Dalziel: www.biz.org.nz Roadshow
Dalziel: www.biz.org.nz Roadshow
SMEs are important to the economy and they are important to the economic transformation agenda.
Thank you to the New Zealand Institute of Chartered Accountants (NZICA), biz.org, IRD & Public Trust. I have agreed to be part of this roadshow because there is a message that I want to reinforce to you.
You may have heard references to what the Prime Minister called economic transformation when she laid out this government's agenda for this term. I am here to tell you that you are part of that agenda and that your country needs you. Why? Because as has been pointed out by others, you are the business professional that small to medium sized businesses (SMEs) see most often and when they see you we need you to add value beyond the traditional work accountants might have limited themselves to in the past.
The reason is simple. SMEs are important for the future of New Zealand. They continue to be a key driver of growth in the economy, making up over 95 per cent of all businesses in New Zealand. They contribute around 40 per cent of total output and they accounted for around 60 per cent of all new jobs created between 2000 and 2004.
Many of New Zealand's innovators and entrepreneurs can be found in our SMEs and most of our leading-edge products were created by people in SMEs.
However, their small size means that they usually have fewer resources, fewer in-house specialist skills and less capacity to deal with change when compared with larger firms. They tend to be run by their owners, which has good points and bad points. I found this quote which summarises this:
"The profile of this leadership features the following: strong vision, short-term focus, strong work ethic and self-reliance. These characteristics are universal and are both the strength and the weakness of the sector. They are not necessarily positive characteristics if the vision is an unrealistic dream or the self-reliance includes a reluctance to seek professional help. Commitment to hard work is the most consistent common thread because of the need of the owner/management team to cover most of the administrative tasks in addition to the income earning ones." (March 2004 Martin Ward: SMEs and Sustainable Development, prepared for MfE)
So, these are exceptionally busy people. They tend not to have the time to address the myriad of compliance requirements they see forced upon them by the government. You of course know that New Zealand deserves its top ranking as a place that is easy to do business in as confirmed by the World Bank surveys. But on the ground, that isn't what the SME feels and that's because SMEs feel the weight of compliance hard. Many transfer that burden to your shoulders, but like the NZICA, we want you to be more than that to your clients - we want you to be part of that high-performance motor-sport team you saw on the NZICA advertisements - that helps lift the performance of the business to achieve more.
Because of the numbers, SMEs are important to the economy, and they are important to the economic transformation agenda, because of their potential. For them to increase their productivity they must be the best that they can be.
There was a comment in my Briefing
to Incoming Minister that excited some publicity, which I
thought was helpful for focusing attention on one of the
issues that acts as a brake on the growth potential of many
SMEs. The commentary suggested that New Zealand business
owners are not motivated to extend themselves once they have
achieved success represented by the boat, the bach and the
BMW. Some say that if we could fix the "triple B" attitude
of these business owners all would be well, however, I
suspect that that is easier said than done.
Many of them don't want to go any further, but then maybe they haven't considered taking out the bach, the boat and the BMW and selling all or some of the equity to someone who will take the company to a new level.
Because I haven't run a small business, I spend time getting out and talking to business people who are running SMEs - from start-up to well-established. I haven't met any yet who would change their business plans to accommodate a government-led productivity drive. They wouldn't do something because the government thought it was a good idea. But they might change their thinking if the person who does their books gave them some advice about what they could achieve with their business.
My officials have given me some pointers on game theory, which indicates that people with nothing to lose are more likely to take risks. But as they accumulate points (or value in the case of business) their risk-taking becomes more conservative. Many popular games display the notion. Think about those who leave with a known amount of money rather than risk going to the next level in "Who Wants To Be a Millionaire?"
Business owners often reach a level of management or business capability that is adequate to maintain their current lifestyle but inadequate to take the business to its full potential. They judge that it is not worth investing in the additional skills, staff or market development to take them to the next level for whatever reason.
It is at this point that we need to consider which business owners are more likely to go to the next level and what might encourage them to do so. Not all SMEs are the same. My officials have again given me some pointers on the three main character groups, which they describe as mountain climbers, freedom fighters and craftspeople.
Mountain climbers are motivated by growth and achievement. They often view entrepreneurship as being about achieving the impossible.
- They climb mountains in business in order to reach the top and look for the next point on the horizon.
- They're never satisfied.
- They use money as a yardstick to measure their success but are rarely motivated by the money itself.
- Their businesses usually grow at a rate of 20 per cent or more.
Unfortunately they make up only about 2 per cent of business owners.
Freedom Fighters are motivated by independence. They tend not to pursue change, and as result tend to experience only modest growth, but they have some interesting characteristics too.
- They can't stand having people tell them what to do;
- Before starting on their own, they have often spent years working for someone else, constantly dreaming of ways to run a better business if they were in charge;
- They are often consensus builders in management style;
- But that could be related to the fact that) they tend to hire friends or family and continue to employ weak employees despite poor performance (and complain about not being able to sack staff);
- Refer to big business and government as "them".
They make up just under a quarter of the businesses.
