Editorial: Innovators needed more than ever as economic cloud approaches

Xero was founded by Rod Drury just as the GFC was brewing and is now NZ's most successful FinTech company. Photo / Mike Scott

OPINION:

You know the economy is looking dicey when entrepreneurs are down in the dumps.

Usually optimistic by nature, innovators are now feeling increasingly pessimistic, according to a recent survey by the Entrepreneurs' Organisation's New Zealand branch.

Their main issue is the key factors hindering growth opportunities at the moment – namely labour shortages and inflation.

And as venture capital funding slows, startups start to feel the pressure and founders start to doubt their business models.

The EO report summarised New Zealand businesses as "skint on time, money and manpower" and described the sentiment among entrepreneurs as one of the least optimistic times over the past few years.

The threat of recession-induced layoffs, firms putting off their business development plans and being forced to rapidly pass on rising costs is uppermost in their mind.

A shortage of skilled labour is problematic for any business but more so for early-stage companies trying to deliver on promises to investors and other stakeholders.

But it's not all gloom and doom. At least it shouldn't be.

Successful entrepreneurs have a knack for turning adversity into an advantage. And sometimes, when trying new things, it pays to curb your enthusiasm.

Tough economic conditions also force innovators and entrepreneurs to take more risks and adapt their business models.

Online accounting platform Xero is a good example.

Xero was founded in 2006 by Rod Drury and listed on the NZX in June 2007 - just as the GFC was being born.

The company is now easily this country's most successful tech business, ending the 2022 financial year with operating revenue of more than $1.1 billion and 3.3 million global subscribers.

The company's delisting from the NZX was a big blow to the local sharemarket but its legacy is huge in terms of spawning new companies.

Xero, which employs about 4800 staff around the world, very early on became an anchor in the local FinTech ecosystem, easing the path for businesses looking to start up and grow.

Overseas, the list of successful businesses that started during a recession is impressive. Big brands like Apple, Mailchimp, Slack, WhatsApp, Microsoft and General Motors can be counted in that category.

The threat of recession and potential "hard landing", as Kiwibank economists put it this week, are a concern.

But while it's natural for startups to be cautious, a recessionary environment can create greater opportunities with more capacity in the economy.

One interesting sidebar to the EO survey was a noticeable influx of new young entrepreneurs in the past 12 months.

This can be put down to people ditching traditional career paths in favour of pursuing their passion, or those who lost their jobs during the Covid pandemic and forced into doing something new.

Working from home and hybrid work has offered more flexibility and allowed people to take a smaller leap into self-employment than otherwise.

"We're seeing a raft of new ideas and new people coming up through the ranks. It is encouraging to see," the EO report noted.

Another noticeable trend was the time to recruit quality staff was starting to shorten, with more people coming into the market. That can only be good news.

New businesses are vital for innovation and shaking up industries, which is exactly what New Zealand needs right now if the country is to rebuild better.

Right now we need entrepreneurs more than ever.