Tech Heads
Fast 100 Profile: Tech Heads
BRW. October 25 - November 28 2007
Pages 70-76
THE I.T. SECTOR HAS PROVEN TO BE AN ATTRACTIVE PLACE FOR START-UP ENTREPRENEURS.
IT is booming and new and creative business models are flourishing as a result. There are 29 technology and communications companies on the list, including 18 debutants, making it the list’s biggest sector. Many of the IT entrepreneurs on the Fast 100 are on to their second or third business ventures, having sold previous start−ups. They include Distribution Central’s Scott Frew, who sold his first distribution business, Lan Systems, to South African IT giant Datatec for $30 million in 2000, just before the dotcom bubble burst, and Telcoinabox’s Damian Kay, who sold his Your Telecom business to Australian telco Commander Communications last year.
Company: Itcom Australia
Rank: 2
Founders/chief executive: Graeme Ross, Damien Ross, Gary Lorden
Revenue: $4.80 million
Growth: 280.4%
Graeme Ross was primed for retirement. After a stellar 13−year run operating his own information technology recruitment firm, the 60−year−old had scaled back the company to two−and−a−half staff and was ready to go fishing. In discussion with two young recruitment professionals one day about the inadequacy of contractor management firms, Ross was lured into ramping up again, this time with two young partners to handle the grunt work.
In July 2006, Ross poured $300,000 into new office space and equipment. Had he known how explosive the firm’s growth would be − Itcom hired 13 people in as many months − Ross would have leased bigger premises, more phones and more computers. Six months later, he invested another $150,000 to expand the operation. “Moving during a growth spurt is painful,” he says. “In hindsight, I would have overstated the amount of space so we could grow into it.”
The management trio complement each other. Ross has the networks and kudos to draw the industry’s old hands. The younger partners, his son Damien, aged 33, and Gary Lorden, aged 30, understand what makes the fickle generation Y tick. Ross provides the financial backing and management expertise, while Damien and Gary handle the operational and sales side. “This model wouldn’t have been as effective if the information technology and telecommunications sector wasn’t booming again,” Ross says. “That said, we’re in a very competitive market and you have to differentiate yourself.”
Itcom has a register of about 100 active contractors. Ross says a combination of a global economy and IT being a portable career makes winning and retaining good staff difficult. He is obsessive about accounting details, citing errors with contractors’ pay as the fastest way to unravel a hard−earned reputation.
Overseas expansion is also on Itcom’s radar, in response to growing demand to handle clients’ requests for IT staff across international markets. Ironically, finding staff has become Itcom’s biggest challenge. “We discuss work ethics with potential hires before even broaching the subject of money.” Ross says he would rather slow the growth down than abandon his business values.
Company: Brennan Software
Development Rank: 5
Founder/chief executive: Dave Stevens
Revenue: $1.36 million
Growth: 197.5%
Almost every business faces unexpected hurdles in its start−up and growth stages. For Brennan Software Development founder Dave Stevens, it was a lack of attention to cash−flow management.
But surviving and learning from early mistakes and adhering to a firm vision have paid handsome dividends for Stevens’ Queensland IT services company, which ranked 5 on this year’s BRW Fast 100, up from 28 last year. Sister company and internet service provider Brennan Voice & Data also features on the Fast 100 this year, ranked 70.
Brennan Software Development was founded in 1997 with a focus on providing business solutions, rather than hardware and software, to mid−market firms of between five and 50 staff.
While working as a contract software trainer, Stevens sensed that medium−size clients were being overlooked by large service providers and were dissatisfied with the level of service that smaller firms provided. “I knew there was a huge untapped market out there,” Stevens says. “There was a screaming need.”
“We’re driven by what the market tells us in terms of what we offer, but we’re also a mid−market company,” Stevens says. “We’re growing fast and, as we discover new requirements for ourselves, we design solutions for our clients and then roll them out.”
While organic growth remains a high priority, more strategic acquisitions are also planned for the next 12 months, bringing in new geographical coverage, products and capabilities to the group. In early October, Brennan bought Queensland telephony service TSA Communications. The acquisition will lift the group’s annual turnover by $5 million and add another 1000 customers.
“We’re more focused now on being a healthy business with a single vision,” he says. “We were already successful, but for me that was just the tip of the iceberg. There’s still so much more to do.”
Company: Paycorp
Rank: 6
Founder/chief executive: Adrian Roche
Revenue: $5.41 million
Growth: 185.2%
As managing director of Paycorp, Adrian Roche heads up a business providing a combination of electronic payment processing, billing and business continuity services, and dealing with more than $6.5 billion worth of payments a year. Achieving that growth in only six years was made possible by Roche’s belief from the outset that his business needed to be prepared for anything.
With no technology experience but a background in financial services and capital markets, Roche was uncertain about the potential challenges facing a start−up in information technology, particularly for a mid−size company with designs on big business and financial institutions. “My vision has always been to operate like a large publicly listed company. My experience in management gave me the foresight to say that we needed to be ready for anything and we need to have all the right systems and processes in place,” including ISO:9001 accreditation (which specifies how to implement quality management systems that meet regulatory or customer standards).
In 2001, Paycorp released its first product, RentPay.com.au, an electronic payment system for real estate agents and tenants. Paycorp chose to license the software platform needed to support the web portal, to draw on more experienced software developers’ skills and avoid losing valuable time and funding developing in−house.
