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Silver lining

By Fiona Rotherham

Sunday 1st June 2003

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So you've been handed the dreaded pink slip and given the sad news that your job has disappeared in the latest wave of corporate restructuring. You're awash with feelings of hurt, rejection, humiliation and anger that your years of loyal service have earned such a dismal reward. But wait - maybe you can dust off your bruised ego and turn that cocktail of emotions into a powerful creative energy. Necessity, as they say, is the mother of invention - and it's also the mother of many a new business venture.

Some 55,000 New Zealanders are so-called "necessity entrepreneurs", people prompted by redundancy or unemployment to set up their own businesses, as distinct from "opportunity entrepreneurs", who've become self-employed as a result of planning and choice. You could call Wendy Pye the mother of all necessity entrepreneurs. Yes, New Zealand's publishing queen and one of the country's most inspiring business success stories needed a good dose of adversity to get her entrepreneurial juices flowing. She lost her job as a divisional manager for the now-defunct NZ News publishing group in 1985, was given five minutes to clear her desk, and then marched unceremoniously off the premises. Pye, then aged 42, retaliated by immediately setting up an educational publishing company in opposition to her old employer. Now a multimillionaire, she admits her motivation for going it alone was a desire to show her former employers what she could do. "I was devastated and disappointed. But it really changed my life, which is a lot better now than if [redundancy] had never happened. I needed the push."

Chances are these days that, like it or not, most of us will get the push at some point in our careers. Indeed, you can now expect to be laid off two or three times, and the statistics show you're likely to be in your prime when it happens. According to an annual survey by outplacement firm DBM New Zealand, the typical redundant executive last year was a 41-year-old man who had spent five years with his previous employer, was earning a base salary of $70,500, and received a severance package of 20 weeks' pay.

According to DBM's research, some 17% of these laid-off executives take their pink slip as a cue to set up their own businesses. So why do they do it? Why expose their already damaged egos and their precious capital to the rigours of self-employment? Why not do what an estimated 60% of redundant executives do and stick with the relative security of salaried employment at another firm? DBM executive director Reece Notton says the reasons for taking the plunge vary widely. Some had always harboured visions of self-employment and redundancy was the catalyst for action. Others simply didn't want to be vulnerable to redundancy again when they were even older and, potentially, even less attractive to employers. Others still see it as a chance to swap the corporate scene for what they believe will be a better lifestyle - although Notton says they are often shocked at just how much hard work is involved in being an entrepreneur. "They end up working longer hours than they had been doing - and they were working plenty before."

But not all who fancy themselves as entrepreneurs are cut out for it. For starters, there's the question of whether they can cope with the high risk of failure. Career transition specialist Murray McLachlan of Right Consultants always does a bit of "shroud waving" when dealing with laid-off executives with visions of self-employment, pointing out that 28% of New Zealand startups fail after their first year and 59% fail within four years.

And McLachlan says there are certain personal attributes that are precursors to success. People who are comfortable with networking, good at blowing their own trumpet, disciplined and hungry for success, and able to clearly articulate their business concept to others are more likely to be able to make the transition to entrepreneurship. Also important is a supportive family, an ability to work alone productively, and some degree of managerial experience.

Conversely, warning bells ring when he's dealing with wannabe entrepreneurs who exhibit poor self-esteem and low self-confidence and have no history of exploring self-employment prior to being laid off. Family pressure and inadequate financial resources are bad signs, as are a lack of clarity in the business proposal and an unwillingness to do the networking and research necessary to get a business on to its feet.

Happily, New Zealanders tend to be more entrepreneurial than average. One in seven Kiwis are entrepreneurs, according to the 2002 Bartercard Global Entrepreneurship Monitor. New Zealand scores above the global average both for necessity entrepreneurs (2.25% of total entrepreneurial activity compared with a global figure of 1.95%) and opportunity entrepreneurs (11.57% compared to 5.6% globally). And don't assume that just because necessity entrepreneurs needed a shove before striking out on their own they are less economically valuable than opportunity entrepreneurs. In fact, the GEM research reveals they have a higher impact relative to their numbers than opportunity entrepreneurs. As yet, no one really knows why, but the GEM report suggests people who set off on their entrepreneurial journey by necessity may be successful because they are latent entrepreneurs waiting to let pent-up energies explode.

