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Enterprise Report How entrepreneurs grow from managers to leaders of globally competitive businesses KPMG New Zealand kpmg.com/nz
Contents
03 Foreword
04 Why it matters – Bernard Hickey
10 Understanding the DNA of business – Simon Hunter
14 Small versus medium – The key differences
20 Start-up
26 Case study – Booktrack
28 Case study – SleepDrops
30 Case study – Avertana
32 Growth
40 Case study – Plus Group
42 Case study – East Day Spa
44 Letting go
52 Case study – Greg Dickson
54 Case study – Sir William Gallagher
56 From ideas to action
58 Contributors
Enterprise Report / KPMG / 1
2 / KPMG / Enterprise Report
Foreword
business; essentially recognising his or
her deficiencies and actively looking to
New Zealand’s many bring the right people on board.
private businesses drive
The third stage we’ve called ‘Letting go’,
growth and are the although a more correct way to put it
foundation of the country’s might be ‘Learning when to let go’,
as the person who has nurtured and
long-term success. grown the business steps aside, having
first – ideally – established a future-
proof company culture and a viable
succession plan.
New Zealand is a nation of private
business owners, large and small. We’ve also talked to business owners
and leaders, both in roundtable
Whilst NZX-listed companies and discussions and in in-depth, one-on-one
large corporations receive most of the conversations, about the challenges
attention, it’s worth noting that nearly at each stage of the entrepreneurial
two-thirds of our economic output lifecycle. Their amazing stories will
comes from private businesses and they illustrate what it takes to establish a truly
are the cornerstone of employment in successful business.
New Zealand.
One thing is clear: New Zealand’s many
New Zealand is also a great place to private businesses drive economic
do business. That rare combination of a growth and are the foundation of the
true entrepreneurial spirit, a free market country’s long-term success.
economy and a country that embraces
innovation, provides many of our private Nurturing and helping grow our private
businesses with a great environment businesses into the ‘next big things’ is
to prosper. something that excites us.
But, for some reason, many of our We hope that this report helps to
privately-owned businesses get to start a conversation about how great
a certain stage and fail to push on we can make New Zealand businesses.
and reach their potential. The end As we all know, from little seeds, great
result is we lack enough businesses things grow.
that have sufficient scale to grow
their sights beyond New Zealand,
becoming genuinely competitive on
the world stage.
At KPMG, we have engaged in research
to understand why this is the case. Our
Enterprise DNA research has analysed
the best companies in the country to
understand what has allowed them
to grow from clever ideas to global
exporting super-stars.
Our Enterprise Report takes an in-
depth look at three specific stages in
an entrepreneur’s journey. First, the
start-up phase, when a good idea is
commercialised and the search for
capital and customers begins in earnest
– an exciting stage, but one that all-too-
often burns people out.
Paul McPadden
The second phase is growth, where KPMG
the entrepreneur must grapple with National Managing Partner
how to incorporate new talent into the Private Enterprise
Enterprise Report / KPMG / 3
Why it matters:
Small business means
a small economy
By Bernard Hickey
less expansive, less profitable, more
vulnerable to failure, and far less likely to
As New Zealanders, we see export than mid-sized businesses; if we
can improve these data in the coming
ourselves as an innovative years, we’ll have a better economy.
bunch, punching above our It’s as simple as that.
weight on the world stage. The Statistics
We see our generalist ability, The fact that small business is unable,
or unwilling, to make the jump into
our flexibility, our drive and becoming higher-growth and more
our ‘number eight wire’ internationally-exposed can be blamed
approach as a unique part for the country’s poor productivity,
according to the New Zealand
of our culture, helping us Productivity Commission.
win against bigger and
There are just so many small
wealthier competitors. businesses remaining small – seemingly
purposefully – that the question has to
be asked just what it will take to get
Bernard Hickey
more of them smashing through that
Publisher and journalist
If only that were true. $5-10 million mark and into the big time.
The Ministry of Business, Innovation
It turns out we are a nation of and Employment (MBIE) reports that 90 ‘key goal’, while 17 percent said doing
surprisingly small businesses that are percent of all local businesses employ something he or she was passionate
almost wholly focused on the domestic fewer than five people, with a whopping about was the main aim of the business.
market, and are quite happy to muddle 69 percent having no employees. It also
along without much competition in found most of small businesses either Perhaps this is why such large numbers
a way that allows us a great lifestyle fail in the first five years, or stall at a of small businesses don’t survive
without too many growing pains. small size, with very few going on to the mediocrity of little growth; doing
become growth engines. (Fg.1) something you love without any real
That’s a pity. New Zealand needs more return may well wear after a while.
small companies to grow into medium- The MYOB survey of 2015 gave more
sized companies that are in a position to context around the lack of growth, and Most fail in fact, with few reaching
take on the world. put starkly, it suggested small business bigger and better things.
owners are choosing lifestyle rather
Our productivity – and therefore income than growth. The Productivity Commission studied
– performance over the past 30 years this rather gloomy lifecycle, looking
has been weaker than most in the “New Zealand business owners’ long- at how companies born in 2001 lived,
OECD and has contributed to the 30 term goals for the business focused on stalled or died. It found that within 10
percent wage gap that’s opened up with flexibility rather than growth,” it noted. years only a third had survived, but
Australia in the past 30 years. “In terms of the long-term goals for the average survivor only increased its
their business, almost one third of employee numbers from 0.5 to two.
Which sounds like the perfect incentive business owners nominated flexibility, The real growth in employment
for New Zealand to lift its game. allowing them to make money but also happened when a very few were able
spend time with the families and to make the leap into becoming
I’m going to lay out the official take holidays.” businesses with more than 10
statistics here, showing conclusively employees – or had more than 10 to
that small business is less productive, Only one in five said growth was a start with. (Fg.2)
4 / KPMG / Enterprise Report
Fg 1: A NATION OF SMEs Fg 2: SMALL FIRMS FAIL MORE
Average enterprise survival rates by firm size
THERE ARE 100%
473,846 Average percent of cohort
Small – medium
75%
year surviving
(20-49)
Small (10-19)
50%
ENTERPRISES Small (6-9)
IN NEW ZEALAND 25% Micro (1-5)
0%
1 2 3 4 5 6 7 8 9 10
Source: Business Demography Statistics. Statistics New Zealand, 2013. Access via Statistics
New Zealand website.
