Chief executive says he was impressed with NZX-listed company’s profitability and customer retention.

Brian Stafford

Diligent chief executive

Age:

38

Based:

Advertisement

Manhattan

Former role:

McKinsey & Company partner, running the consultancy's growth tech practice

Interests:

Food, travel

Brian Stafford knows all about the excesses of the technology world.

The 38-year-old American, who took the helm of NZX-listed Diligent Board Member Services this month, has lived through the internet boom and bust of the late 1990s and early 2000s into the era of social media and the current hype around software-as-a-service (Saas) companies.

Looking around the market today, he sees similarities with the Dotcom bubble that deflated, spectacularly, as the 21st century began.

Advertisement

"When I go to the Silicon Valley I can't find a hotel room," says Manhattan-based Stafford.

"There's a lot that feels similar ... I look at all these software-as-a-service companies that are losing more money than they have in revenue every quarter."

Still, he reckons the tech companies of today are "fundamentally better" than they were during the lead-up to the the dotcom disaster.

"That being said, I think the ridiculous spending ways of some companies today reminds me of the ridiculous spending ways of other companies [in the dotcom era]," Stafford says. "They're hoping that as long as the market keeps throwing cheap money at them, they can keep running the same play but I think that's playing with fire."

He says Diligent's profitability - and its impressive customer retention rate of 95 per cent - helped convince him to take up the chief executive role at the New York-based firm, which develops software used by board directors to access documents.

Stafford also thinks the governance software market is bigger than most people give it credit for.

"It's a $3 billion market and I'm quite excited about the potential."

Stafford has replaced former chief executive Alex Sodi, who is staying on with the firm as chief product strategy officer.

Before joining Diligent, he spent a decade with consultancy McKinsey & Company, where he founded and led its growth tech practice that focused on Saas businesses ranging from start-ups to publicly-listed firms.

"We were working with basically all the hot companies in Silicon Valley that showed up in the press and stuff, helping them grow faster," he says.

Before that, Stafford founded and was the chief executive of CarOrder, an online vehicle retailer owned by Texas-based Trilogy Software.

It grew rapidly around the turn of the century before faltering just as quickly in mid-2000, reportedly as a result of pressure from car dealers who were opposed to internet-based challengers.

Most of CarOrder's technology eventually got sold to the Ford Motor Company, Stafford says.

Diligent posted a 43 per cent lift in profit to US$8.9 million ($11.8 million) for the 2014 calendar year, while revenue jumped to US$83 million from US$64.7 million in 2013.

Stafford, who would be one of the youngest NZX 50 chief executives, says he "kind of didn't believe it" when he heard about the company.

"I said, 'There's no profitable Saas companies'," he says. "I think the thing that really makes Diligent so unique is really the focus on prudent, profitable growth."

The company takes a different approach to other players such as accounting software developer Xero, which yesterday reported a 96 per cent increase in its full-year loss to $69.5 million.

But Wellington-based Xero is growing at a much faster rate and is investing more heavily in staff and product development.

Its revenue jumped 77 per cent in the year to March 31 to $123.9 million, compared with Diligent's 28 per cent top-line growth in 2014.

"Everybody talks about Saas companies as having the potential to be very profitable, but when you look at most of the companies, no one has any focus on profitability and focus on making prudent investments," Stafford says.

He admits that a focus on profitable growth involves trade offs.

"I think Diligent probably invested later - after demand had clearly shown itself - as opposed to making investments ahead of demand," Stafford says. "I think that if the company had [invested earlier] you'd see growth continuing at the same rate as opposed to it having tapered off in the last few years."

Diligent is anticipating revenue of US$97 million to US$99 million this year, which would be an increase of up to 19 per cent on 2014.

Stafford says the company has probably under-invested in research and development in the past.

"We are only bringing our second product to market now [Diligent Teams, scheduled for release in the third quarter]," Stafford says. "One of the things that I'm going to have to work with the company on is what's next and whether that's a tuck-in acquisition or something like that ... it will include new products as well."

The company employs over 300 staff, including more than 100 employees spread across two development hubs in Christchurch and Charlotte, North Carolina.

Stafford says he's "coming in fresh" after a difficult couple of years for Diligent.

In September the company was publicly censured by the stock exchange's disciplinary tribunal and fined $100,000 over the late filing of earnings reports.

That followed an earlier censure in 2013 for a string of administrative errors, including not seeking authorisation for director payments and incorrectly issuing shares and options to employees.

In response to these failings - which were a particularly bad look for a company involved in the business of corporate governance - a new chief financial officer was appointed, as well as a new general counsel with public company and compliance experience.

Investors have been on a wild ride, with Diligent shares falling from $8.20 in May 2013 to a closing low of $3.15 in December of that year, before regaining ground to close at $5.80 last night.

Stafford describes himself as "detail focused" and says he wouldn't have joined the firm if he thought its past problems would continue.

"The goal is to earn back some of the trust, especially with local investors ... to make sure people don't worry about those things happening again."

About half of Diligent's shareholders are based in New Zealand.

Diligent Board Member Services

• Founded in 1994.

• Provides software used by board directors to access documents.

• Began developing its Boardbooks product in 2000.

• Listed on the NZX at $1 a share in 2007 after raising $24 million in an initial public offering.

• Gearing up to launch a new product, Diligent Teams, in the third quarter of this year.