Smart design key to export success

Richard Cutfield

You would expect Richard Cutfield, head of the $150 million Pencarrow private equity fund, to be enthusiastic about showers.

After all, he is chairman of the recently floated tapware manufacturer and major Pencarrow investment Methven.

However, his passion for the Auckland company's latest innovation - the SatinJet shower nozzle - is almost racy.

He pulls one of the shiny units from his bag and talks lyrically about his longing to return to his own shower in the Wellington home he shares with his Danish wife and two young daughters.

"It is pairs of jets shooting water in a collision, dispersing amazingly dense but wetting water patterns. It's beautiful. Dense and powerful but soft."

His enthusiasm for plumbing is a subset of an encompassing drive to put design at the centre of his life and, most importantly, Pencarrow's investment philosophy.

It is an unusual strategy, but focusing on design-led companies is a plan that has delivered. Pencarrow, set up in the early 1990s to manage the $25 million Greenstone Fund, has, say some commentators, led to a renaissance of New Zealand's venture capital industry.

Cutfield says design-led companies are defined largely by how they think.

"It comes down to having the mindset you really want to lead your industry, rather than follow, copy or mimic."

The award-winning, ergonomically designed Life chair by Lower Hutt company Formway, one of Pencarrow's star investments, is a prime example.

Twenty years ago, Formway was a modest Petone engineering company knocking up steel chairs until managing director Rick Wells took the view design was fundamental to its future success.

"If you try to sell a chair overseas they'll say, the world doesn't need another chair.

"But show them the Life chair ... then they're not so concerned about price because they can see it's better than other chairs."

Pencarrow first looked for companies with great brands and good distribution.

"In some cases, we found good brands but they were dying and losing their distribution because the product wasn't up to it. All roads kept leading us back to design.

"We're looking for organic growth potential and the ability to increase sales without having to pay subsidiaries or give away massive incentives and other short-term things."

Add good profit margins and the ability to sustain the growth and it's pretty much common sense, says Cutfield.

If New Zealand businesses are to succeed in the global economy, where the skills and know-how to manufacture and produce are widely accessible, he says they need to be creating products that are different.

"In a design sense, what we're trying to say is you can't leave it to chance. You've got to make your success."

It is a message he is taking to a wider audience as part of the Government-financed Design Taskforce, a 12-member team to recommend ways to inject braver design disciplines and innovation into New Zealand businesses.

Chaired by the founder of leading New Zealand design firm Designworks, Ray Labone, the taskforce has a five-year strategy to help at least 50 export-focused businesses to become internationally competitive through design leadership.

It aims to generate an additional $500 million in export earnings in that time.

The group's research in 2002 showed that less than 4 per cent of New Zealand companies exported, and only 151 earned more than $25 million from exports annually.

"That's not a lot for a country that relies on exports," said Cutfield. "When you take out big agricultural producers, the commodity players and forestry businesses, you don't get a lot of companies exporting smart products to earn our way to import all the things we want to import.

"We're not short of ideas or the technical capability to execute them in an engineering sense. What we are short of is the ability to go that step further and take the ideas and innovation to the next level.

"Effective design basically comes down to companies that go out there and research the world market for their products, and then go beyond what's out there and think up what could be there."

Cutfield's interest in design had early beginnings. As a sixth-former at Palmerston North Boys' High, he took technical drawing, thinking he wanted to be an architect - only to be put off by how hard they worked for so little money.

He went on to study business, accounting and finance at Massey University, Palmerston North.

His interest in private equity came during his 10 years with accounting firm Deloitte, particularly his work in the corporate finance division in London bringing companies to the stock exchange, assessing them for acquisitions and working on management buyouts.

He returned home and joined Pencarrow soon after it was set up. Although it is not thriving yet, he considers the local venture capital industry to be solid and de-veloping.

To the taskforce, he brings a business voice.

"We've trodden this path and seen value creation in the likes of Formway and Methven, and seen them succeed in offshore markets. That's why I believe in the taskforce strategy. But the difficult thing is getting businesses to relate to it."

The taskforce is working to provide the tools to help, and to open up some of the bottlenecks - one of the biggest being finance.

Ultimately, Cutfield says, it will be a long-term strategy.

"Businesses will all start the journey at different stages but in five to 10 years, if we do our job well, we'll have a number of companies that have started on this path towards transformation.

"It is harder for small businesses, but there are lots of medium-sized businesses that don't commit to design, and that's where the greatest benefit to the country's going to come from, though mid- to large-scale businesses that take design to the next level."

Cutfield's favourite part of his job is seeing companies succeed internationally and sharing in it.

Career highlights include sitting around a table with Formway's Wells and cutting a licensing deal with the US on Life chair, and being at the launch of SatinJet with Methven to see customer reaction.

* Richard Cutfield
Executive director, Pencarrow Private Equity

Represents Pencarrow on the board of:
* Methven (chairman)
* Formway Furniture
* Design Mobel Group
* Member of the Government-funded Design Taskforce and the Design Leadership Group

Pencarrow Private Equity investments

Management buyouts:
* Methven
* Donaghys
* Eastern Equities Corporation
* Arthur Ellis
* Pacific Horizon
* Kawau Kat Cruises

Expansion investments:
* Formway
* Restaurant Brands, New Zealand
* Ace Rental Cars
* Wellington Drive Technology
* Design Mobel