We recorded a podcast!

In the maiden episode of The Patient Investing Blueprint, Blue Stamp’s Portfolio Manager, Brock McCamley, sits down with Marmalade co-founder Luke Trickett to chat about Marmalade, the problem it solves in the market, the story behind it, how it’s different to existing solutions, and the secret sauce (better put, “sauces”) that will insulate Marmalade’s business from competitive threats.

You can listen to the episode in Spotify or Apple Podcasts by clicking the following links.

Here is the full transcript of the conversation below if you’d prefer to read. Hope you enjoy!

BM.

Introduction to Marmalade (00:00)

Brock McCamley: Welcome everybody to the first episode of Blue Stamp Collection. I'm your host Brock McCamley, portfolio manager at Blue Stamp Company and I'm joined today by a very special guest befitting of the first episode, Luke Trickett. Luke Trickett is the founder of Investment Manager Blue Stamp, which manages the Blue Stamp Trust and more recently, invoiced payments company Marmalade. Luke, thanks for joining.

Luke Trickett: Thanks for having me. I like that name, Blue Stamp Collection.

Brock McCamley: Yeah, that’s the first time I've run it past Luke. So, for some initial context for listeners that aren't familiar with us, Blue Stamp Company is an investment fund based out of the sunny Brisbane that Luke started in 2010. And he ran it as the only person in the investment team for many years until I reached out to him for work experience in 2020, and that work experience is still going four years later.

And around that time, Luke and two others started Marmalade, which has grown significantly and required that Luke step away from the day-to-day operations of Blue Stamp to focus 110% of his time on Marmalade. So, with that context out of the way, we're here to talk about Marmalade.

Luke, could you please just tell us the overview of Marmalade, what it does, what kind of problem it solves in the marketplace?

Luke Trickett: Yeah. Okay. Thanks, Brock. So, Marmalade is an invoice payments company. The problem that we solve is, I think, the most existential problem that an SMB can face, which is cash flow. Almost every SMB issues invoices with net terms associated with those invoices. So it could be 30 days, 40 days, 60 days end of month they get paid. We solve that gap between when the job is complete and when they get payment. And, like I said, it's an existential problem for SMBs. So it's a big problem to solve. It's the leading cause of business failure in Australia, cash flow problems and the root cause of those cash flow problems are net terms associated on invoices. To come back to your question, we're an invoice payments company that solves cash flow problems in a way that leaves every one of our SMBs in a strong financial position because we pay invoices either as the customer pays or as our customers – we call [them] “Suppliers” – need the funds.

There's no lending money. There's no kind of sleight of hand with our product. It's very simple. Invoices get paid.

Brock McCamley: Thanks for that overview. I guess it leads into the next one. It's a question I get personally from some of our investors and other people who ask, “is this not just invoice finance”? What's the difference between Marmalade and I guess other solutions that are out there that try to solve a similar problem?

Luke Trickett: There's, as I kind of said, it's a very big, very old problem. So there's lots of financial services that have grown up over centuries, really, to try to solve this problem. Debtor finance, cash flow loans, overdraft facilities, they're all examples of financial products that have been provided or created by the financial service industry to help manage this cash flow problem. They don't actually solve the problem which is, as I just mentioned, this delay between when an SMB has been out there and tendered for a job, won the job, purchased all of the inventory, paid for the labor to complete the job and then waits for their payments. It's a kind of structural problem with the way B2B trade works and B2B payments occur. But I guess the way that you solve that problem is by recognizing the root cause of the problem. And as I just mentioned, it's the net terms associated with the invoice.

So, if you want to solve a problem, you've got to understand what that root cause is for you to solve it. You can't just paper over the cracks or provide like band-aid solutions, such as like, “oh, here's a loan, here's the money. I know you're kind of in a in a bit of a tight spot at the moment or a cashflow hole, here's some money, you've got to pay us back later”. That's not solving the root cause, which is like, “I've done the work, I need to get paid”. And that's what Marmalade is. So again, we pay invoices when someone uses our service, they cash-in an invoice, we pay the full amount out, less a one-time fee, which is on average, 4%. And then, you know, we accept the credit risk of that customer. So, if that customer doesn't pay late, or doesn't pay at all, or pays late – of course they've got their financial difficulties – we're the ones that wear that cost. There's no ongoing fees or clawback that we recoup from our customer. So again, that invoice is paid. We're not lending against that invoice in any way.

