Building and Scaling a Business with Paul Dundas – Part 1

For the latest episode of Emersion On Air, we sat down with Emersion founder and CEO Paul Dundas, to talk about the story of building and scaling Emersion, and the lessons he’s learnt along the way.

We dived deep into why Emersion was founded, the many challenges Paul faced in the early years, and what other business builders can learn from his experience. We’ll be releasing this podcast in 2 parts.

Listen to Building and Scaling a Business with Paul Dundas Part 1 now:

Or read a partial transcript below of what Paul had to say about the process of building and scaling Emersion.

Where Emersion came from

“I’ve spent a long time in the telecommunications and IT industry, having been through product development, sales, marketing and a little bit of a technical background and I constantly find myself gravitated back towards being in front of people and working on product and sales environments. I just love to help businesses grow.

So, Emersion, like many great Australian inventions, was born of necessity. I was working with the team at a wholesale communications group which was an aggregator wholesaler of voice and data services in Australia. We were acquiring other businesses and merging other businesses together and found itself in a situation, like many people that do when they go through mergers and acquisitions, of having multiple systems doing the same thing. We had multiple billing systems multiple accounting systems and we decided that that wasn’t very efficient, and we needed to consolidate them down.

So we looked at the requirements of the business, went out to some of our competitors and asked them if they could solve the problems that we were trying to solve, which I can summarise as: We were looking for a wholesale and retail billing system that would support automatic provisioning of services, help with our customer engagement and integrate into our accounting system to reduce double data entry, and the predominant focus was efficiency and cost reductions to make sure that also business where margins were getting thinner and thinner portability.

When we put it out to the market, we found several solutions that could meet those requirements, but they all had seven figure starting salaries and we didn’t have seven figures to spend on the project at the time. We knew it was going to be an ongoing cost to the business, but we didn’t want to build something completely from scratch. At the time we then went to several our Australian based competitors and asked them to solve the problem. One of them took on the challenge and sometime later handed back most of the money that we gave them in setup fees and said we can’t do what you’re asking us to do.

So, we found ourselves in a situation which was: We can buy what we want but we can’t afford it, or we can build something. So we decided as a temporary solution to start a build process. At the time I was running the sales, marketing and product area of the business and the CEO Matthew Hobbs and I started to swap roles as we could both sell and market services, but I had a better operational background.

We did one of the smartest things we ever did, which was sit down for three months and write down what we wanted to achieve. We didn’t write any code; we didn’t fire any people. We just sat down and defined what we were trying to achieve, what benefit it was going to give our business and how much we were prepared to spend on the problem. We then went out and recruited some development resources, I think we started with three and started to build the first version of the Emersion solution. “

Project Umbrella

“We called it Project Umbrella (very, very original) because it was going to be the umbrella on top of all the other systems. The first thing we wanted to do was just put a front end on it, so that we could plug into the other backend systems and make them work together, like the single pane of glass that everyone is looking for. It gave us some benefits: We could reach into multiple systems and see what was going on, we could get some consolidated reporting and that was useful. The industry that we were in at the time was selling dialup modem services, around 2005-06 and the industry was changing, it was starting to sell DSL services.

We saw a real opportunity, which helped us accelerate the project, which was the big carriers who were selling and distributing those services wanted large commitments to pay back the network builds. Many of the service providers that were our customers at the time couldn’t afford to commit 1000 services for the year. So, we did the big hairy audacious goal and committed 10,000 services to one of the bigger carriers and we became a sub wholesaler of their services, which was probably one of the best things we ever did. It gave us the opportunity to sweep up lots of smaller customers that we asked to commit 100, 200, 300 services for the year. “

Expanding the service offering

“The market started to tell us they wanted something that we could provide them as a white-labelable solution. Not only would we be able to sell and support our own services selling wholesale, but they wanted to use the system that we were building for our own purposes. So, we decided that it made sense to try and expand the service offering to support other customers’ requirements and that’s really where Emersion became Emersion. It needed some branding around it. The first version of what we were calling our voice billing system was called YOB phone (very good name). And that billing system, that beginnings of that billing system, survived about 10 years in code floating around in the back end of what became Emersion and that first voice billing system I think we built in three weeks.

