24 NZB October 2012 nz!Htslncss,(O.Ill.

[COVER STORY
Can it fly?
About to start a business? Wondering if you have all the bases covered? Looking
to learn from the example of others? NZBusiness presents a beginner's guide to
starting a business. By Glenn Baker.
There was a statistic
and he meets a lot of people the change from their current
being bandied about who have great Ideas for buying habits to buy from you?
by one of the banks businesses. Is your offering compelling
recently that says more than So I put the following enough; does it meet a need, a
3,700 start-ups are launched question to him: when he 'pain point'?"
in New Zealand every month. meets a potential start-up, Find the first Individual
I find that staggering for what's the first thing he wants who'll buy your product, then
a nation as small as ours, to know? others with a common or
but not all that surprising "In a word -Why? What's over-lapping need, that you
considering our propensity your motivation? What's your can build a market from, he
for small business ownership end goal? The temptation is advises.
and how easy it is to launch a always to dive into the product "Never lose sight of the fact
business in this country. or service. But I think It's so that a market is made up of a
The sad fact is that a fair important to understand the collection of individuals, with
old chunk of those businesses individual. Are they in it for the a common need. The challenge
either fail completely (over So money? To leave a legacy? To Is to understand what that
percent in the first two years) provide a lifestyle? As a result need is and its value to those
or never amount to anything. In a change of circumstances people."
Seeing there is such huge perhaps?" A good analogy of a new
Interest in starting businesses "And If it's a team of people business is a snowball which
we thought it was time to involved in starting a business, starts from a snowflake and
visit the subject again. To they need to talk in detail keeps growing as it rolls along,
remind ourselves of the key around those same questions- he says.
considerations when launching what are they in this business "Market experience is really
a new venture and the common for?" important. If I'm trying to get
reasons why new businesses Erskine's next question into a new market and I don't
fall, we consulted Ken Erskine, Is: "Who will be their first understand the rules and
director of start-ups at The customer, and why? Has structure of that market- I've
Icehouse Business Growth someone actually paid money got to learn that. Doesn't mean
Centre. for this product or service? it's insurmountable, but you
Erskine admits to having Often people get caught up need to know the potential
an entrepreneurial spark in the power of the idea - but 'blockers'. Remember, the
right from an early age in the key is, what are they doing existing competition will do
the UK, when he made bikes about it? What initiatives have everything they can to stop
out of spare parts to sell to they taken? What research? you being successful."
his school friends. His career "To me, it's the connection
Beware the ugly baby
includes a good deal of selling to a customer that makes the
and various corporate jobs difference between a business If you want to start a business
associated with the IT Industry. and a hobby. A business must, because you think you have
Today he's a full-time business in time, be self-sustaining- so the greatest thing since
consultant and angel investor, why would customers make Trade Me- beware the 'Ugly
N'!.B October 2012 nr.buslness.co.oz 25
Baby Syndrome'. This is a favourite
expression of AI Dickman, a partner
at humanROI and professional
trainer and coach, when describing
the bUnkered opinion business
owners have of their own ideas.
"If you've ever peeped into a
pram and recoiled at the sight
of a hideous baby, that the
parents believe is beautiful- then
you'll appreciate the 'Ugly Baby
Syndrome'.'' says Dicl<man.
"Sadly, most of us are incapable
of recognising when something
we've created Is a stinker. This
applies especially to business or
product ideas. Friends and family
make It worse because they rarely
want to offend -so they'll tell you
your concept is brilliant.
"Perhaps this explains why so
many new products and businesses
fail. The answer? Don't allow your
ego to get in the way of your
ATEED's online assessment
checklist (www.ens.org.nz/startup)
is based on 40 years business
expertise and the following
questions: Are you the right person
to be in business? Is your product/
idea sound? And do you have
the right business processes and
structure In place?
"When people start up a business
they generally have one of three
areas of expertise: they're either
really good at production, at
finance, or at sales. Often they have
two of these skills, but rarely in our
experience do they have all three."
The online assessment is based
on a traffic llght system, and if
you score too many red lights you
might have ask yourself if you're the
right sort of person to be running a
business.
