I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
I know how Peter Maire must feel.
Like Juha I heard recently that the AfterMail Wellington Office is scaling down with development possibly moving to Wisconsin.
In Fry Up it’s characterized as a US company coming in and closing it down. It’s an unfortunate fact that often when the founders leave that there will be a few speed wobbles, and after the honeymoon, any business needs to look at its operations.
It’s always difficult to manage remotely and in this case with Quest’s technical messaging specialists in Madison I believe they have decided to consolidate. We always had difficulty recruiting Messaging experts in New Zealand. They have an excellent team there in Madison and from a Quest point of view it makes sense.
Quest are a fantastic company and have provided great opportunities and experience for our staff. The reality is that we live in a global market and over time the New Zealand operation probably did not stack up. Attracting technical staff, communications, time zone, currency are all factors that make it tough. I tell you, the travel, frequent early and late calls - are hard.
There are many positive outcomes from a sale. Obviously the capital injection back into the local economy. A Trade Sale is a big export. In many cases a substantial portion of the sale proceeds are rolled forward into further investment. But the international experience gained by staff is even more valuable. I probably learned more after the deal than I did building a small company. We sort of knew what we needed to do to build a small software business up to a Trade Sale but experiencing how a world class company operates a global sales model was all new and just a fantastic experience.
Companies come and go, it’s the people that carry the knowledge and experience. The Quest experience will benefit our local industry for many years.
Further, Trade Sales are a sign of the health of our local software industry. Companies in our industry should be distributed in something like the diagram on the left below. However I suspect our industry is more like the diagram on the right.
We aren’t seeing enough moving through the pipe. Where are the next Trade Sales coming from? We should be doing 10 a year!
There are some sectors of our Industry that suit a Trade Sale. In the Enterprise software space it is very difficult to grow a sustainable business from a rock in the South Pacific. Say you do nail a big deal with Luftansa. We just don’t have 30 consultants to parachute in. It is hard for us to build global sales team from New Zealand. In the Enterprise software space acquisition is therefore often the natural outcome of success and a great result for our tech companies. Many public companies rely on R&D by acquistion. It’s the model.
I’m excited that the SaaS space is an area where we may be able to grow long term businesses that stay New Zealand owned (and we can keep living on our very inhabitable rock).
blog
Re :- “it’s the people that carry the knowledge and experience”
This is the bit that many of these companies on the acquisition trail seem to forget. It seems it is the people that are the “costs they cut. Yet in many cases the products/IP they are purchasing are not the secret to what made the business successful in the first place.
Having also sold my business in the past year (to MYOB)I have had to sit back and watch good people be let go or encouraged not to stay. While we had good products, they were only one part of what made my business successful and therefore an attractive acquisition. At the end of the day it was the people, their knowledge and the culture of the company that kept the customers loyal. How long they will stay loyal is anyones guess.
I guess if you operate a “reduce the competition” model or an “R&D by acquistion” model, as I think was the case with the purchase of my business, the people are less important.
BTW - Good luck with Xero.
I was wondering about the people too, especially those who join a start-up that gets bought up soon after it commences operations. It doesn’t necessarily follow that acquisitions mean layoffs and closures, but it happens often enough. Might be a bit off-putting that for staffers.
I believe they have been looked after. Software developers in Wellington don’t have difficulty gaining employment.
Post the sale I’ve, so far, created 35 new jobs that did not exist a year ago.
“# Web 2.0:
For every 1.6 billion dollar buy out, there are 1.6 million start-ups in garages digging their own websites.”
http://www.destraynor.com/serendipity/index.php?/archives/102-Programming-Theorems.html
Most of the negative comment I’ve seen about post-sale closedowns is naive or misinformed. Closedowns happen whoever owns a business, and for all sorts of reasons. I’ve never personally seen an acqusition where the intent was to shut it down (and I’ve been involved as a seller, a buyer or an adviser in quite a few). On the contrary, the usual story after acquiring is further investmment to build it up. But stuff happens and plans change. The acquisition isn’t the reason.
Of course when a founder moves on, the leadership and modus operandi changes, and perhaps the business fails - but failures happen in businesses that haven’t had a change of leader too. A business that has outgrown its founder or that the founder decides to sell should not be dependent on personal idiosyncracies. And if the founder’s style is so critical to the success, and after selling, he or she resents the fact that someone else has a different style, well why did they sell it?
That isn’t to say that you can’t see where the new owner has made mistakes. I know that I wasn’t too impressed with the way Andrew managed Deltec (or should I say some support functions - the operational guys were great - and they’ve made a lot of improvements since then). But it wasn’t from any malign motive. They invested heavily post-sale - but the tech wreck was deeper and longer than anyone expected and things had to change. Blaming Andrew for the subsequent NZ shutdown would be daft.
