From a consumer perspective, the appeal of RedBalloon is clear – the gift of experiences as thrillingly diverse as rally driving and wine tasting. However, the business has managed to find a value proposition that reaches far beyond its consumer-facing image.
Naomi Simson, RedBalloon’s founder , has managed to add value to suppliers, partners and staff, as well as customers. But the business, now nine years old and with a revenue more than $30 million, has had to learn some hard lessons along the way to get it to its current enviable position.
The supply deal
Simson says it took “about three years” to perfect RedBalloon’s deal with the suppliers of the experiences that it displays online.
“We didn’t realise how price sensitive the market is,” she admits. “Now, you pay exactly the same to us than if you went direct – that’s our absolute commitment.”
“We work very closely with our suppliers to ensure we are absolutely aligned. That’s why Google is a great equaliser – why would I buy from RedBalloon when I could go direct and get it $10 cheaper?”
“Our suppliers have to be profitable – if they’re not, they won’t give a great experience. We don’t go in with the premise ‘how much can we get from you?’”
“It’s all about consistently executing and showing how we add value to them. They get bookings in advance through us so they can plan schedules, they see the value in the discount they give us.”
Similarly, Simson realised that the value for big-name RedBalloon clients such as American Express and Optus wasn’t merely in the experience vouchers they could purchase for staff or loyal customers.
“It’s about what else we can do to leverage the 300,000 people who come to our website,” she explains. “In our corporate services we don’t just sell vouchers, we sell marketing and promotion services. There are other ways you can add value to a client relationship. It’s understanding their needs and looking how to add value.”
Speaking to the confident and urbane Simson, it’s easy to see how she managed to broker the major client deals that managed to lift her business from the front room of her house to become a multi-million dollar operation.
The language of sales
Following a high-level marketing career at the likes of IBM and Apple, Simson is well-versed in highlighting the benefits of a product or service.
“I’ve got more front than Myer,” she says. “I’ve never been shy. If you understand what a company’s particular need is and you speak their language you’ll get a hearing.”
“You can’t actually sell anything – people have to want to buy. All you’re doing is presenting an opportunity and maybe expose a need they might have and they may well choose to buy from you.”
“If corporates are buying from us every month, it’s not as susceptible to seasonality as consumers. But we have to keep working on the consumer experience.”
“If we look at Apple, why do we love it? We love the product. You tell me that it’s an amazing product, I have a play with it and I decide to buy it.”
“It’s the same as RedBalloon. Make sure that the actual experience is amazing, keep responding, and the rest will come.”
The business may be on a roll now, but it wasn’t always quite so simple for Simson. A series of early mis-steps nearly sunk the concept before it was unleashed onto the Australian consciousness.
Her first start-up was as a freelance marketing consultant. Her firm, Bright Marketing, worked on a number of major projects but Simson wasn’t satisfied.
“I found it frustrating as I’d consult for businesses, give them a complex marketing plan with 47 action items and a three year plan and they’d say ‘oh no, we just want a brochure, a website and some direct mail’,” she recalls.
“I would often fall in love with my clients’ businesses more than they did! (When I started RedBalloon) I wanted to show all those people that don’t believe in marketing that marketing does actually work.”
Simson says the idea for RedBalloon came about by chance. A Bright Marketing client made her aware of Red Letter Days, a UK experiences company that offered its deals via a telephone line and catalogue.
Simson liked the idea but was determined that the proposition should be entirely online, a relatively unusual stance to take back in 2001.
“At the time, most websites were evolutionary,” she says. “We have a book store, now you can buy books online, we have a grocery store, now you can buy them online. You could still get these products elsewhere.”
“In fact, the competition for those was inertia. But I was looking for something that could not be done if it wasn’t for the internet. RedBalloon is about experiences and our population isn’t big enough to make it a catalogue and call centre business.”
After wisely rejecting other self-described “daggy” ideas such as selling parchments via the web, Simson settled on the idea of RedBalloon, coining the name from a 1956 French film.
Using equipment and funds from Bright Marketing, Simson launched RedBalloon in October 2001. She used a further $25,000 in savings to get the business up and running.
Unfortunately, the entire $25,000 budget was spent developing a website that Simson happily admits was “crap.”
“I used one of the Bright Marketing designers who had designed print before, never a website,” she explains. “It would’ve been fabulous if it was print, but it was red with white writing with images on it.”
“The whole thing was framed. If you found something you couldn’t find it again. On Google, our listing was ‘skip intro’ as that was the only text on the homepage.”
“I was very proud of it and my brother in law, Stuart Simson (former MD of The Age) said, ‘Great idea, shame about the website’ and I didn’t speak to him for six months. But he was right. It takes people to tell you these things. It was confronting given that I thought I was a fabulous marketer to actually produce something like that.”
In her desperation, Simson, with no money left, took to loitering around Martin Place in Sydney with red balloons tied to a briefcase in the hope that passers-by would see the site’s URL on the side of the balloons.
Even when Simson landed her first sale, two months and four days after launching, the feedback didn’t improve.
