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Fast 50

By Catriona MacLennan

Saturday 1st November 2003

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Every so often you stumble across a little gem of a company, whose neat ideas are matched only by the passion of its founders - people who believe they really are going to change the world. Meet electronics guru Selwyn Pellett, the backer of not one, but two Deloitte/Unlimited Fast50 winning companies who believes he will one day build the long-sought-after Nokia-sized company, from New Zealand, in New Zealand. On current performance, things are on track. Along with fellow partners Norman Evans and Tim Rattray, Pellett heads electronics company Prolificx, this year's Fast50 winner with a phenomenal 2281% growth in revenue over the last three years. Sister company, Endace Measurement Systems, of which Pellett is chief executive and investor, ranks 16th with 325% growth.

Okay, so that's off a small base - as most of the Fast50 winners are. Prolificx's revenues are about $3 million this year; Endace's over $5 million. Nevertheless it's an impressive result compared with last year's survey where the top company, Marshall Software, clocked up a modest 870%. Bottom-ranked PaperLinx (NZ) sneaks in, with growth of 133% - yet the same rate last year won Pulse Data International 29th spot. "The list is very encouraging - every year the threshold gets higher, surely a positive sign about our economy," comments Brett Chambers, the Deloitte partner driving the Fast50 programme.

It's also impressive by international standards. The Australian Deloitte Technology Fast50 saw a company with just 1406% growth nab top spot this year. In the 2002 Irish programme the winning company had 1173% growth. Go you Kiwis!

Just in case you thought winning was all about unsustainable, wobbly growth, it's worth remembering the criteria. To qualify, a company must have had operating revenues of at least $100,000 in 2000/01 and $250,000 in 2002/03. It must have been in business for three years and have New Zealand-registered operations. Deloitte, which compiles the list, started with a prospect list of about 600 and whittled that down to about 150 entrants, who, in addition to opening their books, had to supply an independent assessment by a lawyer, chartered accountant or bank manager. This is the third year for the Fast50 and as far as we know none of the companies on the list have gone belly up. Past winners have included TelstraSaturn (now TelstraClear), Atlantis Marketing, Baycorp, Icebreaker, Vodafone New Zealand and Peace Software.

Rocket science
So what's made Prolificx so, well, prolific? At one level it's simple. The business is in the fast-moving electronics game. It designs and manufactures electronic solutions, with recent developments including vehicle tracking, remote-controlled video feed and blood pressure monitoring systems. Rattray says the next big thing globally is electronic equipment that is both portable and smart, and that is Prolificx's focus.

Reversing the familiar metaphor, Pellett says building fast-growing companies really is rocket science. The business's fuel is the ideas and money, oxygen is the market opportunity, and the heat is supplied by the passion of the people involved. "Typically one of those things is missing. Companies have either got passionate, committed people but not the product, or they have not got the market," says Pellett. The three executives identify as their key rocket fuel Sellutions, a Manukau-based electronics business "accelerator". It provides intellectual capital to fast-track electronically-based technology companies and take them into global markets. Sellutions assembles a team to bridge expertise gaps in the original company, minimising the risks of business failure, reducing time-to-market and ensuring speedy profitability.

Endace was placed in the Sellutions accelerator process in late 2001. At that time it had one product, low sales and no profits. Endace produces high-tech systems for measuring internet traffic and network security. Pellett claims it has now developed and launched eight new products, won more than 50 customers in 15 countries and been consistently profitable. Prolificx was also put through the acceleration process, expanding from a staff of three to 20 in New Zealand and acquiring existing operations in Australia and Hong Kong within the past 18 months. The Australian company is to be renamed Prolificx Australia and will provide extra skills and capacity to springboard the New Zealand operation across the Tasman, where much of the business's growth is expected to lie in the next couple of years. The Hong Kong acquisition of a component distributor and manufacturer gives the company a foothold in Asia. In future, high-volume, low-complexity manufacturing will be carried out in Hong Kong, while work involving small numbers and technical complexity will remain in New Zealand.

Prolificx recently won the Small Business of the Year at the Westpac High Tech Awards as well as being a finalist in the Deal of the Year for a manufacturing and licensing agreement with Bell Canada.

Tech's back
It's kind of appropriate that a tech company heads the list this year. Take a look at the full Fast50 and notice the number of names with "x", "i" and "e" - quite a few, yes? Tech companies are back from the wreck with a vengeance. In 2002 just 18 companies could qualify as technology-based. This year there are 25. As to the hottest sectors, ICT is streets ahead, claiming 13 of the 50 companies. Seven are in manufacturing and six in banking, investment and financial services. Is tech back in general or just in terms of fast growth? Brett Chambers, partner at Deloitte, says the tech companies are more typical in celebrating their success this way. "But I also think there's an increasing acknowledgement of the quality of our tech companies, especially by overseas buyers of technology products and services."

