the national business review 19 intelligent · pdf filethe national business review / march...
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SPECIAL REPORT: INTELLIGENT SMEs 19The National Business Review / March 24, 2017
Nathan Smith
The first thing on an SME own-er’s mind is sales and profit but, strangely, the last thing they think about is hiring a good, competent sales manager. The logic just doesn’t seem to follow.
But it should be, says Indica-tor director Mike Stokes. There are the professional salespeople and then there are the 90% of salespeople “who say they do it well but actually don’t,” he says. Those two kinds of people are not the same, and it’s a constant failure pattern in SMEs.
“Sales managers need to have skills to develop sales-people. The role isn’t given the respect it deserves and quite often sales managers have been promoted because they are good at sales and left to their own devices.
“So why isn’t this talked about at universities? As a whole, there is nothing taught on sales management at a tertiary level, which is bizarre. Most companies don’t know how to do it correctly because no one taught them,” Mr Stokes says.
Sure, he says, not every SME need a sales manager, but they should know the value of good
sales management.Bureau Recruitment partner
Scott Freeman says the irony is one of the first SME roles to be filled is in sales, and the person lumped with that responsibility is often the most talkative in the office, not necessarily the best person for the job.
“A lot of SME owners look within their networks or choose someone recommended by their friends. Even though sales is the engine of a business, there is a whole load of horror stories out there where people just fall into the sales role.”
The simple truth is, the
qualities of a good salesperson are different from those of a good sales manager, Mr Free-man says. Wanting to be better than everyone else drives sales-people. But if the same person becomes a sales manager and tries to instil that drive into their staff, they become frus-
trated by the lack of control.“Salespeople often want the
sales manager role because they think that’s the next big thing but generally don’t under-stand how different it really is.
“And salespeople are great at selling themselves. An SME owner who doesn’t know sales might not see for some time that their sales manager is lacking in real skills. By then, real damage has been done or customers have been lost, or worse, not won.”
Mr Freeman points out how New Zealand’s cultural attitude towards sales differs from the US where it is revered as a career, and how role mod-els for sales are negative (the Wolf of Wall Street or Del Boy from Only Fools and Horses) but a lawyer’s role model is the smooth Harvey Spectre from the show Suits.
“I asked one person why he entered sales and he said he was originally going to be a town planner but saw the sales role came with a car. That really nails it for me,” he says.
The deeper change questionIntent Group director Ian Walsh says although tertiary institutes
When you wish upon a good sales manager
18 / The National Business ReviewMarch 24, 2017
Consistent revenue is a huge headache for SMEs and good financial decisions depend on a good evolution in management. The passionate SME founder might be perfect for early stages but trained management is critical as the company grows. No matter how small the team, insurance and contingency plans are critical, so how is this best achieved? And how will SMEs fare with Industry 4.0 and other fundamental changes to the business environment?
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The correct tool for the job should always be chosen but so often that lesson isn’t applied with sales managers in SMEs
might avoid teaching sales, the deeper question is why companies don’t cre-ate better managers. His suspicion falls towards a problem with local culture as well.
“New Zealand SMEs don’t suffer the same amount of competition as the US, UK and other places. It’s not necessary to be too competitive to stay in business. So there is no burning platform compel-ling change. Of course, they also miss the opportunity cost,” Mr Walsh says.
Another concern is a trend toward greater implementation of tech-nology in sales roles and how the prolif-eration might actually be obviating the need for salespeople to develop basic selling skills.
“Arguably sales has become more analytical and strategic with new tech-nologies and far more complex. It’s a good time out there at the moment. People can hide for a lot longer than they might have before.
“The last recession was great, for instance, because the tide went out and we got to see who was doing the right things. But it’s easy for a bad sales man-ager or salesperson to hide inside a good economy,” Mr Freeman says.
Sales might be up, in other words, but is it really due to sales techniques? Customers have more power with data, direct messaging, email or social networks to discover what they want. If a salesperson can’t add anything to a Google search, perhaps the role will soon be defunct, says Mr Stokes. It’s cer-tainly something to think about.
“Buyers are much more informed than they’ve ever been. It’s rare for someone not to have researched a product before purchase. But the point of selling is to understand a customer’s pain points, understanding the needs and providing them with the right solu-tion,” he says.
Bringing in the processesOne company with a good reputa-tion for sales managers is construc-tion equipment manufacturer Hilti. Its managing director Alistair Dickie says he understands how far every SME’s dol-lar needs to stretch, which means sales management isn’t a top priority but it doesn’t need to be this way.
“I started with nine employees and
now have 100 people. It’s the same principles of leadership and functional expertise whether the company is small or large. I need my sales manager to operate the team as if he owned the business himself.
“The main weakness in New Zealand is that many SMEs don’t have a clear strategy or direction. It is so important to have an idea of what a company will look like in 10 years. That strategy must then be executed with high focus and discipline without much deviation,” he says.
Good training and feedback on per-formance creates successful and accom-plished sales, Mr Dickie says. Sales managers need three characteristics: expertise in selling, good communica-tion internally and externally and to be good role models for sales colleagues.
“This means if the person needs to travel across the country, get-ting up at 4am to catch the 6am flight, arriving at 7.30am, hiring a car and walking into the store at 8am. People have to aspire to you.”
Mr Walsh says such a process-dependent busi-
ness structure allows staff to come and go but for new staff to be functioning at full capacity within a month; whereas if a company is people-dependent it might just collapse if a certain staff member leaves.