And, as I said earlier, it leaves our customers in a stronger financial position because that problem that they've had has been solved. It's like “I've done the work and now I've been paid either because the customer paid or I've cashed-in that invoice and now a receivable has converted to cash on our balance sheet and the invoice is paid”. Unlike, again, invoice finance, whatever it might be, debtor finance, they're a loan against the invoices and they're just lending money, and they'll take that money back with interest. So, you know, that's not us – [with us] there's no debt.

Brock McCamley: So, key difference [with Marmalade]: no liability on the business's balance sheet, no debt is introduced in the capital structure, they just get cash in the bank.

Luke Trickett: Yep. Yep. Cash in the bank, invoices paid, happy days. Which is the sales cycle complete. From quote to payment with Marmalade, it's complete.

The Initial Idea for Marmalade (06:11)

Brock McCamley: How did the initial idea come about for Marmalade?

Luke Trickett: Well, it's something so that that kind of challenge that cashflow challenge is um, something that my wife and I have lived and breathe for particularly probably seven years as Blue Stamp was, you know, starting and growing. It was far too small to provide much of an income. So, we were solely reliant on Lib’s income to support our living needs and her income was very lumpy, typically paid by large corporates on long terms. Well, I mean, who cares about the corporates? They just pay whenever they want, like in “terms, what are they?” And so we struggled for those seven years, very, very challenging seven years and… we were borrowing money from parents, we had six credit cards on the go, a mortgage. And just to trying to kind of manage the ebbs and flows of all of your living needs. But what we actually needed was our invoices to be paid at that point in time. And so that was kind of the lived experience.

And then it wasn't until later events that I was pursuing with Blue Stamp, which was around Silver Chef. So Blue Stamp took a 20% stake in Silver Chef as it was subject to a private equity takeover offer at the time. This was about 2019. So, we blocked the private equity takeover offer and through that process, I was talking to different people.

Anyway, one of the founders of Prospa reached out and said, “oh, you know, what are you doing with Silver Chef?” So, I flew down to Sydney to meet him and you know, it turned out he was just kind of kicking the tires with what he was doing with Silver Chef. But as the meeting was wrapping up, heading out to the lift and he just kind of made a passing comment, “you know, by the way, Prospa’s going to go into equipment finance” as like kind of a shot over the bow. I was like, “oh, okay”. I kind of like feel like you've been affronted in a way.

And then it was kind of like a catalyst for all of these things to come together. And I thought, “well, Silver Chef can write cash flow loans like Prospa and we'll kind of you know compete with you!”. And I thought “hang on, no”. The whole kind of aim of the game for financial services is obviously return on capital. It's what you and I live and breathe. And at the same time I’d been looking at companies like Afterpay which were, not just kind of growing like mushrooms, but had this incredibly potent return on capital that they were generating. Like their tenor is like 25 days, which is they earn 4% and they get it paid back and a rate of return in 25 days. Compare that to a bank that earns say 4% or 5% on a home loan over a year. And so that's kind of this explosive kind of dynamic as the tenor of the receivable shortens, the return on capital dramatically increases. And so, yeah, Beau Bertolli who I met made that comment. I thought, “oh, well, yeah, we could compete with cashflow loans”. But then I was thinking and all these things came together. The average tenor of Silver Chef Equipment Loan was like about 2 to 3 years. The average tenor of a cash flow loan is like 12-ish months. So the economics are getting better as the tenor is shortening. And then I thought, “wow, what am I doing? No, the aim of the game here is not competing for cash flow loans. It's actually payments, B2B payments.” So it was because the tenor of the payments is the shortest thing that you're going to find. And so it was all those things.

It's a bit of a rambling story but it was that comment that was the idea to go right down into payments and then I knew it to be true based on the seven years of pain that Lib and I had been through of needing our invoices to be paid. So, I was like, “oh, okay, I know what I'm going to do now”. That was it.

Brock McCamley: Yeah, wow, I actually hadn't heard the Prospa part of the story so that's also new to me and that's pretty awesome little turn of events really. Yeah.

Marmalade Customer Profile (11:20)

Brock McCamley: So, I guess drilling back into more so the product and the customers, what does the typical customer look like? You know, size, type of business, are they growing? Are there any insights you can give there?