"A lot of start-up business owners
don't understand the internal
willingness to grow as an individual
and to ask for assistance. "If you
don't ask for help- how can we
help you? Let us know where you
need assistance -I call it 'knowing
what you don't know'."
Humility Is another success
trait. "Look at successful business
leaders and entrepreneurs and
there's a definite lack of arrogance,"
says Merrick. "Just look at the likes
of Sir Stephen Tindall or Sir David
Levene."
Interestingly, she has seen a shift
in the profile of start-ups since the
great recession.
"Pre-GFC, businesses and people
with clever Ideas were coming thick
and fast. Today we're noticing new
migrants, redundant workers and
one-man consultants make up a
higher percentage of new start-ups."
ATEED's role, says Merrick, is to
ensure that if you are starting a
"Never lose sight of the fact that a market is made up of a collection of individuals, with a
common need. The challenge is to understand what that need is and its value to those people."
judgement; otherwise things are
bound to turn ugly."
Ngaio Merrick, manager business
growth - North at ATEED (Auckland
Tourism, Events and Economic
Development), likes the ugly baby
analogy - she's seen it in action
many times - so keep your friends
and family's opinions to one side.
Validating your product and
market is top of Merrick's checklist
for start-ups- and A TEED's 'Starting
Off Right' free half day workshop
is a great place to assess whether
you're ready to get going. "It's
based around very practical advice.
What you need to know from the
Companies Office, from the IRD.
What's basic marketing? How do
you manage cashflow?
"And the brilliant aspect of
attending any start-up workshop
is that you also form a network of
co-entrepreneurs who are also in
start-up mode. That is invaluable
-you already have a support
network, and the opportunity to
share resources. It's a bit like an
ante-natal class."
26 NZB October 2012
workings of a business- the
efficiencies, the productlvltles, the
processes that make a business
successful."
Failure or success?
There's nothing more frustrating
than a start-up that fails, says
Merrick -it's also an incredible
waste of time, effort and money
for everyone concerned. Her list
of common causes includes: poor
leadership and a lack of research
("they're the two key ones");
insufficient financial backing or
understanding; poor marketing
skills; and misdirected vision- they
either think too small or too big.
"We've seen businesses jump too
quickly internationally and fall and
others that never even think about
export markets."
Business success all hinges on
having a vision and setting tangible
goals every year, she adds. ''It's
about wanting it to be more than
just a job."
Communication and people
skills are essential too - as is the
business, you do so successfully.
"It's all about putting everything In
place before you commit all of your
finances."
One thing's for sure- go through
the 'Starting Off Right' programme
and process, and your chances of
securing initial funding from a bank
or lender will be many degrees
stronger.
Powerful pairings
When Ken Erskine thinks back to
Icehouse successes such as M-Com
and Power by Proxy, he can see why
they made such powerful start-ups.
"This Is backed by research
too -that when you pair a skilled
entrepreneur with the creator/owner
of advanced intellectual property-
so knowhow plus entrepreneurial
flair, or competency plus capability
-then you see significant things
happen. But it all takes time."
Erskine offers up a couple of
other observations from his time at
the business growth centre. One Is
the lack of global thinking by start
ups matched with today's global
opportunity. While there's a need
to get businesses started here,
the success of New Zealand is
based on growing Internationally
capable, trailblazing
organisations. "Many get this, but
most don't, although it's getting
better as awareness increases
through tools and technology.H
Erskine is also amazed by
some start-up entrepreneurs who
think that nobody has thought
of their particular great business
idea before. There are people all
over the world thinking about
similar ideas- "so this is where
the execution and creativity, the
networks, drive, resilience and
passion come Into play to make it
at! work."
Another mistake by start-
up entrepreneurs is to think
that their one product or idea
is 'the moon-shot'- their 'Big
Wednesday', as Erskine puts
it. Invariably it's subsequent
products or variations that's
the winner, he says. "But I'm
encouraged by the growing
acceptance that failure is not bad.