Note: All numbers are provisional. Survival rate is defined as the percentage of enterprise births
in each reference period that survive into future reference periods in the business demography
97%
population. For full notes consult source data.
Fg 3: SMALL FIRMS INVEST IN LESS
Percent of firms increasing their focus/investment
HAVE FEWER THAN
20 EMPLOYEES Sole Micro Small Medium
operators (1-5) (6-49) (50-99)
44% 39%
Customer retention Average
strategies 34%
21% 31% 54%
69%
37%
Prices/margin on Average
products/services 35%
ARE SOLE TRADERS
22% 26%
42% 45%
Investment in
IT systems/ Average
processes 33.5%
34%
22% 25%
62%
50%
Amount Average
OF SMEs ARE LESS employees are 39%
THAN SIX YEARS OLD paid
(COMPARED TO 16% 11%
FOR LARGER FIRMS) 34%
Source: Business Operation
Survey 2007-2013, Statistics NZ Source: MYOB Business Monitor, 2015
Enterprise Report / KPMG / 5
Fg 4: SMALLER FIRMS HAVE LOWER EXPECTATIONS They more than contribute to the
country’s GDP, churning out almost 40
percent of it in any given year. (Fg.5)
Percent of business that invested in expansion in 2013
We often hear just how important
exporting is for a country like New
Zealand – a trading nation. But the
fact is that our small businesses just
No haven’t got the ability to look beyond
the domestic scene. But our mid-sized
No No No concerns do. (Fg.6)
More than a quarter export, and a
further 11 percent are investigating the
Yes possibility. Australia, Asia and the US
are the most common markets. Even
Yes Yes Yes those that don’t export are more likely to
be involved in the export supply chain,
Small Small – Medium Large which might explain why they are much
(6-19) medium (50-99) (100) more concerned about things like the
(20-49) high New Zealand dollar.
Source: Business operations survey, 2010 - 2013, Statistics New Zealand
These businesses are involved with
exciting ventures that play perfectly
to New Zealand’s strengths, and help
build around them a business ‘hub’.
Wellington is a prime example of this.
Fg 5: MID-SIZED Mid-market pre-eminence
Firms that started bigger were more
robust; firms that became mid-sized
While Auckland is home to most mid-
sized business, Wellington’s mid-market
enterprises enjoy a sales growth which
BUSINESSES were also more robust. MYOB’s
research backed that up, saying
is double that of most companies
around the capital. The really stand-out
DOMINATE GDP medium-sized businesses were more
likely to be planning to invest in retaining
and growing customers and profit
ones here are largely in IT and digital
entertainment fields, and have proved a
catalyst for associated services to give
Estimated contribution to GDP
margins, increasing wages and bonuses the city a real vibrancy and wealth by
by employee size group
for staff, and selling and marketing attracting young, talented workers. So
more products and services online – all much so that there is a skills shortage in
the touchstone factors for successful Wellington, and 40 percent of the mid-
modern business. (Fg.3 and 4) sized businesses canvassed in the GE
survey were looking to recruit.
It probably goes without saying that
mid-market businesses contribute more The South Island’s mid-market,
to the economy, but let’s bring in the conversely, is concentrated in the rural
TOTAL stats again to paint the picture properly.
GE Capital conducted a mid-market
industries, engineering and construction:
areas where again, New Zealand has
$210,299 survey in 2015 which showed business found a point of difference, and can
in this bracket comprised 36 percent sell the services, products and the
of national sales and 55 percent of the intellectual property offshore.
growth in sales, despite the fact they
were only 6.5 percent of all business. In total, the country’s 33,210 medium-
sized businesses generated sales of
Tellingly, 60 percent of mid-sized over $159 billion in the last survey,
business say the goal of operation is outpacing the $97 billion generated by
■ 0-19 employees 56,785m ‘growth’ – a growth powered by an almost 500,000 small companies.
average of 23 employees and annual Of course, ‘big’ business outstrips both
■ 20-49 employees 13,791m sales of almost $5 million. of these categories, generating almost
50 percent of sales, or $239 billion,
■ 50 or more employees With a healthy turnover – assuming in that same time. And there’s only
94,506m profitability is also healthy – these 1,190 of them.
businesses have the means to invest
■ Excluded industries/other in the types of things they need to do But there was one area that mid-sized
items 45,217m to perpetuate still more growth. For businesses triumphed over both small
example, they spend an average of and big categories – and that was in
Source Statistics New Zealand, $220,000 a year on R&D and an average increasing their ‘value-add’ – a measure
National Accounts Mar 2012 of $440,000 on product development. of wages, profits, capital investment
6 / KPMG / Enterprise Report
Fg 6: SMALLER FIRMS Fg 7: SMALLER FIRMS ARE LESS PROFITABLE
EXPORT LESS Percent of companies reporting increase in profitability
Percent of firms that generated
overseas income 50%
Large
Percent of businesses
(100+)
40% Medium
(50-99)
16%
Small – medium
30% (20-49)
Small
(6-19)
20%
2009 2010 2011 2012 2013
Small (6-19)
Source: Business Operations Survey, 2009-2013, Statistics New Zealand
and taxes. GE estimates that mid- The effect is also felt in companies that
22%
market firms increased their value-add are foreign owned. Companies with
by almost 10 percent in 2013. (Fg.7) more foreign connections – whether in
They’re also the stars of the fastest part or in full owners or as customers –
growing parts of the economy, which inevitably improves productivity.
are, according to the statistics, areas
like manufacturing and construction. Why it matters
The reluctance of the smallest
Construction was the stand-out in businesses to either relinquish control,
Small – medium (20-49) terms of what it made for the country or their inability to export, keeps the
but also for its mid-market participants, New Zealand economy hamstrung;
growing sales by almost 40 percent we can’t increase our productivity and
year-on-year. subsequently we cannot increase our
GDP per capita.
