Rapid growth attributed to an unwavering respect for and understanding of the customer with Prospa’s Beau Bertoli | #410

Beau

It is a made-up word. But no, it’s actually River’s. It’s in sort of GPS fleet management software space, so if you picture a business owner that’s got a fleet of say 50 vehicles, you’re trying to optimize the way those vehicles offer them up. Your plumbing business for example. You’re trying to figure how many jobs can you take on. Where are your vehicles. How are they been driven, what their fuel efficiency.

Tim

And that was your business?

Beau

It was, yeah, business today. I started, so I partnered with a number of different brands including a product out of Canada and North America. And I was importing that product and then distributing it to our fleet owners.

Tim

So you’re old hat to this small business guy.

Beau

Yeah. So Prospa is the fourth business that I’ve had.

Tim

Oh wow. What are the other two?

Beau

So the other two, one was in a property development space so I actually looked sort of quiet sites and get DAs over it and no big developments for you know, small town house style stuff and duplexes and part of that I had a scooter business. So in sort of the early 2000s when you know Vesper’s and all that was taking off and becoming more of a popular mode of transport. You know fuel prices I feel price today is nuts. Back then it was also, it always feels like it’s expensive. Started a retail business actually, so selling scooters.

Tim

So you look about 28 so you must have been 14 when you started the scooter business. Have you ever worked in corporate or you always been…?

Beau

I have actually, yes. So in between sort of my scooter and property business, I actually spent five years in corporate. And the reason for that was twofold. What I actually found corporate that was entrepreneurial which is quite difficult actually to find a real corporate that’s got the sort of systems processes he can learn about but actually acts like a bit of a startup sort of an entrepreneur mentality. So I was very fortunate to find a great company called flexi groups, so they’re in the sort of consumer finance, commercial finance space as sort of my first exposure really to-

Tim

So you had a realization at one point that you know what, small business is for me. Are you a serial small business starter and seller or is you in Prospa for the long term because the other you’ve had four, already right?

Tim

Three this is the fourth. Yeah absolutely, I mean I think when you start a business. I mean honestly, without the truth is you don’t know what’s going to happen. So I think every startup or entrepreneur or small business owner can appreciate that first particularly one to two years where you’ve got this great idea, you’re trying to figure out whether I can find a customer to actually buy your product and want to refer you to other customers. So it is really unknown in those first couple of years and I think with Prospa, we knew there was a really big problem. We knew there was a really unique way of trying to solve that problem that we were developing and it’s just scaled into a business that is significantly larger. When we started we probably thought we’d get to.

Tim

Mate, short hairs and I feel like you’ve only scratched the surface. We’ll come to that and talk about how that growth has happened and we’re next but so going back, what are you in, telematics. So did you experience a problem while you were in that telematics business of trying to get finance from a bank and or how did Prospa come about?

Beau

So the sort of, the challenging I suppose the telematic space as well is that you know, a typical GPS tracking system for a vehicle and then the software that comes behind it was equivalent to about 1500 miles per vehicle. So if you have 10 vehicles that’s 15000 dollars. And even though there’s a really strong business case for a business owner to say yep, I can probably save fuel or maybe I don’t need 15 vehicles or I’m going to get away with 14 with the insides. It’s still a large lump sum to come up with. So the challenge of finding capital as a small business owner has always been there and it probably will always be there. But it was actually a mutual friend that introduced me to the co-founder of Prospa. It’s Greg Michell. And Greg is also a serial entrepreneur. I think he’s had his seventh business so he’s had a number as well that he’s excited and he was in the process of selling one of his previous businesses and he had the same experience as a business owner refining capital. So when I had my telematics business for example, I was importing stock from Canada and I couldn’t just import it. It wasn’t just in time kind of provisioning. After all hundreds of these units which my buy price in that was over 1000 units. So I’m bringing 200 I mean I’ve got to come up with 200,000 cash

Tim

But you made all this money from property development.

Beau

Well fortunately it does it but the better the company did, the more cash it consumed in terms of inventories. So and then you had a fulfillment time, and then customers were going to be paying you on day one, you’re going to be putting in on 12 or 24, 36 month contracts. So the money was going to come in over time. So I had a very profitable concept but the bigger it became, the more cash it needed. And that’s quite often the chance that many small businesses face and Greg you know the other founder had seen that in his own businesses. He had a fashion accessories business where he was supplying almost 6000 retail outlets across the Asia-Pacific region and he was providing stock to companies like Myer and David Jones who pay you in 90 days if they want it or 20 next month.

Tim

And by the way if they are listening, get real guys because 60 to 90 days is not good enough. For a small business owner, that can kill small business right in terms of cash flow.

Beau

It really can. Yeah and quite the bigger any town is doing is using the small business terms as a bank.

Tim

Yeah were the bank. How wrong it really is wrong.

Beau

It really is wrong. It’s an interest free bank for them too so you sort of see what they do but it doesn’t make them right.

Tim

Correct. And the small business owners, were digressing but the small business owner can’t kick and scream because they don’t want to lose the business to the big corporate so you’re caught between a rock in a hard way.

Beau

You really are and you know you’re going to pay the invoice eventually.

Tim

Yes, so it’s a safe invoice. So what was the main blockage. I’ve not borrowed money for a business. What’s the main blockage when you’re going to borrow money like you and Greg were doing?

