New Zealand is a nation of small businesses.

Small businesses – defined here as those employing 19 people or fewer – encompass 97 percent of all our enterprises; with 89 percent employing five or fewer people, and 68 percent having no employees at all.

And they are a growing group – between 2001 and 2007, the total number of people employed in our small businesses increased by 18 percent.

But small doesn’t mean downbeat – they’re businesses with a positive attitude. A recent survey, undertaken for business software firm MYOB, showed most small and medium-sized businesses to be more positive than previously about their prospects for the coming year. The survey, of 1,000 firms, showed 29 percent were gaining more work or sales than six months ago, and 40 percent to have about the same amount.

Around 55 percent of businesses expect the economy to recover in the next year, compared with 43 percent in a July survey. Perhaps this simply highlights just how tough the past year has been.

Keeping the wheels on
But while these small companies tend to be quite feisty, their systems and accounts can be in disarray. Accredo, which provides business software to this end of the market, knows all about stepping in just as the wheels are about to fall off.

Director Paul Heinz says the term small business covers a fairly wide swathe of businesses, which can be at different points in the business lifecycle.

“Business founders tend to ignore the ‘it can’t be done’ factor and are a bit like commandos in that they somehow seem to do the work of 10 people, usually burning the candle at both ends in the process,” he says.

“These businesses are commonly under-capitalised and, as a result, business owners often focus on getting software that is cheap and will merely handle their compliance needs to keep them out of Inland Revenue’s bad books.

“GST and income tax issues are the main focus, as well as providing something their accountant can work with.”

However, he says that once a business has been around for a few years, things often begin to change, as the business grows.

“The business owner has likely taken on staff. They are the infantry who hold, and push out through, the beachheads the commando owners have established in the marketplace.

The problem is that growing pains begin to set in, as the business gets too complex for the owner to hold everything in their head.

“Business owners at this stage want a lot less of one thing – surprises – and a lot more of another thing – control.”

At this point, Heinz says, strong analysis and reporting become key factors, as do operational concerns around handling resources wisely, such as stock. Automating key business functions, to avoid human error and to ensure consistent service delivery to customers, also comes to the fore.

“In my experience, business owners generally only consider upgrading business software when the business pain gets so bad that they’re willing to face the hassle of switching systems. Changing arms in the middle of a battle is a nerve-wracking process and it seldom happens at the ideal quiet time in the business, since it’s usually at the busy times when the wheels start to come off and make the pain unavoidable.

“Of course, the switching costs involved in business disruption due to changing systems dwarf the savings made in purchasing a cheaper product that the business was always going to grow out of – as opposed to one where the business could start small and grow with it. But that’s a realisation often made in hindsight.”

Heinz says, however, that business owners are beginning to emerge who expect more from their software, and who have decided they are serious about planning ahead.

Accredo began life 30 years ago as a small business software package called Prosax. As the company broadened its horizons, the product changed name to Accredo.

The company took on the Accredo name itself about five years ago.

Heinz says the company’s entry-point software, Mercury, costs around $2,200 plus GST, out of the box.

However, Accredo also has customers with up to 60 users.

“Some are in Australia, but our main focus is on New Zealand. We have around 1,000 customers and 100 resellers.

We also do a lot of customisation.”

The elephant in the room
There are as many as 130 software packages or suites available to small businesses in New Zealand – but one is a very big one.

The market is dominated, in numbers, by MYOB, whose general manager, Julian Smith, claims 150,000 customers, ranging from sole traders to large organisations.

“Overall, we have 80 percent of the market, and we also have 80 percent of the accountants,” he says.

MYOB has a variety of products, ranging from desktop solutions to online services.

“We segment the market into four sectors: micro business with up to four staff; small- to medium-sized enterprises – five to 20 staff; enterprises – more than 20 staff; and a specific focus on accountants.

There’s also the online market.

“SaaS (Software as a Service) appeals to part of the business community, and we have 20,000 customers online in New Zealand,” he says.

MYOB was formed 20 years ago and has been in New Zealand for 11 years.

Smith says pricing ranges from $500-$1,000 up to $20,000 for an average installation.

“All our solutions can be customised through to providing bespoke solutions.”

The vendor has 900 certified approved partners, as well as a retail channel.

Cashflow insomnia
Smith says most start-ups focus on getting set up, invoicing and collections.

“What keeps their owners awake at night is cashflow, attracting and retaining clients, and managing debt.

Compliance is never top of mind. That’s where we can make it easier for them.”

He says New Zealand businesses are expected to be very good at multi-tasking, but that around 60 percent don’t have a website. “Focusing on enabling online business will be the biggest transition for small- to medium-sized enterprises over the next two to five years.”

He notes that in the current economic client, accountants “are busier than they’ve ever been”.

MYOB breaks down small businesses into three types.

Smith says 50 percent of start-ups are lifestyle seekers who want more control and flexibility in their careers.

Around 35 percent are entrepreneurs who are looking for an outcome and are very driven to become rich. The third type is the passionate professional. These people love their vocation; they constitute the remaining 15 percent.

“It’s very similar in Australia, with slightly more of a focus on the entrepreneurs,” he says.