Innovation gap
32%
With more profitability in the medium The OECD backed this up in its Future of
and large business sectors, their ability Productivity report last year, pointing out
to reinvest in the business and pay that New Zealand’s small enterprises
more in wages has a direct influence were stumbling on with low growth, in
on productivity. Innovation is another part due to less competition, particularly
natural by-product of the drive to from overseas, whereas they should be
grow productivity. growing – or exited.
Medium (50-99) The higher propensity for innovation New Zealand, it found, had one of
among larger firms is nothing unique the higher start-up rates, but one of
to New Zealand, but our higher the slower growth rates once those
proportion of comfortably stagnant businesses were up and running.
smaller firms conspires to put us at
the lower end of innovation tables of “A key message is that creative
37% OECD countries. (Fg.8)
The Productivity Commission’s
work, looking at the country’s poor
destruction and up-or-out dynamics are
central: entry matters but what happens
next is crucial – all else being equal,
young firms should grow rapidly or exit
productivity growth since, 1980 has (i.e. ‘up-or-out’) but not linger
identified that too few firms operate in and become small-old firms,” the
competitive international markets. It is OECD wrote.
Large (100) these markets that force firms to adopt
the most productive techniques and Put simply, we grow our small
Source: Business Operation Survey technologies; that is, innovation results businesses at the same rate as the
2009-2013, Statistics New Zealand from global connectedness. sclerotic and stodgy Italian economy,
Enterprise Report / KPMG / 7
Fg 8: NEW ZEALAND RANKS P00RLY IN SME INNOVATION
Germany
Canada (2007-09)
Brazil (2006-08)
Israel (2006-08)
South Africa (2005-07)
Luxembourg
Australia (2011)
Iceland
Belgium
Portugal
Sweden
Ireland
Estonia
Netherlands
Italy
Austria
Finland
Denmark
France
Turkey
Czech Republic
New Zealand (2009-10)
Slovenia
Japan (2009-11)
United Kingdom
Norway
Spain
South Korea (2005-07, manufacturing)
Slovak Republic
Hungary
Poland
Chile (2009-10)
Russian Federation (2009-11)
SME
0 10% 20% 30% 40% 50% 60% 70% 80%
Percent of all SMEs engaging in innovation
Source: OECD Science, Technology and Industry Scoreboard 2013. Access via OECD Library
Notes: The OECD defines SMEs as firms with fewer than 250 employees. For full notes regarding data, consult source material
8 / KPMG / Enterprise ReportFg 9: OUR SMEs GROW LIKE ITALY
Growth rate of firms
250 Sweden Finland New Zealand Italy
Percent of growth rate
200
150
100
50
0 A serious conversation has to
3 5 7 begin about how we encourage
Year our business people to have bigger
Source: OECD, the Future of Productivity, 2015 dreams. We need them, first of all,
to equate business with ‘growth’.
Not ‘bach and beamer’ and ‘being
Fg 10: AND DIE LIKE FINLAND my own boss’.
Survival rate of firms
Sweden Finland New Zealand Italy them, first of all, to equate business
80 with ‘growth’. Not ‘bach and beamer’
Percent of survival rate
and ‘being my own boss’.
70
Then, perhaps we need to look at places
60 in the economy where New Zealand has
a natural advantage and seek to bring
in businesses that are operating on the
50
margins of these sectors. We need to
invest more in our best and brightest
40
business leaders. We need to instil a
love of success at school. Most of all,
30 we need to be open to our innovators,
3 5 7
our entrepreneurs, and our winners.
Year
Source: OECD, the Future of Productivity, 2015
We need to have more ambition and
then get on with it.
tracking poorly in the same way While you can’t fault people for wanting Sources: Firm dynamics and job creation in New
as countries like Finland (Fg.9 and to enjoy life, the fact is life will not be Zealand: A perpetual motion machine
10). Some of that is down to our enjoyable for enough of us if all of our http://www.productivity.govt.nz/sites/default/files/
geographical remoteness and small potential wealth-creators took that nzpc-research-note-20151-firm-dynamics-job-
creation.pdf
market size, but other factors look approach. Our lack of ambition and
http://www.gecapital.co.nz/knowledge-hub/2015/
likely to be more tied to our nature as connectedness to the rest of the world mid-market-report/index.html#title
a people, who are blessed with plentiful has consigned us to muddling along at http://www.mbie.govt.nz/info-services/business/
and easy-to-harvest food, water the level where productivity and real business-growth-agenda/pdf-and-image-
library/2014/The%20Small%20Business%20
and resources. wealth stagnates. Instead, we work Sector%20Report%202014%20-PDF%208.8%20
longer hours and employ more people MB-1.pdf
What we should do on low wages. http://www.mbie.govt.nz/info-services/business/
This report you’re about to read gives an business-growth-agenda/pdf-and-image-
library/2014/The%20Small%20Business%20
outline of the key drivers at each stage For now we’re more than happy, it Sector%20Report%202014%20-PDF%208.8%20
of business; the attributes and methods seems, to leverage our equity in land for MB-1.pdf
that successful business leaders have, capital gains, and pump up the value of http://www.productivity.govt.nz/sites/default/files/
or have learnt, to drive them from small- our commodity exports by adding more nzpc-working-paper-productivity-convergence-
among-NZ-firms-201503.pdf
scale entrepreneurs to genuine world people, water and nitrates to our natural
http://www.productivity.govt.nz/sites/default/files/
beaters. These insights are valuable, environment to enlarge the size – but nzpc-motu-working-paper-measuring-innovative-
because these people have done this unfortunately not the quality – of our activity.pdf
despite a laid back business culture. economy. It's not sustainable. http://ir.canterbury.ac.nz/bitstream/
They’ve had to propel themselves, handle/10092/7659/PhdThesis_
ShangqinHong28March20132.
operating in a culture in which people A serious conversation has to begin pdf?sequence=1&isAllowed=y
love to start business, but then sit back about how we encourage our business http://www.oecd.org/eco/growth/OECD-2015-The-
and enjoy the lifestyle. people to have bigger dreams. We need future-of-productivity-book.pdf
Enterprise Report / KPMG / 9Understanding the
DNA of business
By Simon Hunter
Studying the DNA of successful One of the points that has come out of
business is a key to unlocking extensive research KPMG has done in
the mystery of New Zealand’s this area is identify that New Zealand
lagging productivity. doesn’t, in truth, have a productivity
problem – it has a people problem.