The founder or owner can get in the way of a good process system. Mr Walsh highlights the importance of the company embracing robust processes, structures and systems to allow manag-ers to get the job done. Sometimes the necessary detachment is easier said than done for owners.
“In the $3-10 million revenue range, the SME owner is by default the sales leader. They might have been good at sales and want to bring in a manager. But because good sales processes are lacking, the failure rate for that first sales person will be incredibly high,” he says.
I asked one person why he entered sales and he
said he was originally going to be a town planner but saw the sales role came with a car. That really nails it for me – Bureau Recruitment’s Scott Freeman
MIKE STOKES: sales isn’t given the respect it deserves
Perceive your utilities provider as a partnerNick Grant
Whether it’s setting up contracts, switching providers or paying their monthly bills, many SMEs appear to regard their dealings with utilities as a necessary evil.
Whether it’s setting up contracts, switching providers or paying their monthly bills, many SMEs appear to regard their dealings with utilities as a necessary evil.
As Utilise’s Dayton Taylor observes with a relatively cheerful resignation, “Electricity is one of the things where everyone hates paying the bill even though they know they can’t do without it.”
But while it’s not hard to understand that attitude, it’s one that ultimately shortchanges those businesses that adopt it.
Instead of seeing dealings with utility providers as one of the costs of doing business, advises Compass Communi-cations’ Karim Hussona, SMEs should view the relationship as a partnership – and seek out those providers that take the same view.
“Given the aim of most companies is to grow and evolve,” he says, “suppliers not only have to be best of breed, they have got to help the business to grow through the different cycles along the way by offering flexible, scalable solu-tions.”
Mr Taylor agrees, adding that SME operators should “shop around and not be sold by the first person to knock on your door with a great deal – because scratch through the surface of it and you’ll often find the deal wasn’t actually that great.”
Spotting the differenceA case in point about the kind of flex-ibility SMEs should be seeking from utility suppliers is Utilise’s approach to its electricity contracts.
As Mr Taylor is quick to acknowl-edge, Utilise isn’t unique among elec-tricity retailers in offering its customers the choice between fixed and spot pricing (for those who came in late, spot pricing is based on 30-minute time periods and fluctuates depending on demand relative to supply).
Of course, the decision on which type of contract to go with ultimately rests with the customer, although Mr Taylor also insists it’s “our job is to ensure they have all the required facts to make the best decision for them-selves.”
By way of exam-ple, Mr Taylor says there’s much to recommend spot pricing, including the transparency of being able to see exactly who is clip-ping the ticket by how much.
He particularly recommends businesses that oper-ate outside 9-5 seriously consider spot pricing because the off-peak rates “can make a huge difference to the monthly bill” – and ditto those SMEs that can manage their loads.
That said, Mr Taylor points out that “it’s a dynamic market” and so “rates can spike from time to time,” even if they’re now trending down.
Continuity and optimisationIn addition to flexibility and scal-
ability, Compass Communications’ Karim Hussona says when considering an internet and telecommunications service provider, SMEs need to ensure they’re getting the backup support ena-blings them to keep calm and carry on in the face of a variety of adverse events.
“The phrase ‘disaster recovery’ used to be used a lot,” Mr Hussona says, “and all big enterprises and corporates had
Continued P25
SHOP AROUND: Utilise’s Dayton Taylor
Nathan Smith and Calida Smylie
Many smaller companies oper-ating today may not exist in 10 years but not because they fail. Often an SME chooses merger and acquisition (M&A) to either cash out or continue its growth.
New Zealand’s risk averse culture means M&A activity isn’t discussed regularly and SMEs continue their “business as usual” approach. Theoreti-cally, SMEs should be thinking about M&A activity as a system-atic process while avoiding the temptations of “deal fever.”
Yet in choosing the best time to begin a merger process, there’s really no “stage” of the SME lifecycle that is necessarily better or worse. The question is whether the SME is prepared.
Mayne Wetherell partner Michael Harrod says calculat-ing the time, cost and effort of undertaking an M&A transac-tion – as opposed to growing the business at its own pace – should be at the core of any decision.
“M&A opportunities will appear from time to time. If the transaction provides an oppor-tunity for the SME to accelerate its strategy without undue risk to the existing business, then it makes sense to seriously con-sider the opportunity.
“Reasons for mergers vary but often they include access-ing skills, technology, markets, manufacturing or new supply efficiencies. If the opportunity to harness these benefits can be
taken without undue risk, then the age and stage of the SME are irrelevant,” Mr Harrod says.
Not for the light-heartedA strategy of incremental M&As is often the best way to grow, says Lowndes principal Kerri Dewe. Buying an established business (or part of it) is less risky than starting one or build-ing your own capacity. Bolt-on acquisitions, rather than full mergers, can actually add value.
“Low economic growth makes it difficult for com-panies to build revenue and profit organically, low inflation makes it hard for companies to raise prices for their goods and services and low interest rates makes debt financing relatively cheap. All these forces drive M&A possibilities.
“However, an SME should
not consider M&A activity if it doesn’t have its own house in order. The SME must be clear on its own strategy and strengths – what parts of the business are working and what parts don’t fit, so any acquisi-tion can be accurately assessed to add strength to the SME,” Mrs Dewe says.
Given the natural entrepre-neurial drive of many owners, it’s easy to see the upside of an M&A. But it is not a task for the light-hearted, so a decision not to begin an M&A can be just as important.
