Freelancer.com has grown quickly into the world’s largest outsourcing marketplace after Matt acquired the base business (getafreelancer.com), rebranded it to Freelancer.com, fixed up the business model and then acquired and merged 12 other outsourcing websites/domains.
The interview kicks off with Matts background and experience over the last decade starting up and running tech businesses and how that led him to see the opportunity with outsourcing. We then chat about how Matt acquired Freelancer then proceeded to acquire and merge a number of outsourcing competitors in order to accelerate the growth of the business. We continue on to cover marketing, business models and more.
The full interview on video is here:
Matt’s Background prior to Freelancer
Matt did two undergrad degrees at Sydney uni in the early 90’s. That led him to do his masters degree at Stanford in 1997-98 - right in the middle of the dot-com boom. Google started while he was on campus, a guy in his class started paypal , yahoo had just started - there were things happening all over the place. This opened his mind, it was very different to what was happening in Australia back then.
Passing up a few opportunities, (that in hindsight would have proved very fruitful) Matt got involved in a “sure thing” with Securify - a company involved in computer security.
But with a confused strategy, after 9 months with no revenue or products and no idea, that sold to Kroll one of the worlds biggest intelligence companies and became the computer forensics arms of this giant multinational.
Just before the dot-com bubble burst, he came back to Australia to spearhead the growth of Asia pacific with Kroll. When the bubble burst, the plans were shelved, so he left and decided to see what the venture capital industry was like in Australia.
He joined the company called Innovation Capital. But the role of being a venture capitalist was very different from being an entrepreneur. “You basically read 200 business plans a day and fund maybe 2 a year.” (Exaggeration - but the point is, you see plenty of entrepreneurs and very few deals occur.) And to be a successful vc you really need operational experience and a track record, previous experience and success with building companies with a few successful exits and such. At the time Matt didn’t have this, he was basically just a grad fresh out of uni.
After helping start a company with a former university professor and leaving shortly after, Matt then started a company called Sensory Networks. A company “that built the most complicated product on earth”… A chip that you put inside network equipment that scans for patterns.
But they discovered the hard way how to sell the chip, you have to put it on a card, to sell the card you have to have device drivers, to integrate into someone else’s equipment you have to have all these software layers. They ended up selling the product to big companies like McAfee and LG but then they got shifted to the testing business when McAfee decided they wanted to make the chips themselves etc etc etc.
Being in the hardware business, it’s a very capital intensive endeavour. The sales cycle can be up to 2 years long, and then you start building the product. And then it might take a year or longer to develop the product, then when you’ve developed the product, you now have a new product, so then you have to fire up sales, distribution, etc - a very long ramp up after that to actually see any revenue. A very, very tough capital intensive business, but he raised a lot of money from that from a number of venture capitalists locally, something like 9 venture capitalists, half the time at each others throats, if not his throat!
The last thing he did was make plans to transform Sensory it into a software business. The company still runs today (and is now profitable - software is a lot easier) but he left that business in 2006.
Working out what he then wanted to do, he took a year off and went skiing, and then decided he was going to get into the game again.
How the idea of Freelancer came about:
He was working on a few side projects, on day he was trying to get some data entry done, very boring stuff, thousands of entries into a spreadsheet and he was trying to get a little brother of one of his friends to do it. He expected to pay about $2 an entry, so about $2000 for a thousand entries.
In frustration he went online and co-incidentally stumbled across getafreelancer.com and came back a few hours later and there were 70 people wanting to do the job. Here he was running around trying to get someone to do the job here (and couldn’t even get them to do it), and he ended up getting a team of people in Vietnam to do the job perfectly in 3 days, and he only had to pay them $100 after the job was done! He thought this was absolutely game changing.
He digged abit deeper into the industry to find out what was going on.
Basically, there’s 6.8 billion people in the world, there’s 2 billion on the internet, the other 5 billion are connecting now at double digit, triple digit rates. They’re poor, they’re hungry, they’re driven, self-skilling, self motivated and they want a job for $10 a day or less. This is highly disruptive in one of the biggest markets in the world, the human labour market. He decided he want to get into the space.
He actually sat down and wrote the code for his own marketplace, at the time it was called biditout.com in about 2 weeks - he was also using getafreelancer.com to get the code built, hiring graphic designers and such! After writing the business plan he delved more into the entrenched competitors in the space, that raised between $60 and $100 million and had 5-7 years or more headstart. He realised pretty quickly that he wouldn’t be able to start from scratch, this is with a marketplace you need to have economies of scale.
