New EU VAT rules on digital goods to go live on 1 January could be too much of an administrative burden for start-ups and may be counterintuitive to creating a Single European Market for digital goods and services.
Dublin: 19.12.2014 04.36AM
Kealan Lennon, founder and CEO, Cleverbug
In Silicon Valley, the creed is to go global very fast. This lesson has been embraced from the get-go by Kealan Lennon, a businessman who doesnít have the typical background of a tech start-up. Indeed, heís more blue chip than silicon chip.
Lennon’s grounding in the global printing and packaging industry has enabled him to pull together a start-up that ticks all the boxes that eagle-eyed tech investors are looking for in 2013 – mobile apps combined with social commerce resulting in a smooth, instant financial transaction and timely physical delivery.
From a mobile device like an iPhone or iPad, Lennon’s Cleverbug app allows consumers to spot through social media if a friend’s birthday, anniversary or other life event is coming up. Then, for less than US$3, they can customise a card from more than 400 templates and have it physically delivered anywhere in the world within 24 hours. The card also appears in the recipient’s news feed on Facebook for all of his or her friends to see.
“Tech investors are loathe to invest in video games after they’ve seen what has happened to Zynga,” said Lennon. “A video game may keep you engaged for several days. What we’ve got is a product that is always social.”
People will always send birthday cards and it’s a no-brainer at just US$2.99 via a click on an iPhone to have that card turn up anywhere in the world, Lennon said.
Users of the Cleverbug iPhone app are creating more than 1m personalised cards a day, and Cleverbug has established contracts with 76 print depots around the world to ensure global distribution.
Two years ago, Cleverbug raised €2.5m in funding. Delta Partners invested €1.8m from its Delta Equity Fund III Limited Partnership, with the remainder of the funds provided by Lennon and angel investors.
Now the aim is to take on the established order in the US$27bn a year greeting-card business and overhaul it for the 21st century. Indeed, Cleverbug has more in common with today’s e-commerce leaders like Fab.com and Gilt Group than Hallmark or American Greetings.
Cleverbug employs 25 people in Dublin and has just opened an office in Silicon Valley. The company’s designers are constantly trying to come up with templates that match what people would like to put in a personalised greeting card via smartphones.
Lennon got his start in the printing and packaging business at the age of 24, when as a graduate chartered accountant from BDO he set up his first business.
He received his first big break when he was taken on to do due diligence on the sale of a pharmaceutical company. Still in his 20s, he led the management buyout of Kartoncraft from Inishtech PLC, backed by Dresdner Kleinwort Benson and AIB.
Kartoncraft was sold five years later in 2002 for US$20m to New York Stock Exchange-listed MeadWestvaco and Lennon joined the management team as head of mergers and acquisitions.
Lennon became the youngest board member of a company with 35,000 employees worldwide.
Three years later, in 2005, he left to set up K Partners, an acquisition and corporate finance advisory. At K Partners, Lennon participated in and exited a number of private-equity and venture capital-backed investments in the media, telecoms, healthcare, and leisure and hotel businesses.
K Partners acquired Ireland’s largest education publisher, CJ Fallon, in 2007. Up until this month, Lennon was the chairman and largest shareholder in the company.
Lennon said he got his best insight into the global consumer packaging business at MeadWestvaco, as the company supported the home-entertainment industry in terms of packaging for Xbox, PlayStation and Nintendo games, as well as media giants in terms of CD and DVD packaging.
“The content was where the value was being created in the games, music and video businesses and when you look at how those industries have changed, music publishers have been slaughtered and iTunes has supplanted HMV,” Lennon said.
Technology has disrupted entire industries, he said.
“Design and creativity have become so much more important in terms of creating added value. When you think about it, it was crazy. A music CD went from €19.99 to €49.99 simply because a marketing person decided to create a special-edition metal box.”
From being an entrepreneur since the age of 23, Lennon said the most important lesson he learned so far is to be prepared “to work your arse off to get to a finished goal line.”
He found the transition from a small business to US$8bn global corporate giant MeadWestvaco startling.
“I suppose it was like taking a fish out of water. I got to know how a US$8bn company worked and I didn’t know beforehand,” said Lennon.
“I was always being asked to speak about entrepreneurship to my colleagues but a US$1bn or US$8bn company can’t be entrepreneurial. It requires a different passion, remuneration is different and it’s very hard to instill entrepreneurial thinking in an organisation that big. But either way, it was like doing an MBA on the job.”
Lennon said he learned a lot about global industries, content creation and how good design adds value.
It was this thinking that led to Lennon to establish Cleverbug in 2010 with a view to disrupt the global design and print industry.
Lennon said his inspiration had been the growth of card printing business Vistaprint, which is now a US$1bn a year company listed on NASDAQ. In fact, Nicholas Ruotolo, the former president of Vistaprint in Europe, has joined the board of Cleverbug.
Cleverbug originally began with the intention of serving the business landscape with customised design and printing services before pivoting in the direction of a consumer app in 2011.
With Cleverbug, Lennon now wants to disrupt the greeting card industry and do to Hallmark and American Greetings what iTunes did to HMV.
“For US$2.99 or €3.45 we can physically deliver a personalised card anywhere in the world the next day via one of 76 printing facilities, which I believe is the largest printing network of any greeting card in the world. I could be in San Francisco today and I can do up a birthday card for a friend in Brisbane and have it in his hand the next day.”
Lennon said he has already spurned acquisition offers from some of the greeting card giants.
“There are always about 10 people on a conference call. Everything is done in 10s. Big corporates can’t move as fast as a start-up can move.”
Lennon said the e-commerce landscape has moved irrevocably in the direction of in-app purchases, where consumers are more likely to buy a product via an app or app store on their smartphones than bring a physical item to the cash register.
“The killer point is that we allow people to put photos of their friends onto the greeting cards, which create a social context that the greeting card giants can’t,” said Lennon. “Your friend might have a photo on Facebook of him or her waterskiing that you can put on one of our greeting cards and that’s what will greet them the next day and of course will be emblazoned on his or her news feed for friends to see.”
Lennon said the Cleverbug cards are about the deep meaning of relationships and bringing back memories.
“Digital photography is the key to all of this,” he said. “For example, I know a guy in the US who sent a Father’s Day card with a photo of him as a young boy sitting on his dad’s knee back to his dad in Ireland and it was just so impactful and makes you realise how a small touch can make a huge difference.”
In terms of intelligent commerce, as well as reminders of people’s birthdays through social media, Cleverbug runs algorithms on its system that suggests to consumers people who they may want to send cards to for any number of reasons.
“It would take the average user 90 seconds to create a greeting card that could arrive at their friend’s home in Australia within a day,” Lennon said.
The service is proving to be extremely viral with many recipients of the cards signing up for the app, said Lennon.
He is currently in Silicon Valley meeting potential next-level investors who are likely to invest in a mobile-oriented tech start-up that has discovered the social glue that sticks.
Cleverbug has a 40pc conversion rate versus the European average rate for e-commerce of 3pc, said Lennon.
The Cleverbug app went live in the Apple App Store in February and since then the company has shipped cards to more than 150 countries. Its user base has added 19m friends to its system in that period and Cleverbug’s average user would send about 17 cards per annum, said Lennon.
“Our top 20pc of customers are sending typically 240 cards a year, using them as engagement cards, invitations to weddings, announcing new arrivals and new divorces, believe it or not,” said Lennon.
A version of this article appeared in the Sunday Times on 28 July