by Real Business - Thursday, 30th August 2007

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The breadth of this year’s Hot 100 is astonishing. Look down our list and you’ll find companies ranging in size from sales of less than £6m to the colossal £775m generated by fuel supplier Greenergy – the biggest company in the Hot 100 for the second year running. Or compare window glass specialist Eynsham Group, which grew by a healthy 57.6 per cent a year from £2.7m in 2003 to £18.2m at the last count, with electronics retailer Expansys, which has rocketed by an annual 391 per cent over the past four years.

What’s more, this year’s entrepreneurial stars knock the socks off quoted companies (see tables, page 28). Not convinced? The top ten companies in our Hot 100 grew at an average rate of 216 per cent. The top ten public companies grew by a mere 160 per cent. It just goes to show that high growth isn’t dependent on bucketloads of public money.

Collectively, the companies in this year’s list employ more than 35,000 people. Their combined sales total is more than £4.5bn, with combined profits of more than £271m. “It’s a huge achievement,” says Grant Berry, UK regional managing director at LDC, the private equity firm which sponsors the survey. “To be growing profitably when the market is so competitive is a testament to the determination of the country’s entrepreneurs.”

This year, dotcoms are back. Expansys, the number one company in the list, sells mobile phones, PDAs and other handheld gadgets over the internet; Allegran, listed at number five, is an online dating agency; and Miniclip, ranked at 11, is a web-based gaming site. And that’s just in the top 15.

There’s a generous sprinkling of online businesses further down the list, too. You’ll spot Hot 100 veteran Net-a-Porter (38th), the online fashion boutique founded in 1999 by former Tatler fashion editor Natalie Massenet. Unlike many businesses established in the heady days of e-tailing, Massenet started the company on a relatively small budget of £500,000. Her business grew while most pioneering fashion sites crashed, taking investors’ millions with them.

Or take Warehouse Express (50th), the web-based digital camera specialist. High street rivals struggle to match its ability to respond quickly to customer demands and market changes.

“If you buy one camera, we’ll replenish stocks by ordering another two. If you download your images to us by 4pm, we’ll deliver prints to your doorstep the very next morning,” says Colin McCarthy, chief executive. “If we’re out of stock or if we don’t deliver on time, customers won’t come back. It’s as simple as that.”

Recruitment firms also fare well in our list, with eight entrants, all in the top half.

Some of our other Hot 100 companies have anticipated the movement towards greener products. Concerns about climate change prompted Jeremy Leggett, once a consultant to the oil industry, to set up London-based Solar Century, ranked at 63, which makes solar panelling for domestic and commercial buildings. His company featured in last year’s list of the fastest-growing loss-making companies, but in its latest financial year it has gone into profit on sales of £14.7m – more than double last year’s figure.

Andrew Owens, founder of Greenergy (45th), is also profiting from the green movement. He says that environmental concerns will continue to boost demand for his company’s low-sulphur fuel, and reckons sales in the year to March 2007 will top a staggering £1.2bn.

But it’s not just enough to ride the wave of a fast-growing market or spot an emerging niche. Just under 15 per cent of our Hot 100 entrepreneurs put their success down to providing better customer service: “We just love our customers to death – and they stay,” says David Pollock, founder of Cheshire-based telecoms supplier Chess (37th).

Peter Holling of 4L Packing (29th), which imports plumbing and bathroom furniture and distributes it to retailers including B&Q and Tesco, says his company’s 105 per cent growth rate is down to sheer hard work: “If you want to know why I succeed, it’s my commitment. I put my heart and soul into whatever I do.”

Or take Josh Llewellyn, co-founder and chairman of Towerlight (24th), a pan-European industrial lighting company. The serial entrepreneur, who had started his first business by the age of 22, puts his success down to experience. “I’ve made a lot of money and lost a lot of money,” he says. “I’ve been in business since 1972 and I’m running out of mistakes to make.”

Funding
Nearly all of our entrepreneurs have “bootstrapped” their way up by their own efforts and with their own funds: 62 per cent started their business with their own money. Most of them fiercely resisted borrowing and took no loans of any kind during the start-up phase; 19 per cent relied on an overdraft facility; 11 per cent remortgaged their homes; and eight per cent used a credit card to top up their funding. Internet entrepreneur Tony Sellen, the brains behind Allegran (5th), used 20 different credit cards to get his Londonbased business off the ground, while Mike Parsons, chief executive of Barchester Heathcare (33rd), sold his shares at Saatchi & Saatchi and used the £680,000 to open his first care home.

Using personal funds means that an overwhelming 85 per cent of our entrepreneurs had a start-up equity stake of 100 per cent – a crucial consideration if you want to stay in control of your business.

