What’s challenging New Zealand Business owners?

Dr Jodyanne Kirkwood Dr Tarja Viitanen

B u s i n e s s s c h o o lTe Kura Pakihi

Summary of findings

IntroductionWe distributed the survey for eight weeks between May-July 2015. It was distributed via two LinkedIn groups (NZ SME Business Network, Otago Masters of Entrepreneurship Alumni and Associates), Enterprise Dunedin, NZ Entrepreneur, NZ Business Magazine and personal referrals from business owners.

Two hundred and seventy nine people answered our survey. For ease of comparability, this report is based on the 217 respondents who completed the survey in full.

First, some demographics of the sample are useful in order to help interpret the findings:

64% of the respondents were male

Only 13% of business owners surveyed were under 36 years of age. One-third was over 55 years old

Most respondents were married/in a de-facto or civil union (85%)

Three-quarters had children

The business owners represented the whole range of industries. They were primarily from services (professional, technical, scientific) (36%), followed by education and training, manufacturing, Information Media, accommodation and food, and retail (each accounting for around 10-14%).

This report is a summary of the 8 main components to the survey. We hope you find it useful and interesting as a means of benchmarking yourself against other Kiwi business owners.

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What’s challenging New Zealand Business owners?

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE TWO

Business ownership and Size 54% of respondents owned one business at present. The remaining 46% owned two or more. Ten percent of respondents owned four or more business at present.

As shown in Figure 2 above, it can be seen that business owners tend to be involved in the majority of the business they own (rather than being silent investors or shareholders for example).

Figure 1. Number of businesses owned currently

Figure 2. Numbers of businesses where respondent is owner-manager

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In this study therefore, the majority of the responses (73%) are from micro-businesses (fewer than 6 staff), as indicated in Figure 3.

Almost one-third employed no staff (sole trader or zero employee firms). This is different from the New Zealand average, where 69% of enterprises have no employees (The Small Business Sector Report 2014, MBIE). This could be due to the fact that we asked for the total employment across multiple businesses.

Ninety-one percent had fewer than 20 Full Time Equivalent (FTE) staff. This is in line with the total population of New Zealand’s businesses with 97% employing fewer than 20 people (The Small Business Sector Report 2014, MBIE). On the whole, the businesses who responded to this survey are slightly higher than the national average in terms of number of employees.

Figure 4 below indicates the annual sales turnover for these business owners’ companies.

Figure 3. FTE employees (across all businesses if own multiple businesses)

Figure 4. Annual sales turnover (combined if have multiple businesses)

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE FOUR

Motivations for becoming a business ownerAs with most international findings around motivations for business ownership, a desire for independence is the number one ranking finding in this study (76%), followed by financial gain/profit (40%) and seeing a gap in the market (34%). Figure 5 shows the motivations (people could select more than one).

Those in the ‘other’ category described specific issues such as:

Balancing work/life

A way to go into semi-retirement

Contributing to NZ/the world, develop new interests

A way to work around ill health or family members with ill health

Having a sense of mission/purpose

Passion for product/service

Figure 5. Motivations for becoming a business owner

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Contribution to the entrepreneurial ecosystemOnly 35 percent of respondents say they have a business mentor themselves. Interestingly, just over half (52%) act as mentors to other business owners (or prospective business owners).

Most business owners (76%) actively network with other business owners, as indicated in Figure 6 below.

Just over half (53%) actively volunteer to assist others in developing businesses or current business owners.

These results are encouraging, showing that business owners are well connected and are assisting each other with their businesses. These actions all contribute to the entrepreneurial ecosystem of New Zealand.

Figure 6. Networking with other business owners

Figure 7. helping other business owners/prospective owners

Defining Business SuccessOftentimes we assume or it is implied that all business owners want to grow their businesses and are interested primarily in financial success.

As indicated in the motivations for business ownership in Figure 5, the reasons are varied. Similarly, when we ask people how they define business success personally, a wide range of answers emerged.