No small business ERP
Action Step is a suite of small business applications delivered as Software as a Service (SaaS).

Chief executive Ted Jordan is a South African who moved to New Zealand. He developed the Action Step product eight years ago. Jordan first worked in Europe; then spent 15 years in the US, which included stints working with Salomon Brothers on Wall Street; with a real-time robotics company in Florida; and working for the US Federal Government designing applications for emergency management. Latterly, he was the chief operating officer for a dot com company developing online procurement software for local government.

“We moved to New Zealand for lifestyle reasons,” he says.

Once here, he says he “found a lack of enterprise resource planning capability in the small business space.

“Most other business software comprised silos of data and wasn’t designed to be in line with what the business wanted to achieve. I designed Action Step to be workflowbased, with the internet as the enabler. For example, marketing flows into sales, then accounts, then payroll.

“This drives out a lot of the costs.

“Small businesses can spend $15,000-$20,000 a year supporting their software. We charge $60 per user, per month.”

Action Step has also developed packages for vertical markets such as the legal profession.

Jordan says some government agencies are also using it, so there is a degree of customisation.

“With the average small business, we can normally get them up and running for $1,000 to $2,000.”

The company has around 400 customers in New Zealand. It also has customers in Sydney and Brisbane, and recently signed up a large distributor in the UK.

Jordan says New Zealand is the ideal breeding ground for this kind of software.

“The essential problem is that people end up buying themselves a job rather than a business. They need to put in sustainable systems.

“Our focus is on providing all-in-one capability, with a map of the business. Once you’ve got the intellectual property in the business, you can focus on growth.

“The software eliminates the bottleneck where only the business owner knows what’s going on.”

He says there are a “huge variety” of customer services in New Zealand, with very little consistency compared with mature economies such as the US.

“Small businesses here rely too much on the personality of the owner.”

Compliance pushes change
Changing compliance requirements are a sell signal to Action Step, he says. “I’ve designed the entire system around change. It won’t allow you to proceed until you deal with change.”

Action Step doesn’t mandate the use of any particular hardware but requires a reasonably modern browser.

“We’ve also got a strong focus on mobility,” Jordan says.

Currently, he employs 10 staff. “The market is very hot.

I travel back to the US frequently.”

Action Step does its hosting using Linux. Its primary datacentre is at ICONZ, with failover at Orcon and thirdlevel back-up in London. The UK site makes a good base for the company to move into the US market, says Jordan.

Market ‘small’ at $50 billion
Xero founder Rod Drury says the small business market in New Zealand is huge – around $50 billion annually.

“His question was: ‘how do you raise productivity across the small business sector?’ “Our big epiphany was that once you move the data into a central place, many of the costs around advisors such as accountants go. Up to 35 percent of an accountant’s fee can be just getting the data.

“Accountants train their clients to deliver data once a year, but now you can get data any time, and you can use advisors at any time to help you out.”

Xero listed on the stock exchange two and a half years ago, with 100 customers. It now has more than 12,000, spread across 50 countries.

“Originally, we developed a really good tool for small businesses. Now, we also have a set of tools for accountants.

Research shows that they are a real influence over the business.

We’ve become one of the recommended solutions for accountants. It feels like the snowball is starting to roll.”

Drury says Xero has “just really started”.

“We’ve caught up with most of the features. We can now connect small businesses to data sources they didn’t have in-house before, such as batch payment uploads.

We’re also working with the IRD and Companies Office.

“It’s really easy for us to deal with change of compliance
requirements.”

Designed for us
Velocity Global works with companies a little higher up the SME food-chain. The solutions on offer are defined as ‘Tier 2’ and based on the Australian-developed Pronto software.

The company was known as SDS up until 1998, when it was selling IBM AS/400 RPG business software.

Chief executive Chris Morris says the market moved more to open systems early in the 1990s. “That’s when we got involved with Pronto, which was initially only Unixbased.

Today, we have 65 customers in New Zealand, ranging from three-user companies up to 600 users. Our target band is 10-plus users.

He says Pronto competes well on the basis of scalability and cost-effectiveness. “It’s better suited to Australian and New Zealand customers than the big products from the multinationals.”

The entry point for Pronto, which is a modular suite, is $100,000.

“We’ve got quite a range of customers, typically in manufacturing, wholesale and distribution, and in facilities management,” Morris says.

Pronto runs on the full Windows environment.

Velocity Global picked up an agency for SAP’s Business One product two and a half years ago. It is priced at around $30,000 for a three-user system and up to $125,000 for 25 users. Currently, Velocity has five customers using Business One.With SAP, Morris says the company has picked up a number of customers moving up from smaller systems such as MYOB.

“We’ve also picked up a few who have moved to us because they were using software that is no longer supported.”

He describes Pronto as being as sophisticated as many of the Tier 1 products but cheaper. “Generally, our install time is around two to four months, depending on complexity.”

Morris says not many of the businesses he deals with, other than start-ups, don’t have an integrated system these days.

Check out the Enterprise Resource Planning Pavilion for exhibits, case studies, white papers and downloads from a range of New Zealand’s leading BI vendors



9/12/22_ex_m_h

By Randal Jackson

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