Once upon a time, all the great names of the rich list were running small businesses. Some toiled away for years in obscurity, grinding their way to a big fortune. Others grew like wildfire, changing their sectors forever.
The Smart50 awards, run by SmartCompany, recognise Australia’s fastest-growing SMEs by tracking average annual revenue growth over three years. On Wednesday evening we announced the winners of the sixth edition of the awards and celebrated with an excited and eclectic group of companies.
But as I looked around the room I couldn’t help thinking – will any of these companies make the leap from fast-growth SME to billion-dollar, rich list calibre business?
The winner of the award for fastest-growth, Audio Active Australia, has posted average annual growth of 267 per cent over the past three years.
I’m not sure its founders Jeremy and Robert Bouris will make it to a rich list as they are in a fairly specific niche, it’s certainly not an impossible dream.
Indeed, the last two BRW rich lists – the Rich 200 list published in May and the Young Rich edition from September 2011 – contain no less than 11 entrepreneurs who have featured on Smart50 lists.
In order of valuation, they are:
Mike Cannon-Brookes and Scott Farquhar
Smart50 year: 2007
BRW valuation: $360 million
Gabby Leibovich and Hezi Leibovich
Company: Catch of the Day
Smart50 year: 2009
BRW valuation: $240 million
Bevan Clarke and Guy King
Company: RetailMeNot/Stateless Systems
BRW valuation: $77 million
Company: Milan Direct
Smart50 year: 2011
BRW valuation: $62 million
Company: M2 Telecommunications
Smart50 year: 2008
BRW valuation: $48 million
Smart50 years: 2011, 2012
BRW valuation: $38 million
Smart50 year: 2010
BRW valuation: $24 million
Smart50 year: 2007
BRW valuation: $21 million
So what can we learn from these names? I reckon there are five key rules to follow, based on the 11 entrepreneurs listed above.
1. Get into tech
Three online retailers. Two software companies. Two telecommunications entrepreneurs. If your business is not focused around emerging technology or technology-driven industries, then your chances of turning your SMEs into a rich list-quality business appear fairly limited. Not only is it possible to scale up technology businesses relatively quickly, there are reasonably strong margins provided your model is right.
2. Lead an industry
Being one of many players in a big industry – property or retail are good examples – used to be a fine way to get yourself onto the rich list. But these days, you really need to build a dominant position in an niche, however big or small that is. Leigh Jasper and Rob Philpot’s project management systems business Aconex is one of the leaders in the construction sector, while Bevan Clarke and Guy King’s online coupon business Retail Me Not remains a clear leader in the massive US market. And while Milan Direct might be a bit of a side project for online electronics king Ruslan Kogan, it holds a commanding share of the Australian online replica furniture sector.
3. Go global
Mark Harbottle is not exactly a well-known name in Australian business, but he quietly created a series of world leading businesses from his base in the Melbourne suburb of Collingwood. First came Sitepoint, a site where designers could go to get a variety of educational material. Then came 99Designs, a leader of the crowdsourcing movement that has changed how many SMEs do business. He’s also a co-founder of Flippa.com, one of the world’s biggest online marketplaces for websites and domain names. The strength of these businesses is of course their global presence, which entices investors and provides the room needed for expansion.
4. Get big-name support
The reason many of these tech pioneers are able to be put onto a rich list is that the value of their businesses have been validated by outsider investors. And typically, they are big names. Gabby and Hezi Leibovich last year attracted funding from a consortium including James Packer and legendary venture capital fund Tiger Global. Mark Harbottle’s 99Designs has the backing of Silicon Valley giant Accel Partners. Retail Me Not got an estimated $90 million from WhaleShark Media, while Atlassian also counts Accel Partners as as major investor.
5. Be male
The Australian business community should be shocked and appalled that the list of entrepreneurs who have gone from the Smart50 to the rich list does not include any women. We’ve rightly spent a lot of time examining why women are not in Australia’s boardrooms in greater numbers, but I’d like to see a more thorough examination of what is holding back female entrepreneurship. It should not be that in 2012 the number of women on our rich lists is falling.
James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.
RICH PICKINGS: From SME stunner to big time player
There are many rapidly growing SMEs in Australia but few owners make it into the very rich lists. Here are five handy tips for making the transition.
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