Hard times are when you learn -
when everything's sunshine and
roses, you're not learning, you're
- - - '
doing. The key thing is: to fast
fail is a success."
The challenge is to grow
internationalty or locally capable
businesses as much as possible
he says. "And when I say
internationally capable I also
mean local firms that are able
to fend off foreign companies
coming into the country."
He believes Kiwi business
owners are fortunate in New
Zealand because they are so
closely connected to their
customers. "In larger markets
as close as Australia, you get
far more separation of roles
and specialisation, whereas
Kiwis have a larger degree of
generalisation. The upside is you
get to see and understand more
of the business process."
Also working in our favour
is that confident 'give it a go'
attitude, he adds.
As for taking on advice,
Erskine's view is that business
founders should listen to it yes,
consider it, challenge it, but at
the end of the day, the final
decision rests with them.
Glenn Baker Is editor of NZBuslness.
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( COVER STORY }
FIVE RULES
FOR BUSINESS
START-UPS
t. Market validation. Understand what
your value proposition is- to whom,
and why do they care?
2. Product/service development. Once
you know what people value and
need, perhaps through focus groups,
how do you develop the product or
service that matches those needs?
Understand the customer and market
behaviours, and know that you don't
need everything to be too percent
right on version one. Think of the
Apple iPhone.
3 Selling and marketing. Understand
that you, as founder of the business,
have to sell- the idea, the investment
proposition - or find someone who
can do it for you.
There is a sales process, and there is
an element of science to selling. "In
fact starting a business is a variable
mixture of art and science. There is no
template."
4. The team. Understand your own
strengths and weaknesses and
therefore identify the team you'll
need. How will you find them? Can you
manage them? Are you a leader? If so,
what style?
s. Planning - "the devilish detail". The
key Is not to overplan too early, and to
keep an eye on cashflow. What funds
do you have? What are your expenses
and what are your assumptions of
income? And if either ofthose two
things change, then when will you
run out of cash? What will you do
about it? What's your Plan B? "Cash
is the oxygen your business breathes
on. You plan should be a repository
of things that relate back to the
customer and the need - not a work
in spreadsheet skills, analysis and
third party research that you have no
connection with." It's also Important
to continually review and monitor your
plan.
Source! Ken Erskine, The ICEHOUSE.
NZB OctohCl' 2012 nzllusiliiHs.tn.uz 27
Start-up 1: Revolution Fibres
In a spin over export
It's been barely three years, but already Revolution Fibres is
well down the commercial path with its nanofibre products.
Outside a non-descript beige warehouse
In a typical Industrial west-Auckland street
there's a sign selling nanofibre. Few people
driving by would know what
is; let a, tone realise the huge export
opportunity it represents.
Thankfully certain investors have read
the signs correctly, and RE)volution Fibre has
been able to quickly get on with developing
Its nanofibre spinning technology and
brands with adequate funding.
This story has its beginnings with
ventilation company HRV. In 2009 engineer
Simon Feasy, scientist lain Hosie and HRV
founder Michael Perrett joined forces with
the aim of manufacturing air filter media in
New Zealand.
"HRV was importing a lot of air filter
material and we thought we could go one
better and make the filters ourselves,"
recalls Hosie.
They had become aware of
etectrospinning technology through a TV3
news programme, realised its enormous
potential across diverse markets, as well
as the scarcity of commercial nanofibre
producers worldwide. "There was a huge
amount of research on nanofibre, but
hardly any of the Ideas were reaching
commercialisation," says Hosie. "People just
couldn't afford to take the risk.
"We thought if we could get the hang
of the technology and put a team together
we could build some commercial scale
machines and get Into the market."
So with a typical Kiwi cando
attitude, that's exactly what they did.
In just two years they've developed
three electrospinning machines; three
trademarked products and delivered them
to market; have two patents pending
(actiVLayr and Xantulayr); and proven their
ability to conceptualise and commercialise
nanofibre products. They're successfully
marketing two products: Xantulayr, a
layered carbon fibre reinforcement product
(think fishing rods, pole-vaults, oars, skis,
etc) that's incredibly deceptive in it's sheet
like appearance, and Seta, the brand name
they've given their nanofibre air filters.