The product needed to be adaptable to new industry applications as they were identified and new markets opened up. “I had seen the mistakes that others had made building complex software applications for one industry vertical, but not being able to apply it across a number of industries,” Roche says. “My objective was to start with the RentPay product, but I also believed there had to be other circumstances where we could apply this kind of solution.”
Paycorp now employs 25 full−time staff and 50 contractors. The business model first tested with RentPay, using the core software platform as a payment hub supporting a customised application or web portal to suit the client, has been used to create products for the travel, education, telecommunications and banking sectors. The multi−currency application GlobalPay was born from collaboration with international travel company Travelex, and StudentPay was created to meet the needs of education providers.
Roche expects Paycorp to continue growing quickly and exponentially. Key management staff bought out the original investors in 2006 to ensure that the business was free to concentrate on developing new products and new markets, rather than growing towards an exit strategy. Paycorp also rebranded in 2005 to reflect the range of services offered more accurately; RentPay.com.au still supports tens of thousands of clients, but is dwarfed by the more invisible services Paycorp provides to corporate clients. Maintaining that brand will always be critical in the payments industry.
Roche looks forward to Paycorp maintaining its rate of growth and becoming the dominant electronic payment−processing provider in Australasia in the next three years. “We’ve been in the industry for so long, people trust us. They know the discipline and the professionalism that we apply to what we do.”
Company: Telcoinabox
Rank: 7
Founders/chief executive: Damian Kay, Morgan Duncan, Damien Gould
Revenue: $20.10 million
Growth: 183.2%
That the complex world of telecommunications would one day be simplified and compressed into a franchise model is almost unthinkable. Yet that is precisely what Telcoinabox has done.
The three−year−old wholesaler is marketing itself alongside Bakers Delight and Pets Paradise to prospective franchisees as a high−margin option for people who are good at sales and know zilch about telecommunications. “Our average margin [on sales] is 35 per cent at the moment,” founder Damian Kay says. “We could see margin erosion of 33 per cent in this business and still make a profit.”
Telcoinabox has about 20 different suppliers from which it buys everything from office phones to call time for mobile and landlines, broadband access and wireless data cards. Franchisees buy in for $50,000, which gets them training, products, a billing and customer management system, credit facilities (such as BPay and Visa), a laptop, and an MYOB accounting package with ready−made templates.
“All franchisees have to do is get customers, keep the customers and collect the money,” Kay says. “We shield them from all the industry crap and take a clip on everything they sell.” Telcoinabox gets a fee on all the facilities franchisees use. It pays Westpac bank 0.87 per cent for the use of its credit facility, for example, and sells it to franchisees for 1.6 per cent.
It also charges them a 2.5 per cent fee for using its million−dollar computerised billing system. The company has 80 franchisees operating around the country, none of which operate under the Telcoinabox brand. Some are particularly successful at mining niches, such as pubs and clubs, or charities. Recruiting quality franchisees is not easy. “We make no apologies for the rigorous process we put potential franchisees through, as poor performers end up costing us money in the long run,” Kay says.
Telcoinabox itself has grown to 40 staff. In February last year, the wholesaler started offering its range to experienced service providers in the telecom market. This proved a hit and the division now accounts for 30 per cent of revenue. Kay is mildly concerned about copycats, but says Telcoinabox has acquired a number of rivals over the past two years, in an effort to eliminate competition and achieve scale. He believes it has a big enough head start to deter challengers.
After two years of long working days, Kay and fellow Telcoinabox founders Morgan Duncan and Damien Gould have a new challenge: handing the day−to−day operations to a senior management team so they can assume a strategic advisory role. “We’ve seen a number of businesses fail in this process, so we are mentoring our chosen managers over a 12−month period to take over day−to−day control of the business.”
Company: Distribution Central
Rank: 8
Founder/chief executive: Scott Frew
Revenue: $28.53 million
Growth: 169.0%
Scott Frew and his crew are at it again. In 2000, Frew sold his computer distribution business, Lan Systems, for $30 million to South African giant Datatec.
In addition to Frew fattening his wallet, Lan Systems’ senior management team also held equity in the business and made money from the sale. Frew took off to Europe, sat on a few company boards, and has now stormed back into the Australian IT distribution game, flanked by his former lieutenants, to set up Distribution Central.
But IT distribution has changed. It used to be about one of two things: time−and−place delivery or value−added services. Time−and−place is a game of logistics − having the right amount, of the right product, in the right place, at the right time.
Value−added service requires a degree of higher brain function. It includes, for example, steering customers through 100 variants of Microsoft software licences towards the best one. Excelling at one of these models is not enough any more, Frew says. “Technology is so complex these days you have to do both. For the average Joe on the street, technology is easier to use, but getting it to that point is much more complex [for the integrators building the systems].”
Distribution Central picked three areas of computing to specialise in: security, storage and networks. In three years, it has grown to 40 staff and signed 18 suppliers, of which 85 per cent hold exclusive distribution agreements with Distribution Central. Marketing director Nick Verykios says a big−name manufacturer is primed to sign an exclusive arrangement that will double Distribution Central’s income.
The company also plans to branch into software distribution and Frew is toying with the idea of a public listing. Frew describes his staff as “the only differentiator you have”. Having learnt his lesson at Lan Systems, Frew has given all senior managers 10 per cent equity in the company. He’s also out shopping for eight new recruits.
AGNES KING AND SARAH NEILL.
