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Ben covers the property industry and has a keen interest in entrepreneurship and travel writing. He speaks Mandarin and previously covered housing and urban affairs for The Australian Financial Review.

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Who’s disrupting your industry? Meet 10 start-ups eager to eat the big boys’ lunch

Published 14 February 2013 00:50, Updated 10 April 2013 07:32

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Who’s disrupting your industry? Meet 10 start-ups eager to eat the big boys’ lunch

AeroBowls owner Walter Jacobs says using the same machine used to make artificial hearts and joints gives his bowls a precision that others can’t match. Photo: Rob Homer

Savvy business operators say that if you’re not expanding your business, you’re moving backwards. Never has this been more true than today, when new technologies are constantly opening up opportunities for new entrants to attack entrenched industries from left field.

The success stories of yesterday must constantly innovate to keep up with the pace.

BRW has compiled a list of 10 new challengers that are showing traction in industries such as telecommunications, retail, financial services and transport. They have secured funding from seasoned investors with a track record of picking winners, and have considerable talent in their ranks.

Ian Gardiner, an entrepreneur and co-founder of angel investor network Innovation Bay, says even the biggest companies have humble beginnings. The juggernauts of tomorrow have to mask their plans for world domination when pitching to investors.

“Investors look at it [big, disruptive ideas] quizzically, because you’re offering something so audacious and crazy you’re either a genius or an idiot,” he says.

“Even if you have a disrupting idea you have to de-risk the investment language to get the initial money to get some traction.”

But every so often one thing leads to another and a company that begins with a “bite-sized chunk” ends up dominating the market, or even creating an entirely new market like a social network or a person-to-person online auction house.

“If business was easy and ideas were obvious, everyone would be off doing it, but the reality is it’s highly risky, and it’s not obvious.”

Most of the companies we have chosen have not been trading for much more than a year, but in that time have achieved significant numbers of customers or sales and are fast moving towards profitability.

In the year to come, expect to hear their names more often.

Retail: InStitchu

Institchu’s James Wakefield and Robin McGowan.Phot: Louise Kennerley

Travelling through Asia, former corporate workers James Wakefield and Robin McGowan discovered it’s not just bucket cocktails and local wares that are popular with tourists. Western visitors also buy high quality tailor-made suits, for a fraction of the price you would pay in Australia.

So they launched InStitchu, in October 2011, designed to make that process easier.

“We entered the workplace and faced the problem a lot of people do,” says Wakefield, a former Macquarie stockbroker. “You have to wear a suit every day, so you have to own two or three suits, at least six shirts, and it gets very, very expensive.”

Customers follow instructions on the website to measure themselves or a perfect-fitting shirt, then customise the type of fabric, the design and the addition of things like buttons and cuffs. Cotton shirts cost $69 and wool suits start from $299. Chinese tailors make the suit and it arrives in a month. The site remembers the measurements, making future orders simple. And an online style guide, Inspiration page and Movie Suit blog help the fashion-challenged make the right decisions.

The founders strategy so far seems to be working. They’re on track to comfortably hit $1 million in revenue this financial year, and their average order size was $534 in December compared to $229 in January 2011. They’re now doing a capital raising and considering a Melbourne office.

They are not the first online retailer to experiment with customisable clothes online. Last year online shoe designer Shoes of Prey raised $3 million from investors, while Pascale Helyar-Moray’s online jewellery shop StyleRocks claims it offers 3 trillion potential jewellery combinations.

Anyone who has been through the fittings and refittings involved in getting a suit made can tell you the obvious hurdle is how to get them to fit. Wakefield and McGowan offer to reimburse any alteration fees for the first delivery, and the measurements are then updated so the next one is perfect, as long as your waistline doesn’t change. They also have two full-time style consultants who can measure personally for bulk orders, such as wedding groomsmen.

If they manage to iron out these creases, the upside is substantial. They carry almost no stock and don’t have high retail lease expenses or floor staff.

