and liabilities. All of the company’s clients are government departments, however Softlaw plans to expand into the private sector.
Softlaw’s CEO, Tony Kinnear, was recruited in July 2001 to take Softlaw into the stockmarket float and beyond. He says: “The first client was the Department of Veterans Affairs, then Defence and then Centrelink. The company basically grew on the back of those three big Federal government clients. The question then became how to keep growing at the rate that we’d been growing. We realised that Australia wasn’t big enough and we needed to expand overseas.”
The founders did not want to debt-fund an expansion and the dot-com crash ended any hope of finding a larger partner to take equity in the company. Venture capital funding was rejected because the terms were too onerous. A stockmarket float was considered the only other option.
Kinnear says: “We would have preferred to go public a bit later. For a small company, you suddenly find yourself having to manage external shareholders, your investors and the market as well as trying to grow the business itself. In terms of the founders, too, it was a tough transition. I think that we all agree they should have stepped back more quickly. They tended to hang onto the operational detail for too long. I think they would agree with that. You often see many companies where an external CEO comes in and it leads to all sorts of friction. In retrospect, we got through it very well. The founders are still on the board and do small pieces of consulting.”
Softlaw’s British operation is now well established and the company is very happy with its progress. Big clients in Britain include the Department of Inland Revenue, the Department of Work and Pensions, the Veterans Agency and local councils.
The early days of the British operation were anything but smooth. Kinnear says: “Some of the local staff who we recruited in business development roles didn’t work out. We over-invested heavily in our first 18 months there, we didn’t win business fast enough and we recruited too many staff too soon. We were up to 20 people and we didn’t have the work to keep them busy. This resulted in a significant loss, which we’ve now recovered from.
“My advice is until you’ve got a steady revenue stream, when you’re trying to win new business overseas, always send someone from home office who is familiar with your product or service and who understands the culture of your business.”
Home office expertise has also been critical in developing strategic partnerships. Part of Softlaw’s strategy in Britain and the US has been to partner with big systems integrators, which can provide channels into large government clients.
Kinnear says: “What we found most successful was making sure that we established the partnerships in Australia first before trying to establish them overseas. It paid off much more than going over to London or the US and simply knocking on doors. Our most effective partnership is with EDS, the large systems integrator. We established that critical relationship in Canberra first, taking advantage of their global partner solutions program. In the US, for example, EDS has taken us into Internal Revenue Service work.”