Hire calling as U Group builds

The past six months have not been the brightest for tech businesses or their investors.

Tightening interest rates have dented valuations for growth companies and some of the biggest names have taken the biggest hits.

Shares in retailer and cloud computing provider Amazon have roughly halved since their 2021 peak, while streaming service Netflix is down a comparable amount (at the time of writing).

Tech data portal Crunchbase shows global startup funding in the December quarter of 2022 was $77 billion, down 59 per cent year on year.

Tech businesses of all sizes have been forced to cut spending, resulting in widespread layoffs.

In Perth, startup The U Group & Co appears to be bucking that trend, however.

The business is on a hiring spree as sales grow and overseas markets bring opportunities.

U Group helps users collate shopping receipt information and uses machine learning to identify trends from that data for market research.

Co-founder Tyler Spooner told Business News U Group had grown from about 10 staff at the end of 2020 to now have about 40 globally.

There are about 23 workers in Perth, with plans to double that number.

U Group has expanded outside Australia to the US, Canada and Brazil.

Business News estimates U Group’s revenue was about $15 million in 2022, making it one of the top performers from the cohort of new Perth tech businesses in the past decade.

Mr Spooner is more circumspect when asked about his business’s success, however.

“Not yet,” he said.

“What we’ve got now is the ticket to play the game.

“The way I see startups is you have an idea; you see an opportunity in the market.

“You’re always trying to get capital; you’re always trying to get money to execute.

“Once you get the money, you need to get the company to make [a profit] so you can have a ticket to be able to disrupt.

“We’re going up against $1 billion companies.”

Mr Spooner is hoping to join that elite list and achieve a similar valuation.

That’s a dream for many tech entrepreneurs, although not many businesses make it to the fabled ‘unicorn’ status.

A handful of businesses with Perth links have achieved the goal.

Canva was founded in Sydney by University of Western Australia graduates, with its most recent valuation in September coming in at $US26 billion.

Online gambling business VGW Holdings was valued at $3.4 billion in 2021.

VGW is an alumnus of startup hub Spacecubed, while U Group completed Spacecubed’s Plus Eight accelerator program.

The journey from Plus Eight has required multiple pivots, or changes in strategy, away from the company’s initial brand of FeedMee.

While investment into tech hopefuls has grown in the state, Mr Spooner is keenly aware that businesses will need to make returns for their backers to recycle capital for the next wave of emerging talent.

Human capital

Data provides enormous value, and that helped underpin the commerciality of tech giants such as Facebook.

U Group’s ReceiptJar app rewards customers for uploading shopping receipts, information which is useful for the company’s market research partners and for the businesses making products.

One client to have been publicly revealed is Nielsen, which said in May last year that the partnership collected 250,000 receipts a month in Australia.

To turn the ink on a receipt into useful information requires the spending items and their value to be identified.

Receipts could be categorised by humans, an expensive process that is difficult to scale, or using machine learning, which is the route taken by U Group.

Machine learning is a field of artificial intelligence, where computers are trained to recognise patterns in large sets of data.

It’s a growing field that requires substantial smarts to make it work. Mr Spooner said U Group had one of the best AI teams in the Asia-Pacific.

Building that team has been Mr Spooner’s priority as the business grows.

Mr Spooner told Business News the company recently hired former VGW vice-president and Scantek general manager Sam Brown as chief operating officer, while Ross Warren would be joining as chief marketing officer.

Mr Warren previously held management roles at YouTube and at Google and was CMO at Student Edge.

Growing the team has not been easy, however, particularly given Perth’s hot labour market in which vacancies have outnumbered the jobless.

“It’s getting better,” Mr Spooner said.

“Six months ago, it was crazy; there were not enough people.

“[During] COVID, everyone started going online and a lot of companies wanted more tech infrastructure.”

U Group has adapted to this by planning ahead to find talent.

“We’re growing so fast, we don’t hire fast enough,” Mr Spooner said.

“One thing we did learn in the growth phase is have them [candidates] in the pipeline.

“Don’t go out to market when you need them, because they’re not going to be coming for three months.”

Costs had inflated when hiring activity was high, although it had since dropped, he said.

“It’s nice to be able to go to my guys who have worked really hard, and be able to give bonuses … reward them fairly,” Mr Spooner said.

“Because a lot of the time when you’re a startup, you’re going to people like ‘this is the dream, [but] you’ve got to sacrifice’.

“Now we can go to people ‘this is the dream, but we can pay you’.”

Mr Spooner said U Group had focused on ensuring growth was profitable, which he said was perhaps the key determining factor for a startup to become successful.

U Group’s last capital raising was about two years ago, and any further funding rounds would be intended to support growth, rather than maintain the business, he said.

“One thing we learned very early on is the margin,” Mr Spooner said.

“When you’re scaling, if your margin is not there you just hurt.

“I think that happens with a lot of listed tech companies; they go out and get revenue, not profitability.

“They go out and sell a whole lot of stuff not making any money … they can never get to the scale.

“I think that’s the secret; make sure you have margin.”

Even at the top end of the tech world, many businesses pursue the strategy of prioritising scale and increasing market share.

Uber, for example, earned $US8.3 billion ($12 billion) of revenue in the September quarter with a net loss of $US1.2 billion ($1.7 billion) driven partly by investment moves, according to The New York Times.

While Uber has expanded other businesses have entered the market, including Lyft, DiDi, and Ola.

The same battle has been waged for streaming services.

Ethical focus

The next market on U Group’s radar is the UK, with Germany and France likely to follow.

Mr Spooner said the long-term strategy would be built on ethical data.

There have been growing debates about the amount of data collected by businesses, especially social media companies, and how it is used.

Regulators have responded, with one example being the European Union’s moves to sharpen laws on protection of personal information through the General Data Protection Regulation in 2018.

“We really want to make [ethical data] more prominent, that there is a better way,” Mr Spooner said.

“People who control data, can understand data, have a moral obligation to think about that.

“We have a plan to reward users fairly and put them back in control of their data.”

As part of the ethical focus, he said it was important U Group’s data was structured and grouped, rather than individual personal information.

Mr Spooner said the market would need a platform to give consumers the ability to monetise their data and make decisions on where it went, in a way democratising the data.

That would also enable users to get some of the value from their data.

It’s a long way to a billion-dollar valuation but thinking about data differently might be a strategy that hits the mark.