New Zealand needs more businesses This becomes abundantly clear when
doing more business. we study some of the key people who
have driven superlative New Zealand
That’s the very simple premise that led businesses – companies that are
KPMG on a hunt to drill down into the working well beyond the domestic
country’s most successful businesses, market, targeting a place in the global
understand the traits they share, analyse market and driving prosperity for both
and distil those traits, and share them themselves and the country.
with others to build an even better and
more vibrant economic sector.
At first glance, the reasons that so New Zealand doesn’t, in truth,
few local businesses excel into bigger, have a productivity problem
better and more productive concerns – it has a people problem. This
Simon Hunter are hard to find. The evidence suggests becomes abundantly clear when
KPMG New Zealand is an awesome place we study some of the key people
Partner – Performance Consulting to do business. Constraints to trade who have driven superlative
are low, the regulatory and operating New Zealand businesses.
environments are generally fair and allow
for growth, and we can be competitive
while still attracting a premium price for
our products. We thought if we could drill down into
these businesses we could understand
On a broader note, we’re in a strong so much more about the keys to
position economically, having survived success. In some cases, those that
the Global Financial Crisis relatively attracted our attention operated in
unscathed. For the last 20-30 years industries and sectors that were, in
we’ve developed the right products in general, struggling – but were not just
the right niches; we’re closer than ever surviving, but thriving. They could even
to our markets, including critical markets be described as ‘outliers’. What were
in Asia, while at the same time being these outliers doing so differently to
far enough away from chaos points in everyone else?
the world.
We distilled this knowledge into eight
It’s a sweet spot in many ways. And traits we’ve named Enterprise DNA.
yet, over that same last 20-30 years, we
haven’t grown as fast as our peers and The first of these is Pivotal Leaders, the
competitors. We seem to have missed person who may be an entrepreneur,
the boat on driving productivity. And we or the person brought into revive a
have failed to increase our margins and company’s flagging fortunes. This
prices in key markets. person seems to both devise and
epitomise the values of the business,
There’s huge opportunity if we can and he or she is also the person who
unlock this mystery. assembles the right people around
10 / KPMG / Enterprise ReportSHIFTING THE INDUSTRY'S PERFORMANCE KPMG is determined
to help New Zealand
increase the number
Future and quality of medium-
sized enterprises
Current)
Percent of enterprise
CURRENT
PERFORMANCE
OUTLIERS
Performance
themselves – advisors, board members, the right priorities in terms of investing Of these eight traits of Enterprise DNA,
managers – to bring that singular vision in their people. four relate to the leadership and people
to life. within an enterprise (Pivotal Leaders,
The best businesses also all have Attitude and Ambition, Capable People,
These excellent businesses also have Customer Intimacy (DNA trait number Strategic Anchor).
the right Ambition and Attitude – DNA six) – they walk in the customer's
trait number two. Everyone is invested shoes, ensuring they’re happy and The report you are reading singles
in the vision and wants to be the best – listened to constantly. They also have out these four strands of DNA and
in the world – as soon as possible. Deployment Discipline (DNA trait examines how these traits look at the
number seven) – excellence in execution business lifecycle. It asks pivotal leaders
This shared vision is underpinned by and troubleshooting. what drives them, and what allows
a Strategic Anchor – DNA trait number them to transcend the role of small
three – a succinct and clear idea of The final trait is Connection and business owners and managers and into
what the business exists for which Collaboration, and it’s this quality that becoming entrepreneurial leaders.
doesn’t essentially change, even while these outlier businesses naturally
aspects of the business itself may excelled at, despite the fact New In putting these pieces of research
change and evolve. Zealand business as a whole does not. together, we aim to get to
the crux of what needs to happen to
It will be no surprise to hear that the KPMG has looked at studies from bridge the ‘people gap’ that’s developed
best businesses place a high premium around the world and we note that in in the last few decades that has seen
on Capable People, trait number four. other regions, collaboration and working New Zealand’s growth stagnate.
But the premium companies seek to together is very important; it creates a We’ve got to find people who aren’t
protect their culture as a first step to network and ecosystem which helps satisfied with middling results
deciding on the people they use, and ‘raise all boats’. The best businesses – we want those next ten percent of
everything flows from there. reach out to their peers, collaborators businesses who aim to grow by as
and stakeholders almost instinctively, much as 40 percent yearly.
DNA trait five is Investment and
Resource Allocation. The best We’ve worked to foster this type of Because those are the ones that will
companies understand where to collaboration in our Te Hono bootcamps fuel prosperity, unlock opportunity, and
put their capital in terms of physical targeting the agricultural sector, and the inspire the kind of success that will drive
assets as well as innovation, and have results are almost immediate. the country towards more prosperity.
Enterprise Report / KPMG / 11Enterprise DNA High-performing enterprises grow from a set of conscious decisions to do things a particular way. Embedding excellence into an organisation is a cultural issue that cannot be imposed on people through meetings or Power Point presentations. Changing culture requires leaders to work closely with their teams to demonstrate the desired behaviour, celebrate milestones, be open and honest about failings, and hold each other to account. This takes time and requires investment to equip people with the skills and tools they need to have an impact. Most critically, any cultural change requires clear communication, starting from the top of the organisation. 12 / KPMG / Enterprise Report
Four key leadership traits
of Enterprise DNA
Pivotal Leaders Capable People
◆ Has driven the business from ◆ Company culture set from day one,
inception, or is brought in to get the and adhered to by all.
business ‘back on track’. Identifies ◆ Everyone in the company knows
closely with the business and is there where it’s going, and there’s a
for the long term. common purpose.
