Thirteen years ago, the inaugural Deloitte Fast 50 list showcased Crosskeys Systems of Kanata, Ont. The company posted an impressive 24,613 per cent five-year revenue growth. It was later bought by Newbridge Networks, which itself was snapped up by French telecommunications giant Alcatel in a US$7-billion deal in November 2000.
That’s a great success story, but the initial revenue figure can’t compete with the top spot on this year’s list: Storage Appliance of Richmond Hill, Ont., generated an amazing 64,240 per cent five-year revenue growth.
Storage Appliance was founded by serial entrepreneur Ian Collins five years ago. Its Clickfree product line greatly simplifies data backup.
“These awards and recognitions are great,” Collins said. “The irony is when you’re running the business you don’t always get the time to stick your head up and savour them. It is wonderful, though.”
According to John Ruffolo, global managing partner for the technology, media and telecommunications (TMT) practice at Deloitte, dramatic growth numbers are actually a double-edged sword: profits on one side, while on the other, logistical, staffing, support, production and R&D headaches wait.
“A lot of companies in their early years are not focused on building the business,” Ruffolo said. “And as a result we saw a lot of flame-out because they were not able to sustain the business.”
Growth in maturity
Many hotshot ventures are also maturing nicely. Sandvine, for example, the Waterloo-Ont.-based maker of network equipment and software, posted growth of 339 per cent to land in the 49th slot this year. In 2007, it was the fastest growing company, with a whopping 42,120 per cent growth.
In another example, Toronto mobile bandwidth-management tool vendor Vantrix just landed $14 million in C-series financing.
What hasn’t changed, Ruffolo said, is that businesses on the list are mostly in the software sector, followed by telecommunications and hardware, and while they’re spread across Canada they tend to cluster in and around Toronto and Ottawa.
And while software is still the hot spot, the specifics have changed, Ruffolo said. A decade ago the big numbers were in enterprise resource planning and enterprise resource management systems. Today, companies that grow and prosper tend to be niche-oriented and focused on doing one or two things really well, instead of trying to compete against bigger vendors.
The start-up problem
While some publicly traded companies made the list, most are private and companies today are finding it harder to land financing in the initial start-up stages. That means organizations have to either bootstrap themselves or find angel investors. Later, when they become profitable or at least show promise, second- or third-stage financing becomes easier to source.
NextJ Systems, for example, which provides customer-centred enterprise solutions for the financial services, insurance and health-care industries, is a seven-year-old company based in Toronto that recently landed $22.5 million in private financing. It helps, of course, that it was founded by Bill Tatham, who founded Janna Systems 20 years ago and sold it to Siebel systems a decade later for $1.76 billion.
And therein lays the secret sauce of the Fast 50 list: while lightening can strike and some seem to vault into the limelight overnight, the majority of fast-growing companies combine a great idea with experienced management and a skilled team.
Four people with an idea
Deloitte’s John Ruffolo calls ParetoLogic “the best little software company you never heard of, from a place you’d least expect.”
Based in laid-back Victoria, B.C., the PC security software company earned revenue of $88 million from operations in 208 countries.
Founded in 2004, it posted 1,386 per cent revenue growth over five years, placing 18th on the Deloitte Fast 50 list. And that was done with no venture capital, said co-founder and CEO Elton Pereira.
His father instilled an interest in investment at an early age, and the son went on to work as a CIBC financial advisor with $100 million under management. But an entrepreneurial spirit lured him, his two brothers and brother-in-law to start their company. “At first we sold online as a side job,” Pereira said. “Then we realized there was a niche and we wanted to compete with the top players.”
The four chipped in $25,000 each to outsource development of their first anti-spyware application and today make a range of PC diagnostic and security applications for consumers.
“We made some mistakes,” Pereira said. One lesson learned: “I really believe in hiring from within [because] people can look good on paper but they have to fit. I have people in charge of product lines and HR who started as customer service reps.”
The key, he said, is focusing on the online world, developing a strong channel of resellers and relying on the diverse experience of the four original partners.
“We don’t just throw darts at the wall,” he said. “We have a very strategic thought-out plan.”
Reduce backup headaches, make money
Managing the heady growth of a start-up through maturity is a problem most entrepreneurs can only dream about. What’s so remarkable about Storage Appliance’s founder Ian Collins is that this is his fourth time at this party.
Before Storage Appliance he founded Mobile Diagnostix, which provided customer-care solutions to wireless carriers. He sold it to California-based BitFone in 2004. Before that he was a co-founder of Wysdom, a mobile Internet solutions provider; Web2Mobile, a mobile content portal; and Wyrex Communications, an engineering consulting firm.
“I remember buying my mother a digital camera and thinking she’s going to have grandkids and all these great memories and then, of course, her computer is going to crash and she’s going to lose it all,” he said. “Back then there was nothing for backup. I mean, at work the IT department would back up the spreadsheets and documents, but 10 years ago we didn’t have all these digital images and videos and personal stuff on our personal computers.”
Like any good entrepreneur, Collins always has three or four ideas kicking around in his head, yet the concept of a user-friendly, no brainer plug-and-play backup system struck a special chord. “We did some research and found there were a few players catering to the technical people, maybe 10 per cent of the market, but nothing for the masses.”
Clickfree was born and, because of his track record, Collins was neither short of start-up funds nor of people willing to help with financing.
So what is the fourth go-around like? “It’s really a bunch of clichés,” he said. “It takes 10 times longer than you think, you never really have time to stop and smell the roses, it’s the journey not the destination—but it’s all true.”
One piece of advice: “Never put off a deal waiting for the next deal. Take the deal. Even if you end up in bankruptcy at least you did something. You’ve got to keep moving.”
The Deloitte Fast 50™ 2010
The Deloitte Technology Fast 50™ - 2010
The Deloitte Technology Fast 50™ - 2009
Read Backbone's article on the 2009 Deloitte Technology Fast 50™ - Canada’s fastest-growing tech companies - In search of the next big thing