Importantly, the products are priced to meet
the market.
28 NZB Oetollcr 20'12
The company has been funded mainly
through shareholder contributions and the
Ministry of Science and Innovation (MSI)
-which allowed for the infrastructure and
technology for industrial-scale nanofibre
production.
Hosie shows NZBusiness their giant
electrospinning machine- their own
creation- primarily manufacturing filters
for HRV and running at just eight percent
of its capacity. They're grateful for the
government's R&D funding, which was vital
in getting the company off the ground. "A
bank wouldn't have touched us with a ten
foot barge pole - in fact, they still won't,"
he says. "Our biggest challenge now is the
cost of commercialisation and marketing. In
the hightech space where we operate it is
relatively easy to get support for research,
but this Is swiftly followed by no support
for getting successful research into the
market.
"This is a big problem for New Zealand
innovation and a primary reason why Kiwi
innovators sell their ideas to offshore
Investors, or simply don't bother."
Hosie, who Is the only full-time director,
says Revolution Fibres required a big vision
and belief, and It has been important to
share goals and celebrate milestones with
staff (they now employ eight). "Otherwise
the big picture can feel overwhelming. You
can build a great team on shared vision and
enthusiasm."
The company has had the typical growth
curve of a high.tech investment startup
-all 'money out' with very little hope of
revenue until you're production-ready.
"We're coming out of the so-called 'valley
of death', says Hosie. "The good thing is we
weren't naive to think we wouldn't follow
the same path, so we were prepared for it."
Nanofibre is currently the fastest growing
area of nanotechnology (34 percent versus
21 percent) with the Industry expected to
grow from current US$183 million to $2.2
billion in 2020.
"We've seen enough exciting
performance results from our nanofibre
products to show that the market is
there and the technology ripe for new
applications," says Hosie. "Our strength in
conceptualising and producing nanofibre
applications is a unique service globally, in
a high-growth technology area. We want to
build on that service.
"We believe Revolution Fibres has formed
the beginnings of a new hltech industry In
New Zealand- we are one of only a handful
of countries with access to this technology.
We have unique biomaterials, such as
marine collagen, a strong innovation culture
that together with nanofibre production
could become a booming Industry."
While the focus has been on its own end
uses until now, the company is looking
to forge partnerships and joint ventures
with other local firms to take products to
market - utilising biomaterials there are
opportunities in food packaging, functional
textiles and medical applications.
The vision is huge. Revolution Fibres has
unleashed a technology that was trapped
in the laboratories and set a goal to take
nanofibres to the global market.
"In five years time we see ourselves with
a string of industrial uses for nanofibre,
with commercial partners, a manufacturing
wing and a strong R&D division," says
Hosie.
"And with the right amount of support
and expertise we will remain a specialised,
cost-effective manufacturer in New Zealand."
( COVER STORY' 1
Start-up :2: Lucky Undies
Good to go
Barbara Derecourt is a prudent entrepreneur- delaying her start-up until the timing
was right and she was absolutely ready. NZBusiness ttaces her Lucky Undies journey.
Barbara Derecourt is a skilled seamstress
and talented clothing designer: so you have
to wonder why she chose to start up a
merino wool underwear business. You might
also wonder why it has taken nearly two
years for her to finally push the 'go' button
on her business.
"On New Year's Eve 2009 a friend
suggested I get into printed tee shirts,"
recalls Derecourt. "I woke-up on New Year's
Day knowing that it would be underwear
instead.
"Throughout my apparel career I've had
an affinity for the masses, as opposed to
one-off fashion items, and my personal
preference Is to make a difference for
many, rather than a few. Perhaps I was
also motivated by the abundance of
disappointing, ill-fitting and uncomfortable
undies made for men and women.
"Funnily enough, I had worked a three-
month contract with a wholesale men's
underwear company before leaving the UK
and had no idea then that I'd return to New
Zealand and start creating an underwear
business six months later."
