Invoicing for dummies

Danish start-up Tradeshift’s mission is noble: to connect all of the companies in the world to one network. Jason Hesse discovers how.

It has been dubbed the “Facebook for business”, but how does Tradeshift hope to change how businesses connect and communicate?

Market

Tradeshift provides a B2B social network and online invoicing solution, allowing companies to send electronic invoices to each other without cost.

“Companies send paper business documents back and forth every day. An estimated 300 million paper invoices are sent out each day, and it’s considered to be normal. But it makes no sense,” says Christian Lanng, co-founder of Tradeshift. “Every invoice is produced on a computer, and for some bizarre reason we then print it out and send it through the postal system, and it is then inputted back into a computer.”

Only three per cent of companies worldwide are connected to an electronic invoicing network. These tend to be large companies with big IT departments. The rest, 97 per cent, send paper back and forth.

The Danish team behind Tradeshift was initially engaged by the Danish government to create a free e-business solution. The result was a free open-source infrastructure for e-business which saw 70,000 companies sign up within ten months.

The Tradeshift founders immediately saw the potential. While there were existing platforms to encourage e-business – namely electronic data interchange (EDI) networks – users were not encouraged to use the platform as they were charged €2 for each message sent through the platform.

“The existing business model has been the biggest barrier to a platform being widely used for e-business,” says Lanng. “Companies want a system that they can use like email, where they can easily communicate. Business processes are very mechanical: when you send me a purchase order, I send you an acknowledgement, and you then send me the invoice. I’ll then probably call you and tell you that something needs to be fixed on the invoice. This is very messy; it’s all about whether I will pay you or not.”

Tradeshift has created a framework to allow businesses to communicate the status of any given invoice to the other side. “We want to be the world’s best mailman for business documents. We want to connect companies like Facebook does; it’s a social business process.”

The opportunity for Tradeshift is vast. Just 20 per cent of small businesses use an accounting system; the rest use Microsoft Word or Excel to manage invoices. In larger businesses, 80 per cent use Quickbooks and Sage to manage accounts.

It is free for small businesses to use Tradeshift on the web. The company only charges larger customers which use Tradeshift’s software to manage their supply chain or set up rules to manage large numbers of suppliers. In addition, Tradeshift users do not need suppliers to be signed up to Tradeshift to do business with them.

“The pain of invoicing is very real for large companies,” explains Lanng. “We had a customer who used to ship all their paper invoices in containers to India, where they then had 1,000 people in a shared service centre manually typing the invoices into SAP software. So many large companies aren’t even aware that there are better solutions.”

The company is solving an important problem: how can businesses manage invoices efficiently in order to avoid late payment? In the UK alone, late payment is a problem for 51 per cent of businesses. Tradeshift’s e-invoicing solution helps companies manage the process in real time. When a business sends an invoice, it can track that the debtor has received the invoice and communicate with them.

Team

Tradeshift was founded by Christian Lanng, Mikkel Hippe Brun and Gert Sylvest. Lanng is the company’s chief executive officer, while Brun is chief strategy officer, “making sure stuff is standardised globally and working with customers on long-term strategy”, and Sylvest is the chief technology officer, “the brilliant guy who makes things work at scale”. The company’s chairman is Morten Lund, an early investor in Skype.

The three co-founders are Danish and have worked together for seven years, after working on a project for the Danish government, mentioned above.

Tradeshift has 72 employees, half of which work in product development. There are five full-time designers which, says Lanng, is important: “We spend a lot of time on design, making it as easy and simple as possible. All business process outsourcing programmes usually have a bad user interface. Tradeshift looks more like Facebook than Quickbooks.”

Another third of the staff work in sales, and the rest work in marketing and administrative functions. The company does not outsource anything: “We like to control the process in house. We use some partners who build apps for the platform, but everything else is done inside Tradeshift.”

Tech

Tradeshift is entirely hosted on Amazon Web Services and Rackspace. The platform is build using Linux and the company’s developers have built their own scaling framework around it. The back end of Tradeshift is in Java, while the front end us in Grails.

The platform was built by crowdsourced developers. When Tradeshift was launched in 2008, it was impossible for the company to raise funding. Morten Lund, who was already working with the company, tweeted that the company was looking for developers, who would be paid in equity. More than 40 developers, based around the world, worked together to build Tradeshift’s core platform, managed by the company’s internal developer team.

Lanng says it is easy to scale the product: “We’ve built the platform like Gmail. When we have new users in a country, we automatically scale into that country. If there is less traffic at night, we take servers down. It’s very linear. When there are peak loads, we can add dynamic resources and shuffle data very quickly.”

Security is, understandably, an important part of Tradeshift’s technology. To keep users’ data safe, the company uses multi-tenant architecture, which is the same technology used by Salesforce or Google to isolate data. Every transaction is encrypted and stored in encrypted stores. Additionally, auditors frequently come in to Tradeshift to audit the company’s infrastructure and assess whether the company is fit to handle data securely.

“We can store invoices for customers. In most countries, it’s a legal requirement for businesses to store invoices for ten years. We’ll lock the invoices up for customers and have it audited and signed off. We can also check that people have received invoices when they say they haven’t,” adds Lanng.

Tradeshift actively encourages external developers to create apps for the platform. The company already hosts apps by PayPal, Google for Googledocs, and more. “It works very similarly to how you would build an app for Facebook. You build it and users can install it and integrate it with their suppliers. Just as you might invite your friends to join a game on Facebook, on Tradeshift you can invite customers to use a business process tool for logistics, payment or loyalty programmes. There are currently 25 apps that are live on Tradeshift, with another 100 in development.

Traction

Since launching in May 2010, Tradeshift has just under 100,000 suppliers signed up to the platform. This is a strong start for the company, as its largest competitor, Ariba, has just 150,000 users after ten years.

Tradeshift initially launched in Denmark, the UK and Germany, though within six months the platform was used in 100 countries. Today the company has users in 190 countries. “Even small businesses are global today. A small supplier in the UK can easily buy goods in China and resell them in the US. All businesses are international,” says Lanng.

More than one million transactions occur on Tradeshift every month, and this number is expanding rapidly, he adds. “There are more large suppliers using us, which has increased the volume significantly. We expect this to continue.”

Tradeshift’s larger customers include the National Health Services in the UK, which is the largest buyer in the world after the Chinese Army; transport company Kuehne + Nagel; Dutch chemicals company DSM and Dell.

While Lanng will not disclose Tradeshift’s revenue, he does say he expects the company will break even in 2013.

The company raised a €5 million venture round from Notion Capital in May 2011, and a $17 million Series B round, led by Russian investors ru-Net and Kite Ventures, which saw Notion Capital participate again. At the time of the Series B investment, the company was valued at $137 million.

Tradeshift’s next move will to move into the US market. “Our customers are already there, so we need to be in the US too. We’re trying to build a truly global company. Too many companies start out in Silicon Valley and just create branch offices, or they start in Europe and create US sales offices. Our plan is to have headquarters in San Francisco, Copenhagen and Singapore. We’re trying to build something that is truly global.”