Craftspeople are the largest group making up nearly three-quarters of the New Zealand SME picture.
- Mastering their particular craft motivates them.
- They think of themselves in terms of their particular skill or service: as jewellers, plumbers.
- They work by themselves or with one or two helpers.
- Many are laid-off employees who started small ventures with the severance packages.
- They don't see themselves as entrepreneurs or small business owners.
- Most are price sensitive and bargain hunters.
The growth motivations of these groups are different. The question we need to ask is how could we motivate an individual in any of these groups to expand their business horizon? The first step is understanding what their needs are and then communicating the options to them.
But as I said before these are seriously busy people and the government cannot just pop out and have a chat with them. And besides which I think the knock on the door followed by "I'm from the government and I am here to help" might be greeted by a certain degree of incredulity.
That is where you, the first choice business professional for SMEs, have a role. Many of these SME owners don't know what is available. I got asked recently why the uptake of advisory boards had been low given the significance of the government's contribution. My answer was that the ones that needed them didn't know they did. And the second reason is that it requires businesses to know that they should invest in this level of guidance, which doesn't look measurable like investing in a marketing campaign.
Building business capability means you need to admit that there is capability to be built and you can give that message to your clients, whereas I cannot. Building on your advertisement of the motorsport champion with the team behind, thank goodness the track is contained because most people won't stop and ask for directions!
As you have heard SMEs go to accountants, bankers and family for assistance in that order. They don't come to Ministry of Economic Development or NZTE. And they certainly don't come to the government.
Therefore if the government wants to be more helpful to SMEs, then we have to be more helpful to you. Perhaps you could become "value-added resellers". Maybe government could be more effective partners with accounting firms. We have done this with the Chambers of Commerce in the development of the productivity toolbox - the Department of Labour didn't go out and call meetings that no-one would come to or send out another survey that would go to the bottom of the pile. The Chambers engaged with their membership in their normal way and as a result we have an effective set of tools that will meet actual needs - because they came from the SME sector.
So a question is are accountants prepared to invest in their personal professional development, beyond compliance with Institute requirements, to improve their ability to coach and mentor SMEs. For this is what we need.
Accountants, as "value-added resellers", already have the best access to information about government services for compliance, but what about in the area of capability building. To add value in this space, you need to have a good working knowledge of the capability building services offered by government as well. That is why BIZ is a major sponsor of this event.
BIZ is a good resource to support your advice to your clients and it's going to get better. We are in the process of re-developing the business portal to be more relevant, and I would feel I had achieved something today if some of you went back to your office and made it your homepage. I would love you to be telling us how it would be better designed to meet its objective of placing relevant information in the right hands at the right time.
I visited an exciting company at the Icehouse incubator in Auckland recently. I was impressed with the innovation and potential of this company that is already well on the way to strong commercial success. We were talking about the issues they face in access to capital. The thing that struck me most vividly was the comment that "it wasn't the money, but the mentoring that helped the most".
I have often commented on the success of incubators that see businesses leave with the management and governance structure to support the good idea the owner came with. Building business capability isn't always about access to further capital either; it can be about utilising what you have. I have seen this advice come from the Escalator programme.
But you know all this. The question I am asking is if businesses knew that accountants could add significant value in this regard would they seek additional strategic services from them?
When I compare accountants to mentors I see further scope. Mentors act as coaches, challenging business owners to think about their goals. Often, a mentor's empathetic ear is enough to help a business owner identify strategies and opportunities for growth. Mentors help the owners of SMEs step back from the day-to-day routine of running their businesses and think about the big picture. A mentor's role is to support, develop, stimulate and challenge the business owner. This seems to be a good space for you to be in.
But to make a real difference, we need all accountants to step-up from performing historical reporting obligations. So that's why I said your country needs you. We need accountants:
- To cast off the perception of conservatism.
- To embrace the challenge as the first choice business professional for SMEs.
- To build your own competency to cross-sell your services from number-crunching to business development.
- To take a risk by engaging your clients in a mentoring dialogue.
As Minister for Small Business, I am challenging the accountancy profession across New Zealand to make a contribution to transforming New Zealand's economy through encouraging the flair and courage inherent in our SMEs.
But it's a two-way street and I am inviting you to tell us what we have got right and what we have got wrong. And tell us what your clients are telling you.
I meet your representatives regularly through NZICA and I know they also meet with the Small Business Advisory Group, which advises government officials directly about what works, doesn't work for small business.
I have been commenting recently about the pride I felt in attending the Auckland Chamber of Commerce's 150th Anniversary, where I heard the British Prime Minister, Tony Blair say that it was not always apparent just how one's country was seen from outside. He went on to say:
"New Zealand today is seen as very exciting and dynamic. I think that people recognise it for the contribution it makes, not just to the region but to the wider world."
Part of the economic transformation agenda is taking that dynamism and applying it to everything we do - in government, in business and in every sphere of our lives. And in your role as accountants, my message to you is that you have a critical role to play in this too. And for those who are already delivering this value-added role, my message is that the government has caught up with you and will work with you to promote the role you play - because it is in our mutual interests that we do so.