Neil Tilley is the founder of Upstream Solutions. Upstream is a software and laser printer distribution business that had six staff in 1995 and now has more than $100 million revenue. Tilley talks about how he has built the business, attitudes to the downturn, and where he sees his industry going.
Amanda Gome: You’ve expanded very quickly over the past 12 years. How have you done that?
Neil Tilley: I think the expansion was very quick in the early days. When you’re a small company, a million dollars turnover is pretty easy to double. But we’ve just kept focusing on what we do well and we’ve acquired a couple of small companies along the way. And suddenly you wake up one morning and you realise that you’ve got a $100 million company and not a $10 million one.
What’s the niche you saw back then?
We always saw that people managing paper, laser printers and other output devices as we refer to them, so photocopiers and faxes and the like, was a niche area. It had traditionally been thought of as a part of one’s IT team and by IT specialists. So we felt if we could become specialist managers of those devices and people’s paper that would be a good niche area for us.
How has that niche changed? Of course once you started going in there you would have got competitors coming in.
It is now a recognised segment in the marketplace. Today it’s all about the management of paper and about helping people produce less paper. When we first got into it was more about the management of devices and helping people get access to the devices.
So have you developed new strategy around any new niches you’ve see emerging?
We’ve had to spend a lot of time with our business figuring out if we try and help people to print less, how do we make money? Because our business had traditionally been we make money when they print things.
So we had to have a pretty significant rethink about who we were and how our business model works so that it did in fact work in our best interest, to help people to produce less paper in their business.
So how did you do that?
We came to understand that we were only a small part of our market share. So if we could help more and more clients produce less paper we could still grow our business. We’ve found that we can add value to people with solutions around storing documents electronically so we can now make money when we don’t print paper as well.
We’ve developed some pretty straight forward approaches to help people to think about what is good and bad use of paper. I always say to people that if the primary purpose of producing a piece of paper is to store something or to move something then you shouldn’t do it. It’s much better to do that electronically. But if you’re producing paper to work with it, it’s a great medium.
You’ve always had an attitude of encouraging entrepreneurism among your employees. How has the downturn changed the way you’re managing staff?
I don’t think that it’s affected us too much. Obviously a lot of our customers are feeling pain from the downturn and my observation at the moment is that most people are more worried about the downturn than actually being affected by it.
So we all talk about it everyday and we all think about it everyday, but we don’t do business with really super large organisations and they so far have been the ones losing all the staff. So we’ve not made any changes in our staff numbers, I think people are scared of the economic times so you need to be more reassuring of your staff and more communicative, and tell them how you’re going as a business and keep them informed that the business is OK.
And I guess if business wasn’t OK, you’d need to be informing them about that as well so you could maintain their trust.
Are you finding that there’s a different way of selling in this environment?
Even in the boom times, you talk to anybody, you had to save them money. And then you could talk to them about how to add value after that. I think in these times saving people money is more important than previously. But it’s always been a critical issue for people.
You can’t get a timetable with somebody to talk to them about the sort of things we do unless you’re going to talk about how to save them money. And in today’s world they’re just a bit more interested in saving money.
You have a culture with a “FiFo” policy, don’t you – fit in or f-off?
Yes. That’s it.
How do you recruit in this environment to fit that policy?
I think you’re trying to work out how to get your company to be as effective or as efficient as it is. And the FiFo culture really is a statement that all of us are emotional beings first and intellectual beings second. And so it really says that a significant level of our efficiency to operate as a team revolves around how we all get along with each other.
Some people interpret it as us bullying people that they have to be a certain way or act a certain way, and it’s not that it all. It’s really saying I have to realise that my relationships with other people will have a significant impact on whether they like coming to work everyday or they like working here.
And if I feel good about the people I work with, then I want to come to work everyday and I feel like I can add value; and if I don’t, I’ll sit around either not wanting to come to work or worried about the lack of positive reinforcement relationship I’ve got.