Luke Trickett: Yeah. So, well, it's, it's changed. So when we started, I mean, hence the name Marmalade. So, we started focusing on small businesses in the hospitality food service industry, care of the work that I had been doing with Silver Chef. So they're the types of businesses that I was talking to at the time and actually was a kind of key reason and inspiration for the name Marmalade. And that's kind of where we started and our focus was very much in the small to medium space of the SMB curve. So, businesses that might have turned over $100,000 to maybe a million dollars. Quite young, I guess, fairly agnostic about the age. And that's certainly who we started acquiring initially. But then, as time went on and we got more knowledgeable about the problem space and the market opportunity in our own, what we found is we started acquiring customers that were a lot bigger. So, customers that were doing one to two to you know, $3 million of turnover. And then we improved our product and got stronger in lots of different areas. And then we started acquiring bigger customers again, and, you know, really taking and winning customers from incumbent services, debtor finance, and the biggest players in the game, like the major banks, the major non-bank players in the space. And so, kind of really opened our eyes to, oh, okay, this is not just like a problem that mum and pop businesses which was what Lib and I were experiencing. It's a problem that big, much bigger businesses were experiencing and our product was actually relevant for them too. So, to answer your question, the breadth of customers that we service and focus on has broadened over the period of time. We support the smaller end of town, absolutely, that's always going to be our bread and butter. But it has grown up into businesses with turnover in the tens of millions now.

Brock McCamley: Yeah, so a pretty diverse set of customers.

Luke Trickett: Yes, but even still, and this is a challenge with the opportunity is, even if you've got two businesses, same number of employees, same number of turnover operating in the same business, the way that they actually are managed and operate internally is very different. To the point where one of them we may be able to support and the other one may not be able to, just because of those idiosyncrasies. So, it's a very heterogeneous market, which again is part of the challenge and the opportunity.

Product Overview and Usage (14:37)

Brock McCamley: We haven't really gone over the product in a lot of detail, but yeah, could you just give a quick sort of rundown, you know, a business tries to sign up with Marmalade, what the product looks like, how they use it, and then sort of the ongoing management after they've sort of onboarded into the product.

Luke Trickett: Yeah, so well, if you don't mind me saying the product is frickin' awesome.

Brock McCamley: Not biased at all.

Luke Trickett: No, no, not biased at all.

No, so it's made possible because of the adoption of cloud accounting software. So before cloud accounting, you couldn't build this product because ultimately it relies on the intermediation of the transaction between the payer of an invoice and the supplier. Supplier is the Marmalade customer here. So you need to intermediate that transaction at scale and if the business using excel or literal pen and paper, you can't do that. But that's not the world we live in now. Thankfully, we're kind of riding on the coattails of the internet and technology. You know, there's Xero, there's Mile, there's QuickBooks and all these other guys out there providing invoicing software or accounting software that is a way to intermediate this relationship. So, coming back to your question, you can have, yeah, any one of these customers that use the cloud accounting software. They create their invoice in the cloud accounting software. They select Marmalade as their payment method for that invoice as they could with, you know, selecting Stripe, PayPal, Go Cardless, whatever, as a payment method, they select Marmalade. They send that invoice to their customer in the normal way that they send the invoice. The customer receives the invoice in the normal manner that they receive the invoice and pay for the invoice. Though, with Marmalade, the funds flow through us.

So, we facilitate payment via credit card, direct debit or debit card too, direct debit and bank transfer. But bank transfer is the game in town for invoice payments. It is comfortably over 90% of volume of invoice payments and that's a contributing factor to the cash flow problem that we spoke about at the top of this call.

So how does a product look? So someone comes in, they're already using these cloud accounting software, they select Marmalade as a payment method, they receive a new BSB and account number when they sign up to Marmalade. The funds, when their customers pay flow through us, we facilitate other payment methods too. If our customer (what we call a Supplier) doesn’t need the money before their customer has paid, then we receive the payment, we match it to the invoice, we immediately pass those funds straight through to the Supplier and reconcile their accounts. If they need the money before their customer's paid, as soon as they create the invoice, it'll show up in Marmalade, they can cash it in. Again, we pay a full amount, less a one-time fee. We, again, reconcile their account. When the customer pays, you know, the funds just stay with Marmalade. It's pretty simple.

Brock McCamley: Yeah, it's pretty simple.

Luke Trickett: Yeah. It's simple. Simple product, [but] complex to build.

Brock McCamley: Yes. And you mentioned, you mentioned matching payments in there. Yeah. Just wondering how many, what that sort of looks like to the customers that use Marmalade? Does it provide any additional value over and above the cash-in product, and I guess how you guys go about actually doing that for your customers and Suppliers?

