Ahead of the pack
First published in the New Zealand Herald on Tuesday February 26, 2013
Pick your targets and avoid distraction, say company leaders TIN’s top performers
All CEOs are motivated achievers but Skope Industries boss Guy Stewart has an incentive to succeed not shared by most: he’s managing his parents’ retirement nest egg.
Stewart’s father, Robert, bought the family’s Christchurch technology business in 1965 and after decades at the helm has stepped back into a governance role, albeit as a very engaged chairman of the board.
“I succeeded my father somewhere between 12 years ago and yesterday depending on how he feels I’m doing,” Stewart junior quips.
“I butt heads with my chairman and primary shareholder on a regular basis … but that’s part of the flavour of a family company in New Zealand, and part of what makes it exciting,” he says.
“Every family lunch is an impromptu board meeting.”
The family ownership model appears to have worked well for Skope, which last year celebrated topping $100 million in revenue for the first time.
It reached the milestone despite grappling with the challenges of dealing with an earthquake-hit manufacturing plant, intense global competition and a strategic review which has seen it drop its iconic line of heating products to focus on the more lucrative commercial refrigeration market.
Last year’s $12 million revenue hike was enough to propel the company into the top-10 list of the TIN100’s fastest-growing local technology businesses.
Technology Investment Network has been tracking the performance of the country’s high-tech sector (covering IT, biotech and high-tech manufacturing) since 2005.
The 100 companies in the TIN index managed to eke out a reasonable 2.2 per cent growth in annual revenue last year but for the top-10 performers the combined rate was a more impressive 9.6 per cent. Between then, the 10 companies added $182 million in sales, taking their combined revenue to $2.08 billion, and accounting for just under 29 per cent of all revenue generated by the 100 companies on the list.
So what differentiates the top performers from the rest of New Zealand’s high-tech exporters?
Aside from his inescapable mealtime pep-talks with dad, Stewart says maintaining a laser focus on producing innovative products has been a vital factor behind Skope’s growth. “Innovation is critical to our business, and to any New Zealand business,” he says.
“I shared a taxi to an airport in the States recently with one of our global competitors.
“We make 15,000 to 20,000 units a year. He makes 1,500,000 units a year, and so we’re more innovative, we’re better, and we take a whole lot of our innovation guidance from our customers.
“We drive ourselves to be better because if we’re on the same terms as everyone else, we’re dead.”
Aside from product innovation, TIN100 data shows company growth also depends on successful targeting of export markets. Since the global financial crisis high-tech exporters have reduced sales to the US and Europe in favour of targeting Australia.
For many in the TIN cohort, low trade barriers and geographical proximity mean Australia is the easiest territory to break into. It also offers a sizeable market for new exporters seeking growth opportunities.
IT services company Datacom, which topped the 2012 TIN100 growth chart with a $62.8 million increase in sales, is an example of a business generating more revenue across the Tasman than at home, after a concerted drive to establish itself in the Australian market.
But making it in Australia is still fraught with difficulty, says Paul Hargreaves, a Datacom co-founder.
“Having a baseload of work to go in on is important.
“Being thoroughly profitable back home in New Zealand is essential – and not being in a position where you are going to be embarrassed if things are tough for a period,” he told the TIN100 Report.
“We tried initially in the early 1980s in association with a client who wanted us to go with them, but we weren’t ready to take it further and pulled out after a period of market investigation.
“We returned 10 years later in the early 90s, this time with a base business providing a support service for Microsoft Australia.”
Other companies in the IT services and support sector also reported strong growth in Australian business last year as they cashed in on New Zealand’s lower cost base but comparable culture and free trade access.
But though lower salary expectations for New Zealand-based IT staff enable some companies to offer competitive international pricing, other TIN100 businesses say they are struggling to attract qualified workers in the local market.
Kevin Lawler, chief financial officer for fast-growing Diligent Board Member Services, says the difficulty in finding suitably experienced software developers to work in its Christchurch office has prompted the company to take up the unattractive option of employing staff in the US.
“The main issue is there just aren’t enough to go around. We’re looking for the top echelon of software deveqlopers.”
After a rocky start as a listed company in 2007, Diligent has gone on to achieve solid success with its software that securely distributes corporate board papers electronically, to a large extent thanks to the success of Apple’s iPad in corporate circles. Diligent’s system is now used by more than 16 per cent of Fortune 1000 companies in the US.
Staffing is a problem because “we want to have the capacity to produce a lot more than we’re currently producing,” says Lawler.
“While we were out of the gate very quickly with the iPad, some competitors have now leap-frogged us in some areas and we want to retain that number one position, so we’ve got to get on.”
Lawler says there is no simple solution to the recruitment issue that could be addressed by government, echoing the views of other TIN100 leaders.
“We can’t wait for the government or for [students] to come out of the tertiary institutes.”
Skope’s Stewart agrees the technology sector needs to focus on what it can control rather than worrying about potentially fickle government policy.
Having achieved his company’s $100 million revenue target, he is contemplating the next goal, whether it be $150 million or $200 million.
“You’ve got to pick another target because if you stop looking into the future it’s really easy to get distracted and lost,” he says.
“You’ll wake up one morning and find you’re a $70 million company because you weren’t paying attention, or you’re out of business.”
TIN’s top performers
1. Datacom Group: 2012 revenue $788m; Annual growth $62.8m (8.6 per cent)
2. Tru-Test; 2012 revenue $103.4m; Annual growth $18.8m (22.2 per cent)
3. Fronde Systems; 2012 revenue $47.6m; Annual growth $13.4(39.1 per cent)4NDA Group; 2012 revenue $165m; Annual growth $13m (8.6 per cent)
5. Gallagher Group; 2012 revenue $187m; Annual growth $12m (6.9 per cent)6Skope Industries; 2012 revenue $105m; Annual growth $12m (6.9 per cent)
7. Diligent Board Member Services; 2012 revenue $22.3m; Annual growth $10.9m (96.1 per cent)
8. F&P Healthcare; 2012 revenue $516.7m; Annual growth $10.6m (2.1 per cent)9Xero Ltd; 2012 revenue $100m; Annual growth $9m (9.9 per cent)
10. Orion Health; 2012 revenue $100m; Annual growth $9m (9.9 per cent); Wyma Engineering; 2012 revenue $25m; Annual growth $9m (56.3 per cent)
Simon Hendery was research and publication manager for the 2012 TIN100 Report