While corporate redundancies generate an important supply of necessity entrepreneurs, immigrants are another significant source. Indeed, GEM survey co-author, US-born Howard Frederick, professor of innovation and entrepreneurship at Unitec, reckons immigrants could account for the majority of the 55,000. Why? Perhaps because the attributes that caused them to leave their home country are similar to those needed for survival in business. "The most risk-taking people leave their country. In order to survive in this climate, which is not a South Pacific paradise, people have had to be innovative."

A recent Massey University study of 26 relatively recent immigrants who set up small businesses tends to back up Frederick's assessment. "There was a strong relationship between immigrants' reasons for coming to New Zealand and entrepreneurship. They want a better lifestyle, not to be in slave labour, and to benefit directly from their own employment," says researcher Nicola North (now at Auckland University). The majority set up their businesses within two years of coming to New Zealand. Seven became entrepreneurs because they couldn't find work, and 12 quit their jobs because they were underemployed, had reduced hours or were threatened with redundancy. Only one regretted becoming an entrepreneur and that was due to a quarrel over intellectual property with a Kiwi partner.

Like other necessity entrepreneurs, they also tended to be financially self-reliant. Most self-funded their ventures - 20 used personal funds including the proceeds from asset sales, five used family funds, six used bank loans and two had the backing of overseas venture capitalists. North says most wanted to avoid borrowing if possible because they disliked being in debt. Some had problems getting money from the banks, not because of discrimination but because they lacked a credit history or property assets here. The GEM research also shows necessity entrepreneurs tend to use their own money or borrow off family members to get their businesses going. By contrast, opportunity entrepreneurs are more likely to tap into investor networks such as business angels or venture capital firms.

So that's the mechanics of how it's done. Now for the inspirational bit: read on for five case studies of people who discovered the silver lining in redundancy. Their stories could be just the tonic you need should you ever find yourself in the firing line.

Wendy Pye
International publisher
Wendy Pye has that comfortable-in-her-own-skin look that comes with bucketloads of money and business success. New Zealand's richest businesswoman says what she likes, when she likes - and loudly.

But it wasn't always like that. She was dumped without warning from publisher NZ News in 1985 after 22 years with the company. She never found out why. Within 24 hours, she'd decided to start a rival educational publishing business. Nearly two decades on, Wendy Pye Publishing exports to 15 countries, Pye's personal wealth is estimated by the National Business Review's Rich List at $35 million, and she has fond thoughts for that executive who laid her off all those years ago. "That guy had vision," she says. "He knew something I didn't know. I can say that and laugh now."

Pye had been a go-getter within NZ News, pioneering sales of its children's books into the US. But she'd never considered going out on her own: "I was really loyal to the corporation." Although Pye had no restraint of trade to hold her back, NZ News responded to the startup by serving papers on Christmas Eve threatening to sue her on the grounds her Sunshine books were similar to those produced by the corporation. She kept going despite the threat, eventually settling out of court.

Surprisingly for someone who prides herself on using cash rather than debt to expand her business, one of Pye's first moves was to seek a $US100,000 bank loan. "It's always important to have a security blanket. One of the things being redundant taught me was that I never want to be walked off a place again." Many entrepreneurs make the mistake of being under-capitalised but Pye didn't want to hire people without being assured she had enough money to pay them for a whole year. The Australian-born publisher's doggedness surfaced while securing the loan. Having been turned down by New Zealand banks and armed with a business plan typed at home on a borrowed typewriter, Pye naively approached Westpac Asia - a merchant bank that lends only large dollars to large corporates. She got an interview by claiming to know the bank's new retail manager. Well, she had sat next to him while travelling interstate in Australia (Pye always flies business class for the networking opportunities). Corporate banker Monte Heaven was so stunned at her chutzpah that he gave her the loan at a cheap rate usually reserved for the bank's biggest customers. He told her anyone who could front up like she had was bound to succeed.