◆ Has the vision, passion and industry ◆ People must fit in with the culture,
experience combined with strong understand and represent the values,
commercial focus. and if they don’t, hard decisions need
◆ Brings a rhythm to the business, and a to be made.
focus on constant improvement. Can ◆ The culture is always protected,
bring everyone along for the ride. and culture protects the business,
◆ Use their boards wisely, and know throughout change/evolution.
how to seek help while remaining ◆ Internal communication is as
independent. important as external communication.
◆ Stable management is a focus, ◆ The enterprise is developing core
with the company’s legacy always capabilities that will be required at
protected despite change. least five years into the future.
◆ Introduction of new people under a
pivotal leader is done carefully, and
with a view to not undermining the
culture of the business.
Strategic Anchor Ambition and Attitude
◆ A single idea that’s been there ◆ A desire to be the best in the world
from day one, and everything in the – and be the best in the world quickly.
company is built around this idea. ◆ An ambition to be globally relevant,
◆ The anchor is never compromised, not just a domestic star.
even as the business evolves and ◆ Everyone in the company is on board
changes. with being number one or two in
◆ It’s very distinctive, not a ‘me too’ every market segment.
position. ◆ A relentless desire to be better in
◆ Sees the company constantly look to every way.
narrow and define its focus, culling ◆ Humility about the way the business
brands and other elements that don’t conducts itself – confident, not
fit any more. arrogant.
◆ Has the same core purpose now and ◆ A laser-like focus on the future.
well into the future.
◆ A desire to do something extra-
ordinary for future generations.
Enterprise Report / KPMG / 13Small versus medium Bigger is better, especially in terms of outcomes for mid-sized businesses. We quantify the difference. 14 / KPMG / Enterprise Report
Small versus mid-market:
The key differences
We also conducted workshops with
We know that New Zealand 21 entrepreneurial leaders in Auckland,
Tauranga, Hamilton and Wellington to
is a nation of small-to-mid- test our insights against the experiences
sized enterprises. Some of real businesses. The results give us
strong clues as the difference between
97 percent of all business these two kinds of firms and suggest
have less than 20 employees. what needs to be done to nurture more
of them
But not many grow into
mid-sized businesses. Small versus medium
Tapping into Colmar Brunton’s annual
Yet we know how important survey of small businesses, we
mid-sized and large contrasted the attitudes of the leaders of
companies with $2 million turnover with
businesses are for creating those below $2 million. The results are
wealth, employment, exports summarised as follows:
and IP. ◆ Small business owners have to
stretch themselves over several roles,
i.e. finance, operations, marketing,
whereas medium enterprise
The question that we must answer is employees are more focused on
‘why?’ Why do so few small businesses their disciplines.
kick on to become genuine, sustainable
businesses that are independent of their ◆ Mid-sized enterprises are more likely
founders? No doubt there are a host to be in agriculture, manufacturing,
of reasons, including access to capital mining, infrastructure industries and
and markets, training and talent. There less likely to be in business services.
may be industry-specific reasons. For
example, there’s growing evidence ◆ Mid-sized enterprises are more
that the technology sector is growing established – 61 percent of these
companies of genuine scale, but other companies are older than 10 years,
industries haven’t been able to replicate compared to 32 percent of small
that model. enterprises; 39 percent are looking
to invest in growth or productivity
To examine further the possible factors initiatives. One quarter are looking
that stymie growth, we chose to focus to reinvent themselves as they
on the importance of leadership and face increased competition or other
ambition, which covers four of the macro pressures.
Enterprise DNA traits – Pivotal Leaders,
Ambition and Attitude, Strategic Anchor Mid-sized sentiment
and Capable People, partnering with In addition, the mid-sized companies:
Colmar Brunton to conduct two pieces
of interlocking research: ◆ Feel more in control of their business’
success, with agency to make change.
Quantitative: In which we compared the
attitudes and attributes of those leading ◆ Are more likely to focus on growth in
‘small’ companies (turnover below the coming year.
$2 million) with those leading ‘mid’
companies (turnover above $2 million). ◆Feel more optimistic compared to
12 months ago.
Qualitative: In-depth interviews with the
leaders of 12 medium-sized enterprises Mid-sized businesses are more likely to
conducted by New Zealand research have long-term plans – 47 percent have
company Colmar Brunton. one-to-five year plans compared to
Enterprise Report / KPMG / 15Running a business is better for medium-sized enterprise
The middle does more
Small enterprise Medium
MEDIUM-SIZED $2m
%
Learned a lot, got heaps out of it 76 89
ARE
6.5%
A personal and lifestyle success 62 74
Liberating and exhilarating 58 72
OF ALL NZ FIRMS Lots of fun 57 67
A financial success 52 75
Much better and easier than I expected 35 47
Source: Colmar Brunton
ON AVERAGE
THEY EMPLOY
23 PEOPLE 27 percent of small enterprises and
micro-sized enterprises.
The focus on the future is a major feature
of the entrepreneurs we spoke to. This
nd, finally, medium enterprises are
A
overall more enthusiastic about business
than their small counterparts.
In summary, it appears there are
marked desire to look to the future may measurable differences in the attitudes
explain why our leaders hewed towards and leadership styles of small and
optimism, always believing they had the medium-sized enterprises. If we’re to
agency to make good things happen. grow our enterprises then cultivating
AND GENERATE those attitudes and styles is critical.
$4.8M
In terms of business operations,
mid-sized enterprises are more likely So what are those attributes of the
to have the following outsourced: medium-sized businesses and how did
they develop them?
◆ Administration
IN REVENUE Consistent themes emerged about
◆ Marketing, advertising and media what kind of people lead medium-sized
enterprises, their leadership styles and
◆ IT/Technology ambitions and how these changed as
their businesses evolved over time.
