Failure to get critical mass is burning out NZ exporters – adopt a M&A plan
NZ business people have a great ability to create world-beating products and solutions, yet our track record of building long-term sustainable high growth businesses is poor, why? We are “failing to build companies of suitable critical mass to conquer international markets”.
We are suffering the curse of our own “DIY – control mentality”. This is getting in the way of our businesses attaining the critical mass required to master the real game on the global stage. The very stuff that helps us get started is getting in the way of long-term sustainability.
Let’s take the example of a fertile niche industry like Baby products:
- The opportunity is prime – a market where globally people are having fewer children, later in life and spending more on the children. Given this backdrop you would think business would boom. But we have numerous small players operating in the baby market in NZ (turnovers sub $5M), all with great innovation selling single products to international distribution chains. You can just imagine a Sunday night in Auckland Koru lounge; in there we have a bunch of eager solo operators selling non competing products all heading to the same market, talking to the same distributors.
- These export road warriors are simply going to burn themselves out before they achieve success.
In any other culture I would suggest that these small businesses collaborate. However kiwi business owners do not have the desire to collaborate. Perhaps it is the fear losing control that gets in the way or the feeling that someone else will screw it up or perhaps just a plain overdose of “not invented here syndrome”.
Another very evident cultural hang up is failure to talk to competitors or fellow industry players; learn to talk about your business without giving away the “secret sauce”.
Looking ahead I believe that NZ has yet to feel the true impact of the global financial crisis. In order to turn our economy around we need to adopt a new game plan.
My advice to business owners is to forget collaboration, adopt a new game plan of Merger and Acquisition (M&A). Use the leverage of the true commitment , that can only be gained by joint ownership. I often quote the bacon and eggs story: The hen is involved, the pigs committed!
An M&A strategy is just as valid for small business as the corporate giants. When doing these deals it’s important to focus on the long-term game and huge opportunity cost of not doing the deal. There are plenty of ways to structure deals without the need for cash now.
Hunt down other aligned small businesses and explore the opportunities for complete integration of your businesses. The synergistic benefits of M&A for SME’s are numerous:
- Shared commitment – no longer the need to sweat the hard stuff alone as owners.
- The volume to justify hiring of specialist skills in the business e.g. channel (distributor) management, Sales etc.
- With a broader product offering the ability to increase averages sale price with resulting lower cost of sale
Yes the M&A process will take some effort. Do not forget the important process of post deal integration, it will need careful planning and support. The bottom line is that overall your probability of success will improve along with a M&A strategy.