“It must be clear what the SME is getting into and not underestimate the time and cost of the transaction. It also pays to remember that, even if it is successful, a lot of work remains to integrate the businesses.
“Do we have the funding? Do we have the skills and resources to undertake a transaction of this nature? And, if we are suc-cessful, can we integrate the businesses? If the answer to any of those questions is no, then the SME would be well advised to question whether proceed-ing is the best use of its resourc-es,” Mr Harrod says.
What about investors?The legal and funding dimen-sions also wait to trip SMEs, and no two deals are the same. Most funders will want to ensure proper legal, tax and financial due diligence is undertaken so the SME fully understands and is prepared to take on the risks.
“A key element in an unsuc-cessful M&A is a failure to man-age the acquisition well and
bring the target and its staff quickly on board. SMEs must be disciplined, not overpay, and be prepared to walk away if an initially attractive proposition starts to look less shiny when looking under the hood,” Mrs Dewe says.
And investors are always looking for good reasons to pass over their cash. Inves-tors do, however, need to understand their investment is relatively illiquid, with limited controls over the business, and will often require follow-on investments before any returns are seen.
“A well-structured SME will address these issues, often in a shareholders’ agreement set-ting out the rights and respon-sibilities of investors (including the founder). Those agreements can be complex but they inevi-tably focus on two key elements – control and liquidity,” Mr Harrod says.
Keep in mind, says Mrs Dewe, that SMEs can maximise the likelihood of an investor making a good decision (on their behalf) by correctly outlining some growth opportunities.
“Again, it also helps to get the house in order. Investors will consider a number of key aspects, such as potential health and safety risks [and the seriousness of them], tidy tax and financial records, long-term client relationships backed by strong contracts and whether there are any corrup-tion issues.”
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SPECIAL REPORT: INTELLIGENT SMEs 21The National Business Review / March 24, 2017
Imogen Atkins
Staff development is essential for small and medium enterprises (SMEs) as they form 97% of businesses in New Zealand.
Massey University human resources management and employment relations Professor Jane Parker says many employ-ees and managers in small businesses undertake a wide range of functions and activities; they are the ‘Jacks and Jills’ of all trades.
“They need training across an array of skill and work task areas, particularly in start-ups, self-employment and in businesses eyeing expansion locally or overseas.
“They are often operating in a dynamic context and need their staff to be well-versed in areas such as time, change, task and succession training.”
Although some firms may react to a challenging economic climate by cutting back on training to save money, others see staff training as fitting into a much larger strategic context – not just meeting today’s needs but what is needed year after year,” Ms Parker says.
This can help to inculcate strong loyalty among workers and good staff relations.
Ms Parker points to Optimal BI, a small Wellington-based business intelligence firm, as a good example. She says the com-pany recognises people will eventually move on, so its staff coaching is targeted on growth in skills and capabilities that often end up in new service opportunities for the firm.
Yet, because of their limited scale, SMEs
often encounter difficulties in training employees.
ServiceIQ chief executive Dean Mich-ington says time is one of the contributing factors to the reluctance of SMEs to train staff. “Everyone is time-poor but a busi-ness has to make the decision to do it.”
The size of an SME can also mean they do not have human resources manage-ment, a training department or a manager dedicated solely to staff development and thus lack well-developed or accepted stra-tegic human resources processes.
Their managers may also not have the resources or expertise available to train
in-house. A 2014 MBIE report shows train-ing and development are often ignored by many small business owners because it is seen as too time-consuming or expensive.
Compared to large firms, smaller firms focus more of their innovation investment on marketing. The need to market and sell is universal and the barriers to undertaking at least some marketing activity are low.
However, while many SMEs don’t have formal HR functions, the absence of an HR manager does not necessarily indicate human resources isn’t considered a strate-gic issue in the organisation.
In SMEs, a manager’s closeness to staff can often enable a solid understanding of development needs, and nurture training to better fit the employee and the business.
Small businesses also respond better to a tailored approach. A generic training initiative isn’t more likely to yield benefits to small firms.
For example, the workplace is an option for staff development if the company is concerned about time and value as it ena-bles the SME to train specifically for a role.
ASPEQ chief executive Bruce Heester-man says a common challenge SMEs face is finding courses that both help the individual and remain cost-effective at the same time. “There is a lot of training on offer and finding something suitable and worthwhile can be difficult, time-consum-ing and expensive if you get it wrong.”
If SMEs can’t do it in-house, they can arrange a partnership with local training providers and local authorities.
In New Zealand, some government agencies and other parties provide employment and staff development infor-mation, advice and support, often with subsidies.
“SMEs can’t afford to have staff, not at 100% on top of their game. So, if you want to grow, how else would you do so without proper training that increases knowledge,
decreases turnover and expands produc-tivity and innovation?” Mr Heesterman says.
“The investment in time and effort taken to train staff will pay back incremen-tally over time.”
A Goldman Sachs small business study in 2016 found SMEs which invest in train-ing are more likely to report growth.
“It’s a win-win for employees and the business,” Ms Parker says. “More than 85% of those surveyed offer training to all or most of their employees, but acknowledge uncertainty around process and practice.”
The Goldman Sachs study also empha-sised small business owners face challeng-es in how to approach and afford training and also navigate decision-making con-cerning what, where, when and by whom.
Mr Minchington says there is a real gap
in management and leadership areas in New Zealand. For SMEs, enhanced man-agement leadership training will have a direct impact on productivity and profit-ability.