Derecourt's journey to Lucky Undies has
had many twists and turns, including two
extended stays in London. She studied
fashion and design at otago Polytechnic
and has held various roles within the
clothing industry, both here and in the UK.
Her sewing machine has never gathered
cobwebs.
When NZBusiness caught up with
Derecourt in August, a significant milestone
was about to take place. She was about
to head off to the New Zealand Gift Fair
to expose her product to the wider retail
market. "I'm testing the ground on lots of
different levels."
Until this point, Lucky Undies were only
available through luckyundies.co.nz and at
various markets, including a regular stall at
the Tamahere Country Market in Hamilton.
She admits that her biggest challenge
was knowing when to push that 'go' button.
"When you're a perfectionist and highly
analytical, it's hard to determine when
you've done enough research and It's time
to start the business."
Without help, Lucky Undies may never
have got out of the starting gate. Derecourt
has had a lot of help from her mum (who
lets her use her garage as a workroom) and
friends, as well as "like-minded Inspirational
people" at various business networking
groups.
"Last February, I also joined Business
Mentors NZ and was introduced to Graeme
from the Tool Shed. He gives me great
advice, and asks the right questions -which
may result in things for me to consider. I'm
grateful for the occasions when I've
met with him and talked openly about
business."
As Lucky Undies at last emerges from
its long embryonic stage towards full
commercial reality, Derecourt ponders on
the lessons she has learnt so far. "The first
is that if you walt for that perfect time and
situation to launch, then you may never get
out of the gate.
"Supplier relationships are critical
too -they must understand where you're
heading and have a sense for your business
values. And even though it's possible to do
everything yourself, you must delegate or
outsource aspects of the business to free
up time to focus on business development."
Oerecourt has advice for anyone 'else
looking to get established in the clothing
industry on limited resources. "A friend
suggested I create a website using a
template- it's free to set up and you pay
month-by-month once the site goes live. If
my business didn't fly or needed radical
changes then I hadn't invested a large
sum. That low-cost Internet presence gave
me space to start trading and the ability to
evolve the website content later.''
Derecourt also understands the
limitations of websites when it comes to
purchasing habits. "Generally speaking
people like to feel and see clothing items
as part of purchase decision making. Many
also enjoy the direct retail experience and
websites are limited in this sense.
"The challenge with underpants Is that
they cannot be exchanged due to health
and hygiene reasons regardless of whether
it's an online or direct retail purchase.
"When I was about to embark into self
employment I was advised not to put all my
eggs Into one basket. This had me redefine
my entry point and keep it simple- use the
local market format to Introduce the product
and gain customer feedback."
Have personal savings to back yourself
in the initial stages of your business, says
Derecourt. "A bank and/or Investor need
to see that you believe in your business
enough to invest your own capital in it
before seeking theirs."
For now, Derecourt's focus is to get
Lucky Undies "onto lots of Kiwi bottoms"
by wholesaling through New Zealand
retailers. She's looking forward to greater
independence- "having a base that's
primarily for the business, and then getting
the right people on the bus."
Later she wants to sell her underwear
globally. "As one of my customers says,
'everyone in the world should have a pair of
Lucky Undies!"'
NZB October 2012 lll'.bliSIIICSS.C{J,l\Z 29
COVER STORY
Start-up 3: LeaderKlt
On a wing and a prayer
Brett Herkt took a leap of faith when he gave up a secure executive career palh lo pursue an idea for
his own software business. Three years later, he's gaining lraction in the market with Leaderkit.corn.
Brett Herkt's business card is already
out of date, and he has only just launched
his business. The need for a dot.com URL
meant a name change from the original
Synergist, to Leaderkit.com. But that's the
n<!ture of start-ups. There's always a need
for changes, right up to the starting gate.
After a career in accounting and
finance, Herkt spent nine years at Maxnet,
including six years as CEO, helping
transform It from a start-up ISP into a $t4
million managed ICT services business
"with a better return on capital than
Telecom."
