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4NZB October 2 12 nz Htslncss,(O.Ill.

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[ OVER STORY

an it flyAbout to start a business? Wondering if you have all the bases covered? Lookingto learn from the example of others? NZBusiness presents a beginner s guide to

starting a business. y Glenn Baker.

h e r e was a statistic and he meets a lot of people the change from their currentbeing 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, a3,700 start-ups are launched question to him: when he 'pain point'?in New Zealand every month. meets a potential start-up, Find the first IndividualI find that staggering for what's the first thing he wants who'll buy your product, thena nation as small as ours, to know? others with a common orbut not all that surprising In a word -Why? What's over-lapping need, that youconsidering our propensity your motivation? What's your can build a market from, hefor 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 factbusiness 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, withold chunk of those businesses individual. Are they in it for the a common need. The challengeeither fail completely (over So money? To leave a legacy? To Is to understand what thatpercent in the first two years) provide a lifestyle? As a result need is and its value to thoseor never amount to anything. In a change of circumstances people.Seeing there is such huge perhaps? Agood analogy of a newInterest in starting businesses And If it's a team of people business is a snowball whichwe thought it was time to involved in starting a business, starts from a snowflake andvisit 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 reallya new venture and the common for? important. If I'm trying to getreasons why new businesses Erskine's next question into a new market and I don tfall, we consulted Ken Erskine, Is: Who will be their first understand the rules anddirector of start-ups at The customer, and why? Has structure of that market- I'veIcehouse Business Growth someone actually paid money got to learn that. Doesn't meanCentre. for this product or service? it s insurmountable, but you

Erskine admits to having Often people get caught up need to know the potentialan entrepreneurial spark in the power of the idea - but 'blockers'. Remember, theright from an early age in the key is, what are they doing existing competition will dothe UK when he made bikes about it? What initiatives have everything they can to stopout of spare parts to sell to they taken? What research? you being successful.his school friends. His career To me, it's the connection eware the ugly babyincludes a good deal of selling to a customer that makes theand various corporate jobs difference between a business If you want to start a businessassociated with the IT Industry. and a hobby. Abusiness must, because you think you haveToday he's a full-time business in time, be self-sustaining- so the greatest thing sinceconsultant and angel investor, why would customers make TradeMe- beware the 'Ugly

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Baby Syndrome'. This is a favouriteexpression of AI Dickman, a partnerat humanROI and professionaltrainer and coach, when describingthe bUnkered opinion businessowners have of their own ideas.

If you've ever peeped into apram and recoiled at the sightof a hideous baby, that theparents believe is beautiful- thenyou'll appreciate the 'Ugly BabySyndrome'.'' says Dicl

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opportunity. While there's a needto get businesses started here,the success of New Zealand isbased on growing Internationallycapable, trailblazingorganisations. "Many get this, butmost don't, although it's gettingbetter as awareness increasesthrough tools and technology.H

Erskine is also amazed bysome start-up entrepreneurs whothink that nobody has thoughtof their particular great businessidea before. There are people allover the world thinking aboutsimilar ideas- "so this is wherethe execution and creativity, thenetworks, drive, resilience andpassion come Into play to make itat work."

Another mistake by start-up entrepreneurs is to thinkthat their one product or ideais 'the moon-shot'- their 'BigWednesday', as Erskine putsit. Invariably it's subsequentproducts or variations that'sthe winner, he says. "But I'mencouraged by the growingacceptance that failure is not bad.Hard times are when you learn -when everything's sunshine androses, you're not learning, you're

- - -

doing. The key thing is: to fastfail is a success."The challenge is to growinternationalty or locally capablebusinesses as much as possiblehe says. "And when I sayinternationally capable I alsomean local firms that are ableto fend off foreign companiescoming into the country."

He believes Kiwi businessowners are fortunate in NewZealand because they are soclosely connected to theircustomers. "In larger marketsas close as Australia, you getfar more separation of rolesand specialisation, whereasKiwis have a larger degree ofgeneralisation. The upside is youget to see and understand moreof the business process."

Also working in our favouris that confident 'give it a go'attitude, he adds.

As for taking on advice,Erskine's view is that businessfounders should listen to it yes,consider it, challenge it, but atthe end of the day, the finaldecision rests with them.Glenn Baker Is editor of NZBuslness.

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( OVER STORY }

FIVE RULESFOR BUSINESSSTART UPSt. Market validation. Understand what

your value proposition is to whom,and why do they care?

2. Product/service development. Onceyou know what people value andneed, perhaps through focus groups,how do you develop the product orservice that matches those needs?Understand the customer and marketbehaviours, and know that you don'tneed everything to be too percentright on version one. Think of theApple iPhone.

3 Selling and marketing. Understandthat you, as founder of the business,have to sell- the idea, the investmentproposition - or find someone whocan do it for you.There is a sales process, and there isan element of science to selling. "Infact starting a business is a variablemixture of art and science. There is notemplate."