Telecommunications: Paloma Mobile

Paloma Mobile, co-founder Jennifer Zanich company that develops "data efficient" smartphone apps for cheap phones on slow networks in poorer countries. Photo Fri 8th Feb 2013Photo: Michele Mossop

In the next two years, half a billion new internet users could come from the developing world. But slow networks and cheap phones with limited memory mean smartphone users in markets such as India, Indonesia and the Philippines have to make more frugal use of data, and a lot of the most popular apps don’t run smoothly.

Paloma Mobile is hoping to tap the fast-growing demand for “data-efficient apps”. It’s big business.

“There’s about 1 billion low-end smartphones predicted to come into the market this year,” says Paloma Mobile co-founder and Silicon Valley veteran Jennifer Zanich. “It’s a transformational experience where they have a touch-screen and are suddenly connected in a way they haven’t been before.”

Paloma was founded in July 2011 by Zanich and Steve Langkamp. Last year it raised $1.5 million from a series A funding round led by OneVentures, with venture capital veteran Roger Allen participating.

Paloma’s cloud-based platform delivers apps using a fraction of the data used by common apps here. Its first app, Photo Chat, takes up about half a megabyte, and Zanich says people here wouldn’t be able to tell the difference in quality.

They’re suited to Android phones like the Samsung Galaxy Y and other entry-level phones, which can cost less than $100 outright.

Paloma plans to partner with service providers in emerging markets to provide its apps on a subscription basis, and share the revenue. Zanich can’t give details but says Paloma will go live in one country in the first quarter of this year.

Transport: goCatch

goCatch co-founders Ned Moorefield and Andrew Campbell.Photo: Supplied

If the reaction of established taxi networks is anything to go by, taxi-booking smartphone apps like goCatch and ingogo are becoming a major disruption to the status quo.

Taxi drivers who use them have been threatened with fines and even disaffiliation from networks that they rely on to operate legitimately, and Taxi Councils in various states have launched campaigns attempting to portray the apps as dangerous and illegal. The NSW government on the other hand has been supportive of goCatch, providing grants and praising its innovative approach.

“We’ve got traction nationally,” says goCatch co-founder Andrew Campbell. “We’ve had over 100,000 passenger downloads and over 10,000 driver registrations. Tens of thousands of people each month are booking jobs with goCatch.”

The company directly hooks passengers to drivers, bypassing the taxi networks. This doesn’t immediately threaten the networks’ income, as they charge taxi operators a monthly fee, as much as $2000 a month in some towns. But it does threaten them with irrelevance and its success could tempt state governments into one day lifting the rule that mandates taxis be part of a network. GoCatch’s card payment system also charges a 7.5 per cent surcharge, undercutting the 10 per cent surcharge levied by entrenched payment system Cabcharge.

GoCatch also offers incentives for drivers to take the short, less desirable jobs by rewarding them with the plum longer-distance jobs.

“We’ve got a long way to grow just in Australia alone,” Campbell says. “We also have plans to grow overseas, and there’s also the potential to license goCatch to other industry verticals as well.” Such as hire cars, like those used by another controversial transport app, Uber? “Potentially,” he says. “Nothing’s off the table.”

Financial Services: Pygg

The merchant trading space in Australia is starting to heat up, but smartphone payments system Pygg has been quietly growing under the radar.

Chief executive Peter Crowe says users of the smartphone app, which allows people to quickly make small payments without revealing their personal information or bank account number, are now not far below 10,000.

It’s taking hold in universities and schools, many of which still collect payments for excursions, uniforms, swimming carnivals and lunches by passing a fabric bag around the classroom. Crowe says it reduces loss, theft and bullying, and leaves a paper trail to ensure the kids are paying the money where it’s meant to go.

“Cash is frustrating,” Crowe says. “You might not have it, you might not have the right amount, and splitting the bill, everyone dislikes trying to mange that scenario. Pygg can manage those small transactions very elegantly.”

Pygg users pay a small fee to put money into their account which can then be transferred freely between users via the smartphone app or Twitter. Despite its grassroots focus, the set-up has some might behind it. It’s backed by technology incubator Pollenizer, and its founders are Yahoo!7 chief executive Rohan Lund and Tim Howard, chief financial officer of Vividwireless and former prime minister John Howard’s son.

