Business incubator The Icehouse presents a series offering advice for growing companies. In the final part, David Irvinglooks at the neglect of small to medium-size companies
Nine years ago when we founded The Icehouse I was compelled by the fact that New Zealand is a country of small- and medium-sized enterprises (SMEs) yet seldom do we direct our attention to enabling owner-managers to improve their business performance.
Make no mistake, SMEs are very important in New Zealand. The ANZ Bank in its annual survey captured the importance very well: "There are an estimated 3500 businesses with annual revenues between $10 million and $150 million in New Zealand, collectively generating around $120 billion in revenues each year - an estimated one-third of our revenue economy.
"Yet the segment is often overlooked, despite having a value several times the size of our publicly listed markets and forming the engine room of this country's future economic growth."
If they are that important you would think the 2025 Productivity Task Force would devote considerable space to the sector. Sadly they sidestep the changes private enterprise can make, choosing to address the role government can play to improve work conditions. This is an understandable approach, but does not get to the nub of where improvement matters - inside the firm.
Go back five years or so and we began hearing the cry "get back into the top half of the OECD". Much discussion was had, led by excellent commentators like David Skilling of the New Zealand Institute identifying that productivity was at the heart of our weakness. Tragically we work longer hours than nearly every other OECD country but the output per hour is among the worst.
Treasury too got involved in the "top half of the OECD" discussion. But like the other professionals they do not sufficiently address the workings of the business itself. Instead they focus on education to lift skills, investment to increase funds available, access to world markets. These are all valid perspectives, but those of an outsider looking at the environment of the business.
What we have learned at The Icehouse is that you get big change in business performance by addressing the leadership and management performance of the owner-manager of the SME. Over nine years of running owner-manager programmes we have enabled a 30 per cent earnings lift and importantly owner-managers have improved their lifestyle.
What are the learnings that bring about this change of performance?
They are all really quite simple, including delegating with trust, planning the future with your colleagues, deciding priorities, building an effective top team, understanding how the business makes money, ensuring the business is served with information that enables good management decisions to be made, putting in place the resources of people and money to support the business growth plans, growing your people and holding them very accountable, designing an organisation that enables execution of strategy and not one just for reporting convenience, making sure the leader spends time building relationships and in the front lines supporting staff and learning what is going on.
If we want to get into the top half of the OECD or match Australia's standard of living we must concentrate our efforts with SME owner-managers - "the engine room of the economy".
David Irving is a co-founder of business growth centre The Icehouse and co-author of the business guide Changing Gears. Visit www.theicehouse.co.nz
