A profitable plus for a dot com business

Once upon a time, a profit meant not enough money had been spent on the business.

Or at least, that's the attitude of typical dot com businesses, says James Dalziel whose software technology company, WebMCQ has quite the opposite attitude.

WebMCQ is typical of the vast majority of small to medium enterprises (SMEs) in that as it has not raised significant external funds, growth has been bootstrapped. While this limits the rate of growth, it is a very attractive option to many entrepreneurs.

WebMCQ provides software technology to support learning on internet and intranet networks. Clients include a wide range of blue chip corporates as well as government agencies and the university sector.

“We supply software and services to enhance learning that uses web/internet technology, including development of courseware and training advice,” James says.

Originally a spin-off from the University of Sydney, the company commercialised in 1998 and has recorded significant growth and profitability in recent years.

“After a research and development adjustment, it’s quite a significant result and we’re pleased and proud of that, particularly as many peers still regard profits as immaterial.”

WebMCQ has been funded entirely by retained earnings.

“We’ve had no debt and no capital to date, and that’s been a very interesting way to build a business,” James says.

The challenges
The initial challenge was the large amount of time that had to be invested in negotiating a commercialisation arrangement with the university as the technology was developed within a course James used to teach.

“At that time internet technologies, and in particular web-learning technologies, were at a critical period, so every month counted as the company needed to move quickly and without constraints to seize business opportunities.”

The second hurdle was developing a company without investment capital.

“We concentrated on building products and winning new business. Today we are continuing to grow and employ about 20 staff without any investment or debt.”

James also considered it important to gain clients quickly. He believes a sound business discipline is driven by the necessity to serve clients and meet their needs.

“I feel the sooner you’re out there with the clients talking to them, understanding their needs and working with them, the better you meet their needs.”

A third challenge was diversifying the client base. The company had a couple of large client wins in the early stages that were very important, however, James feels they were relied on for too long.

“When those big contracts ended, we needed a strong new revenue stream but we hadn’t diversified enough.”

The final challenge is the present one of looking further afield and targeting international markets. WebMCQ recently won a major contract with a UK E-university project, and is negotiating other contracts in the USA.

“It’s very exciting, but boy is it challenging, as the costs of going international are great and there is a lack of support for Australian companies going overseas in terms of overseas establishment costs,” he says.

James acknowledged that government has many assistance programs, but said it’s vital to have real people on the ground winning new business in markets you are pursuing.

Looking back

James would have used variable staffing structures a lot more as maintaining large numbers of permanent staff is very difficult when there is a business downturn.

Although there is a lot of interest in finding re-sellers and partners, particularly in the software industry for a small company like WebMCQ, it’s very hard to get engagement at any significant level.

“We’ve had much better luck with re-sellers and partners who are around our size, with less than 100 people, or at least within our field,” he said.

What was a big waste of time? Business consultants to write business plans.

“They were good hearted people who meant well, but we understand the business and are the ones who need to write the business plans.”

The company tried to form collaborative business relationships with universities as it is in the business of learning technology.

“It has proved a struggle trying to find the right business models that will engage universities.”

As for government’s current practice of including components in tenders to support SMEs, James does not think this helps.
 
He suggested that companies like WebMCQ would benefit more from large companies offering mentoring help or support in overcoming the difficulties of gaining government work.

“What we need are standalone contracts to actually deliver real things, not to be a small plug-in to some much larger entity.”

James presented WebMCQ’s story to the ‘Successful Innovation’ course presented by The Warren Centre in conjunction with the Australian Institute for Commercialisation, ATP Innovations and UNSW, and with support from NSW DSRD.

The course was rated a great success by the attendees (PhD students from UNSW and Sydney University Engineering faculties) and, subject to funding, will be repeated several times in 2004. The intent of the course is to introduce post-graduate students to some of the questions that they need to ask in relation to their discoveries or inventions that may have commercial significance and to introduce a ‘common language’ of commercialisation. If you are interested in participating in these courses, either as a student or as a presenter, please click here.

James Dalziel



WebMCQ played a role in the development and marketing plan for this McGraw Hill learning resource for secondary and tertiary students and provided the interactivity behind the content with the WebMCQ Question Server.

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