Its release coincided with the 2011 collapse of the $225 million project MAMBO which was Australia’s big four banks’ answer to PayPal. More recently, PayPal has launched merchant trading platform PayPal Here, which allows merchants to accept card payments with smartphones.

Commonwealth Bank has released the Kaching iPhone app allowing peer-to-peer payments using a smartphone, but Crowe believes Pygg’s advantage is it is “bank agnostic”. “Banks don’t acquire customers so easily,” he says. “We can acquire a customer at one tenth or 20th or 100th the cost of a bank acquiring a customer. Certainly we see a large place for disruption.”

But he has no immediate plans to offer a merchant trading solution the likes of Square Ventures. “There’s a lot of global innovation occurring there – there’s more upside and more need for us to be doing peer to peer,” he says.

Manufacturing: AeroBowls

AeroBowls at the company’s factory at Rosebury in SydneyPhoto: Rob Homer

When almost every form of manufacturing is being moved offshore, some businesses are using technological advances to keep things local.

Walter and Sharon Jacobs are among that group of entrepreneurs with their recent venture AeroBowls, which they claim manufactures the most high-tech lawn bowls the world has ever seen.

Their factory in Rosebery, Sydney, has made 5300 sets of bowls since it opened in January 2012, all of them selling for about $550. With a set-up cost of $4 million, the factory employs only three people and uses a high-tech Japanese machine, with a second one due in April to boost capacity so the Jacobses can go after the lucrative English market.

“It’s the same machine that manufactures artificial hearts, and other parts like knees and hips and things like that,” Walter Jacobs says. It also makes parts for the A380 aircraft, he says.

Aero’s pitch to bowlers is its level of precision. Jacobs says other bowls are made using a two-axis lathe and moved around several times during production, reducing accuracy and meaning no two bowls are exactly the same – a major problem for elite players of this precision sport. His machines make the bowl in one go, to an accuracy of one-thousandth of a millimetre.

Their product has won the enthusiastic support of iconic Australian bowler Kelvin Kerkow and sponsors a number of English champions including three-time world champion Ellen Falkner.

Jacobs insists the sport has a bright future. “Dying, it definitely is not,” he says. “There are around 1 million bowlers in the world, and that’s been a stable figure for many years now. Many more youth are coming into the game due to sponsorship from companies like us and more prizemoney.”

Logistics: Ship2Anywhere

Jack Fitzgerald, co-founder of Melbourne shipping company Ship2Anywhere knows what it’s like to be a disrupter in the very traditional transport sector.

His business provides discount shipping services over the internet and while it is in competition with courier and transport businesses, Fitzgerald also needs these suppliers to make his business work. But it wasn’t easy to get these suppliers on board.

“There are definitely people in the industry that are very old-school in the way they operate and their technology. But unless they invest now or find a partner they will get left behind.”

Ship2Anywhere now has some big companies behind it. DHL, Allied Express and Fastway supply it with transport services and it itself is a preferred supplier for eBay.

Fitzgerald, who started the business with Michael Teasdale in 2010, says revenue surpassed $1 million in calendar 2012 and is on track to double in 2013.

One of the drivers of that growth will be an expansion into the online retail sector. In January the company opened its technology up to e-commerce firms, allowing them to use Ship2Anywhere as their shipping provider.

“We give accurate quotes that are instant per shipment, and then provide the shipping labels,” Fitzgerald says. “There is no risk to the merchant.”

The expansion will mean Ship2Anywhere can piggyback off the ecommerce providers to grow.

“It’s almost marketing through channels. It’s a lot easier to jump on other people’s demand and fulfil it than create demand yourself.”

Technology: ScriptRock

It’s difficult to explain to a layperson what ScriptRock actually does. But it’s clearly something important because it is Facebook backer and US billionaire Peter Thiel’s first Australian investment.

The company designs cloud-based tools that streamline the information technology processes that go on behind the scenes in big companies.

