Quick lessons

After six years on the BRW’s Fast list, Scott Frew has learnt a thing or two about managing growth

The 2011 BRW Fast 100 companies have proved themselves to be the masters of identifying niche markets of unmet demand. From first-placed COzero, an emissions trading company poised to benefit as countries and companies around the globe begin to be carbon conscious. Or second-placed Jetts 24 Hour Fitness, a chain of low-cost gyms that never close, challenging the status quo of expensive, full-service establishments.

The Fast 100 can spot an opportunity and serve a niche desire. Their success is testament to this. Total revenue for the Fast 100 is up 13 per cent to $4.1 billion. However, to move from the ranks of successful, fast-growing companies to truly great, ground-breaking enterprises, a change of outlook and mindset wouldn’t hurt.

Few trade across international borders and fewer still are taking advantage of growth economies in India and China. Those that do export their goods and services (33 per cent) are predominantly focused on Western economies, with New Zealand the unadventurous favourite (22 per cent), followed by North America (20 per cent).

Only one-quarter of the Fast 100 said their business was founded on a “born global” strategy. RMIT University’s entrepreneurship leader, Kosmas Smyrnios, is surprised by that “relatively small proportion”. He notes that those on the list that have seen the globe as their potential customer base from day one, such as payments provider eWay (ranked 79th) and software company Nitro (ranked 37th), are skewed towards technology companies.

Much could be learnt from the outlook of Intelledox’s Phillip Williamson (ranked 81st).
“As a software company, Australia is too small a market,” he says. “The same business drivers that exist in Australia exist around the world.”

The focus of most of the Fast 100 is unabashedly domestic.

“It’s still local rather than thinking globally,” Smyrnios says. “They’re just getting on with the job. They are doing well, which is demonstrated by the rates of growth. And the fact that they’re able to deal with these current economic conditions [is promising] but to develop markets and become more global, this is where they’re going to need to think differently.”

Smyrnios sees the latest Fast 100 companies as being in transition between the “old and new world” of business. The old world represents the same challenges business has always faced, such as managing staff, maintaining cash flow and raising capital. The new world represents changing demographics, new technologies, social media and a multi-speed economy. Entrepreneurs must deal with a layer cake of complexity in running a successful fast-growing business.

Smyrnios has empathy for the Fast 100 but he says the problem is that they are using the same tools and approaches to dealing with the new problems as they have with the old challenges.

Take the Fast 100’s use of social media. Although 66 per cent use social media for their business and 55 per cent have invested in expanding their use of the channels, when asked how they measure the success of their initiatives, many simply refer to the old yardsticks of reach.

“Over the last year we’ve seen our Twitter followers rise from a handful to over 3000 for each of our three titles,” magazine publisher Momentum Media’s Alex Whitlock says (ranked 59th).

“At this stage [measurement] is simply on number of engagers within each platform,” Jetts 24 Hour Fitness’s Brendon Levenson admits.

The people a business engages through social media might have fancy new names, such as fans, friends and followers, but that is missing the point. The real power of social media is the ability to track customers all the way from a “like” or a “retweet” to a sale.

Businesses such as virtual data room provider Ansarada (ranked 29th) understand this. “[We measure] the increase in branded traffic to our website, increase in leads generated and opportunities won as a result of any leads generated from social media,” chief executive Sam Riley says (see story, “Did you tweet today? Rating your social media strategy”).

In support of Smyrnios’ hypothesis, although the Fast 100 are struggling with new complexities such as social media, the old problems never change. Human resources management was the biggest problem of the previous year (for 47 per cent of businesses) and expected to be the biggest problem in the coming year (for 41 per cent). Ninety-eight per cent expect to hire staff in the coming year and despite the complexity, many have adopted innovative and unique recruitment strategies (see story, “It’s all about the people”).

The Fast 100 are confident, of course, but perhaps with a touch of naivety: 97 per cent expect revenue growth in 2011-12 but are happy to rest on their laurels to get it, with 55 per cent saying organic growth would be the main contributor to this revenue rise.

The Fast 100 generally agree that the current economy is a “multi-speed” one. “Absolutely,” chorus the founders of Generation-e (91st), Telair (18th) and Job Capital (13th).

“In WA and Queensland, it is full steam ahead in those areas that focus on the resources sector, like us, however we are very aware that others such as retail are facing intense competition and lower consumer spending,” Assetivity’s Sandy Dunn says (ranked 95th).

Some founders have little sympathy for those complaining about the multi-speed economy. “Certainly pockets are performing better than others,” Quinntessential Marketing’s Paul Quinn says (ranked 97th). “But [the decline] happening in the retail sector is more due to industry adjustment to the inevitable rise of
e-commerce than any major failings of the Australian economy.”

The multi-speed economy is used as an “excuse” by those operating “in the same way they did last century”, declares Voxcom’s Allan Dib says (ranked 99th).

“There have always been boom industries operating at times when other industries are in decline. Many retailers whine instead of embracing new channels. A global market has opened up to them and they can establish themselves there at little cost but instead they are looking to preserve the status quo. That is a fast track to going out of business.” Of course, a number of companies are positioned to take advantage of the resources boom, such as providers of drilling services such as Pioneer Drilling Co (61st) and Macquarie Drilling (46th), or those fulfilling more niche services such as Minecorp (17th), which fits safety equipment like roll cages to vehicles operating at mining sites (see story, “Why business digs the mines”).

Almost three-quarters of the Fast 100 experienced an economic downturn but many saw opportunities in the turmoil. GoGet Carshare (ranked 44th) saw a boom in some customer segments, especially small businesses for whom a car share network is a more affordable transport option than outlaying capital for their own wheels.