Luke Trickett: Yeah, it's a good question. As is consistent with the market, it varies. Whether someone receives any value at all or a lot of value, our automated payment matching and reconciliation depends on their own business. So, we have some Suppliers they might receive a payment a week and it's very simple, one payment they know what invoice it's going to go to when they match it and it's providing very little kind of incremental value. For others we receive one payment and it can be matched to you know, comfortably over a thousand invoices. And we can do that automatically. And so that, you know, takes literal hours and hours of admin overhead away from that supplier. And, you know, provides additional value that they would otherwise, that they otherwise get from our product over and above cash-in. So, you know, it is, it's fundamental and it's important for us to be able to do that as efficiently as possible. Again, we don't want to just be taking a supplier's man hours in matching payments and then…

Brock McCamley: Adding that to your business.

Luke Trickett: Exactly, adding those man hours to Marmalade. So we have to build technology to be able to meet that kind of volume of payment matching requirement. Because as well, the thing is, we don't want to slow the funds down because we're matching the payments. So we want to, it's kind of this challenging situation. We want to intermediate ourselves into the transaction so that we can provide the cash-in service, but we also don't want to slow the payment down like the flow of funds and we also don't want to compromise the commercial relationship between the supplier and the payer.

Brock McCamley: So, there's quite a nuanced balancing act.

Luke Trickett: Yeah, yeah, you kind of have to thread that needle. And again, you don't want to you don't want to thread that needle with people, you want to thread it with technology. So how can we intermediate, provide these services, add additional value in adjacent opportunities that you know, are there and make the whole thing scalable. It's essentially kind of bringing factoring into the 21st century. It's like this really old, pretty unsavory in a way financial service, but really important. And it hasn't really been improved in a meaningful way at scale.

So that's ultimately, we call a spade a spade, and in its most arcane terminology, what we do is the factoring of an invoice, but it's certainly nothing that is recognizable based on the way factoring has operated and appears in the market today. We're completely reimagining it and really creating a really seamless, intuitive, consumer-like experience around managing cash flow and converting unpaid invoices into paid invoices.

Brock McCamley: Well said. I mean it sounds like even if small businesses come in without a need for the cash-in product, there's still value in the Marmalade platform in terms of the payments, payment offerings, and I guess invoice payment reconciliation, matching.

Luke Trickett: Yeah, you know, I think that's, it's interesting because there's like accounts receivable is a whole vertical stack of workflow and stuff. And the central piece of that, the crown jewel in a way, is the actual payment. The rest is kind of, you know, business operations, nice to have, but again, the most important piece of account receivable is actually receiving the money which is again, it's an existential kind of problem.

And so starting there and solving that problem, which is again, what we think the hardest problem to solve in that workflow of accounts receivable, positions us again, if we can do it in a way that is, you know, adding value and empowering to all of our customers. But if we start there, then we're in a natural position to potentially expand out and provide adjacent value to our customers. And if that's automated payment matching or anything else, then we'll look at it. But we obviously have to get that central piece right. And when we feel that's right, then it makes sense for us to continue to build out on there.

Brock McCamley: Yeah, for sure. A very exciting opportunity in the rest of the accounts receivable stack. It's awesome.

Risk Management and Capital Structure (24:07)

Brock McCamley: You mentioned earlier that the key difference between Marmalade and Invoice Finance is that you take on the non-payment risk of the invoice. It's hard to talk about a financial services business without talking about the risk and underwriting. So yeah, I’d love to hear how Marmalade manages the risk of offering the cash-in service and how you balance the protection of capital with the accessibility of the service?

Luke Trickett: “The protection of capital with the accessibility of the service” it’s a good question. It's a conscious decision that we (Richard Johnson, co-founder of Marmalade and I) made very early on. So, how to explain it...?

There's tools that you might have to help protect the revenue or the margin that you might create. For us, we chose, if you can think about competing requirements. So there's like the product experience and there’s the risk management. And those things typically compete against each other.

Brock McCamley: A tug of war.

Luke Trickett: Yeah, so if you want to build the best product experience, you're probably going to give away, like it's going to be frictionless and it's going to be fast and really easy and efficient for the consumer or the user to access and ultimately use, but you're probably going to be giving away a lot of risk controls.

And so for us at the beginning of starting Marmalade, we chose to prioritize the product experience over the risk mitigation and we backed ourselves to just build a good product and then acquire customers and payments and ultimately data and then use the data to learn.

So we started very loose with risk frameworks, risk controls, and then over time as informed by data and behavior and all of these things that you could, maybe some things you could kind of foresee and other things just absolutely no way that you could kind of foresee, but just use that kind of experience and the data and all of that real world stuff and then build from there to either mitigate certain things from happening and then over time you're kind of slowly tightening your risk framework and your risk appetite but you're doing so from a very strong product experience, product position. You're not kind of going, “oh let's think about this financial service. Let's kind of overlay already before we built anything, all of these kind of traditional ways to manage risk. That's like, we'll ask for this security, we'll ask for a guarantee here, we'll do this there and we'll”... So we did away with all of that stuff and just started with someone, the first invoice that was cashed in, I think Richard and I jumped on a call and said, “should we pay this out? Yeah, we'll go for it. We'll do it.”

