We set Emily Ross a hard task: to find five of Australia’s hottest start-up entrepreneurs and get them to talk warts and all about how they did it. Did she succeed? You decide!

By Emily Ross

The SMEs that make up SmartCompany’s inaugural hot startups list are businesses that have interpreted market conditions brilliantly and created products and services (think environment, energy savings, contract recruitment, entertainment and wellbeing) that the market was waiting for.

Many of these SmartCompany.com.au startups, businesses such as Entertainment House, Labour Solutions Australia (founder Andrew Northcott pictured right) and Two Hands Corporate Massage, were launched from home with minimal capital, literally in the spare room with little more than a PC and a phone line, proving that the garage/kitchen startup is alive and well. Their growth rates speak for themselves.

SmartCompany hot startups

Labour Solutions Australia

Brisbane-based blue-collar casual labour recruitment company Labour Solutions Australia did not have to rely on credit cards to help fund growth. A $15,000 Small Business Accelerator grant from the Queensland Government in 2006 helped with expansion plans. Founder Andrew Northcott spent the funds on IT and database reconfiguration, business development advice from a major accounting firm and briefly looked into the possibility of franchising his recruitment business.

Northcott started the fast-growing company in October 2004 while he was working as a casual labourer (driving trucks, landscaping, etc) while studying real estate development. He was just 20 years old when he set up Labour Solutions. He started to supply workers to a friend’s business and it grew from there. Within 12 months he had secured clients including Smorgon Steel.

Northcott worked from a stuffy office at the family home in Brisbane for the first year before moving into serviced offices, then Labour Solution’s own premises. Northcott has only just begun to draw a wage.

In two years, the company has a growth rate of more than 1000% and is on target to record revenue of $1.5 million for the 2006-07 financial year, up from $500,000 in 2005-06. In March 2007, the managing director of Packer-owned Consolidated Pastoral Company, Ken Warriner, became an investor and Northcott also took on a general manager to assist with hunting down big contracts, including business in the Northern Territory.

Success for the recruitment firm has come not from having the biggest database of workers (Northcott has about 800 on his books) but from matching the right person for the job and follow-up client services. Northcott says that the business growth has been supported by the networks he has created and relationships with businessmen such as Warriner, a handy person to know if you have a business dilemma.

It is the networks that have created the business opportunities rather than cold calling. He leaves that to the “other 400 recruitment companies out there. We want to do things differently.”

 EzyGas Conversion Australia

Companies such as EzyGas Conversion Australia, that started two and a half years ago, didn’t even have a home office. The founders, Demetrios Carakitsos and Jason Tresider, both now 24, worked out of their cars, on the road building sales, putting flyers on windscreens, and targeting taxis (early converters to LPG).

The EzyGas entrepreneurs started with $10,000 – $5000 each from their parents. In the beginning, their business did not physically do gas conversions, but referred customers to a network of installers. Installers would use EzyGas parts and were paid a set labour fee. Now EzyGas has its own permanent team of 13 doing the gas conversions from two surburban EzyGas outlets in Melbourne. Turnover for the second full year of business in 2006-07 is on target to reach $1.3 million, with forecast revenue of $4 million for the next financial year.

Even before the Federal Government introduced the $2000 rebate for LPG conversions, EzyGas could not keep up with demand. When the rebate was announced, the EzyGas phones went into meltdown. Call levels went from 50 to 800 inquiries per day. “There was nothing we could do,” says Carakitsos. “We disappointed a lot of people.” At its worst, EzyGas clients were waiting six months for an LPG conversion. It is now down to four weeks.

Carakitsos, who has a background in sales and marketing, was always confident the business would work despite moonlighting for the first 18 months (Carakitsos as a dishwasher, Tresider at Best & Less). “The plan was to never touch the cars, we would just work on the business,” he says. The first year (not a full 12 months) saw revenues of $70,000 jumping to $610,000 in 2005-06. They have invested all returns back into the business and were able to set up their two outlets with bank financing. “We’re still not paying ourselves enough,” says Carakitsos.

The biggest lesson so far for these business wunderkinds has been learning how to deal with pressure, the 13-hour days. It has been eased by the strength of their business partnership. Carakitsos handles sales and marketing and business development, Tresider manages accounts and operations. “It’s amazing,” says Carakitsos. “The harder we work, the luckier we get.”

Entertainment House

Melbourne-based online retailer Entertainment House is on track to record $3 million in sales this year, up 114% on the previous year. Entertainment House the is biggest eBay Australia store and has delivered more than 200,000 DVDs, CDs and game orders around the world. More than 50% of turnover comes from British sales where Entertainment House is the fifth biggest DVD seller on eBay UK.

Founder Philip Leahy’s first sale on eBay Australia was a signed Silverchair record for $150. He began looking around for other items to sell and quickly realised that eBay Australia was an ideal platform for product sales.

Leahy started the Entertainment House business from home in 2002 with his “last few thousand dollars”. His previous business, a chain of radio stations, had gone bankrupt. Turnover for 2002-03 was $70,000 and took off from there. In the following year, turnover reached $360,000.

Leahy credits 14-hour days, smart early hires (so he could move away from endless customer emails) and choosing Marketworks, an Atlanta-based company that helps eBay stores better list and manage their transactions, with keeping the company progressing.