So it wasn’t hard to build a voice rating and billing solution quickly and this is some of the things we hear from people today. ‘I can just build my own’, but it’s so much more. It’s not just taking in a data feed, converting it into a database and calculating the time and the initial charges. Yes you can build something like that in a few weeks, but then you’ve got to think about customer service offerings, how do you sign up customers, how do you add security? Building something for yourself is very, very different to taking on building something that you want to resell as a product in the market space. You can cut so many corners when you’re building something for yourself because you can just train the staff that the corners being cut here and you have to deal with it, that’s just the way things are. Whereas when you have to build something for someone else you’ve got to think: how can they break it, what security do I need to deal with, how do I make sure that this is a usable solution? Because I can’t necessarily train everyone on what we want to do.

So we had a successful wholesale business and it was going very well. We started to build our own product and it became the centre of our universe. One of the problems we took on was auditing and margin analysis. I think we had 30 or 40 vendors that we were dealing with, and our margins were around 20-30% with net margin of maybe 10% if we got it right. We found lots of our carriers and service providers had billing problems. They couldn’t bill us correctly, they billed us for services we didn’t own, and if we cancelled a service, they would continue billing us for it for two more weeks. It got to the point where we had two full time bookkeeper accountants looking at auditing and margin analysis on their products and they paid for themselves. So we sat down and went ‘Can I turn it into code?’

So, we built our own multi-tier billing solution on top of our base platform. That meant that we could not only bill our costs in real time, but we could also tell whether someone was billing us for something that we didn’t have, or we were being billed for services that weren’t active yet. We could also tell, right down to the individual call record or data service record, whether we are profitable, and that was a real boon. We didn’t terminate the people in finance, we just gave them more productive things to do. I often say to people if I can replace half of Mary or half a Bob in your business, then Emersion will pay for itself, and that was pretty much what it did in our world. The cost of building that system was less than one year of return on investment and we still use the same solution today. “

Growth challenges

“So Emersion V1, as it became, was being used in the wholesale business and as sometimes happens, we had a large customer do the wrong thing. It’s always risky having one or two customers that make up 10 or 20% of your client revenue, and we were in that situation. We had a customer that was growing quickly and aggressively, continuing to expose more and more to our balance sheet so we did the right thing and we had security over their customer base. We had a fixed and floating charge, which basically meant that if they went broke, we were first in line for the creditors. We even had a personal guarantee from the directors and a security deposit. There’s not much more you can do to try and protect yourself in a business environment. They still went spectacularly broke on us.

So, we put them into administration, or Chapter 11 as they call it in the States. We thought we were in control, we were in the driving seat, we’ve got all the security we need. Then the administrator finally turned around and said we need to trade out of this, we think we can survive this, so if you can help support this company for another three or four months while we find a buyer, we think you’ll get a better return on investment for your outcome. Unbeknownst to us, being early in business, this just meant they wanted three or four-months worth of fees. They basically extracted another nearly $100,000 out of out of us and we ended up with about $500,000 worth of debt.

Now for a business that was about $10 million in turn over, $500,000 was a lot of money, about half a year’s profit. So a number of the investors got a little spooked about that and said, ‘well maybe we don’t want to do this anymore, it’s a high-risk business, how many others are going to go bust on us?’ So we decided to see what investment was available in the market. We were working with one of Australia’s largest carriers, Optus, and we were selling a lot of their services and we said to them ‘Look, we need a little bit of help’.