That invoice took 180 days to get paid.

Brock McCamley: Oh wow. Yeah. But you got the money back?

Luke Trickett: Yeah, yeah [we did]. But it is important because we want to build this. We want to build a product that we're super proud of and delivers this incredible experience where it just hasn't been there in the past. But also we want to be able to build it sustainably. And informed by data and protecting our margin. We have to generate margin for the business, for the shareholders, and ultimately for the sustainability of the product that we're building. It's all kind of, it's circular, it feeds off each other. As you know, Brock, you love your network feedback loops…

Brock McCamley: Flywheels.

Luke Trickett: Yeah, “flywheels” is the word I was looking for.

And it's the same with this. It's, it's how do you build the best product? It's a very complex space. And like when we started, like, holy moly, like, you know, we, we started in October, 2020 and I don't think it was until Richard and I would just be constantly touching base and talking, just going, “oh, like, there's this new big unknown or this new kind of thing that we didn't anticipate that we now have to build for” and it just slows you down so dramatically as you go to market with this kind of thin version of what it is that you want to sell that doesn't anticipate all of these people doing just the most wild things with their invoices. You only kind of think about the kind of happy path so to speak, the normal route that an follow but man, you only need a handful of SMBs on there and then all of a sudden you just see this wild stuff that the product has to be able to manage automatically. So to find the different levels of each one of these businesses without people getting in there and making manual decisions like Richard and I shouldn't be there making manual decisions about invoices being cashed in.

And thankfully we got past that very quickly. And the other kind of factor here, and I know I'm meandering a bit with your question, but the other factor that enabled us to prioritize the product experience over managing a margin, like that risk in a traditional sense from the get-go, is how we funded Marmalade right from the beginning. And you know, you and I have I think a very similar point of view of the world of how a business should be capitalised which is prudently.

Brock McCamley: Conservatively.

Luke Trickett: Conservatively, yeah. Yeah, we want businesses that we own to be around indefinitely and so a key factor in that is what the capital structure of these businesses look like. So, we funded Marmalade entirely with equity until early this year 2024. So that's over four years of just pure equity funding. And that was the ballast that enabled us to start loose, prioritise the product, be able to absorb a greater amount of risk than would otherwise be the case if we said, “oh, we're so focused on shareholders returns” right from the beginning that we're going to introduce all of this debt and shareholders are just putting in a thin layer of equity and then we're filling up the rest with debt. And basically we have no room to get things wrong. So, we have to have all of these other traditional senses of risk management that then completely compromise the product experience that you're trying to build and deliver to your customers.

So, that was another kind of conscious decision that we made way back when that's enabled us to kind of operate the way that we have and build the product that we have today. I think will carry through forever really for this business. We want it to be as durable and anti-fragile as possible.

Brock McCamley: You can take way less risk when you load up the capital structure of the debt.

Luke Trickett: Yeah, yeah, yeah, your margin of safety just comes right in, well, I mean you completely lose it.

Barriers to Entry & Navigating the Complexity of B2B Payments (32:50)

Brock McCamley: Yeah. And I guess this is a good segue into, I guess, one of the questions that we at Blue Stamp ask about any company we're looking at, we're trying to assess business’s barrier to entry, etc. And it's a, it's a big sort of component for protecting returns over the longer term.

So, I guess the, the $1 billion question: what's to stop me or an incumbent bank or data finance company flush with fresh $1 billion in cash from replicating what you guys at Marmalade are doing and eating your lunch?

Luke Trickett: It's disappointing that you only think it's a billion-dollar question.

Brock McCamley: Well, I could have said a higher number…

Luke Trickett: No, I'm kidding. I’m kidding…

Brock McCamley: It's a nice round number to come up with.

