Meet the start-ups that want to eat your lunch

Australia’s economy might be patchy, but the 50 companies that feature on StartupSmart’s second annual StartupSmart Awards have enjoyed a brilliant year, with total revenue hitting $115.6 million, well ahead of last year’s total of $88 million.

Once again, the awards feature an eclectic mix of companies, from retailers and recruiters through to tech businesses and a new group of social enterprises.

But with average revenue of $2.3 million and six businesses making their first million dollars in revenue in their first three months of trading, the message is clear – fast growth is still very much achievable, if you start smart.

The awards, which are open to the most innovative and promising Australian business aged four years and younger, are in their second year and were sponsored and hosted by leading national accounting firm, Pitcher Partners.

Target Media Australia took the top prize, named the country’s fastest-growing young business with revenue of $14.1 million.

The business operates the TopBuy.com.au retail portal, which has attracted more than 400,000 Australian customers to buy products across more than 30 different categories.

It was founded by Peter Xie, Mike Xie and Richard Liu, who ditched their electronics wholesale business when they realised their margins were being squeezed, in favour of jumping onto the online retail boom.

The founder poured $1 million into their start-up costs, which underlines a trend towards a greater initial outlay by company founders. While 26 businesses on the list started with less than $50,000 (and 10 began with less than $10,000), average start-up costs were just under $154,000.

However, start-up entrepreneurs remain adept at keeping their initial costs down – three quarters started their businesses from home.

The demographics of the list were similar to last year. A total of 17 businesses came from New South Wales and Victoria, while 10 were from Queensland, three were from Western Australia, two from South Australia and one from Tasmania.

The average age of the company founders on the list was 36. The oldest entrepreneur in the top 50 is 56 (David Whitfield from enLighten Australia) with the youngest aged just 25 (Elliot Ramler from ELJO).

Looking at the list by industry, the retail sector and the property and business services sectors were heavily represented, with tech businesses also performing well.

The top 50 is full of start-ups that are breathing new life into old markets, such as You Pack Removals, which racked up $4.3 million revenue in its fourth year after introducing self-packing containers to the traditional removals process.

Elsewhere in the top 50, there is a business that allows bored office workers to play golf on a virtual course on their lunch breaks, a firm that’s developing a world-first pair of alternative reality glasses and an innovative crowdfunding platform.

Scale is not the key objective of many of the businesses – they want to dominate a niche.

Target Media co-founder Peter Xie says category leadership is crucial in his sector.

“In online retail, if you’re not growing rapidly, someone else will be. You need to be the category leader or you will be gobbled up.

“There is much more competition than when we started, but we moved quickly to have the range and brand names that people want.”

One terrific trend from the StartupSmart Awards is the emergence of a real community of early-stage entrepreneurs. A number of businesses on this list have been specifically set up to help their fellow start-ups.

Take digital services business The New Agency. It’s the brainchild of Alan Jones, who is also a co-founder of Yahoo! Australia and New Zealand, HomeScreen Entertainment, Trippything and Trainerplatform.

“Start-up founders who don’t have geeky friends to code for them still have great ideas,” Jones says.

“We help enable those ideas by supplying great development, design, marketing and strategy at start-up friendly pricing.”

It’s a great sign that Australia’s culture of entrepreneurialism is continuing to flourish, but it’s also a warning to SMEs – there’s a new breed of business owners who want to eat your lunch.

Meet the top five

1. TopBuy.com.au

Founder(s): Peter Xie, Mike Xie, Richard Liu 
Revenue: $14.1 million
Started: 2007
Head Office: New South Wales
Employees: 15
Industry: Retail trade
Website: www.TopBuy.com.au

It was while they were running a wholesale business that the trio who launched Target Media Australia realised the sheer potential of online shopping.

While supplying the likes of JB Hi-Fi with electronic brands such as Canon and Samsung, the founders realised that their margins were shrinking.

“A lot of retailers were going overseas directly and we saw this as a threat,” says Peter Xie. “Our margins were being squashed while, at the same time, we saw the growing potential of online retail.”

“We were ordering tens of products for customers and then, suddenly, it became 20s and 30s. We felt we could do something different in this market ourselves.”

That point of difference was TopBuy.com.au’s vast range of products and engaged customer service team – the business’ Chinese call centre is fully run and managed by the company, so training and product knowledge is better than most third-party arrangements.

Eventually, the wholesale business dropped off as TopBuy.com.au grew. It now sells in more than 30 niches, including electronics, homeware, toys and cosmetics and has 400,000 Australian customers.

“There is much more competition than when we started, but we moved quickly to have the range and brand names that people want,” says Xie.

“In online retail, if you’re not growing rapidly, someone else will be. You need to be the category leader or you will be gobbled up.”

The growth that Xie refers to is impressive – the business expects to grow revenue to more than $20 million by the end of the year and forecasts growth of 50% each year for the next three years.

“We want to develop new niche areas and we are looking at overseas markets such as the US and UK,” says Xie. “We also want to raise funding to grow the business at a faster pace over the next year.”

“We have grown from zero to a sizeable and profitable business within a short period of time. Our business now has good scale, and plenty room for further growth.”

