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New Zealand SME Business Network

A vision to lift New Zealand’s GDP by 7 percent

Dear members

The New Zealand SME Business Network is rapidly heading towards 5,000 members.  Accordingly, we have reached a juncture where greater resource is needed if we are to step-up our efforts to effect positive change in New Zealand’s small business economy.

Events like The Biz (Yellow’s nationwide SME road-show), EPIC (Ethnic People In Commerce) conference and INNOVEST (a scale-up conference matching growth SMEs with potential investors), together with numerous other speaking engagements I have undertaken, have certainly created a buzz about our role in providing SME business owners with a voice – both in the market and in government (via twelve of our members who also serve on the Govt appointed Small Business Development Group) – and it is important that we maintain this momentum.

Your support through active contributions on a range of discussions have played a big part in lifting the optic and understanding about the importance of SMEs to New Zealand’s future prosperity.

So – I’d like to share with you a wider vision, together with a proposed plan, about how we can lift our contribution to New Zealand’s economic Leadership Thinking, at a strategic level, through collaboration and partnership with an entity that is arguably New Zealand’s leading Business Growth Engine and Educator of SME business owners to practically execute action plans to breathe life into the vision.

I would appreciate your feedback on this proposal.

Our vision is to support and enable the lifting of New Zealand’s economic performance by 7% Gross Domestic Product (GDP) contribution by 2020 by focusing on the underlying value of our small business economy.

New Zealand’s GDP was worth 159.71 billion US dollars in 2011. The GDP value of New Zealand represents 0.26 percent of the world economy, as reported by The World Bank.

Seven percent equates to US$11.2b (based on 2011 performance) and will take the current SME contribution of 38% GDP to 45% GDP, which, we believe is achievable if supporting and enabling structures are initiated to stimulate growth in our small business economy, while also delivering a range of positive socio-economic outcomes.

The two key elements of this vision remain extant from that which we set out to achieve when originally forming this group.  Both have both been achieved, to al level, and now need step-up resourcing:

  1. To create a nationwide ‘Network-of-Influence’, thereby enabling a managed platform from which SME owner / managers will have ‘A Voice’ over the enactment and implementation of policy that affects New Zealand’s small business environment in which they operate.

    In this way we are placing into the hands of those most affected, a much higher level of influence over their destiny and, importantly, enabling their ideas, many of which are innovative and practical, to surface and be heard by Ministers, officials, academics and analysts (policy makers generally), therefore providing a greater knowledge range (breadth and depth) from which policy can be shaped.

  1. To operate from within Government, as a trusted and mature advisor, as opposed to being classified as another lobby group. This element is key to delivering value to SME owner / managers in terms of practical outcomes viz policy influence based on ideas generated from owner / mangers themselves.

To do this we will need to achieve the following three objectives; some phased, some concurrently (two of the objectives are well underway):

  1. Create a tipping-point of circa 10,000 members by December 2014, increasing topinng up is based enceity of minimum 20,000 members  20,000 members by December 2015. In so doing, we are effectively creating a cohort of SMEs from what is a disparate and heterogeneous population usually categorized by industry sector.

    The creation of a common voice among SME owner / managers nationally will generate literally thousands of practical ideas from which the best can selected for implementation.   The tipping point will come when The New Zealand SME Business Network is sought after for policy advice as a matter of course given the size of its constituency. This is assessed as 10,000 in number.

Note: this is happening to a degree with 4,000 members; we can therefore assume that members in the vicinity of 10,000 will be very impacting in terms of polling accuracy and influence.

  1. Concurrently with the aforementioned, over the past eighteen months, we have met with various Government Ministers and Officials to present to them a short-form thesis about lifting the performance of SMEs by focusing on two key elements: Innovation and Business Sophistication (described by the World Economic Forum as the most important drivers of the incomes of advanced economies). The key to unlocking this potential is Education – a quality lacking in many SMEs and often resulting in their ultimate failure, particularly during and post a growth phase.

    It was identified that the best platform to influence this thinking was from within Government as a member of the, then, Small Business Advisory Group (SBAG).  After a succession of meetings with the Minister of Small Business, recommending to him that the Terms of Reference (ToR) of the SBAG be re-drafted so as to enable the group to act strategically and as a communications conduit between SME owners and Government, he agreed to do exactly that, while also renaming the group The Small Business Development Group (SBDG).  The minister augmented SBDG’s strategic focus via new ToR and sought applications via The Ministry of Business, Innovation & Education (MBIE) from business owners with a track record of success in growing SMEs.  Twelve SME owners were selected by MBIE Officials; all are members of the New Zealand SME Business Network.