Beau

There’s a number of things so the first is the time that it takes. So before Prospa come, Greg and I had businesses and both gone to look for finance so but if you go through a bank or a traditional financier, it typically takes anywhere up to two weeks just to finish the application that you need to submit. And I can recall walking into a bank branch, won’t say which one,  looking for a small business or a business lending expert. They didn’t have one. They said here’s the application form which was a 16-page document and on the last-

Tim

Wow, what are we talking, six years ago?

Beau

This would have been, yes probably six, seven years ago yeah. The process isn’t that different today in the big institutions but you have a 16-page document, on the final page you would have a checklist of all the extra documents you need to provide. And pretty much all cases require you to go to your accountant. Now you’re spending money and get copies of financial reports of business activity statements a whole range of manual documentation that you may not as a small business owner have kept on your files. You might be keeping with your accountant, you submit that into the bank and then it would go into the assessment process and that could take anywhere from two weeks to six weeks.

Tim

Listening to that.

Beau

It’s terrible just to get an answer.

Tim

What are they getting? Let’s have a bit of a bank bash. What aren’t they getting. Look they say, so I’ll get my back up and they say oh we love small business and we’re there for small business and some of them are. I mean I’ve got a sponsor on American Express and they’re fantastic and Prospa by the way. But you know they do get it. Others just like what are they missing?

Beau

Look I think they like big small business. So if you think about what is a small business there’s a lot of definitions of it. But in a banking context, typically a small business to a bank is someone looking to borrow typically several million dollars of money. So business owners come in to borrow 2 million dollars to build a new warehouse or they’re coming in to borrow 750000 thousand dollars.

Tim

So 16 pages I can get.

Beau

You can for a couple million dollars, absolutely. Go to your accountant, you can get all those documents. I get that if you’re taking out exposure. Now, at Prospa, we work with the 97 percent of businesses that we would classify as the s of SME and average allowance which is twenty-six thousand dollars. So, you can appreciate that if you’re a local cafe and you’ve got an 80-seat cafe and you want to renovate the back put a new shade cloth in to add another 20 seats to a cafe and that’s going to cost you thirty thousand dollars too. You don’t want to go through this laborious process and really is I don’t think the banks want to go through it either because they can’t make money out of a 20000 with all of that cost.

Tim

Maybe the 16 pages plus attachments is to put you off right? Unless you need a lot of money.

Beau

Sometimes I think the process is in because are just there because it’s the way they’ve always done it.

Tim

So you and Greg are in business you go and use borrowed money, it’s hard. You’ve looked each other in the eye at some point and gone. Shall we take it on?

Beau

Yeah well, the way we came together was Greg was selling his previous business and was looking at what to come into next. And we’ve taken a bit of a look. He’d actually take a look at the US market and had seen that post of the GFC which was much more brutal in the US than Australia. The banks pretty much shut up shop so they stopped lending to each other let alone lending down to small businesses. And America’s also small business economy is 30 million small businesses over there so it’s a lot bigger than ours. But these small businesses didn’t have access to capital and a whole range of different options started to emerge. And because of my background that the corporate that I’ve been at for five years before my next business was actually a sort of a pioneer in innovative finance solutions in Australia, certainly banking alternatives. And I spent the last couple of years when I was at a flex you know building out a new commercial small business equipment financially. So, if you’re a business owner looking to buy a photocopy for example we provide the financing for a photocopy or for television screens in your office or whatever. So it sort of made sense for us to come together and we got introduced by a mutual friend and we have a sort of chat

Tim

That introduction about, your mutual friends see two entrepreneurs who were ready for the next challenge or who had a similar problem they were trying to solve?

Beau

I was actually in the middle of my telematics business and that was going quite well. Yeah, things are working but I was also looking to the future and I could see the future cashflow requirements of this model should it work, we’re going to be substantial. And our mutual friend actually was one of my grooms at my wedding and so forth and Greg my business partner was talking to our friend and pitching his idea and our mutual friend said we’ll have a chat to Bob because he has spent years in that world at least on the equipment finance things and might be meeting in the minds of a few of us.

Tim

So you both gone, yeah we need to disrupt this or at least it needs to be disrupted. Maybe we, the blokes to do it. How did you go about maybe disrupting the banks?

Beau

So the first starting point was and I think for every business starts is you’ve got to have a starting proposition. So you know MVP, call it what you want, proof of concept. You need a minimum viable option for your customers so we designed a product that we said well if we were looking for money, we had been in the past what, would we expect, what kind of experience would we want to have and it was really coming from that empathetic spot of the small business owners so we thought about things like what needs to be simple so get rid of a 16 page application. Yet today it’s one page. When we started it was two. We said we make this 10 percent better. We’ve got to make it transformative-ly better. So rather go from 16 pages to six pages. How do we get it right, right, right down and we’ve got it down to two originally.

Tim

What was in like three point type or something.

