US serial entrepreneur Ken Morse has a novel message for Kiwi start-ups: “get two legged”.
Have one foot in NZ and the other in the market where your biggest customers and competitors are to be found and you create a big advantage for yourself. And by the way, these days it’s called co-locating not relocating, he says.
Morse was in New Zealand this week to present a series of workshops for budding entrepreneurs. The angel investor and academic who clearly “walks the talk” has a successful track record of starting six high tech companies, five of which went on to IPO or merge while one was, Morse willingly admits, a “disaster.”
Still, five out of six is an 83% win rate and easily eclipses that widely quoted metric that 90% of business start-ups will fail within the first five years.
As founding Managing Director of MIT’s Entrepreneurship Centre from 1996-2009 he was responsible for seeing student numbers grow by more than 700% during his time in the role.
These days he serves on US President Barack Obama’s National Advisory Council on Innovation and Entrepreneurship, between his jam-packed diary presenting interactive sales workshops and spreading his entrepreneurial zeal to every corner of the globe.
Right time, right place
Morse is unequivocal when he says that right now, there’s never been a more compelling reason to become an entrepreneur.
“There’s a growing recognition everywhere in the world about the importance of entrepreneurship and why is that?
“Well you’ve got a global population that’s increasing rapidly, expectations are rising even faster, there’s a shortage of good jobs, the public sector has reached its limit and in some areas is actually shrinking, so everyone is turning to the private sector and that means entrepreneurship is increasingly seen as the answer.
“But the entrepreneurship skills themselves and the supporting eco system are in short supply."
All of this probably explains why even a decade ago the terms entrepreneur and innovation barely registered in the lexicon. These days, hardly a day goes by that we don’t hear the terms crop up in the media or in business strategy sessions.
Even large companies are having to think more like entrepreneurs knowing that their business can be rapidly disrupted by some emerging start-up; as global mobile phone giants Research in Motion and Nokia have both found recently to their cost.
New skill set requirements
Morse says that big corporates have a big problem right now.
“If you look around the world, particularly in the major OECD countries, large companies aren’t growing. In fact, in Western Europe many of them are actually shrinking and the job growth just isn’t there so, the question becomes: Where are we going to get the jobs?”
“When you look at North America for instance, all of the net new jobs created have come from young, new companies, not big corporates. They’re no longer hiring at the same rate as they did previously.”
One aspect of entrepreneurship that is widely debated is the skill set required and the ability to teach those skills. Can you actually teach someone to become a successful entrepreneur?
Morse doesn’t hesitate with his answer to that question.
“Absolutely those skills can be taught. The number one skill though has to be integrity in the entrepreneur along with ambition and the ability to attract top talent. The companies that do well are the ones where the CEO and the senior management are incredibly focused on delivering value to their customers. They care about customers with a passion.
“Perhaps what makes entrepreneurship different is there aren’t any rules. Maybe then, the definition of entrepreneurship is pursuing an opportunity without having all the resources that you need and moving forward and gaining them.”
But in the end, business is really all about being able to attract and retain customers. It’s something that can often be forgotten in the headlong rush to get a business up and running.
“Actually, I believe the best sources of money for young companies are customers themselves.
“I don’t think in today’s competitive environment an entrepreneurial team, even an experienced one, can raise serious money without having customers in the picture, and that includes obtaining signed contracts.
“I like the boot-strapping approach and I find that’s popular in NZ. 'Don’t start until you’ve got your first customer' should be the mantra for everyone starting out on this journey.”
“In the beginning, your first customers might actually be small companies that nobody has ever heard of but you won’t begin to get some serious traction until you have some marque customers that have global recognition.
“Now here in NZ you have plenty of companies who get started but the question is: Do they really have a plan to truly go global? You more-or-less need that plan right from the start, which is what we’ve been teaching in these workshops I’ve been running for the last few days
Plan, plan, plan
Planning is also vital to the success of any business and Morse says the key is to break your plan down its component parts. It’s all part of what he describes as having an extremely narrow focus.