As it turned out, Pye was able to convince her new customers to pay in advance and she never used the loan to fund the growing business. Instead she invested it, earning a better rate of return than the interest she was paying.

Telling Pye she can't do something is a sure way of getting her fired up - as NZ News found to its cost 20 years ago. When she signed a deal in 1998 with US media giant The Tribune Group to purchase her book titles list for the North American market, she got a big chunk of cash to expand her business. But it also restrained her from operating in the lucrative American market for seven years. In the meantime Pye focused on new markets, including winning a deal in 2001 to sell her multimedia educational products in China. It's a tough market, littered with corporate failures and made even more difficult by the current SARS crisis, she says. But that sort of adversity gets her going.

Her exporting is planned with military precision, right down to the language: Campaign China and Campaign USA are her key assault strategies for growth in these critical markets. Her re-entry to the US is worked out to the day - January 5, 2005 - when the restraint of trade ends. Re-conquering that market will give her "total contentment", she says. Her appetite to return was whetted by one of the Tribune executives implying she never would. Silly man.

Murray and Elaine Campbell
Garden tool makers
Elaine Campbell is a mad-keen gardener who got so brassed off with garden tools that bent, broke or caused blisters that she asked her civil engineer husband Murray to design something better. The quality handcrafted garden tools he produced proved a hit with Elaine and others. "He designed a superfork out of tool steel and all my gardening friends thought it was wonderful," Elaine says. Murray went on to design other tool prototypes, which Elaine's research suggested would sell well at the premium end of the gardening tool market.

And so, in 1995, the Campbell Tool Company was born as a nice little sideline earner run out of the couple's Karori, Wellington home, while Murray continued working his day job as an engineer with the Wellington City Council.

Initially, local retail outlets weren't interested in stocking the tools, saying they were too expensive. Unfazed, the couple turned to garden shows and mail order to promote their products. Then, five years ago, they hit on the idea of packaging the tools into wooden boxes and exporting them into the gift market, rather than just marketing directly to Kiwi gardeners. They began supplying several British outlets, including upmarket London store Fortnum & Mason. Last year they scored huge kudos when the Prince of Wales's shop at his Highgrove Estate began stocking their product.

The couple hadn't intended to get that serious about the business. The catalyst for doing so came in late 1995 when Murray was made redundant. He initially thought he'd get another job but became so enmeshed in the demands of the business that he never found time to read the employment ads.

So the sideline turned into the couple's main income earner. In hindsight, Murray says it may have been better to remain in paid employment for longer while the business was still struggling with cash flow problems. "When you're starting out in a new business you're very conscious of whether you can self-fund it all the time and not end up with huge debts." The couple wanted to avoid borrowing from the bank and have managed to self-fund it so far. They kept costs down with Murray doing all the design and tooling and not employing staff, although they ask family members to help out when demand gets away on them. The company still has a relatively small turnover - around the $250,000 mark - because they have deliberately tried to keep it small and under their control. But it keeps growing in spite of their modest ambitions, and the workload is starting to tell as the couple gets older. "I'm coming up 60 and Murray is 56. It needs big investment to reach its full market potential. But we don't want to put our money into the business. We want to buy a boat and go down the canals in Europe," says Elaine.

The dilemma really hit home last month when they launched into the Australian market, exhibiting their product along with four other Kiwi gardening gurus at the prestigious Melbourne International Flower and Garden Show. The Campbells say they had an overwhelming response, forcing them to confront the thorny question of how to fund the company's expansion. Selling to a more ambitious owner or bringing in an equity partner are the obvious choices. "It's neither fish nor fowl at the moment," Murray says. "It has big potential and needs money and marketing expertise we don't have."

Which is not quite what they intended when they started out. Back then they were able to take a day off and go sailing whenever they wanted. Today that's a rare luxury. And besides, the garden is getting neglected, says Elaine regretfully. Still, at least her tools won't rust.

