Jo Francis: Tell us about Vistaprint’s background, I’ve read that you had the idea while studying at INSEAD, the European business school.
Robert Keane Around 1994 I went to INSEAD. I’d always known I was interested in starting my own business, and I have an entrepreneurial background. Just as I left my previous employer, I worked on a project where we played with the concept of remote kiosks for a variety of applications, one of which was a cutting edge concept for graphic design and layout in a retail kiosk, linked to digital printers – this was right after Ipex 1993 where digital printing came out. It was an utterly non-economical business idea, though, it was four years before the dotcom boom.
So that was the germ of an idea. What did you do instead?
There was a company in the US called PaperDirect, a sort of DTP for the common man. It was a model to use direct marketing for small businesses. I saw that in a different way to resolve the same pain points.
At INSEAD I met a friend who was at Microsoft working on Microsoft Publisher for non-professional designers. All those things came together when I thought ‘why don't I create a European version of the PaperDirect concept?’ It was nothing to do with the internet, it was a direct catalogue. But it did sell to the same customer needs of small businesses. We launched and between 1995 and 1998 grew to sales of 21m French francs, about $3m.
So how did this catalogue develop into a web-to-print offering?
First, I felt we could design a simple, easy-to-use software that we could give away in a browser. Today that's commonplace, but the idea that you could use DTP in a browser was a unique idea in 1998-99. And by doing that we could also avoid paying 60-70% of our revenues to Microsoft.
Secondly, we recognised there was an opportunity in digital printing. It was more proven as a technology by then. So we recognised that by aggregating orders together we could cut print costs. From DTP to a browser, and the printing moving from a laser printer to centralised printing, be it digital or otherwise.
And finally came the replacement of the paper catalogue with the ecommerce catalogue. Those were the three major shifts.
So things are progressing quite nicely, and it was the peak of the dotcom boom. What happened next?
We had French venture capital funding behind us at the time. We got a second round of funding for 20m francs and set off to hire the engineers and write the software. We launched a prototype site in the UK and France in summer of 1999.
We felt the need to get into the US market because volume was becoming important to our business model, and we launched there in May 2000. We also moved the company to the States because we thought we'd get dotcom financing, but we arrived four months before the dotcom crash and were able to get zero financing!
So we put all of our eggs into e-commerce basket, with 100% of our efforts and 100% of our revenues from what is now Vistaprint. But those revenues were miniscule at the time.
Since then Vistaprint’s growth has been stratospheric. At what point did you realise this thing could grow and grow?
I always dreamed of it, but never expected to get this big – it was an aspiration but not a rational belief. The tipping point was really around 2001 when we were literally at the edge of bankruptcy. No-one was taking salaries and we were struggling to pay our suppliers. It seems like an odd moment to get religion about the business but we were seeing growth of literally several hundred per cent month-on-month. We had a year invested in technology development. We were redefining the market with DTP delivered via a browser to non-professionals who didn't know anything about CMYK, or cut marks.
And although it was still only on spreadsheet models we were seeing this concept of aggregating and ganging jobs, that we could ‘productise’ print, which was traditionally a very bespoke business.
Standardising and productising allowed us to aggregate in the background into homogenous workflows that slashed the cost of production. With that came the recognition of the cost plummeting if we got to previously inconceivable volumes. At that time 2000-2001 we were still living hand to mouth financially but we could see it taking off.
I can think of companies where success has been their undoing, what has been the secret to keeping on track during such rapid growth?
We were lucky enough to be in right place at right time.
We focused on micro businesses with a different value proposition. At the time conventional wisdom with the $700m of venture capital money that went into e-printing was that you had to be targeting the biggest companies. A number of companies were doing trading platforms at the time. There was a lot of venture capital money going into the e-printing industry in 1999-2000, to companies you’ve never heard of since.
We came at it from a direct marketing and a software background and we were trying to resolve the pain points of small businesses.
Our best customers are the worst nightmares of traditional graphic designers and traditional printers. No printer in his right mind, with traditional methodologies, wants to serve a Vistaprint customer whose average spend per year is $70.
You survived the dotcom crash when many other print dotcoms didn’t. Was that a key moment?
It didn’t feel at all like a blessing at the time, but the fact that we were caught halfway across the Atlantic when we moved from France to the US just when the dotcom crash came, that meant we couldn’t get finance.