Best advice I can ever give you: if you’re getting any business trouble, be honest with your creditors, be honest with staff. Tell them you need a payment plan or whatever you need to do. But make sure you do what you say. People will help you if you do what you say, and if you’re not going to do what you say, make sure they don’t find out after the fact. Make sure you tell them in advance ‘Hey Mr creditor, I know I was due to make a payment on Wednesday, something’s happened, I’m going to be five days late’. If you’re continually honest with people and you continually work with people, then they will continue to help you. I’ve paid off millions of dollars’ worth of debt over the years using exactly that philosophy. Ironically the second time you do it, it’s even easier than the first time because they go ‘well you paid us back last time, so we’ll help you again.’

So we ended up in a situation where we had a vendor that was very invested in our success, they didn’t want us to go bust either. They understood that the situation wasn’t created by our bad management, so they helped us. They introduced us to a potential buyer for the business, so we spun Emersion off as a separate legal entity in March 2006. This was because it was a bit confusing for what the buyer might want, they wanted our customers and our business, but they didn’t necessarily want this billing thing that they didn’t quite understand. So we separated it off and I ended up running that business wholly.”

Keeping Emersion alive

“Like many things, when you sell a business, you’re often asked to go and work there for a while and handover properly. So I was contracted for a year to work in the new business, a company called M2, now part of the Vocus Group. After nine months of working there, doing what they asked us to do, and running Emersion as well on the side (two full time jobs, was lots of fun! I think we had a team of seven or eight people in Emersion at the time. I literally would finish at 5, go across town and start my other meetings) it became too much to try and do both. So I turned around to M2 and said I know I’m running half your business now, because I’ve had about 50 staff reporting to me there. Vaughan, the CEO of the business, said I understand and appreciate all the work you’ve done; you’ve done such a great job I’m just going to pay out the last three months of your contract. So all credit to Vaughan Bowen, thank you very much.

Emersion continued to be a supplier to M2 for a number of years thereafter, until they outgrew us. And that’s the first lesson in business: When you got a good thing, get investment early. One of the biggest mistakes I can say we ever made in the Emersion world was not getting investment early enough. I personally owned a number of houses and sold them down to keep it alive. But raising capital is challenging and doing it slowly is like the death of 1000 cuts. Many a person would have said to me ‘why are you doing this? Why are you keeping this thing alive? Just cut it off.’ But at that point I had six figures of my own money on the table, had sold four or five houses to keep it alive and I had a big ego and a bunch of pride. “

The Novatti Group deal

“We had an early product that was exceptional in a market that was ready, and we didn’t capitalise on it. Now we’re fixing that. We went through the process of private equity raising and had some great investors come on board and they were either unable to or unwilling to invest aggressively enough to grow the business at the pace that I would have liked it to grow, but they did support us through the whole journey and that I credit them. Eventually, some 13 years later we merged Emersion with the Novatti Group.

Peter Cook, CEO of Novatti Group and I started courting about a year before the deal was done. We were introduced by a good friend of both of ours who was doing some mergers and acquisitions. It seemed like an unlikely fit, a payment company and a billing company, because Novatti’s focus was very much around financial transactions and processing payments. But isn’t that what billing is? it’s just the bit before payment, so it did actually make a lot of sense and the market seemed to like the deal. So it helped Novatti’s share price and it gave Emersion one shareholder instead of 20 or so shareholders, and it’s much easier to work to the tune of 1 master than 20 or 30 different masters that may want different outcomes.

So Emersion was merged with the Novatti Group in 2020 right at the beginning of COVID. And I can’t tell you the sleepless and sweaty nights where it was ‘is COVID going to kill this deal or is it actually going to happen?’ To the point where I felt like a naughty school child meeting Peter outside a cafe in the middle of nowhere to sign some paperwork. We did the right thing and socially distanced and signed a piece of paper and had a virtual handshake and he handed me a bottle of champagne. We continued to grow Emersion and Novatti Group have been very supportive, helping us expand the business, investing in the growth of the business, helping us globalise the business and bring it to the rest of the world.”