◆ Legal
36%
We have characterised these people as
edium enterprises are more
M ‘entrepreneurial leaders’ as opposed to
challenged by macro factors such as mere ‘managers’.
government policies and access to
OF TOTAL NZ SALES labour, but other challenges are felt the The entrepreneurial leader
same as small enterprise. Over the course of many discussions
with successful medium-sized firms, the
In terms of top priorities, medium character traits of the entrepreneurial
and small enterprises share the same leader emerged like someone walking
concerns: cutting costs, improving out of the mist. It’s true that at various
profitability, improving production times they have been required to micro-
AND CONTRIBUTE and building brand awareness. manage their businesses, especially in
34%
However medium enterprises also the start-up phase. And they continue
list ‘launching new products and to act as managers, although often
services’ and ‘gaining more capital’ reluctantly and sometimes, by their own
in their list of priorities. admission, not very well.
OF GDP
Source: GE Mid-Market Monitor, 2015 In hindsight, two-thirds of medium However they are different from ‘mere’
enterprises would still have set up their managers in their heads and hearts. At
own business, compared to only half of their core is the question ‘why not?’ –
small enterprises. and different answers characterise each
16 / KPMG / Enterprise ReportThere are measurable differences in the attitudes and leadership styles of small and medium-sized enterprises. If we’re to grow our enterprises then cultivating those attitudes and styles is critical. Enterprise Report / KPMG / 17
type. A manager will say “I can’t”, while
an entrepreneur says “If they say it can’t Whereas many of us wonder where
be done, then I must try and do it!”. The we fit into the world, entrepreneurs
GROWING IN THE MIDDLE ability to tolerate risk separates the two have an innate need to shape and
groups from each other. create the world according to their
MID-SIZED This openness to possibility, call it
own to their views.
ENTERPRISES: optimism or even belligerence, seems
to us to be one of the defining
differences between the manager and professional advisors. They realise
and entrepreneur. From it springs they cannot do it all.
GREW THEIR other really important attributes
‘VALUE-ADD’ BY common to leaders: “Mark Zuckerburg has arms and legs like
9%
us. It’s how he uses them and who he’s
They create and disrupt got with him that makes the difference,”
Entrepreneurs don’t let rules or social said one of our leaders, echoing a
conventions stop them. They see a common sentiment from our discussions
way of getting it done and then do it. with leaders.
(MORE THAN OTHER They look beyond points where a lot
BUSINESS SECTORS) of people would stop and have the Growing with the business
ability to see different paths and These attributes separate the mere
different options. managers from entrepreneurial leaders.
And they mark the entrepreneur as a
Failure is a precursor to success rare beast.
CONTRIBUTED Entrepreneurs are not afraid of failure
as they see that it’s part of the learning But by themselves they are insufficient
55%
curve and inevitable. for business growth. At each stage of the
business lifecycle the entrepreneur must
“By failing, especially in the beginning of bring a distinct set of skills and attitudes
your career, you learn and become better to the task.
OF THE GROWTH IN at what you do. You understand better
where you sit, where your strengths and These are often inherent traits, but they
TOTAL NZ SALES weaknesses are and how to deal with can also be learned, and in being learned,
them,” said one of our discussion group can be cemented into the company
entrepreneurs. culture by entrepreneurial leaders. Both
the learning of the traits, and the process
Shape their own world by which they are handed down within a
47%
Whereas many of us wonder where we business to ensure its survival, are keys
fit into the world, entrepreneurs have to growing a small business into an entity
an innate need to shape and create the capable of handing growth.
world according to their own to their
INCREASED THEIR views. This can often be perceived as Putting together entrepreneurial traits,
arrogance or worse, narcissism, but a where the business is at the lifecycle,
PROFITABILITY (HIGHEST more positive interpretation is a need for and talking to those that show these
OF ANY SIZE BUSINESS) self-actualisation: they are determined to traits at different stages in their own
prove themselves to themselves, rather journeys has given us a clear picture for
AND THEY HAVE LONGER than to society. This could be the reason the kinds of factors that affect leaders
LIFE, INNOVATE MORE why making money is ranked low in their and their people at each vital stage.
AND EXPORT MORE measures of success.
We’ve also talked in-depth to people who
Not a job, a journey have made the journey and learned from
Entrepreneurs view their task as a their experiences. Their experiences are
journey, with no set way of getting weaved into our findings and stand alone
AND THEY SPEND ‘there’. It’s certainly not a job. Which as case studies; all those interviewed
$660,000
explains why they are such hard workers were eager to share their trials and
and also strong networkers. For them tribulations and this is again a very typical
‘work’ is a passion that does not end attribute of an entrepreneurial leader
after 5pm. – the desire to share knowledge and
experience for the greater good.
PER YEAR ON R&D Value people and process
AND PRODUCT Unlike sole-traders, entrepreneurs Once the early challenges like finding
actively cultivate outside expertise. capital and the best people with which to
DEVELOPMENT They’ve a great deal of self-knowledge; build a team are conquered, the journey
Source: GE Mid-Market Monitor, 2015 they know they are not heroes or has begun. But growth is the next major
Lone Rangers. From the start they phase, which requires a new set of skills
seek help from staff, boards, mentors and behaviours.
18 / KPMG / Enterprise ReportNew horizons
The journey of an entrepreneur EXPLORING OTHER
OPPORTUNITIES
Commercialising a great idea takes the
entrepreneur on a unique path ◆ Mentoring, public
speaking, consultancy
◆ Giving back
◆ Re-inventing self
Business stage 2
GROWING
◆ Surrounding yourself with good people
◆ Looking to advisors and mentors
◆ Learning not just management but leadership
◆ Trying new paths, but defining core
competencies
Key characteristics
DRIVE AND PASSION
◆ Innate drive to find out
S
◆ Innate drive to influence the world
ON
◆ Transformers
RIZ
HO
W
NE
LET T
ING
GO
ING
OW
GR
SETT
ING
UP
ON
SI
AS
DP
Business stage 3
AN
LETTING GO
VE
RI
◆ Empowering the management team to
D
make decisions
◆ Space to focus on new challenges
◆ Industry leadership and inspiring others
◆ Succession planning – ensuring the
business can be maintained without you
Business stage 1
SETTING UP
◆ Turning ideas into action
◆ Learning curve – failing, and getting up again
◆ Realising limits to abilities, hiring others
◆ Enthusing others – staff, customers, funders
Enterprise Report / KPMG / 19Start-up All entrepreneurs who bring ideas to market must navigate the start-up phase, where ideas are plentiful – unlike capital – and burn-out is a real risk. 20 / KPMG / Enterprise Report
The entrepreneur’s journey:
Start-up
They’re more likely to be motivated by
A good place to spot the
achieving a comfortable lifestyle for
themselves and, if they must, hire only WHAT WORRIES
difference between the small a few staff.