  1. A third objective, originally planned for 2014, is to add management resource and/or back the New Zealand SME Business Network into an existing organization who shares our vision. Given the rapid growth in membership, this objective was bought forward to Q3 2013 and will be completed by or prior to September.

    Having been approached by a number of organizations who wanted to ‘take-over’ The Network, we have identified an entrepreneurial and highly respected organization whose core skill sets are SME growth and business education. This organization has agreed to the following:

    1. That an experienced person with a media / communications background will be appointed to the position of Group Engagement Manager starting in July / August

    2. That I will be appointed as a Director of this organization to provide continued governance and, when necessary, management support to The Network from Board level
    3. Given this organizations’ capability in business education, opportunities will be explored to create a practical focus on this specific aspect, augmented by Government support, thereby linking to the World Economic Forum’s proposition around Innovation and Business Sophistication 
    4. Together with this organization, we will continue to drive towards the vision of creating enabling initiatives for New Zealand’s SME economy to lift our performance by 7% thereby increasing from 38% to 45% GDP contribution

While I am not in a position to detail exactly who this organization is, you have my assurances that it is non-partisan and is not aligned to any political party.  It is in fact owned by a charitable trust, and is therefore a neutral body. While it runs a profit model to be sustainable (and leads by example in respect of this for the companies with whom they work with), funds are re-invested back in to helping more Kiwi companies grow.

They have a high profile Board of engaged and experienced Directors, all of whom are committed to sharing their expertise to help develop and grow the SME eco-system.

The SME Network will still develop content around key issues such as RMA, Tax, bureaucratic red tape and other topical issues as raised by members.  And to uphold the founding objectives of the SME Network, I will remain fully engaged as Network Founder.

I believe this is a very positive move for The SME Network and I look forward to hearing your views.

Regards to all

Tenby Powell

Founder, New Zealand SME Business Network

Press Release – May 2012

Building a ‘Network-of-Influence’ with those who can best influence a positive outcome – SME owner / managers; not the Government.

In October 2011, Tenby Powell and Sharon Hunter (of Hunter Powell Investments: PC Direct, Hirepool & NZ Rental Group, EuroPacific Foods and Envoy360) began contemplating why very few New Zealand SME’s create an international, or even a national, enterprise given this sector represents 97% of all businesses.

It came to mind over the wet summer of 2011, as their investment in new start-up venture, Envoy360, a maritime security company operating out of Dubai and Singapore, was experiencing significant growth after only six months of operations under challenging conditions.

Is it that Kiwi’s aren’t motivated? Is it that the moat theory has become a self-fulfilling prophecy for many and, therefore, it’s all too hard?  Or is it that we have bought into the three B’s mantra (Boat, Bach and BMW) and simply stop at a comfortable point?  Has the Reserve Bank’s capital adequacy rules stifled investment funding? And of those SME owners seeking growth funding, are they forced to leverage the family home for lack of alternative financing options therefore reducing their risk appetite. And importantly, is Government interested in resourcing this sector with growth enabling initiatives?

So, together with Chris Simmons, their friend and colleague from the 2009 NZ Entrepreneurial Summit, they decided to start The New Zealand SME Business Network.  The founding motivation was (and still is) to develop an active Group of SME owner / managers from whom practical ideas can be generated to better understand & address some of these issues. This differs to past approaches in that it is not an academic exercise.

Over the past five months (the Group was started in December 2011 and now has circa 750 members) it has become very apparent that members of this network have a wealth of experience & abundant ideas to stimulate New Zealand’s sluggish economy.  Something Powell describes as a “Network-of-Influence”.

When probed further, Powell says, “The discussion threads have been intelligent, insightful and, occasionally, inspirational.  And, advantageously, it has also been apolitical enabling everyone to have a voice.  This is something that has been lacking in the SME community for too long”.

“What we desperately need is Leadership Thinking, which small business owners have traditionally abrogated to consultant advisors, Politicians & Government Officials”, says Powell.  “The prime objective in developing this Network-of-Influence  is to create ownership of Leadership Thinking by those who can best influence a positive outcome – SME owner / managers; not the Government”.

Hunter, Powell and Simmons have a disarmingly simple thesis, which reads like a strategic plan drafted by successful entrepreneurs – it is clear, simple and easily executable.