He looked into buying into the space. Incidentally the site he used first getafreelancer.com, didn’t have any venture backing and was run out of Vanuatu by a Swedish guy. The guy who ran it was already in due diligence with 6 different parties (including competitors Freelancer competes with today), so he got him to also send the information. Matt asked how much he wanted for the business, realised it was an incredible opportunity, and immediately put an option agreement in place to buy it.
Then Matt went about getting the money, he got that off another internet entrepreneur in Australia, a guy who built up a company called PC tools from scratch to about $100 million revenue and sold it to Symantec for… a very large amount of money. At the time getafreelaner.com had about 500,000 users on the site and was about the 5000th largest website on the internet.
Since then he went and rebranded the site to Freelancer, went and bought all the domain names which cost a fair bit of money. That was a pivotal moment of the branding of the business, a bit like thefacebook rather than facebook, they suddenly went from being a tier two player to a premium brand. So much so that competitors now have problems promoting themselves because when people mention online outsourcing, then explain it involves hiring freelancers. When the other person goes away they think what was it, oh freelancer. So they type in freelancer and then they come up as 1, 2, 3, 7, 8, 9, 10 on the front page of google. Competitors don’t have that in their name, they’ve got internet names.
He then fixed up a number of problems with the business model and it began spitting out cash pretty quickly, and then he used that cashflow to acquire about 12 other domain/websites. He bought original marketplace in the UK, Australia, Hong Kong, Germany. He bought wide exchange which was a New York based competitor. He acquired webmaster talk, the 3rd biggest webmaster forum in the world and merged them all together. Rebranded the site, and put some resource behind it. He now has 85 people working for him. Started doing PR and marketing and fixed up a few other things, and everything has just taken off.
They’ve gone from about the 5000th biggest website in the world to about 250, 245 or so recently. They’ve gone from ½ million to now 2.5 million users. They hit a few weeks ago, 1 million jobs outsourced through the site, and that’s almost 90 million US dollars’ worth of work through their PayPal account. And because you pay about 1 tenth the amount using freelancer than what you’d normally pay, they’ve saved western businesses $½ billion - $1 billion costs.
So it’s really flying. Since that time there have been a number of things they have been doing, they’ve launched a number of regional sites, freelancer.com.au in Australia, co.nz in New Zealand. They’ve done the UK, about to do Canada, they’ve done Hong Kong, Philippines, Singapore, Germany etc They want to be eBay so in every country in the world, in every currency of the world, in every language of the world, the eBay for jobs.
They empower entrepreneurs. In the West they allow entrepreneurs to get any job they can think of done at any time of the day, very very cost effectively.
In the developing countries, they empower entrepreneurs as service providers. For example there is a guy on it doing $1 million a year through the site and starting from scratch he’s built up a team of close to 100 people. As you do more work as a freelancer your reputation increases and so does your position for the search results. There’s a whole new class of entrepreneurs popping up successfully as service providers. With most of the world’s population making under $300 a month, the ability to go earn your monthly wage in only a few hours, or days in magical.
In Bangladesh they are the 21st biggest website. They are bigger than Microsoft, Bing, Apple, Linkedin, PayPal, it’s huge.
Acquiring and Merging
Matt had acquired a number of business before he did it with Freelancer, both at Sensory and also with Securify.
The very first business, getafreelancer took about eighteen months to close the deal. It was in the middle of the financial crisis, the markets were up, they were down, one minute the vendor was feeling happy about happy about the deal, the next minute he was feeling upset about the deal. It was a very turbulent time. Another thing was it was a two sided negotiation Matt had to do. Matt had to negotiate the options agreement at the same time go and raise the financing.
The domain freelancer.com was also very difficult to acquire. It was extreme persistence in order to secure that. At the time they were in the middle of a competition to design a logo for getafreelancer.com. They got seven thousand designs in (for getafreelancer) before Matt discovered the guy actually accepted his offer for freelancer.com, so they had to interrupt the competition to go re-do the competition completely from scratch with a different name. The guy who owned freelancer.com had it left over from a magazine called freelancer. He had been sitting on it waiting for the day he could make a load of money from it. Indeed he actually made a lot of money from it. Luckily Matt got it for less than he originally wanted for it.
Word of mouth is great for this type of business. If you’re a freelancer and suddenly you earned your month wage in a few hours, you’re going to tell everyone in your whole country about it. Places like India, Pakistan, Bangladesh, Philippines were a household name as a result of that. Likewise on the west if you’re a small business owner that’s been frustrated trying to get a website built and you get quotes for five, ten, forty thousand dollars. Then you post it on freelancer and get two hundred people able to build your website for five hundred dollars, and they send you samples and it looks pretty good, anybody who has the slightest bit of entrepreneurship and intuitive in them, for small business owners it’s tremendously empowering.