MEDIUM-SIZED
business manager and the
entrepreneurial leader is in
These small business managers
score lower on many metrics, from
ENTERPRISES
25%
ambition and planning to innovation and
the start-up phase. specialisation. Curiously, they also enjoy
their business less than medium-sized
business owners do – a hint, perhaps,
of the underlying motivations of small-
New Zealand is a country of small business managers: their business is a
business, 70 percent of which have no means to achieve a lifestyle. ARE WORRIED ABOUT
employees at all (that is, they’re self-
employed people). Entrepreneurial leaders, by contrast,
THE EFFECT OF THE
find pleasure in their business and are HOUSING MARKET
These figures suggest a country highly motivated to grow and achieve
of people who enjoy the challenge longer-term goals for the business, not
47%
of business, who like working for just themselves.
themselves, and who have an openness
to get on and try new things. We need more of these types of people
to evolve to be leaders that are able to
They are backed by a stable political and step away from the daily operational
business environment and a limited but challenges and think deeply about how
solid number of basic support services to maintain relevance, and create and SAY THEIR BIGGEST
provided through government agencies capture value into the future. CHALLENGE IS LOW-COST
such as MBIE and for exporters, NZTE. COMPETITORS
It starts in the start-up
It’s a positive picture in many ways, A good place to spot the difference
but it is not necessarily a recipe for a between the manager and the
1.4%
wealthy New Zealand. For a start, many entrepreneurial leader is in the start-up
of those businesses fail – almost phase. On paper, two start-ups may
50 percent in their first nine years. But appear the same, with one or two
for those that remain, only a handful employees, bank loans as capital and
will make it to the next stage. That next zero-to-small spending on premises
stage can be measured many different or equipment. From a high-level point THE LEVEL OF GROWTH
ways, but it may be more employees of view these two businesses will be
(50 or more employees usually denotes recorded the same by the Companies THE MID-SIZED SECTOR
a medium enterprise) or more revenue Office. Banks, investors and future EXPECTS IN THE COMING
(over $2 million). partners may have difficulty identifying YEAR – DOWN FROM
which one has potential for growth and
It’s not just the figures that mark out which will eventually plateau.
2.8% IN 2014
a company with potential. They are
characterised by having leaders that take What attributes does the entrepreneurial
53%
a long-term approach and look beyond firm demonstrate at this early stage to
the domestic market to global sales. distinguish it from the manager’s less
ambitious company?
As a country, we need to be able to
grow entrepreneurial leaders, not just The first four elements of the
small business managers. KPMG Enterprise DNA framework FIND IT HARD TO FILL
provide a helpful guide. VACANCIES (WHICH IS
Managers are those who are immersed
in the day-to-day operations of their BROADLY SIMILAR TO
business. They’re focused on a short Pivotal Leaders LARGE FIRMS)
planning horizon that may just entail one The first clue is that the start-up with Sources: GE Capital, Mid-Market Monitor, 2015;
or two seasons or years, and growth potential will typically have an Statistics New Zealand, Business Operations
most importantly, they’re not driven entrepreneur or a group of entrepreneurs Survey, 2014
by dreams of endless growth. at its helm. This person or group will
Enterprise Report / KPMG / 21be visionary, tireless and brave. They Said one owner of a highly awarded While Bruce is a talented and pioneering
will demonstrate the core belief that Wellington business: “Our ambition was engineer, the business’ anchor turned
‘anything is possible’ with a belligerence to do something different. We didn’t out to be in serving a need in a growing
that can be occasionally affronting. think we’d get big. We just wanted to industry, not just charging an hourly rate
get started. Now that we’re getting big, for its founder.
These leaders will impose the right we’re asking ourselves, do we want to
disciplines from the start. Sometimes keep do this? The answer is yes. We Over and over we found the
it’s as simple as taking control of the want to keep doing this in 25 years’ time entrepreneurs we spoke to started their
basics. One entrepreneur that we and whether it’s big or small we don’t businesses on the assumption that they
interviewed inherited his share of the really care.” would not be working one day – and that
business from a very capable tradesman the business would continue to flourish
father, yet the firm was struggling to Should our entrepreneurs be more without them.
scale itself up. ambitious than this?
As one software company founder said:
“When we started we had no controls. “Success for me is happy clients – and
So the first thing I did was buy the Over and over we found the that I don’t have to be here every day to
entire business so I could make proper entrepreneurs we spoke to started make that happen.”
decisions. Then I created systems and their businesses on the assumption
values. I decided that one thing that that they would not be working one Capable People
would set us apart from our competitors In the early stages of an entrepreneur’s
day – and that the business would
was the quality of our service, so we journey, there’s a heroic quality to their
continue to flourish without them.
made that one of the cornerstone values task. Often they are the only one that
and build systems to deliver it.” can see the future. That’s what makes
them visionary. They are cash-strapped,
Without the determination of the Strategic Anchor so have to do everything themselves.
entrepreneurial son, the business would Whereas small businesses will put a And they are hard-working, to the point
likely have closed when the father capable person at the centre of the of being unbalanced in their lifestyle.
eventually retired. business, for example a tradesman, a
scalable company will articulate a strong There’s not much that can be done to
Ambition and Attitude strategic reason for being. change this. Needs must!
