Secrets of our success

By MARK STORY

New Zealanders love a good idea and, as the Global Entrepreneurship Monitor study proved last year, will often try to make money out of one.

But if they want to succeed, budding entrepreneurs need to spend less time trying to re-invent the wheel and concentrate instead on improving tried and proven business propositions.

At least that's the view of battle-weary entrepreneurial gladiator Peter Maire, who recently sold a 70 per cent stake in his digital navigation equipment firm Navman to US giant Brunswick for $56 million.

There's a lot of satisfaction in doing the ground-breaking stuff. But based on 16 years of learning from mistakes, Maire is convinced that New Zealand entrepreneurs are better served entering the market on the coat-tails of already successful business models. Instead of inventing another Starbucks, he says, the trick is to tweak it sufficiently with a truly Kiwi flavour.

Like many entrepreneurs, Maire spent a lot of time learning that technology is meaningless unless it adds value.

When a cheaper, stripped-down Navman product outsold a technologically superior model, he recognised that ground-breaking technology and commercial success don't necessarily go hand in glove.

"Instead of being the first person to the market with a new idea, the entrepreneurial stuff could simply be bringing out a cheaper alternative with a unique feature proposition," he says.

What many entrepreneurs fail to realise, says entrepreneur-turned-educator Jens Mueller, is that inventions aren't necessarily sustainable successes, and usually require huge investment.

"More often than not, true entrepreneurs refine, perfect and add value to existing services rather than completely reinvent," says Mueller, associate professor for entrepreneurship at the Waikato Management School.

Had he learned this lesson early enough, Auckland-based software developer Alex James believes he could have saved at least $100,000 and 12 months in wasted development time.

Last year James established Maxtivity Solutions, a software provider specialising in productivity tools for knowledge workers.

"Simply beavering away in a back office assuming that you know what the world wants is decidedly risky," says James. "The trick is to constantly talk to potential customers about the proposition you're bringing to the market."

Only after hooking up with Auckland University-run incubator The Icehouse did James realise he had to rethink his business proposition and focus on a different target market. James mistakenly assumed he had developed a single-user product, only to find its real space was in the business market.

"Instead of ploughing so much time into more technical features, I should have invested more time validating the market," he admits. "If I was starting the business from scratch, I'd either hire marketing expertise or find a partner with marketing skills to help to shape the product from day one."

So what important ingredients for success do budding entrepreneurs typically lack? From Mueller's perspective, they are found wanting when it comes to planning, anticipating obstacles or knowing where to go to get help.

Mueller urges entrepreneurs to spend sufficient time and effort producing a business plan that's good enough to become a firm performance contract with potential funders.

He says entrepreneurs need to be all-rounders and understand business disciplines such as sales processes, marketing and balance-sheet activities, because in the early days they'll be doing everything themselves.

And as the business expands, Mueller says entrepreneurs must add the necessary support. "That means getting the best people to help, even if they're only available part-time, as consultants or as mentors."

The wide range of capital available through public and private funding vehicles means there's no shortage of money available for good ideas.

As a result, Endeavour Capital founder Neville Jordan says New Zealand is moving away from an amateurish, number-eight fencing-wire budget mentality to the US model, where professional start-ups are primed for capital raising a lot earlier.

But entrepreneurs must realise that there's no easy road to commercial success, says Jordan, who started the former mobile phone icon, MAS Technology, with $2000.

"Unless people are prepared to pay the price - sleepless nights, 18-hour days, pressures on relationships and financial sacrifices - they shouldn't embark on entrepreneurial ventures," he says.

"Those who embark on a venture solely to make money will fail. The wealth that entrepreneurs achieve is a by-product of identifying a market need, then satisfying it."

Nor, adds Maire, is venture capital a substitute for the early pain most entrepreneurs running start-ups endure. "The fact there's money available to throw at new ventures isn't necessarily going to accelerate development."

Based on entrepreneur Scott Arrol's experience, putting in the hard yards means proving to venture capital funders that the venture is going to work.

With much of the available government start-up funding heavily favouring R&D-intensive applications, Arrol says it's doubly important that less technological start-ups have "all the ducks lined up" before approaching funders.

After many years in the healthcare industry, Arrol and his partner identified an untapped niche that would bring three disparate aspects of healthcare - medical centres, community care and residential care - into an integrated business model.

Having struggled to gain government funding, Arrol's proposition found instant favour with equity investor i-Cap Partners, which took a major stake in what is now a multimillion-dollar business, Radius Health.

The most difficult part, says Arrol was finding funders who would believe in their proposition.

"What captured their imagination was a well-prepared, 120-plus page business plan, including forecasts, estimated valuations at varying points plus our strong personal commitment to making it happen," he says.

It's important for entrepreneurs to realise, warns Arrol, that the right venture capital funder will bring more than just cash to the business. Apart from money, he says i-Cap brought strong governance to safeguard the venture's business proposition.And it's equally important that entrepreneurs aren't afraid to trade equity in return for quality partners prepared to invest in the venture's success.

Based on his experience as a business coach with consulting firm Shirlaws, Robert Rogers says New Zealand entrepreneurs have difficulty partnering for success.

"When it comes to hooking up with partners, tapping into networks, looking for funding or understanding the financial stuff, many Kiwi entrepreneurs remain naive," he says.

Realising that the quality of education available to entrepreneurs hadn't kept pace with business dynamics, Rogers established a course especially for entrepreneurs operating small to medium businesses.

Running with Auckland's Totem business network, the Totem Course is designed to bring entrepreneurs and business owners together one day a month.

"As well as addressing the competency gaps experienced by smaller entrepreneurs, we also plan to explore opportunities to partner with other businesses, gain new clients and access new markets," he says.

New Zealand entrepreneurs of old have achieved a lot with limited resources and even less in the way of cash.

But to get commercially sound propositions into the market much sooner, they must mine all the resources available to them.

And that means hooking up with key support networks, identifying the right partnerships and finding the right investors as early as possible.

Traps for entrepreneurs

* Failing to establish support networks offering unbiased advice.

* Over-emphasising the entrepreneur's personal contribution.

* Overlooking support needed from staff and suppliers.

* Underestimating the funding needed to break even.

* Failing to establish that a market exists before committing resources.

* Insufficient research into whether similar products exist.

* Underestimating how business cuts into family time.

* Unwillingness to act on market and funder criticism.

* Unwillingness to delegate.

* Insufficient research into where to go for help.


* Covering topics from marketing, partnerships and financing through to the use of consultants and personal support, family and relationship issues, The Totem Course runs one day a month at Totem on the Viaduct, Auckland. The cost of each 10am-2pm class is $300 +GST. Call 0800 78 22 33 or email Robert Rogers.

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