A lot of companies that were in the internet printing space in general had $10m, $20m or $30m or more of financing, and they burnt through that money.
Because we didn’t get that initial round of funding we went through a horrendously difficult time. It forced us to get to a cashflow breakeven and by early 2001 we achieved that. That enforced discipline was very, very important for our ultimate survival.
I’d love to say it was perfect management discipline, but if we’d had $20m of funding behind us things might have been different.
So unfortunate timing in one respect turned out to be for the best?
Yes!
This breakthrough you had in the late 1990s, the automation of processes and workflow combined with the e-commerce customer interface, this seemed to be absolutely critical in opening up this new market.
Absolutely. Around 2003 we started realising that the next battle would be won and lost if we vertically integrated. We came to the conclusion that we wanted to produce in a way that was in many ways the antithesis of the printing industry. If we continued to sub-contract it wouldn’t allow us to move forward. So we built our Dutch facility in 2003 and our Canadian facility in 2005, then several years later our Australian facility.
We recognised that scale really mattered and the bigger we got the lower our average unit cost became – even though our capital expenditure was huge, $50m-$100m per year, it averaged out at a very small amount.
It also allowed us to start introducing many additional products that weren’t classic, traditional print. Things like mugs, apparel, and custom pens.
We became very good at dealing with millions of orders per month of micro quantities. We created a specialism in mass customisation. We had mass production volumes in our facilities, but each and every product is unique. That became an enormous competitive differentiator.
We were able to shift the value proposition to our customers from being about inexpensive business cards to offering all sorts of products to help them market their business.
Vistaprint now has an enormous product range, how do you achieve the same levels of efficiency as you do with business cards? How is it possible to produce all these fiddly products in a hyper-efficient way?
Once volume reaches a very significant scale, they all become very competitive. But there is a financially painful ramp-up period that is typically several years long, when we’re not yet at massive volume on a given product line. At that point it’s just not a good business to be in because you have to get to the scale to get the cost down. As we’ve grown we’ve been able to gradually introduce products knowing that over a multi-year period costs will drop. But I think it would be very hard if not impossible to do that if we had started as a standalone company. The production costs and complexity are far too high, and the marketing costs are enormous. We’re able to leverage our existing customer base and technology investment. Our technology budget is 10-11% of revenues, that means this year we’ll spend $130m on software and technology development. All that is very helpful if you can get past a certain scale. But it's economically somewhat suicidal on a small scale.
Not many people could commit that level of spend. So, you’re willing to go through a pain point in order to achieve the volume that means cash flows in.
Exactly. Our average order is $30-35. Each order has two or three items in it. Say, business cards plus an embroidered shirt. When you take the $120m of technology spend and divide it by the 100m items we’re selling a year it’s a dollar, a dollar fifty per item. To do that without that scale, the maths just doesn’t work.
Just going back to the business cards, I read that the human intervention in production used to be 60 seconds, then 20 seconds, then the latest thing I read it was 12 seconds. Is that correct?
It has been progressively coming down. It’s approximately 12 seconds, it may be slightly less now. Over 20% of our revenues are still business cards. At least $250m of revenues are business cards and you can see our average price is very low, so we are doing huge volumes. With the vast, vast majority there is no human intervention on the sales cycle, on customer service, on graphic design. It’s all done using our templates.
So the whole traditional model of knocking on a door, talking to a customer, understanding their needs, doing the graphic layout, that all goes to zero. Maybe one in 20 customers picks up the phone and talks to our customer support team.
Every day, we have enormous volumes coming in to a highly-automated, large-scale production facility. The vast majority of our business cards are produced on large offset presses. We may be doing five or eight setups aggregate per hour.
You take out the backend, you take out the frontend and you get to that 12 seconds.
Can it go lower?
The problem is if we improve it 35% it’s only four seconds. There are other things we can move onto. The curve flattens out at a certain point. We actually believe it’s better to go on to other areas, it could be how we produce photobooks, or embroidered shirts, rather than squeezing four seconds out of business cards.
Who are your key suppliers when it comes to printing equipment?
Without getting into specifics it could be the Heidelbergs, KBAs and Manrolands of the world, on the digital side we use Xerox, HP Indigo and Xeikon.
Do you do any bespoking of these machines? I’ve seen some interesting Vistaprint adaptations on the finishing side.
