In May, a consortium of James Packer’s Consolidated Press Holdings, Tiger Global management (investors in Facebook and LinkedIn), Andrew Bassat from SEEK and Gannet Capital, invested $80 million for a 40 percent share in CatchofTheDay and Scoopon. This record deal in the Australian online space valued them at $200 million and marked them out as serious players in the crowded industry.
The brothers never went looking to raise finance but were approached many times. “Everyone noticed us because we are the market leader in a hotly contested space,” said Gabby Leibovich. “When the investment consortium approached us we felt that the timing was perfect to introduce some serious expertise and financial backing into the business. With them, we have some great new friends who will help open doors. With their help we are certain to become Australia’s leading ecommerce group.” That’s fighting talk.
Still hands on
The brothers, who still own 60 percent, aren’t about to let go of the reins of the business they’ve built from the ground up, one deal at a time. “It was very important for us to still have control and have the final say in decisions. The investors were happy with this because they trust we know what we’re doing.” He adds: “We have only sold a minority stake in the business, so we still firmly hold the reins. While there are obvious changes, namely we now have some serious funds at our disposal to take the business into new territories, on a day-to-day front nothing has really changed. I imagine going forward I will need to step back and take on a more strategic role.
They also hope to retain the small business family feel of the place despite having the big bucks. “We have a flat organisational structure and we respect everyone’s point of view regardless of their position, which makes for a great working environment and culture. We may have the funds to do more, but that hasn’t changed the spirit of our business. We certainly are no longer a small business. We haven’t been for a number of years. This financial year we closed revenues of $120 million, and have over 100 staff on our books, however the spirit of the company has never changed. It is a fun and dynamic place to work”
There’s no doubt the general public aren’t the only ones surprised by the major investment deal, although it had been kept under wraps for months while the finer details were negotiated. “How does it feel? It’s crazy! We are still pinching ourselves.”
Steady, organic growth
Leibovich says the business has grown from the ground up and word of mouth has been key. “We have never spent any funds on marketing. We find that nothing accelerates growth faster than placing a great deal on the site and letting our members talk about it.
“We started with a team of five, working out of a tiny 300 square-metre warehouse with a simple dream of selling 60 products a day. It was a tough slog and in the early days we were unsure about the site’s potential, as there were hundreds of similar businesses starting out in garages and small warehouses around the country.
“Our key to success has always been our ability to put forward the best deals in Australia and spot a bargain. This is something you can’t teach a person at university, it is instinctive. This is our main point of differentiation and the reason for our success.” CatchOfTheDay and Scoopon are currently growing at a rate of 4,000 members a day.
Leibovich says they won’t comment on their much publicised legal wrangles with US competitor Groupon but can’t resist a dig, adding: “Just let me say that we are sleeping very well at night with a big smile on our faces.
“I suppose in one way, the legal action his helped to raised our profile, especially in the US, however at the end of the day, we are just focused on building upon our leading position in the market and continuing to wow our customers with amazing deals.”
Succeeding in a crowded market
There’s no doubt the group buying market is crowded so when does it stop and will there be a slice of the pie for everyone? Leibovich predicts it isn’t sustainable. “Some will try to specialise in certain niche areas but there’ll be a lot of consolidation and some will fall out of the market as it gets harder to source the deals and to have a point of difference. At the end of the day it all comes down to the deal. Everybody loves a bargain, everybody wants a good deal and we all want to get in at a price where it’s more than half off. Collectively, we have the largest membership base with over one million engaged shoppers, which gives us considerable leverage with suppliers to source the best deals in Australia, so puts us in a great position to continue to lead the market.”
Both websites have leveraged massively off free social media marketing. “What we do works perfectly with the short, repetitive and viral factors of social media. Every day, 100,000 people receive our Facebook message containing the deal of the day, and many of them forward it to their mates. Every day 250,000 people receive a push notification to their iPhone promoting our Scoopon deal of the day in their city and all of this is free promotion. Imagine how much this form of marketing would have cost us using traditional media.”
Keeping it in the family
Gabby says he works well with younger brother Hezi because they are so different. “My skills really lie in product sourcing and people management and I take a more hands on role looking after the CatchOfTheDay business. Hezi is more involved with growing Scoopon. He is also the visionary one and tends to steer the long-term strategy for the group. We are quite similar in age – I am 40 and Hezi 36. Dad instilled the retail and entrepreneurship bug into us at an early age, so it was only natural that one day we would team up and build a business together.”
It isn’t rocket science though. “There’s no secret that to be successful in business you need to work hard, use trial and error and above all learn from your mistakes,” says Leibovich. “A number of years ago we outsourced part of our supply chain to a third party logistics firm, without success. Orders were arriving late and mistakes were made and we came out very close to going under. I realised it wasn’t the way to go so I brought it back in house and rebuilt the business.”
His business idol is Richard Branson, mainly because he proves you can have a lot of fun while doing successful business. “We have the same culture at CatchOfTheDay and Scoopon. Everyone puts in a lot of effort, but we have great fun at the same time. On a more personal level, my dad also inspires me. He showed me that working hard is the only way to work. We put in 120 percent every single day; this is the only way I know how to work.”
When he has time for fun, Gabby loves playing indoor soccer. “My family means everything to me, and nothing is better after a long week at work spending the weekend with my wife and three children doing fun stuff.”
There’s no resting on their laurels however. They’re about to launch two new sites: groceryrun.com.au (“where we intend to give the big supermarkets a run for their money like only we can,”) and a fashion and apparel site called brandstreet.com.au, which will provide time limited deals on clearance fashion from all the leading brands.
“As you know we have recently made friends with a few good people like James Packer, Andrew Bassat from Seek and Tiger Global from New York, who have invested a significant amount of money in our business. This will be used to improve logistics and marketing, recruit some more great people and really build this business into Australia’s number one eCommerce group for years to come. It’s very exciting.”