Leahy has also been scrupulously careful with costs. He ran the business from home until 2005 when his wife demanded that he “get the stock out of the kitchen”. He funded growth through his credit cards but was able to cover major investments (mainly IT) through company revenue.

Cashflow has been an issue for Entertainment House. Leahy’s solution has been to avoid debt and “live off the smell of an oily rag”. There are now 20 employees and Leahy has four other spin-off businesses. He represents Marketworks in Australia, runs education classes for eBay sellers, sells items on eBay on behalf of customers and has started bowlsworld.com.au, an online lawn bowling store.

Clearly an entrepreneur, Leahy says this time around business success and phenomenal growth has occurred because he found the right third party to help the business expand. “By choosing the right third-party provider, we were able to manage more auctions,” he says. Leahy is one of more than 52,000 Australians who make their primary or secondary income from eBay Australia.

Two Hands Corporate Massage

Similarly, the founder of successful startup Two Hands Corporate Massage, Suzie Crooymans, is not a fan of cold calling to find new business leads. “I prefer to put the effort into making existing clients really happy, and that always leads to referrals,” she says. Two Hands started in 2000, funded by Crooymans’ savings.

The 2006-07 financial year is proving to be the company’s best year ever. It has clients including Shell, Accenture and law firms such as Dunhill Madden Butler that see that value in providing 15-minute fully-clothed onsite massages for their workers to reduce stress (and help them put in those 12-hour days).

Two Hands is also working at major events and conferences, recently providing masseurs for corporate marquees for companies such as McLaren and Vodafone at the Australian Grand Prix. Since its inception, turnover has increased 500%. Crooymans still operates the business from home and has a team of 10 therapists.

As more businesses realised the OH&S value in corporate massage, more competitors have entered the market. Crooymans maintains that looking after her best masseurs has helped her build a solid reputation and clientele. Crooymans, a trained masseur, has not had to do any hands-on work for several years. The business is so well set up that now, as a new mother, she can handle administration and bookings and let her therapists do the rest. The hard work, and years without a salary, have paid off.

The Sprouted Grain Bakery

It is rare to find an accountant with professional baking skills. Mike Horrocks is neither your average accountant nor your average baker. His new business The Sprouted Grain Bakery, that sells a range of breads that do not contain conventional flour, preservatives or additives, was launched in early 2006. It became profitable just six months after its launch and is already supplying more than 200 outlets including David Jones and Macro Wholefoods.

Horrocks became an apprentice baker at 15 before switching to an economics degree and a career in accounting. He bought a bakery as an investment and continued to work as an accounting consultant until he realised that running the bakery was what he really enjoyed.

He started Lifestyle Bakery in Pooraka, South Australia, 10 years ago that has enjoyed success selling a range of gluten-free bread to 400 outlets. Horrocks wanted to market breads that would appeal to the other 99% of the population who are not gluten-intolerant.

A breakthrough technique to bake bread without preservatives, additives or flour using organic sprouted grains inspired Horrocks to start a spin-off business next door to the Lifestyle Bakery. This baking process is the first of its kind in Australia and has food critics as well as agriculturalists taking notice.

To start up, Horrocks hired the space next door to the existing bakery and bought new equipment. The business was funded with a bank loan and support from a silent partner. It was, says Horrocks, “a calculated risk”.

In the first couple of months, he was nervous. “I knew the number of loaves I needed to make a week to break even,” he says. If it didn’t work with sprouted grains, Horrocks would switch to conventional products. He is a great believer in always having a fall-back position if targets aren’t met. “Otherwise it can ruin you,” he says.

Despite having more than 10 years experience marketing products to the niche health and natural food market, Horrocks found the first few months of the new venture very difficult. “The hardest thing is creating customer awareness, getting retailers to take the product so that customers can buy it,” he says.

Some existing clients took the breads, some were not interested. The priority was to increase the number of retail outlets. Horrocks bought advertising in health food store publications and did promotions through dieticians and naturopaths of the benefits of these easily digestible breads. He also invested in a website, quality brochures and a public relations firm to help generate press.

There was no need for plan B. The business passed its break-even point within six months.

Finding new retail points and retaining them has been the key to the success of The Sprouted Grain Bakery. Horrocks, always the accountant, has kept costs down by investing progressively in equipment and employing casual staff. With variable costs, Horrocks could easily adjust spending where necessary.

Although it took eight years to build the Lifestyle Bakery business, it has only taken 14 months for the Sprouted Bread Bakery to firmly establish itself. As orders increased, so did staff numbers. Between the Lifestyle Bakery and The Sprouted Grain Bakery, Horrocks employs 17 staff.

Horrocks will not reveal specific figures, but he says that the business has tripled its turnover since starting the spin-off, with the sprouted bread sales providing the majority of income. He forecasts growth of 80% for this financial year.

HOT INDUSTRIES FOR SMEs

• Energy/environmental solutions – helping Australians reduce their energy/water use.
• Wholesale trade – quality gourmet products.
• eCommerce – eBay stores.
• Personal services – in particular “mobile” services such as massage, car repairs.

What is the difference between a millionaire entrepreneur and a small business owner? To find out  click here

For more startup success stories, see our Growth Resources, Innovation section by clicking here.

For stategies to grow your business, see the Strategies section by clicking here.