Despite the dollar trading above parity against the US dollar for most of the past financial year, only 39 per cent say they have been affected. Some have acted quickly to take advantage of the strong currency. “We opened a new office in Singapore funded from [the high] Australian dollar so we were positively affected,” Art Index’s Adam Smith says (ranked 43rd).

Importers of goods such as online retailers Booktopia (ranked 72nd) and Kogan (ranked 27th) are counting their lucky stars.

One-quarter of the Fast 100 started their business with $10,000 or less and three businesses, BigCommerce (28th), Business Aspect (84th) and TestLogistics (52nd) claim they needed no capital to get started. Proving that the start-up phase is still a tough aspect of business to get right, 14 per cent say they made mistakes raising their initial capital, from giving away too much equity (Selmar Institute of Education, ranked 56th) to not raising enough debt (Palladio Homes, 38th) (see story, “Get the money right”).

Most, 76 per cent, were happy to forgo their rainy day fund and used savings as their main source of start-up funding. Twenty-nine per cent have since raised subsequent rounds of capital, with 12 per cent of those happy to give up equity to venture capital or angel investors, leading to a range of experiences both positive and negative (see story, page “On the wings of angels”).

There has been mixed experiences when it comes to accessing capital for expansion. Most, 61 per cent, say that is has not been more difficult to access capital.

“The rhetoric indicates that it should have been but we have experienced no problems with our asset financing,” MetroMovers Removals’ Peter Borain says (ranked 53rd). “Strong banking relationships with regular communication has helped this process.”

Moto-cross clothing brand Unit Technologies (ranked 21st) notes that banks have been reluctant to lend to small and medium enterprises. However, Peter Cleary from marketing firm Zinc (22nd) says with the “current bank war going on”, restrictive lending practices are easing.

RMIT’s Smyrnios says the best founders on the Fast 100 are those with an eye on fluctuating trends – from bank lending practices to customer demographics. Nevertheless, Smyrnios emphasises that being focused on the “now” is still not enough. Company founders should also be thinking about their potential exit.

This is an area, like thinking globally and using new approaches to solve new problems, where the Fast 100 could do with pulling their socks up.

Only one-third of Fast 100 founders are future-focused and started their business with a planned exit strategy. Financial planner Carnegie Morgan Hill (ranked 25th) and bakery chain PieFace (49th) have plans to list on the stock exchange, while the founders of business telecommunications provider Voxcom (99th) and digital communications agency Amblique (92nd) are positioning their businesses for trade sales in future.

One company that has already executed its exit strategy is personal protective equipment importer and wholesaler Medirite Australia (ranked 55th) run by father and son, Satinder and A.J. Singh. It was acquired by listed packaging product manufacturer Pro-Pac at the end of September.

The ultimate measure of Fast 100 success is getting off the Fast 100, either through a lucrative trade sale or initial public offering, or by increasing the business to a size that is simply too big for yearly revenue growth over the cut off of 35 per cent.

Just as Smyrnios suggests considering global customers and using new approaches to solve complex problems, an exit strategy needs to be another line on the to-do list of Fast 100 founders.

They should be applauded for building their fast-growing businesses this far but there’s plenty of room to improve and BRW hopes to have them on the list for years to come.

Fast 100 Hall of Fame

|

SEVEN TIMES

Brennan VDI, Brennan Voice & Data/Secure Telecom (all founded by David Stevens)

Distribution Central/Firewall Systems (all founded by Scott Frew)

FIVE TIMES

Assetivity

Carsales.com.au

Lift Shop

M2 Telecommunications

OSD Pipelines/Energy Services

Seven Consulting

FOUR TIMES

AI Rubber

Aconex

Atlassian

Andrew’s Airport Parking

Destra Corporation

IspONE

MacarthurCook

Permission Corp/EmailCash

Realestate.com.au

RedBalloon

Refund Home Loans

Techhead Interactive

Thomas Duryea Consulting

Webjet

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Decade’s dynamos

| Tom Brentnall

Setting a cracking pace in the start-up phase of a business is relatively easy; maintaining that growth over the long haul is the hard part. Of the 657 companies that have appeared in the BRW Fast 100 during the past decade, only 23 have made the list four or more times.

Leading the pack of “stayers” are companies founded by two Fast 100 veterans: David Stevens and Scott Frew. Stevens’ businesses, SecureTel and Brennan IT, first appeared on the list in 2004 and stayed there until last year.

After a decade on the Fast List Dave Stevens is still growing strong.

Frew’s IT services outfits, Distribution Central and Firewall Systems, have appeared since 2005. Distribution Central is ranked 67th this year, with revenue of $178 million and an average annual three-year growth rate of nearly 53 per cent.

Listed telco M2 Telecommunications, founded by Vaughan Bowen, and listed online auto advertising group carsales.com.au, founded by Greg Roebuck, are among the better known of the Fast 100’s five-timers. And they could have notched up even more appearances were it not for the eligibility requirement limiting staff numbers of Fast 100 companies to 200.

Ditto for software success story Atlassian, which last appeared on the list in 2009. Founded by Michael Cannon-Brookes and Scott Farquhar, the company has expanded its operations into the United States, Japan and Europe and now has a workforce of 220.

But it hasn’t been good news for two former Fast 100 stars.

Listed digital marketing company Destra Corp, which was a fixture on the list in the mid-noughties, was placed in administration in November 2008 after its founder Domenic Carosa became a victim of the collapse of stockbroker Opes Prime. Destra was delisted in August 2009.

In mid-October, Wayne Ormond’s mortgage broking group Refund Home Loans, which made its fourth appearance on the Fast 100 last year, was placed into voluntary administration with reported debts of $2.5 million.

Ormond, who said Refund had already attracted four potential buyers, blamed the global financial crisis for its woes.

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