Luke Trickett: Yeah. A billion dollar question. So, everyone that wants to compete or build a competing product has to go through what we have been through. Is an incumbent in a better position to go through that? Maybe they've got an existing book or customers and business, maybe cosmetically, “yes”. I would probably challenge that and say “no” because what we've found is it's incredibly complex. It's not just a heterogeneous market

So, it's not just heterogeneous, which adds to the complexity of what you have to build. It's a heterogeneous in terms of who you can support, which makes the kind of acquisition of customers challenging. But it's also how you kind of manage the flow of money at scale in a manner that doesn't degrade the Suppliers existing kind of experience, which is another degree of complexity on top of everything else, the heterogeneity of it all. And then there's the risk of it too. We face risk from both sides of the transaction, the Supplier side and the Payer side, delivering that cash-in service. And then it's kind of operating the business, which is incredibly cross-functionally intensive. The reason why I kind of say all of that is that it creates a challenging product to build and operate. And so if you already have a way of operating, you have a way of thinking about risk, the way of kind of providing a service and capturing data, it's going to be very hard for you to let those, I guess, processes and prejudices go so that you can think about it differently. You can think about either providing the service or operating your business in a way that is conducive to rolling out an invoice payment service that is using bank transfer as the key centre-piece. And traditionally, this is not a rule, but most of the time those incumbents are managing legacy systems and technology and they're not naturally set up in their org structure or their technology stack to be able to move quickly and nimbly to innovate. So I think that's a challenge that incumbents have.

In terms of a new startup, obviously they can go for it just like we did, but they're also gonna have to start right from scratch as we did. And they're gonna have all of the learning curves that we had to go through and the time it took to go through those kind of insights or to gather those insights and build the product. And then ultimately they're gonna be coming up against us if we're operating in the same market, at which point, you know, hopefully would you choose an unknown quantity that's kind of maybe not [got] all of the capability that Marmalade might have at that point in time? Or do you go with a kind of known-quantity trusted service in the market? I think we've had to go through that whole brand-building and trustworthiness exercise with our customers.

And hopefully, again, the way that we've built the product, the way that we've capitalized the business, it's all focused on this long-term opportunity. And that's kind of why the business was funded with equity because – I am kind of understanding I'm dancing about it here – but we found it with equity because we know the opportunity is so large and the returns are so attractive. So, we can invest like all of this equity upfront and know that if we get it right, the returns will be there for the shareholders in the future.

We're not a commoditized lender that's competing for customers just alongside everyone else and taking a thin margin and so shareholders put in a small amount of money and the rest is all debt - that's not our business. I hope that's clear and that should be clear to every single person out there. That's not our business.

Our business is this integrated service into Suppliers' operations that is essentially the beating heart of their cash flow, enabling and empowering them when they need the cash when they want it and not charging a single thing when they don't. And to enable that and have that scalable and operating efficiently for everyone and anyone in the market.

And so a startup has to, if they want to compete with us on those terms, they have to go through that same kind of baptism of fire as we went through and hopefully, may the best product win.

Brock McCamley: Yeah. So, I guess if I'm to summarize that very descriptive point there, I guess there's not any one thing in particular that forms the moat around Marmalade's business, it's a combination of many iterations in the operations, the risk, the product, the go-to-market strategy. It's a combination of many little interlocking things that will protect Marmalade from incumbents and new entrants from being able to match the accessibility and the pricing without blowing up a lot of capital.

Luke Trickett: Yeah, and the think that deepens and widens that moat of interlocking capabilities that you talk about is scale. So, as we get more customers and we have more payment volume flowing through us month on month on month on month, not only do we get the opportunity to earn more revenue, generate more gross profit and net profit and reinvest that back into the business, into the product and improve things faster and better than anyone else can, we also learn more. So that we can make better decisions about which invoices are appropriate to underwrite at which price… We can provide the most competitive service that is available and the most cost-effective way to access cash at a moment's notice in real time.

So it's the thing that kind of really underpins that kind of multifaceted approach that you mentioned there, Brock, is scale.

Brock McCamley: Yeah, definitely.

The Challenge of Growing and Protecting Margin (40:46)

Brock McCamley: There's a lot of barriers to achieving a scalable way of growing a business. So, it would be good to hear what's the hardest part, if there is any one hardest part about running the business?

Luke Trickett: The hardest part is growing, protecting margin and operating the business, which is everything.

What else is there?

Brock McCamley: Trick question. There’s no hardest part – it’s all hard.

Luke Trickett: Exactly right. It's all so hard. No, it is like as is the case for any kind of financial service, this kind of tradeoff between growth and protecting margin is real. But the kind of challenge is how you can, again, as I mentioned, intermediate this transaction in a manner that empowers your service but doesn't degrade it. So, it would be very ironic if we were intermediating the transaction to enable someone to cash-in an invoice at any moment in time. But “oh, by the way, we're slowing down all of these other payments that are flowing from the customers to you when you don't cash them in”. Like that would just be cruel. So, you know, one of the hardest things was kind of hearing that from customers that we were actually degrading other areas of their business while the product wasn't up to scratch and knowing that we had finite resources to improve it. We lost customers of course to that, which is, it makes you really feel really kind of poorly. To lose customers, because your product isn't actually good enough to meet the needs of what everyone needs. Because again, the cashflow is important and it's the most existential problem. But there are other areas to the business that you have to, or your customer's business that you have to support or at least maintain.

