Caitlin Sykes

Caitlin Sykes is the NZ Herald's Your Business editor

Small business: Embracing the cloud

Steve Corbett, CEO and founder of the ecentre.
Steve Corbett, CEO and founder of the ecentre.

The outlook may be cloudy, but Steve Corbett reckons that's just fine.

The founder and CEO of Massey University business incubator the ecentre has said the shift to cloud-based computing systems is a hugely important one for New Zealand because for the first time it's allowing New Zealand companies to participate in the global technology wave.

"Why I see the opportunity for New Zealand as so strong in the next decade is because of the range of business models that have evolved due to cloud computing," says Corbett. "The internet is allowing New Zealand companies to expand their markets and have a real presence globally."

Some of the business models he cites include two-sided marketplaces (like Trade Me), media sites, ecommerce, and Software as a Service, which New Zealand firms like Xero, Vend, GeoOp and Unleashed are using to gain traction offshore.

This week I've interviewed a handful of people in small businesses who are using the cloud to sell their products and services.

Why have they gone the cloud route? Many cite the economies of scale they can achieve through the cloud, as well as the global reach of the internet.

Auckland-based driver education firm FleetSafe NZ, for example, has developed an online driver risk assessment tool which the firm's business manager, Nick Hill, says they want to take global - a process made easier by being in the cloud.

"We have a New Zealand-based client who has employees that are based in Dubai, Holland and Singapore. With our online tool, that is set up to work in 72 countries, and in multiple languages, we were able to offer them an easy solution that would work for their employees both nationally and internationally avoiding their need, or even our need, to contract various providers around the world," says Hill.

"Having the ability to scale is a great advantage of having our business in the cloud. It enables us to offer immediate services to customers whether they are a fleet of 10 or 1,000."

There are challenges. Servicing different time zones is one mentioned by Tom Wallace, of Re-Leased, a cloud-based property management software firm with a team of seven in Auckland.

"For example, we have a really good client base in the UK, but we can only communicate with them for two short windows during the day. We get around this by making sure we have great online support documentation and are about to launch a library of support videos. However we plan to open an office in the UK within 12 months, which is really exciting," says Wallace.

Gaining credibility in a marketplace dominated by internationals is another challenge mentioned by Alex Petraska, general manager of First Software, which develops cloud-based Enterprise Resource Planning (ERP) solutions for retailers and distributors who typically have bricks-and-mortar operations as well as selling online. To combat this, the company decided to set up a retail business where they could showcase their software.

"When prospects come in for a demonstration they see a real store and website," says Petraska. "This shows customers that we can speak their language and understand their issues and opportunities."

Corbett has three main tips for entrepreneurs hoping for success in this space. First up, 'build it and they will come' won't work; from the outset you need a clear understanding of who your customer is and what they want. He also emphasises the importance of building a great team.

And lastly? "I'd say you're probably going to fail the first time round, and failure is good - as long as you learn from it," he says. "In fact, we don't call it failure anymore, we call it a pivot!"

Steve Corbett is the CEO and founder of the ecentre, the Massey University business incubator based in Albany, Auckland.

You've talked about the development of the cloud representing one of the most important job creation events in recent New Zealand history. Why?

Why I see the opportunity for New Zealand as so strong in the next decade is because of the range of business models that have evolved due to cloud computing. The internet is allowing New Zealand companies to expand their markets and have a real presence globally.

What are some of the different models businesses are using in the cloud?

The most obvious business model is the two-sided marketplace. There's a buyer and a seller and there's a business in the middle providing a service around that. Trade Me is a classic example, offering a service in the middle as an auction site, and it has provided a marketplace for thousands of new businesses.

The other is probably media sites. Facebook and Twitter are the big examples of that, where they make money from services such as advertising and sponsorship agreements, but you need a large volume of people on a site to make it work.

User-generated content is another model, with Wikipedia being a classic example. There are all kinds of sites popping up in niche areas. I saw a site based on hunting in New Zealand, and it was staggering the number of non-New Zealanders accessing the site. These sites use advertising or donations as the source of revenue.

The next major model would be ecommerce, primarily for web-based retailing. The challenge in this space is getting people to find you, so search engine optimisation is a major requirement for growing these sites. There's also a growing dichotomy here, in that users are expecting more sophisticated sites but also ones that are easy to navigate, and look simple and clean, so there's a big demand for people with design and user-experience skills. Zeald would be an example of a company providing the platform service for online retailers

Then there's the software as a service (SaaS) model. These are the companies like Xero, Vend, GeoOp and Unleashed, where there is a service provided, such as accounting, point-of-sale retail, inventory management and so on, all for a monthly fee.

For a company setting themselves up in business, it has never been cheaper to access the technology they need to get up and going, and Rod Drury has created a momentum around New Zealand software companies and a belief that they can build these SaaS-based companies that can go global. Investors are also attracted to these subscription-based models, as they provide predictable revenues and are easier to value than the more traditional enterprise-based software companies. However, they come with some challenges for management: the service has to be good or the users will leave, and you have to be able to continually hit your sales targets to get the growth the investors require.

You mention a number of cloud-based Kiwi companies there that are going global. What is it about the cloud that you think is shattering the tyranny of distance our exporters have traditionally come up against?

What Rod has shown is that you can actually build a big global business from New Zealand. Others have done it before, but probably haven't raised the amount of funding Xero has or had such a passion about being a major global player. In New Zealand we've traditionally sent things off as commodities, but the positive trend of our technology export receipts is now starting to make quite an impact. Technology has a long way to go to match the milk cheque, but it's heading the right way.

The critical word is scalability. To take on a new customer is usually at near-zero cost to a cloud-based business, and if you can get a significant increase in your customer numbers without a major change in your cost structure it is a huge advantage. These are scalable, repeatable business models that people can grow, while still being based down here in New Zealand.

What are some of your top tips for being successful as a cloud-based business?

Understand your customer. I have people come in and say to me 'I've got a great idea' and I ask 'who's your customer and what do they want?' - and usually get a blank look! We grew up in New Zealand as producers and we have usually just produced stuff and sent it off. Now we're growing up in a society where the customer determines the value of your offering and unless you understand that you're not going to make it.

Also, build a team. The most successful companies that have left the ecentre, have left as a team. You can't build a great business by yourself.

Finally, I'd say you're probably going to fail the first time round, and failure is good - as long as you learn from it. Ten years ago, to start what some of these companies are doing now for $500 a month would have cost you $5 million. So if you fail you haven't burnt a whole lot of cash on the way through, as long as you do it quickly. In fact, we don't call it failure anymore, we call it a pivot!

The ecentre is running a seminar on June 24 called 'Once I'm in the cloud, am I safe up there?', looking at issues including cloud security and public vs private cloud. For more information click here.

- NZ Herald

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