This month we’ve taken a deep dive into high growth firms in New Zealand by hosting a Xero Small Business Insights (XSBI) panel event. We had a strong, well-respected panel discussing the opportunities and challenges that arise with firms becoming high growth in New Zealand. We also looked at the characteristics of a high growth company and the role technology plays in ramping up growth.
A high growth firm is a company that is growing faster than its peers or the broader economy. The World Bank recently produced a report into the dynamics of high growth firms globally, which highlighted a number of interesting findings. Some of the highlights were –
- High growth firms contribute significantly to the rise in the number of jobs available, and are therefore very important to fuelling the economy.
- High growth firms firms tend to be younger than the average firm, but this doesn’t necessarily mean they are start-ups. In saying that, start-ups contribute to 30 – 40 percent of high growth firms.
- Industries with a more innovation or technology-intensive focus often exhibit higher than average numbers of high growth firms. This may be because digitisation is proven to be a powerful engine to scale up.
- High growth firms were found in all sectors, debunking the common belief that they are mainly found in high tech industries.
- Exports, imports, and foreign direct investment are all positively correlated in a company with high growth.
At Xero, we were interested in how these insights played out in New Zealand. We defined high growth using the OECD definition of those growing their turnover by 20 percent or more per year for three consecutive years. We then explored four key areas which have an impact on businesses in New Zealand.
High growth firms are hiring more employees than average firms. Over the past year, high growth firms experienced a ten percent growth in hiring, compared to a five percent growth average across all firms. Additionally, the average number of employees per high growth organisation in January was eight employees compared to six employees across all organisations. These statistics indicate that if we can help create more high growth firms, this could have a positive impact on job creation in our country.
The sector split of high growth businesses was quite varied, but many high growth firms fell into certain industry groups. Thirty seven percent of the high growth businesses in NZ are construction businesses and twenty four percent are in the professional, scientific and technical sectors (you can think of this sector as being that in which you might find the most start-ups and software businesses). Finally, real estate, agriculture and retail each accounted for eight percent of the high growth group.
For the majority of the last 12 months, high growth businesses have had a higher cashflow positivity (3 – 5 percent) compared to all businesses, perhaps indicating a stronger ability to manage cashflow.
On the whole, high growth businesses are getting paid slower than average. For example, in January they were paid one day slower. However, this could be a result of them sending a higher numbers of invoices than average firms, indicating higher sales. The average invoices per organisation for high growth businesses sits at 32 invoices per month, compared with the national average of 20 invoices per month.
The panel event discussed the above findings with Emma Loisel (Kea, NZVIF), Suse Reynolds (Angel Association), Heidi Johnston (Windowmakers – a high growth NZ SMB in the construction industry), and Craig Hudson (Xero Managing Director NZ & Pacific Islands) while also drawing on each panellists individual experience and knowledge. Four key themes were identified during the panel which included –
- Speed Wobbles
Some small businesses might find that growing too fast can indeed be an issue, with many experiencing ‘speed wobbles’, and needing to curb growth in order to smooth out issues. It’s about finding out how much ‘wobble’ your business can take.
- People and mindset
Culture, empathy and leadership are key attributes in high growth companies, particularly when looking to invest in taking it global. There is something special about the Kiwi mindset and culture – but that doesn’t mean it’s going to work in every country. You can have an overarching culture but make sure you have local input when looking to expand.
This is crucial for growth and small businesses should always be looking at the total addressable market globally – especially in the age of the internet. As a community, we are well connected internationally through Kea and other organisations, so make use of these connections and networks. Don’t forget about your networks at home too. New Zealand needs to get better at collaborating internally so that we can share knowledge on best practice when exporting overseas. The Beer Collective is a great example of this.
- Technology use
Technology is crucial for small businesses to get some of their time back. We know that by just adding a few apps to solve their accounting, inventory or payroll management, small businesses can significantly improve their productivity. There is often a knowledge gap though – people don’t know what they don’t know – so we need to work on building capability in this area.
We found these findings very interesting as we are dedicated to helping small businesses to grow and scale – especially through our coworking space Rewired. By identifying the issues that can hinder small businesses to achieve high growth, we can help break down these barriers and have a more positive impact on the Kiwi economy.