But they haven’t jealously guarded their stake. Around a third of them have traded a share of their equity for funding from a private equity or venture capital company, business angel or friends and family. Thirty-five per cent received the funding at start-up or early stage; 16 per cent as part of an MBO; and nearly half as development capital.

This year’s results also show a correlation between sales and outside investment. Average sales for a company with venture capital or private equity backing are twice those without backing. Those with outside investment are also more profitable, with an average margin of 8.6 per cent, against the Hot 100 average of 7.6 per cent.

“Any company has to make an important decision about how to take the business to the next level,” acknowledges Berry. “The management team’s main options are to grow organically using operating cash flows or grow faster by acquiring a competitor. Using outside investment can accelerate results – for example, by helping to recruit a high-calibre individual to the management team.”

He says that although people think that private equity companies are only interested in larger deals, a lot of his company’s transactions are at the lower end of the £2m-£100m scale.

For some founders, development capital is a chance to take some money off the table for all their hard work, while seeing an investment in the business at the same time. Others recognise that it’s time to move on. An MBO at Nexus Telecommunications (76th) has provided new direction and enthusiasm. Ashley Hunter, a director, explains: “The company had become a lifestyle business for the founders, who were happy to take the profits out, whereas we wanted to take it to another level.” His plan is to increase turnover to £40m-£50m within three years.

Staying power
So what does it take to stay in the Hot 100? A look at last year’s table shows just how tough it is: only 23 companies have made it into the list again this year. Just two – Gladedale Holdings (53rd) and Living Ventures (82nd) – appear in the Hot 100 for the third year in succession. That’s because once a business reaches a certain size, it’s difficult to continue growing at the same rate.

According to Berry, sustained growth depends on your people: “It’s about maintaining a positive company culture. You’ve got to get that spirit of endeavour – the same spirit the original entrepreneur had at the beginning – working among the whole team.” Without that you may achieve a sparkling performance in any one year, but it’s unlikely to be sustainable.

“Without growth, people get bored,” says Richard Higham, chief executive of energy firm Acteon (74th). If you want to hang on to key staff – an acute problem in the oil and gas industry – Higham says employees “have to be able to see the dream going forward, and believe they can be part of it”.

Most of our entrepreneurial stars agree with him. Nearly a fifth told us their biggest challenge is to manage an increasingly large and complex business. The next biggest challenge is to recruit and retain the high-quality staff they need to manage that growth.

“It’s absolutely crucial to find the right people and treat them properly,” says Berry. “It’s about personal development and making sure employees share in the company’s success.”

So how do our Hot 100 entrepreneurs keep their people happy? Pension schemes? Private healthcare? Shares in the business? Wrong. The most popular measures used to attract and retain staff are training programmes, attractive working conditions, above-average basic salaries and bonus schemes. Todd Treusdell, co-founder of online advertising firm Adviva Media (13th), takes his staff out for lunch every Friday, has office barbecues in the summer, offers flexi-time and runs overseas training sessions. It’s these kinds of perks that keep employees happy – and productive.

Forecasts for the future
The prospects for our Hot 100 companies look bright. This year’s bunch are inherently optimistic, with a whopping 80 per cent expecting sales to grow even faster next year. And they’re not yet ready to let go of the reins. “When you build up a brand from scratch, it’s very hard to leave it,” admits Tim Richards of cinema business Vue Entertainment (4th). “It’s like a child in a way.” Roger Butterworth, who heads Expansys (1st), admits he flirted with the idea of a trade sale but decided it would be a cop out. “The business is still a work in progress. I’m not ready to let go,” he says.

More than half of our Hot 100 entrepreneurs want to continue as things are; 18 per are considering a stock market flotation; and 11 per cent want to bring in private investors or get further rounds of private equity funding. That leaves just under 20 per cent who are considering an MBO or a trade sale.

Forget any notions about worklife balance. The overwhelming majority of our entrepreneurs are still putting in the same blistering 70-hour weeks that they were notching up when they first started their companies.

So, without further ado, let’s introduce the hard-working entrepreneurs who make up this year’s Hot 100.

Tags: hot 100, entrepreneurs, lifestyle business, private equity, andrew owens, private investors, development capital, recruitment, miniclip, expansys, greenergy, doing business online, online dating, massenet, success stories, towerlight, josh llewellyn, david pollock, chess, tony sellen, allegran, mike parsons, barchester healthcare, raising venture capital, venture capital, growing a business, management buyouts, nexus telecommunications, gladedale holdings, living ventures, richard higham, motivating your people, acteon, hiring and firing, adviva media, advertising, sales, floating a business, business angels, selling a business, work-life balance,