Wise heads at helm of emerging companies

By Adam Gifford

In New Zealand, many drivers of progressive technology have decades of experience behind them, reports Adam Gifford

Champions of innovation, Rod Drury (left) and Sir Stephen Tindall. Photo / Paul Taylor
Champions of innovation, Rod Drury (left) and Sir Stephen Tindall. Photo / Paul Taylor

Looking at the top 10 "hot emerging companies" in the Technology Investment Network's latest annual survey one could be struck by how mature they seem.

It's not 20-somethings trying to come up with the next social networking site or a new way to put advertising on your phone. These are companies with experienced management and staff finding smart and hopefully lucrative ways to solve knotty business problems.

Take the company at the top of the list, Konnect Net. Two years ago it didn't exist revenue-wise. Last year $600,000 came in the door. This year it turned over $7.8 million.

Konnect Net's SureMed service allows life insurance companies to quickly get the information they need for risk assessment from their customers' doctors. "It's a slow process, no one enjoys it, so we built a system to help general practitioners and insurers carry it out," says Konnect's chief executive, Peter Gardner.

"Essentially the insurer enters the request to our portal, a message goes to the customer's designated GP, and the software helps the doctor pre-populate the information necessary to fulfill the request."

Gardner has two decades of experience in the information technology sector, including running a firm that developed technology around business process management. His partners are a banker and a consultant, also with grey hairs.

"(The consultant) Murray Lilley has been around, he saw the opportunity, and we worked out how to solve it," Gardner says.

In 2009 they lined up insurance firms who would be early adopters and stated building. "There is lots of integration involved, you've got to co-ordinate a lot of parties to get them to agree." The system was turned on in April last year, and it now covers 80 per cent of the New Zealand market.

Further growth will come from developing other insurance and finance services, and through exports.

Konnect had crossed the Tasman, buying in to a leading e-health solution provider Pen Computer Systems. The deal is bearing fruit, with Pen entering a joint venture with the Royal Australian College of General Practitioners to roll out the system to its 11,000 members.

"What makes us successful is our willingness to adopt unusual business models. We raised the money to build the system, and then we looked for transaction and subscription revenue," Gardner says. "We don't sell the software, we don't license it. We give it to customers and make money from the transactions. We only make money when they make money."

Xero founder Rod Drury says an "emerging company" in the United States will often mean a bunch of young people doing their first deal.

"In New Zealand it's usually people in their 30s and 40s so we are more experienced. A lot of us are on our second or third gig. We know each other and help each other out, gaining experience," he says.

Xero is number two on the emerging company list, with sales of its online accounting software going from just over $3 million to almost $10 million in the course of the year.

It now has 45,000 customers and 180,000 users, and so far its software has processed over $44 billion in financial transactions. It has 130 staff in four countries. "The strategy is working. Our goal is to build a global business," says Drury.

He believes where New Zealand can shine is taking advantage of cloud computing models, where applications can live on the internet rather than having to be sold and implemented enterprise by enterprise.

"With cloud, we can write enterprise software and get it out to small business. Xero has not written Quickbooks online, it has written SAP and made it available to small business. We are building really meaty value add software."

He says the trend is "it's not the big that eats the small but the fast that eats the slow. We have had over 50 software releases so we are getting this fantastic execution mindset."

By learning to overcome past limitations, New Zealand entrepreneurs are well placed to take advantage of an environment where they are almost on the same network as their US customers - or will be if Drury's Pacific Fibre investment comes off. He says many of those building today's successful New Zealand technology companies cut their teeth in international consulting firms like Deloitte and Ernst Young, so they learned business fundamentals.

"There was not a lot of career development in New Zealand so you had to be an entrepreneur to learn, but now we are getting great people in their 30s wanting experience. We're on the second or third generation, so a lot of stuff that happened in Silicon Valley 20 or 30 years ago is happening here now. Trade Me showed that it is real, there is big money in this stuff."

Cloud computing is also at the heart of the third company on the list, Diligent Board Member Services, like Xero a listed company.

Diligent provides an online service, Diligent Boardbooks, that allows directors to compile, manage, distribute, view and archive meeting documents.

