When I joined the company in 2007 as an investor and CEO, there were two people in the R & D deparment led by shareholder and research director, Rod Walker. One of the key initiatives when I started was to increase the productivity of the business. We spent a lot on systems to manage production and the supply chain. The savings we made in those areas were redeployed into R & D spend. The R & D team has been as big as 13 people and is currently sitting at 12. Most of our staff in this area are mechanical engineers, they are working with forces, the transfer of liquids and fluid dynamics. We also have some with science skill sets who look at how compatible the liquids are with certain resins etc.
Does your new majority shareholder, Riverside, want to continue supporting your commitment to R & D?
What they look for is a leader in the category and then use it as a platform. They saw us as the leader in our field and very much accept that our success was coming from our focus on innovation.
What percentage of your revenue is allocated to R & D?
It would be approximately 8 per cent. It has been higher as a percentage of revenue but we have had sales growth so it has lowered as a result. The percentage you allocate is very much dependent on the segment you are in.
Have you applied and won grants to help fund your R & D?
Yes, about three years ago we successfully applied for an R&D grant of just under $1 million from what is now Callaghan Innovation. They were looking for export focused technology companies. The grant equates to 20 cents for each dollar we spend on R&D. It was really helpful. In most of the countries that we export to, there are all sorts of government grants and they usually have quite a focus on R & D. Grants help improve your odds.
Do you think many NZ businesses invest in R & D?
Most NZ companies don't do any R & D. This is probably because most NZ companies are small and not well capitalised, they don't have the money to invest.
How do you commercialise your R & D?
Growth for us is about creating a future pipeline through R & D. We are either doing stuff for ourselves or in response to a customer request, either way we know we are going to sell products. The commercialisation part for us is certain.
We are working on some new IP at the moment which we have been able to present to a customer as a solution. They will incorporate that IP into their product which means our IP is integral, we have what we call IP lock-in. They can never move without us.
Would you recommend R & D to companies who don't invest in it?
The key is you have to have a large potential market waiting for your solutions. I would not do it unless the pay-off is there. Because it's speculative, you want that potential reward to be large or make it less speculative. We regularly sit down with the sales guys and key customers to get a sense of where things are heading and for potential opportunities.
Final piece of advice?
You have got to create that defendable IP that will ultimately give you value, an edge against competition and a profile to customers.
Next week: For many small businesses in New Zealand, they can't find the materials to manufacture locally or there is a factory in Korea or India just doing it so well and so efficiently, that it is the best option. Tell us your overseas manufacturing stories. It can be pioneering stuff.
