I retired from personal blogging in July 2008 but you can find me over at blog.xero.com
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Fantastic week in Auckland for Beachheads. More on that later. One of the many gems of the week was a point from Michael Davies that was so obvious once he said it I can’t believe I hadn’t thought of it before.
If you are a company based in Massachusetts, you have a large local market. To expand into another large market you can go a bit further down the road into Connecticut, then New York etc. You have near linear access to new large markets.
From New Zealand, once you have saturated the local market, you then have a massive transformational change to address another market. You may need to introduce capital, add new staff, learn foreign rules – the list goes on.
For us to take almost our first step of expansion, to enter only our second market – we bet our businesses.
I’m calling this – the Valley of Death.
The Valley of Death is this massive gap we have to cross. From a New Zealand perspective we just know that exporting ICT is hard. From Michaels Boston based perspective I see now that this step is not the same as a US based company and perhaps this explains, in part, some of the characteristics of our industry and the challenges we face.
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Absolutely agree Rod.
We have ecom clients in Madison, WI who are successful local businessmen - Madison, WI being a little like being in Wellington or Christchurch. However, they define “successful” as $100m turnover - quite different to NZ. The difference is that they have a approx 300m population accessible by $10 overnight delivery from their Madison, WI warehouse (with an option on at least 3 very capable logistics companies)! What is the population available for $10 overnight delivery from Wellington?!?
This is a fundamentally different paradigm that exists between USA “domestic” and NZ “export” - existing not only in B2C and B2B multi-channel marketing, but in more sophisticated internet and other markets.
I have not thought of “The Valley of Death” description - but feel that this is apt. I will use this - credits to Michael and you.
Rod, I think you’ve hit the proverbial nail on the head.
Whether we are crossing chasms or leaping across Death Valley, it is bloody hard work connecting with the real world and scaling up from NZ - which is why programmes like Beachhead are so important. We need more of that if we are to break out of our dependence on commodity trade.
It’s also why NZ companies selling knowledge need access to decent bandwidth across the Pacific. Call it our virtual inter-state highway.
How would that chart look if a company in a market with a big population but lower costs than NZ and USA was added? Say a business in India and/or China?
Very nice graph. I think I put it to use very soon.
I view this principally as a mental rather and physical issue. Contextually NZ businesses sit far from the rest of the world and therefore they frame everything in terms of distance. Distance begets an attitude of scarcity -”I don’t have enough becuase I am a long way from everything…” … “I can’t raise capital because I am so far from it…”
Because I sit in San Jose, CA, I frame everything in terms of proximity. I am close to capital and markets. I have lots becuase I am close to everything.
How do you change the mindset? First, act like you work and live in Silicon Valley. Switch to the timezone. Work the hours. Network via Skype, Twitter and other tools. Plan a week a month there. You don’t have to drink the crap coffee though.
Second, dream your enterprise as it was going to scale like a US business.
Third, if you think there is a Valley of Death it is likley you will fall into it. Imagine there is a highway instead and go ride it. This is critical. Most NZ businesses plan very conservatively in the hope of mitigating risk and failure. They do so so severely that they constrain growth and expansion, choking the company to death.
It is amazing how quickly all the physical and market issues start to vaporize when you shift your context, aspirations and frame of reference.
And, you need to turn-up. Some say that a great part of success is in turning-up. Most NZ businesses never break-in to the US market becuase they don’t turn-up.
Bang on, Andy
Thanks Andy, great comment
I’m new to this but wanted to add my few cents worth…
I’m really interested to see the recent rise in use of the ‘Valley of Death’ metaphor in NZ business, one that was rife in science policy in the late 1990s. It was so common at NZBio’s meeting a week or so ago that I wondered if it was now required lingo for all biotech entrepreneurs presenting at the conference (and not just in front of the Minister)!