For PR: Massive disruption is being caused by the internet. The fact that you’ve got seventy percent of the world’s population getting onto the internet connected right now, it’s good for Freelancer to run their PR on the back of that. The other day when they had their staff down in Egypt, the BBC ran a story that day about the new beginning, the new hope in Egypt, and the fact that people were going online to find jobs that were not relevant in Egypt for example. When Obama goes to India about a year ago he mentioned outsourcing, the next day they were responding to Obama in the wall street journal. Engaging conversation is what’s going on in the media is huge. They’ve got a lot of stories they can tell.
A few examples of good PR stories: They can talk about how small businesses transform themselves in Manly for example. They can take that to the Manly Daily. They can take that story to Kansas, they can take that story to the Miami Herald, and they can take it to Manchester News and so forth. They can take it to an accountant’s magazine and say how accountants can use it. They have got a bunch of stories as well. This guy who was living in a homeless shelter, in Sydney was nineteen years old and basically he used freelancer, and he built his own online business and managed to get himself out of the homeless shelter.
For paid marketing activity they have tried a bunch of things. When they launch into these different countries, they do a big marketing campaign as they launch. That is good as it generates buzz. When in London they had it on taxis and tons of billboards across London. People saw it everywhere. However, a lot of the offline marketing doesn’t result in direct ROI. What it will do is help you convert other things, so you can convert press for example. If a journalist goes out and sees billboards everywhere and your name everywhere there more likely to take your phone call when you call them up and say I have a great story to tell you, a bunch of things like that.
They also alternate online in things like Google, but we run programs like that to generate ROI, direct ROI is measurable. We have affiliate programs that draw into our revenue and so on. Sort of like an AdSense replacement. If you’re a freelancer you write a blog talking about freelancing design, whatever it may be. Instead of putting Google ads up, you would put our ads up, very similar look and feel. But you actually earn affiliate commissions from anyone that clicks through. As a result of that they’ve gotten forty four thousand back links from our affiliate program.
Yes there are competitors but it is such a growing space. This is a massive, massive, massive global labour market; Kinsey projected something like eleven percent of all service jobs out of 1.6 million jobs worldwide can be outsourced so this is a massive market. There will be multiple million dollar companies at this space. So Matt is focused on his own business, optimizing revenue, revenue growth, and so forth. Matt doesn’t worry about the fact that there are other people out there because in any industry you are going to have competitors. In this space you can have many million dollar companies out there. Each of the companies like odesk, 99designs etc do things in different ways. They focus very much on a high volume marketplace.
Odesk in the words of Gary, their CEO who Matt knows, they sell workforce manage solutions. Their primary focus and strength is they sell a platform for monitoring people. For example General Motors has ten thousand hours on their platform and that’s where they make the bulk of their money, they don’t make it where Freelancer does which is two hundred dollar jobs. High volume.
What entrepreneurs should be outsourcing
The key is you need to think about your how your business would change if you had access to unlimited labour at a very, very low cost. How would you do things differently if suddenly you could hire as many people as you wanted to? What sort of skill sets would you use, where would you put them, act. That would differ for everyone’s business.
If you sit down and think what are the things that I do on my day to day job that I don’t like doing that’s boring, or I had more help, then like ten people, fifteen people or just one person to assist me how would I change what I do? I can give you a great example of this. You can hire a virtual assistant who is working for you full time with a computer science degree who will sit there and manage your website, and do all the customer correspondence to and fro, all website descriptions, all website updates, email newsletters and so forth. You can hire someone like that who is highly qualified for like for about three hundred dollars a month. It’s above an average pay rate. So three hundred dollars a month and you can get someone to manage your whole website.
It doesn’t have to be low value work either; the good thing about being a good manager is about the ability to delegate to the people who are very good. Hire people who are better than you in certain skill areas, then delegate to them right. As a small business owner you can now do that. Previously you would have had to do it yourself. You had no one to delegate it to. Maybe If you had a few service providers if an agency down the road, but that was very time consuming, a hassle and very costly.
Now you can hire a whole virtual staff of freelancers and you can delegate responsibilities to them. That liberates you to move up the chain and start working on the creative, productive highly valuable sort of stuff that we all love. Which is you know just coming up with strategy, new ideas and so on. The actual limitation now of actual execution you can rely on your virtual team to get it done.
