Businesses Life by Westpac's Bruce McLachlan
By Bruce McLachlan Westpac's General Manager Business Banking
The New Year is a time when business owners often pause to reflect on their goals and aspirations for the future. A break from day-to-day operations provides an opportunity to consider where the business is at, and how best to move forward in the New Year.
For many New Zealand businesses the challenges of growth and change can be a source of great apprehension. This is often because firms lack the necessary support to manage the important transitions that characterise growth.
According to Ministry of Economic Development research, an inability to adapt to the changes brought about by growth is a key cause of failure for many New Zealand firms, in particular small and medium-sized firms.
There are many important stages in a businesses life, but years two and three are often ‘make or break’ for smaller businesses. After the first year, cash flow usually improves and opportunities for expansion begin to emerge. However, many firms stumble at this stage because of otherwise avoidable factors such as poor business planning or financial management.
A traditional ‘one-size-fits-all’ approach to business and banking advice has meant that businesses often don’t receive the support and guidance which could help them find their way through these critical stages in their development. Firms often struggle to move forward at the very moment they are poised for growth and expansion, usually because they lack the tools and knowledge to take their business to the next level.
As well as affecting the confidence of many of New Zealand’s emerging entrepreneurs, this trend impacts on our ability to compete effectively in world export markets. The latest annual Global Competitiveness report suggests New Zealanders need to focus on lifting the competitiveness of our firms. The report, which covers 80 countries, says that the ranking of NZ businesses across a range of measures has fallen in recent years. For example, our ranking on sophistication of company operations fell to 32nd from 2001’s ranking of 19th, and our place on the innovation sub-index, which measures ability to commercialise ideas, fell from 10th to 16th.
Clearly, we need to do more to assist our businesses, big and small, to meet the challenges of growth and change. Understanding and managing the different stages of a business’ development is a key factor in helping our firms to become more resilient, and competitive on global markets. Companies with ambition need the right knowledge and advice, including help with evaluating and responding to competitors, the economy, regulations and new legislation.
Westpac recently developed its ‘business life model’ to provide a framework around the opportunities and challenges facing a business as it develops and grows. The model aims to provide a more holistic view of business development needs and has been designed to capture the cyclical nature of a business as external and internal forces impact on it. A business may go through the cycle once or multiple times over many years.
Business owners can use the model to identify where their business is at and what approach will be needed to tackle the next phase of development. For example if a business chooses to diversify, then restructure or expansion of the business is likely to be needed.
Auckland company Jagas Paving, established 3 months ago from the sale of Jagas Concrete, is a good example of a business successfully moving from one stage of its life to the next. The former business had been in operation for around ten years and had passed through the business life cycle a number of times. With new owners there has been recognition of growing competition and a decision to target the upper end of the market. “The first three months were a time for realising where we were and deciding what we needed to do,” says new owner Craig Bruce. “We met the big customers and assessed where they saw room for improvements. The first six months of this year will be about putting that into action.” The business is now characterised as being in a growth phase, and is likely to require additional investment, product refinement and development of a new business plan. Craig Bruce comments that an important part of moving the business forward is the reassurance and support from external stakeholders such as Westpac. “It puts your mind at ease to have people who understand and support where you’re taking the business, Westpac has been outstanding in this respect,” says Craig.
In addition, Westpac offers a range of services to assist businesses at every stage of the business life, including practical Beyond Survival seminars for business owners, comprehensive business banking reviews and support for regional and national Business Excellence Awards.
Some recent government initiatives also recognise the need to assist businesses with growth transitions. For example, the Hi Growth project, which has the goal of lifting 100 New Zealand information and communication technology (ICT) companies' sales to $100 million within 10 years. The government’s new focus on addressing compliance costs for small businesses is also a move in the right direction.
Small and medium-sized businesses represent the future of our economy. If we want more of these businesses to grow and succeed in the long term, then we need to focus on helping them manage the challenges of growth.
McLachlan is Westpac’s General Manager Business