Beau

No, no that was in 2.5. That’s right. So, then we said well yeah that the funny thing about finance is there is this risk side to it. So, it’s very easy to send money out and lend it out. The trick in funds you need to make sure you’re getting it back. And that’s obviously to have a sustainable business but also so you can go and access funding so you can learn more money in the future. So, we then had to work out well what is our credit going to be because you can’t say yes to everyone but we didn’t want to be like a bank who would only say yes to five or 10 percent or 20 percent whatever it is customers and more often than not. Banks wanted securities. So in our experiences when we’d apply for finance even if they proved you after eight weeks of assessment, more often than not they were saying that’s great I’ll give you 30000 dollars but I want to charge over your property. And for Greg and I that just didn’t make sense. Why shall I put my 800000-dollar family home on the line for such a small amount of money. That was another feature we were going to build in and needed to have no assets security. It’s a simple application, no assets security, and more important than not, we had to get a quick answer because small business owners can’t wait 8 weeks. More often than not, when a small business owner requires capital, it’s for a very positive use. It’s an opportunity sometimes comes out of nowhere like a supplier says hey we got the stock they’re going to get rid of and I’m gonna give it to you for 50 percent off but you have to pay COD by Friday and we are on Wednesday. How do you come up with 10 or 20 thousand you didn’t forecast that quickly? So it had to be a quick answer and even if it was going to be in though, it needed to be given it as quickly as we could. So those concepts we designed a product and then we actually started going out face to face meeting small business owners just walking the streets. So Greg would take you in Northern Street in Likert for example and talking to business owners. I was taking King Street out of Newtown and it was fascinating. Every business owner we walked into when we said to them, have you had a requirement for capital in the last year almost a hundred percent said yes and we said what did you do. And the majority of them said I just didn’t do whatever idea it was that I need the capital for because they knew the bank wouldn’t help and they didn’t want to go and ask family and friends and they didn’t want to pull money out of a home loan, you know tying their equity in their home to their business.

Tim

It stagnates or they go backwards by not embracing that opportunity.

Beau

That’s exactly right. So really quickly over the first sort of month or two we could see there was going to be demand for this sort of product.

Tim

Can I just ask as we’ve often talked to guests and they’ve gone spoken to prospects who may use the product? Often people say yes, say yeah that sounds like a good idea, yeah, I’d use that. But when the rubber hits the road, oh yeah, I’m not quite ready for that. So did you just listen to these people and naively, actually not naively but go ahead and bring this prospect at market or –

Beau

It’s such a great point Tim that’s, what you’re pointing there is there’s the rational and emotional side to what people are saying and quite often, and this is a major fallacy for example in the industry quite often what you think or what a customer says is most important actually isn’t most important. And when we started the business model for example, there’s a few different things to our product so we’ve got to create obviously a loan amount. We’ve got to have a term. So how long do you have to repay the money over, there is an interest rate. So what does it cost you to borrow the money. There’s a repayment amount so it’s repayment done on a quarterly monthly a weekly or a daily. So there’s a lot of different features and if you asked a business owner what is the most important feature in a lending product, a lot of small say rate. It’s all about rate, I want the cheapest, cheapest product that is available and then you say to them well that’s great. Draw money at your home loan. That’s the cheapest, that’s 5 percent you can do that tomorrow. And then they say oh no I don’t want to do that, I want to separate my personal business. Like okay great and then say well what else is important. And that’s where things like convenience, things like access, so will I get yes and how quickly will I get a yes become far more important than things like price so.

Tim

So are you asking these questions when you’re walking up and down Newtown?

Beau

We really were and we were actually putting propositions in front of customers saying well, okay if I can give you a 10 percent rate product but it takes six weeks to get an answer or I can give you a 15 percent or 20 percent product and get an answer in two days which one would you prefer and that’s started to guide the way we design the product. And yeah that was a really interesting experience for us because what we would do without realising it is the sort of concept of user experience or design thinking we’re actually implementing that in that initial user usage. And in the first sort of six months yeah, we took it steady, we asset freezes, send money out in our business to make sure that you’re getting it back and we were able to put up a really good base of initial customers lend out a few million dollars. And as we were getting repayment history from customers, we kept on research and ask him you know what did you like, what didn’t you like, what do you wish we were providing that we weren’t. And that informed a whole range-

Tim

How were you doing that out of interest. Was it just the old email survey after the fact you’re ringing them? You and Greg still?

Beau

Ringing them or actually physically. Me and Greg. So, I think as a business owner your product that you’re off into a customer is absolute your responsibility like number one thing in your business. If you aren’t getting the right product your customer, ultimately someone else will build the product that they want. So as a CEO business owner, the most critical component is product .and if you get the product right, you end up having customers that love you, that will refer you, that’ll advocate for your brand and that builds a really good base over time.

Tim

Yeah, I love that. I love the fact you’ve gone out and not only spoken to them upfront but continued to speak to them. So where was the transition between you and Greg leaving your existing businesses and going okay, selling those. Prospa’s our 100 percent focus now.

Beau

It didn’t take very long so then six months into the sort of initial stages we could see what was in front of us.

Tim

That must have been exciting.

Beau

It was really exciting. Yeah, we’d hired our first few people by then and we had a little group of about eight employees in our office and I think we’ve now moved through six offices so we’ve grown-

Tim

And now you’re hundred…

Beau

165 now in the team. So yeah, the headcount has been phenomenal but that first, again even in that first year you still don’t know if you’ve got a really successful and scalable ideas so-

Tim

Was there’s no one else doing this?

Beau

We were one of the first yeah there wasn’t anyone.