“The need for talent is a key ingredient for success and has the potential to limit New Zealand’s growth. But the battle is fought a bit differently between small and large enterprises,” Mr Heesterman says.
“SMEs probably won’t win the battle of paying more but they can provide more experience earlier, empower people and create greater significance to all employees.”
SMEs training staff a win-win
Considering a SMErger? Listen closely
20 SPECIAL REPORT: INTELLIGENT SMEs / The National Business ReviewMarch 24, 2017
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PROPER TRAINING NEEDED: ASPEQ chief executive Bruce Heesterman
REAL GAP IN MANAGEMENT: ServiceIQ chief executive Dean Minchington
JACK AND JILL MANAGERS: Massey University human resources management and employment relations Professor Jane Parker
Investment in time and effort taken
to train staff will pay back incrementally over time – Bruce Heesterman
Investors will consider a number of key aspects, such
as potential health and safety risks [and the seriousness of them], tidy tax and financial records, long-term client relationships backed by strong contracts and whether there are any corruption issues – Kerri Dewe
SPECIAL REPORT: INTELLIGENT SMEs 23The National Business Review / March 24, 2017
Nathan Smith
Planned changes to provisional tax will put SMEs in the “best head-space for 30 years,” says Tax Man-agement NZ’s chief executive Chris Cunniffe.
Presently, Inland Revenue expects companies to pay three equal instalments of tax through-out the year. However, the assump-tion here is SMEs can predict their tax liability in advance, requiring them to essentially be clairvoyant, he says.
“Cashflow may not align with tax requirements. A business’ sales could be volatile or the business may be new. It may also earn the majority of its income over sum-mer and in runs light in other months but is still required to pay another equal tranche.
“This is a tough and anxious situation for SMEs. It also explains why surveys constantly show pro-visional tax is an SME’s greatest gripe in dealing with the govern-
ment. They see it as difficult and unfair,” he says.
Time value of moneyThe IRD has wrapped two layers around this tax regime to incentiv-ise business. The first is late pay-ment penalties. The second is the use-of-money interest with a harsh interest rate because the govern-ment doesn’t want to be the banker of last resort.
“The rationale is the time value of money and if tax isn’t paid on time, the government is out of pocket. So the harsher interest rate is designed to make businesses
uncomfortable.”New provisional tax rules will
switch over on April 1, 2017. The first date they will apply practi-cally will be for instalments due on August 28.
One of these changes is for those with a tax liability less than $60,000 per year. These companies will not be subject to IRD interest under a mechanism called “safe harbour.” Previously, this mechanism applied only to individuals but is now being expanded to trusts and com-panies.
Big win for small SMEs“This is going to take 67,000 tax-payers out of the use-of-money interest regime. It’s a big win for the smaller SMEs. All the angst is gone for those guys,” Mr Cunniffe says.
Another alteration is for com-panies with a liability greater than $60,000 per year.
For those, uncertainty of how much tax to pay in the first two provisional instalments has been
removed and replaced by an uplift of 105% of the prior year’s liability level.
“But in the third instalment tax is payable a month after balance date. The SME should have a good hunch by then about the expected liability and can pay its best esti-mate. And if it turns out it hasn’t paid enough, then it will be subject to interest,” he says.
IRD statistics show 92% of tax-payers already pay provisional tax with the uplift method and are comfortable using it. The problem is, most businesses and tax agents haven’t done a lot of thinking about
these looming changes.“Our surveys show very little
taxpayer education, even though this is all good news for SMEs. The IRD is expected to release informa-tion in June or July when it is timely and relevant.
“And although the IRD is curing some provisional tax challenges here, the core issues are cashflow and the expectation of evenly paying tax throughout the year regardless of seasonality. From that perspective, the system is still going to create stress.
One size doesn’t fit all“The IRD is constrained in that to keep things simple, it must have one set of rules. But the harsh real-ity is one size doesn’t fit all. And it’s debatable whether the rules ever fit. Provisional tax has been described as difficult to get right and expensive to get wrong,” Mr Cunniffe says.
He mentions how the changes are a “long time coming” and
points to the timing of the altera-tions landing so close to an elec-tion. The IRD is spending “plenty of resources” for this business transformation and liaising with the business and advisory commu-nities, he says.
“This is a realisation by the gov-ernment that a regime of checks and balances – and big sticks if you got it wrong – is ultimately not good for business. It’s far better to create an environment where the companies can operate smoothly while meeting their obligations without much stress.”
Changes loom for SME provisional tax
Jason Walls
No matter the size of a firm, it’s important to have the right level of protection in case things go wrong, experts say.
This is especially true in New Zealand, where upwards of 95% of businesses identify as small and medium-sized enter-prises (SMEs).
Although business risk for the big play-ers receives the most attention, AIG senior underwriter Paul Atherton says even with smaller teams insurance and contingency plans are necessary.
“Risk management should be on the minds of all SMEs,” he says, adding that updates and changes to legislation can leave some firms facing uncertainty. A good example is the updated health and safety legislation which came into effect in April 2016. It imposed an active duty on those in a governance role.
“People need to be aware and make sure they have got adequate cover for developments like this,” Mr Atherton says.
But he says the most important thing
is SMEs ensure they have adequate cover for what they need as a business. However, businesses cannot be prepared for everything.
