Tuesday, 17 April 2007

AFR BOSS CLUB – GRAEME WOOD, MD & CEO, WOTIF.com

Speaker: GRAEME WOOD

Graeme Wood revolutionised the travel industry in Australia when he created the concept for, and co-founded, Wotif.com in 2000. From his simple and innovative idea, Graeme has grown Wotif.com into a global company with a team of over 130 employees worldwide. To this day, Graeme is involved in all aspects of the business—from website design and technical innovations to targeted marketing strategies and public relations.

Transcript

This is an edited transcript of an AFR BOSS Club held in Brisbane on April 17, 2007. It featured Graeme Wood, founder of Wotif.com.

GRAEME WOOD: Well, good evening, and thank you very much for coming along. I wanted to talk about innovation mainly, because I think innovation is something that's near and dear to every business person's heart, and how ideas emerge and how some of those ideas end up as innovations.

It's the most exciting bit about business, I think, is when you start it. When you list it isn't bad either.

Everything and every business represented here starts with an idea. Now, the idea really seemed like a simple idea to me at the time and that was to create an on-line market place for distressed hotel inventory. The idea was a hotel room that didn't have a body in it tonight, hopefully a live one, was of no value to the consumer and certainly no value to the hotel.

Now, the occupancy levels that I discovered when I started chatting to hotels, after this idea came up, across the land were something like 65 per cent. So there's almost a third of the investment in this asset that was being wasted. Now, I wasn't thinking about the welfare of hoteliers when this first came up but realised here's an opportunity. If I could find a way to increase occupancy at very little incremental cost, that seemed like a good idea.

Now, looking around the industry - and my background as Narelle said is in IT, so I knew very little about the accommodation industry - I had bumped up against some of the information systems that they'd employed and you didn't have to be a genius to work out that they weren't exactly leading edge. One of the funny things, curious things about the accommodation industry was that most people who worked in it seemed to come up through the industry. So they started off on the front desk or out the back or whatever, ended up as managers of hotels. So a lot of the thinking in the industry was old thinking in the sense that there weren't a whole lot of new people coming into the business every year, saying, "Hang on, why don't we change the way we do things?"

When I looked around, the other thing I noted, in Australia at least, was that it was a very fragmented market, the supply side. In the US it was very much dominated by change. In Australia it was pretty much the other way. So about 80 per cent of the properties in North America were chain controlled; in Australia the other way. So a lot of independent businesses, small businesses, who didn't have big marketing budgets, and to me the opportunity to draw together all of the available properties on offer on one page, show the pricing. It was dynamic pricing, so here's a market place that I was trying to create. To put all that on the internet, which was a technology I was fiddling with and sort of understood, seemed fairly compelling.

Now, at first I actually got the idea talking to a hotelier who explained a different problem to me but while he was talking things started flicking away, and as I said I had no real understanding about how rooms were distributed for the accommodation industry. When I scratched the surface there I discovered that there are lots of gatekeepers. The corporate travel manager, the retail travel agent, the airlines seemed to control all of the information about what was available. The consumer was held back from getting access to the real knowledge, and if you look at what we really did from the information’s systems point of view was we put the power of that information in the hands of the consumer. That was why consumers like it, apart from the good deals.

So they were looking at the problem with new eyes by looking at it from a business point of view, and I think this is pretty important for all you budding entrepreneurs out there. If you can't couch your problem in business terms, then any technology solution is probably a solution in search of a problem, if you know what I mean.

So here was a business problem. Here were consumers who weren't getting access to good deals and here were suppliers who had rooms that were going to waste. That's the basis of it.

So there was the idea. This is in 1988 some time, late 1988, maybe early 1989. I got pretty keen on this idea. So I thought here's the basis of a business. What do you do next? And here's the classic problem for most people who start a business - I need money.

Now, I've had an interesting financial history. I've done well, I've done badly, but generally done well, but not long before this idea popped into my head I had been through a rather unfortunate property settlement. So I wasn't very flash in financial terms. As an optimist I would have said I was in between fortunes. To give you an indication, one of the assets that my ex-wife and I shared was an interest in a small mining company. She got the gold, I got the shaft.