It allows companies to test software changes before they enact them, potentially saving a network breakdown. And it allows companies to store, test and track configurations across large and complex systems, to avoid the common problem where companies discover one day that there are no longer any employees who know how a long-standing system was built, and find its instruction books have gone out of date after myriad add-ons. and upgrades.

ScriptRock was founded by former IT consultants Michael Baukes and Alan Sharp-Paul. They don’t name their clients but they include two of Australia’s big four banks and a few other major institutions in the US and South Africa, along with hundreds of smaller ones.

“I think in the next five years you will pretty much see it deployed by every company moving towards the cloud,” Baukes says. “They will be powered by ScriptRock in some way.”

They employ eight people with offices in Sydney and Palo Alto, California, and expect that to reach 14 to 16 by the end of the year.

Consumer electronics: LIFX

LIFX founder Phil BosuaPhoto: Supplied

Phil Bosua’s first app was hardly world-changing, but it showed him just how fast the smartphone was taking off. Called iFart, the free app generated a random gastric noise at the push of the button, and achieved 50,000 downloads in the first few months.

Grounded in this experience of appealing to the masses, he came up with an idea that would raise $1.3 million on crowd-funding site Kickstarter in six days. His super smart lightbulb can be switched on and off with a smartphone, morphed to almost any colour, is highly energy efficient and lasts up to 25 years before it needs replacing. But he will have to bring about a major change in consumer behaviour to convince the masses to pay $79 a bulb.

“We think we have stumbled onto a brand new category in consumer electronics,” Bosua says. “Most people are used to spending $5 on a light bulb. We’re asking them to spend $79 but people seem to see value in that.”

The bulb was so popular on Kickstarter that his company, LIFX, had to put a freeze on pledges. Those who are interested are now redirected to the LIFX website where they can register interest. Bosua says registrations now add up to $15 million of sales, and he has more than $50 million of interest from major distributors. Technology entrepreneur Guy King, founder of coupon website RetailMeNot, was an early investor.

Bosua is working through factory-made prototypes from China in preparation for the first production run. The biggest risk at this stage is someone will copy him before he gets to market.

Services: Airtasker

Sydney-based online start-up Airtasker hopes to become the middleman for odd jobs – the kinds of things that you now find advertised in local paper classifieds, community notice boards and online forums.

Founded in February 2012, it connects people who want to outsource daily tasks with people who can complete them. It raised $1.5 million in funding last year from BridgeLane Capital and other investors, and has just acquired smaller rival TaskBox. In its first year it matched workers to $600,000 worth of jobs. It’s one of three such start-ups established in the past year, competing with Occasional Butler and Sidekicker.

Airtasker co-founder and chief executive, Tim Fung, says the acquisition would bolster Airtasker’s network of “runners”, which include students, retirees and stay-at-home parents, to more than 40,000. Most are in Sydney, with Melbourne a close second, he says.

“We’re in some ways competing with some classifieds, but we take the service to the next level in offering trust and safety features, profiling and reviews,” Fung says. “That’s a lot more powerful than someone posted on a classified. That person might have done a terrible job and you’d never know.”

He hopes to push into the United States, but will face stiff competition from TaskRabbit – a US-based start-up which is doing the same thing.

Property: Happy Inspector

Happy Inspector’s iPad app aimed at property managers has its sights on the American market, after a happy inspection of the opportunities there.

The Adel;aide-based start-up, founded by Jindou Lee, Philip Mayes and Andrew Mackenzie-Ross, was selected for seed funding and mentoring in the 2012 Startmate program, which involved some time in Silicon Valley. It raised funds there from angel investors and Dave McClure’s 500 Startups program, after difficulty raising funds in Australia.

The cloud-based app guides a property manager through a routine inspection, saving the hassle of typing it out and sending it to the landlord, tenant and tenancy tribunal.

Lee, an avid property investor now based in San Francisco, says it saves 75 per cent of a property manager’s time on a normal inspection. He now has more than 5000 property managers in Australia and the United States using the product.

“We’re cash flow negative, but sailing very smoothly towards the other side,” Lee says. “We haven’t had a product suitable for the US market for very long.”

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