Meet the Smart50 2012: 10 key trends from a new generation
They're lean. They're hard working. And they're growing like wildfire.
The Smart50 of 2012 were born in the GFC and have never known anything other than the patchwork economic conditions we've seen in the last few years. But in an average of just five years they've formed a new generation of fast-growth SMEs that have exploited a unique mix of technology, people and innovation.
The list is headed by audio products wholesaler Audio Active, which has produced average annual revenue growth of 262.5% over the past three financial years by focusing on high-end audio equipment.
It's a great story of how the GFC and the structural change that has followed have forced business to adapt and change.
Father and son Jeremy and Richard Bouris were formerly hi-fi retailers but sniffed the winds of change and took the opportunity to move into importing and wholesaling.
"Although we started our business soon after the GFC, with poor retail conditions overall, we thought that the higher-end of the hi-fi market would not be impacted as much as the lower-end of the consumer electronics market," Jeremy says.
Let's look at 10 key trends from the class of 2012.
Defying the patchwork economy
The average growth rate of these Smart50 – remembering that we average annual growth rates over three years – has fallen slightly this year from 97% to 93.2%. But given the patchwork economy that has beset many businesses, this is an impressive effort.
While most entrepreneurs report that managing cashflow has been a constant challenge, the consistent message from entrepreneurs when asked what is keeping them up at night was clear – keeping up with the growth of their brilliant businesses.
Born in the GFC
This could have been the generation of Australian SMEs that didn't happen. With an average age of 5.4 years, many of the businesses on this year's Smart50 were born just before, or during, the GFC.
For many, this meant their businesses started with some very tough decisions. Nicholas Beames of astutepayroll.com was one who faced a choice between forging ahead or retreating.
"We had spent hundreds of thousands of dollars building software for the recruitment industry and were ready to launch," Beames remembers.
"The GFC caused the recruitment industry to literally stop. Temp and contract numbers across the sector dropped by a third and every potential client for us was trying to stay alive. They weren't interested in buying anything.
"As an entrepreneur I had a decision to make: Do I put the new business on hold for a year or keep my head down and stay focused? I chose the latter."
Are these companies more cautious as a result of being born in the GFC? Let's take a look at the next trend.
Doing more with less
While the total revenue of the Smart50 has risen strongly from $357.8 million to $484.7 million, the number of people employed by this group has fallen (from around 2,000 to 1,287) as had the number of new hires (428 this year, compared with 892 in 2011). While these employment numbers can be skewed by one or two employers, there is a general sense that the Smart50 are doing more with less. Teams feel slightly smaller than in previous years and technology is being used in smart ways to keep overheads low.
As Oliver Pennington from online quoting group ServiceSeeking.com.au says, it's about knowing where to spend money.
"You've got to manage non-growth costs tightly. Spend as little as possible on stuff that doesn't grow sales or grow your customer base (like your office and furniture) and spend as much as you can afford to on things that drive growth in your business (like marketing)," Pennington says.
Fair Work far from top of mind
Every year we like to ask the Smart50 a topic question and this year we honed in on the Fair Work industrial relations regime, perhaps one of the more controversial business issues of the past few years.
But to the Smart50, it barely rates a second thought – 59% of the companies said that Fair Work had no impact or no substantial impact on their business.
While some like Jo Burston of Job Capital said the Fair Work system meant "incredible amounts of time adjusting awards and payroll data", most said they are so determined to keep great staff that they pay them well above award rates and treat them exceptionally well.
Grace Chu, founder of First Click Consulting, even welcomed the regime.
"The Fair Work industrial relations regime is a fantastic initiative because it means we, as an employer, understand exactly how we can and should interact with employees without having to worry. We know the guidelines and we know what's considered fair for employees and ourselves. It means we can easily understand our rights and responsibilities as an employer."
From little things, big things grow
Once again the Smart50 prove that you don't need massive amounts of capital or a fancy address to turn an idea into a sustainable, fast-growing business. More than half of the businesses started up with less than $50,000 in start-up capital and 34% started with less than $25,000. In addition, 64% of the businesses started from home.
Of course, the lean start-up model does have its challenges. Piyush Kotadiya and Ruchir Parekh were university students when they decided to launch Dream Consultancy Services with just $3,500 ($2,000 for marketing and $1,500 towards other costs) and their personal laptops. But working from home soon became difficult.
"Operating from home was our biggest challenge, as business owners often wanted to meet us at our office and it was a little hard for us to invite them to a home office. Once we got a few clients on board, we moved to a professional office in three months' time."
Entrepreneurism is a way of life
We all know that running a growing business is hard work, but this year we set out to find out just how much time entrepreneurs were putting in each week.
The most common response was 55 to 60 hours a week – well over the average working week, but not so crazy as to leave no room for work/life balance.
And while there is a certain group putting in very long hours – 10% of the 50 entrepreneurs we surveyed are working 75 hours or more – there is also healthy group (16%) who are working less than 45 hours.
Of course, it's not the time you put in, but how you use that time!
They are thinking big
Funding has been an issue for the SME sector for the best part of five years and there is no sense that the Smart50 are rushing back to their banks for fresh capital.
But there are a few companies with big expansion plans on their minds. Matthew and Richard Burgess of 360 Financial Services have their eyes on an IPO in the next five years, while Alliance Environmental Engineering founder Andrew Johnston is in discussions with a large multinational that wants to buy his business.
At astutepayroll.com, co-founder Nicholas Beames is talking to private equity firms about the next stage of his business.
"We are seeking $10 million for working capital over an investment horizon of three years. We are debt-free and cashflow positive so don't need the funds and can continue to grow organically if we want to. However, if we find the right partner we will consider exponential growth instead."
The exit remains hard to see
Business experts suggest that you should always start your business with an exit in mind, but the Smart50 hasn't exactly taken this advice to heart.
A total of 22 have exit plans in some form – some very developed, some a work in progress, some rather sketchy – but the majority of businesses say they aren't anywhere near thinking about the end.
When all your efforts are focused on growth, it can be hard to think about anything else. But circumstances can change quickly and an unprepared business is an exposed business.
Accountability driving many businesses
Fast-growth SMEs love to shake up established business models and introducing a greater level of accountability and transparency to a sector is a prime way of doing that.
That's a key theme from the digital marketing space, where entrepreneurs have broken into the search engine marketing and search engine optimisation industry after not finding the level of transparency they wanted.
Llew Jury of Reload Media sums up the way his sector is changing: "The industry is becoming more and more accountable, which means the less professional providers can no longer hide behind vague numbers. Digital marketing companies must now provide ROI transparency, reporting and metric results to attract business and market share. Everything is black and white."
Exporting is a work in progress
It wasn't hard to pick the winner of the Smart50 export award – just four companies are generating any revenue from overseas, and just one – website marketplace Flippa – is generating more than 25% of its revenue from offshore.
The domestic focus is understandable given the state of the economy, but there are tentative signs that businesses are looking further afield, with the United States and Asia the key targets.
This story first appeared on SmartCompany.