Tim

Why? I mean with all respect, I mean in hindsight it’s wonderful isn’t it.

Beau

Absolutely. When I first sat down and I’m a big believer in any business before you go into business because you convince yourself it’s a great idea. There’s a great book called The Entrepreneurs Myth.

Tim

Yeah well, I interviewed Michael, what his name? Anyway, go back.

Beau

But it’s great and he talks about it a lot of these sort of concepts about don’t convince yourself of something that you haven’t actually proven to be true. And a lot of small businesses unfortunately fail in the first year because they tell themselves, they sell themselves a story of success that doesn’t really exist. So, one of the questions that I think every business owners should ask before they head into business is that question why isn’t he’s doing this because in my view, if something’s a really good idea there will be someone else tried. And if there isn’t someone else doing it they failed for a reason. And you should explore, they go and find and have a look what other people try, what businesses did, go talk to the people who failed.

Tim

Where did you end up with-?

Beau

So we did that research and we couldn’t find an example and this was one of those business problems rehearse they are where no one had tried to solve it. And in the beginning, we were like actually maybe we’re missing something. Maybe there’s a reason why the banks don’t play in this market. And again, you know so you start to disprove these fallacies. One of those in the banking world was that small businesses are risky and they all fail eventually and that’s just not true. The first year, yes there’s a high failure rate. The second year that drops off significantly. But by year three and beyond, small business owners are trenched, they’ve understood their product market fit, and now they’re trying to grow their businesses and operate them in new ways. So yeah, we were having disproved that sort of fallacy about where risk lies. And the other part of small businesses is they’re all different. No two businesses are the same, even in the same industry, in the same suburb if you have two cafes, they’re actually very different businesses, different product offerings, potentially got different rents that they pay, they might have different seat sizes one might have 80 seats one has 30 seats. There’s going to be a different operating model for those two businesses even though they’re in the same demographic and geographic area. So the complexity around the credit models. How do you say yes or no to the right types of credit risks is very, very complex to work out?

Tim:

You must have had to employ a fairly smart person upfront like an actuary or something like that.

Beau

We did. Data scientists as well. You know we’re very fortunate to meet some wonderful people that’s had a really deep mathematical understanding and so forth and you know it’s never one thing or one person that brings a business to life. It’s a combination and absolutely getting that credit modelling very early in our business right was important because finance is an interesting product. It’s one of the few products in the world where when you provide, when a customer buys a product from you, you as the provider taking the risk on the customer. Normally it’s the other way around that the customer they buy a motor vehicle from you, they’re taking a risk that your product is good and won’t fail. So it’s kind of interesting in that, it’s flipped around in that regard. And it’s also a product that’s yes sometimes someone wants to buy the product from and you can sell them because the business might not be stocking up. And yeah, we had an initial business value, one of our core values was to act with fairness and that was a really important component of when unfortunately, you can’t help the business owner and give him a quick no is a very important thing as well. And then we’ll try to provide insights to them and say hey you know here’s some things you may want to think about that we saw in your data that-

Tim

And once resolved, we come back to you. So now you’ve got this product Prospa. You remove the 16 pages, the attachments, the weeks at the banks, put up in front of small businesses. What’s the Prospa experience look like? And if I’m a small business owner looking to borrow money from Prospa?

Beau

Today it’s entirely different. So, the two pages we got down to is now for digital applications. So we launched that in 2014. It was one of the first in the world. So today you can land on prosper dot com in five to 10 minutes you’ve completed the application form, connected those data points we need electronically and then that’s it. That’s all the customer needs to do. Our credit system will go and retrieve all of those data points that we need in order to complete our credit checks and we’ll provide an answer back to the customer and-

Tim

Within 24 hours most of the time?

Beau

Sometimes that can be live on a phone call. Sometimes it can be within the hour.

Tim

Where’s the catch? Interest rates are how much?

Beau

So a product works on a rate for risk models. So, we’ve created a product, the average sort of raise around the sort of credit card rate Mark so. Yes, so those high teens 20s. There is no catch. The decisions we’ve made which was to invest in technology is what makes this so quick for customers and when the banks used to get all of this manual information in and then pay people to sit there and go through it which takes time, which they’ll raise a whole bunch of questions. It’s not predictable and for credit officer inside of banks having a bad day they’re more likely to say no than yes. We’ve systemized all that.

Tim

Removing emotion.

Beau

That’s right it’s now a technology that can work. Now that also cost money to build and invest in and improve and refine. So it’s a really great way of actually providing a great experience to a customer where they’re not having to wait for eight weeks or even longer. In most cases we get a note.

Tim

An interest card, a credit card right, so your average interest rate of Prospa’s around what? We’re going to say 18 percent-ish? So it’s not cheap but it’s kind of what you already pay on a credit card. So people are willing to ,  is it’s that saying people no longer buy brands, they buy experiences. So you’re offering this incredible customer experience that’s ticking so many boxes about you know getting financed quickly and making the process easy. Obviously, you’re a proof that people are willing to pay for that.