And these companies are on track for super growth with only a couple of exceptions. Twenty anticipate expanding more than 50%; more than half are looking to expand into international markets. That's up a little from last year.

Ask the companies what they think are the key factors for future success and the answer is consistent too: customers, innovation and staff, in that order. Risk Solutions (ranked ninth) managing director, Ian Fair, puts it simply: clients come "first, second and third for us". Antony Urbahn, managing director of fourth ranked Maxnet, an ISP, says whereas most of the IT industry is obsessed with technology, his company built its business by concentrating on the customer. "Our strength is at the front end of customer relationships. Our success is built on simply attracting the best people and having systems that are second to none."

Regional spread has changed. Chambers is a fierce Cantabrian, so it's with some reluctance he cedes the regional race to Auckland - up from 13 companies last year to 21. Eight of the Fast50 are located in Wellington, seven in Christchurch. "The Auckland market is booming. Hamilton and surrounding districts are quite strong, which is a little bit of a surprise." "But then", he adds, "Christchurch has the most repeat performers."

All passion, no dough
There's no end to the fussy details the Deloitte folks can go into about the survey, but the overwhelming impression left on a humble journalist is the huge confidence, bold vision - and lack of money. None of the players appear to have been intimidated by operating from a small country located at the bottom of the world, and none has doubted its ability to compete with established multinationals. Chambers agrees: "More than in previous years I've found the companies bullish and optimistic. National growth is forecast to fall to 2.5% in the next year - these companies defy the national trend."

Take Risk Solutions, which provides insurance broking and risk management services. Boss man Ian Fair says his company was never scared to go head-to-head with the international megabrokers. "We can service businesses in any corner of the world now from New Zealand. We think we're as good as the Marshes and the Aeons and we seek opportunities to prove it."

Or take Trade Me (which ranked second) with 967% growth. Founder and general manager Sam Morgan expects revenue to grow between 300% and 400% in both this and next financial year. Trade Me started out as an online auction business, built part-time on a laptop in Morgan's lounge. It quickly became, among other things, the country's most successful paid dating website. There's money in those lonely hearts. Within a month of launching online car sales earlier this year, the company had three times as much business as its largest competitor. Morgan says real estate and jobs offer other obvious growth prospects. "We think there are significant opportunities in New Zealand and offshore to continue growing pretty substantially." The company has already moved into Australia and South Africa and is currently looking at other Commonwealth countries.

He says a key challenge is maintaining the company's culture while growing rapidly. Age is an important aspect of that culture, with the average age of those working in the company a mere 25 years and Morgan himself only 27. "We don't do top-down management. We like to give people areas to manage so they can be creative."

IT company Panztel, which tracks employees who work offsite such as temps, nurses and building contractors, focused on large export markets at an early stage. Managing director Jonathan Huchen says the UK market has been the key to the company's success. The business expects to grow between two and three times in the next year, with a move into the US expected to sustain future expansion.

But when it comes to money - it's almost too tight to mention. Managing cashflow and access to capital are the top two concerns this year, compared with cashflow and skilled staff last year. All the companies spoken to say it remains difficult to attract investment from New Zealand sources, with banks wanting to invest in bricks and mortar rather than ideas, and other investors risk averse.

Pellett says Sellutions was set up to create wealth for New Zealanders - the intention was to have 100% New Zealand ownership. Yet the New Zealand ownership will be diluted as he has failed to raise sufficient funds here. "What's going to happen is we will end up with Singaporean and American investors because of the immaturity and naivete of New Zealand investors. New Zealand's funding levels stifle the growth of all New Zealand's high-growth companies."

Evans echoes that disappointment, observing that as long as New Zealanders think small and local, that's all the investment they will attract. Pellett says most of the companies starting up at the same time as his had self-imposed glass ceilings of around $3 million to $5 million. They didn't believe they could expand further, and so they never did. His business had won a multimillion-dollar contract with Bell Canada, and needed working capital to fund the order. The company's bank refused funding at the last minute, regarding the venture as too high risk. Incredibly, it was the customer that in the end provided the working capital. "We changed our bank," Evans ruefully adds.

One of the questions the Fast50 survey form asks entrants is what crucial advice they would give to growing organisations. The key word to come through in the responses is "focus": the successful companies keep their eye on the ball and are not diverted from their vision.

At the same time, they keep tight reins on cashflow and invest back into the business.

Bounty Seafoods (NZ) says the lesson is: "Always bite off more than you can chew ... And then chew like hell!" Wholesale Cars Direct puts it this way: "Heads up. Look well ahead. Can't run looking at your toes!"

For Bernie Kelly, director of third placed Global Career Link, the past is the uninteresting bit. "For me what's interesting is where we can get to after 10 years. We certainly don't see any limits to the scope of the business. After three years, we're 11 people and I wouldn't like to think this is it.

That would be rather dull. Where we are now is the start. The challenge is to grow from being a small company into being a big company."

That's the spirit.

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