Satish Shetty
Indian restaurateur
Next time you tuck into a chicken korma while shopping at your local mall, spare a thought for the man behind it all. Satish Shetty's chain of 10 Shamiana restaurants have a combined turnover of close to $8 million and profits are pretty good, too, judging by the $3 million Hobsonville dream house he bought last year.

It's a far cry from 1986, when he immigrated to New Zealand to a pre-arranged job as chef at an Auckland restaurant. He typeset for a printer by day and cooked by night. And he and his wife, Nasrin, even cleaned toilets to make extra money.

But, even while working as a wage slave, he had entrepreneurial aspirations. After three years, he had saved enough to start his own restaurant in the Auckland suburb of New Lynn. At first he kept working for the printer because the restaurant didn't pay its way. But shortly after setting up the business, he was made redundant and his entrepreneurial sideline became the couple's only income.

Although the New Lynn restaurant struggled, Shetty opened two others in Devonport and Ponsonby during the 90s. Both bombed. One he sold at a loss after six months and he handed the landlord back the key on the other after two years and $180,000 worth of losses.

Most people would throw in the towel and head back to the relative safety of the paid workforce at this point. Not Shetty. "That never put me off," he shrugs. "You have to be prepared to work hard, take risks and suffer any losses. You have to keep going." A chance encounter with a friend in 1999 was the turning point in his luck. His friend told him the Lynmall shopping centre owners were looking for someone to provide Indian food in the refurbished food court. Shetty didn't hesitate, racing across to negotiate a lease with mall management funded by $150,000 borrowed from the bank.

He soon realised he was on to a good thing with the food court business, and within months of starting up at Lynmall he'd signed leases at Westfield's Downtown and Manukau shopping centres. The banks, however, wouldn't lend him the extra money he needed. Shetty signed anyway, taking a gamble he'd find the funds by the time his cheque was deposited. A brother-in-law overseas came to the rescue. Shetty wasn't prepared to delay because he knew other Indian restaurateurs had woken up to the fact that fast food outlets in shopping centres do "very well". Indeed: Shetty has opened two fast-food restaurants a year since then and another is due to open in Wellington this November.

He's also ventured unsuccessfully across the Tasman. Two years ago he opened three outlets at once, but within months he'd shut them all. Shetty says he'll go back, but next time he'll choose better locations. Right now he's using his Westfield connections to obtain a lease in California where, unlike Australia and New Zealand, there are no Indian fast-food chains in shopping malls.

Doesn't he worry about failing again? "I don't think even think about that," he says with another shrug. "Though, my wife, she sometimes keeps reminding me."

Malcolm and Chrissie Box
Tapware importers
He was cold, miserable and alone in a Frankfurt hotel room. Malcolm Box was attending the biennial International Sanitation and Heating trade show - the major event for the kitchen and bathware industry. It was just two days after he had been made redundant from his job of 13 years as Dorf New Zealand's sales manager. He'd immediately decided to set up in competition to his former employer, importing tapware, bathroom accessories and stainless steel sinks. It is a move the then 40-year-old would not otherwise have made - he'd loved his job and was earning a comfortable salary. "But I thought in five to 10 years from now, [redundancy] could easily happen again. I'll be older and it will be even harder to find another job. The alternative was to work for myself," Box says.

Brave words in Auckland. In Frankfurt, Box was overwhelmed by self-doubt about whether he was doing the right thing. "I was jet-lagged and couldn't sleep and had this gut-wrenching feeling that we could lose our house over this and everything we had built." It was only the constant encouragement of his wife Chrissie that kept him plugging away. He didn't have to wait long to reap the rewards. On his return home, Box was rung by an Italian manufacturer who'd taken his business card at the German show and was keen to supply him. They were in business. Mind you, the company office at that stage was two desks in the lounge of the Box's Lynfield, Auckland home. Four years on, Aquatica New Zealand has a multimillion turnover, equal to what Dorf was making when he was laid off, Box claims. It is number two in the New Zealand tapware market, customers include national chains such as The Building Depot and Placemakers, and the company has just purchased land in Avondale to construct a new warehouse and showroom.

