Scarce capital and the need for speed dictated an SaaS approach to initial technology priorities for this Aussie startup. The business' MD and CTO explain why adaptable technology is crucial for business startups, and why they’re betting big on mobile.
Rolf Weber and Dan Jarosch took the plunge and started brandsExclusive (BEX) in August 2008. It was probably fortunate that they were in a Berlin bar at the time, celebrating Weber's birthday. The good vibes of the surroundings may have temporarily helped diminish the scale of the challenges facing the co-founders.
The global financial crisis had been simmering for a year, and would come to the boil a month later with the bankruptcy of Lehman Brothers Bank. This increased the challenge for the Australian-based Germans of attracting capital Down Under, where there was initial resistance to their business concept.
"The sentiment was no one would buy jeans or shoes online without trying them on," said Weber.
At the same time, BEX faced a race to launch its "private shopping club" model in Australia before competitors got a head start in the land grab for customers. And the business also had limited capital with which to build a robust web commerce platform to deliver its business model.
BEX's prospects were boosted by an early gift on Christmas Eve, 2008. The December 24 deal that produced seed funding for BEX's launch also provided a solution to some other challenges. Firstly, one of the investors, Sina Afra, was CEO of Turkey's biggest shopping club, Markafoni, and he brought his expertise to the new business in the role of chairman. He also inked a deal to provide access to an instance of Markafoni's web commerce platform in a software-as-a-service (SaaS) solution for BEX.
Weber acknowledged the SaaS access to Markafoni's technology platform as an important contributing factor to BEX's success: "It meant having a platform that worked and was stable, and we avoided sucking up capital to build something ourselves. All we had to do was translate it for use in Australia." Importantly, the SaaS deal allowed BEX to get established in the Australian market quickly, and validate its concept without investing in technology of its own.
As a result, brandsExclusive's website was launched in Australia in May 2009, at a time of limited direct competition. While businesses like Ozsale, DealsDirect, and CatchOfTheDay were in existence, none was dominant, so BEX had the opportunity to join the land grab for customers.
BEX's business model is based on the private shopping club concept, which has already proved to be successful in Europe. The business has built relationships with over 800 well-known brands such as Guess, Pierre Cardin, and Calvin Klein, and markets the products in a premium setting on its website. BEX sells the products (apparel, shoes, accessories, beauty, homewares) to its 2.6 million members via a daily sales email. Discounts of up to 70 percent are offered, and, once the daily orders are received, the company sources the stock from its suppliers. The zero inventory model keeps costs low, but it means customers may have to wait a week or two to receive their purchases. Weber said consumers are prepared to wait in exchange for the heavy discounts. The model needs robust web commerce and ERP capabilities, most of which the Markafoni SaaS solution provided.
BEX's SaaS approach was not restricted to the web commerce platform. Weber opted for Australian vendor Saasu's finance and payroll solution, citing its affordability at less than AU$50 per month, and its anywhere/anytime accessibility from a browser. The fact that it didn't require in-house technology or support was another plus point. Google apps for office productivity rounded out the SaaS toolkit for the early days of BEX. This approach made sense at a time in BEX's development where there was no in-house technology leadership, and the lion's share of capital had to be ploughed into growing the member base.
But the SaaS focus was to be moderated as the business grew. By the end of its first full year of trading, in June 2010, BE had AU$4 million in revenue, 10 full-time staff members, and over 100,000 signed-up members. It also had new capital secured from a Series A funding round in February 2010, capital that would accelerate its growth and support new initiatives.
Most of the new funds were pumped into marketing, growing the membership, and growing the BEX team. One of the new team members, CTO Daniel Reyes, was cited by Weber as being an important part of BEX's rapid growth: "Like Garth Allan, our head buyer, who builds and manages relationships with suppliers, Daniel was a key recruit."
Charting a new technology path
Coming onboard in early 2010, Reyes added the capability for BEX to take ownership of strategic technologies. At this time, Weber recalled, it was important to relocate the web commerce platform from Istanbul to Sydney, Australia, "to support business growth and customise it for local conditions".
Reyes' first task was to go to Istanbul to learn about the Markafoni web commerce system and the way it was set up for BEX's business. At the end of his trip, he brought the system with him, source code and all, and installed it in Sydney. Weber explained that this eventuality was anticipated, and therefore included in the original agreement with Markafoni.
It was the start of a new path for BEX, where it took control of how the commerce platform developed and the pace of developments. Reyes and Weber were the key drivers, collaborating on a list of features, especially the warehouse processes in which BEX is very specialised.
The priority developments were completed by mid-2011, and key outcomes included a set of automated warehousing processes. The resulting efficiency gains were timely, as BEX's membership shot past 1 million in April that year, and sales transactions were rising rapidly. While the major web commerce application changes are in place, BEX is constantly looking for further innovations and changes to improve the customer experience and generate efficiencies.