So FiFo is about helping people recognise that getting along with other people is a significant efficiency gain in your business. And if you’re someone who’s a super intellectual person and can add lots of value to a business but the way you go about operating really distresses everybody else around you, you might be adding extra value but you’re taking it away from all those other people.
How do you go about moving people on? Do you do it quickly?
You need to be sympathetic. You try and educate people and help them understand how they can be of more value in your organisation by modifying some of their behaviours. But if it’s obvious at the end of the day that somebody isn’t going to fit in with your culture then you need to move them on as quick as you can.
Do you have a way you do that?
Look cold, hard, open and honest. I mean be totally frank with people. Tell them what your issues are, encourage them, give them chances to fix it. And if they can’t, ask them to go.
Now you have a very good way of reviewing. It’s a 360 degree method whereby you hear what they say about you. What’s been one thing staff have told you that has changed or modified your behaviour.
Look it can be terribly confronting at times. I’ve been told people are scared (of me) because you can get pretty excited or assertive on certain subjects. And I’ve been told before that my personal style doesn’t always encourage people to say what they think.
And that for me was very confronting, because I’m always thinking I want everybody to say what they think. And people would just explain to me that the assertive mannerisms or the way in which I would put my arguments, people were scared to put theirs up even though we’re saying verbally we want them to; it comes across a bit intimidatory.
So you sit there and think OK I’ve got to learn to shut up and I’ve got to learn to make sure that everybody else’s put their input into a subject before I do, because if I do it first, other people may not.
How are you going about coaching people in this difficult environment? Staff are a bit spooked as well.
I think in some ways it gets easier. If people are a bit worried about the future, most of us behave in a different way so it comes back to those old fight or flight instincts, the adrenalin levels go up.
And so if people feel a bit threatened, they’re a bit more alert to what’s going on. In boom times, people can get an attitude “ah well, seems like things go good whether we try or whether we don’t” and in more stressful times people are very conscious of making sure they do keep things in a good way.
One of the keys to your success is that you have been very focused and not easily distracted. Have you taught yourself to do that or has that been natural?
It’s difficult. We would refer to it as the pot of gold type scenario where you sort of imagine we’re working our way up this windy road, to find our pot of gold, and often you’ll come to a Y or cross section in the road, and you can see what is a benefit up this little side track if you go up and grab it?
But we’ve always said no, we’re on a main agenda here.
Staying focused is tricky at times if cashflow is ever tight, and you think here’s a way that we can earn some extra revenue. But the difficulty you have is that all of those sidelines become baggage that slows you down from getting your main job done. So I guess we’re in fear that if we didn’t keep completely focused on what we’re doing, someone else might focus on it more than us and therefore be better at it.
But you keep ideas flowing, ideas for new ways of doing things. How do you do that?
You just encourage people to talk about it. It’s interesting because you want to be totally open minded about how you do something but actually very closed minded about what it is you’re trying to do. So we’re not very fluid about what it is we’re trying to achieve, but we’re very fluid about how we go about achieving it and debating that and trying new things.
I think you come to realise that there’s more than one way to get something done and sometimes people can see a better or easier way to do it.
So how old are you now Neil?
I’m 49 this year, so I can’t claim to be a young entrepreneur anymore.
Yes you’re young. And what’s the revenue target for this year?
We’ve got more modest growth targets. I think we’ll probably end up $110 million. To be honest we don’t actually set targets like that, we’re just happy to keep growing and keep doing what we’re doing. The last couple of years we’ve been focusing on getting our profitability where we want it to be.
How did you do that?
A couple of years ago we did a bit of a worldwide tour and found other companies like ours in America and Canada and one in Asia, and we did some really good benchmarking with them about how we market our products and how we sell and all those things, and one of the things we benchmarked was basic profitability and how do we manage cashflow and working capital.
And we came to realise there was a company in America that was doing a much better job of profitability than we were, so we set some benchmarks off them and have been trying to copy some of their models to improve our profitability as a percentage of revenue.
