Fast 50

By Frances Martin

Friday 1st November 2002

When Sean Dick hooked up with Peter Hodges at Palmerston North High School in l977, neither could have imagined where the friendship would take them. Seventeen years later, from a spare room in Dick's house, they and three others formed software company Designer Technology (DTL). DTL would eventually become Marshal Software, the fastest-growing company in the 2002 Deloitte/Unlimited Fast 50.

DTL did pretty well its first three years, too, winning the contract to write Smartfax software for Netway and becoming a Microsoft certified partner. Then, in l997 Hodges spent a weekend writing a computer program that would transform the company's future. Dubbed MailMarshal, the progam does just what its name suggests - stands guard over computer networks to protect them from email viruses.

MailMarshal was an immediate hit with companies keen to protect their systems in an environment where email use was exploding. Other content security products were developed, including internet access monitor WebMarshal, and by September 2002 the company had a 60% share of the New Zealand market and more than 3000 customers worldwide.

It also has a staff of 50 and offices in Auckland, Sydney, London and Atlanta. Revenue jumped from $1 million in 2000 to $4.1 million in 2001 and to $9.7 million in 2002. That astonishing growth rate - 870% in two years - is what won Marshal Software the top spot in the 2002 Deloitte/Unlimited Fast 50.

The Fast 50, inaugurated last year, is open to New Zealand-registered companies that have been in business at least three years. Entrants must have had revenue of at least $100,000 in the 1999/2000 year and at least $250,000 in the 2001/2002 year.

As well as showcasing some pretty hot companies, the survey tells us a lot about the way companies succeed in New Zealand, says Deloitte partner and Fast 50 advocate Brett Chambers.

Fast 50 companies owe their growth to customer focus, innovation and highly skilled staff, Chambers says. "It is simply not enough to do the same as everybody else and hope to grow by capturing existing market share." Sure, some companies manage to prosper by doing what they've always done, or what everybody else is doing. But they've been lucky, and their luck won't last.

Deloitte chose to base the Fast 50 on revenue growth rather than profit because profit is an accounting concept that's open to interpretation, Chambers says. "A focus on cost control can help to improve profitability in the short term but it cannot grow the business - you cannot shrink to greatness. Revenue is the only real measure of sustainable growth."

Tech wreck? What tech wreck?

The list offers anecdotal insights into what's going on in the New Zealand economy right now. For example, nearly a quarter of the Fast 50 are information technology firms, suggesting either the IT downturn is over or it didn't hit all parts of the industry. According to fourth-ranked Fast 50 company WebFarm, the dot-com burst was largely limited to the high-pressure end of the market, where inflated ideas and expectations had been fuelled by naïve investors, largely in the US. "Meanwhile, e-commerce at ground level in New Zealand has been based on clever people, smart ideas and controlling budgets," says WebFarm co-founder Richard Shearer.

Interestingly, another sector that's had it tough in recent years - manufacturing - also did well in the survey, accounting for 20% of companies on the Fast 50 listing. Conversely, the supposedly booming agriculture sector produced just two winners.

Not surprisingly Auckland was home to 34% of the firms. A disproportionate 26% were based in Christchurch. Chambers says the city is a Mecca for innovation and new ventures. Seven of the Fast 50 are based outside the four main centres, an encouraging sign for those wanting to foster regional growth. WebFarm, for example, runs its internet business from New Plymouth and still managed to grow revenue by 86% in the June 2002 year.

That sort of revenue growth isn't unusual for a Fast 50 firm. In fact, the "slowest" firm on the list, Auckland manufacturer Omnigraphics Digital Printing, achieved revenue growth of nearly 91% in the previous two years. What's more, 28% of the Fast 50 expect to grow revenue by 50% or more in the next financial year, while 38% expect growth of between 21% and 50%.

The way in which this year's list differs from last year's is very telling. In 2001 the slowest Fast 50 company grew revenue by 35.5% over two years. That's a pretty good result, but it wouldn't have been enough to win a place on this year's list. In fact, 21 of last year's Fast 50 wouldn't have made the grade this time around. "Solid Energy, the only state-owned enterprise to make the index in 2001, actually achieved even faster growth in 2002 but this still wasn't good enough to make this year's Fast 50," says Chambers.

So does this mean the New Zealand economy is putting on a growth spurt? Maybe, maybe not. "The Fast 50 is not an exhaustive list of our fast-growing companies," says Chambers. Like the Olympics, only companies that enter are judged. Having said that, it does provide some useful insights into the experiences of some of our high achievers.

For example, only 3% of companies that entered the pageant had a negative view of the economic outlook, with 85% having a neutral or positive outlook and a handful offering no opinion. Some did feel the effects of September 11, Chambers says. Tourism and leisure company Rock and Ice, ranked 19th on the list, reported a 40% drop in revenue after the attacks and said it took four months to bounce back.

Most of the companies aren't too concerned about a possible slowdown in the economy, believing they are naturally insulated because they offer products that are always in demand.

Outgrowing the local market

Even more encouraging is that nearly two-thirds of the Fast 50 plan to expand overseas within the next year or two; several already have. "Many companies acknowledge that a growth strategy focused exclusively on New Zealand has fairly limited prospects," Chambers says. "Australia seems to be the main focus of expansion initiatives, but there is also strong support for the US, particularly for technology, and the UK."

What's interesting about the companies, he says, is that they don't want for ideas or opportunities. "What they do lack are resources - money and people - to pursue them." Many innovators end up bankrolling the business themselves, either because they can't get financing from banks or because they don't want to let anyone else control their baby's destiny. Growth ends up being financed out of cash flow, resulting in some tense days between when cheques are due in and when bills must be paid. In fact, managing cash flow was viewed as a top problem by 48% of Fast 50 companies.

"We've adopted a strategy of resourcing for growth ahead of that growth actually occurring, and that always stretches our cash flow," says Grant Thomson, founder of data collection company Datacol New Zealand. "Every cent of profit is reinvested in people and systems to sustain our rate of growth," says Thomson, a Christian whose business came third in the survey. That makes for some nail-biting times. "People ask how I've built up this business so fast and the answer is that I get down on my knees and say 'God, help, what do I do now?'"

Access to capital and maintaining an infrastructure that supports growth were rated top problems by 42% of the firms. Another headache was finding skilled staff - more than a third of Top 50 companies suffered from that ailment. "It's impossible for us to find the number of skilled programmers we need," says Marshal Software general manager John Skeates.

Speed wobbles are an obvious danger for fast-growing firms, says Chambers. Growth spurts can put huge strain on their infrastructure, which can crumble under the pressure. "I like to use the snorkelling analogy. While you are under the water, the scenery is fantastic. You have limited air and you need to pack as much in as you can. But every now and then you need to come up for air, to look around for sharks and to keep an eye out for new places to snorkel."

So what advice would the Fast 50 offer to someone just starting up? Be driven by your own common sense and passion, counsels Bob Robertson, chief executive of Infinity Investment Group, a Wanaka property developer that's recorded growth of 5708% in the past two years and become a $10 million-plus company in less than three years. "Seek advice but never rely on it. Do mini profit-and-loss accounts on every activity. Cash is king, watch it."

Infinity's startling growth rate puts it well ahead of other entrants. However, the company missed out on a Fast 50 placing because it hadn't been trading for a full three years. Watch out for this one in next year's list.

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Fast 50

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