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DAVID VS GOLIATH Just as David beat the odds to triumph over Goliath, three entrepreneurs prove that with flexibility and innovation they can compete with the corporate giants, writes Nicholas Way.

T hey are the Davids of the corporate world and they care little about the Goliaths' brand strength, reputation,

turnover. history and even market share. These entrepreneurs have an idea, a strategy to carve out a profitable niche in the market, and nothing will deter them.

HIGH-WATER MARK One of these Davids of the business world is NutrientWater, the brainchild of Melbourne schoolmates Luke Marget, Brad Wilson and Matt Dennis, who had careers in finance and law before they spotted a gap in the beverage market.

Their range of enhanced water containing specific blends of nutrients seems, like many great ideas, obvious in hindsigh t. Yet none of the multinationals dominating Australia's beverage market had recognised the opportunity.

"We remained good mates a fter school and wanted to get into business together,"

explains Marget. "In 1993, while still in our day jobs, we started looking for a commercial opportunity. It took a while, but we finally figured out that the beverage market was dominated by soft drinks, yet bottled water and sports drinks were experiencing rapid growth as consumers were becoming more health conscious .

.. However, the market was missing a drink that contained less electrolytes (salt) and carbohydrates (sugar) than sports drinks. From that insight came our idea for a drink that suits everyday situations rather than just for when people play sport."

A good idea is one thing but bringing it to commercial fruition is another. For Marget, Wilson and Dennis, who were in their 20s when they hatched their plan for NutrientWater, excess capital was not something they had lying around. Getting their venture off the ground t>

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Being first on the block

and Australian owned has helped, but

they know they have to keep

innovating products to stay one step ahead

of the market.

Oldsehool friends Luke

Marget, Brad Wilson and

MaLt Dennis were prepared to make some

sacrifices to get NutrientWater

in production and on the

shelves.

meant remaining in their day jobs, as well as moving back home with their parents in 1994 to preserve what little capital they did have. Meanwhile, their new venture was absorbing most of their remaining waking hours.

In October 2005 they finally had a product to sell - five pallets of NutrientWater - but where to market it? And how? The retailers in Melbourne's inner-city suburbs, where there were plenty of health-conscious young people, seemed the obvious answer.

"Every retailer had to fit our selection criteria to build the brand by positive association. We were looking for inner­city cafes with attractive fit-outs that targeted health-conscious consumers with high-quality, healthy foods," Marget says. "Somewhat to our surprise, the launch was a huge success. Nutrient Water sold off the shelves faster than our wildest expectations. Feedback from the retailers was very positive, telling us that our product was selling better than many of the established brands. More importantly, people were returning daily to buy it. We knew then that we were onto something."

However, NutrientWater's founders had always had their sights on the national market. For the first time in years they had to split up, with Wilson moving to Sydney in 2007 and Marget to Brisbane to set up a national distribution chain, a critical step in their development that Marget says simply wasn't possible

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to achieve over the phone. Today, they are all back in their home town, with 30 full-time staff in their South Melbourne headquarters, and have secured contracts with prominent retail chains Coles, Woolworths, 7-Eleven and Caltex. Marget estimates they may hold between 30 and 40 per cent of the enhanced water category, which is worth $100 million in annual retail sales.

However, Goliaths such as Coca-Cola Amatil and Schweppes have not sat back and let this trio have the market to themselves; in response to Nutrient Water's success, they have entered the space vigorously with Vitamin Water and Smart Water, respectively, and are pushing hard to increase sales, helped by the fact that they have multimillion-dollar marketing budgets and healthy balance sheets, which means they can offer discounts to retailers. This discounting has hurt NutrientWater, though Marget can't quantify to what degree.

Being first on the block and wholly Australian owned has helped NutrientWater to keep its head out in front, however, its founders know that's not enough. They have to keep innovating products to stay one step ahead of the market if they are to survive.

DIRECT AIM Ruslan Kogan, who was born in the former Soviet satellite state of Belarus and immigrated to Australia when he was six years old, came up with an idea for a commercial opportunity in 2006 when he was shopping for an LCD TV. As he [>

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We give customers

complete control over the products

we release. We talk to them

about features they might

want ina new product.

shopped around, he realised he could get a much better price by dealing directly with the manufacturers. He was working as an IT analyst at the time, but the thought of running his own business got his pulse racing. Kogan Technologies was born the same year in very humble surroundings - his parents' garage - and Kogan left his stable job soon after.