Now, early stage capital is a tricky thing to get hold of. I think the term for these people used to be, probably still is, "angel investors". Now, these weren't any ordinary angels, this lot. They were tight arse angels. They only sort of put the money out in little dribs and grabs because they just didn't like to put a whole lot out at once.

Now, that turned out to be not a bad thing because it forced me in particular, and anybody who came along to work, to think twice before we spent any money. So we didn't assume we had a budget for anything, because we had a budget for nothing. We had to pay wages and rent and that kind of thing, but like marketing - no, no budget there.

So part of the business model that had come out as part of this idea turned out to be a fairly neat financial model in that you, the lovely customer, bless your hearts, pay upfront. So when you book the room we take the money off your credit card, you go and stay in the hotel. A couple of weeks later or whenever they give us evidence of that stay with an invoice, so we look after that money lovingly and effectively for that period of time.

Now, that gave us a very good cash flow. So apart from some very small investments upfront to pay for a few fundamentals like a web site, we have never borrowed money. We have always had a very strong balance sheet. Even though we had the money there, we still didn't spend it. Someone had the key to the safe that I never found.

So that gave us enough capacity to go out and build a prototype. So I actually knocked up a prototype over a Christmas New Year period and took it around and started hawking it to hotels with my clapped out laptop. The reaction was very interesting. Like most of them weren't interested, especially chains like this. The Marriott love us now but in those days the thought of any hotel trashing their brand by discounting rooms on this unknown web site was simply not on. So what saved us what that lots of independent suppliers - well, lots, okay, we started off with 60 - thought "I've got nothing to lose", and they didn't. The deal was it cost them nothing to advertise, we'd take a small margin on the way through. So it was a win, win, win and win kind of deal.

So that's how we launched. We launched the business with about 60 suppliers. We've got 8,000 or 9,000 or now. I mean that's real people that we communicate with.

We used to be asked about our marketing plan and we honestly didn't have one. We just assumed we followed the better mouse trap theory, that you build something and they'll all flock to it. It didn't kind of work that way but what we did have was something that was unique. We had a business model that hadn't been seen before. We had a web site design that hadn't been seen before. We gave suppliers the ability to manage their own prices on-line. So they're in complete control of whatever rate they put up there. They are managing it day-to-day, hour to hour, the keen ones. And the whole idea is when you look at Brisbane, you see the Marriott at a price, you know that the Sir Stamford or whoever it is down the road, similar hotels. You will pick the one with the best deal. So people are very motivated by saving a dollar, no matter how much money they've got, believe me.

So what we found was that a couple of journalists picked up the idea, understood that this was something that was different and started writing about it. We had a couple of exposures on the 6.30 Report or Today Tonight, or whatever they are, those things, and they really kicked interest in it.

Now, once people started using it and it worked and they got a great deal, they couldn't help but tell their mates about it, their colleagues at work, et cetera. So word of mouth was what really drove the business, and still does. We still don't spend any money on conventional off-line marketing. We spend a fair bit on-line but we can measure precisely how much return we're getting on that.

Word of mouth is pretty neat. It's very plausible. If you tell a colleague or a friend something, you're not going to lie to them. You'll only tell them about it if you really believe in it. It's a very, very effective way to get a message out and that's one of the questions people ask me when they talk to me about starting a business, "How did you do it", and I say, "Word of mouth", and they say, "Oh well, how do we do that?" And honestly I don't know, except that you have got to offer something that is really good value and is different to anybody else, that stands out. It has got to be in your mind, so that when you are chatting to somebody on a bus you want to tell them about it. You're clever because you found it.

So that's how the business started. Let me fast forward a bit. How do you maintain a culture so you start off with a lean nimble entrepreneurial outfit with two or three people, you then go and list it on the stock exchange, how do you maintain that kind of culture going forward? How do you remain nimble and efficient and entrepreneurial and have fun along the way, because having fun is really at the bottom of all this I think. And if I look at the people that we chose to work for us, we had a couple of - well, not exactly rules but guidelines. One was that we didn't hire people from the hospitality industry, because in the early days in particular they just didn't get it. They just thought everything we were doing didn't make sense and they wanted to overlay our way of doing things with conventional ways of doing things. So we had a rule, we set a rule: If you work in a hotel go away.

