Australian HRTech Needs a Better Profit Story

Image credit: iStockphoto/Motortion

Just about every startup business aspires to be a unicorn because it comes with a USD 1 billion valuation. But it seems that another common characteristic of unicorns is something less desirable, and that is unprofitability.

In the startup world of 2020, HR technology companies have become prominent as entrepreneurs harness new technologies such as AI and automation to improve areas such as recruitment and employee engagement.

Australia has been a fertile ground for HR startups as the next wave of entrepreneurs has seen the opportunity. Many new homegrown companies — such as AI phone interviewing company Curious Thing —have already crossed the Pacific Ocean to launch in the U.S.

Even so, Australia doesn’t have that many unicorn companies, and in this market, HR software startup Culture Amp is an important name.

In September 2019, Melbourne-based Culture Amp raised AUD 120 million in Series E funding to surpass the $1 billion valuation mark, making it — in Australian dollar terms at least — a unicorn.

The company’s offering is a Software-as-a-Service model delivering employee engagement surveys for corporate clients. It also acquired performance management company Zugata to add an insights dimension to its business.

One of its most popular products is its “heatmap,” which creates a visual comparison across the entire organization based on demographic groups. It presents each group in terms of how they differ from aggregated scores for the whole organization.

Growth vs. profits

Despite having around 3,000 global customers across nearly 50 countries, some of which — such as Sequoia Capital — have become investors, Culture Amp is finding it challenging to build a profitable business, as evidenced by the recent announcement that losses have widened to AUD 36 million.

Startups are often white-knuckle rides, and Culture Amp’s co-founder and chief executive Didier Elzinga has been upfront – and courageous – about the fact that right now, the focus is on growth and not on profit.

Losses may have widened, but revenues also more than doubled to A$36 million in the last two years.

“We’re a loss-making SaaS business, like all of the other companies that are propping up the Nasdaq at the moment,’ Elzinga told Australian media recently.

“I know from the work that I do with both our investors and also the industry more broadly, we’re actually at the capitally efficient end of the spectrum.”

Elzinga maintains the company is on track for revenues of AUD 100 million and would be profitable within two years, and says that at this point in its trajectory, growth is more valuable than cash flow or profitability.

Driving corporate honesty

It is a confidence that comes from working from many of the big names in world business, some of them also startups which disrupted their own industries and became unicorns themselves.

At Airbnb, for example, a Culture Amp survey found that despite the company’s fabled culture, the regular world meetings were not as open as honest as they should be.

So, Airbnb founder Joe Gebbia created a new project called “elephants, dead fish and vomit” where employees could open up fresh dialogues.

“Elephants are the big things in the room that nobody is talking about, dead fish are the things that happened a few years ago that people can’t get over, and vomit is that sometimes people just need to get something off their mind and you need someone to just sit there and listen,” says Airbnb’s global head of employee experience, Mark Levy.

“It was an outcome of the Culture Amp survey that we realized we had to find a way to create and enable this two-way dialogue.”

Scaling engagement

Another significant name case study is the online artisan marketplace Etsy. The differentiating feature was scalability, particularly as the company moved towards its IPO and needed to ensure that staff was engaged.

Etsy had an effective survey in place, but they needed to enlarge and expand it to make sure it was genuinely anonymous so that people could express their true feelings.

“Culture Amp is a very easy tool to use,” says Etsy’s Brian Christman.

“It’s not a heavy lift, you can do it on your phone, you can do it at your desk, you can complete it in about 10 minutes, so that is helpful.”

Christman says he is addicted to the Culture Amp heatmap reports, saying they are an easy way to “scan the organization and understand where our hot spots or problem areas are.”

To embed Culture Amp further, Etsy is also using the tool for exit interviews, and employees also have access to the Culture Amp results so they can explore the feedback in their own time.

These two case studies show how innovative companies are using innovative tools to power employee engagement and show that perhaps Elzinga’s confidence is well placed.

Culture Amp is positioned at the pointy end of the new HR. It is user friendly, device-agnostic, visual, and fast. Some world-leading corporations are also using it to drive their employee engagement.

Now, it just has to turn a profit.

Image credit: iStockphoto/Motortion