Business Models and Making $1 Million
Most people when they think about a business, they don’t think about a business in whole enough or deeply enough terms. They come up with ideas and concepts, they think it would be neat if they had this, they think too much into the technology and the product and not the actual numbers. A very, very simple exercise you can do is asking yourself what do I have to do to make a million dollars. So if you’re selling a widget for a dollar, that means you have to sell a million widgets to make a million dollars. How long is that going to take? How long is the sales process? Why is the customer going to pay a dollar? Will they pay ten dollars? Will they pay fifty cents? Are they even going to pay at all? Going through these exercises and figuring it out, and ideally you also know what your margins are, so that you’re not just making a million in revenue, you’re making a million in profit.
This greatly helps your mind figure out how many sales staff you need, is it feasible for this to occur, is the market big enough to actually facilitate that number of sales, Is Australia going to be a good enough market or do I have to go global? Matt has seen a lot of people who, and quite experienced people, Matt’s made this mistake himself, going out there and building products, if you wanted a product you could spend two million dollars and figure out at the end after you’ve built this product, that it wasn’t going to sell. It was going to sell it just wasn’t going to make any (worthwhile) money. Because you haven’t done the simple modelling of how many customers will this bring, is the market large enough etc., etc., etc.,
Now, $1 Million is an entry level business. A million bucks these days is not getting very far. Maybe one or two people and so forth. But it gives you an idea of possible and whether the business resources are actually in tune with the business model.
Back when Matt was a VC he’d listed to all these pitches sometimes and there are not any mentions of financials. And Matt would say where are they and the entrepreneur would say well we’ll figure it out later. After sitting down and you do some stuff on a white board and figure it out for them, they’d figure out they’d need ten thousand people in their sales force to make a million bucks, and pretty much straight away people will go hold on I haven’t thought this through.
Matt believes you need a business model right from the start of a business. You want to make sure that what you’re doing is feasible. An example a friend of Matt’s came to him recently and said that he wanted to build a business, similar to the fiverr.com model. Where you can get a task done for five dollars. It’s a great interesting business, and he has a lot of traffic going to it now. Five dollars to draw your post card in the sand or five dollars to write a poem for your girlfriend, or to twitter out your name on my twitter followers. Matt said to him ok, so how do you make a million dollars if it’s five dollars per task? You would make a dollar per task; you’d have to have to have a million tasks sold. How long is that going to take? How many costs is that going to be for you?
It would be better to instead of focusing on one dollar from a five dollar task to maybe come up with an idea from the corporate market where what would I do for a hundred dollars or three hundred dollars? Maybe take a hundred dollars. You have a lot of small businesses that may be interested in this sort of model, but you’re making a hundred dollars each time instead of a dollar. So it’s a hundred times easier, but with the same amount of effort. It’s just basic thoughts like that everyone upfront needs to address. Particularly for technologists, they jump into technology, they kind of gloss over the model, or don’t touch the model, or they kind of feel a little bit uneasy about the numbers that would actually break their reality that there is no business there, the market’s not big enough.
In regard to companies like LinkedIn, Facebook, twitter etc where they don’t really start with a clear business model but just try to build a massive user base:
These businesses are very special businesses that nailed pretty much how to grow rapidly very quickly early on. Facebook got to six hundred million users in seven years. From day one since they launched that site, Matt’s not sure the growth rate by month but it was something like thirty percent per month growth rate. If you look at it like that you will understand that the market is massive, because Facebook could potentially have every user on the planet. Then you got maybe we’ll just scale it up and see what we got. You’re going to raise money on the fact that millions of millions of real people are interacting on the site. It’s very transparent that something magical is happening there.
Twitter went from zero to two hundred million users in five years. Again you got rapid growth. EBay was the same. Zynga was another one. Zynga went from zero to a hundred million users in forty five days. And people use their credit cards because you can only go up the levels promptly only if you have nine dollars in credit. In the case of the Facebook and twitters and so on these are businesses that it was very clear up front that this is real. With Twitter Matt’s not sure really where they want to go with it. He thinks they need to think a little more on the business mode. But there is many directions they can go for the fact they have two hundred million users on the site.
Whereas if you’re trying to build a website with no business model and you’re not growing out of the gate day one at a rapid rate you know then you have no business.
With Google they pitched to Rob Conway at the end of the pitch Rob said there is no financials for this business, do you know what your business model is and they said you know we haven’t figured it out yet. And they didn’t figure it out until they bought a company. The reason why Rob is doing this is because he was an investor of Ask Jeeves. Ask Jeeves had just gone public on certain valuation and he made a certain amount of money from it. So if they got a better search technology than Ask Jeeves, he must take a punt on it. He took his chances with it.
