Kiwi hi-tech firms stay small too long, lack sales at scale: Market Measures

New Zealand's hi-tech companies are stuck in start-up mode for too long due to poorly executing cost-effective sales, the Market Measures report on the $16.2 billion industry says.

The annual report, now in its eighth year, is produced by marketing advisory firms Concentrate and Swaytech and surveys 327 tech companies nationwide on their marketing and sales processes.

Concentrate managing director Owen Scott said there is no problem with the world-class technology Kiwi companies are producing but too few of them are growing to a substantial size as they struggle to cost-effectively scale their sales and marketing. Typically they have too many products and export to too many markets directly on their own while the more successful, bigger companies are better at focusing on their niche in the most profitable markets and selling through distribution partners, he said.

The report found while 60% of companies surveyed were over 10 years old, 35% had annual revenues of less than $1 million and only 2% generated more than $50 million in turnover.

Kiwi hi-tech companies trail the performance of their counterparts in the US, the world's tech powerhouse. The average Kiwi tech company employs 3.4 people with revenues of $563,000 while the average US tech company employs 14.4 people with revenues of $2.78 million.

Although the New Zealand tech industry is growing at pace, it will continue to be a few large companies and a long tail of small ones unless the entrepreneurs running them overcome the weakness they have identified in each of the past eight years – a lack of a strategic, research-based approach to sales and marketing, Mr Scott said. "It's a bit of a blind spot."

Average annual turnover growth dipped slightly to 41% from 44% in 2015 but Auckland companies outstripped the rest of the country recording an average 73% lift in turnover. There was no shift in Kiwi tech companies exporting – 73% – and they export early in their lifecycle.

Spending on sales and marketing isn't the problem with the average spend on sales rising to 34% of turnover, up from 20% last year but the investment was not always in the right things, in the right way, at the right level, the report said.

Scott said if hi-tech companies are to mature faster, they need to follow a three-step approach.

"They have to increase their intensity of their sales efforts by focussing more tightly on which markets they target and the sale model they use. They need to become much better at communicating the value of what they deliver so they can charge premium prices. And they need to be more adventurous in how they use digital marketing," Mr Scott said.

Previous Market Measures reports have shown Kiwi entrepreneurs are "heroically good" lone-wolf salespeople tending to do everything from finding prospects to nurturing them to closing the deal.

Scaling this activity is the challenge, the report says. Only one-third of Kiwi companies sell indirectly whereas returns can be better from setting up some sort of reseller partner.

While 90% of companies say they position their product as being of better quality or providing superior performance, only one third achieve premium prices over their main competitors.

Companies struggle to price effectively because they don't have a clear view of the value their customer is receiving, with price more typically built on their internal costs plus a margin, the report said.

The survey found companies are likely to build turnover faster when they focus on helping customers achieve their business goals. Technology innovation ranked third while being from New Zealand rated lowest.

Although digital marketing has grown in relevance, sales-focused tactics remain dominant. About 80% of larger US tech firms typically generate leads from high volume, cost-effective indirect marketing compared to only a third in New Zealand.

An explosion of online marketing channels has put power in the hands of the buyer and requires marketers to provide useful content to their target audience instead of simply promoting the benefits and features of their products or subscription-as-a-service, the report said.

Content is increasingly at the heart of digital marketing with 90% of US firms using it compared to just over 60% of Kiwi ones to engage with prospects online.

Scott said Kiwi firms tend to do the traditional, easy stuff such as blogs and don't rate content types they're less familiar with compared to US firms which are enthusiastic users of webinars, videos, research reports, eBooks, and online presentations.

(BusinessDesk)