Lifestyle entrepreneurs

By Fiona Rotherham

Sunday 1st December 2002

YOUNG AND SHARPE. What else would you expect two 21-year-olds to call their start-up company? Victoria Young and Madeline Sharpe set up their design company in March, recently moved into spacious Newmarket premises and already have a small yet impressive client list including two overseas-based customers.

Why set up a business now? Young says they wanted to take the risk before heavy financial burdens (mortgages, children) entered their lives. Besides, they have no fear of failure. "It is not going to be the end of me if this fails. You have to take that risk," she says.

Entrepreneurs like Young and Sharpe are more common than you might think. In fact one in seven New Zealanders (14%) is an entrepreneur, according to the 2002 Bartercard New Zealand Global Entrepreneurship Monitor, the New Zealand part of the world's most comprehensive study of entrepreneurship, published this month. That makes New Zealand the sixth most entrepreneurial nation in the world, according to the study, well in front of countries like the US (10.5%), Australia (8.7%), the UK (5.4%) or Japan (1.8%), though behind Thailand (18.9%), Korea (14.5%) and Chile (15.7%).

New Zealand leads the OECD in having one in nine of the population being "opportunity entrepreneurs" (people who choose to start up their own company, rather than being forced to do so by redundancy, for example).

So should we all feel smug? Not yet. The original 1999 Global Entrepreneurship Monitor, or GEM report, defined entrepreneurship as "any attempt at new business or new venture creation", with "attempt" as the operative word. It is incredibly easy to start up a company in this country. We all know people who have started businesses or work for themselves. New Zealand ranks third in the world in terms of low market entry barriers for new businesses, according to the GEM study.

The problem is this high start-up activity doesn't necessarily translate into wealth creation. Our companies are typically family-owned and small (as we all know 84% of our companies employ less than five people, and 91% employ fewer than 10) and they seldom grow into big businesses that take on the world. Moreover our survival rate - 59% of start-ups fail within four years - is low to moderate by OECD standards.

New Zealand trounced Australia in almost all entrepreneurial measures in the 2002 GEM report. Yet Australia consistently exceeds New Zealand in macro-economic performance - from GDP growth to competitive indices.

So why are our entrepreneurs not going on to lead wealth-creating businesses? Blame it partly on ego. Americans have it in spades but it is lacking in the psyche of most Kiwi entrepreneurs, according to GEM. In fact, asked to rank 20 relevant character traits, the New Zealanders ranked ego - defined in the survey as wanting to make a "recognised difference" - last. This matters, particularly when we are trying to sell our products overseas. Survey co-author Howard Frederick, who was born in the US and is now Unitec professor of innovation and entrepreneurship, says, "In the US, business people tell 200% of the truth and people believe half. So when New Zealanders go in being modest and tell 50% of the truth, the American's get about 25%. We need a bit of hyperbole and a few networking skills - luckily these are things that can be learnt."

Worryingly, some of the character themes that ranked highest among Kiwi entrepreneurs were non-entrepreneurial ones. Encouraging potential in others, winning people over and preferring to work with trusted colleagues are good for managing customer relations, but not for leading a growing international company.

In themes relating to focus and meeting deadlines, also vital for a successful entrepreneur, New Zealanders ranked quite well. But urgency was way down in 18th place. New Zealander entrepreneurs tend to create lifestyle companies rather than growth-oriented businesses. They simply have no urgency to expand beyond a handful of staff, content once they have made enough money to buy a bach and a boat. "Your typical Kiwi entrepreneur will be running a five-person service economy firm in Auckland and his ambition in life is to have his named painted on the van. These are not the dynamic export-oriented firms that we rely upon to bring us up into the top half of the OECD," says Frederick.

Creativity, the starting point for entrepreneurial ideas, ranked seventh in the survey of character themes but networking, regarded overseas as naturally instinctive in successful entrepreneurs, ranked only 13th and performance orientation, the ability to set milestones and to measure progress, ranked 12th.

From this analysis, it would seem we are a nation of opportunity takers rather than entrepreneurs. "The survival and wealth-creation potential [of our companies] may depend on their ability to put together entrepreneurial teams that compensate for missing characteristics. The starter-up needs the performance orientation and ego from other individuals to make a truly prosperous company," the report says.

What is to be done?

Frederick identifies three key areas:

* Education and training: New Zealand rates top in the world in teaching creativity, self-sufficiency and personal initiative in schools. But we do poorly in teaching the principles of entrepreneurship and the market economy. The report recommends a strategy integrating entrepreneurship into all levels at school.

* Finance: New Zealand ranks at the bottom of the table for availability of venture capital. Only 18 companies here received venture capital in 2001, down from 25 in 2000. This means as few as one in 10,000 New Zealand companies will receive venture capital. The primary funding source for start-ups remains family, friends and business angels. For the second year, New Zealand is in the top ranks for business angel activity with 4.3% of all adults investing a median $20,000 in business start-ups in the last three years. The report recommends giving business angels special incentives such as a small tax grace on failed investments. (Don't hold your breath on this one: Finance Minister Michael Cullen doesn't support "incentivising failure" through the tax system.)

* Culture: New Zealanders score poorly in the respect and status we give to successful entrepreneurs. We don't believe being an entrepreneur is a desirable career choice and we are damning of business failure. The report recommends special efforts to stimulate enterprise among target groups such as youth and ethnic groups. It also recommends the government sets up a National Commission on Entrepreneurship, issues a white paper on entrepreneurship policy and an annual report on the state of small business/entrepreneurship.

Getting it right could make a big difference to New Zealand. The GEM report, somewhat tentatively, suggests a 4% rise in total entrepreneurial activity leads to a 1% rise in gross domestic product two years later. New Zealand's entrepreneurial score (like that of most countries) slipped this year because of the world economic slowdown. But Frederick believes with the right stimulus, we could achieve a 4% rise next year, 8% if we did something really radical. That would be good news for 2005.

The Global Entrepreneurship Monitor, now in its fourth year, is a joint research venture by the London Business School and Babson College in Massachusetts covering, this year, about 116,000 people in 37 countries. The New Zealand part of the research, surveying 2836 individuals, is carried out by Unitec's New Zealand Centre of Innovation and Entrepreneurship.

The New Zealand survey nearly didn't happen this year when Unitec couldn't get funding to cover the $140,000 cost. "We only raised about half, Unitec had to fund the rest," says survey co-author Howard Frederick. "Most government departments weren't keen, seeing it as a private sector initiative, though it's crucial for economic growth." In the end the Ministries of Economic Development and Maori Affairs gave $35,000, and Bartercard came in as naming sponsor.

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