“You need to have a sales plan and you also have to have a people plan. Where are you going to recruit the talent to build the enterprise? The CEO is always going to be the Chief Sales Officer and so what I teach are the skills that are necessary to become a global company through selling.
“What I’ve found is that it’s very easy to get overly enthusiastic and believe your own story which can throw you off track and you lose focus.
“In my experience the biggest mistake companies make, everywhere really, is trying to do too much. Put it this way: most companies die of indigestion not starvation. You need a narrow, narrow focus.”
“The other mistake you want to avoid is having a horizontal sales strategy rather than a vertical one. For example, some enthusiastic software entrepreneurs I’ve met often say: 'We’ll sell to everybody' and we call that boiling the ocean. It just doesn’t work. Everybody is not a customer and everybody is not a sales strategy. A sales strategy is having a few companies in exactly the same business and having a product that brings real value to those customers.”
Find the pain point
What many businesses sometimes forget about when they’re developing their business strategy is really thinking about the problem that it is you’re trying to solve. It sounds obvious but Morse says it’s vital to find what he describes as the “pain point.”
“The important thing is to solve a problem where there’s real pain. You can’t build a sustainable business unless you’re the aspirin for somebody’s pain and that person who has the pain had better have money, power influence and a budget and critically, know how to write a purchase order and isn’t afraid to do so because without purchase orders your business is out of business.”
Risk is part and parcel of business but Morse says you can adopt strategies that mitigate the risk.
“It turns out that if you have a reasonable team of adults who know something about business, have been successful in a business environment, know how to get things done and they’re a team of experienced professionals, then their probability of success is very high. But importantly, that probability of success is further enhanced by their ability to get customers. So that’s one way to reduce risk by acquiring experience.
“The second way is to provide what I call just in time training for the entrepreneurial team. That is, give them the skills they need at the time they need them in order to be successful.
“The other thing is that you want to have a supportive eco system that recognises that failure is part of the process. That’s what’s been impressive about the time that I’ve been coming to NZ is having all these companies and organisations such as NZTE, the Icehouse etc all supporting these training programmes by entrepreneurs for entrepreneurs because that’s exactly how an effective eco system is supposed to function."
Role of Government
But what is the role of Government in all of this and should it be doing more? Morse says NZ has it about right.
“This Government states it perfectly. They say our job is to give you what you need to be successful then step out of the way as much as possible. That’s actually the correct role of government.
“But it’s not zero. I’m not a libertarian. The Government does have a role to provide more than infrastructure. They often provide the first grants that enable teams to get going and I think that’s a good use of [taxpayer] money.
“However, I don’t like businesses that only live on grants. Their aim should be to get customers as soon as possible.”
Morse also believes New Zealand has other important advantages that are sometimes overlooked.
“Kiwis are known for their integrity, your government processes are clean, your business practices are clean. These are qualities that are in short supply in the world. People respect that so, you go in with an advantage. However, you still have to punch above your weight.”
When it comes to raising capital Morse says NZ businesses, just like our national bird, need to be two legged.
“The ideal strategy is to have a development office here and a commercial office where the largest concentration of customers and competitors are to be found.
“So I’m into co-locating which isn’t the same as relocating. The issue with outside capital is that you won’t get it unless they [the investors] can watch you. They will want a local investor to know the company here and they’ll want to help you in the market where you’re based.
“Of course, after 10 or 12 years some will want to get out but that allows them to recycle their capital into another start-up.
“So this idea that selling out to a big company is a bad thing doesn’t wash with me. Often it means the business making the acquisition can further expand their market position and hire more people locally, which are obviously positive aspects of this process."
So what does Morse expect New Zealand’s business landscape to look like in another decade?
“In ten years’ time I expect to see many more 30-50 million dollar businesses than there are now. They will ultimately become a beacon for others to follow and in time will create spin-offs of their own and very likely they may even create suppliers who go on to grow and prosper as a result of their success on the global stage."
Now wouldn’t that be the perfect outcome if he turns out to be right.