4. The team. Understand your ownstrengths and weaknesses andtherefore identify the team you'llneed. How will you find them? Can youmanage them? Are you a leader? If so,what style?

s. Planning - the devilish detail". Thekey Is not to overplan too early, and tokeep an eye on cashflow. What fundsdo you have? What are your expensesand what are your assumptions ofincome? And if either ofthose twothings change, then when will yourun out of cash? What will you doabout it? What's your Plan B "Cashis the oxygen your business breatheson. You plan should be a repositoryof things that relate back to thecustomer and the need - not a workin spreadsheet skills, analysis andthird party research that you have noconnection with." It's also Importantto continually review and monitor yourplan.

Source Ken Erskine, The ICEHOUSE.

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Start up 1: Revolution ibresn spin over export

It's been barely three years, but already Revolution Fibres iswell down the commercial path with its nanofibre products.Outside a non-descript beige warehouse

In a typical Industrial west-Auckland streetthere's a sign selling nanofibre. Few peopledriving by would know what n < ~ n o f i b r eis; let a tone realise the huge exportopportunity it represents.Thankfully certain investors have readthe signs correctly, and RE)volution Fibre hasbeen able to quickly get on with developingIts nanofibre spinning technology andbrands with adequate funding.

This story has its beginnings withventilation company HRV. In 2009 engineerSimon Feasy, scientist lain Hosie and HRVfounder Michael Perrett joined forces withthe aim of manufacturing air filter media inNew Zealand.HRV was importing a lot of air filtermaterial and we thought we could go onebetter and make the filters ourselves,recalls Hosie.They had become aware of

etectrospinning technology through a TVnews programme, realised its enormouspotential across diverse markets, as wellas the scarcity of commercial nanofibreproducers worldwide. There was a hugeamount of research on nanofibre, buthardly any of the Ideas were reachingcommercialisation, says Hosie. People justcouldn't afford to take the risk.We thought if we could get the hangof the technology and put a team togetherwe could build some commercial scalemachines and get Into the market.So with a typical Kiwi candoattitude, that s exactly what they did.In just two years they've developedthree electrospinning machines; threetrademarked products and delivered themto market; have two patents pending(actiVLayr and Xantulayr); and proven theirability to conceptualise and commercialisenanofibre products. They're successfullymarketing two products: Xantulayr, alayered carbon fibre reinforcement product(think fishing rods, pole-vaults, oars, skis,etc) that s incredibly deceptive in it's sheetlike appearance, and Seta, the brand namethey ve given their nanofibre air filters.Importantly, the products are priced to meetthe market.8 NZB etollcr 20 12 n ~ b u s i n c s s w n r

The company has been funded mainlythrough shareholder contributions and theMinistry of Science and Innovation (MSI)-which allowed for the infrastructure andtechnology for industrial-scale nanofibreproduction.Hosie shows NZBusiness their giantelectrospinning machine- their owncreation- primarily manufacturing filters

for HRV and running at just eight percentof its capacity. They're grateful for thegovernment's R&D funding, which was vitalin getting the company off the ground. Abank wouldn't have touched us with a tenfoot barge pole - in fact, they still won't,he says. Our biggest challenge now is thecost of commercialisation and marketing. Inthe hightech space where we operate it isrelatively easy to get support for research,but this Is swiftly followed by no supportfor getting successful research into themarket.

This is a big problem for New Zealandinnovation and a primary reason why Kiwiinnovators sell their ideas to offshoreInvestors, or simply don t bother.Hosie, who Is the only full-time director,says Revolution Fibres required a big visionand belief, and It has been important toshare goals and celebrate milestones withstaff (they now employ eight). Otherwisethe big picture can feel overwhelming. Youcan build a great team on shared vision andenthusiasm.The company has had the typical growthcurve of a high.tech investment startup-all 'money out with very little hope ofrevenue until you're production-ready.We're coming out of the so-called 'valleyof death', says Hosie. The good thing is weweren't naive to think we wouldn't followthe same path, so we were prepared for it.Nanofibre is currently the fastest growingarea of nanotechnology (34 percent versus

21 percent) with the Industry expected togrow from current US$183 million to 2.2billion in 2020.We've seen enough excitingperformance results from our nanofibreproducts to show that the market isthere and the technology ripe for newapplications, says Hosie. Our strength in

conceptualising and producing nanofibreapplications is a unique service globally, ina high-growth technology area. We want tobuild on that service.

We believe Revolution Fibres has formedthe beginnings of a new hltech industry InNew Zealand- we are one of only a handfulof countries with access to this technology.We have unique biomaterials, such asmarine collagen, a strong innovation culturethat together with nanofibre productioncould become a booming Industry.

While the focus has been on its own enduses until now, the company is lookingto forge partnerships and joint ventureswith other local firms to take products tomarket - utilising biomaterials there areopportunities in food packaging, functionaltextiles and medical applications.The vision is huge. Revolution Fibres hasunleashed a technology that was trappedin the laboratories and set a goal to takenanofibres to the global market.