How was it setting up a tour like that, did you just pick up the phone?
Oh, it’s great. The connected world we live in now is so much easier than it would have been 20 years ago. So you basically do some research on the internet, figure out, yeah these people are the sort of people that we’re into. You figure out who the CEO is and you shoot them an email.
And in a typical Aussie way, it’s a bit brash and bold, and some of them are a bit taken back but you then give them a link to your website and they realise that you’re in exactly the same sort of business that they are, and that you’ve got some good things that you could learn from each other.
And a couple of times we’ve had people say no we don’t want to do it, but by and large people love the idea, and in truth we’ve actually gone and visited the same people on several occasions because the first time you go there, there’s a bit of trust and rapport building involved.
But once you’ve got that, it’s just sensational and we’ve had several of these people come out and visit us as well.
How long would you spend with them?
Typically a day and a half. You’d get in there and do some really heavy stuff. We’d always end up going out and doing that true networking that comes with alcohol, and learning a bit about their business and you very quickly realise where you’re strong and they’re weak, and vice versa; and then just focus in on those areas and you start helping each other.
How did you become more profitable? Where were you weak?
We realised that the way we were managing the consumables that go into printers and copiers was nowhere near as effective or efficient as their’s, so for the last two years we’ve had a program where we’ve got way, way better at keeping track of all the prints and copies that our customers do electronically.
And we ended up using the same software that our partner in the US had used and developed. And it’s improved; we can now track electronically without any intervention whatsoever all of the prints and copy devices we have in the field do. And it means that our billing is more accurate and our shipment of toner is more accurate. And it’s improved our profitability in what we call the back end of our business significantly and it’s been great.
So what’s the plan for the future?
I think we’ve still got the same pot of gold in mind. We still want to be the best managers of people’s print platforms, we want to help our customers use less and less paper. We’ve been become far more environmentally switched on in our business now and we want to be super efficient at doing that and get more and more of the market share, so we’d like to steal as much of the market share away from the big foreign multinationals as we can and be a successful local business.
And long term? You’re coming up to 50.
Do you think I should retire?
No, I think it’s time you buy a few international companies and go global.
It’s really interesting; when we first started looking at the market internationally we’d sort of get these dreams and we’d say look we could take one of these companies over and take our business model international. I think you could look at the current global downturn as an opportunity or a threat.
I think we believe there is still a significant amount of expansion we can do here locally. Although I’m sure at some point in time we’re going to venture overseas and try and take our model to the rest of the world. What we do know from the interaction we have had overseas is that it is a very similar business structure and model and so we’re confident it would work but we don’t have a plan to do that just yet.
How’s your capital going? Any plans to float? Any trouble from the banks?
We don’t have any trouble from the banks. Our banking partners have been very good. In fact in the last couple of years I think the relationship year has been stronger than ever.
Oh well give a plug to the bank then.
The ANZ bank has been very good and we got lucky a few years ago and we got a very good bank manager and he’s been fantastic for us. No, we’ve seen a few of our friends go through float exercise and they tell us it’s a big distraction and it’s expensive so we certainly don’t want to float unless we needed the money to do something.
And at the moment we’re able to grow and expand as much as we want to with our banking relationship. We have taken equity in from various key employees and managers at times.
So what percentage of the business do you own?
The two founding partners own just over 75% of the business and the rest of it is owned by the staff now. So we’ve been able to raise capital from staff members which is good and that’s good in two ways because they are more committed to the business than previous and it’s good for us and good for the business.
So what have you actually done, they’ve bought in?
Yes, and the way it works is we let them buy and that creates new capital for the business and it’s really good.
Do you use non-recourse loans?
No, when we sell shares to staff members they have to be invited so it’s not open to all staff and no, they’ve got to pay for it. So what we say this is going to be working capital for the business and so it’s got to be real and these staff are often going out and borrowing money against their houses and other things so it’s pretty serious commitments.
But so far, so good. It’s been good, the company pays dividends out to help those people service loans if they’ve got them.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
