A year of contradictions

While the banks are pushing hard to grow their business loan books, anecdotally at least capital remains constrained.

It was against this backdrop that SmartCompany recently held its Smart50 Awards to recognise Australia's fastest growing companies - and the difficult environment has certainly left its mark on the list.

While the average growth rate of the companies on this list was an impressive 97 per cent for 2010-11 (we use average annual revenue growth over the past three years to rank the members of the list), the total revenue of the companies fell sharply from $741 million to $348 million. There were also 42 new companies on this list, suggesting the emergence of a new breed of slightly smaller and slightly younger fast-growth enterprises.

There was an impressive variety of businesses on the list, including entries from struggling sectors such as manufacturing and agribusiness. But what we learnt from talking to the entrepreneurs is that there is something of a new growth model emerging.

For many years the model behind most fast-growth SMEs has been fairly simple - find a niche, gain a strong foothold, borrow from the bank and dominate that niche. Competitive advantage came from building size in a relative short space of time. But this strategy appears to have changed. What we are seeing instead are business models built around flexibility and agility.

There are a number of reasons for this.

Firstly, there are economic conditions. The GFC and the post-GFC hangover have made fast-growth companies focus on running lean operations and keeping a close eye on cashflow and other metrics. Chasing unsustainable growth is not an option.

Secondly, there have been a string of rapid changes in technology - such as crowdsourcing and cloud computing - that have allowed SMEs to change their cost structures and growth strategies. These technologies reward flexibility.

Finally, there are cash considerations. For many of the companies on the list the rapid, bank-fuelled expansion we've seen in previous years is not possible - they cannot get the bank funding they need to expand rapidly. And in some cases they don't want it.

The Smart50 are deliberately planning and running their businesses around the idea that products, projects and new business areas may need to be scaled up or down very quickly to adapt to changing market circumstances.

That doesn't mean growth is forgotten - as the average annual growth rate of 97 per cent proves. But growth must be sustainable, cashflow must be protected and expansion plans must be affordable and typically funded internally.

SMEs have always been nimble, but in the current climate the ability to adjust, tweak and in some instances completely remake your business in a short space of time has become a huge competitive advantage.