In simple terms it advocates that practical, hands-on, small business owners are in a significant position of influence. Their collective commentary and contribution to the Linked In (social media group) discussion threads speaks volumes in quantity and quality of ideas to jump-step the NZ economy.

While discussions have mostly focused on economic growth, the founders go to some lengths to argue that the SME community offers much more to New Zealand’s future prosperity then just creating a business to make a profit.

Powell cites a recent article in Forbes magazine that talked about the new ethos that is emerging to take the tenets of corporate social responsibility to the so-called “little guy”, as an increasing number of small businesses integrate a mission of social impact into their profit motives.

“In essence Forbes was talking about Impact Investing – those investments based on the practice of assessing not only financial returns, but also the social & environmental impacts. An impact investor seeks to create social good or improve the health of the environment, as well as achieve financial returns”, says Powell.

“The SME economy is now gaining an optic throughout the world. While America’s media focus remains on Wall Street, it is the small businesses on Main Street that may yet win the medals of valor in the US war on economic recovery. And it won’t happen without an equally positive social impact; ditto in New Zealand & elsewhere”, he says.

Powell, an experienced builder of multi-disciplined teams, see’s significant economic and social upside for New Zealand by harnessing the potential Leadership Thinking lying dormant within the cultural diversity of the SME ownership group.  “The heterogeneity among SME owner / managers, with their different ethnic, religious & educational backgrounds, is not dissimilar to a multi-disciplined team whose diversity often enables them to solve problems or execute plans more effectively than that of their homogenous counterparts”, he says.

“This diversity could contribute to a powerful source of Leadership Thinking which, if captured & executed appropriately, could change New Zealand’s economic landscape and with it, also make a positive social impact on our country”, says Powell.

Tenby Powell is the co-Founder & Director of Hunter Powell Investment Partners. He is Chair of ENVOY360, Hunter Powell’s latest start-up, Chair of Waikato Link (the commercialization company of the University of Waikato), a Director of Antarctica New Zealand (a Government entity) and a Trustee of the Auckland Rescue Helicopter Trust (Westpac Rescue Helicopter).  

Beating the Stats in a Complex Start-up Environment

We are in month seven of a business start-up.  All things being equal, we are therefore only 29 months away from failure, according to most statistics.

Statistics New Zealand tells me 53 percent of SME enterprises fail within 36 months. Research suggests that “difficulties associated with poor financial management” is the reason two-thirds of businesses collapse.

Other countries like the US, Canada, and Australia range from 8 out of 10 new businesses failing within the first five years, to 80 percent failing within three years, and, alarmingly, eighty percent failing in year one.  Either way, it seems that 80 percent of start-up’s will fail sometime in the first five years.

Recent data released by Statistics Canada show that 145,000 new businesses start up each year and 137,000 declare bankruptcy each year.  That’s an annualized net gain of 5.6 percent – aka 94.4 percent failure.

And of real interest to SME owners is a Dun & Bradstreet report that shows businesses with fewer than 20 employees have only a 37 percent chance of surviving four years.

So other than running head long into the gale force hurricane of start-up statistics, Envoy360 has myriad other quirks too.  It’s a maritime risk management and security company and therefore operates in the world’s high risk zones: East and West Coast Africa, The Red Sea, Arabian Gulf, Somali Basin,  Gulf of Aden, and, nowadays, the wider Indian Ocean due to pirates having an increased range and operational sustainability to launch piracy operations from large mother-ships.

This particular start-up needed considerable legal and administrative forward-loading to ensure we were wholly compliant, legally and ethically, with various international and flag-state conventions and legislation, including compliance with maritime law, before we could start operating.

We only recruit ex-Tier One Special Forces and they aren’t quite as plentiful as sales reps, and we are now operating out of multiple countries in the Middle East and Asia concurrently.

Statistics, it seems, are very much against us. Any Banker will tell me this; many have and not for the first time.  It’s familiar territory having bankers and accountants tell me what will and won’t work.

This is of course why they do jobs of that nature and I choose to be an entrepreneur; in this case purposefully mixing a new business venture with 27 years of military service.   Many of the doubters are concerned friends, or close professional associates, but I’d rather have my tongue hammered flat on an anvil than be an accountant; I’m sure they feel the same.

The difference between us is of course a strength.  I’d encourage all SME Owner / Managers to develop their relationship with banking and accounting professionals, many of whom bring an important, albeit conservative, perspective to those who lack good financial skills.  Remember, statistics say two-thirds of business collapse is due to difficulties associated with poor financial management.