The main success factors that were mentioned were: Time to spend with family. Work-family balance

Financial security/wealth/stability/earn comfortable amount

Having a better lifestyle, work-life balance

Freedom/independence

Satisfaction, achievement, accomplishment, pride, personal fulfilment

Other factors: Making a positive change, give back to others

Balanced workload, be in control of workload/time

Have a good retirement

Security/peace of mind

Be able to offer people employment

Looking forward to getting up in the morning

A legacy for future generations

Respect and recognition in the industry

Content customers

Ability to manage stress

Enjoyment

On the whole, the answers given to this question offer insights into Kiwi business owners and what they believe success is. For those respondents who talked about money, very few (only two or three) spoke of wanting to be extremely wealth. Most talked in terms of having a steady income to provide for their families, have the ‘extras’ in life and having a reasonable financial return. Very few talked about wanting to grow their business substantially (discussed more in the next section)

The main factor discussed was business owners want to have a good lifestyle, and do work that is fulfilling and enjoyable to them.

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE SIX

Growth objectives Most business owners (88%) want to grow their business in the next three years. Of those which have growth plans, the majority plan to grow their annual sales turnover (99%) while substantially fewer plan to add new staff (47%) over the next three years.

Those business owners who planned to grow the business talked of how they planned to achieve this. There was a wide range of issues, including:

Opening more outlets

Opening for longer hours

Expanding nationally and internationally

Increasing marketing

Introducing new products and services

Having better staffing

Finding new customers/markets

Those business owners who were not planning on growing explained why they were not intent on growing. The main reasons were:

Being almost ready to retire

Did not have time to grow the business while they were working in the business

Did not want to manage too many staff

Saw a negative effect on profitability if they grew (particularly employing others)

Wanted to be a sole trader

Wanting to balance their work with time off

No-one talked of issues such as insufficient skills, or external factors such as the economy, the size of their market or other factors preventing growth. The good news is that people who don’t want to grow their businesses are choosing not to for personal reasons (mainly their age) and not wanting to employ anyone/more people.

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Figure 8. Types of growth expected

Challenges business owners faceWhat is interesting here is the breadth of challenges faced, and in some cases, multiple challenges were discussed by business owners. Oftentimes when business owners are surveyed they are given a checklist of challenges that they should tick off if they apply to them. We decided to ask business owners to explain their challenges in their own words. This was extremely interesting, and as noted here, many reasons were noted.

The main group of challenges appear to be of the financial variety. This challenge is often described by business owners in other surveys. The issues relating to finances were:

Lack of capital | Access to capital | Cash flow and Profits | Debt | Bad debts

Another highly mentioned challenge is related to time:

Many business owners felt there was not enough time in the day

There was little time for strategy and planning while trying to actually run the business on a day to day basis

This is an issue for those who are sole traders, and can affect business growth – if the owner is too busy actually doing the work they may find it difficult to implement their growth strategy

The other common issues raised were:

Lack of acceptance of their business from local/NZ customers particularly

Small size of the local market in New Zealand and the physical distance from markets

People not prepared to pay for quality service/products. Customers wanting ‘freebies”

Staff – hiring, not being able to afford to hire staff and/or retain good staff

New Zealand’s labour laws

Isolation/loneliness/lethargy

Lack of understanding from others about what it takes to be a business owner

Attracting customers/sales

The fluctuating Exchange rate

Intellectual Property

Balancing capacity with demand

Keeping up with technology

Competition

Compliance/bureaucracy – particularly around GST, Tax and resource consents

Access and knowledge of where to go for advice, on relevant courses, and networking opportunities

Lack of marketing skills

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE EIGHT

Tall Poppy Syndrome (TPS) and its impact on business owners Around three-quarters (76%) of business owners believed that Tall Poppy Syndrome exists in New Zealand. Forty-two percent of respondents believed that they had experienced TPS in their position as an entrepreneur/business owner. Of these people, around half believe it to be a mostly New Zealand phenomenon, while half have seen it in other countries as well.

Figure 9 below indicates that friends, competitors and anonymous commentators on social media were the main sources of negativity.