We tended to hire people - we hired a lot of inexpensive undergraduates shall I say. Now, some of these inexpensive under graduates have turned out to now occupy very senior roles in the organisation and that's one of the real pleasures of running a business like this, to see young people, who haven't got a clue what they want to do, end up earning big money running a really important part of the business, and all this in six or seven years.

The other characteristic I would say is that the people who joined us and stayed, and some didn't, was that they could live with chaos, and it was a chaotic kind of environment. We were really in uncharted waters here. There was nobody who had forged a path before us, so when it came to implementing a credit card processing system for multi currencies, well, we were one of the first in Australia to do it, and suffered the pain, and there was a lot of it. So it was chaotic but I think the overarching thing was, and I still believe this, that if people are enjoying themselves the chances are you're making money. If they're not enjoying themselves, then go home.

We took risks and I guess one of the things that I've learnt personally is to take risks but try and manage the damage, do it in little chunks, and it's possible to do that with the internet. If you want to try something new, you can put something out there and see if it works. I mean you don't want your site to fall over but to see consumer reaction to it. So it's a great sampling tool, the internet generally.

Simplicity has always been one of my guidelines and how the site works and how it looks. If people can't get in and do quickly what they want to do without getting distracted by banner ads and all that sort of stuff, then that's not what we want. So simplicity was one but focus was the other. So having started to go okay in Australia the next big step was international. If you call New Zealand international, we used them as a bunny and got the multi currency thing all up and working and then we were off and running.

I went over to the UK for a very long cold winter, assuming that people who live over there behave the same as Australians. That was a bad mistake. They're much more habit prone. Australia's a great place to try anything from a technology point of view because we are early adopters and you can't really appreciate that until you go to a place where there are slow adopters. So the problem is, I guess, for any business, once you reach a certain level how do you keep that entrepreneurial thing going? Really that comes to the heart of what is this innovation thing all about. There's two ways to make money - inspiration or perspiration. It's an old adage. You work real hard or you work smart.

Now, if you look at the opportunities posed by innovation, then they're fairly compelling. There is no steady state in business. In physics maybe there is but in business there ain't. So if you think you're just going along calmly and doing okay, bad news. Somebody else is sneaking up behind you and will cut you off at the knees.

So an innovative business, a business that has a culture of innovation, how do you get that going? And it can apply to any business at any stage of its development. It's really about freeing up the ideas, the creativity of the people who work in the business, make it possible for those ideas to bubble to the top, to be evaluated, to be tried, to be rewarded if they work and rewarded if they don't work, because if you're not making mistakes you're not making progress.

One of the problems with ideas generally, and ideas are sort of bubbling away in most people's heads in most organisations, is that - and they don't have to be huge, big ideas, they can be lots of small ideas, the whole thing is to keep the whole new idea thing happening, but a new idea is potentially a very fragile thing because you put an idea out and someone laughs at you or somebody says, "Sorry", for whatever reason. Now, you only have to get knocked back two or three times and you stop, so people then give up on ideas, and that's the potential in a business I think is to try and harness that idea as energy that is floating around there.

Some people have had creativity trained out of them. Are there any accountants and solicitors here? We don't hire any of them. Some people really are trained to do things, you know, step one, step two, step three, and not have an inquiring mind about things, and you can't have an organisation full of people with an inquiring mind because you end up with an advertising agency and you go nuts, but we are all very different, yet the thought processes that we demonstrate are amazingly similar. I mean if you take a glance at your neighbour you've all got different DNAs right. You are unique individuals, and you are probably pleased about that, having had a glance at your neighbour, but we tend to take on group think, we tend not to challenge authority or challenge the status quo and I think that's to our detriment.

So as a leader, as leaders, one of the big challenges I do believe is the need to find, first of all to identify those creative people in our organisations and outside our organisations, like suppliers, like customers. You don't have to own the ideas but I think we do as leaders need to be honest about where we sit on the creativity stakes and we cheerfully admit we are not a creative person, but are prepared to try new things, then we can go chase people who are creative. We can bring ideas into the business.

