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Government

Paycycle gets on a *pay* roll

If there is any truth to the saying "necessity is the mother of invention" then the government offices in Canberra should be a more fertile breeding ground than hotel rooms frequented by Tiger Woods.
Written by Mahesh Sharma, Correspondent on

If there is any truth to the saying "necessity is the mother of invention" then the government offices in Canberra should be a more fertile breeding ground than hotel rooms frequented by Tiger Woods.

Among the myriad of inefficiencies, red tape and bureaucracy that characterises government life, one public servant noticed a particular pressure point in the management of contractors and payroll.

After lengthy stints working at several government organisations and agencies, including AusAID, Stuart McLeod identified a niche for contractor management services.

In 2006 he started Contract 1, which manages the payroll requirements of contractors dealing with recruitment agencies and government organisations. It generates annual revenue over $10 million, he said.

The experience gave him the knowledge and confidence to team up with friend and former colleague John Freeman and develop Paycycle, an online payroll software system for small businesses.

Development commenced in June 2009, the beta was released last November and the product went live in April 2010.

McLeod said a major catalyst for the software was the emergence of accounting software Xero, a web-delivered alternative to the popular product MYOB. Xero does not offer a payroll product, and partners with other companies, including Paycycle, to provide this service.

Revenue is generated by a subscriber model, with over 700 registrations, he said, and the business is "moving fast towards break-even point" with 1000 customers expected by the end of the year.

Commentary

Strengths

Paycycle was developed with a specific market need in mind. It appears to be well supported by McLeod's experience in government, and starting up a related business.

Weaknesses

With a small number of development staff, time to innovate on the product is reduced by the need to respond to customer queries and eliminate bugs.

Opportunities

An opportunity is present in the shake up of the small business accounting software market, which has been in flux as MYOB has come under some criticism for its slow response to developing a suitable online product.

Threats

Xero has multiple partners in Australia, which means Paycycle does face competition for a relatively small user base. And McLeod admits the international growth potential is limited, as payroll is very specific to each country.

Bootstrappr verdict: BOOM

Paycycle will be a success because it responds to a specific market demand, a pressure point identified by Stuart and John from their time in the public sector and also starting up a business.

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