Beau

Well absolutely and the other part is that it’s tailored to the customer’s requirements so, you only pay interest for as long as you require the capital. So in the case of our product, our loans start as short as three months. So you only borrow money for three months, obviously you’re not paying that much of interest and we go all up to 24 months. So if you’ve got a longer term initiative that’s going to generate a return over a long period of time, you can take longer to pay it. The other thing that we’ve come to realize as you know we’ve been business owners of different businesses over our journeys, every business owners a much more sophisticated than people given credit for. And I know as a business owner I will not spend a dollar on anything unless it’s going to generate me a return and interest on a loan is expense. So, if you’re going to borrow ten thousand dollars a n d you’re gonna pay back 11000 for argument’s sake. If you can spend a thousand dollars of interest you want that money to do something good for you. And however, in this example, in our business of, the hairdressing industry for example. Quite often the big suppliers will put on these deals where you can get 20000 thousand dollars’ worth of stock for half price you if pay for it this week, cash up front. And if I’m a hair salon, I can buy 10000 miles worth of gear that I can sell it for thirty thousand dollars, I’m making twenty thousand dollars margin over the next four, five, six months. I don’t care if I’m paying one or two thousand dollars interest, I care about getting that 10000 dollars get that deal and drive that extra margin on my business. So we’ve tapped into an understanding of the customer and we actually asked what are you using the money for. Like what do you expect this to generate new business and yet from a capital return perspective, it’s amazing. We’re a part of these journeys of customers growing their business. You know they take on these initiatives, they bring more revenue in, and then potentially they actually grow and expand their business into a second salon or they open up a new location. So we’re a part of these journeys in a big, big way.

Tim

Scope where you’re at now with Prospa. You got 165 staff. How many millions have you lent to small businesses in Australia?

Beau

So, we’ve now lent over 500 million dollars. So it’s half a billion.

Tim

As he says that there’s a very big grin on his face. That’s amazing.

Beau

It’s a lot of money, yeah.

Tim

So in five years?

Beau

In five years yeah, and it’s a fact we’ve done 3 0 0 million than in the last just over the last 12 months.

Tim

You’ve had crazy growth. You have had some crazy, crazy growth. I mean I saw Financial Times rank you as the number one growing, fastest growing company in Asia-Pacific with, what is it like, sales revenue increase of six thousand? Sixteen thousand. Now clearly operating off a low base there, right? But that sixteen-thousand percent growth in five years.

Beau

Yeah that was a wonderful accolade for the company to, we didn’t expect to be the fastest growing in Asia-Pacific, but absolutely yeah, I think it goes to a couple of points. I mean number one it goes to the size of the problem that exists in Australia. We are a small business economy. You know this better than anyone Tim that you know that there’s too many small business owners and all of us know a brother, a father, a mother, a friend that’s owning a business or running a business and running a small business is bloody hard. And if you think about you know small business owners what is on our mind, what keeps us up at night. There’s only a handful of things. It’s growing revenue making sure we’ve got good cashflow coming in, and it’s managing our costs and quite often the difference between-

Tim

I let people to that. Everyone who sits in this seat goes, gee it’s hard to find good people and keep good people.

Beau

It is a small business owner absolutely and a lot of the challenges are around working capital and cash flow timing within businesses. So, we’ve tapped into a really big problem that exists for a very important part of the economy. And then we’ve delivered it in a really innovative way in a way that it takes tens of millions of dollars of investment to build experiences and that we’ve got. 165 people you know it’s not a small business in that regard anymore. You know we still think we can operate like a small business but-

Tim

Did you have to go to the bank to borrow to build Prospa?

Beau

No, we don’t take any funding from banks.

Tim

I love it. Good on you.

Beau

No, we’re not reliant upon the banks in that regard.

Tim

Well that’ll be going against everything you stand for, wouldn’t it?

Beau

Well they do, they’ve got parts of the bank called institutional banking and that’s when they lend your hundreds of millions of dollars and look eventually I think we’ll be big enough to tap into that. And look for a bank that could also be a very easy –

Tim

Would you want to?

Beau

If it’s in the right terms. Yeah well, a key part of bank offerings is that it is cheap capital. So if can go through the eight weeks or eight months whatever it is that we have to go through to work with and find really good cheap capital and then we can provide that through to our customers in the form of a cheaper finance, then that’s a good customer outcome. So we could work with the banks in that regard and it actually gives the banks access to lending into small businesses without having to try to do it themselves. So we do explore that and keep on looking at their capital requirements of the business.

Tim

We’re talking to Beau Bertoli, co-founder of Prospa, Australia’s No.1 online lender to small business and a sponsor of the small business big marketing show for which I thank you both. Now tell me, it’s a pretty good story so far. It’s quite exciting and I feel like it’s literally, I mean I’ve said this before but Jeff Bezos who owns Amazon when asked about Amazon says, oh we’re in day one. I mean as big business in the world and he’s going, you know with such a long way to go even when you say you’ve lent over half a billion dollars to small businesses. Whilst that’s a big number, I kind of get the sense that we’re in the very, very early days of Prospa. Do you kind of feel that?

Beau

We actually nick to that that value day one. We love it.

Tim

It’s amazing isn’t it? When I’ve heard that I’m like you know, you got the biggest company in the world. Surely, it’s for sure by now.

