KEY POINTS:
New York is a great vantage point to view the New Zealand business scene.
From this perspective I can only have enormous admiration for those businesspeople who succeed in building their businesses in our beloved homeland.
New Zealand is a tough business environment, very small market, high infrastructure costs, discerning consumers, intense competition in most cases.
In spite of these difficulties, our entrepreneurs manage to create world-leading products time and time again - products that surprise with their ingenuity and creativity, products with an intelligent design and a quirkiness that delights the consumer, products that speak of the uniqueness of their New Zealand heritage and which are clearly differentiated even in a highly sophisticated market like this one.
But when the time comes to go to market, all too often this creativity and lateral thinking seems sadly lacking.
There are notable exceptions (Icebreaker, Wellington Drive, Actronix and others) but frequently the model employed for globalising New Zealand businesses is an export strategy, harking back to our commodity days.
Control of the product is transferred into the hands of a distributor who typically has a current revenue focus only and little interest in building long-term equity in the brand. Such a strategy risks leaving large amounts of money on the table.
Without investing in building a business and a brand, there is much less opportunity to take advantage of a receptive capital environment in countries like the United States.
There are a number of reasons why US companies are aggressive purchasers of exciting new businesses, especially in the consumer goods space.
Large US companies tend to be risk averse, preferring to buy rather than build innovation strategies. This is often because US majors would rather not risk their brand equity on building a new line of business when a proven one can be bought fully developed, even if the capital cost is high.
Innovation expenditure within companies is frequently misguided and inefficient. Although more than 70 per cent of US companies say that innovation is important or extremely important strategically, frequently their innovations are highly derivative, representing line extensions rather than genuinely differentiated product offerings. Increasingly, innovation is by necessity being outsourced to capture genuinely creative ideas and new platform opportunities.
Co-creation with customers and suppliers is becoming more common using online communities. Lego is famous for inviting ideas for new products from its customers. OurBrew is a great local example.
Companies such as Procter & Gamble seek to source 50 per cent of their new revenue streams outside the company rather than from internal growth. This requires them to maintain a wide watching brief globally on small companies which are developing new products.
Retailers such as Wal-Mart demand a constant stream of new products and new platforms, the source of the majority of their growth in any given year. The pay-day for attractive, fast-growing small companies can be very large. It is not uncommon for purchase prices to exceed three times revenue.
The suite of beverage acquisitions by the majors provides the most obvious example - Glaceau, Izze, Honest Tea, Fuze, Naked all purchased in the part few years, all on huge revenue multiples.
New Zealand companies are ideally positioned to take advantage of these trends since our products present exciting novel approaches and new technologies in many product categories, especially in natural and organic product areas.
However, by failing to invest in building a business and creating strong brand equity in the United States, there is much less opportunity for New Zealand companies to realise their potential capital value.
Access to risk capital to fund in-market investment is an important part of this equation.
The New Zealand angel and venture capital communities may be underestimating the return potential and over-emphasising the risk.
US capital is also available to New Zealand companies to fund market entry and market growth if the value proposition is right.
Especially helpful in business building are those US-based, high net worth individuals who have experience in the specific segment of the market themselves and now seek new business opportunities.
On the positive side, tax changes in New Zealand may encourage more direct overseas investment.
Huge potential capital gain is being missed through poor capital strategies. There are support mechanisms available such as NZTE's Beachheads programme that make building businesses in-market less risky for New Zealand entrepreneurs.
In that way, the full value of our most exciting and most prospective enterprises can be maximised.
* Bridget Liddell is managing principal of Fahrenheit Ventures, a New York-based commercialisation business, which supports companies in building their US businesses. She is also chairperson of the Beachheads programme in the United States, a programme run by New Zealand Trade and Enterprise to provide faster access to better international networks for New Zealand high growth companies. Email: bridget@fahrenheit-212.com
