Andrew Heathcote Rich Lists editor

Andrew is BRW's Rich lists editor and is responsible for the Rich 200 and Young Rich flagship issues. He also reports on matters relating to wealth and investment for BRW and The Australian Financial Review.

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Growth injection

Published 09 June 2011 05:01, Updated 04 May 2012 16:56

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A beeping sound interrupts Scott Frew as he explains his theories on business to BRW from his hospital bed. It is a sound that has grown louder and more frequent. “It’s OK, I’m not dying,” he says. It is not immediately clear if he’s right.

Frew explains that he is in hospital for a foot injury and that the beeping is a reminder that his drip needs to be reset. He will be discharged after a few days.

A serial entrepreneur with a history of building fast-growing companies, Frew is a difficult person to slow down. His string of companies have been fixtures on BRW’s fast lists since 1999.

He started his latest venture, Distribution Central, in 2004 and it made about $1 million in its first year. By 2010 it was turning over $125 million and Frew expects that figure to increase to about $160 million this calendar year. Most growth, he says, is organic.

Distribution Central is a wholesaler that helps deliver technology products from vendors to resellers. Frew also owns a training business, ASK Learning, and iAsset, which provides online data mapping services.

Frew says fast growth keeps him interested. “I get bored easily so I need things to be changing quickly,” he says.

After selling another technology company, LAN Systems, in 2000 for $30 million, Frew came out of retirement in a move to repeat his earlier success.

Frew says he builds companies to sell them. “A lot of people start a business because they want a job,” he says. “If I just wanted a job I would go work for someone else. It would certainly be a lot less stressful.”

Picking the right time to sell a fast-growing business can be difficult. Frew expects that he will hang on to Distribution Central for another couple of years but is ready to go sooner. “When someone comes up with a number that I think is reasonable for what I’ve built then I’ll walk away,” he says.

“We are packaged up and ready to go if someone comes up with the right number. Everything is for sale for the right number.”

Being able to present detailed accounts is crucial when looking to sell a business. “We are like a public company that doesn’t trade publicly,” Frew says. Keeping your accounts in order also assists in managing debtors.

Frew finances Distribution Central’s growth by selling its debtors’ ledger. He says discount finance, as it is often called, is an attractive financing method for a fast-growing business such as his. “But if you are a stagnant or shrinking company it will kill you,” he says.

Many business owners will be content to incur losses with a view to becoming profitable in the long term. Frew disagrees with this approach and says Distribution Central has been profitable since day one.

“A lot of people get too focused on revenue,” he says. “If you are not focused on profit then it doesn’t matter what your revenue is. You have to stay focused on margins.”

He says he rejects business opportunities unless they can deliver earnings before interest, tax, depreciation and amortisation of at least 6 per cent. “If we are wasting a lot of time and the return on investment is not there, I would rather [that customer] go waste my competitors’ time.”

Top-quality staff are also crucial, says Frew. “If anyone building a business is not looking after their staff then they are not going to get anywhere,” he says. “If the people you have working for you are not the best you can afford then you are wasting your time.”

In an attempt to improve conditions, Frew surveyed four headhunting firms and determined average salaries for every job type in his business. Any employee earning less than what could be expected at a comparable business had their salary increased so that it was 4 per cent about average. He says the process was beneficial.

“It erased salary as an issue so they could get on with doing what they did best.”

The strategy worked, with Distribution Central securing positions on BRW’s Best Places to Work ranking of Australia’s best employers in 2009 and 2010.

Frew says he enjoys being highly involved in the day-to-day running of his businesses and being transparent with staff.

“We have an end-of-month meeting where we tell the staff how the company went the month before,” he says. “Most entrepreneurs make the mistake of not telling their staff anything.”

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