By Rod McNaughton*
For decades, we have heard a familiar story about why New Zealand’s firms choose to stay small. Business owners prefer comfort, control and lifestyle over ambition, summed up in the old notion of the “bach, boat and BMW” being the height of aspiration.
The statistics show this pattern clearly. New Zealand’s productivity has lagged other advanced economies for years, with output per hour worked sitting below the OECD average.
This gap is often blamed on the fact that nearly 97% of local businesses employ fewer than 20 people and many stay small their entire life cycle. Yet a fast emerging global trend suggests smallness is no longer a drawback.
Across software, design, digital media and specialist manufacturing, a growing number of international firms are choosing to stay small. Their aim is not to avoid ambition, but to preserve quality, identity and resilience in a transformed economic environment.
This year, that shift may offer important lessons – and opportunities – for tackling New Zealand’s productivity challenge.
When scaling up stops being the default
After the global surge in venture capital in 2021, investment contracted sharply. Startup funding fell in both 2022 and 2023, with the latter being the weakest since 2018.
While signs suggest activity has stabilised at a lower level, capital is now far more selective, prompting questions about the sustainability of the traditional “growth-at-all-costs” model. Strategies that depend on continual boosts in external funding today face a more challenging environment.
Artificial intelligence (AI) is also reshaping what small teams can achieve. AI systems can now automate or accelerate tasks across coding, design, analysis, writing and administration.
A small team equipped with advanced tools can generate output once associated with much larger organisations. This has expanded the viability of small, highly productive firms focused on specialised software, creative content or digital services.
These AI-enabled small firms can reach international markets with minimal headcount, often profitably. At the same time, climate disruptions and supply chain fragility have exposed the weaknesses of centralised, high-volume business models.
Events from the COVID pandemic to recent extreme weather have highlighted the risks of tightly optimised global logistics, while nimbler, modular operations with shorter supply chains can be more adaptable.
For these firms, staying small is proving a strategy for resilience in the face of environmental and geopolitical volatility.
Taken together, these trends point to an emerging form of entrepreneurship that diverges sharply from our traditional lifestyle-oriented businesses that serve a local market, employ a handful of staff and rarely invest in technology.
Instead of avoiding ambition, these new “anti-scale” entrepreneurs are redefining it, building firms that maximise productivity, specialisation and resilience rather than staff numbers.
Why strategic smallness suits NZ
Smallness can be a strategic choice that protects quality, speeds up innovation, reduces overheads and fosters closer relationships with customers. In digital markets especially, depth of expertise and precision often matter more than organisational size.
This matters for New Zealand because the country’s productivity problem does not stem from being small, but from being small without specialisation or technological leverage.
Many of its firms operate as generalist service providers in a thin domestic market, face limited incentives to innovate and remain focused on local clientele.
Productivity, however, is measured per worker, not per firm. A two-person, AI-enabled venture serving global customers can, in principle, generate far more value than a 20-person domestic service firm competing in a crowded local market.
International comparisons reinforce this point. Small but highly productive economies such as Denmark, Finland and the Netherlands thrive by specialising in what they do best, integrating into global value chains and developing capabilities that compete internationally.
This is an encouraging pattern for New Zealand, which faces similar structural constraints. Anti-scale entrepreneurship aligns far more closely with the success of these small economies than with Silicon Valley’s emphasis on rapid organisational expansion. It represents a form of ambition that suits small countries.
Rethinking how we support ambitious small firms
Research on entrepreneurial ecosystems also suggests ventures perform best when their strategies match the realities of their environment. New Zealand’s conditions can favour small, highly productive firms that rely on expertise, identity and digital reach.
If these ventures adopt AI early, stay export oriented and build distinctive capabilities, they can compete internationally without becoming organisationally large.
To realise this potential, New Zealand’s institutions will need to adjust some long-standing assumptions. Policies that treat firm size as the primary marker of entrepreneurial success risk overlooking ventures that are small yet highly productive.
Export programmes, innovation grants and skills initiatives could be better aligned with small firms that specialise deeply and use technology to amplify their output. Education, likewise, could focus on helping entrepreneurs design firms for an optimal size.
Ultimately, New Zealand’s productivity challenge will not be solved by any single idea. But the rise of anti-scale entrepreneurship suggests ambition may take a different form from the one policymakers expect.
Some of the most innovative and resilient firms of 2026 may be those that remain deliberately small, use AI to expand their capabilities and build reputations in tightly defined global niches.
The question for New Zealand is not whether its firms can grow larger, but whether they can grow better.
*Rod McNaughton, Professor of Entrepreneurship, University of Auckland, Waipapa Taumata Rau. This article is republished from The Conversation under a Creative Commons license. Read the original article.
6 Comments
I think this article misses one of the big points that affects small business. Small buisnesses in NZ struggle to get any loans, let alone venture capital to expand. NZ banks greatly prefer to lend to property buyers at the expense of NZ businesses. Then to top it off, some banks are loaning to businesses based off of ESG scores.
IMO yes for software products, but we are a long way from overseas markets for freighting physical manufactured goods, unless they are very niche, IP protected and international demand is small enough for NZ companies to meet the market without competition from lower wage economies.
Perplexity a.i. has a lengthy but worth pasting response here-
'New Zealand has a lot of examples of small, high‑margin exporters, and the best opportunities tend to be in niche, value‑added food and beverage, specialised manufacturing, and “weightless” services rather than bulk commodities.
