New Zealand – Celebrate the Organic Growth Businesses!

Over on his blog TradeMe alumnus Rowan Simpson has recently been giving some New Zealand startups the opportunity to tell their stories – it’s a great series that is well worth reading and it includes some posts by companies whose founders are friends of mine including Ponoko, Vend, MinuteDock, Polar Bear Farm and others.

Alongside that series of case studies, last week Lance Wiggs wrote a post criticizing the failings of some local folks calling themselves angel investors and decided to introduce his self determined test as to what is required before he believes someone can call themselves an angel. Some have criticized Wiggs for being elitist and negative – I believe he was merely trying to generate some debate but I do disagree with some of his views.

Both of these posts, from respected investors, entrepreneurs and investors who I’m on good terms with got me thinking about our propensity in this country for wanting to pick winners and tell the story of meteoric growth companies, often times at the expense of more leisurely growth, but still valuable businesses. A bit of back and forth with Rowan had me suggesting, with the utmost respect, that perhaps there were unheralded businesses in New Zealand contributing to GDP from such boring things as consulting or actually making stuff. Businesses that aren’t necessarily showing the growth rates that get our Minister of Economic Development excited, but that nonetheless have a role to play.

I said as such to Rowan who replied, accurately, that it’s hard to scale businesses that either rely on individual input or organic growth;

rowan

Fair comment, but also one that, if I didn’t know first hand what a thoroughly decent guy Rowan actually is, I’d think was fuelled by the random and incredibly lucky fact that he was part of the TradeMe bonanza. When you’ve supped Dom Perignon champagne, sometimes one forgets that others make do with Chateau Cardboard.

Alas it’s not only the high flying tech startups that commentators seem to fixate on, they have a penchant for companies in more traditional spaces that embark on some religious massive-growth path. The recent demise of one such company in my local area, Cariboo, reminded me of this. Cariboo was making children’s furniture and, perhaps excited by calls for mass expansion from the powers that be, was heralded recently for breaking into those holy grails of success measure – endorsement by both Hollywood stars and Harrods in London. Alas Cariboo has now gone into liquidation owing a significant amount of money to creditors, a sad demise and quite possibly a lesson for us all.

So how about we think about building viable businesses that can enjoy modest but safe growth, that can contribute to our economy without needing to borrow to do so, and can be long term stalwarts of the economy?

Over the past four or five years I’ve built up a consultancy business advising and contracting to primarily US based companies. In that time it’s contributed to the economy with a significant amount of foreign currency. True it’s not eminently scalable and is unlikely to hit the headlines with a “$700 million acquisition deal”, but there’s every likelihood that for the next decade or two, it’ll keep paying tax (annoyingly large amounts in fact) and contributing to our country. Sexy? Not really. Important? Hell yes.

Or how about another business I own part of, Cactus Equipment which has, for almost 20 years kept a number of local people gainfully employed. In that time it has enjoyed modest but sustained growth. Made a small but measurable fiscal profit in every year but one of those couple of decades, and has contributed in a number of areas to the local economy. It’s a good, solid business that, in its industry has seen bigger businesses come and go over its existence. The two biggest names in the industry when Cactus was born, Fairydown and Macpac, have both been sold as brands to a company that is seeking to recreate the Kathmandu model of highly discounted Asian manufactured products – nothing wrong with that but I’d suggest it’s a somewhat ignoble end for two stalwart Kiwi brands.

Astute readers will point out that Icebreaker has also come into existence in the past couple of decades and I agree, Icebreaker is an excellent example of taking a raw material (merino wool) and adding significant value to it for a global marketplace. But for every Icebreaker there are, and should be, many dozens of smaller local companies. I’d never deny the value and excitement of high-growth businesses, I’m an investor in at least three of them, one in the US, one across the ditch and one here at home (in stealth mode at the moment). But the important point is that while being involved in potential high growth companies, I still maintain an involvement in old faithful, and consider it no less valuable than something that may shoot to the stars (and alternatively may crash and burn).

I’m a passionate advocate for high-growth startups in New Zealand, and do my utmost to help them succeed where I can, but I’d also like NZ Inc to retain a little attention for the businesses that fly below the radar, and employ many of our workers and bring in much of our tax take. Because for every crash and burn, it’ll be the Ma and Pa business that saves this country’s bacon… I would offer them space to tell their own stories here but something tells me they’re too busy actually running their businesses to take me up on that opportunity!

7 Comments
  • Andrew MacLachlan |

    Couldn’t have said it better myself.
    Many of these startups are self-funded by someone at least initially working in their spare time, burning both ends of the candle while they hold down a regular job. Unfortunately many of these wither & die on the vine due to requiring increasing cash and/or time before the project is big or popular enough to continue under its own steam – or the risk/reward margin is too narrow to take the next step.
    These have been my experiences anyway. My hat comes off to those who have taken a punt and failed or succeeded – we need risk takers and small, organically grown businesses alike.

  • Ben, I’ve been a fan boy for a few years, but this is quite simply one of your best.

    1) NZ Inc needs a culture of business development, a groundswell movement. Who are we to stand in judgement over a successful business of 3 people, 5, 10.. who cares.
    2) where i work currently dismisses so many ideas as ‘too small’ .. yet constantly laments its lack of innovation (and we aren’t unique)
    3) while i appreciate the appeal of apps and IT in allow us to to scale past our global size… its not the be all. Last time i looked my needs included many things outside of the tech space…

    Good on ya mate

  • I’m not sure what the argument is here.
    I’m also a firm believer in real businesses that make and do real things, and the bulk of my investments are in those sorts of companies.
    I’m also a consultant. We all realise that consulting is not scalable – sooner or later you run out of hours. It is, however, great training for the real business of starting and growing businesses.
    I’m also wary of growth for growth’s sake. A company has to have a purpose, a customer cause, and should grow at an appropriate , sustainable rate. Notwithstanding that, in dot com land there is a rush to claim the space element we are all very aware of.

  • Hi Ben,

    I’m also a big fan :) I think we’ve sort of alluded to the point of your post in past discussion and totally agree. Ive heard of tech service companies who are looked down on for not being a ‘startup’ despite being successful at actually making money (which a lot of startup founders are yet to do).

    I think we DO have to support and push startups and admire those who have taken great leaps. But it does sometimes seem as though this support sometimes acts as a slap in the face to people who successfully go about their lives earning export revenue and paying wages without any intention of taking over the world.

    Great post!

  • tim molloy @tim_molloy |

    It’s clear the there is no one answer to helping businesses grow and like a ven diagram each model for investing overlaps.
    What is clear is that there is tremendous advantage when the investment comes with liberal doses of experience, advice and help. And this is most valuable when it comes from people with a track record of growing business. Whether this experience is a result of an angel approach as Lance Wiggs suggests (invest regularly, quick decisions and smart advice) or the experience comes as a result of being hands on in a number of growing business the imperative for a founder is to harness this experience for their own business. Engagement by the experienced investor, not volume of investments seems to be the key.

    Smart money has many more advantages over dumb money. However in a market where there is a limited supply of defined “angels”, founders could adopt a hybrid: lots of smaller money-only investors together with a smaller number of smart-money investors.

  • Pingback: investing for value not money… | unreasonablemen

Leave a Reply