Saturday 18 November 2017

Tech entrepreneur doesn't need hard sell as online software service cashes in on global rise of Amazon and eBay businesses

Ray Nolan, who made €100m with investments in Skyscanner and Hostelworld tells Adrian Weckler he believes his latest venture will be his biggest success yet

Ray Nolan is one of Ireland’s most successful technology entrepreneurs. Photo: Adrian Weckler
Ray Nolan is one of Ireland’s most successful technology entrepreneurs. Photo: Adrian Weckler
Adrian Weckler

Adrian Weckler

Ray Nolan is trying to stop his newest company making money. But despite his best efforts, his ecommerce startup, XSellco, is turning a profit. "We'd hoped to be losing money for the next few months," he says. "But we're going gangbusters and are profitable for the first time. It's not by choice. I'd prefer to be investing more."

Nolan, one of Ireland's most successful technology entrepreneurs, made over €100m from stakes in companies such as Hostelworld and Skyscanner. He believes that the XSellco is his biggest prospect yet. As such, the quickest-possible expansion is what it needs to prioritise rather than cashing in.

"This opportunity is so big, we simply have to get the marketing spend away right now," he says. "We have to ramp up. The return on investment from this just jumps off the page."

XSellco is a software service aimed at companies that sell things on 'platforms' such as Amazon or eBay. It gives these company sellers an advanced helpdesk that sorts out all kinds of issues, from customer queries to returns or complaints. In an era when huge amounts of shopping is shifting online to platforms such as Amazon or Alibaba, the product claims to cut down customer service time by over 50pc.

"To sell, you have to be on a platform, an Amazon, eBay, Alibaba or Rakuten. There are 60 different platforms that we talk to. As a seller, you have to distribute your inventory into these marketplaces. Then you have to support the sales on those marketplaces. You're rated on those platforms so the quality of your support is going to be front and centre. If you go down on your Amazon service, you just won't be listed on the first page, even if you have the best price."

Lest anyone question the switch of retail to online platforms such as Amazon, recent statistics leave no room for doubt. In the US, where figures are calculated more clearly, the web giant is estimated to account for almost half of the €360bn spent in online shopping annually.

Total US retail is around €4,000bn, but online represents half of all the growth. That means that Amazon, and other online platforms are becoming more critical to ordinary retailers previously able to survive through traditional shops and websites.

Walmart, Sears and Macy's are all shrivelling under the weight of online competition in the US, while retailers such as Clerys, Debenhams and others have faced similar problems in Ireland. Vulture funds are less likely to do long-term damage to high street shops' prospects than Amazon.

"I think of shopping like Harrods," says Nolan. "Harrods has a floor full of couches. Nobody buys one in there. You see the couch there and then you buy it online. The couch company is basically paying as a tenant to show its couch. I wouldn't be in the business of building shopping centres right now."

Nolan is opening an XSellco office in New York to service US clients, where 40pc of the firm's business is. The company lists outfits as big as Superdry and Suzuki as customers. He says that he expects to have 100 people employed by the end of this year.

The service processes "over €250m" per month for its customers. "It's probably nearer to a billion when it gets to December. The ecommerce world is still insanely weighted towards Christmas. I'd say it's a third of the annual spend."

He says that retailers are still struggling with basic data-collection issues.

"You'd be surprised at just how blind sellers are to the data that's within their own building. If you're a shoe seller, do you know which shoes come back the most and why? Are you using that as leverage the next time you're ordering these shoes from the manufacturer? It's amazing how Luddite the retail industry is in terms of what goes online."

Nolan isn't shy about offering views about what's good and bad about business practices in Ireland. He sees some flaws with the adjudication process by which "civil servants" decide which startups are to be funded.

"There are all these startups building businesses, right? And then elsewhere you have civil servants at the other end of the risk spectrum, reviewing their work, rating them. This is bonkers. How can these civil servants have any connection to the way the startup operates? They'll analyse things to death and say 'why are you paying the chief executive €150,000?' Because he could easily get €300k somewhere else."

Does he have criteria in mind by which startups should attract public funding?

"Why does there have to be criteria? Think about it. What nobody ever calls out about this process is that it's a zero-sum game. If I've got €300,000 and I give it to you as a startup, you will then go to Enterprise Ireland and get a matching sum of €300,000. Now you have €600,000. What are you going to do with that money? Payroll. And what's the tax coming out of that? Close to 50pc. They get their money back straight away."

As someone who has spent over 20 years building successful tech companies in Ireland, Nolan is in authoritative position to opine on this. He thinks that the role of state agencies should not always extend into everyday marketing. "I'm opening the paper and seeing a colour ad for Enterprise Ireland. That has to be someone on an ego trip. I mean, if you're so dumb that you can't find Enterprise Ireland, then maybe your business isn't going to survive anyway.

"I do get a little apoplectic about the waste that government bodies spending on advertising. I was at a conference in San Francisco where the IDA were the main sponsor. I didn't see many from the IDA on the ground there or links from the conference to the IDA site. Yet they might hand over €20,000 or €30,000 to be a main sponsor."

But won't the IDA say that its activities help to attract decent jobs into Ireland from big US tech companies?

"Yes, although there is a frustrating other side to those jobs. Homegrown companies like mine have to compete with them. It's hard enough to get techies anyway. But now I have to compete with big multinationals who'll give them a free lunch and all the rest."

Surely all boats rise with these companies in terms of more people getting trained? "Maybe. But it's only now that I'm seeing people come available that worked in Google. You basically surrendered your people to Google, not hired from them. Maybe the industry is maturing now."

Mr Nolan's other passion in life is rugby. A former player and a devoted fan, he set up what became the world's biggest rugby app, Ultimate Rugby, with Brian O'Driscoll. Is it still making a profit? "It was at one point but I don't think it is now," he says. "It's not something I focus terribly hard on. It's by far the biggest rugby app in the world with over 1.5 million users. But rugby isn't the biggest sport in the world and Facebook may be eating our lunch on ads."

For now, all of Nolan's energy is going into XSellco, he says.

"People call me a serial investor but I never really was. I would have invested in things as I came across them but I work in the businesses. I've never invested in a business where I'm not on the board or haven't worked in it. So I know that if I invest, I'm buying a new job. And I don't need any new jobs at this point. I have to focus on XSellco. This is not a toy for me. Maybe others were, but this is not a toy."

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