Reyes explained that BEX's servers and network are co-located with supplier EdgeCast, which is based at Equinix's Sydney datacentre. The BEX philosophy is to outsource what it deems to be commodity technology, mostly hardware, but own and develop IP in technologies central to the business — principally, software and mobile apps.
The future is mobile
Weber is enthused by the opportunity offered by mobile commerce, explaining that it's one of the key focus areas for the business in the next six to 12 months. His stride appeared to quicken as we walked the short distance from BEX's main office through the inner-city streets to the renovated terrace housing BEXLabs. BEXLabs was set up as a separate part of the business, in a separate building, so it retains the creativity, energy, and agile thinking of a startup culture. Its key focus is understanding the opportunity of mobile. While some of its developments will be used within brandsExclusive, some could be used in different, new businesses that are yet to be created.
"We will take a mobile-first approach in the future; it is changing the way our business runs," said Weber. "We want to understand how mobile changes customer behaviours, and we've invested heavily in this."
Such sentiments are understandable, given that almost half of all traffic to BEX's site is mobile. Weber said that around half of the mobile traffic currently comes during commuting time slots, but there's also growth in "couch commerce", with members using tablets in the evening to browse BEX's daily sales email.
Inside BEXLabs, Reyes' mobile development team beavers away beneath a series of storyboards on a long wall depicting the flow of a mobile app. Reyes shares Weber's enthusiasm for all things mobile.
"What we do is innovation," explained Reyes. "We keep trying things, come up with ideas, then use the lean startup methodology to test them out quickly in an agile way, and see if they work. We build and test with the customer's involvement, so we can keep close to their needs."
The customer involvement in design occurs early — well before the app is released, and often before coding begins. Customer feedback is sought initially by showing screen designs printed on A4 sheets, then by showing mock-ups on a phone, and then by releasing an actual app.
The first stage is to create a storyboard comprising a succession of mobile screens to describe the flow of an app. This is a starting point from which the team can engage existing customers, describe how the app will work, and solicit input from the customer — what do they like or not like, are the icons easy to understand, what can be improved?
Whilst customer interviews are based on the process flow and functionality of the app, they also cover wider questions about the customers' attitudes and thoughts about shopping offline and online. BEX sources these customer collaborators by presenting a question after checkout to those living in the Sydney area. Customers are often enthusiastic about giving their input, and as a reward they get name checked in the app.
Reyes' team measures and learns from customer feedback to keep improving the app during development. This leads to the release of a minimal viable product (MVP) app that provides value for customers. The MVP is a rich source of further data transmitted directly back from the app, with metrics about how customers are using the app, where they're focusing, and what they're not using.
This data is used to keep improving the app, and further releases are made and more data collected to keep making improvements. This is a methodical, data-driven approach, but when Reyes spoke about apps development, his passion for the topic also shines through: "We keep trying lots of new stuff because the business model will evolve, customers will evolve, and we want to be ready when mobile changes everything."
The passion to be ahead of the curve is obviously part of BEX's culture. Reyes has it, and Weber and co-founder Janosch demonstrated it by building an AU$57 million business within three years of launch, winning several business awards along the way. Confirmation of their success came in June 2013, when media business APN News & Media bought 82 percent of BEX for AU$36 million, with a further AU$30 million payment contingent on future results.
The founders aren't sitting on their laurels; rather, they're looking to the future, and are ambitious to keep growing the business. In the next six months, the key focus is on partnering with more and more top brands — adding to the 800 they currently work with — and planning for the Christmas retail bonanza. Weber is also keen to introduce new categories, adding to the existing categories of apparel, shoes, accessories, beauty, and homewares. The team has an ongoing focus on improving the shopping experience, having just rebuilt the website, and continues to innovate with mobile commerce.
Reflecting on what he'd do differently, Weber said he'd try to grow even faster if he was doing it all again. "It was a land grab, and the faster you grew, the better chance you had to be successful."
Getting the Series A funding was therefore a critical turning point, as it enabled accelerated growth. Weber also said that he'd have invested earlier in off-the-shelf technology systems, rather than trying to design and build elements of the logistics requirements internally. The learning is to focus the technology effort only on areas where you must own the IP. Finally, he'd have been more careful in choosing the brand name. BrandsExclusive contains the substring "sex" and has led to a number of communications to partners being consigned to the spam folder. The email address for the business is now [johndoe]@bex.com.
Adopting appropriate technology solutions at the right time and changing direction as the business evolved were central parts of brandsExclusive's success. A small business born in Berlin, given impetus from Istanbul, and direction from visionary co-founders is now becoming a household name in Australia and New Zealand.
Technology will remain at the centre of BEX's development as the business looks to become a leading player for the mobile commerce generation. It will be interesting to see how BEX develops during the next four years.
Based on its success so far, not many would bet against it.