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It was while Laura Tenison was in hospital recovering from a car accident that she had an idea for a business, which today is worth an estimated £10m. The concept for Jo Jo Maman Bebe, a mail-order and internet business that provides maternity, baby and children's wear, came to Tenison after a woman in the next bed complained about the lack of fashionable maternity and children's wear.

Tenison did some research into the market and was so convinced of the potential for a fashionable approach to maternity wear, that she sold her building and renovation business to get the £70,000 needed to fund her mail-order company. "I believe in gut instinct and I'm a real gambler," says Tenison, managing director of Jo Jo Maman Bebe. "You do need to put your neck on the line if you want to succeed."

A smart idea, an ability to spot a gap or opportunity in the market and a willingness to take financial risks have been key to Tenison's success.

She is part of an elite club of people who have created some serious wealth by setting up DM businesses. Be it in mail order, data, telemarketing or DM agencies, the industry has spawned lucrative enterprises and personal fortunes.

Perhaps the most common thread running through successful DM business stories is the fact that they are based on ideas with mass appeal to a broad base of clients. "It's about finding a solution to a client problem," says Mark Roy, founder and chief executive of data suppression specialist The REaD Group. "In DM that means either the loss of customers, falling response rates or the desire for the ultimate list."

The REaD Group had been established for many years when in 2000 Roy devised the product that made his company's name - the Bereavement Register, a file of deceased people compiled through funeral directors and registrars.

The company, of which Roy is the chief shareholder, now has an annual turnover of £10m and is considering a flotation on AIM (Alternative Investment Market).

Secret to success

For Tylan Bahcheli, founder of list broker and manager Dudley Jenkins, the client quest for decent lists led him to quit his job at a mailing house and set up his own data business in the early 1970s. "The business I worked for had a fairly primitive list operation and I thought if you're mailing out thousands of letters to prospects, the least you could do is get the list right," he says.

Bahcheli started building lists from directories and through telemarketing, the high point being the launch of Consumer Surveys in the mid-90s. Towards the end of that decade, Bahcheli and his partner, Paul Wilson, sold Dudley Jenkins for £80.6m to Dutch group Wegener.

While solid product ideas lie at the heart of the biggest supplier success stories, agency businesses rely on less tangible foundations: people and ideas. That said, several millionaires have been created as a result of DM agency launches that have flourished. Though John Watson, former chairman and chief executive of WWAV Rapp Collins, is reluctant to divulge his worth, he is understood to have netted a sizeable sum after selling the agency he founded, Watson Ward Albert Varndell, to Omnicom in 1994.

And the secret of Watson's success? "Agencies must create great teams around them and Watson had some very good suits, creatives and accountants at WWAV," says Wanda Goldwag, a serial entrepreneur and investor in DM and digital businesses. A balance of such skills is essential, she says.

Yet the same single-mindedness that drives entrepreneurs to establish their businesses in the first place can make them reluctant to hire people with skills beyond DM. It's a fatal mistake to make, say the experts.

"Successful entrepreneurs are those who, over time, build an understanding of business issues and the skills needed beyond their own ones for the company to prosper," says Jim Surguy, founder and managing director of Results, a consultancy which specialises in advising agencies.

Resisting early backing

Bahcheli had no desire to run Dudley Jenkins single-handedly and brought in non-executives - a lawyer and a City of London expert - as soon as he could. The combination of business experts and direct marketers on the board was vital for the company's next phase of development in the late 1980s - to raise cash for acquisitions.

This highlights a common trait among DM entrepreneurs - an aversion to taking on venture capital or private investment in the early stages of growth.

Before John Dobson embarked on building database services company EuroDirect, along with the company's founders Mike and Graham Green, he set up a data capture bureau in 1983 with a small bank overdraft. Roy, meanwhile, founded The REaD Group in 1992 using £25,000 in savings. He remains the company's major shareholder.

Neither has any regrets in resisting early offers of outside backing.

