Shamubeel Eaqub (Sham), the Principal Economist at NZ Institute of Economic Research (NZIER), who was widely quoted in the media last week, was a colleague of mine when we owned Hirepool, together with Goldman Sachs. In those days he was an economist with Goldman’s and provided useful insights into the economic future for his employer and us – the subsidiary companies who operated in NZ and international markets.
For the co-owner of a SME business, this was invaluable to me as we developed strategy to grow Hirepool; an Auckland centric business that became a nationwide company in three years.
Today Sham is providing that same insight, only to a much larger audience – New Zealanders generally. And the picture he paints, based on NZIER research, is not pretty – but it’s a pragmatic heads-up for us all. From the perspective of SME business owners, I believe it can be summarized under three main headings:
- This Economic Cycle is Different to all Others we Have Ever Seen: In a typical economic cycle, low interest rates encourage borrowing and investment, which kicks off the recovery. This time however, credit growth is very weak. This is what’s needed after the borrowing binge of the 2002 to 2008 period but until it picks up economic growth will remain subdued. (Shamubeel Eaqub, NZIER,2011)
Impact for SME’s: The NZ economy during 2012 will be challenging enough even if we gain recovery traction. If the Euro zone worsens it may trigger another global recession. This will impact on NZ exports and domestically focused businesses alike. Access to capital will become even tighter and will push up borrowing costs. International and domestic demands may fall to unprecedented levels.
If I were an SME owner what should I do: Go into crisis planning mode now! We did exactly this with Hirepool in 2007. There was no crisis then but we did so based on economic reports (the stuff that Shamubeel studies, analyses and condenses so succinctly) and it worked. By 2008 there was a crisis – the Global Financial Crisis – and Hirepool was well positioned to cope. You’re crisis planning is specific to your business – we can assist as objective advisors who have been there. You (and your partner) have nothing to lose by talking through your future plans with us.
- You Need to Consolidate or Find a Way to Work Together: We are a country of SME’s. The figures are very telling and we encourage you to read them because this is your space and possibly your SME competition. Most NZ enterprises (98.7%) employ less than five people. No less than 457,374 SME businesses (97.2% of all NZ businesses) employ 19 or fewer people.
Impact for SME’s: Your market may be shrinking – simply due to supply / demand dynamics; emphasis on demand. The market in which your business operates has a finite amount of consumer demand (consumption or, simply put, customer spending ability). What are you doing to position your business to ensure that customers want to buy from you?
If I were an SME owner what should I do: Scope (or re-scope) your market. Markets are dynamic, particularly at this time, and up-to-date market analysis is critical. How are your customers faring and what are their prime concerns and motivations? By talking to your customers (who are probably SME’s too), and understanding their concerns, you will better understand how to position your business to provide products and services needed at the most competitive price, while still making a profit. Bottom line – talk to your customers like never before. Take 5 minutes and click on our Track Record – you will find short case studies on our businesses that grew, in part, by regularly talking with our customers. Ask us exactly what we did – some of it had to be innovative: Like the arrow and scroll that was delivered by “Maid Marion” to one of NZ’s largest construction corporations who we struggled to engage with; yet we only wanted 3 mins with the CEO. We got it and, not only did he become a great customer, today he’s a friend.
- New Zealand is Business Friendly: Despite all the aforementioned NZ is the place to be. New Zealand is ranked highly on the Ease of Doing Business Index, where a high ranking means the regulatory environment is more conducive to starting and operating a local business. The trick, of course, is in creating and growing a sustainable business.
Impact for SME’s: While we may not appreciate it at times, we are operating in a globally recognized business-friendly system which supports capital investment, research and development and attracts international interest. We have flexible labour policies, competitive property and telecommunications costs all of which attract Foreign Direct Investment (FDI). The one gripe you may have is that NZ is 31st out of 180 countries on getting electricity connected . . . but then again Guinea-Bissau, a sub-Saharan Africa country rated 176th on the index, probably doesn’t have the ability to de-leverage by selling up to 49% of their power co’s . . . which leads perfectly into what you should do as an SME business owner.
If I were an SME owner what should I do: Do not let politics, in any form, affect you! If Sharon Hunter had listened to all the nay-sayers in 1989 when she started PC Direct (who said, “you kids haven’t got a clue about NZ’s economic and political environment and you’ll fail big time . . . ”) and if I had listened to all those who scoffed at our 2003 plan to take Hirepool national in three years (saying, “it’s not possible; we’ve tried and, by the way, there is no Government support for domestic business growth . . . ). Never buy into, or be swayed by, NZ’s Tall Poppy Syndrome. Run your own race and do not be pressured by herd mentality. When the (virtual) lawn mowers start up remember one thing, there are those around you have prevailed despite the odd cut.
Your strategic plan needs to be workable – which means your financial planning (budgeting) is accurate and your Bank Manager believes in it and you; your operating plan delivers the right product or service priced at the right price; your marketing plan accurately and creatively communicates your offer; your logistics capability is able to deliver on all your promises; and your team is ‘engaged’ in the right way, including profit sharing or similar. If any one of these components challenge you, please call. Experience has taught us that it is these key ingredients, working in concert, that make a market leading company . . . including, “why your Bank Manager should believe in you”.
The Bottom Line: Having read all that, you can probably tell that we are not into financial engineering (computational finance), as a core strategy. While we have benefited from multiple arbitraging, it has come as a consequence of the successful acquisition, merger & operational improvement of our investments; the combination of which has resulted in the accelerated growth of sustainable businesses.
As fellow Kiwis, who are SME business owners, capital investors and advisors, we look forward to working with you to assist in developing the right strategy for your business.
Tenby Powell is a Director of Hunter Powell Investment Partners. For consistency, terms that may require a general definition are hyperlinked to Wikipedia for reader consistency.