We were also interested to find out how business owners were affected by TPS. Primarily, these business owners were affected emotionally by Tall Poppy Syndrome. This is rather concerning, but there is also quite a significant amount of financial and reputational damage that business owners have experienced due to Tall Poppy Syndrome. These results are shown in Figure 10 below.

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Figure 9. Who are the main detractors?

Figure 10. How have business owners been affected by Tall Poppy Syndrome?

In the ‘other’ category, there were comments such as it hasn’t affected them very much, negative articles in the press, lack of support from others, being ignored by people, and affecting their confidence.

Figure 11 below indicates the types of decisions that business owners believed were affected by TPS. This question was answered by 58 people, so around ¼ of the business owners considered TPS in their business decisions (people could answer more than one decision).

As Figure 11 indicates, visibility of the business owner/entrepreneur is the key factor that they consider with respect to TPS. This may be important as few business owners may be willing to step out from the radar and tell others about their success. However, when looking at the entrepreneurial ecosystem results above, it would indicate that business owners are connecting directly with other business owners, and perhaps this is more on a one on one basis which is more comfortable for business owners.

Is there anything that can be done about TPS?This question elicited a general view that there is little, if not nothing that can be done about Tall Poppy Syndrome in New Zealand. Responses such as “it’s a sad fact of life”, “it’s part of the NZ culture”,” change the culture? It’s a hard one” were common here.

Some people thought there was something that could be done – particularly around celebrating success, being proud of achievements, and being proud of being a New Zealander. Some also spoke about encouraging movement from old boy’s networks/more diversity on boards as things that might help with Tall Poppy Syndrome.

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE TEN

Figure 11. Do you consider TPS when making business decisions?

Childcare and business ownership As Figure 12 below indicated, one-third of business owners started their businesses while their youngest child was younger than five years old.

The main types of childcare that are used by those with children under 14 years of age currently is a combination of the following (participants could select as many options as applied to them).

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Figure 12. Age of youngest child when became a business owner

Figure 13. Main methods of childcare

Over half of those who currently had children younger than 14 years old indicated that the Government could better support business owners who had young children.

When asked what support they require regarding childcare, the comments were primarily around cost of childcare:

Subsidies for childcare

Tax deductible childcare

More free childcare (ie. 30 hours ECE)

Making after-school care/holiday programmes more affordable

ConclusionThe results of our study show that for most of these Kiwi businesses, they are in a good position in terms of being able to meet their own definition of what business success is, which is having a good lifestyle, earning a good living and doing work that is fulfilling and enjoyable to them.

Most business owners wanted to increase their sales turnover but only half wanted to grow their FTE employee numbers over the next three years. This may be related to how business owners define success. Maintaining a good lifestyle and employing more staff might not be seen as particularly compatible – some business owners noted that as they employed more staff, their profits went down and the time spent managing staff went up.

The challenges these New Zealand business owners faced were varied, but not insurmountable. For many the issue was raising capital to grow their business, and there are now new ways of achieving this rather than traditional banks. Equity crowdfunding is an option in New Zealand now and is successfully allowing businesses to raise capital.

We are still concerned about the level of Tall Poppy Syndrome that business owners seem to face in New Zealand. The results showed it was a factor in decision making for business owners and there was a sense that little could be done about TPS.

We are interested in knowing more about how business owners manage childcare costs and/or availability. We are going to interview a group of business owners who started their business when they had young children. If you indicated you would like to participate further in the study and had children under 14 when you started your business, we will be in touch shortly regarding participation in an interview.

Thank you and we hope you find this report useful. Please get in touch if you have any questions or comments.

WHAT’S CHALLENGING NEW ZEALAND BUSINESS OWNERS • PAGE TWELVE

For more informationIf you have any questions, please contact:

Dr Jodyanne Kirkwood Department of Management University of Otago Principle researcher jodyanne.kirkwood@otago.ac.nzPhone 64 3 470 3536

Dr Tarja Viitanen Department of Economics University of Otago Associate researcher tarja.viitanen@otago.ac.nz

Or

What’s challenging New Zealand Business owners?July 2015

B u s i n e s s s c h o o lTe Kura Pakihi