We do a lot of tweaking and we actually have an engineering team based near Zurich in Switzerland, plus a lot of engineers in our production facilities. We integrate things, for instance it could be paper-handling post-press, the folding, scoring, cutting and packing where we buy equipment from other people and then integrate it. In certain cases we’re doing full bespoke equipment for certain types of production, such as the more exotic product lines.
Did you go to Drupa last year? What did you look at?
We sent 20 engineers. We spend a lot of money every year on capex, and on understanding where the trends are going, be it digital or offset. I think a lot of people incorrectly wrote offset off for dead a decade ago. That combination of automated workflows, plus huge volumes, plus the best German or Japanese presses they are very, very efficient. The trade-off is the constant improvement you see at people like Xerox and HP. So that assessment is a big part and we’re often negotiating large orders. It’s also important to see what is the next promise on the horizon. A lot of times it’s vapourware and it’s one or two Drupas before it’s really functioning. So whether or not that will become disruptive or not, that’s the type of thing we’re keeping abreast of.
What is the capex split between hardware and software?
Buildings are quite significant. The next biggest chunk is printing equipment such as presses. Then, if you think of what I’ll call pure IT hardware, servers and the like that’s probably the next largest at the moment, and then software after that.
You have to realise that our conversion rate, like any ecommerce site, is around 10%. So we have 500m people coming to our site doing live testing and layout, and uploading images etc. We are far from Amazon or Google in our scale, but we are still in the top group underneath those ‘top top’ ones in terms of the volume of ecommerce and server transactions. We have multiple IT centres around the world and there’s a lot of capex involved in just maintaining that volume and speed of activity.
What would be your dream piece of printing equipment?
A digital press with the industrial robustness of the best German large-format presses. And people are talking about it – Landa is licensing to four or five press vendors so maybe it’ll happen some day.
Talking of Landa, did you put down a deposit on a Landa press when you were at Drupa?
No. The lines were too long!
You mentioned photobooks earlier and you made a significant acquisition in that space with Albumprinter in 2011. How are things developing with that and are you going to organically grow the Vistaprint products now or are you still acquisitive?
It’s primarily organic. But never say never [to further acquisitions]. Albumprinter was very focused on the Benelux market, we were able to integrate that into our website and take that offer out from Portugal to Poland – all our European sites now have that. There are some very good competitors in Europe and the US in the photobook market, and we have no intention of going head-to-head with them. We see it as something that will remain strong in Benelux and through our Vistaprint brand.
We also don’t think that photobooks will be a major growth area. It’s a nice additional product. For the last three Drupas there’s a great belief that photobooks are a wonderful product. They’re beautiful and people have an emotional attachment to them. But from a business perspective each of those major markets has a clear leader.
I don’t think anyone expected us to jump into photobooks, any more than they expected us to get into customised apparel. We want to be in multiple categories and give this holistic offering to our customer base, rather than try to become another Photobox or Shutterfly.
I was interested in the non-print products, such as embroidery, and the website and social media tools – how big is that side of the business?
It generates a lot of profit! In both those cases we recognised we had a large customer base that trusted the Vistaprint brand. Once again the difficulty is in the marketing costs, not the technology per se. We also bought a company called Webs, a very large investment for us. In a business where we want customers to easily and intuitively build a website, Webs had a better technology. We bought that with the expectation that it will be integrated into our site, as part of a holistic product offering that transcends traditional definitions.
What about the impact of mobile and tablets on the Vistaprint business?
It impacts us in two different ways. The first one is more and more of our customers want to have their websites on mobile. Our customers’ customers want that. So when you buy a Vistaprint website it automatically comes with an optimised mobile website. That’s one aspect. The other aspect is, we are an ecommerce company and people are increasingly coming to us using a mobile device. So a lot of our investment in technology is to take this Vistaprint experience which was optimised for decades for a desktop size screen and make it optimal for a tablet or a phone on a small screen. We are putting quite a bit of investment into the mobile commerce area.
What do you think of the competitive landscape? Who do you view as your competitors? Have you heard of Moo.com, for example?
Moo is a great company. They are a fraction of our size but they have astutely carved out a very nice position. Vaguely we compete with each other but they are positioned very much upmarket to Vistaprint, their product offering, their packaging, their site experience is targeted to people who would traditionally be going to graphic designers. If we’re a VW, they’re Audi. We hold them in high regard.
