How to create a hi-tech nation

Orion Health CEO Ian McCrae shares his views on how to grow billion-dollar tech companies and keep them in New Zealand

In part two of our Q and A interview with Orion Health CEO Ian McCrae, he talks to Sarah Putt about the government's role in creating a hi-tech economy and why he stays in New Zealand.

You were on an ICT Taskforce for the government (formed in 2002).

That’s one of the things I’ve found most frustrating in all the years. There were some great ideas there but they never happened. It didn’t happen. The idea was to create a whole lot of $100 million companies within 10 years and it just didn’t happen.

Why not?

I think the first issue is that you are not going to get 100 companies, you’re going to get a handful of companies that are going to be really big, is the best you can aim for. You might get ten 10 billion dollar companies.

I think what New Zealand often tries to do is apply things that worked in Amercia, they tried to apply the same thinking to New Zealand, thinking it would work here as well.

But we have a unique set of problems which require unique solutions. So for example in America you have lots of VC funding, you have companies that get $10 or $15 million to grow real fast and produce something, you don’t have to make money because your exit strategy is to sell out to Oracle or one of the big guys.

That’s a pretty viable model over there but you’ve got to go really fast, you’ve got to do it in about four years or less. What sort of multiplier do VCs want? Probably 30 percent or whatever it is doubling in size every three years or probably four times, something like that.

There was a view that we needed more R and D so we set up the funds in New Zealand because we thought we weren’t doing enough R and D. But the problem with this model here is that companies take longer to grow because there’s this obstacle called the Pacific Ocean that you’ve got to fly across. It just takes longer to get established in big, big markets.

Whereas when you’re in Silicon Valley or Massachusetts, you’re in the middle of big markets. But when you are a little New Zealand company you’ve got to take some years, and it seems to be about 10 years before these companies really get any traction and that’s too long for a VC.

Secondly when they come to sell up, they’re going to sell out to an international buyer so suddently this conduit that you’ve been nurturing, suddenly bang, its gone.

It’s not going to keep the industry going, and keep it here in NZ and grow it, is it?

The problem in New Zealand is that we’ve got to retain these companies. In America its not problem because if the company gets sold it will be to another American company down the road.

The problem we have here is retaining these conduits. We need some unique New Zealand solutions to that problem. If Navman was still around it would be a billion-dollar company I would have thought.

You can’t blame Peter Maire for selling up, it would be tempting to take the money.

You can’t blame Peter because he probably worked at it for 20 years and its very tough on your home life. The guy worked really hard and the other investors probably needed their money out, you can’t blame them. They’ve done a great job, but nevertheless from a New Zealand Inc point of view it wasn’t a great outcome.

How can you turn that around and create a unique New Zealand model? Do you think this government is listening. The Ministry of Science and Innovation has got a $700 million fund for research and development across all areas…

No, you’ve got to be careful there. A lot of that doesn’t go to people like us, it goes to the Crown Research Institutes, it goes to the universities. You have the Health Research Council which is $70 million earmarked for health research projects which you can only apply for if your project had no commercial outcome or possibilities. It’s really for doctors and others to fiddle around with research into their favourite conditions.

The government should do a return on investment on that $700 million. I don’t think the country’s getting good value whatsoever. I think $600 million of it is spent just to keep some research people happy - to take a very hard line. Maybe it’s very harsh but we should at least know what return the country is getting on that investment, we should know that.

The National Government, during this term has a reasonable mandate, it has the opportunity now to actually do some significant economic development.

What could they do in the ICT area that they are not already doing?

We’ve tried generating new ideas, we’ve tried generating lots of small companies with funding because the government was told, incorrectly, that the small companies were struggling for money.

There is a lot of money around, if you have a good idea you can get money, you’ve just got to have a good idea and present it properly. And the NZTE guys have done a very good job, they are so helpful to us around the world, helping us sell internationally.

I’m a CEO of a software company okay, I do not have all the answers, but what we have to do as a country is figure out how we actually grow and build some very big companies like Fisher and Paykel, Rakon, getting a few more of those on the go. To take some good ideas here and sell them globally and keep ownership in New Zealand.

One of the ways we seem to be able to keep ownership in New Zealand is if it becomes listed on the local stock exchange, the chances of them getting sold seems to decrease. It doesn’t disappear completely but... it seems to be harder for takeovers to occur.

That’s an interesting observation.

So maybe one of the things is that we should be getting some of these companies listed. Maybe the government or the Superannuation Fund should be taking cornerstone positions in certain companies that it doesn’t want to see lost to the country.

Because we all pride ourselves on being very good Number 8 wire innovative people, and by the way that’s actually kind of true. The way we can establish that is when we take a good New Zealander into North America or Europe they work really hard, they have great ideas, they show lots of initiative.

We’re just not very good at getting those ideas and the products. As soon as you lose the ability to commercialise and then sell the idea internationally you’re basically stuffed. It doesn’t matter how much more R and D you do, it’s going to go nowhere. In fact you might as well say it’s a waste of time doing more R and D because it’s not going to go anywhere. Some guy might make $5 or $10 million out of a little wee company by selling it to someone else, I’m sure it will generate a big press story, some noisy little company.

Why do you stay in New Zealand?

New Zealand is a great place to live, why would you live anywhere else?

Some people like the New York scene I suppose, a lot of us just happen to like the outdoors, the clean, green… actually that’s another thing the government really needs to do, is the clean, green stuff because NZ is branded as clean and green and we should emphasise that and we should make sure that it’s a definite reality.

If we have a clean, green image then we can sell our products at a premium.

There is a good commercial rationale for investing in clean and green, it’s not some Green Party, hobby horse thing, it’s a real commercial, sensible thing to do.

We can differentiate our products and charge a premium because they’re from this clean, green country.

One last thing, the National Health IT Board – what do you think about their progress? How are they getting on with implementing electronic health records in New Zealand – are they doing a good job?

Of course in my position I want them to go faster. The rest of the world is going really fast and I don’t think we can... we have to go faster, if we don’t we’ll wake up one day we’ll be left behind.

* See part one of this Q and A interview with Ian McCrae here.

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