By Greg Shanahan, CEO of Technology Investment Network
The New Attitude
There is a sea change going on in New Zealand business that if sustained will have a profound impact on the future of our country and its economy. It’s not obvious at first glance, it’s not easily measurable but it’s critical to our success. It is confidence – and ironically the single biggest catalyst for this confidence has been the global financial crisis.
Earlier this year I sat at a meeting of TIN100 CEOs reflecting how much had changed in the past decade. Mike Daniell, the CEO of F&P Healthcare, told the group that he was off to the US to attend the annual get together of their 200 US sales staff. Brett Morris, VP People, at Orion Health had just described how they had been working to recruit 300 new staff since October 2013. Across the table sat Rob Drury, whose cloud accounting software company Xero had recently raised NZ$180m from US investors including Matrix Capital Partners and Peter Thiel backed Valar Ventures.
There’s something in the water and it reflects a seismic shift in culture where today NZ companies display a public ambition and capability uncommon ten years ago, but born out of necessity.
Difficult Times & Darwin
The global financial crisis was an important pinch point for technology exporters. Price points and margins to US markets had been steadily eroded since the start of the millennium by the appreciation of the NZ$ but the sudden drop in the US$ that at the end of 2008 added new momentum to that trend. Market demand stalled, price competition became more intense and many companies scrambled to survive. Between 2010 and 2012, 23 of NZ’s leading technology export companies, most notably F&P Appliances, were sold to foreign buyers. High Value Manufacturers, more global in their reach than the ICT companies and more vulnerable to currency shifts, were most affected.
The Power of 1
The companies that have successfully emerged from this period are leaner, more global, more focused and typically leaders in their respective markets. Being a global market leader is increasingly an imperative for NZ technology exporters, beyond any bravado. For the first time in a decade the NZ$ is appreciating against the currencies of our two largest export markets, Australia and the US, which combined account for half of TIN100 revenues. To sustain margins in this environment our successful companies need to be price makers rather than price takers, the domain of market leaders.
As an industry, TIN100 companies throughout the GFC focused on creating value as much as cost efficiencies. Staff attraction and retention of staff was ranked as the second most important issue ahead of profitability, by CEOs in the 2013 TIN100 Report. To underline the point R&D spend grew by +10% in 2013.
TIN100 companies are moving beyond the tired “punching above our weight” apology to a confident assertion of strategies targeted at global domination. For example Fisher and Paykel Healthcare, with net profit of nearly 100 million in 2014, is No.1 in respiratory humidification globally, Orion Health is a global leader health integration software and has doubled its revenues in the past four years, Xero is targeting being the leading global player in cloud based accounting software, having tripled it revenues in the past three years, Vista Entertainment Solutions is market leader in software solutions for large cinema groups, with a 37% global market share and processing over 1 billion movie tickets annually.
New Zealand’s fastest growing companies are returning to performances not seen since before the start of the GFC, particularly from the manufacturing sector.
The Big Boys Come to Play
The hard won experience is evident in a growing competency across various disciplines in management teams and an execution level that would stand up against any comparison.
This growing capability is being recognised by an expanding stable of high profile US and Australian Investors.
The Xero investment by Paypal founder Peter Thiel was widely reported by business media globally. Not so widely reported globally were other US investments by Intel Capital (the world’s largest VC company) in Performance Lab, by high profile Khosla Ventures in Lanztech and reportedly two others, by Capital Royalty in AFT Pharmaceuticals, and in agritech company Simcro by US private equity firm the Riverside Company.
New Zealand investors are also taking note with a rash of listings on the NZX from technology businesses. In the past twelve months Software companies Wynyard Group, SLI Systems, Gentrack, ikeGPS, Serko and Vista Entertainment Solutions have listed. Those who are said to be considering listing include Power by Proxi, Wherescape, Orion Health, Eroad, Triplejump and CricHQ, a veritable flood of companies. Whilst the confidence is encouraging, the public need to be aware that in a rising tide not everything that floats is a boat.
The rising level of acquisitions, private equity investments and public listings is creating a dynamism and excitement in the NZ technology sector, driving job growth and opportunity. It is an opportunity to establish companies of scale that utilise the unique Kiwi attributes that made them successful in the first place. There is a huge opportunity for NZ Inc to transform our economy. Lets continue to embrace a long term view on how to ride it.
Greg Shanahan is the founder of the Technology Investment Network (TIN), and has worked across the technology sector for 30 years.
The Technology Investment Network aims to grow the technology sector in NZ and via its annual TIN100 Analysis Report it has consistently made a valuable contribution to the year on year growth of the sector nationwide. The annual Analysis report is a tool for everyone to use. For more information visit tinetwork.com.