Innovation

PROFIT HOT 50: Canada's hottest startups

Written by Jim McElgunn

Canada’s Emerging Growth Companies are a tiny elite. Most of the tens of thousands of businesses launched each year in this country fail within a few years. Even among the survivors, only a precious few expand at anything close to the blistering pace of the PROFIT HOT 50, whose revenue growth averaged 1,007% over the past two years.

What makes the companies honoured and analyzed in these pages so special? It’s not as if they’re somehow immune to the hurdles that face other businesses. When HOT 50 CEOs were asked to cite the external obstacles that had prevented even faster growth, they listed a series of challenges that will be wearily familiar to other entrepreneurs, such as a downturn in your sector (cited by 52%), a shortage of qualified workers (50%), prospects’ reluctance to buy from a young firm (48%) and currency fluctuations (36%).

Yet, despite these obstacles, every HOT 50 firm at least doubled its revenue from 2006 through 2008, and 13 grew by at least 1,000%. The extraordinary performance of the PROFIT HOT 50 goes beyond the top line. Fully 70% were already in the black in 2008. And many honorees were comfortably so: 28% boasted net income of more than 10% of revenue.

Results like these deserve the attention of all entrepreneurs with an interest in growing their businesses. So how did the HOT 50 do it? In part, that varied with each company. But there are also broader patterns that offer insight into how to create a growth star in any industry.

Serial entrepreneurs have an edge: A substantial majority (60%) of HOT 50 CEOs have started at least one other company, and a remarkable 20% have launched at least three other companies. The preponderance of serial entrepreneurs helps explain two other stats that would surprise anyone who assumes that building a successful startup is just for the young: 44% of the HOT 50 CEOs are at least 40 years old, and 16% are at least 50.

Having been through a previous business launch can provide a sense of where firms often fall down. Stan Samole, who’s on his third startup, Fidelity Electronics Inc. (No. 36 on this year’s list), says most entrepreneurs fail because they don’t understand the numbers in their business. The problem, says the president of the Vaughan, Ont.-based consumer-electronics distributor, is that “they don’t understand basic accounting principles, and don’t ground their business plans in those principles.”

Use technology to keep in fighting trim: The HOT 50 are a tech-forward lot. But not just any technologies. The HOT 50 are especially keen on tools that help make them more nimble. Large majorities use remote-access software (76%), instant messaging (74%), custom software (72%), online meeting tools (68%) and mobile applications (66%).

The HOT 50 were also early adopters of Twitter — which, it’s easy to forget, has taken off only in the past year. While just 2% of CEOs in the 2009 Fortune 100 had Twitter accounts as of June, 40% of HOT 50 CEOs tweet at least once a week. David Ciccarelli, president and CEO of Voices.com (No. 20), averages 24 tweets per week, and his firm’s Twitter page has 3,000 followers. He says the online soft sell is central to promoting his London, Ont.-based online marketplace for voice actors: “Let’s build a relationship first, then introduce you to our service when you need it.”

Finding and keeping top talent is Job One: It’s no secret that having the right people on your team is essential to achieving your business goals. But what stands out among the HOT 50 is how overwhelmingly important it is to get HR right. When these companies’ CEOs were asked to rate, on a scale of 1 to 10, the factors crucial to their fast growth, “retaining good staff” averaged 9.5, with “recruiting good staff” close behind at 9.2.

“We network and relationship-manage for hiring the same way we do with sales,” says Chris Becker, CEO of Toronto-based Filemobile Inc. (No. 21). Unlike companies that recruit only when they’re about to hire, Becker’s social-media platform provider always has prospects in the pipeline. “Someone I might be interested in hiring later can come and have a beer with the guys on a Friday afternoon,” Becker explains. “And we stay in touch, so we have a relationship with them when we’re ready to make a job offer.”

Opportunities are everywhere — but only if you add value: You’ll find Canada’s hottest startups in far more than just a booming sector or two. In fact, their lines of business are strikingly diverse. They do everything from franchising community newspapers to helping consumers get out of debt, from designing and distributing dog apparel to running camps for workers in remote areas. What unites this disparate bunch is that all of them keep their eye on the most important ball of all: what’s in it for my clients?

Providing store fixtures to retail chains might seem an unlikely sector in which to build a new growth star. Yet Bud Morris has done exactly that as president of Canada’s Best Store Fixtures Inc. (No. 15). He says customer service had slipped badly in the industry, creating an opening for his Woodbridge, Ont.-based producer and distributor of retail fixtures to wow clients by following basic business practices to the letter.

“These were very simple things: meeting deadlines, fulfilling orders 100%, not back-ordering items, not missing items,” says Morris. His firm’s success in doing so consistently has been the key to landing clients such as Honda, Home Depot and Canadian Tire. And that has led to sales of $18.5 million in 2008 — an 803% increase over 2006 that was just the ticket to land Canada’s Best Store Fixtures among the HOT 50 elite.

How we ranked them: Entries were ranked by two-year revenue growth, with revenue and net income verified through financial statements. All growth rates were based on base-year revenue of at least $50,000. For details about the ranking procedure and eligibility criteria, visit PROFITguide.com/awards. Entries were solicited through an entry form distributed in PROFIT and at PROFITguide.com, and through targeted direct mailings to qualifying companies. The nomination drive was also promoted through Canadian Business, Maclean’s, the PROFIT-Xtra e-newsletter and several major Canadian business organizations. The information in this issue and on PROFITguide.com is the only data PROFIT will release on the HOT 50.

Originally appeared on PROFITguide.com
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