In Novem-ber last year, a magnitude 7.8 earthquake struck the South Island close to Kaikoura. The aftermath left many without power and caused widespread dis-ruption to smaller
businesses in Kaikoura and in Wellington.Although the government assisted
with a relief package for affected busi-nesses, many SMEs especially suffered a slowdown. Mr Atherton says the Kaikoura quake is a good example of why business insurance for SMEs is so important.
“Insurance plays its part in all natural disasters by ensuring all policyholders have the cover they need and access to experts.”
NZI executive general manager Travis Atkinson says New Zealand’s insurance needs will change with its environment and the “digital age” has added a new dimension to property insurance.
“Today’s business owner has to think about protecting digital and online assets such as websites, e-commerce facilities and digital networks,” he says.
“If you get hacked and your online shop becomes unusable, or your cus-tomer data gets stolen, there’s going to be a cost involved to manage both the
situation and the business’ reputation, as well as getting the business back up and running.”
He says most traditional property insurance policies won’t cover digital assets, so it’s important to consider organ-ising a separate cyber insurance policy in the event of a cyber-breach or cyber-attack.
A report from international insurance group RSA detailed some three central issues it expects SMEs to experience in the future: increasing inflation, a volatile currency and a decline in consumer spending.
The RSA report recommends SMEs protect themselves by “regularly reviewing [the] business plan to ensure it is up-to-date and fits in with the market environ-ment.” It also suggests reviewing costs, monitoring the market and speaking to an adviser.
Although the advice was for UK-based SMEs, Mr Atherton says the points are directly relevant to New Zealand’s small businesses, especially concerning a vola-tile currency and inflation because many do business outside the country.
“If it’s a New Zealand-domiciled SME with operations only in New Zealand then they obviously are sheltered to a certain degree. But if they import and export, then those issues will definitely be on their minds.”
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22 SPECIAL REPORT: INTELLIGENT SMEs / The National Business ReviewMarch 24, 2017
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SUPPLIED CONTENT
It is often argued that New Zealand (NZ)’s small-and medium sized enterprises (SMEs) face difficulties in financing growth. But is this because SMEs do poorly at securing external financing or have they simply stopped seeking it in growing the business? Together with my colleague, Dr Antje Fiedler, I analysed survey data of 647 NZ SMEs collected in 2011 and 2015 to consider this question. One in three of these SMEs have sought outside finance. Of those who did almost 80% received all the finance they sought, and only one in 10 business did not receive any external finance. Banks were by far the main source of the external finance. In short, most of the SMEs received most of the external financing they applied for, most of the time.
Despite such high success rates, access to external financing remained a common concern amongst growth-oriented SMEs. Many did not apply for external financing yet still saw it as a significant limitation in meeting their business objectives. Increasing their borrowing risk was the major deterrent, while cost of finance was far less of a concern. Twenty percent of SMEs did not apply even though their internal cash flows were insufficient to realise their full growth potential.
This suggests that in New Zealand, we might have a financing demand rather than a supply side problem as SMEs choose to opt out of seeking outside finance to reduce risk.
When compared to other OECD countries, interest rates paid by New Zealand SMEs tend to be higher, but loan rejection and default rates tend to be lower (overall less than 3%). Banks here may have eliminated more risk than cost in SME finance. Much of the financial risk in growing an SME remains individualised, and there is a tendency towards leveraging the family home and giving personal guarantees in securing financing to grow the business. These practices transfer the business risk into a personal risk.
So how might we improve SME financing through policy intervention? Such interventions are usually grounded in the belief that government needs to step in because SMEs seek more external finance than the market is willing to provide. Current policies to improve access to finance for innovative early stage enterprises and capital guarantees for exporting SMEs are working examples of such interventions.
Policies might also be used to reduce the risk for the SMEs if this is a major barrier in seeking external growth financing. Other OECD countries use a broader range of SME policies to distribute the risks in using external finance more widely, and government loan guarantees are widely used to ease SME access to external finance. There is compelling evidence that the positive effects of such schemes – such as employment and productivity gains – outweigh the danger of transferring risks from businesses to the government. New Zealand has not yet introduced such schemes despite very low loan default rates.
So, what are the key SME financing lessons from our research? First, we need to place more emphasis on the preferences of CEOs, as they may refrain from seeking external financing because risk becomes less controllable. Second, we need more discussions about policy interventions that have worked elsewhere and, perhaps, consider extending our toolbox in easing access for external financing for SMEs.
Risky business: external financing
in NZ SMEs
www.auckland.ac.nz
Benjamin FathLecturer Graduate School of Management
The IRD is constrained in that to keep
things simple, it must have one set of rules. But the harsh reality is one size doesn’t fit all. And it’s debatable whether the rules ever fit. – Chris Cunniffe
CHANGING ENVIRONMENT: The environment many New Zealanders live in changes, so will insurance needs, NZI executive general manager Travis Atkinson says
Risk management should be on
the minds of all SMEs – AIG’s Paul Atherton
SPECIAL REPORT: INTELLIGENT SMEs 25The National Business Review / March 24, 2017
There is a quote that goes like this: There are only three kinds of companies in the world - those that have been hacked, those that are going to be hacked and those that don’t know they’ve already been hacked.
New Zealand’s geographic isolation is no barrier when it comes to cyber crime – the internet knows no boundaries.
New Zealand business owners need to expand their risk-management think-ing and considerations from the traditional perils of fire, flood, theft, health and safety, to now include topics such as cyber security, crisis response and subsequent reputational damage control.