However, what was fascinating was the different meanings implied in its use. Some were using it as Rod has proposed, others, for example, were talking about the gap in funding for clinical trials, and there were more nuances as well. I can feel another research project coming on… (sorry I am an academic…)
I have to agree too with Andy that there are implications in the use of this discourse - ie not whether it actually exists in whatever form, but that believing/buying into it will constrain ambition/action - another kiwi glass half empty approach.
I agree that the discourse/mindset, within which an organisation frames its strategy, does make a difference. But I also think that we should not downplay the challenges of small size and geographical isolation. If we truly aspire to increasingly become an exporter of digital knowledge, then we urgently need to sort out some fundamental structural issues like bandwidth and network peering.
As a nation I think we lack a collective sense of self esteem. Outside of rugby and the haka, we don’t quite seem to know what we stand for - it’s cringeful at times. I’m fascinated by the biographical accounts of people like Peter Jackson, Burt Munro, Alan MacDiarmid and Bruce McLaren. All examples of hero innovators from our recent history that (in some way or another) crossed the Valley of Death and went on to build dominant positions in a niche global market, based on their creative talents. We don’t give such people nearly enough public exposure.
There’s a funny TV ad for theft insurance running here at present that implicates “foreigners” who swipe all our Kiwi icons eg. Dame Kiri, Split Enz, Coutts and Butterworth etc. It sums up our current inwards looking mindset. In fact these iconic characters saw opportunities to go global with their talent and were cocky enough to do so.
Yes, mindset is key to this and so is the investment environment. Here in NZ, few investors have a global market perspective. Further, when they do have international experience, it was rarely acquired through consciously developing and selling global products. So, getting funded locally remains challenging if you are trying to develop global products - it scares investors because there are so few examples of success and they lack the skills to evalute the risks.
Peter Maire noted recently (at Opportunity UK) that it is not about “exporting” but about creating global products. To create a global product, you still have to know your markets - and that is why the UK is naturally so attractive. We are more apt to learn quickly about the potential performance of our product/service in the UK market. They like us when we arrive and we can explain ourselves more easily to them. So, we can “live” in that market more easily and, at least in theory, be more successful.
However, focusing on the US market is easier than you’d think (I have a bias as an American-Kiwi). I will second Andy Lark’s commment here: “It is amazing how quickly all the physical and market issues start to vaporize when you shift your context, aspirations and frame of reference.” Kiwis have some deep and mixed feelings about the US and often only understand what they have learned secondhand. There is little sense anyone trying to enter the US market, or any other market, if they do have an authentic understanding of its peoples, cultures, and the market forces that shape the entry of their product/service. Whether it be the UK or the US, that is always hard to do. It helps to have a beginner’s mind when you approach any new market - but none moreso than the US.
Setting up in Australia…
Mainfreight today announced that they have conditionally sold Pan Orient Project Logistics business and its 75% interest in LEP (New Zealand and Australia) to global logistics company Agility Group for A$83 million. It is the last of the non core Owens…
hey Rod
I have lived in Mbne for nearly nine years and have interestingly watched two extremely costly failed forays in to the Australian market, AAPT by TCNZ and Ansett by Air NZ (at the time managed Ansett for Telstra).
The key thought that comes to mind is “when in Rome……………..”
Both of these ventures failed because research was not completed thoroughly. The inane desire to improve shareholder wealth overrode the basic principle of finding out exactly what it is that you do not know.
It could have been an afterthought to place “our own people on the ground” as a way of ensuring the evil Aussies would not take us to the cleaners. ohh no - too late, the horse had bolted.
From a technology perspective ask Mark Botherway and the Gen-i crew just what the pitfalls are here in Oz when trying to break in to the market.
The best piece of advice I could offer would be employ only local people with exp in the industry, and pay huge. NB Most likely those quality people now happen to be NZer’s who have been here for some time (Geraldine McBride, Kerry Crompton…………..to name a couple)
yours, Mark
[...] think our lack of success is partly be due my Valley of Death point. To reach significant markets we need to be [...]