"When I set up the data capture business, a computer bureau was willing to back me, but they wanted 60 per cent of the business," says Dobson.

"But my accountant counselled against this, reminding me that I hadn't even started the business and yet already I was giving it away." Dobson heeded the advice at EuroDirect and only sold the majority of his shares when the company was fully matured.

Partnerships with fellow direct marketers can prove to be a more prudent course than accepting outside finance. In 1992, Roy worked with EuroDirect to launch the National Home Movers Database, The REaD Group's first suppression product. "I'm hugely in favour of strategic alliances," says Roy. "The partnership can be based on anything you need - a set of data for instance - just as long as the other side delivers."

The traditional scenario for DM entrepreneurs looking to take their businesses to the next stage of growth, particularly those involved in agencies, has been to sell out to a large, established network, forsaking overall control. But for those determined to stay independent, outside capital has become more of an attractive option.

In the 1980s, the City was reluctant to back the nascent DM industry.

However, in recent years DM businesses, particularly those on the database and mail-order side, have been successful in raising venture capital (see box, above) and floating on smaller stock markets. Dudley Jenkins and e-marketing company IPT are among those that have floated to fund expansion plans.

Parting company

If a good idea is the launch pad for entrepreneurs, having an exit strategy is equally vital. Successful DM entrepreneurs have all recognised the right time and price at which to part company with their creations. "You need a timeline, otherwise you can just drift," says Roy. Before floating Dudley Jenkins in 1989, Bahcheli could have bailed out early when he received a number of offers to sell. "Was I tempted? Yes and no. It started a process in my mind - if they were willing to buy us to grow, shouldn't we consider doing the same ourselves. That's when we looked at floating the company."

So a unique product or service with mass market appeal, financial self-reliance, outside skills and smart strategic alliances are the keys to earning a fortune in DM. Sounds simple, doesn't it? But there's no under-estimating the fact that to make a killing in DM, you also need determination, perseverance, the ability to see opportunities where others do not and a willingness to take risks. "I'd be surprised if there was a DM entrepreneur who didn't remortgage their house in the early years of their business," says Tenison. "You need tenacity to succeed through adversity, and there'll be plenty of that."

But for those who succeed, the rewards speak for themselves.

POWER POINTS - Make sure your idea has mass-market appeal - Don't part with shares too early - Bring in outside skills - Consider strategic partnerships - Have a timeline in place for your exit strategy

CALL CENTRE QUEEN

Name: Chey Garland

Business founded: Garland Call Centres

Personal worth: Estimated at £22m, current business turnover is £37m

What motivates you? I'm 48 years old, but I don't think about not working. I think I'm typical of most entrepreneurs in that I'm constantly looking to cut the next deal and searching for other opportunities. The challenge of running a contact centre today is coping with soaring salary costs and offshore competition. I have to keep finding ways to add value.

Lessons learned? I had £600 in savings to start my business and used working capital to fund expansion. At one point in the early days, the business slowed down, which was a very frightening experience. I had exhausted all my working capital and had to get a £1,500 bank overdraft - I couldn't sleep at night for worrying about it. At present, we fund the business by constantly reinvesting the profits, but we also make use of asset finance.

Worst decision? The buzzword in 2000 was customer relationship management (CRM). We invested a six-figure sum in a CRM-software tool that gave us both front- and back-end capability. It was leading-edge and we were very proud of it. But it was the wrong decision to make as I hadn't engaged with any of my clients to see if they wanted this technology and whether it would meet their objectives. They saw it as an interesting, but scary proposition. We didn't see a return on our investment.

Biggest risk taken? I own 100 per cent of the firm and am responsible for all the funding - you can't take on more risk than that.

DATA MAN

Name: Tylan Bahcheli

Business founded: Dudley Jenkins, a list managing and broking company

Personal worth: Non-disclosed, but in 1999 Dudley Jenkins sold for £80.6m to Wegener DM and Bahcheli sold his "sizeable" shareholding

Where did you get the idea for your business? In 1971 I worked for a mailing house that had a list side. Being young and arrogant I thought I could do it better and founded my own list business.

