The “tech wreck” has been fingered for the poor representation of IT ventures among a survey of fast-growing companies.
IT firms make rare appearances in “The Fast 50”, a survey of New Zealand’s fastest-growing companies by consultancy Deloitte Touche Tohmatsu.
Only six companies out of the 50 are involved in mainstream IT. The highest ranking IT company on the list, published in this month’s business magazine Unlimited, is software engineering firm the Alchemy Group, of Christchurch, at number three.
Telecommunications company TelstraSaturn, however, leads the rankings with a massive 4200% growth over three years’ financial results. Wellington City Council-spawned metropolitan network provider CityLink also makes the cut, at number 22.
Other IT industry players proper come a way further down the league-table, with Auckland customer management systems integrator MSC Solutions clocking in at number 12 and IT services provider EMS Global at 13. Wellington software company Synergy — hoping for great things from its Ericsson joint venture — made 23rd position.
“I was a bit surprised by IT’s poor showing,” says Alchemy managing director Steven Smith. He suggests a lot of IT companies, particularly smaller ones, fell into the “dot-com” space either directly or by dependence on dot-com customers or partners for revenue. Their growth plans may have tripped badly over Nasdaq slides.
Over the past year in this country, companies as varied as WebMedia, CommSoft, Telemedia, Genie Systems, Advantage Group and eVentures have either fallen on much harder times or been forced out of business altogether.
“We haven’t had much to do with dot-coms, so we were relatively secure,” says Smith.
Smith says it’s harder for the software industry to find growth capital. Banks and venture capitalists have perhaps been scared off by IT disasters like Incis, he suggests, but another factor may be that it’s hard to produce tangible evidence of benefits from software development skills, when the company does not know who its future clients may be or what they will want developed. By comparison, biotechnology firms, for example, have a clear direction to pitch to potential investors.
Synergy chief executive David Irving says he “would have expected more IT companies in there”, but perhaps the survey criteria of having to have been in business for three years and turning over at least $100,000 in the first of the three evaluated years unfairly drove some smaller and younger companies out.
Conversely, if a company has done $10m in year one, it’s a bit harder to keep up a growth rate sufficient to get into the top 50, he says.
Part of the problem may have been simply that some IT company chiefs don’t read Unlimited and were unaware of the “Fast 50” exercise, Irving suggests — though Deloitte’s claim of a higher proportion of IT companies in the original list of entrants points away from that as a major cause.
“It’s an inaugural list, and over the next two or three years [the quality of the entrants] will mature,” Irving says. More IT companies may well make an appearance. He suggests a split into two lists — one for established companies and one for start-ups, Irving suggests.
He was pleasantly surprised to see Synergy make the top 50 — “but growth has been our target in the past few years”. Synergy has reinvested a lot of its earnings into expanding the business, “and that’s why our profitability hasn’t been exactly red-hot”.
Brett Chambers of Deloitte, who co-ordinated the New Zealand survey, agrees that the IT industry was under-represented. “There was a much higher proportion of IT businesses in the 500 who were originally nominated, but when we looked at the numbers in detail, a lot of them dropped off.” He agrees with Alchemy’s Smith that the Nasdaq reversals were a significant factor.
One of the issues that a lot of respondents turned up, he says, is the need to have infrastructure in place — the IT and telecommunication support, the people support — to sustain growth, young IT which companies may have lacked.
It is notable, he says, that many of the leading growth performers are those that provide services to IT-oriented companies — like TelstraSaturn and PayGlobal, a provider of online payroll services. Two recruitment companies, nzjobs and Tradestaff, figure in the Fast 50.