Towards the end of his tenure, he
became Increasingly conscious of the
Impact of Maxnet's leadership capability
and thinking. "We had a good team
producing strong results In the top quarter
of the Industry. We were, however, more
tactically and operationally focused than
we realised. Driving into a niche position
in the market had serVed us well- we
were a top-three data centre
in New Zealand. However,
we could have done much
better had we invested
more in strategic
direction and leadership
capacity."
Herkt benchmarks
Maxnet against
competitor Orcon,
who started life
at the same time,
sharing the same
datacentre. Twelve years
on, Maxnet sold for $9.5
million, quadrupling
shareholders'
Investment and returning
a 17 percent compound
annual return. Orcon sold
for $24.3 million, in less
time from a lower capital
base. "It illustrates the power
of deep ambition, clear strategy
and solid execution.
"I've since proved that
New Zealand business
tends to follow the
Maxnet pattern. We are
30 NZH Oclohcr 2012 mJmsiness.co.uz
ambitious but operational in focus, and
underinvest in mastering the leader's
craft. We miss the chance to convert
opportunity and organisational capability
into exceptional results- we settle for
making the quarter-finals rather than
driving for the world cup."
Herkt pondered the fact that businesses
use software for functions like sales, CRM
and accounting. So why couldn't CEOs
have software for their key functions?
Could they build a set of power tools to
lift a business leader's game?
The trigger for his business idea was a
picture representing 'Innovation, Values,
Vision, Brand, Purpose' produced by local
consultant Dave Wild (Smith & Wild). The
image resonated with Herkt, who thought
it could be expanded to an all-of-business
concept. One year and 17 versions later, he
had a one-page visual blueprint that could
be used to understand any commercial
business.
"That was the defining moment, taking
the thorny problem of business complexity
and persevering until I had a simple,
elegant solution :
During this process, Herkt had left
Maxnet and was now consulting for a
living. One step led to another as his
business idea progressed. He spent a lot
of time absorbing and distilling a stack of
leading business thinking- "all the best
practice that a busy CEO would love to
learn but rarely does."
Eventually it was time for market
validation, so he enrcilled for a course at
The Icehouse Business Growth Centre,
led by US entrepreneur Rob Adams. He
started Interviewing CEOs from a diverse
range of companies to validate his
emerging concept.
A conversation with lceAngels board
member Scott Gilmour convinced Herkt
that It was time to shut down the
consultancy business and focus solely on
Leaderklt.com. So just over a year ago he
made the transition and started product
development in earnest.
With support from the Icehouse,
Herkt completed so face-to-face CEO
Interviews, which shaped the prototype
of his software. Beta trials commenced
in December 2011; nine tria lists were
converted to customers and the Leaderkit.
com business got underway in April 2012.
In a nutshell, Leaderkit is a unique CEO
toolkit that accelerates and multiplies
effective leadership. It's a self-help web
application that equips CEOs to clarify
their thinking, and build and execute
sound business strategy. "The software
converts Harvard-style best-pr<!ctice
concepts into Intuitive tools. It helps
at a conceptual level: identify your
target customer and their needs, refine
your identity and strategy into 40-50
words, build a one-page success plan;
and practically: engage your board, run
inspiring leaders meetings and focused
manager one-to-ones."
Herkt has thrown a lot at his start-
up -six figures worth of his own money,
more than a year of his time, as well as
conscripting his wife Sara "whom I pulled
out of her cognitive psychology degree''.
He has taken on a part-time business
development manager and engaged
software development and design
contractors.
Herkt says he's Inspired by Rod Drury's
talk of placing 'all in bets'. "You can't
really go halfway. It's high-risk, but you
have to throw everything at your business
to give it a chance of making it."
He says while there was a big
adjustment required in going From CEO to
business owner, and there is fear of failure
to deal with, he's grateful for where the
business Is at today. He has a working
product being purchased and used by
customers and a platform to build from.
His five year goal? An international
software business, recognised as the
market leader.
His lessons learned while bringing
Leaderkit.com to market? Count the cost
of creating the business before you go
ln. Allow considerable time and cost to
validate your product, develop it and
figure out your go-to-market strategy.
"There are no shortcuts, but the thrill of
bringing your dream to life is exhilarating,"
he says.
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