In a Cyber Security NZ SME Landscape report pre-pared for Vodafone New Zealand in July 2014, it was found that only half of the
New Zealand companies sur-veyed had a defined IT secu-rity policy in place. When all were asked (those that had a policy and those that did not) if their company had guide-lines to follow should they be attacked by malware or a hacker, 51 percent said they did not and 5 percent didn’t know.
The survey also found that while most companies were ready for ‘traditional’ threats, they did not understand that these were not the main risks in the cyber security land-scape. Many companies also believed that virus protection or firewalls meant they had adequate security.
Risks that come from within an organisation are also often overlooked. Employee education and guidelines are important. Eighty-three percent of Kiwis
rarely change their passwords and 48 percent do not have a password on their work smartphone according to the Minister for Communica-tions, the Hon Amy Adams.
She said in the foreword of New Zealand’s Cyber Security Strategy 2015 report that it is estimated cyber crime had cost New Zealand
almost $257 million in the year prior and that 56 per-cent of businesses had expe-rienced an attack once a year.
Last year, Symantec released an Internet Security Threat Report that said cyber criminals were setting up call centres to run scams and were extending their reach. Its Technology Strategist, Mark Shaw said they were seeing an increase of 163 percent in ransonware attacks which equated to around 108 attacks per day in New Zealand.
Over the last six months (September 2016 to Febru-ary 2017), the NZI online Cyber Risk Survey reported 18 percent of Users presented at high risk and 29 percent at medium risk.
Doing business online exposes companies to risks they may not have even con-sidered. When these risks become a reality, the damage can have devastating conse-
quences for their business. Business decision-makers
can no longer hide their head in the sand, cyber protection is a critical, must have insur-ance for any business.
A cyber attack is like a battle vortex – a whirlpool of violent activity - often hitting you from different directions. It’s hard to know where to begin to defend yourself, let alone what to do, who to call and how to deal with the fall out.
The way we’ve set up our cyber products at NZI means that if your business suffers a cyber breach or attack you can call our Cyber Emer-gency Helpline to gain instant access to our team of special-ists who can advise you on what you need to do.
We wanted to ensure our customers had access to 24/7, anytime, anywhere advice to quickly work towards miti-gating the damage. Cyber
Ultra can also cover busi-nesses for loss of revenue and help minimise any damage to professional reputation.
Once the Cyber Ultra hot-line number has been acti-vated, our team will assess the situation and manage it to its final conclusion to get the company back up and run-ning.
Since we launched Cyber insurance in March 2016, it’s been highly sought after by the market. But we wanted to do more to ensure our prod-ucts were accessible, par-ticularly to small businesses. So in February this year, we took it one step further and launched the NZI Cyber Cal-culator to provide custom-ers with an instant estimate of what it could cost them to purchase a Cyber insurance policy. The online form they fill out can be downloaded to take to their broker to pur-chase NZI Cyber Ultra.
In the first six days of going live, more than 2000 users logged on to get an esti-mate. The calculator can be accessed through our cyber website - nzicyber.co.nz
Cyber risk just got very real
*From Symantec Internet Security Threat Report 2016 **From PwC Global Economic Crime Survey 2016
Using overwhelming traffic like this online, criminals can cripple your business.These attacks can take your business offline almost instantly, and they’re only one of the ways that cyber criminals can do damage. Last year alone, 43% of all small businesses were attacked at least once*. Worse still, 12% of businesses don’t even know that they’re already victims of cyber crime**.
Find out if your business is at risk at nzicyber.co.nz/risk
Ryan Clark, National Manager Liability, NZI
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RYAN CLARK: National Manager Liability, NZI
to have a ‘disaster recovery plan.’“But ‘disaster’ means different things
to different people – for example, an SME’s owner-operator losing their laptop could be a ‘disaster,’ it doesn’t have to involve an earthquake taking out a central city.
“So when that is unpacked, what you’re really talking about is ‘business continuity’ – what’s the information and services you need to ensure you’ve always got available to function as a business?” Mr Hussona says.
When it’s put like that, it quickly becomes apparent that relying on insurance isn’t going to cut it if an SME wants to achieve true business con-tinuity – whether the issue is human error, natural occurrences like floods, fires or earthquakes, or a cyber security snag like ransomware.
Data is, naturally, a key considera-tion.
“It’s incredibly important and should never be in jeopardy – whether it’s customer data, email, payroll, finan-cial data, databases,” Mr Hussona says.
Another part of continuity is fulfill-ing the expectation that a business can be contacted 24/7, even in the face of widespread disruption.
And, of course, although ensuring business continuity during excep-tional circumstances is crucial, so too is making sure the business is func-
tioning optimally the rest of the time to increase the likelihood of it not just surviving but flourishing (installing fibre is increasingly seen as falling into this category, for instance).
Yes, Mr Hussona agrees, picking through the range of utility providers and the plethora of options they tout can seem like a daunting and time-consuming chore – but approached with the right frame of mind (and questions), it’s actually an opportunity that can pay dividends.
Perceive your utilities provider as a partner
From P19
SCALABLE SOLUTIONS: Compass Communications’ Karim Hussona
Suppliers not only have to be best of breed, they have got to help the business to grow through the
different cycles along the way – Karim Hussona
High-tech product testing available to allNevil Gibson
The digital transformation of business – known variously as the Fourth Industrial Revolution or Industry 4.0 – is just as accessible by small and medium compa-nies (SMEs) as the larger players.