If you look at all of the state based tourism marketing and advertising, if you cross out the name of the state you could hardly pick the things apart. My attitude to advertising is it is either brilliant or it's noise and most of what I see coming out of tourism organisations is noise.

That's not necessarily a terribly bad thing, but bureaucracies aren't really good at doing business. Where it gets bad is where they impact government policy. Let me give you an absolute classic. There's a state down the bottom end of Australia called Tasmania, lovely place. I would class it as a world class eco tourism asset. There's a lot of history there but there's a small noisy trade union that has undue influence on one side of parliament, on one side of politics, CFMEU, there's a logging industry that has had tentacles into all levels of government for like 150 years, as long as the place has been going. Now, both of these sides of the equation have undue influence on policy making in state and federal government to the detriment of tourism.

There are about 100,000 tourists go to Tasmania every year. Every 100,000 tourists generate about 5,000 jobs. Now, currently in Tasmania, a place of pristine forests, clean water, wonderful food and wine and all that sort of stuff, they want to build the world's biggest pulp mill. Now to feed the world's biggest pulp mill they are going to chop down many of the world's most pristine beautiful rainforests. What are the tourists going to do? I don't think noxious industry tourism is a big seller but believe it or not both sides of politics are supporting this, and this just says to me that tourism should be disentangled from government. Tourism should have its own voice to make its own decisions on these things.

The tourism bodies that should be up in arms about this, Tourism Tasmania has not said a word about it, Tourism Australia has not said a word about it and every international tourist that goes to Tasmania comes through Australia. So here are tourism bodies that have just closed their mouths and shut their eyes. The risk is that Tasmania gets deleted permanently forever as a great tourist destination. So end of debate.

NARELLE HOOPER: Now, is it true - I read that you used to have a big map of the world next to your desk and it had "world domination" scrawled across it.

GRAEME WOOD: It did. I've lost that map actually.

NARELLE HOOPER: How far, if you had that still by your desk, how far would you like that to go?

GRAEME WOOD: Well, at the moment our web site is only in English language, so every English speaking destination or every destination where English speakers go and that's probably the whole world. We're in I think close to 40 countries at the moment and we're growing all the time. It's really a matter of where our customers want to go. Aussies travel lots of places, so we like it be in lots of places. When we start to get traction in new markets, like Singapore, then we find Singaporeans going all around the world. So it's just a natural organic growth I guess.

STEVE WHITE: I run my own company. Just a question from your early days when you first came up with the concept or the idea and you were racing around telling people how great that is and enjoying that enthusiasm about the idea. I guess there's a certain amount of fear at that stage that your idea will be taken up by somebody else and they'll throw a heap of money at it and make it work quicker than what you will and that fear's a bit of an anchor but did that affect you in the early stages and how do you overcome that and work through that?

GRAEME WOOD: It was a bit of a concern. We just ran as hard we could and got it out there as quickly as we could and once we got it out there we ran even harder because we knew people would copy it. So I mean focussing on your own business is much better than worrying about what other people are doing.

NARELLE HOOPER: Just as a follow-up to that, now you've got the hotels, you've got the airlines, everyone coming at you as well, you've got to run even faster in terms of your own innovation. How do you handle that?

GRAEME WOOD: They've been coming at us since year one and not many of them have made much progress. We are still doing as much business as all of our on-line competitors combined and we're starting to get benefits of scale in the business now and margin growth is increasing all the time. Our cost of doing business per transaction is going down. We've got more marketing clout. So we're starting to get real economies of scale and that makes it very hard for people coming along.

An on-line brand is just like any brand now. Seven years ago an on-line brand was a dubious thing but now an on-line brand has got real value. It's the same as a Coca Cola or anything else. So unless you do something really dumb, if you are number one, it is pretty hard to get dislodged. If you run hard, work hard and don't do anything silly, don't take your eyes off the ball.

Graeme, thank you for your words tonight and you have clearly set a benchmark in leadership that is truly inspirational.

GRAEME WOOD: Thank you very much, thank you.

Venue

Brisbane Marriott