In five years time we see ourselves witha string of industrial uses for nanofibre,with commercial partners, a manufacturingwing and a strong R&D division, saysHosie.

And with the right amount of supportand expertise we will remain a specialised,cost-effective manufacturer in New Zealand.

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OVERSTORY

Start up 3: LeaderKltn wing and prayer

Brett Herkt took a leap of faith when he gave up a secure executive career palh lo pursue an idea forhis own software business. Three years later, he s gaining lraction in the market with Leaderkit.corn.

Brett Herkt's business card is alreadyout of date, and he has only just launchedhis business. The need for a dot.com URLmeant a name change from the originalSynergist, to Leaderkit.com. But that's then< ture of start-ups. There's always a needfor changes, right up to the starting gate.

After a career in accounting andfinance, Herkt spent nine years at Maxnet,including six years as CEO helpingtransform It from a start-up ISP into a $t4million managed ICT services businesswith a better return on capital than

Telecom."Towards the end of his tenure, he

became Increasingly conscious of theImpact of Maxnet's leadership capabilityand thinking. "We had a good teamproducing strong results In the top quarterof the Industry. We were, however, moretactically and operationally focused thanwe realised. Driving into a niche positionin the market had serVed us well wewere a top-three datacentre

in New Zealand. However,we could have done much

better had we investedmore in strategic

direction and leadershipcapacity."

Herkt benchmarksMaxnet againstcompetitor Orcon,who started lifeat the same time,

sharing the samedatacentre. Twelve yearson, Maxnet sold for $9.5million, quadruplingshareholders'

Investment and returninga 17 percent compound

annual return. Orcon soldfor 24.3 million, in lesstime from a lower capital

base. It illustrates the powerof deep ambition, clear strategy

and solid execution.I've since proved thatNew Zealand businesstends to follow the

Maxnet pattern. We are

3 NZH Oclohcr 2012 mJmsiness.co.uz

ambitious but operational in focus, andunderinvest in mastering the leader'scraft. We miss the chance to convertopportunity and organisational capabilityinto exceptional results- we settle formaking the quarter-finals rather thandriving for the world cup."

Herkt pondered the fact that businessesuse software for functions like sales, CRMand accounting. So why couldn't CEOshave software for their key functions?Could they build a set of power tools tolift a business leader's game?

The trigger for his business idea was apicture representing 'Innovation, Values,Vision, Brand, Purpose' produced by localconsultant Dave Wild (Smith & Wild). Theimage resonated with Herkt, who thoughtit could be expanded to an all-of-businessconcept. One year and 17 versions later, hehad a one-page visual blueprint that couldbe used to understand any commercialbusiness."That was the defining moment, takingthe thorny problem of business complexityand persevering until I had a simple,elegant solution

During this process, Herkt had leftMaxnet and was now consulting for aliving. One step led to another as hisbusiness idea progressed. He spent a lotof time absorbing and distilling a stack ofleading business thinking- all the bestpractice that a busy CEO would love tolearn but rarely does."

Eventually it was time for marketvalidation, so he enrcilled for a course atThe Icehouse Business Growth Centre,led by US entrepreneur Rob Adams. Hestarted Interviewing CEOs from a diverserange of companies to validate hisemerging concept.

A conversation with lceAngels boardmember Scott Gilmour convinced Herktthat It was time to shut down theconsultancy business and focus solely onLeaderklt.com. So just over a year ago hemade the transition and started productdevelopment in earnest.

With support from the Icehouse,Herkt completed so face-to-face CEOInterviews, which shaped the prototype

of his software. Beta trials commencedin December 2011; nine tria lists wereconverted to customers and the Leaderkit.com business got underway in April 2012.

In a nutshell, Leaderkit is a unique CEOtoolkit that accelerates and multiplieseffective leadership. It's a self-help webapplication that equips CEOs to clarifytheir thinking, and build and executesound business strategy. "The softwareconverts Harvard-style best-pr< cticeconcepts into Intuitive tools. It helpsat a conceptual level: identify yourtarget customer and their needs, refineyour identity and strategy into 40-50words, build a one-page success plan;and practically: engage your board, runinspiring leaders meetings and focusedmanager 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 asconscripting his wife Sara "whom I pulledout of her cognitive psychology degree''.

He has taken on a part-time businessdevelopment manager and engagedsoftware development and designcontractors.

Herkt says he's Inspired by Rod Drury'stalk of placing 'all n bets'. "You can'treally go halfway. It's high-risk, but youhave to throw everything at your businessto give it a chance of making it.

He says while there was a bigadjustment required in going From CEO tobusiness owner, and there is fear of failureto deal with, he's grateful for where thebusiness Is at today. He has a workingproduct being purchased and used bycustomers and a platform to build from.

His five year goal? An internationalsoftware business, recognised as themarket leader.

His lessons learned while bringingLeaderkit.com to market? Count the costof creating the business before you goln. Allow considerable time and cost tovalidate your product, develop it andfigure out your go-to-market strategy.

"There are no shortcuts, but the thrill ofbringing your dream to life is exhilarating,he says.

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