Who is stifiling the NZ economy?

We are a nation of small businesses…and therein lies our problem.  A greater proportion of larger companies in New Zealand would provide enhanced learning and deeper careers for our best and brightest and more opportunities for associated service providers.  This has flow on benefits to our social enterprises and, ultimately, the wellbeing of our general population. Lloyd Morrison of Infratil shares similar sentiments.

What is preventing our $1m companies turning over $5m, our $5m becoming $20m and our $20m becoming $50m companies?  Some say it is access to capital. Others will refer to the size of our domestic economy.  A few our geographic isolation.  And the old punching bag: Government red tape.

For me the impediment is people and, more specifically, the owner managers of small and medium sized NZ businesses.  The founders, who have the potential to be part of the solution, may now be part of the problem.  Our country needs business builders, not business farmers or simply more business starters.

Has the business outgrown the owner, or would it do if they were not holding back the reins? Here are some reasons why this can come about:

Fear of losing control

Sometimes an owner manager will feel their personal identity is inextricably linked with their business. The individual will only allow the company to develop at a rate that is within their comfort zone, providing a sense of control and security.

Lack of energy or motivation

They’re exhausted. After years of toil, stress, good times and bad, human nature is such that they are not the driving force they once were.

Change in risk profile

The “I’ve got nothing to lose” mentality that may have been the catalyst for forming the business has now transitioned to “let’s not lose what we’ve got.” This is often accompanied by a business owner starting to lose confidence in his or her own ability.

Lack of requisite skills

Owner managers are not noted for investment in their personal professional development, failing to justify either the expense or time away from the business. So the skills they started the company with may be the same skills they are relying on to run a significantly different company years later.

Difficulty letting go

The bloody-minded determination that got the company to where it is now is not easily relinquished in favour of empowerment and entrustment.  Core business knowledge and relationships aren’t fully shared and the concept of hiring people ‘better’ than themselves is uncommon.

So, what is the solution?

Experience shows that entrepreneurs or business starters do not typically make great business builders.  Very few have prior experience as general managers or CEOs. Neither do we have a country of Steve Jobs – founders that have the capability to successfully drive an organisation through its full lifecycle.

There comes a time when every founder needs to allow another individual to take the helm of the organisation.  But this transition shouldn’t be triggered by thoughts of retirement – it could be two years after the business is formed or twenty years. The test is “Am I the best person to build and grow this organisation over the next five years?” If the answer is ‘no’ then let the search begin. Be prepared to share ownership.  Greater success is to be had if your key executives act with the conviction and commitment of an owner.

Note that relinquishing the helm as an executive need not impact your roles as director and majority shareholder. In fact it will probably strengthen the performance of the former and bring greater clarity and expectations to the latter.

I’d also encourage the following:

Implement some form of governance

To be really effective ensure it is a person (or people) who will challenge you.  Resist the temptation to engage an acquaintance you have known for years because subconsciously you know they are unlikely to rock the boat.  Similarly, be realistic about the independent thought and challenge you would get by appointing a long time professional services provider such as your accountant or lawyer.

Broaden yourself

Take time to invest in your own skills and professional network.  You may undertake some governance training (how to be a better director) or a short course on strategic planning.  Alternatively you may engage with other commercial organisations – share your experience as a mentor and get ideas and inspiration in return.

Passion

Develop (or continue) a passion outside the business.  It will help put the business in context and negate the likelihood of idle minds wanting to become operationally involved in the business again.

So take a look in the mirror and ask: am I holding back my business?

You owe it to yourself, your business and your country!

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This entry was posted in NZ Business Environment, Owner Managers, Succession. Bookmark the permalink.

2 Responses to Who is stifiling the NZ economy?

  1. Simon, I think your reasons for lack of growth are good, but I wonder if there isn’t another, more important question: should we want to grow our small businesses? As a business grows beyond $1m, more of our time is spent on non-core activities: we establish hierarchies, end up either working on less-interesting projects or hiring less-excellent people, and in general lose focus on what we were originally trying to do. I don’t doubt that a larger company is a more efficient way of making money for shareholders: but is it best for the people in the company? Perhaps we’d be better off staying small. What’s more resilient, more life-enhancing: fifty four-person small enterprises or one 200-person company?

  2. stimulusnz says:

    Michael – how about 4 x 50 person companies?!

    Yes, we should want to grow our small businesses. Not all of them will, so there’ll still be a balance in the commercial landscape. Larger businesses help spawn smaller businesses (especially around services support). Larger businesses provide great learning experiences for individuals that sometimes leave and set up their own small businesses. Larger organisations provide greater career progression for our Gen Y, who rate that as their number one motivator. During the latest recession (which Oz was lucky not to have!) I wonder how many 4 person businesses were resilient enough to stay in operation compared to 50 person organisations.

    I can understand that there are company culture and lifestyle reasons for not necessarily wanting to grow (Icelab may be case in point) but I’d argue that the NZ economy would be better off we had more companies moving from $1m to $5m turnover.

    Disclaimer: Stimulus is a one person business which only works with SMEs!

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