After calling her first customer, a friend of a friend who bought a stress busting massage for a profit margin of $9, Simson was informed that the sale was conducted despite the user unfriendliness of the website.
Fortunately, Simson was introduced to a new neighbour who happened to be a web developer. The neighbour, who was looking for work, agreed to help out RedBalloon on a casual basis and eventually, six months later, became its first paid employee and stayed with the company for four years.
“I was working from home and he would come over and do code,” she says. “The first thing he did was change site from red to white. He changed the design and search functionality so people could find things.”
“He wasn’t full-time for six to eight months, he was working by project. We are on our 7th version of the site and I’m very proud of it.”
As well as improving the consumer-facing aspect of the business, Simson also managed to open a path to corporate clients. Again, her contacts played a part.
Fuji Xerox asked her to do some work in her Bright Marketing guise, only to be told that Simson was too busy with RedBalloon.
“They asked what RedBalloon was and they said let’s link up,” she explains. “At the time, we were only in NSW and they said ‘you need to be national and we’ll roll it out for a quarter.’ I said ‘well I’ll invest in growing the business if you’re a case study for me’. And they said ‘we’ll be a case study for you if you’re any good’.”
“They ended up keeping us for six quarters in a row and that was our first corporate client. They paid for the development of the website and they bought the vouchers like consumers. Looking back, I probably could’ve charged consultant fees.
“We had no budget and no money. People look at us now and this year’s revenue is likely to be $33 million. It’s going really well and people get that we are changing gift-giving in Australia forever.”
“It’s not been done by a large marketing budget. It’s all been done by relationships and building the brand.”
Boosted by her major client and unencumbered by competitors, Simson found that her concept was attractive to other large companies and managed widen the RedBalloon offer in the form of gift cards, placed in outlets of Australia Post and Coles. Today, RedBalloon has a presence in 3000 outlets.
“It was great having the first client that came to us,” she says. “Most business growth comes from relationships. It’s all about trust. Do we believe with Naomi Simson is going to deliver on what she said she said she’s going to do?”
“In those early days it was Naomi Simson. Not now. Now, it’s do we believe that RedBalloon will deliver on what they committed to.”
“Make sure that your product is first class and represents you.”
Getting vendors on board
Dealing with suppliers wasn’t easy, at least until the majority had their own online transaction processes and were presented with an attractive pricing model.
“In the early days we had to beg – it was very degrading,” she says. “All of our suppliers have to be online and do online booking and that was a problem in the early days.”
“In the early days (we found experience suppliers by) reading brochures, but now it’s about existing suppliers and suppliers introducing new suppliers or our customers tell us about experiences they see. We make them up sometimes.”
Simson says that RedBalloon has made marketing mistakes, such as sending out a million postcards in a promotion that didn’t see even a slight lift in sales. But the target demographic has remained wide, ranging from white collar professionals to tradies. Simson describes RedBalloon’s customer base as “eight to 80, from Invercargill to Broome. We aren’t an extreme sports company.”
RedBalloon grew to house nine people in Simson’s front room before the decision was made to move into an office. Simson says she has been happy to hand over control of elements of the business, rejecting the idea that she is the sole driver of the company.
“I have a GM that has run RedBalloon for nearly three years,” she says. “If you look at my strengths and her strengths, they are completely different. You need people around you that are different to you.”
“I’m very positive, self-assured, I like being with people. My GM likes being with people, of course, but she’s very strategic and very clever. It’s important that a founder of the business know when they are no longer the best person to run the show.”
“You need to surround yourself with clever people. I made sure I had the right people who were truly empowered to make a difference.”
Finding the right roles
Simson says she has done this by attempting to eliminate the negative aspects in each person’s role and give them a clear purpose that they are enthusiastic about.
“If you were to write a list of everything you love and loathe in the office, you look to see if there is a system to get rid of (the things you loathe) or whether it is someone else’s job,” she says.
“Some people hate collecting debts. But we found a woman who is committed to bringing in debtors – she loves it, that’s her thing.”
“When we started, my husband said he didn’t like writing cheques. I said ‘we have 900 suppliers, they need to be paid’.”
“So we went to the bank and they have a system where it takes five minutes to pay suppliers. So that innovation keeps your overheads low and new roles come out of understanding that. Everyone did everything to start with and now everyone’s a specialist.”
“We realised that I’m much better out than in – going to see clients, meeting people and making contacts. I think it’s really important for a CEO to not be internally focused.”
“You need to make sure that everyone shares the vision and values. Make sure that everyone lives and breathes them so if I kark it, it doesn’t matter. RedBalloon will carry on.”
RedBalloon has had quite remarkable growth for a nine-year-old business – Simon says the company has expanded by 40% in 2010. This growth allows Simson to be sanguine about her main for RedBalloon – two million customers in a year.
“How do I know when I get there? When two million Australians have a Red Balloon experience,” she says. “I remember coming up with the target when we’d sold 7,000 experiences and it seemed impossible. This year we’ve sold 300,000.
“I always had a big dream. Two million is still the goal.”