The traditional approach for a small country keen to export more of its world-beating software is to focus on market niches: types of companies or specialist applications.
A team of MBA students from the US's renowned MIT who toured New Zealand intimated that local developers lacked focus and felt that we should solve a specific problem in a specific market before moving on. But is our generalist, big-picture natures a secret strength?
MIT candidate Justin Steinman (below) and software entrepreneur John Blackham thrash out the issues.After spending the month of January meeting with a cross-section of New Zealand information and communication technology firms from the HiGrowth Project, I am firmly convinced that New Zealand can be a player on the world technology scene. But as a small country with limited resources, New Zealand needs to be careful about the choices it makes. While I agree with John Blackham’s fundamental point – that New Zealand ICT companies should focus on solving problems that need solving – I would recommend that New Zealand pursue a slightly different direction.
To be successful in business, you need to listen to your customer. This is Business 101 – no one needs a better mousetrap if your problem is too many cats. Blackham recommends that Kiwi ICT companies focus on solving the problems of New Zealand industry. However, John’s argument is based on the fundamental assumption that New Zealand industry is representative of the rest of the world. I would question the validity of that assumption.
There is no question that to survive, New Zealand ICT companies need to export their products. There simply isn’t enough demand domestically to build a billion-dollar ICT business. The crux of the MIT Sloan team recommendation was that New Zealand ICT companies should target a specific problem in a specific market and then solve it. After solving that problem and dominating the market segment, the ICT start-up could move into a related segment. In other words, grow organically, always being sure to listen to your customers. We met with 25 companies as part of our study, and a number of them were targeting three or four or five international markets with fewer than 30 employees. They couldn’t tell who their customer was, and they couldn’t paint an intimate picture of their problems and concerns. If you don’t know who your customer is, then you will never solve their problem. And if you don’t solve a real problem, then no one will pay you real money.
This is all basic stuff; anybody who has run a business knows it. When the MIT Sloan team looked at New Zealand’s ICT industry, we were consistently impressed with the intelligence and ingenuity of the Kiwis that we met. There are some great ideas being incubated in New Zealand. Unfortunately, few of these companies will grow to the size needed to be a big international player. In order to get big, companies need to grow fast. And to grow fast, a company needs money, in the form of venture capital. However, no international VC will invest in a New Zealand-based company, because the VC will want the company’s headquarters to be local. VCs want to be close to their money. New Zealand’s VC industry is still in its nascent stages, so ICT companies wishing to grow must look elsewhere for capital.
Looking for a solution to this problem, our team saw an immediate parallel with Israel. Israel has created a niche for itself on the international technology scene by incubating new technologies at its universities, and then exporting young companies to American and European markets. We think this is a great model for New Zealand to follow. It leverages New Zealand’s ingenuity and creativity. It will help drive foreign direct investment into the country. (Israel’s FDI has grown from $US500 million to $US5 billion in 10 years.) And most importantly, it will establish New Zealand as a world player. It’s tough to get close to your customer when your customers are thousands of miles away. But university-based R&D creates new technologies that can then be exported to markets. Once New Zealand establishes a reputation as a world leader in innovation, then more investment dollars will flow into the country, and this money can be used to help grow the next generation of technology companies.Steinman is an MBA candidate at the MIT Sloan School of Management, where he is focusing on new product and venture development.