Building businesses is fun, we pay people well, we often give them a share in the upside when it finally arrives, and they go on to bigger and better things afterwards, while the big front-loading of profits as translated into the sale price is put to good use. All of the sellers I know are big investors in NZ - and have created even more jobs and even better businesses.
Don’t get me wrong - I am big on the need for NZ ownership of global businesses with wealth flowing back here. But I don’t expect owners to forfeit value simply to stay Kiwi (and small). How would you feel is someone told you not to get the best price you could for your house, or worse, not to sell it at all? That’s just daft. We need more global scale businesses, for which we need a good swag of international mid-scale busineeses, and a swathe of small businesses. And those businesses will get bought and sold, and some will fail and some will succeed (whoever owns them). It’s called business.
Quest didn’t shut down the New Zealand Dev team because of consolidation. There were several situations over the past 9 months where it was made evident that the situation wasn’t working, being on the UK side of the company meant I saw what was happening.
The New Zealand development team would have been retained and that was the first preference.
Both sides of this article are great, I’m a big fan of the re-injection of capital gained from Trade Sales back into the economy by way of funding new businesses, and it makes a big difference.
And being able to hold a high value software Saas asset owned in NZ is a very attractive proposition for the NZ, made even more real by the lower dev costs of making web apps and people like Rod pushing new ideas, and cash confidence into people to make it happen.
Ironically enough I had someone who works for Lufthansa staying over last night (school-era friend of my partner). In 2003 he started an internal business unit of Lufthansa building A/V systems for planes. They now employ 50-something people, have revenues around $40M/year and are now starting to win significant business outside of the airline.
Surely this shows the success of the Intrapreneurship model that’s almost totally unheard of in NZ? Why aren’t Telecom building little internal startups under the “succeed or fail, but do it quickly” model that, with access to Telecom’s cash and market clout, could lead to some very considerable successes?
I think anyone wandering why the pipeline of startups is not wider at the top also needs to look at the value proposition being presented to the best and brightest: Give up your $100k job to start a company! It’ll be hard work, you probably won’t get funded and it will almost certainly fail. Again, the Intrapreneur model meant that my friend stayed in his existing paid employment, could continue to pay his mortgage, and created huge amounts of value for his investors in very little time.
Nokia have built a $10bln business from the frozen tundra.
I think there is a bit of a chicken and egg situation in NZ IT. There is a shortage of good people *and* good jobs - hence IT companies relocate operations because they can’t recruit and New Zealanders go overseas because they can’t get decent jobs. Part of this is the fragmented nature of IT skills - a lot of people have point skills (like SAP) that are much better rewarded overseas. Plus a lot of NZ companies (being owner-managed) take a very short term view - e.g. not giving staff laptops, training, salary rises because they see the money coming out of their personal wallets.
Re “Nokia have built a $10bln business from the frozen tundra”:
It’s a great headline, but hardly a formula for how to do things here. Nokia was an long-established large conglomerate that turned itself into a giant specialist. It was a huge gamble, but it worked. It might not have. It also helps having large operating cash flows from your old businesses to fund the transformation, 300m people within 1500kms inside a free-trade zone, and a set of governments who decide to adopt a universal comms standard with the business going to local players.
The generalisations about NZ owners are unbalanced. In any industry there are bit-players who worry about the short term, and NZ is no better or worse. There are also many owners working their wotsits off to build great businesses, whose people love working there. Our challenges (as identified by the ICT Taskforce and other studies) are the perennial ones of lack of managerial/leadership skills for building scale businesses combined with the need to have a successsful international business model very, very early in the lives of our growth companies. There are several initiatives underway to address that (e.g. The Icehouse http://www.theicehouse.co.nz) but it’s early days yet.
Last but not least, it’s bloody hard to run any business (large or small), let alone do it from a rock in the middle of nowhere. So let’s be more encouraging and stop knocking the brave ones who at least give it a go. If you can do better, go ahead - say goodbye to your family for 10 years, sell your house and bet the proceeds on your ideas and abilities, give it a go. I’ll be cheering you on, not knocking you down.
PS Sorry, Rod - I’m hogging your blog again.
Oh I’m not knocking anyone - I’ve worked for and managed startups. I’m just pointing out that in a global market there will be a tendency for people to go where they are best rewarded and supported - and from my own observations, a lot of NZ companies aren’t giving people that (maybe it’s a perception thing?)
My last firm was based in a major financial centre and by necessity we benchmarked ourselves against the banks, both in terms of what we were offering people and in terms of expectations.
I guess there are two models for business success in NZ - the TradeMe approach of being the 400lb gorilla here and the Navman one of treating NZ as a development centre and concentrating on large markets.
You’re right on that, Rich. Victoria U. ran a study a few years ago on what worked in successful growth companies. One of the main conclusions was - aim regional (with a wider offer, especially services) or aim global (with a super-tight focus). It was black or white - one or the other, not both.