Fast-growing technology companies all face the same challenges but few have solutions, writes Sam Knowles.
What are the challenges for small- to medium-sized New Zealand technology companies?
High-tech start-ups in growth mode struggle to find the right resources - the people - to build the business. Commercialisation capability to help take their idea to market is their second challenge. And finding capital is still a big issue. Few SMEs have all three areas well covered.
Why are certain tech companies doing well?
For the ones doing well, it is all about business leadership. For instance, with businesses such as Xero and Orion Health, success comes down to the persistence of an individual. It is about the leader's ability to get the industry specialists together and to identify and implement smarter ways of doing things.
What else do fast-growing tech businesses need?
Another real gap in many New Zealand tech SMEs is sales leadership. Culturally in New Zealand we don't value sales skills and we don't teach them. The university business degrees don't have sales courses. In business, people don't talk enough about sales, they talk about marketing or commercialisation. For most of the international New Zealand businesses I am working with, this is the area that limits their potential.
How easy is it for SME tech companies to find capital?
Finding capital is always an issue, particularly in early stage growth. A recent report on New Zealand angel investment showed only 25 per cent of the $27 million invested last year went into new ventures. For new businesses trying to get initial investments from $300,000 to $1 million, that $27 million doesn't go very far and for those seeking next stage growth capital of $3 million to $5 million, there are only a small number of active investors. Unfortunately New Zealand has not yet developed the institutional structures of other countries to funnel a small proportion of superannuation and endowment investment into higher growth companies.
Where could the business environment in New Zealand improve?
The area that needs the most attention is how to get our young best and brightest into high-growth start-ups and to take on risk rather than joining the exodus to corporate Australia. The success model in most parts of the world is for talented employees who take the risk of employment in young companies to take lower salaries and be offered significant equity through options as part of their reward. These are only of value if the company is successful. It is very hard and expensive to do here because of our securities law and there is no tax relief to encourage these types of arrangements.
Should universities be playing a role?
I would like to see stronger links between universities and business. Our university model doesn't seem to have the incentives to create these links. For example, US university rankings are influenced by the number of students who get great jobs. In New Zealand, university success seems to be measured by balanced budgets and how many academic papers are written.
Do you have final tip for tech SMEs?
Tech businesses need a deeper understanding of how their smart idea fits in the wider scheme of things. Many start-up tech leaders have a great idea but don't fully understand the business. You have to find a nice big problem and work with industry specialists to understand how best to deliver your solution. We don't attract enough older, more experienced professionals into start-up companies who can help with funding and commercialisation within the industry context.
Sam Knowles is chairman of Xero and other technology companies.