Beau

Now he’s the richest man in the world. Amazon’s a phenomenon. But I think that philosophy of day 1 is so applicable to every business owner. And I think you know we’ve had a chat about this past Tim, that you know in this day and age that we’ve been in this technology revolution for 30 years, but what is happening is that the pace of change in tech is accelerating and consumer choice is exploding, it’s becoming easier and easier for the customer to buy a product from somewhere else. So as a business owner, it is critical that you think like I’m starting this business today. What would I do differently knowing what I know at the last two years, five years, 10 years of doing my business. What would I do differently for starting this business today and weird and prosperous. For example, we come in and ask that question almost every week and we have we have strategy sessions around that on a very regular basis. We don’t try to build five-year business plans by the way our three-year business plans. We’ve got a 12-month business plan and review it every quarter. And we’ve got a long-term vision, that long term vision is to change the way small businesses experience finance. And it’s really important for us to guide our decision making towards that long-term vision. So clear vision, vague plan is why we think about that execution and having that vagueness doesn’t mean your chaotic in your decision making. We’re actually really clear and specific. But always coming back to what would we do different starting this business today because that’s what competition is asking when they come into your market. And sometimes people come in to your market that are much better capitalized, maybe they’ve got more depth of experience than you have. You might have been doing some for three years, they’ve been here for 20 years and you know they come with a million dollars behind or more. So that day one philosophy is really important to them.

Tim

I love the fact that you coming together often and talking, revisiting your vision and revisiting a plan every quarter. A lot of small business owners listening probably get caught up in the busyness of business and forget to do things like that and it’s probably at their own risk that they peril that they do that. Is stopping and looking around probably a good idea?

Beau

So critical working on the business or in the business. One of the things we actually did very early in our business, so you’ll have an office no doubt or a site that you work on. You’ve actually got a book an off-site place that you do these workshops at. One day a quarter, if you can’t put four days a year aside to work on the strategic side of your business asking questions like Where are we playing in which markets, what are we doing and how are we going to win in these markets we play in, do we have the right capabilities in the business, even if you’re five people, other five people with the right capabilities to execute against that plan. If you can’t make four days a year, you’re doing something wrong. In my opinion.

Tim

I want to talk about the growth and the marketing that’s kind of helped with the growth but before we do that, Beau, great story so far. What have you found difficult?

Beau

The biggest challenge that I think we’ve found is evolving through the different people phases of the business. So as a small business, when you’re and out of your own business is typically less than 30 people. You’re more like a family. You know everyone, you’re really close. Quite often when you start a business you’re recruiting from your network. So you’ve got a brother’s friend that you know and he’s an expert in this area and bring him in and so forth. So it’s a very different feeling in that sort of business then you’ve got to cross this sort of threshold where you say, well we’re going to be a family lifestyle kind of business or we’re going to grow up and we try and build something even bigger. And that’s when you start to do things like higher leadership roles in your business you might hire a senior manager, like a GM or an executive, like a chief financial officer for example. And that’s when you start to build out a much more corporate oriented style feeling and that is a big transition for people because quite often people join small businesses to have that family feeling, that family ethos. So those transitions I don’t think they ever stop. I think the bigger you get, the more you go through them but it’s the managing through those that we’ve found difficult. We do yes. We’ve got a 165 right now and it’s interesting, there’s a lot of talk out there about how many people can you know really, really well.

Tim

150?

Beau

That’s right and yeah, it’s kind of –

Tim

Have you read the flights in a book?

Beau

I haven’t read it but yeah that’s exactly right. It’s a whole concept that you know you can recognise faces beyond 150 but you won’t know their name, you won’t-

Tim

Well the 150 that we talked about this on a show recently so why go back into detail on it except to say that 150 comes from tribal days. Someone discovered in the study of humans. You know what I mean and found that a tribe of 150 was a good number, you could protect each other, you could get feed each other, you knew everyone. We had all the different skills required within 150 but after 150, it starts to fall to pieces because it just gets too big, too many mouths to feed, too many chiefs not enough you need all that type of stuff. So then you split and you start again. Yeah and flights have done it very well with nations and tribes and countries and they’ve got all this language around.

Beau

Yeah. And we’re actually in that transition right now as we go from you know past 150 and we’ve now got an office with two levels, so we’ve got a staircase between it but that’s us to create a different feeling. So we’re managing through that. That’s definitely one of the more difficult.

Tim

That’d just be hard. Because again it’s small business and losing that vibe and you and Greg who have started Prospa and brought a personality to it and you know a set of beliefs and vision to then hand that over to others and for them to. But one thing I’ve noticed and I said this to you when we did the pre-interview and dealing with some of the people at Prospa and going to your offices, there is a really good vibe and you can tell that people are very proud to work there. And that’s one of the great things about brand. I’ve seen this in Virgin, with Virgin Australia where the show goes out on Virgin Airlines and had dealing with them and again people are proud to work there you know, and that great brands attract great people.

Beau

They do yeah and to build a great brand I mean it really starts with one thing which is what’s your purpose. Like why you exist and you can’t say we exist to serve our customers you know, it’s too fluffy because every company says that. You’ve got to have a real, tangible customer value and our team feel really connected to the purpose to what we’re doing here and why our product is so valuable to a small business owner. Because I mentioned earlier we’re a part of their journeys that we provide the capital allows them to take advantage of those opportunities that allows them to grow. And our marketing team for example, they run all the case studies. Yeah and we’ll happily talk to any customer I’ve ever provided funding to and they’re all happy to talk back and say, Yeah, I’ll share my story. There’s some gravy at Casado’s in our website of companies that have used capital. They’ve grown into a new project, they’ve taken on our new site or a new employee that you have to pay their wages for the first three months before they’re productive for you and so forth. So the people phase is really important. We spend a lot of time across, we’re working on our culture making sure it is a place that people feel connected to our purpose and are proud to work at.

