How a computer geek started a business in his parents' garage and became Australia's richest 20-something.
On a blazing hot day in Melbourne, Ruslan Kogan arrives for his keynote conference address wearing shorts and the coolest pair of red sneakers you’re ever likely to see. Emblazoned with the words “Earned Not Given”, his T‑shirt was his most telling apparel. Kogan’s parting message to delegates was to quote the Nike slogan: “Just do it.”
It’s fair to say Kogan has pretty much already done it. He started his retail business, Kogan Technologies, from his parents’ garage just seven years ago at the age of 23. Last year the company reached the milestone of A$1 million turnover in a single day.
The achievement must have rubbed salt into the wounds of his already miffed bricks-and-mortar rivals – and with his sights now set on Kogan Technologies becoming the biggest consumer technology retailer in Australia, their problems may have just begun.
Born in Russia, Kogan came to Australia with his parents and sister when he was five, grew up in housing department flats in Melbourne and built his first computer at the age of nine. When he was 10 he started his first business, collecting lost golf balls, cleaning them and selling them for A50 cents each to golfers at the local course on Saturday mornings.
By the age of 23 Kogan had worked in the IT departments of Bosch, GE and Telstra, and as a management consultant at Accenture. He left Accenture in 2006 to pursue his entrepreneurial bent by starting Kogan Technologies and worked 16 hours a day to get it up and running. He says he still puts in about 16 hours a day.
Kogan is estimated to have A$145 million in the bank and in 2012 was named in the BRW Young Rich List as Australia’s wealthiest person under the age of 30. He’s the first Australian to pre-pay Richard Branson US$200,000 to fly into space on board his Virgin Galactic spacecraft.
"We have to embrace [the internet], realise it’s the future and keep talent here in Australia. There are going to be jobs lost in Australian retail no matter what, because the business world changes." – Ruslan Kogan
Kogan Technologies, based in Melbourne, started with zero external funding or capital and when Kogan travelled to China to source quotes for the manufacture of the first – incredibly small – production run of Kogan TVs to sell via his fledgling online business, factory heads there literally laughed at him. Kogan Technologies is now one of Australia’s fastest-growing businesses in any sector.
“The growth has been phenomenal,” Kogan acknowledges. “In the past year we have gone from being a A$22 million business to a A$250 million business. We’ve seen close to 1000 per cent growth. If current trends continue we will overtake Harvey Norman, currently the largest technology retailer in Australia, within four years.”
The real key to Kogan’s success has been the online platform he committed to at launch – something the likes of competitors such as Harvey Norman and JB Hi-Fi were slower to appreciate at the time, much to their eventual regret.
Today they’re playing catch-up but, according to Kogan, it’s way too late – and anyway, they’re barking up the wrong tree. He says they may be embracing going online, but don’t understand what to do in the online retail environment.
“Gerry Harvey said recently the internet isn’t all it’s cracked up to be and that his sales on there have been very disappointing,” Kogan says. “But he’s got the same prices on his website as he does in his stores. You can’t do that, because the online customer is going to do a quick Google search and find the cheapest price out of any retailer in the world.”
The challenge for brands such as Harvey Norman, he says, is that if they have better prices online than in their stores, they’re wasting billions of dollars on rent; but if they have better prices in-store than online, no one is going to buy from their websites.
“They can’t really win and the moral of the story is that for any business, you have to flaunt your competitive advantage.
“Their competitive advantage is that they have physical locations, can interact with a customer face-to-face, that the customer is actually within a store and can physically see the products. In their rush to go online they’ve totally forgotten this.”
Kogan says he's only getting started and is rapidly diversifying his business interests.
Kogan says his is a more efficient online business model because of the way he sources product, the systems he uses, a paperless office and marketing.
“I know what every cent we spend on marketing is doing,” Kogan declares. “We know what people click on, what brought them in, what they searched, what links they chose, what pages they landed on, which made them stay or leave, had low conversion or hard conversion and we are constantly analysing that on a daily basis.
“There are several full-time roles in the office just doing data analysis of search statistics. In fact, I sometimes joke that we’re a statistics business masquerading as an online retailer.”
One of the systems that heavily contributes to Kogan’s often extraordinarily low prices is distribution. Unlike traditional big retailers, Kogan does not have an exclusive deal with any one distributor. Every day, he says, the biggest distributors around the world bid to fulfil the orders placed by Kogan customers.
“They all bid against each other to drive the price down,” he says. “It creates a lot of competition, the result of which is that on Kogan the most popular phone in the world, the Samsung Galaxy S3, is A$459 while at JB Hi-Fi it’s A$777 and at Harvey Norman A$899.” (Prices correct at time of interview.)