Examples of small high‑margin exporters
These are illustrative rather than exhaustive, and many started very small:
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NaturKidz (Nelson) – freeze‑dried kids’ fruit snacks made from “rescued” surplus fruit; launched 2023, exporting first to Vietnam, Malaysia, and Taiwan and leaning heavily on a sustainable founder story rather than scale.
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Three Sisters Brewing (Taranaki) – started as a tiny garage brewery; now ships container‑scale orders of premium craft beer to China, with sour beer a high‑value niche that has rapidly grown to around 60% of their export mix.
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Numerous specialised manufacturing and high‑value F&B SMEs working with NZTE sit in sectors like niche food, advanced components, and tech, deliberately targeting higher‑value global niches rather than volume.
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Māori SMEs in food, tourism and branded products show that very small firms can collectively generate tens of millions in exports by leveraging cultural distinctiveness and storytelling for margin.
These businesses typically win on: strong brand, founder story, design, and IP or process know‑how, not on cheap production.
Where the best niches tend to be
New Zealand’s structural advantages push small firms toward certain export “sweet spots”:
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High‑value food & ingredients
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Value‑added dairy, honey, functional foods, nutraceuticals, and premium snacks often achieve higher margins than bulk commodities.
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Recent work on “riches in niches” in food identifies areas like essential oils, seaweed/microalgae, hemp, and other specialty categories as promising for high‑value, low‑volume exports.
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Specialised manufacturing & agritech
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NZ has a recognised niche manufacturing sector in resource‑based and high‑tech areas (e.g., bespoke machinery, agritech systems, sensors, specialist processing equipment), which lends itself to low‑volume, high‑margin exporting.
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Services and “weightless” exports
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Professional and commercial services, IP, software, and education/tourism‑adjacent offerings are increasingly important, and small firms dominate the count of exporting companies even if not the volume.
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Patterns that make them profitable
Across sectors, the small NZ exporters that do well overseas tend to share a few traits:
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Niche positioning over scale
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Instead of competing in bulk dairy or meat, they find a tight niche: kids’ functional snacks, craft beer sub‑styles, culturally branded experiences, or specialised components.
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Story, brand, and provenance
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Offshore buyers respond strongly to NZ’s “clean, ethical, natural” image and to founder and Māori cultural stories, which can justify pricing at a premium over generic competitors.
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High value per kg (or per byte)
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Distance and freight costs mean products with high value density (e.g., concentrated ingredients, freeze‑dried foods, cosmetics, software/services) are structurally advantaged over low‑margin bulk goods.
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Innovation as the differentiator
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Analyses of NZ’s export push emphasise that doubling exports requires genuinely innovative, world‑class products rather than more of the same; that is exactly where small, nimble firms can outperform.
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Opportunity angles you could explore
For a technically capable maker/engineer, the most realistic high‑margin export angles usually sit at the intersection of hardware, materials, and IP:
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Niche food‑process or agritech hardware
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Compact, specialised processing equipment (e.g., small‑scale freeze‑drying accessories, grading/handling innovations, or low‑waste systems) that slot into existing primary sectors but solve a very specific problem for offshore buyers aligns with NZ’s strength in agritech and niche manufacturing.
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High‑value ingredients and formulations
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Using NZ primary products or by‑products to create concentrated, shelf‑stable ingredients or functional formulations (nutraceuticals, natural colorants, essential oils, high‑end food inclusions) aimed at B2B buyers in Asia, the US, and EU fits the “riches in niches” thesis.
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Specialised technical services or IP
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Design, testing, and prototyping services or licensable IP packages tied to your materials/mechanical expertise fall into the “weightless” export category and bypass freight constraints.'
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Find your niche and own it, concentrate utterly on exceptional quality and look for funding from non-traditional sources.
That last is hard as the tax advantages of property are an investment money magnet that hinders our ability to develop our economy.
And a good measure is productivity per head.
Refreshing thanks. And a stark contrast to the number of comments re Jerome Powell being too old at 72, advocating he walk away and spend twilight years fishing. Ignoring personal choices for shaping his purpose in life.
I perceive the recent decades definition of success was/is to pursue an idea/innovation to a scale whereby it can be sold to offshore corporate interests and moved offshore. Is xero now a NZ company or an Australian company? Glaxo? ENZA? Watties?
Then there is the fundamental, personal, question of why does one work? Maybe the policy settings repress productivity.
With the combination of great innovative new entities then sold offshore, NZ remains a cheap (a relative term) labour provider, missing out on the higher revenue from keeping those successful entities within NZ's borders.
But how to incentivise retention over personal life choices of those innovators personal definitions of why they work?
Yes I found it to be an intriguing article too. I wonder if it hints at opportunities around supporting smaller companies into existence, building a solid base in a small market along the lines identified? Good quality products at reasonable prices offer export options as well as employment opportunities. Lifestyles can be supported without too much greed if approached sensibly.
Many here build companies, sell them to overseas conglomerates where the profits are offshored, then they move onto the next company. Another enditement of the rentier economy.
One of the joys of working with senior entrepreneurs - those over 50 - is that they've figured out what's essential and what isn't, and they focus on execution and getting it right, not talking a good game and the next social media post.
If you really want to scale you have to leave New Zealand - which has the population of one decent sized international city - becasue we're so tight on capital, talent, infrastructure, population and mindset.
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