Start-up survival secrets

Starting a business can be a frightening experience – just ask members of our Smart50 list. PATRICK STAFFORD surveyed the Smart50 to find out the most challenging pitfalls of starting a business, and uncovers the secrets to overcome them.

By Patrick Stafford

Starting a business can be a frightening experience – just ask members of our Smart50 list.SmartCompany surveyed the Smart50 to find out the most challenging pitfalls of starting a business, and uncovers the secrets to overcome them.

The Smart50 faced a range of different problems, including a lack of quality staff, cashflow mismanagement, hostile competition and even balancing the demands of a new business with a full-time job.

Many of the companies on the Smart50 – particularly those in web businesses – are trailblazers in their industry. On top of the standard start-up problems, they also faced the challenge of operating in an emerging sector and convincing wary investors, suppliers and customers that their product worked and their business would survive.

Let’s look at how three technology start-ups survived early challenges to become industry leaders.

Educating the market

Back in 1995, the internet was mainly a place for news groups, chat rooms and porn – a long way from being a breeding ground for a successful business. But the founders of casting and talent agency AT2, Elio Guarnuccio, Brad Hayden and Kylie Smith, saw the opporunity to revolutionise the way their industry operated by moving its entire service online.

Instead of relying on phone, fax, post or email, AT2’s site provides a system for agents and directors to communicate with each other – and a better way for actors, models, children, extras and agents to get work. Moving online saves paperwork, time and money for show business players.

It sounds like an easy sell, but Guarnuccio says AT2 had a hard job convincing the industry that online was the way to go and proving to clients the web was more than an email tool. The company’s educational efforts involved some extreme measures.

“We had to provide computers free of charge to many agents, teach them how the internet works and that it was the way of the future,” he says.

AT2’s customers are now online converts and the group is enjoying a strong average annual growth rate of 43.33%. Revenue hit $1 million in 2007-08.

With the uptake of broadband accelerating at a rapid rate, Guarnuccio says AT2’s online service is now the industry norm, so much so that several online competitors have sprung up.

Forging new ground

Creating a new service is hard enough to do, but selling it exclusively on the web is even harder. Such was the burden of car rental service Vroom Vroom Vroom, which sought to establish one of Australia’s first online car rental services back in 2002.

“Before VVV was launched, customers had two options; use a direct supplier or use a travel agent, which would bring huge car rental costs,” co-founder Peter Thornton says. “We discovered car rental was almost non existent online, and saw a massive potential to rank well in search engines.”

The site compares major car rental suppliers and provides a range of options to suit the user’s needs – a sort of Wotif of car rental.

It’s a simple idea, but gaining support back in 2002 – just a year after the dot-com crash had claimed so many supposedly great ideas – was not easy. “Convincing our suppliers to believe in our product and to have faith in the online arena was tough,” Thornton admits.

A few years ago, the company also hit cashflow problems. Some staff went a month without pay and the founders even signed a deal to sell half the company for a very discounted price. Luckily, the deal fell through and things started to turn around – thanks to the power of Google.

“After we received support and began to rank well in Google, it was all smooth sailing,” Thornton says. “Well, most of the time.”

VVV’s work in pioneering its industry has paid off. The company, which makes 500 to 700 bookings a day, has enjoyed 121.35% average annual growth and had revenue of $2.41 million in 2007-08 to rank second on our Smart50 list.

Thornton says staying on track, focused and committed has kept VVV alive in an industry they helped create. “One of the biggest things [we’ve] learnt is to believe in the product and services we offer and not to be distracted by other tempting opportunities.”

Bridging the credibility gap

The development of broadband internet has fundamentally shifted the way business and households communicate, including the introduction of high quality web-based telephone technology.

VoIP, or voice-over-internet-protocol, basically allows users to make phone calls over the internet. Its big advantage is that it is much, much cheaper than using telephone lines.

But when the technology was made commercially viable in 2004, almost no one capitalised on the opportunity to provide cheap calls over fast internet connections. Broadband take-up was still slow and download limits were very low.

My Net Fone Australia, founded by Andy Fung and Rene Sugo in 2004, was one of the brave Australian companies that decided to move into the VoIP business.

“We started the business because we recognised the huge potential of telecommunications business and the shifting of technology to VoIP,” Fung says.

“There were two key challenges in the early days. One was to convince people that VoIP is a viable and long term service proposition, especially with the continuing roll-out of broadband.”

VoIP relies on a consistent internet connection, which can often be volatile and go down with little notice. But with the expansion and improvement of broadband services, My Net Fone has enjoyed more and more attraction to VoIP.

The second problem was one that many small businesses face: “Convincing people My Net Fone as a company will be around to service them.”

Fung and Sugo put a huge effort into customer service. “What we learnt is that the business must be credible and needs to build a track record – you do what you said you’d do,” Fung says. “Building a track record is a long-term thing, day-in and day-out, running the business and delivering quality service. It’s not a flash-in-the-pan, here today, gone tomorrow thing.”

The company also used its website to stick close to its customers by constantly communicating with them.

“We constantly interact and engage with our customers. We believe our website is an important tool for us to build brand recognition and loyality and on-going relationships with our customers.”

As broadband take-up improved and VoIP has become more accepted by the market, My Net Fone’s business had grown quickly, with average annual revenue growth running at 106.92%. In 2007-08, revenue was $6.85 million.