Kogan has expanded into Britain and set up warehousing infrastructure there, but has no people on the ground.
"I know what every cent we spend on marketing is doing. We know what people click on, what brought them in, what they searched, what links they chose, what pages they landed on, which made them stay or leave, had low conversion or hard conversion." – Ruslan Kogan
“We’re more than happy to outsource things, but we’re not happy to outsource our competitive advantages. And our competitive advantages are our systems, our processes, our customer service and how we manage business. We’re happy to outsource our accounting and legal, but not the brains behind the business.”
It’s as if the UK is operated remotely from Australia. The facilities, warehousing, logistics and delivery throughout the country is set up without a single employee there.
In addition to being founder and CEO of Kogan Technologies, Kogan is also one of the founders of Milan Direct, an Australian and British furniture retailer. He has started about 20 businesses since the days when he hunted for lost golf balls and says he has no idea where he’ll be by the time he turns 40.
“All I know is that at the moment I love running Kogan. I’m a computer geek at heart. I’ve always had the latest phone and I not only love technology myself but seeing it enhance the lives of others. I really do think technology makes the world a better place, so the more people we can make technology affordable for, the more I’m going to keep jumping out of bed in the morning.”
But he is far from happy about the acceptance of technological innovation in Australia and the negative impact it’s having on local enterprise. He says business leaders need to stop talking down online retail and the great things the internet is doing for commerce.
“They keep complaining that it’s costing jobs. I really do wish they would stop that and start thinking about how to innovate and move their businesses forward, rather than praying for protection and holding back commerce in this country.
“Talent is so hard to find here now. I did one of the best degrees in Australia for IT [Bachelor of Business Systems (information technology) at Monash University] and the majority of people I went there with are now overseas. They ask ‘why stick around in Australia when everyone is just whingeing about how the internet is so evil, whereas in places like Silicon Valley, the UK and Germany, they’re embracing it?’.”
Kogan says the internet makes information flow more freely and has even overthrown dictators. “We have to embrace it, realise it’s the future and keep talent here in Australia so our companies can flourish. There are going to be jobs lost in Australian retail no matter what, because the business world changes.”
Kogan also holds strong opinions about the Australian goods and services tax (GST) being charged on goods bought online from overseas, a levy demanded of the Australian Government by bricks-and-mortar retailers.
“I’m all for a more even playing ground,” he insists. “I just hope the government can deliver it in the most efficient way. All Kogan-branded products like our TVs are warehoused in Australia and carry GST with them, so we’re not beating competitors on price because of the GST – we’re beating them because we’re a more efficient business model. From our point of view, the GST debate is inconsequential.”
If the strategies of his rivals sometimes bemuse Kogan, the stated intention of the Australian Government to filter the internet infuriates him. “We’re already talking about mainstream media regulation and the internet is one of our last bastions of free speech,” he says.
“The last thing you want in any free country is the government regulating the media or intervening in what is allowed to be published. It all starts with the government saying it is only going to regulate one type of website, then it’s another type of website and another. Then they’re no longer going to publish the list of sites they’re blocking so that people aren’t incentivised to try to go to them.
“If there are sites that should be blocked, there are commercial enterprises that already make solutions that will block them.”
Kogan takes on the telcos
He says he’s only just getting started, but Ruslan Kogan is rapidly diversifying his business interests. In December last year he rolled out his latest initiative, a pre-paid mobile phone service called Kogan Mobile, in a direct challenge to Australia’s dominant telcos.
On the first day of Kogan Mobile’s existence, more than 5000 phone SIM cards were reportedly sold. Kogan Mobile has since been cited as having one of the greatest post-launch growth rates recorded.
According to Kogan, the reason is simple: “Australians have been paying way too much for too long and we’ve changed that. It’s a disgrace that the providers have been able to get away with astronomical charges, network issues, poor customer service, frustrating excuses and deliberately misleading pricing structures designed to trip customers up.”
Indeed, it’s certainly no secret that millions of Australians do rack up unexpected excess usage charges, with the average “bill shock” now standing at about A$30 per bill. “No one likes to pay more than they expected and no one likes to get ripped off, so we’re putting a stop to it,” Kogan says.
Notably, at a time when the big telcos are slashing their data allowance, Kogan Mobile has gone the other way, providing 6GB per month on all unlimited access plans.
“Web access is increasingly important for Australians and mobile data is getting chewed up faster and faster,” Kogan says. “We want Australians to surf the net on their mobile without having to worry about how much data they’re using. As such, we’ve designed a simple app for iOS and Android where anyone can easily check their usage, extend their access plan and manage their accounts.”
This article is from the April 2013 issue of INTHEBLACK magazine.