And so, how you kind of manage leveling up your product at the same time as keeping your team and your costs under control is challenging and I mean that kind of goes to the highest level, or the heart of the challenge of certainly an early stage company – and certainly a fintech that's an early stage company – is capital and the past couple of years have been really, as you know, really, really difficult markets to raise capital in. So again, like one of the challenging things is how do you build this product that you kind of see in your head or you know is possible and and grow it at the same time as you know markets are falling apart no one wants to know about an early-stage, loss-making capital hungry fintech you know like you like it's like you’re a leper. You're a pariah out there and no one wants to know you.

But yet the opportunity, the market is so tangible, it's so large, it's so attractive, but no one else can see it. What the hell is going on here? And that was like another real, that's a real kind of challenge to it all.

Brock McCamley: The capital side of things, [it’s] very important.

Future Product Opportunities (44:23)

Brock McCamley: I guess we kind of touched on this earlier but where's Marmalade going longer term? Are you moving into equipment financing, or other financial services or are there other opportunities on the horizon that you're thinking about?

Luke Trickett: Yeah, definitely. Lots of opportunities on the horizon that we're thinking about. One thing that we will never do is lend money.

We'll never lend money.

And the reason being because the only thing where Marmalade's focused on the central kind of to the business is an invoice. There's lots of things that happen around invoices and from invoices and that's our core focus. So, if we think about equipment finance, that's unrelated to an invoice. So it's not something that's going to draw us there. If you think about a cash flow loan or other things, it's dealing with a kind of problem that we think, we believe, nine times out of 10 starts with a net payment terms associated with an invoice. Now there may be kind of natural adjacencies that from that position of an invoice, like we go out to, but like just a kind of, an equipment line just is nowhere in the mix.

And again, we'll never lend money because the other reason too is we'll never achieve returns on capital that equivalent to what we get from cash-in. So, if we were to go to any other kind of type of loan, from a shareholder point of view, we will be diluting the returns on capital that they would get. So there's other opportunities. If we have other opportunities to explore, we should absolutely be exploring them that will deliver a better return on capital from you know, the offering and the opportunity, it's based on, you know, that central problem that we're solving. How can we improve that through other adjacent services? And at the same time, how do we also have regard for shareholders' money that we're ultimately allocating and generating a really attractive return on those funds to shareholders?

Marmalade Owner’s Manual & the Importance of Self-Filtering and Clear Communication (46:40)

Brock McCamley: Yeah. That leads me into the next sort of question. This is a very recent addition to the website and there was a rebranding, but you wrote an Owner's Manual, which was published on the website, which I thought was great. What inspired you to write the Owner's Manual and what was the key message you were trying to convey through that?

Luke Trickett: Self-filtering is the key message. I want it to be clear why, how we operate this business and what we're looking for, you know, in the course of an investment opportunity with Marmalade and to try to, because we as management have an idea of what the opportunity requires to deliver the best returns for the owners that we work for. And if we have an idea of that opportunity and what's required as one thing, and then the owners have a completely different point of view, then that misalignment is going to create a lot of problems over time. So if we can try to nip that in the bud as early as possible, that misalignment and just as a kind of business say, “look, this is what we stand for, this is the way that we're going to operate the business, this is what you can expect from Marmalade going forward”, then hopefully the investors that are looking for something maybe short-term or they want something fully loaded with leverage that catches the upswings of business cycles then this ain't the business for you and let's let them self-select.

Likewise, those people that are much more oriented towards the longer term and building compounded growth through valuable, helpful products that are being really thought deeply about in the economy and society, and they want to be part of that kind of value creation in a way that, sure, we could maybe achieve some slightly faster results or short-term higher optically, or in a transient manner, profit, that's not us, that's not the way that we operate. So those kind of people who are looking for that can go elsewhere and those people that want the kind of long term growth that we're looking to try to achieve from this opportunity in a fairly decent sized market, then come to us.

I think we're a great opportunity to have your capital invested with.

So really the point of the idea was to try to make that clear, do the talking for us before we have these conversations with potential shareholders if they want to come onboard.

Brock McCamley: Yep, no, it's very fair. Nip those conversations in the bud early.