"I identified that most people were buying TVs and consumer electronics in traditional bricks-and-mortar retailers,'' Kogan says. "At the time there were some online retailers selling big-name products at small discounts, but no-one was dealing directly with the manufacturers of these electrical goods and truly cutting out all the middlemen to deliver the lowest prices. I realised I could give consumers a better deal by offering a money-back guarantee, competitive shipping rates and high-quality products at the best possible prices.

"Clearly, my business model worked. From day one we were growing at 20 per cent, month on month. Our annual turnover was $3 million in the 2008 financial year, the next year it nearly trebled to $8 million, and this financial year we expect to more than double last year's result. It's simply been incredible."

Recognition has come from many quarters. In 2009 Kogan's company secured the number 37 ranking on the BRW Fast Starters list. In the same year, Kogan made the BRW Young Rich list at number 100, ranked number 41 in T3 magazine's 50 Most Influential People In Technology and won the

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Ruslan Kogan, the founder ofKogan Techno logies, is the only person to have two companies on this year's BRWFast Starters list.

Ernst & Young Entrepreneur of the Year (Young Entrepreneur category). Kogan is also the only person to have two companies on the 2010 BRW Fast Starters list, with Kogan Technologies jumping to 17, and Milan Direct (a designer furniture online retailer and Kogan's second business) debuting at 39.

Kogan argues that his company has no direct competition because his business model is unique. The big-name brands, such as Sony, aren't competition because of their archaic business models. To put it simply, they don't sell directly to customers. Kogan's main competitive advantage is in cutting out the middlemen, which results in unbeatable prices. If online stores such as DealsDirect manufactured their own TVs, they would be direct competition, but they don't. They are just another online store feeding the culture of the middleman. They buy their products from a wholesaler, so they're not a true direct business model in the same sense that Kogan's companies are.

Every consumer who opts for Kogan Technologies is one less consumer walking through the doors of a Harvey Norman, JB Hi-Fi or Dick Smith store. It would be naive to think these retailers aren't dissecting his modus operandi and trying to determine how they can compete with him, but it won't be easy for those household names because Kogan has no intention of sitting still.

"We're the only company in Australia that gives customers complete control over the products we release," Kogan says. "Kogan Technologies exists to service r>

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Paul Bassat, co-founder

and joint CEO of Seek with his brother,

Andrew, saw an opportunity

to take the alre-ady

lucrative classifieds

market online.

demand and it is through social media, such as our blog and Twitter account, and one-on-one discussions with our customers that we get our ideas for new products. We talk to customers about features they might want in a new product.

"There is no other consumer electronics brand that has the flexibility to implement change in upcoming products with the speed we can while also being big enough to service the significant demand that our products have created.

"We are also a team of tech lovers. We all share a passion for the technology we sell, allowing us to stay ahead of the curve. Because we know what the latest and best technology is, we deliver what consumers want at a price that no-one in the market can match."

ONLINE FIND To add Seek to this list of upstarts who have the temerity to challenge the big boys on the block is something of a misnomer. Seek is, after all, Australia's biggest online employment site, holding around 70 per cent of the market share.

However, when Seek was founded in 1997 by two brothers, Paul and Andrew Bassat, and Matt Rockman, it was very much the seven-stone weakling compared with the heavyweight newspaper classifieds that dominated the market.

Paul, joint CEO with Andrew (Rockman left in 2006), says, "In those days, Fairfax dominated the market in Sydney and Melbourne, and News Corporation in most of the other capital cities, but it was

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a market worth $800 million annually and we could see a great opportunity. Classifieds is a lucrative market with large margins. Over time, we believed that Seek had to be a more efficient way for employers to find employees, and employees to find jobs.

"We were helped by two other factors. When we started out, the IT industry was booming - it was before the dotcom bubble burst in 2000 - and people were just becoming internet savvy. It wasn't long before the large recruitment firms could see the cost savings and competitive advantage of advertising online. This gave us momentum.

"More importantly, though, our competitors had divided loyalties. They had their own internet job sites, which launched at a similar time to ours, but at the same time they were desperate to defend the larger revenue spend from their print advertising. In contrast, the internet was our sole focus."

Today, the national spend on job advertising has fallen to $600 million - a 25 per cent drop from $800 million in 1997 - as the internet has driven down costs. For instance, the average job ad on the internet costs about $75 while the comparable cost in print is $500.

For Paul, that's why the future is so promising. "The cost difference will continue to drive advertisers to the internet," he says. "The internet now accounts for 80 per cent of the total market for job ads and I still think there's lots of growth in this market for Seek." lfil

Australia's biggest online employment site was once

the seven­stone weakling

compared with the

heavyweight newspaper classifieds.