Back on Matt’s Background:
With Matt’s entrepreneurial experience prior to Freelancer, it was his thirty million dollar MBA. It’s not success he doesn’t think by any means. Anyone can hold the rudder when the sea is calm, the great thing about being in a business that fails, and by fail Matt means not greatly successful, you get to see all this stuff which is going to be eventually helpful to you later on, venture finance documents are this big, you get to see how all these clauses get treated in various scenarios. In terms of if you have a flat investment round or a down round or you got some issues. Some lead to strategy, some lead to a company, but you get to see how the whole thing works. It’s a tremendous experience. In the U.S. investors quite often like to say they like to see someone who has a failure in the past because they know that this guy is not going to do it again. And the experience that came through from that is valuable in terms of your next business. Matt wouldn’t be here today with freelancer if it wasn’t for the past experiences.
A few of the things that were key for him were number one Matt got a whole bunch of mentors early on. His previous business he had Bill Bartee for his chairman, he is a good friend of Matts, helps with the technology entrepreneur course Matt runs. There is Adam Little who founded micro medical - he was very experienced and very well connected and a great guy, also a good friend. Matt’s also got George Foster from San Francisco; these are all fantastic guys to have around you. They mentored Matt. They helped him understand how a board works. How to deal with investors, strategy, how to go out there, how to deal with customers and so on. Matt encourages everyone to go out there and go find mentors. Experienced entrepreneurs are willing to help people out if they like what they’re doing.
Matt’s personal belief is that there are a number of things that venture firms can do, to save them a lot of money and a lot of time. In particular when they finance a company with a first time CEO there’s a bunch of courses they can send them on. Standford has a program for growing companies. It’s a two week course you go there and it’s like a mini mba packed into two weeks. Matt did that in 2005, he wishes he did that in 2002 they came out with all these ideas about strategy, there are a number of frameworks and concepts you were trying to develop yourself and now hearing it clearly your mind starts to crystalize, it’s a bunch of things like that. Where up front just a little bit of training would save in Matt’s case with sensory it would of saved a year or two and a couple millions of dollars. You just have to try to figure these things out. Now there is a whole wealth of knowledge online, particularly in the startup area. You know you can read.
The other thing is that now it’s very low cost to start up. You can do it off a credit card, in certain districts. Certainly not hardware but consumer software for example. This is why there is a whole new development of investors. Instead of putting five million dollars into an investment which is the traditional way to do it back in the early 90’s, now you can fund the company with fifty grand. Because you can use freelancers, and everything is done for you can build a website really quickly. Or you can get a host up very cheaply. Lately you can get a business going with only funding a couple dollars.
Digg.com got started with sixty dollars outsourced on a competitive stand. Then I think they got an offer a couple years later for a hundred and fifty million. (Which they should of accepted).
Matt span both business and technology. He’s got three degrees in engineering computer science, he’s got a master’s degree in applied science and he’s worked in venture capital briefly, but he’s run companies basically for the last ten years. It’s fairly unique you can get someone who can cross both sides, to be a CEO but he can still get on there and fix something if it goes wrong. Dealing with the instances and so forth, pretty much any aspect he can get into, maybe not as deep as some of the guys here but he still can get in there so that’s good. It gives you a lot of power and the ability to actually have confidence of what’s going on. That’s why he can go full speed ahead. He doesn’t have to worry about certain aspects because he understands in depth what’s going on.
What’s next for Freelancer
Fundamentally they want to be the next EBay of jobs. It’s a very, very big market. They want to be the first big Australia consumer company. U.S. has its Facebook, twitter and zynga, and groupons and so on, and we don’t have that here. We’ve got Atlassian, but that’s not really consumer internet that’s more software. Matt wants Freelancer to be the big consumer internet business of this country.
There is a list of a hundred or more improvements which they want to do, and there is still a bit of a turnaround because they have legacy problems, legacy code ec which they need to get through. They are constantly optimizing that. As they get through this we want to go out and promote the business more and get in every country. Fundamentally if they can be the 20th biggest website in Bangladesh, they could be the 20th biggest website in the U.S. Matt doesn’t see why there is any reason why they can’t have four hundred million users on their site.
Matt thinks that there’s no reason why they can’t be bigger than EBay. The reason why because if you’re in Africa you may have no possessions to sell on EBay, and you may not have the money to buy anything on EBay but you can jump online and start freelancing. Start off with something simple, maybe start off with some data entry and as you skill up get into graphic design or programming or copywriting or anywhere you want to go. That’s why Matt thinks intuitively this could be a bigger business. He thinks it can be more applicable to more people in the world.