I’ve received a bit of feedback since my post the other day regarding the Government’s role in helping to grow enterprise in New Zealand. Jim in particular strongly feels that help should be given to medium size businesses instead of small ones.

Here are some more thoughts from me….

The way I see it, business development is a pyramid. You need to feed in lots of startups at the bottom to be popping out a Trademe or 42Below every few months (which we need to do in this country to grow).

Research has shown that the main reason that entrants to the pyramid don’t get much higher, is due to a lack of core business skills, that is they’re good at making whatever widgets they choose to, but bad at all the other stuff, admin, marketing, IP, planning etc etc. Now Jim’s take on it is that we should be waiting till businesses get half way up the growth pyramid before giving them help. By this time some will have dropped out and selection will be easier.

To my mind this is daft (to quote Jim’s term). How many sterling business ideas will be sacrificed for reasons other than the lack of viability of the core business idea? It could be argued that without his Deloitte experience and advice, and his Dad’s help, that Sam Morgan would have pulled the pin on TradeMe long before getting to the magical mid-pyramid level.

From my own experience I can think of a Web startup that I was part of a decade or so ago – we created what was very close to current day blogging – but without the advice, help, vision and cash to keep on plugging, it all got a little hard and we let it fold.

I do think however that when assessing businesses for funding – much thought needs to be given to the growth potential of the enterprise. It seems counter productive to spend large amounts of tax payer funded advisory time on a business that will only ever reap “sole trader” rewards for the country.

So Jim I have to defend my earlier position – if help is to be given – it should start at rung one of the ladder and continue until a business has the momentum and stamina to do it for itself.

As to the attitude that there is no place to spend taxpayers funds on business development – as part of an Economic Development Agency with real world experience of some of the benefits of enterprise training and the like, I am still sold on the concept – sure it could be tighter, more focussed and targeted but all things being equal we have a good model.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • I agree with Claire Massey that we are not sufficiently supporting small enterprises. Whilst there is support for incubation and help for medium sized businesses, small established firms now get very little help. NZTE and FRST have already discreetly adopted this policy when assessing client applications.

    Fortunately the marketplace has reacted to this policy. There are now a growing number of small consultancies comprising individuals with executive level experience offering a range of support services from governance to capital raising advice and who take a direct interest in businesses with growth potential.

    I believe the government should indeed be involved with economic development and business support. But there are lots of other things the government can do outside of directly funding small business. For example facilitating better broadband and ensuring government procurement policy benefits local businesses.

  • I’m not sure if this is ‘off topic’ but one of the reasons for business ‘failure’ is, quite simply, that the principals lose interest in their idea and abondon their investment (usually a lot of sweat equity and the opportunity cost of becoming an employee). Often small businesses are sold or merged into larger business or other small businesses (I have experienced this personally on a number of occasions – it can be a reasonably efficient growth strategy). Both scenarios skew the numbers and show businesses as ‘failed’ when the more benign term ‘abandoned’ might be more appropriate.

    I am also interested in the concept of micro business – those that need never ‘grow’ to become medium sized or large. My particular area of interest is growing the creative sector of the economy (a.k.a. the creative economy). This sector is mostly populated by independent operators for whom a traditional managerial approach is an anathema. This doesn’t mean that the contribution to the economy is necessarily small. It didn’t take a team of assistants and managers for Fran Walsh to write the script for The Lord of the Rings or the Lyrics to her Academy Award winning song. In fact she could have probably accomplished either task from a bach at Omapere or a bedroom in a bungalow in Birkenhead. The amount of capital necessary to fertilise this sector is far lower than, say, developing a vaccine for HIV (as a very clever friend of mine is doing). In fact, from what I gather the failure rate of biotech projects is extremely high, the capital requirements intensive and the guarantee of success non-existent.

    Not saying biotech doesn’t offer opportunities or that any sector of the economy or occupation is in some way ‘superior’; just that these considerations should be part of the discussion.

    Oh, and for what it is worth, it is probably a good thing than many businesses fail. Some should be strangled at birth or terminated well prior.

  • What about the idea of tax breaks for investing in start up businesses? For example as an entrepreneur i fund and work for companies which means i can’t earn income myself and also am having to fund cashflow out of income from investments which i am also taxed on.

    We had BES (business enterprise refief) in the UK some years ago which allowed a tax break on investments into start ups. I would much prefer that than the current approach of government entering the angle investment field themselves which i see no merit in.

    As David notes (and Ben experienced) many companies just get to the point where they run short of cash, run out of enthusiasm or just hit a bad patch they can’t seem to get through. It doesn’t mean the idea is no good or the business wont be successful but i’d say its the small companies that need a break not the ones that have some revenue coming in.

    So some form of personal tax relief is an approach i would like to see considered.

    Maybe we’re all talking our own position here 🙂

  • Actually, I made an important preface: If – and it’s a very big if – if taxpayer dollars should be spent on such interventions, then you’ll get a lot more bang from the taxpayer dollar by focusing on mid-scale growth businesses.

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