The revolutionary impact of new tech-nology ranges from the design of new products through to their completion; the use of 3-D printing that makes previously “impossible” parts on demand; robotics taking automation to new levels of sophis-tication; artificial intelligence that makes new sense of supply chain processes.
But none of this need be beyond the resources of startups and SMEs, NZ Prod-uct Accelerator business development manager Brian McMath says.
NZ Product Accelerator is based at the University of Auckland’s engineering cam-pus at Newmarket, where the public and private sectors are developing an innova-tion precinct. It is in the fourth of a six-year programme funded by the Ministry for Business to advance the work of the Mate-rials Accelerator, a new model for closer collaboration between industry, Crown and university research institutions.
As part of this programme, NZ Product Accelerator has pulled together the coun-try’s additive manufacturing capability, including Victoria University’s School of Design and the 3-D printing facilities at AUT and the Albany campus of Massey University. The former Air NZ aircraft interiors business, now owned by interna-tional company AIM Altitude, has moved to Newmarket to be closer to the university and its product testing equipment.
Early last year, Air New Zealand revealed it was using AUT’s $1 million laser melter for 3-D metal printing of cabin parts such as serving trays. The airline says this is a way to reduce inventory costs.
At the other end of the scale, NZ Prod-uct Accelerator has helped a startup, Wine
Grenade, to develop its micro-oxidation process to speed the ageing process of red wine. “This is like a SodaStream cyl-inder you drop down into a wine tank,” Mr McMath says. After trials at the Sacred Hill winery, the firm is delivering its first 50 units for sale to wineries here and the US.
NZ Product Accelerator has a mandate from government agency Callaghan Inno-vation to bring companies that want to test or develop new products together with institutions that have the technology.
“Our role is truly collaborative because we can go outside if we can’t find capabil-ity among the partners,” Mr McMath says, adding that private companies are also part of the network and on a register of all high-tech equipment in the country.
One example of collaboration is a partnership between underwater camera maker Boxfish Research and fishing com-pany Sanford. Boxfish’s 360 camera can shoot for up to 90 minutes while the ROV is the first mini submersible capable of streaming 4K-UHD video images to the surface. Sanford is using it to monitor its mussel farms.
Mr McMath says this collaborative approach extends to intellectual property ownership of companies using its services.
Product development is a focus, with companies often finding that a problem results in an unexpected solution. “The first question we get from a company is that we have this product, it’s not working and we want to test it,” Mr McMath says. “But the reason it’s not working is usually something behind the design, the makeup or the chemistry. Often, they have a funda-mental question we can help them with.”
Ambitec, which makes water-based plaster systems for decorative coating applications, found that tests showed the products had improved fire retard-ant qualities without using additives. This reduced the cost as well reducing toxic gases in the event of a fire. [email protected]
SPECIAL REPORT: INTELLIGENT SMEs 27The National Business Review / March 24, 2017
Nathan Smith
It doesn’t matter how small a company is, cyber-attacks will still find them. Almost 18% of SMEs, according to a survey by Norton, have been targeted online.
New data drawn from 525 New Zealand SMEs show the average cyber-attack loss is $19,000. Most were likely to have been attacked within the last two years, with 48% expe-riencing an attack within the past 12 months.
Symantec Pacific region director Mark Gorrie says the main sources of attacks are from email and phish-ing scams (70%) or hacking attempts (47%).
“Small businesses dominate the New Zealand economy: 97% of enterprises have fewer than 20 employees and 70% are sole traders. Collectively they employ 29% of New Zea-land private sector workforce and account for more than a quarter of New Zealand gross domestic product. That’s a lot of employees and critical busi-ness information to protect from cyber-criminals,” he says.
According to the report, almost a third (31%) of busi-ness owners surveyed believe they wouldn’t last a week without critical business infor-mation, yet only 19% back up their data no more than once a month. Meanwhile, 12% are required to retrieve lost data such as emails or deleted files on at least a monthly basis.
Most business operators (62%) use external hard drives for backups while almost a third use a cloud provider. Alarmingly, 16% of respond-ents backed up to their own computer and of these, 70% did not back up anywhere else, leaving themselves vulnerable to complete loss of data.
The cyber balanceNational Cyber Policy Office director Paul Ash says people often think cyber-security is a scary thing, putting peo-ple off using technology and increasing costs. The govern-ment view, however, is that increasing internet connectiv-ity brings enormous benefit to New Zealand.
“But increased connectivity also brings with it new security risks. The geography that kept us safe in the past no longer does from cyber threats. Those risks can affect anyone: indi-viduals, businesses, schools, government. Anyone who ben-efits from the internet is also susceptible.
“Cyber has changed indus-trial espionage and the theft of valuable IP is now upon us and a real risk that we see to small businesses, many of which rely on generating intellectual property for their wealth,” he says.
He describes how the threat isn’t limited to theft either. A more insidious move is the manipulation of data creating an inability to trust a compa-ny’s own systems and material.
And, as directors, this could be a “real concern and much harder to deal with.
“If this sounds scary, it’s because it is. The ubiquity of information systems mean we now need collectively – and I emphasise that word – to be much more aware of cyber-security risk and to manage it carefully.”
Larger organisations in New Zealand have a better
handle on the need to secure their devices in particular, says Vodafone security head Colin James. That can be more diffi-cult at the smaller end of town. SMEs struggle with the cost equation in securing mobile communications.