Tim

Did you subscribe to that old saying, “the customer is always right” but we had Jenn Lim from Delivering Happiness. You know the Zappos’ story. She’s one of the original founders or not founders of Zappos, one of the original workers of Zappos and now runs the Delivering Happiness agency. She’s all about staff first. You got happy staff, you’re going to happy customers, you’ve got a great business.

Beau

Hundred percent, absolutely right. You got to have happy staff in the right stuff. So because if you have a happy staff or the wrong staff as well and they will drive your customers bonkers but it starts with your people.

Tim

Is there one thing that you guys do to make sure that you employ the right people?

Beau

The biggest thing we’ve introduced in the last few years is called Cultural interviews. So, what we realised was happening is that we’d have these job descriptions for particular role and we have talent acquisition activity happening whether it’s through LinkedIn or seek ads or a recruitment agency, getting good talent pool in and then we assess these applicants against skill sets and run interviews and all that stuff. What we weren’t doing is then testing for cultural fit. And as we went through that change from 30 people and sort of hiring leaders and so forth, it goes from Greg and I the founders interviewing every single person who joined. So, we’re naturally picking a cultural fit with the company we want to see in the future and we were the kind of filter weeding out misfits to leaders now making decisions around cultural fit. And what we realized is that there’s probably a more effective way of making sure we had a cultural alignment. So, we wrote down a document, what is our culture we said and culture’s about the behaviours. How do you behave as a company? It’s not about having everyone the same and in fact at Prospa, we have 40 percent female in our team. 6 percent male which is one of the highest around. We have people from 33 different countries of origin. So, it’s not just like back then, they were actually born in 33 different countries. So, we have a very diverse workforce yet we’re culturally aligned. So, it’s not about people you like which is what often happens at hiring manually. You guys are a good bloke, get along with them. It’s about do they match the behaviors we expect in the business and that’s what drives your culture. So that cultural view is now run by what we call cultural ambassadors so we have 15 of them across the team. They represent and breed the culture at the highest levels and they love it and every person that’s up for a final interview goes through this and the cultural interviewees have veto rights. So if they’re not happy with someone, they can hit all the skills.

Tim

Oh, I love that, mate. Empowering other people, imagine that.

Beau

We’re talking frontline people here so it could be a frontline customer service agent who is a real representative of culture could be saying no to senior leaders.

Tim

I Imagine that frontline person too is going, you know what they really respect me, you know.  In another company, I’m just the person on the phone but you’ve actually given them additional kind of responsibility.

Beau

Absolutely yeah. And what that creates is everyone now joining has gone through a cultural interview. So, they feel like yeah, this company has embraced me as living our culture. Now every company has a different culture. So, you’ve got to know what yours is and if as a business owner, you focus on that again back to what should a business owner be putting time into. So, there’s obviously the product, the strategy and then on the people side, we think about people as let’s have the right people in the right roles but culturally more importantly, let’s have the right culture and let’s make sure the business is doing things to strengthen what it stands for.

Tim

Let’s talk about growth. I feel like you’ve had incredible growth, I mean you’ve proven it with the numbers but even the brand growth, the brand awareness over the last couple of years just seems Prospa, I’m seeing Prospa a lot. I don’t know whether it’s because now you sponsor the show, as like you know, you’re looking to buy a red car so you see lots of red cars. But you’re at you’re advertising on radio, is that, Am I being simplistic to say that’s actually helped grow awareness quicker than normally would. Or is this something else?

Beau

We’ve put a lot of focus on building awareness so if you went back six years before we started. If you ask a small business owner would you consider or do you know of any banking alternatives, the answer would have been no, there are none. Fast forward to today and there’s a healthy percentage of small business owners that are aware of alternatives outside of the banks. But I mean ultimately a brand is about its value proposition or its promise to its customers. And the clearer you are about what you stand for, and the more you communicate that through different channels, the stronger your brand reputation will be. And one of the strongest brand strategies that we’ve got in the business is actually customer advocacy. There is no better way to build our brand recognition and reputation. Because all the money you want on radio, all the money you want on telly and all of that, if you aren’t building out a loyal base of customers who advocate for your products.

Tim

So, this customer advocacy, does that happen by pure the fact that you’ve got a great product so therefore people, you know people say the best marketing is a great product. So, does that just happened naturally or do you kind of-

Beau

I think the best marketing is a great product where you try to amplify the advocacy. So, one of the challenges that most businesses face is that even if you’ve got this loyal base of customers who keep coming back, what are you doing to encourage them to share their stories and let the broader community know that kind of a network effect. How are you using other mediums? So, we use services, one example is Trustpilot. So Trustpilot is an independent review site. After every customer purchase everyone who’s bought a product from Prospa, we say hey you know would you like to leave a review and it’s their words they can choose to do it or not and they rate us five stars.

Tim

And you send them off to trust pilot in order to do that?