Which leads me to Paul Graham’s (of Y Combinator) Start-Up Curve.  It’s brilliant.  And it’s been developed by someone who knows about start-up’s.  Mr Graham is obviously a serial entrepreneur and a risk taker.

 

While there is no time scale on the X axis, when I apply it to our new business, Envoy360, we are in very good shape given the company was incorporated, in Dubai, in Aug 2011.  We are only 7 months old and we are defying statistics – at the moment anyway.

My pick is that we are well clear of the Trough of Sorrow.  It was awful to see grown men, all with military backgrounds, cry, but hey, we hugged our way through it.  We may still be experiencing the odd Wiggle of False Hope but in the main we are tracking on a clear bearing towards The Promised Land.  And the reality about Wiggles of False Hope is that every business, start-up or mature, will pursue some opportunities that just don’t come off.  That’s life.

We were determined not to fall into the Crash of Ineptitude trap – couldn’t afford to actually given the nature of the business – so we conducted considerable customer research into what shipping companies, insurance brokers and international logistics firms actually wanted.  And this is exactly what we give them – at the highest of International levels according to our latest series of audits.

So after seven months, some of which was spent crawling through our own little Trough of Sorrow, we can take heart in the fact that we are tracking in the right direction . . . towards The Acquisition of Liquidity aka positive operating cash flow.

Importantly, Paul Graham’s model recognizes the importance of exit / succession planning by leaving some Upside for Buyer.  Strategically we entered this sector as our research showed there will be significant Mergers and Acquisition (M & A) activity over the next three years.

Our vision is for Envoy360 to grow generically in some areas, and through M & A in others, to create a globally respected risk management and security company.

All we need to do now is defy start-up statistics.

Tenby Powell is Chairman of ENVOY360 FZ LLC and a Director of Hunter Powell Investment Partners. He is also Chair of Waikato Link (the commercialization company of the University of Waikato), a Director of Antarctica New Zealand (a Government entity) and a Trustee of the Auckland Rescue Helicopter Trust (Westpac Rescue Helicopter). 

Bank Lending to SME’s: The Elephant in the Room

SME’s depend heavily on access to capital from their bankers.  Banks repeatedly claim that they are continuing to support Kiwi businesses, but the facts say something different.

Unfortunately the Reserve Bank doesn’t collect data on bank lending to SMEs.  However they do collect data on bank lending to sectors which are intensively populated by SMEs.  These sectors are Construction, Retail Trade, Accommodation & Restaurants, Health and Community Services, Culture and Recreation and Personal Services.  Annual growth rates in bank lending to these sectors shrank from 20%+ in 2007 to 15% in 2008 and then to -3% in 2010 and has only recovered to 4% since.

 

Their lending commitment to these business sectors looks even worse when inflation is removed.  After removing inflation, annual lending growth to these SME intensive sectors has remained negative since mid 2009.

 

Banks are incentivised by the Reserve Bank’s capital adequacy requirements to lend on mortgages rather than to businesses.  Banks are required to hold only half the capital for a mortgage loan that they would hold for the same loan to a business.  This is one reason why bank lending to households was over 10 times greater than lending to these SME intensive sectors as at December 2011.

It’s time for the banks to play their part as members of the New Zealand business community and recommit to lending to SMEs.  It’s also time for Government to eliminate capital distortions from the Reserve Bank’s capital adequacy framework and, in so doing, remove the current disincentive to business lending.

Unless we see bank lending growth returning to 2007 – 2008 levels SMEs will remain starved of capital and the New Zealand economy will remain in the doldrums.

Steve Norrie is a Director of Streetwise Consulting


The Iron Lady lifted the UK economically by focusing on SME performance.

  We can do it in New Zealand too!

Since the publication of the Bolton Report in 1971 the contribution of small and medium-sized enterprises (SME’s) to economic growth, job creation, innovation and promotion of enterprise has been widely recognised in the developed world. While SME’s are important in terms of their overall share of GDP, it is also acknowledged that many smaller firms lack the managerial and technical skills, which inhibits their effectiveness.

In the first four years of the first Thatcher government, more than one hundred SME-related policies were introduced (Beesley and Wilson, 1984). And the Competitiveness White Papers published during the 1990s acknowledged that small firms, particularly those that were growing rapidly, could make important contributions to competitiveness (Johnson et al., 2000).

So – in October 2011, we started a Linked In Group called the New Zealand SME Networking Group. The Group was formed in recognition of the fact that 97% of all NZ businesses are SME’s (employing 19 or fewer people), yet we get very limited support despite the positive economic impact this sector could have on New Zealand.