“Smaller organisations seem not to understand the impact poor security could have. They think, ‘why would anyone want to hack my organisation,
I’m only a small business?’ But if it lost sensitive information which was a competitive edge, that would be a different story.
“Some of it comes down to scale. SMEs don’t have the peo-ple who can manage that risk and conduct risk assessments for the organisation. Usual-ly that might be outsourced to a third party, whereas a lot of larger organisations will have staff to do that and measure it on a regular basis,” Mr James says.
Making cyber a prioritySymantec’s report also found 18% of SMEs have no internet security solution at all. The main reason business opera-tors gave was that it was not a priority (31%). Although 92% of PCs and 89% of laptops are secured, that percentage drops to 61% for tablets and 42% for mobile phones.
“Once infected, nothing matters to cyber criminals but payment – they don’t care about disruption to business or the impact on customers. Not having basic internet secu-rity will, given time, compro-mise the business. It’s time for SMEs to make online security a business priority and even consider cyber insurance to protect them should they be hit by a cyber-attack,” Mr Gor-rie says.
Security is a trade-off, Mr James says. Opting for greater security will protect hardware or the company but it might make it more cumbersome for
staff to operate and slow down work productivity.
“Of course there’s always going to be a human error somewhere down the line. Malicious intent is almost impossible to protect against, however. If an employee wants to steal information or some-one outside wants to get into your system, then they’re prob-ably going to find a way.
“However, the majority of breaches are accidental or occurring because of simple lack of knowledge rather than being malicious,” he says.
Behavioural change here, even in SMEs, is critical. This is not just a technology problem, it’s about people and the way they work with technology, Mr Ash says. Cyber-insecurity shares many characteristics with medical problems, spe-cifically with epidemiology.
“These are not called com-puter viruses or bugs for noth-ing. And policy practitioners are having to borrow concepts from epidemiology to try to deal with the problem. So, just as vaccination campaigns build immunity, so too good cyber-security practice ben-efits us all,” he says.
“In sum, a good secure New Zealand cyber environment is good for business. More broadly, we need to work to address the problem from multiple points and multiple disciplines, technical being a key foundation, policy, legal and governments.”
Wanted: a collective approach to SME cyber-security
PAUL ASH: people often think cyber-security is a scary thing
I’m a geek. My smartphone is never more than two years old, I enjoy science fiction and I’ve spent my
career leading tech com-panies. So it shouldn’t surprise readers that the Internet of Things (IoT) is a
part of my daily life.At last count, I have
about 50 internet con-nected “things” and I’m
not alone. Phones, laptops, TV’s, watches, webcams and even cars – homes are bursting with connected gadgets.
Now to our cities, where there is an explosion of cheap, connected sensors monitoring or controlling everything from water to rubbish. We first saw it with webcams and smart parking meters, next with electricity meters and now driverless cars and healthcare. The virtual world is escaping into the physical with the promise of making our lives easier, richer and even helping us live longer. What could possibly go wrong?
Why is security for IoT an after-thought?
For IoT to live up to its promise of a better tomor-row, devices, sensors and wireless networks need to be cheap. By cheap I mean devices should cost 500x less than an iPhone, have a 10-year battery life and a data plan for less than $10 a year.
Sellers have been slow to introduce security measures for fear of push-ing costs up. At the same time, customers are excited about their “use-case” for IoT without considering the implications of a hos-tile person gaining access. Uncle Sam has had a crack at the issue in a recent white paper on IoT, noting even advanced manu-facturers have a limited understanding of security best practice and how to
include it in their IoT road-maps.
What could go wrong No cyber-security article would be complete with-out a doomsday prophecy of hackers stealing money, privacy and turning every-thing off. But to be fair, we are seeing examples of loss
and harm every day.Most breaches target
a particular company or person but the number of attacks impacting large numbers of devices is on the rise.
Late last year hackers used baby monitors, web-cams and a raft of other IoT devices to take down major chunks of the internet including Netflix, Twitter and PayPal.
Hackers have also taken control of cars. Fiat Chrysler recalled 1.4 million vehicles after researchers demonstrated a proof-of-concept attack. Now think about the risk of
hackers getting into insulin pumps or implanted defi-brillators.
The role of governmentAt the RSA Cyber Security conference in San Fran-cisco last month, the most heavily attended sessions was Internet of Insecurity: Can Industry Solve It or Is Regulation Required?
Regulators and enforce-ment agencies often impose regulations on industry when public safety or financial security is affected.
But governments don’t necessarily understand security issues and no one wants regulation which could have unintended consequences. The onus, it seems, is on industry.
In February, Australia’s mandatory cyber-breach disclosure regime became law. So far New Zealand is yet to adopt a similar measure but it feels there will inevitably be regula-tion changes if the industry can’t put cyber-security front and centre with IoT solutions. Perhaps a leg-islated consequence for a breach is the impetus needed for New Zealand industry to take this more seriously.
Our IoT projects are diverse and exciting but we can’t let our excitement get the better of us. While the internet is perhaps the greatest creation of the human mind, it’s still the Wild West.
Scott Bartlett is CEO of Kordia Group
The internet of insecure things
SCOTT BARTLETT: the number of attacks affecting devices is on the rise
26 SPECIAL REPORT: INTELLIGENT SMEs / The National Business ReviewMarch 24, 2017
Assessment supplier to New Zealand and the World Building Regulatory ConfidenceContact:Bruce Heesterman CEO [email protected]
Mike LynskeyDirector Business [email protected]
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