Beau

That’s right.  Now Trust pilot has a marketing initiative. So right now, Prospa’s the No.1 money product in there. We got a nine point eight out of 10 five-star rating but it’s then okay great we’ve got that and we’ve got close to 1000 reviews now. Most of them really very encouraging and positive. What we now do to amplify that and share that with the world because if we didn’t do Trustpilot we’d have all these happy customers and we’re not letting them know that they’re happy. Now they’ve gone to one place. How do we then amplify that through other channels? So, we’ll take that and say we’ll put that on our website. So, if someone new is landing on our website, they’ll see that every option I get to talk about, well the company gets to talk about Trustpilot, will refer to look we are the number one money product. So, we must be doing something right of all these independent reviews are saying so. So, I think you’ve got to have a great product and you’ve got to find ways to get your loyal customer base.

Tim

So just to understand Trustpilot, that’s important. People leaving reviews that’s sitting there on a third-party site. Are you, is there a plugin that then allows you to put some of those reviews on to Prospa.com or do you actually go and just copy and paste?

Beau

You can do either. So, you can copy and paste so you can put a little plug in like a life frame that’ll look up and –

Tim

And you get the opportunity to thank the people on Trustpilot? How did you do that?

Beau

We certainly do. So, we hear from Trustpilot every time there’s review. So, we have an account with them and you will go and say Hey thanks for the feedback. And quite often what’s actually happening is that a customer is not only recognising what Prospa’s done but they’re actually recognising an individual within the business because one of the things you say to a customer is you know, did anyone stand out in your experience. And you know if they’ve had a really great experience with you know Angela for example, they’ll actually say you know I had a great experience, love the product, Angela was awesome. Thanks, and all that. We’ll make sure that Angela sees that and it gets that feedback from that particular experience. And conversely if it’s a bad review, it’s not just stopping and going, oh well you know we’ve got mostly good reviews it’s like well, what went wrong there let’s dig in. And right up to the heart of our business will be on the phone talking a customer saying, look geez what happened here, let’s get to the bottom of it and try and resolve their grievance. So fortunate that there’s not many of them. So as a brand you’ve got to be really clear what you stand for, you’ve got to activate your loyal base of customers and every business has this repeat base of customers. So, what can you do to take a review and amplify through Facebook, to followers there and then how can you try and build out more recognition for what you’re doing from your loyal base to customers.

Tim

I love it. Reviews are important. I can’t believe the amount of small businesses don’t actually utilize them, get testimonials you know actually a whole lot of happy and even if they’re unhappy customers. I had Jay Baer on the show a couple of years ago has written a book called “Hug your Haters” and it’s actually those bad reviews that are actually the ones we get to learn the most.

Beau

As a business owner, I hate seeing bad reviews, sure I love them at the same time because I’m like right, there’s something we’re not doing correct there. What are we going to learn, what we’re going to change about our experience? And you know it might be that a piece of technology didn’t deliver the experience in the way that customer expected it or whole range of things, but you learn. And then you have the opportunity to decide, do you do something about it or not. So, I think as a business owner you don’t get as much feedback as you probably used to because a lot of our interactions with customers are now digital but from a review perspective you’ve got to try to get that feedback loop happening and do it as regularly as you possibly can. I remember reading about Jeff Bezos for example and Amazon where he used to sit I think it was once a month with the customer complaints team. And he’d say I wanna a see the latest 10 customer complaints. And he’d look through them and be like right those for we can’t, but those six there have really clear things that we can change any fire off notes to senior people. And this is when we have like 50,000 people. So, and he was still in-.

Tim

Is it Amazon that has the empty chair at the boardroom table representing the customer. One of those is, I’m not sure if it’s Google or Apple. One of them has you know, for all board meetings. There’s an empty chair and that’s the customer.

Beau

I love it. I love it.

Tim

Beau, thank you for sharing and Prospa and taking us behind the scenes. It feels like, I’m going to sum it up. It just feels like you are crazily customer centric. Like I’m not gonna say over the top because that would infer negative. But you really, really embrace the customer a lot more than many businesses do and that seems to be a major reason for your success outside of a great product.

Beau

Sure. Yeah. No. I think yeah, customer is at the heart of every business

Tim

Well, you don’t exist without them.

Beau

You don’t. You need a customer to buy a product from you and then,  I remember in my telematics business ,every time I had a customer who purchased for me I’d say hey, do you know another two or three people that I could use this sort of service and yes simple things like that again is another form of advocacy. And if they said I’m not going to refer you, you’d go geez what’d I do wrong. Again, that feedback actually comes through. So I think as a business owner, you know that the long you’re in business the harder it is to remember why you’re in business that uses it for your customers. So, getting back to that of reconnecting and getting those feedback loops is so critical to being customer centric and then your product sort of takes care of itself because your customers will tell you what they’re looking for. And if you listen and you expect to hear one mouth sort of thing, you’ll see really quickly. You need to do next.

Tim

You act like an elephant big ears for listening, small mouth for talking. Beau, well done mate. You and Greg and the rest of the team at Prospa.

Beau

Awesome thank you so much.

Tim

And if people want to borrow money, quickly, overnight, same day Prospa.com/timbo Right.

Beau

Excellent.

Tim

Thanks, Beau