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Home / Business

'Spiralled out of control very quickly': Kiwi rich-lister behind Appster speaks out after collapse

By Frank Chung
news.com.au·
13 Dec, 2018 12:59 AM6 mins to read

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Appster founders Mark McDonald (left) and Josiah Humphrey. Photo / Supplied

Appster founders Mark McDonald (left) and Josiah Humphrey. Photo / Supplied

The Gen Z bosses of an Aussie app developer once hailed as "the next Apple" say they are "absolutely devastated" after the company collapsed into liquidation on Friday.

Appster, founded by Auckland-born Josiah Humphrey and Melbourne teen Mark McDonald in 2011 using just A$3000 ($3159) in savings, made headlines over the years for its rapid growth and fairytale story of two childhood mates making it big in Silicon Valley.

The duo, now 26 and 27, were named in the Forbes 30 Under 30 Rich List in 2017 with an estimated net worth of US$43 million ($62.7m). At its peak Appster employed 350 staff across four international offices and was pulling in more than US$19m in revenue.

Read more: Kiwi app millionaire shares his bizarre morning routine

Things came crashing down last week, however, with the company placed into voluntary liquidation following a dramatic deterioration of its financial position. Some clients complained of being left tens of thousands of dollars out of pocket for unfinished, poor-quality apps.

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In an email interview, Humphrey said he and McDonald were "absolutely devastated to be in this position". "It is the most difficult thing we've ever had to come to a decision on," he said.

"Surprisingly we were in one of best cash positions the business had been in just four months ago but things spiralled out of control very quickly. We missed forecasted sales targets by around 50 per cent four months in a row. With expenses of roughly A$1m a month our cash reserves were depleted very rapidly despite attempting cost reductions."

Humphrey said another contributing factor to the collapse was the recent Tech Mahindra court ruling with the Australian Taxation Office that changed how money was taxed between Australia and India.

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Appster was left "retrospectively paying the last four years of the new tax which wiped out our profitability through double taxation". "This was very difficult because we had structured the business after getting professional advice," he said.

The collapse "happened very quickly and without too much warning other than operating in a market with increasing competition year on year".

He declined to say how much money was still owed to clients, suppliers and staff, but rejected claims of subpar work — described by one disgruntled customer who spoke to Smart Company as "kindergarten stuff".

"At Appster we'd regularly take over projects from other developers and we have hundreds of happy clients," Humphrey said. "Our staff worked really hard and we were lucky to have them, so we wanted to defend their hard work."

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Appster has launched "several hundred apps and won many product awards including a Webby Award, W3, Daveys and had dozens of our apps featured by Apple on the App Store".

"Almost all of our project contracts were fixed fee where we'd only receive final payment upon client accepting the work," he said. "A large percentage of clients came back for additional work or new projects."

Humphrey said he and McDonald were now "focused on making sure we support the transition for the company, helping (to) make sure all client projects get transitioned and helping staff get jobs in the industry however we can".

"Personally we are both devastated, we never thought we would be in this position," he said. "It is hard to process losing something that you started as teenagers with complete passion and dreamed of taking so much further."

Humphrey, who has a large following in the tech entrepreneur scene, said his message was that "sometimes things that you don't want to happen do happen, despite your best intentions and efforts".

"We are going to do our best to learn from this as much as we can and stay positive," he said.

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Over the past month Humphrey had posted a series of telling messages on LinkedIn. "Remember that no matter what situation you're in, you have the power to change your reality," he wrote two weeks ago.

"Remember that feeling sorry about yourself won't make any difference in this. Remember that sometimes 'bad' things happen to good people, your situation is not always a current projection of your character."

Then last week, he wrote, "Don't worry of the future or how you could have changed the past. Having your thoughts clouded by either regretting the past or having anxiety for the future can do nothing to help you."

Rival firm swoops in

Paul Vartelas of BK Taylor & Co last week told Smart Company the liquidators would be "probably looking to sell whatever we can".

"In this industry, people are primarily interested in IP and client databases, and work in progress," he said. "We'll be looking at what work has been done and how much of it has been paid for."

Anushka Bandara, founder of rival app development company Elegant Media, said on Tuesday he had contacted the liquidators with an offer to buy out Appster's remaining assets and incomplete projects.

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Bandara, who currently employs around 50 staff and works with clients including the ATO, Australian Communications and Media Authority and energy firm Cummins, estimated the assets would be worth A$2-3m.

"It's a good cause so I'd really like to help," he said.

"We are willing do a free assessment for all existing Appster customers and provide a report on where the project is at, what stage it has been delivered, how long it's going to take and the cost to complete."

Elegant Media would then "see what's the best price we can do to finish the project". "We're not putting our margin onto any of these projects, we want to help customers who lost their money," he said.

On the firm's 23 Melbourne-based staff, Bandara said his company could hire "maybe all of them, maybe half of them" but they would have to go through the interview process.

That shouldn't be a problem after Appster's gruelling 22-hour job interview, featuring eight stages, four interviews, up to 10 reference checks and even a body language assessment.

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"The people are the biggest asset in any type of business," Bandara said. "We have enough room to fit many more, we need to increase our capacity. We have huge demand to complete projects and get new projects."

Bandara, who started his firm in 2010, blamed Appster's demise on "unsustainable growth" and said the founders came from "marketing backgrounds".

"When you are a tech business just marketing is not enough, you have to have that management and technical background to be successful," he said.

"We use artificial intelligence and machine learning, that's the reason our prices were less than what they charged and our quality is higher than what theirs was. That's the main reason causing their issues."

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