Start-up funds? Very little - I needed just enough to keep my family going. By the 1980s our revenue was £4m-£5m a year with £400,000 pre-tax profits. We were constantly being asked whether we'd sell. It started the process in my mind - if they were willing to buy us to grow, shouldn't we consider doing the same ourselves. Bank money was expensive, so in 1989 we floated on the Unlisted Securities Market - a predecessor to AIM - which gave us the money to acquire companies.

Best decision? Floating the company meant we had experts in DM, the City and the law on our board. I built a portfolio of talents: you need a deal maker, a front man, a good diplomat - and those who are hell bent on being rich. So I also brought in young, ambitious and commercially aware people - and gave them shares or options, so that they weren't just working for a wage, but were stakeholders.

Business mantra: Short term is vanity, long term is sanity.

SUPPRESSION MAESTRO

Name: Mark Roy

Business founded: The REaD Group, specialising in data suppression

Personal worth: Undisclosed, but Roy remains the major shareholder of the £10m-turnover business

Your 'eureka' moment? Dreaming up the Bereavement File. I'd set up The REaD Group in 1992. In February 2000, my father died and we still received mail in his name. I understood why this was, but my mum didn't. I thought, there really is something here.

Worst decision? Too many to mention, but I never make the same one twice. Moving internationally too quickly cost us three times as much as we thought it would. In 2002, we thought we could lift the Bereavement File model and drop it into France - wrong. International sounds easy, but it's more complex. The nuances are different and you don't know anyone. We should have invested more money in research at the front-end.

Your exit strategy? I'm determined to be out by my 50th birthday. You need to have a timeline, otherwise you can just drift. We are eyeing an AIM float to raise funds. I'm not ruling out a private sale. As long as the cheque arrives, I'll sell to anyone.

Top tip? Don't dilute your shareholding - people can offer you £100,000, but they want 80 per cent of your business. The earlier you give your paper to someone, the cheaper you are selling it. A venture capitalist will want three to five times return in three to five years.

Business mantra: Put up with the early pain and you'll see the gain.

AGENCY MAVERICK

Name: John Watson

Businesses founded: DM agencies THBW, WWAV, Watson Phillips Norman (WPN), Compton Woodhouse (a mail-order china collectibles company)

Personal worth: Undisclosed, but "perfectly adequate"

How did you get into DM? I left school at 16 and got a job as a messenger boy at an advertising agency. I worked my way up as a copywriter for a mail-order company, met fellow creatives Drayton Bird and Glenmore Trenear-Harvey and we decided to set up a DM agency. Some years later I had a disagreement with Bird and Trenear-Harvey - mainly down to our egos, and I left to set up WWAV, which within five years became the largest DM agency in the UK.

What motivates you? I like the idea of working for myself. When I set up WPN, I decided not to do another WWAV. I didn't want to employ more than a thousand people. I don't want WPN to grow beyond one hundred people, otherwise you lose touch with clients.

Your views on venture capital (VC)? I took on several millions of VC funding from 3i to fund the management buy-out of Compton Woodhouse. It was an unsatisfying experience because institutional investors have short-term views, while entrepreneurs have long-term ones. We bought out 3i's stake four years ago. I have talked to VCs about funding WPN, but then I'd have to give away 49 per cent of equity. It would have made us bigger, but at what cost?

THE COME-BACK KID

Name: Paul Beck

Businesses founded: DM agency and services company PBA; LBM, a data and telemarketing business; Bek Helicopters; racehorse owner

Personal wealth: About £40m. The LBM business is forecast to turn over £50m this year

Lessons learned? I grew my first DM business, PBA, from nothing to a turnover of £10m in four years. In 1990, I sold 40 per cent of the business to a private equity firm for £8m. I kept 40 per cent and the remaining 20 per cent was with family directors, one of whom was my cousin. But one day I went to work and was told by my family and investors that I wasn't wanted anymore. I haven't spoken to my cousin since, and the experience was a learning curve.