2. SCO Recruitment

Founder(s): Larissa Robertson
Revenue: $12.7 million
Started: 2009
Head Office: New South Wales
Employees: 20
Website: www.scorecruitment.com.au

Runner-up for the second year in a row, it’s hard to believe that SCO Recruitment is still only little more than two years old.

The business was founded by young entrepreneur Larissa Robertson, who took over the wreckage of her previous employer that was in the process of being liquidated

Believing that she could save the jobs of many of the 250 people at the firm, Robertson managed to take on 180 of them.

But not only was she facing the challenge of running her first business, she also had to deal with the immediate complications of becoming pregnant and, less happily, losing a multi-million dollar client.

Robertson’s determination and management style helped her over these hurdles, successfully guiding the business into the profitable niche of being a public sector recruitment specialist.

Revenue has grown to $12.7 million and Robertson is continuing to drive the business forward, with SCO Recruitment recently becoming preferred supplier to local councils in South Australia, Tasmania and Victoria, adding to its presence in the NSW market.

Her advice for other budding start-ups? “Don’t ever give up or be afraid to go for it. No-one knows what they are doing at the start but you can work it out pretty quickly if you listen and learn.”

3. Mad Mex

Founder(s): Clovis Young
Revenue: $9.41 million
Started: 2007
Head Office: New South Wales
Employees: 84
Industry: Cultural and recreational services
Website: www.madmex.com.au

Having decamped from the US to Australia, Clovis Young realised there was a gap in the market for his favourite kind of food – Baja Mexican.

Not only did he feel that he could do it better than what was already offered, but he also envisioned a new kind of service model – “fast casual”, which combined speedy delivery with quality food.

Having left behind a career on Wall Street, Young was pitched headfirst into the Sydney food scene, giving diners the choice of a customisable menu and banning the usual Mexican stereotypes of donkeys and sombreros.

There were difficulties along the way. Young went through three different graphic designers before he got the result he was after, as well as facing the problem of hiring an entire workforce.

But Young says he likes the variety of challenges he faces, as he looks to open a further 12 outlets in 2012.

“As a Wall Street trader my day was routine and often quite dull,” he says.

“At Mad Mex there is never a dull moment. In a given day we will be reviewing strategy, meeting with marketing and PR consultants, looking for new sites, designing new restaurants, working on recipes, meeting franchisees, developing staff and training, etc.”

“When I moved to Australia I had four contacts in my phone and now there are hundreds of people that I have the pleasure of working with.”

4. Mars Recruitment

Founder(s): Lorna Alstin, Marcus Wood, Joe Fontana 
Revenue: $9.17 million
Started: 2008
Head Office: Western Australia
Employees: 15
Industry: Recruitment
Website: www.marsrecruitment.com.au

While the three founders of Mars Partnership were doing well in their respective careers at a large multinational recruitment firm, they felt they could do things better, with more autonomy.

Purposely setting out to create a smaller, more nimble company that responded better to client needs, Alstin, Wood and Fontana struck out on their own, focusing on the Sydney financial market, following by expansion into the lucrative engineering sector in Perth.

In a saturated recruitment market, Wood says that Mars stands out by hiring well and allowing staff to be autonomous.

“We are deliberately lean and experienced so that our team have the autonomy and expertise to make strong commercial decisions, something that is critical when working in complex and dynamic markets,” he says.

“We do not prescribe a set process or formula for our teams and this encourages problem solving.”

“We are fortunate to have a great team of high performing consultants at Mars who excel in these areas. We build deep partnerships with our clients and candidates, aligning goals for mutual success, consistently delivering results and evolving with them as they continually change.”

Having started the business up with $100,000 in personal funds, the trio are now looking at expansion within Australia and beyond.

“Our current focus is to fully embed our extended job category and industry services in the Sydney and Perth markets,” says Wood. “We are also considering opportunities in the medium term for further geographic expansion to provide better coverage for our national clients and mobility for our candidates.”

5. Milan Direct

Founder(s): Dean Ramler, Ruslan Kogan
Revenue: $6.74 million
Started: 2007
Head Office: Victoria
Employees: 15
Industry: Retail trade
Website: www.milandirect.com.au

While on a trip around Europe, Dean Ramler realised that the styles of furniture on the continent was something that would be well received by Australian consumers.

Returning to his native Melbourne, Ramler teamed up with tech entrepreneur Ruslan Kogan to launch Milan Direct.

The business sells European designs, made in China, via the web. It has grown to become Australia’s largest online-only furniture retailer, in less than five years.

In this time, Milan Direct has sold $25 million in furniture and expanded to the UK, despite initial reservations from observers about whether the public would pay for such large products that they’d not seen in a showroom.

There have been significant challenges in the Chinese operation, however, as Ramler explains: “Many cultural differences had to be overcome, and we spent many, many months on the factory floors in China teaching our manufacturing partners the quality aspects of manufacturing.”

“It is tough doing business in China, but a challenge that we have relished. For starters, in China, yes does not mean yes.”

“To save face, your China partners will always nod and say yes to everything even if they mean ‘no’.”

“Also our first container of chairs arrived and they did not come in boxes. We spent so long discussing quality of product and we assumed that the supplier would pack each chair into a box. Very wrong!”

“We learnt that you have to spell everything out and be 100% detail orientated or you will end up with a few big surprises.”

This article first appeared at SmartCompany.