Our objective is to provide support, in the form of practical initiatives, to SME Business owners by those who have successfully grown SME’s here & abroad.

It is our intention to form a working party to draft a White Paper for Government, in cooperation with the Minister of Small Business and Associate Minister of Commerce, Hon. John Banks, who has already been very supportive.  Following a recent meeting with Banksie, he has offered the full resources of his electoral office as a secretariat.

Banksie clearly demonstrated to Sharon Hunter and I that he understands SME’s; he has been in business for 40 years, mostly in parallel to his political career, and implicitly understands the issues at a practical level. He cited a number of examples where established businesses, some with many decades of trading history, are in real trouble and the long awaited economic recovery, that faint glimmer on the horizon, may be too little, too late when it finally comes.

While it is our intention to work constructively with Government, we are not waiting for help in any form. And, after talking to Banskie over lunch (which he paid for, btw) we are convinced that by pooling ideas from the SME Group, together with other business leaders, including the Minister and his team, we should be able to generate a range of practical growth initiatives to stimulate our SME businesses and, at a macro level, our country economically.

We now have over 350 members, many of whom are successful entrepreneurs or senior corporate managers who have generously pledged pro bono time to work on developing initiatives to lift NZ’s SME performance.  Many are KEA members – Kiwi Entrepreneurs Abroad who are highly motivated to see New Zealand lift out of the doldrums.

We will keep you updated both here, on our web site, and in the New Zealand SME Networking (Linked In) Group on progress.

Next week we will release a short study done by one of our members, Steve Norrie, Director of Streetwise Consulting Ltd.  Steve has addressed a major issue, bank lending to SME’s.  SME’s depend heavily on access to capital from their bankers.  Banks repeatedly claim that they are continuing to support Kiwi businesses, but the facts say something different.

Please join The Group on Linked in¨ http://www.linkedin.com/groups?gid=4202444&trk=myg_ugrp_ovr

Tenby Powell is a Director of Hunter Powell Investment Partners

 

Women in Business

Risk . . . is simply an assessment of how much you have to lose and how quickly you can bounce back from mistakes, aka failure; all offset with a natural optimism that leads entrepreneurs to believe that wild success is just around the corner.

Well . . . that’s how I viewed it at 22 years old when we started PC Direct.  And you know, apart from the timeline being significantly shorter for bouncing back, and a wiser head that knows that wild success is highly correlated to good market research, a good business model, developing a great team, and a heap of hard work, very little has changed.

And yet everything has changed.  I’m now 44; I have real responsibilities: Mother of two children, wife of a successful partner, Daughter and Sister to a crazy / wonderful family, Director on some amazing Boards, friend and confident to some amazing women  . . . but in February 2012, I’m going to risk it all again with another start-up.

Entrepreneurs are eternally optimistic and quintessentially risk takers. One of New Zealand’s most successful entrepreneurs told me recently that he thought luck played a big part in success – in his case, as much as 40 percent.  Agree or disagree, you have to be prepared to take the risks first to know whether lady luck is on your side. Risk and Reward go hand in glove.

New Zealand has a wealth of extraordinary women entrepreneurs; some high profile, some behind the scenes.  So how are we viewed globally?   In 2004, statistics suggested that women represented only 19% of senior management positions globally. By 2007 it increased to 24%; ditto for 2009. This year it has dropped back to 20%. But not in New Zealand. We have jumped from 27% in 2009 to 32% this year (Grant Thornton International Business Report, 2011).

NZ women have a long and colorful history at bucking trends, starting in 1893 by becoming the first country in the world to give women the vote in national elections. It has been suggested that the representation of women in government can be seen as an indicator of wider leadership representation more generally.  We certainly saw that during Helen Clark’s era, with women holding all our top political, judicial and civic roles.

The question for me is – how does this translate into women in business?  Particularly, what is the impact for women Owner / Managers of SME businesses?

Dr. Kate Lewis, research associate at Massey University’s Centre for SME Research, predicts that the proportion of women entrepreneurs is growing.  2007 statistics showed that women made up 36% of self-employed people in New Zealand; Dr Lewis believes this NZ trend will increase in line with global trends.

The Centre for Women’s Business Research (2009) shows 40% of private firms in the United States are now owned by women. A ten-fold increase from 30 years ago. Internationally, women are starting businesses at twice the rate of men, with young women and mums being two of the fastest growing women entrepreneur demographics.