It credits the introduction of an Apple iPad-compatible version and the opening of a Singapore office with boosting revenue from $5 million to $8.3 million over the past year, and says it became net cash-flow positive for the first time in 2010.

While the first three companies are solving basic and even boring business problems, Biomatters is a spin-off from academic research.

Chief executive Brett Ammundsen says the creation of a Bioinformatics Institute eight years ago as a joint venture between Auckland University and AgResearch made the city a leader in the application of computing, mathematics and statistics to the analysis of biological information.

Biomatters' main product is Geneious, a suite of tools for molecular biology and genetics. It allows scientist to bring in data from a wide range of sources, assemble gene sequences, then manage analysis and peer review.

Ammundsen says most academics still think of software in terms of command lines with little thought of usability by others. "We are good at understanding the workflows our users need, and very good at developing visualisation tools."

Since Geneious 1.0 was launched in 2006 it has been sold online. "We have been international from day one. About 50 per cent of sales have always been in North America, 30 per cent in Europe."

This month Biomatters finally took on sales staff, opening offices in the US in San Francisco and Newark, which is near New Jersey's concentration of pharmaceutical companies and halfway between its government customers in Washington DC and the Boston biotech hub.

It has also created a server version for firms and institutions handing huge data sets.

"We're making the big hairy audacious call to be the dominant software package in this space," Ammundsen says.

Another company commercialising academic research is Canterbury Scientific. It has been around since 1985, but shifts in its technology and market have put it in the emerging list.

The company takes blood, mostly expired blood from the New Zealand Blood Service, and extracts products for haematology and biochemistry diagnostic tests. Haemoglobin is unstable, so Canterbury Scientific's edge is the technology it has developed to stabilise and standardise the haemoglobin.

Chief executive Neil Pattinson says it has developed close relationships with companies like Siemens and Roche, which make the analysis equipment.

"We are OEM suppliers which means effectively they see us as a reliable and supportive technology resource but in the same breath they give us access to the market," Pattinson says.

"The big shift is mainly round the haemaglobin HbA1c control that is used to monitor diabetes. There are significant clinical issues, and we happen to be in at the ground floor providing a product that allows you to make accurate measurements and manage the diabetic state.

"Diabetes is increasing and while our products have been used for management tools, they have recently also been recognised as a tool for diagnosis as well, so their use will be increasing.

"There is no comparable product." Another long-established company to make the list was Howick Ltd, which makes machinery that rolls out steel framing for houses. Faced with the slowdown in the housing market, a year ago it organised an "innovation conference", inviting companies from round the world, and came away with $1.5 million in orders and a higher international profile.

General manager Wayne Rowe says though most New Zealanders are still wedded to timber frame construction, many other countries lack natural resources. He says improvements in design software and the company's manufacturing expertise have given it a market opportunity.

"New Zealand still needs to manufacture. We are extremely good at it and innovative as a country and we think we have to do it for future of the country. Otherwise, where will the skills come from? If we are not exporting, how will New Zealand grow?"

REASONS TO BE CHEERFUL

Greg Shanahan, the driving force behind the Technology Investment Network, is a cheerleader for New Zealand business, and finds ample cause for cheer in his seventh TIN100 report.

Companies on the list performed more strongly than the previous year, and the companies on 2011's "10 hot emerging companies" list almost doubled in size on average, compared with a 56 per cent average for the class of 2010

He says the performance of the technology sector shows the country's export recovery is well under way, with changes such as cloud computing benefiting our entrepreneurs.

"When you look at companies like Konnect, Xero and Diligent, they are all about enabling people to take the cost out of delivering solutions," Shanahan says. "New Zealand companies understand that well. Because of the size of our economy and the need to do that domestically, we have grabbed new technologies sooner and built up expertise working with them."

Cost control is also behind the double-digit growth IT service and support companies like Datacom, Integral and Revera are enjoying, especially as they expand their Australian businesses.

"The big step for many companies is to become Australasian rather than just New Zealand companies," Shanahan says.

For the first time the report, which will be out next month, will include some analysis of 50 of Australia's leading technology businesses.

Shanahan has learned not to expect overnight success. "Unlike in Silicon Valley where you can get rapid ramp-ups, the average age of companies on last year's TIN100+ list (of companies with under $12 million revenue) was 14 years."

- NZ Herald

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