A key attribute of entrepreneurs in
this early phase is the determination Typically we found that our But an early warning sign for investors
to ‘make a difference in the world’ – entrepreneurs talked about filling ‘the and partners is just how long this
not just ‘be your own boss’ as is the gap in the market’ by solving a problem, phase lasts. Said one highly successful
motivation for so many, if not too many, providing something significantly Hamilton entrepreneur about his early
small business owners. different or creating a new product that days: “I did everything – meeting
no one had yet thought of. customers, payroll, creating software
We saw this ambition expressed many – but for too long. I should’ve replaced
times in the workshops, whether it was The strategic anchor makes it possible myself sooner. We would have
the desire to create a new product, solve for the business to scale beyond the grown faster.”
a problem or just get started on some influence of the founder-practitioner. It
kind of big adventure. The ambition also allows the company to pivot when The entrepreneurs that progress beyond
was to ‘do something’ that affected the the market changes. one or two-person operations must
world, not just create a job. attract capable people. In the start-up
Auckland firm, Howick Engineering, is phase that manifests itself in two ways:
Interestingly, very few of the a good example of a company with a
entrepreneurial leaders identified money strategic anchor at its core, as opposed ◆ Early hires: the quality of the first few
as an ambition. Financial success to a company based on a talented staff says a lot about the company’s
was seen as a by-product of the individual. Starting out as the general ability to ‘get beyond’ the founder
original mission. “Success is making a engineering workshop of founder Bruce and continue to hire great talent.
difference. It’s never been about making Coubray, Howick narrowed its focus on This especially matters as it exits the
money,” said the owner of a North the steel framing industry, specialising in start-up phase and enters the growth
Island restaurant chain. manufacturing roll forming machines. Its phase of its lifecyle.
patented machinery is now sold globally
If there was one critical observation, and has far exceeded in revenues what ◆ Quality professional advisors: all
few of our interviewees articulated a Bruce could have achieved as a single good entrepreneurs will surround
desire to be globally competitive. The engineer. Bruce is also in the process of themselves with boards, professionals
measures of success, especially in the succession planning with his son and a or mentors. What’s more, they will
start-up phase, was to ‘do something’. management team. actually listen and take on their advice.
22 / KPMG / Enterprise Report“Now that we’re
getting big, we’re
asking ourselves,
do we want to
keep doing this?
The answer
is yes.”
Enterprise Report / KPMG / 23In summary:
Start-up
Enterprise DNA in the
start-up phase
PIVOTAL LEADERS IN THE START-UP PHASE AMBITION AND ATTITUDE IN THE START-UP PHASE
◆ They have self-belief – sometimes so strong it seems ◆ Roadblocks don’t stop them; they ‘work around’
like belligerence. barriers.
◆ They are tireless and brave. ◆ They disrupt.
◆ There's sometimes a failure to desire global
competitiveness.
“Entrepreneurs don’t put blinkers on by saying
‘I don’t want to be like…’, they create themselves ◆ They are excellent at spotting opportunities.
and the world they want.”
– Anon
“I can remember we had a very small customer call us
from Scotland...and they were a two-screen cinema
or something like that and we flew over...did the
deal, and they're now, I think, the fifth largest cinema
◆ They work hard and seek to drive and control all chain in the world. So whenever we see a customer
aspects of the business. we don’t think ‘oh, that’s really small’. It’s a new
◆ They’re having fun and are driven by passion – their territory, a new opportunity...”
main driver is not usually money. – Murray Holdaway, Chief Executive, Vista Group
◆ Sheer determination brings others along.
24 / KPMG / Enterprise ReportSTRATEGIC ANCHOR IN THE START UP PHASE CAPABLE PEOPLE IN THE START-UP PHASE
◆ They are driven by a particular idea or concept and ◆ Tend to be a ‘one-man band’ at this stage, so has not
won’t be swayed. yet outsourced certain functions to other experts.
◆ Long-term vision is critical.
“I used to do everything!”
“We have a 1000-year legacy, a 1000-year vision… – Anon
there was no exit strategy because this was building
something for the long term...however, we also
wanted to build one of the great wine estates in the
world in our life-time.”
◆ Advice is sought, usually from entrepreneur’s close
– Steve Smith, Co-founder, Craggy Range
circle of family and friends.
◆ Mentors are often those that drive an entrepreneur on,
may not be from the same industry but help nurture
the seed of ambition.
◆ Business is capable of pivoting in a different direction,
but remains capable of scaling up.
◆ The anchor here lies with pivotal leader – he or she
remains the guardian of the idea and the driver of
any execution, so staying true to the strategic anchor
is easier.
Enterprise Report / KPMG / 25Case study
Paul Cameron – Booktrack:
Revolutionising reading
To be entrepreneurial is to be ahead of the curve…
but what about if you’re so ahead of the curve that the
technology for your idea hasn’t even been invented yet?
That was the dilemma facing Paul and
Mark Cameron, brothers from Auckland,
who had long been pondering the way
commuters read their books on trains
and buses on their way into work,
listening to Sony Walkman or Discman
music players while they travelled.
“We realised that reading was the only
main stream entertainment medium
without synchronised sound,” says Paul.
It was from that observation that the
former aeronautical engineer developed
an idea to create soundtracks to books,
which would allow people to have a
movie-style soundtrack experience
while reading. Constant tinkering
created a product that put sad, happy or
Paul Cameron suspenseful music alongside a tragedy,
Booktrack comedy or thriller. It allow the reader to
CEO hear ambient audio such as a babbling
brook or car crash as he or she reads would largely be found, and so focused
about it. their attentions offshore right from the
beginning of their expansion.
But of course, as a digital application,
the idea had to be put on ice until With the help of one of the initial
smartphones and tablets exploded on investors, digital entrepreneur Derek
the market some five years later. With Handley, the company opened an office
smartphones came eBook adoption, and in New York and began setting about the
the canny entrepreneurs saw a chance to hard work of making connections.
revive their idea.
They launched two book titles (with
“We really see this as having the same soundtracks) initially, and those titles
transformative effect on reading as rocketed to the top 10 book apps in
sound did when it was put to silent 20 countries shortly thereafter. The
movies in the 1920s,” says Paul. “That company then removed the barriers to
is our aspiration, and what drives us on using the technology, and made the
as we navigate the start-up route, which Booktrack creation and reading tools
can be pretty tough at times.” available in people’s browsers.
The brothers were focused from the Numbers grew from 250,000 to
beginning on the global market, where 3 million users in two years – a growth
their business partners and customers that portended great things.
26 / KPMG / Enterprise ReportYou can also read