What drives this trend?  Are women becoming more comfortable with risk? Are we more willing to chance an uncertain future and possible failure for the speculative gains of self employment? Or is it a more complex blend of all these dynamics, together with a desire for greater flexibility, better work/life balance and the ability to blend motherhood with career and financial aspirations?

The answer is likely as varied as the women themselves. While I couldn’t have envisioned it at 22 years old when I co-founded PC Direct, the ability, some 9 years later, to attend a meeting, stow my baby son under the board room table and surreptitiously rock him with my foot, while I helped judge the More Magazine “Women To Watch”, exemplifies the space women seek to create as we endeavor to combine family and career.  Ultimately, self employment gives women flexibility; it enables us to achieve personal and professional goals on our terms. But it comes with an overwhelming amount of juggling and hard work.  The greater the success; the greater the juggling.  Still, we self-employed gals get to choose how many balls we throw in the air (sorry lads) and choice, after all, is flexibility by another name.

Some 14 years later, I still cherish the flexibility provided by professional Directorships, Not-for-Profit commitments and self employment.  And . . . in February 2012, I’m going to risk it all again with another start-up.

Sharon Hunter is a Director of Hunter Powell Investment Partners, Primary Growth Partnership (a Government entity under MAF), Starship Foundation. Robin Hood Foundation & Rugby world Cup 2011 Office.

 

Growing SME Businesses in 2012

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 Recordyou 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.

Key Facts on New Zealand Business

We are a country of predominantly small businesses.  Nearly 97% of all firms have 19 or fewer employees, and about 87% employ five or fewer people. This preponderance of smaller firms is consistent across most industry sectors.

Number of Enterprises by Size 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Zealand’s small and medium-sized enterprises (SME’s) make a significant contribution to the economy. They account for just under 40% of the country’s output and nearly one-third of total employment (which rises to 42% if the self-employed are added-in). Smaller businesses are also the most dynamic group in the business population. The numbers of SME’s entering and exiting the market is high, but at the same time these businesses accounted for 60% of the new jobs created in the economy over the last four years. Research shows that high business turnover, or business churn, is associated with higher labour productivity.

SME’s typically show strong financial performance. For example, businesses with 1-5 employees have the highest average profit per employee of any group of businesses in New Zealand. They tend also to outperform their larger counterparts in average real sales and other income.

SME’s are critically important to regional and rural areas of New Zealand. In areas such as Northland, Tasman and the West Coast, SME’s account for a large proportion of employment.

Therefore, the importance to New Zealand of its SME’s cannot be over-emphasized. (Source: Ministry of Economic Development 2011 Small Business Environment Report)

And there is one major issue that stands out for many SME owners: Change of Ownership and Succession. The 2011 ANZ Privately Owned Business Barometer shows that 55 percent of business owners think that gradual change of ownership would be more attractive and 40 percent of business owners think that finding a suitable acquirer is the key barrier to change of ownership.

Additionally, the impact of economic conditions continues to be seen as the biggest constraint to growth, followed by a lack of capital. Aversion to debt, aversion to risk and a lack of skilled staff are also constraining growth.

Domestic competition/market pressure was the biggest issue for business owners this year, followed closely by availability of staff, an issue that has been steadily increasing since 2008. (Source: ANZ Privately Owned Business Barometer 2011)

Business in New Zealand

New Zealand is a weird shaped country on the edge of the earth with only 4 million people.

If we were shaped like Singapore (a circle) and still geographically positioned we’d be better off in terms of internal logistics and transport costs. If we were our current shape but located in Asia, Europe or the Middle East we’d be fine because we’d have easy access to significantly larger markets.

But we are here – which is wonderful for many reasons including business ownership but it comes with unique challenges.  We believe that, since the Global Financial Crisis (GFC), New Zealand is well positioned economically and socially for growth – providing we understand how to adapt to the challenges of the modern world and make the new environment work for us domestically and internationally.

The shifting economic powerbase from the US and Europe to Asia has been accelerated by the GFC which has impacted on New Zealand’s major export markets and affected revenues of both exporters and domestic businesses.

However reports by banks and major accounting firms are now showing positive business behaviors resulting from these challenges. Specifically, many SME businesses are actively communicating to and engaging with customers.  While this may seem obvious, it is challenging for many, requires specific skill-sets and can be very costly if it doesn’t work.   Similarly, active management of accounts (debtors, cash flow and related costs) often slides in busy periods and usually captures a lot of value.

We encourage you to re-focus on these disciplines as it should positively impact on profits. Please call us to talk through these issues including the positioning of your company for future growth as the market lifts.