Key People in the Marmalade Team (49:50)

Brock McCamley: So, we haven't talked about this, but there's a pretty stellar cast at Marmalade who have helped you on the journey. So, could you give us an overview of who the key people in the business are, their backgrounds, and how the structure of the team has changed since it was started back in 2020?

Luke Trickett: Yeah. So, I think, you know, the key people being, certainly being Richard Johnson and David Whiteman, who were very influential in the early stages of the business and free product stage that you might be in and you're kind of going through the development of what it is that you're building and what it looks like. Those guys were and continue to be very influential. David came on board as, obviously, David and Richard being co-founders, but David moved from leading our product and marketing areas and growth areas to then moving to the COO role which was really great in those very early stages of business because he's got a huge amount of experience in very early stage, fast growing companies. I think he was probably one of the first few employees of the company as well you know, steeped experience in digital, early stage, fast growing digital companies. So, he was incredibly insightful for us, like drawing key kind of insights for us as we kind of were navigating all of the noise and everything in the early stages.

Similarly, you know, for Richard Johnson, who is a huge nerd, data nerd. Dr. Richard Johnson, PhD in quantum physics and mathematics. But really, I was introduced to Richard through David. Richard was also a fairly early employee of Afterpay responsible for their data and risk functions. Richard is constantly absorbing information and solving problems. I think that's what he's done since he's been born. He just walks around, you know, really kind of solving these really data heavy problems. So thankfully Marmalade's a very data heavy business. So, there was this kind of beautiful marriage of Richard's skills, experience and capabilities with what the business needs. I say to Richard that if risk, data, technology and financial services are your religion, then Marmalade is your church. You come here and this is where you really worship those kinds of disciplines. And it is, it absolutely is. We’re just a massive, industrialised, data-tech-heavy business and, you know, with a really beautiful financial product on top of that. So yeah, Richard's really kind of spearheaded a lot of the the internal organization and structuring to enable us to execute on the opportunity so then Richard took over from David as COO and has been in that role for a couple of years now.

And the other kind of party that I want to call out is Paloma Group. So they were the group responsible for building the first version of our product. So my background's obviously financial services, investment of capital, rather than actual development of technology. So I was certainly casting around the early days to help me build this. And came across Ash Fogelberg and Nick Frandsen at the end of calendar 2019 and approached them about the opportunity that I was exploring and very pleased and appreciative that they kind of resonated with it all and came on board and said, yeah, okay, we'll help you build it and they did. And not just that, they didn't just help build it but they came on board as a key shareholder for the business and backed us with hard earned capital, not just kind of in-kind contra. So, you know, they've been incredible, I think, owners of the business, entirely consistent with what is described in that owner's manual, recognizing the opportunity and, you know, really supporting the long-term vision of going after it.

Brock McCamley: Yeah, yeah. No, definitely, I echo all of that.

Advice for CEOs, entrepreneurs, and investors (55:10)

Brock McCamley: What advice would you have for other CEOs, budding entrepreneurs and investors out there that you would have liked when you were earlier in your career?

Luke Trickett: I don't necessarily think that if there was something that I received, it would have helped me understand. I would just say that be prepared for it to be twice, five times, 10 times harder than you expected. Yeah. Though, like I mean, with Blue Stamp, for instance, I thought that I would be able to get it to a size that would support an income for myself a lot faster than I did. I mean, most of that is my own kind of shortcomings in my inclination and ability to sell, which is why I started. I'm not a good broker. I didn't want to go on a phone. I didn't want to sell kind of things to people but I just wanted to research businesses. It turns out even if you start a fund you've still got to sell it.

Blue Stamp started with $80,000 and it took me 45 months to get to a million dollars and that was a lot longer and harder than I expected. Similarly, you know, for Marmalade, you know, as I kind of touched on here, you kind of start with an idea and you've got a thin version of the product that you go to market and then all of a sudden you learn this so many things that you didn't. Like you thought obviously there's things you don't know but like “woah there's like so many things you didn't know” and you got to build for it as fast as you can with as few resources as you've got. So it's challenging and I would just say my advice would be expected to be a lot harder than you think.

Brock McCamley: Yeah, that's probably good advice. Set the bar high. Yeah, you'll be pleased when it's easier.

Luke Trickett: Yeah, a lot harder and a lot longer.

Brock McCamley: Yeah. Okay, no, well, thank you. I think we'll wrap it there. This has been a long episode, but yeah, thanks very much for joining me today, Luke, and to the listeners that listened in. Have a good one.

Luke Trickett: Thanks for having me.