TOM Cregan was sitting in a Bain and Company presentation about the payments business in Las Vegas when the business strategy he had spent years trying to summarise suddenly became clear.

Not long after Cregan's Vegas epiphany, the business went on a two-and-a-half-year run where its share price more than tripled, and it is still going.

Nailing down the strategy allowed EML Payments to identify its customers and develop a decision-making prism to assess those customers, taking the ego out of deal making.

And deal making has emerged as a strength of the business since Cregan took charge in 2012.

"We are five years into transitioning it from ostensibly a one-product gift card business into a business with operations in 14 countries, with 800 customers it really has been a wonderful ride," says Cregan.

The burgeoning number of customers, and its expansion into the United States and Europe through the acquisition of Store Financial Services, has the business poised to start making serious revenue for the first time. Analysts' consensus for earnings in FY17 is $55-60 million, up from just $3 million in FY12.

Cregan told the recent Business News Australia Breakfast Series event at Customs house that he didn't intend to put a halo around EML Payments, what he did do was tell a cracking yarn with plenty of lessons for disruptive startup businesses.

Find your strategy

Given that payments is an inert business, Cregan says that an offering needs to be demonstrably superior to get adoption.

"And once you get adoption, and you are making margins of 1-1.5 per cent, you can't afford to market it, so you have to attach it to a company with scale and use their customer base to get you propulsion in earnings.

"I was sitting there, and I heard this, and I thought, there is my strategy right there."

It is a plan that has worked for the company. It has partnered with all five online betting companies in Australia and that has opened doors to working with them in Europe. The company's recent deal with Caesars Enterprise Services, that gives it access to 45 million customers.

Walk away; pivot is not a dirty word

Bedding down the business plan allowed EML to develop a prism used to analyse its potential customers more efficiently, and gave it confidence to walk away from deals that were poised to be a waste of time.

Assessing whether the business can provide a solution that is demonstrably superior is the tip of the prism, and the other components are: is the opportunity scalable? Is there limited development required? And, how many other similar companies are there in the industry?

"We make decisions every week on incoming businesses and often the hardest thing to do is to walk away from it," says Cregan.

"Everyone wants the next deal, and as an entrepreneur you are tempted to believe you can make it work, but then you invest time and energy and it doesn't work.

"In our case, walking away from programs is hard and requires a lot of discipline but actually it is in our long term best interest in best interest of shareholders."

Cregan talks about ego getting in the way, especially for startups and micro-cap companies.

"Focus on where you can win and scale move on quickly if you can't, because your ego will cost you a lot of money. Sometimes, due to the ego of the founder, they can think they are infallible, they think the solution will eventually work. What eventually happens is they go broke."

Do the job right first time

Cregan talks about the biggest risk for EML being execution.

"I said that five years back, I say it today and I will still say it in five years."

He says there is no margin for error.

"If you are working with a company such as Bet365, which has 25 million customers in Europe, and the program launches and doesn't work exactly the way they intended it to, or run exactly the way they wanted it to, it won't be long lived."

Additionally, other operators will dismiss the company.

EML executed right with its first gaming client, Ladbrokes, and now it is working with all five Australian betting agencies.

"In our case, Ladbrokes was an early adopter in the gaming space," says Cregan.

"They called us and said, 'here is what we want to achieve'. 90 days later we had a solution to market with Ladbrokes. It was very disruptive.

"Two years later we are working with all five online gaming operators in Australia."

"One of those is Bet 365, and we have now extended into the UK with them and are talking to them about market such as Italy."


"The snapshot of our business is one of diversification, and it certainly wasn't five years ago," says Cregan.

From one client to 800 the rapidly growing client base is self-sustaining Cregan describes the business as a flywheel, which gains momentum in part from its own energy.

"It doesn't come from one or two contracts that you win and you sail off into the sunset it comes from 850 different contracts.

"Payments is inherently a large volume, small margin business. So you have got to have a lot of volume and a lot of products in the pipeline and you have to be executing well and if you do that you will end up with growth.

"Our margins have been at 78 per cent at three years running now. It is a scalable business."

Get the staff right

Cregan's focus on staff comes from two different angles: the right staff, and the right number of staff.

Given EML is a high-growth company that gains income from a large amount of small transactions, it is imperative for its scalability that staff numbers are kept under control.

Currently, the business has 153 staff, up from 37 when Cregan started five years ago.

"One of the things we focus immense amounts of energy on is how do you scale without growing headcount? To me, they are mutually exclusive if you have got a high growth in revenue and high growth in earnings but you are adding 100 staff per year, to me in a payment business those things are an anathema to each other."

Cregan got "got rid of" 35 of the 37 staff at Emerchants six months after he started at the company, before rehiring 20 of them.

"One of the lessons I learned, and if I had to do it again, it would be to fire quicker. You tend to want to recruit people for that you think their potential might be, as opposed to what they can physically do.

"We have an incredible team, but five years ago I should have moved quicker on the trigger on some guys than I did."

Cregan also paid tribute to his CFO Bruce Stewart, who he said did the job of four people.

"That is how keep headcount flat, when you have someone with immense talent," he says.

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