Aside from the early doubts, Box's biggest headache was cash flow. He had a healthy redundancy cheque, a side income from a small mobile disco business and substantial equity in the family home, but it still wasn't enough. An early breakthrough came when Box received assurances from national hardware chain The Building Depot that it would buy from him. The problem was the size of the order. The Building Depot initially took $200,000 worth of product - an order that Aquatica could easily handle and which was thought to be enough for four months' supply. But within 10 days the chain had sold out of stock and wanted more. "You can always sell a product once. When people keep coming back that's when you have a business," Box says. But the leap in turnover caused a major cashflow crisis. So Box put a cheeky proposal to the chain that, in return for payment in advance, he'd give them a hefty discount. Founding general manager Kim Jeffrey says the arrangement saved the chain money and, more importantly, set it up for a good, long-term relationship with the supplier.

Box also approached the Italian tap manufacturer, Sole, for extended credit and again got agreement without offering extra security. "I came into the business with a big reputation from Dorf and they knew the Dorf people were jumping ship to work for me. They took a calculated risk."

These days the cashflow problems are long gone, along with the doubts. Box recalls the Australian manager who made him redundant saying, "You may hate me now but you will look back and see I am doing you a favour." He was right. "I hated him for six months but it is the best thing that has ever happened to me."

Robert and Shannon Auton
Blueberry growers
Imagine you're sitting in your swanky inner-city office, wearing your well-cut business suit, finishing the last of your morning latté. Then you get the news: you're being made redundant after a 20-year career in merchant banking. What do you do? Robert Auton's response was to swap his suit for a good pair of workboots and a 4WD motorbike to start a new business growing organic blueberries primarily for the export market, despite no prior experience in horticulture.

In 1999, Auton was working for Bankers Trust when it was purchased by Deutsche Bank. The subsequent redundancies were not really a shock - more of an inevitability. At first Auton investigated similar job options, but was turned off by the requirement to move offshore. He and his wife Shannon, who had put her own career in human resources and project management on hold two years earlier after the arrival of their triplets, wanted their children to grow up in New Zealand. Instead Auton, in his late 30s, used the redundancy as a chance to explore what he really wanted to do. Although he admits the uncertainty was difficult, it is an approach to redundancy he recommends. "While it's tempting to jump into the first thing because of the money, it's about being happy, taking time, using it as a platform and opportunity to really consider your options." He took full advantage of the services provided by outplacement firm Right D&A (now Right Consultants), organised and paid for by his former employer. The consultants put him through a series of tests, which revealed a strong preference for outdoor work. The next step was to combine this preference with a desire to be in charge of his own destiny by owning a business. Using the redundancy package as a buffer while they had no income, the couple searched for an export business that combined good commercial prospects with the lifestyle they wanted. "Blueberries came up several times as a 'hot' export product and also gave us the opportunity to indulge our increasing interest in organic production," Auton says.

They sold their Auckland home and other investments to fund the purchase of an eight-hectare property outside of Warkworth. It didn't meet their requirements about being close to the airport or labour, but it had the right peat soil and was already planted in blueberries. "It was a pick-your-own business," Auton explains. They started by writing a six-year business plan to develop the property, including investing $750,000 in capital improvements. Now in year three they export around 60% of their fruit, primarily to the US, selling the rest on the local market. "We've kept the gate sales, too, as it keeps us involved with the community." And over the past summer they invested in an ice cream machine, selling fresh blueberry ice cream to the hot golfers and sunbathers from nearby Omaha Beach. A lucrative sideline, but one they are determined won't distract them from their core export focus. Auton says organic produce is easier to sell on the export market than on the local market, where consumers are still reluctant to pay a premium for it. Like any weather-dependent horticultural business, their biggest challenge is producing consistent quality and volume. But already they have increased their annual tonnage from three to seven, with the ultimate goal of 30-40 tonne.

Looking at Auton striding across his property with hands stained blue from the fruits of his labour, he looks every inch the weathered, experienced farmer. The suit doesn't get much wear these days.

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