Business

Asia racing ahead of us in small business

The notion that Kiwi small business owners aspire to the triple B – Boat, Bach and BMW – rather than growing their companies might not be as true as it once was, but the performance of many is lagging behind tech savvy operators in Asia.

In a first of a series on small business brought to you in association with Callaghan Innovation, Mark Jennings looks at how local small to medium-sized businesses are performing.

New Zealand is a nation of small to medium-sized businesses. When they do well, the country does well.

Strong population growth has fuelled the number of new startups and we are adding about 10,000 (the net difference between startups and failures) small to medium-sized businesses a year.

But arguably, it is not enough and there are signs that many small businesses are underperforming compared to our Asian neighbours.

The most recent survey by Certified Practising Accountants Australia (CPA) also indicates that many of our small businesses are underprepared for the new wave of disruptive technologies rolling through the world’s economies.

The impact of artificial intelligence, robots, machine learning and the internet of the things is just starting to be felt.

The CPA survey, which is conducted annually, found that Australasian small businesses (fewer than 20 employees) are not growing or adapting at the same rate as those in countries like Singapore, Vietnam, Malaysia and China.

The New Zealand results paint a gloomy picture:

- Less than 60 percent grew last year

- Only 14 percent added new employees

- Not many use social media

- More than half don’t earn any revenue from online

- Most lag behind in digital payments, and almost none accept cryptocurrencies

- Many are not getting a return from investment in technology

- They are less likely to export than their Asian counterparts.

Paul Drum, CPA’s Head of Policy, says the surveys show a trend towards complacency.

“In the last four years we haven’t seen much change in New Zealand and Australia. It seems like many small business owners are satisfied doing what they are doing. The growth rate is low compared to Asia, but I think part of the problem is that many of the owners have bought themselves a lifestyle or a job and they are doing what they like until they retire.”

Drum says governments on both sides of the Tasman need to start thinking about how they address the problem.

“This is not good for either country long-term. It is not helping to the number of jobs or GDP.

“The challenge facing both governments is how do they get people to start businesses that can grow globally. How do they attract and encourage young entrepreneurs?"

Craig Cotton, CEO of Auckland-based company Innovate HQ - which helps SMEs with business strategy - says an historical unwillingness to collaborate is putting the handbrake on growth.

“Part of the problem is that we have a culture of not really sharing our business ideas. We tend to sit on them because we worry that someone is going to steal them. I have seen this with young entrepreneurs who sit on a good idea for three or four years.

“The issue really is that it's often not about how good the idea is but how well it is executed. You need to share the idea particularly with who you think the consumer is and get it into the marketplace with the help of other companies.”

According to Cotton, the old adage 'working in your business instead of on your business' remains highly relevant.

“A lot of New Zealand businesses could certainly grow if they looked to connect and collaborate with other businesses. Everyone knows that with many small businesses it is head down bum up and business as usual takes up most of your time. It is hard to get your head up above and go 'What are the opportunities for me and my business?'

"One answer is to find some synergies with other small business and start to collaborate on and maybe even look to merge at some point.”

Small businesses in New Zealand also suffer from their relative isolation compared to many of their international counterparts. Callaghan Innovation CEO Victoria Crone says this particularly impacts small companies whose business concentrates on the local market.

‘When I talk to businesses focused on the New Zealand market compared to businesses whose focus is offshore or global there is quite a difference in how they talk about the pace of change whether that is at a business structure level or a technology level or how customers are changing. I think if you are not travelling frequently you are not seeing how fast the world is moving.

“If we don’t connect better to the pace of change the outlook could be pretty dire. The average of businesses on the S&P index is something like 14 years, so businesses are going to be cycling through a lot faster.”

Technology is an area where many smaller companies are vulnerable or falling behind Asian countries.

CPA’s Paul Drum says many believe they are investing in technology, but they are really not.

“We think that maybe a lot of small businesses buy the latest version of MYOB or Xero (accounting software). It’s not surprising that they are not getting a return if they think that is new technology.”

Crone says New Zealand is generally behind the rest of the world in adopting new technologies and this impacts the SME sector.

“I think part of it is that we are less technologically sophisticated than other markets, our understanding of technology is behind and our application of it is behind. So, it is not a surprise when small business goes to implement new technology they have some struggles. Other countries are just better at implementing than us and we have a way to go on the learning curve.”

According to Craig Cotton, fears over cost mean many small businesses stop short of what they really need.

“You can’t just have a website and think 'I’m done'. If you always do what you have always done you end up with the same result. Well, that is wrong, you actually end up with less because things are changing so quickly. If you are worried about cost, and it is a fair concern, then think about joining forces with other businesses to get some scale from the technology because everybody faces the same problem, why spend money on the same thing if you can all pull together? I am a great believer that one plus one is not two – it could be three it could five.”

Of course, there are many small businesses who are using the latest technology to good effect but, according to Crone, most are less than five years old.

“We see a number of startups that can achieve a phenomenal amount by embracing technology and being very lean. Whereas in the past they might have needed 10 to 20 people they are doing it with three or four because they are embracing the cloud, using social media networks and using automation. It is a mind-shift from the idea that growth equals lots of people to the technology driving growth, you can still remain small but just get a lot more efficient.”

A presence on social media doesn’t cost much but Drum thinks a lack of “know how“ rather than money is the reason why so few small businesses embrace it.

“They are not using social media and I think that is a lot about the age demographics of the business owners. They are older and many also seem reluctant to get advice.”

Cotton agrees.

“I’ve just been dealing with a medium-sized business that had never had any social presence for their product. It sold food products that were ideally suited to Instagram as a marketing tool and get a lot of feedback on the types of new products they could launch. What was really interesting was that one of their sons was a photographer and amazing on social media. They had never thought to utilise his skills but now they are. Often businesses have connections they don’t think about who can really help them grow the business.

"It is not just young people who are using social media. The biggest users are baby boomers and they are a very big market. A social media channel is absolutely critical these days.

"What we have found is that people are looking for you to create opinions about things, that’s what they will follow.

"You have to remember the best people to sell your products is not you – it is other people talking about your products, experiencing them and sharing their views. That is why social media is so important.”

Crone says small business-owners can’t bury their heads in the sand and hope to survive the tech wave.

“There is a number of things that I recommend they do. The first is that you get your general level of knowledge up around technologies like blockchain and start looking at some case studies of where they are being applied in your industry. Second, I would look to employ someone who understands it. We (Callaghan Innovation) offer grants to employ students.”

Cotton says there is plenty of good advice available for small businesses, but they need to look past the traditional sources.

“One of the challenges for small businesses is that most of the advice they get is from their accountant. Sometimes it can be worth spending some money or giving away some equity to get an advisory board around you….. there are also some great companies out there that can help you map out a strategic plan for the next 12 to 18 months. They can also help you identify barriers that you might not be able to see that are stopping you from growing your business.

Many of them also have large networks that they can introduce you to, so you are not so isolated.

“There is a saying you have to spend money to make money …. ultimately that is true.”

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