I wondered who you might consider a competitor, or companies you perhaps admired, not necessarily direct competitors?
Our biggest competitor is non-consumption, when people simply don’t buy the stuff we’re offering them. Secondly, there is a huge traditional industry and not just in printing, in web, in design, in photo, in apparel that whole offline offering is competition. Coming to the online space, I think there are many companies we have a lot of respect for. The people who’ve been most successful have not tried to copy someone else, they’ve tried to be unique. There’s a company in Germany called Flyer Alarm – a totally different business model to Vistaprint, but very successful. The other end of the spectrum is companies like Photobox, CeWe and Shutterfly.
I could go through the entire list of what we sell and divide it up by countries, there are a lot of companies we hold in high regard. The Vistaprint distinction is going for scale and volume, rather than specialisation.
When you look at it you can see that almost every conceivable space is carved out. What a decade ago was a big white space, is today full of a lot of really focused competitors.
Is a further manufacturing hub on the cards?
Our biggest hubs are in the Netherlands and Canada, and the photobook site also in the Netherlands. We recently built a facility outside of Mumbai for the Indian domestic market, and via a minority investment we have production in China.
We own about 40-45% of the Chinese company and have the option to go to majority ownership in three or four years, and ownership in a decade.
What about South America, that’s always cited as a big growth market. Is that a market that’s interesting to you?
We aren’t in South America. You can’t do everything at once. We are in the Asian markets. We have so many things on our plate.
I read in your recent financial statements that Europe was doing less well than the US. How is Europe and the UK doing in the scheme of things?
We have been disappointed in our growth in Europe. We are still, as a company growing at 15% a year. In Europe it’s in the 5-10% range. So step back and people would ask "what are you complaining about". We feel that Europe can and should be an enormous market for us. It already is a very important market for us. We feel that a lot of the investments we’re making in improving our customer value proposition and marketing methodology have yet to take off as we would like. But Europe is making huge progress very quickly.
What about customer churn? I see you’re putting a lot of work into retention marketing. How are you reducing the churn rate?
The frank description of Vistaprint is that in our first decade we were a hard-charging direct marketer, we still are a sharp direct marketer. A lot of the value proposition was built on getting extra transactions out of the customer through cross-selling and upselling, and there was less of a culture of customer-centricity.
About two years ago we made a major commitment to a cultural shift towards the customer, and that is showing up in upgrading the quality of the substrates, the packaging quality, the freephone customer support and reducing the intensity of the hard-charging direct marketing. Those things are very costly in the near-term, and our share price dropped in half the day we announced it because we said we were taking a two-to-three year, $100m hit to invest in these things. But we believe when we come out the other side in 2016 we will be fundamentally a stronger company.
In your original business plan for Vistaprint you said "there is a market need". What do you think the market needs now, or what gaps need to be filled in the future?
Back then I talked about how hard it was to get low-volume professional looking print and that is still very much at the core of what we do, although it’s moved well beyond the business card. That core belief that the little guy is under-served and poorly served is still at the core of what will drive us in the future.
What is a typical day, and how do you relax?
Relaxation is not part of the typical day... I spend most of my life on a plane or on a video conference. We have a lot of strong people on the global executive team and the global leadership group who are running the business day-to-day. I spend my time doing internal communication, working on long-term strategy and on R&D for future areas. Currently I’m spending a lot of time in China and India. Over a period my focus shifts to the next major investment area.
Do you have a favourite piece of print?
Letters from my daughter. And when I walk through the factory and see people’s photobooks, you see thousands of books that memorialise important parts of people’s lives. It’s hard to beat.
Finally, lots of printers would love to come on a wayzgoose to Venlo to see how you do it. Can PrintWeek organise a trip?
[Laughs] Unfortunately we don’t offer those tours – sorry about that!
VISTAPRINT AT A GLANCE
Sales $1.02bn (£660m)
Employees 4,100-plus
Compound annual growth target through to 2016 20%-plus
Gross margin 65%
Number of unique customers 14.4m
Biggest production facility 51,000sqm in Windsor, Canada, handling 12m orders per year
European production facility 20,252sqm in Venlo, the Netherlands, handling 10m orders per year
Vistaprint sales target by 2016 $2bn
