Fast 50 2004

By Bette Flagler

Monday 1st November 2004

Imagine a company that is robust in a weak economy and flourishes in a strong one, appeals equally to all races, age groups and genders, and has clients ranging from the poorest to the wealthiest, in Bluff to Cape Reinga and everywhere in between.

That's just about the size of it for Trade Me, this year's Fast50 winner, with 1078% annual revenue growth. Sam Morgan founded the online auction company in 1999; by September this year it boasted 16 million completed auctions. And it's no stranger to the Fast50 - last year it ranked second, with 967% growth. (Back then Morgan was predicting the company would grow a relatively modest 300-400% this year.)

Brett Chambers, the Deloitte partner driving the Fast50 programme, isn't surprised to find Trade Me in the top spot. "It's not inappropriate for an IT company to be the top performer. There continues to be a lot of opportunity for people with good technology and good ideas to achieve rapid growth."

In fact, the IT sector scored the top three placings this year. In a neck-and-neck finish, hardware development company Endace ranked second, with 1075% revenue growth. Electronics designer and manufacturer

Prolificx (last year's Fast50 winner with an astounding 2281% revenue growth) came in at number three. Overall, the IT sector accounted for six of the ten fastest growing companies, and 19 overall, giving the sector 38% of the Fast50 slots. Which tends to confirm our observation last year that "tech's back" - in last year's Fast50 the IT sector accounted for 28% of the top 50 companies.

Other sectors to lift their game this year were advertising, media and corporate communications (14% of the Fast50 slots, compared with 10% last year), and construction and property (10% this year from 6% in 2003).

Buy, sell and get hooked
Trade Me isn't your stereotypical 'geeks spitting out code' kind of company with specialist clients. As of mid-September, over a quarter of the New Zealand population was using its services every month. The concept of Trade Me is as much a child of our times as the majority of its employees - Morgan, at 28, is one of the oldest in the team of 30.

The internet provides a platform to buy and sell just about everything and, as the only e-commerce site in New Zealand of any size, the sky is presumably the limit for the company. Board member Mark Richter (who, at 45, casts a senior eye over the company): "Trade Me is a consumer monopoly. Once [a company like this] has a certain number of users and becomes the dominant player, it's very difficult for another provider to get in." Trade Me isn't, however, the dominant player on the dating side of its business (dubbed Find Someone); NZDating holds that spot. But its dating business is the first of Trade Me's services to move offshore - Find Someone is now available not only in New Zealand, but also in Australia and Canada.

While Trade Me may have classic first-mover advantage in the online auction business in New Zealand, its success hasn't come from just sitting idly by. Morgan points out that there are competing sites - mostly non-web-based companies that have moved into internet trading. He credits the company's understanding of the internet and the ease of use of its website as major factors in Trade Me's success.

Not content with online auctions for mobility scooters, lounge suites and chainsaws, Trade Me is now dipping its toe into the real estate market, in competition with the Real Estate Institute's website . Currently, there are about 700 listings on the site for houses, mostly from private sellers, but Morgan says there is increasing interest from real estate professionals who see the site as an advertising and marketing option. Brigitte Hoare, an agent with Impact Realty, says she finds Trade Me's site easy to use. Hoare has sold a couple of properties directly through it, and made contact with other buyers through the site.

Maintaining the momentum
Rapid expansion isn't just a case of sitting back and raking in the dough. Managing the risks associated with growth was identified as the number one challenge for this year's Fast50 entrants.

Entrepreneurs are often driven by the desire to control their own destiny and the New Zealand DIY mentality (the belief that it's better to hold on to control, do things your way and not ask for help) fuels a fire that can burn itself out. Chambers advises businesspeople to work out what they really want. If their business is really just a way of buying themselves a job, they can probably muddle along on their own. But very few achieve greatness as a one-man band. They need help, in the form of both capital and advice. The trick comes in finding the right balance.

Vision Senior Living (VSL), which builds and manages resort-style retirement communities, ranked number one in the over $20 million annual turnover category and sixth overall this year. Director Peter Bourke warns that investment partnerships bring more people into the business, which can lead to complications. He says growing companies need to balance whether they want venture capital to expand, or whether to go it alone, thus retaining their own philosophies but taking longer to reach their goals. Growth for VSL has been accelerated by the raising of secured debt against the villages. VSL chose this form of financing, rather than courting equity investors, because the cost of debt (7.5%-10%) is cheaper for it than the 20%-30% return expected by equity investors.

Growth for five-year-old VSL has also meant senior management has had to become more specialised. Where previously they were involved in every aspect of the business, management has been divided into four functions (head office, development, sales and marketing, and management of villages). These changes present potential risks, says Bourke. "I can see staff issues will develop as founders and visionaries [Bourke and partners Ron Anderson and Bob Foster] get further away from the workforce." VSL currently has 60 employees, but each additional village means an increase in staff.

Bourke believes they are protecting themselves by hiring the right people and developing and maintaining good communication between all levels of management.

The relationship between sister companies Prolificx and Endace began when Selwyn Pellett invested in both simultaneously; now, the two share some board members and investors, but also have a number of unique shareholders. Working together, albeit in very different businesses, they share sites and outsource to each other where it makes sense. Prolificx designs and manufactures electronic solutions, with recent applications including vehicle tracking systems and a PDA (personal digital assistant) developed for the Muslim market. Endace specialises in computer network intelligence, with a client list that includes national and global telecommunication carriers, government security/law enforcement services and corporate customers in Europe, Asia and the Americas.

Both companies see acquisitions as a key growth strategy (as Unlimited went to press, Prolificx was closing a deal on the purchase of a US-based design company, and Endace has just closed on an application specific integrated circuit design house in Perth). But here in New Zealand, the pair, particularly Prolificx, have concentrated on building infrastructure. Pellett says that Prolificx had a very ambitious business plan and realised there was a limit to how long it could keep growing at an extremely rapid rate. "We are getting ready to take on multiple franchises and this year we chose to deliberately slow down and build up the infrastructure."

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