Your views on venture capital (VC)? Venture capitalists will either back or dismantle management. It's vital to be honest (with VCs) and to have a succession strategy. I'm not the most friendly VC person in the world - I like to do things my way. You have to learn to change the structure of the business and get a good management team in place.

Top tip? Don't put all your eggs into one basket. Many of our clients were in the energy market and the business suffered when the likes of Enron crashed. If we hadn't had cash to keep the business afloat, we would have gone bust.

Business mantra Financial information is king.

NEED TO KNOW - HOW TO GET INVESTMENT FUNDS FOR A DM BUSINESS

THE DM EXPERT

COLIN LLOYD, founder, Mentor Marketing and Investment

Mentor Marketing and Investment, set up in 2001, specialises in providing investment for businesses in the marketing services sector. It was founded by Colin Lloyd, John Hooper, Clive Mishon and Alan Wheatley (ex-chairman of 3i). Typical investments range from £250,000 to £5m and include DM agency Kitcatt Nohr Alexander Shaw and sales promotion business Caterpillar.

LLOYD'S TOP TIPS:

- A new business seeking equity capital needs to convince investors that it is able to compete against established competition. To do so it must have something new, a better way of doing it, a couple of tame clients or a great team with a proven success record.

- The big five groups (Omnicom, WPP, Publicis, IPG and Havas) aim for 15 per cent profit margins, while smaller companies should be aiming for up to 25 per cent. One of the biggest problems some companies face is that they grow the top line at the expense of margin and overtrading. They then go cap in hand to lenders and lose big chunks of their equity or worse.

- Prepare your case. I have seen too many poor ideas and business plans, not enough research and appalling presentations. The investor will want to see if the founders can add value to the business. Just simply putting money in isn't enough.

THE VENTURE CAPITALIST VIEW, PART 1

SHANI ZINDEL, partner, Isis Equity Partners

Isis Equity Partners (Isis EP) invests between £2m and £30m in businesses valued at between £5m and £75m. Past deals have included a £12m investment in field marketing business DVC Sales, funding for data and telemarketing provider LBM, just over £5m for the management buy-out of data management business Occam and an investment in RLA Media, a through-the-line marketing services agency.

ZINDEL'S TOP TIPS:

- The DM industry is attractive to investors because it is not as cyclical as above-the-line services. An average DM business should have margins of between 10 to 20 per cent and a high-performing one, 30 per cent.

- DM businesses looking to attract investment should seek to dominate a niche or offer a unique proposition, rather than a broad range of services.

- Firms that have a high client turnover are not attractive. We need to see some evidence of clients loyal to the business, rather than a high number of contracts.

- Companies that rely totally on the founder will be rejected. Businesses we have invested in have great teams that deliver the product.

- Future growth areas for DM include those businesses based on the internet.

- Look for investment long before you need it.

THE VENTURE CAPITALIST VIEW, PART 2

RICHARD BISHOP, director, 3i

3i is one of the world's largest venture capital companies and has plenty of advice for budding entrepreneurs seeking investment. "We ask a number of key questions," says Richard Bishop, director in 3i's Growth Company division. "Are we backing the highest-quality management team, what are the key risks and opportunities facing the business and how do we and the management teams expect to take money out of the business?"

BISHOPS'S TOP TIPS:

- Identify the key drivers of the business and know which acquirers these may be attractive to in the future. This does not necessarily mean a quick exit for all parties, but it does set out a clear agreement among the shareholders over key milestones to be achieved in order to build an attractive business for future buyers.

- A private equity backer will typically take a minority shareholding in return for providing committed risk investment for the firm. The size of this equity stake depends on the level of funding needed, the value placed on the business today and its potential future value.

- A private equity company would seek to be involved with a business for up to seven years and would take a shareholding of up to 50 per cent, but usually in the range of 25-40 per cent. They may also introduce an experienced non-executive director.

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