Good article about small business governance

A “desperate lack of external advice” is leaving New Zealand businesses vulnerable and creating a higher potential for failure if they attempt to go offshore, says business incubator The Icehouse.

The comments follow early results from its new tool designed to assess how firms are doing on an range of measures including governance, market, leadership and processes.

Business owners fill out the Businesses of International Quality (BIQ) Barometer survey and are given a traffic light score in each of the categories.

Of the 346 companies to complete the survey so far, nearly two-thirds received a red light for governance and the strength of the advice they are receiving. The companies ranged in size, with an average of $8.6 million in annual revenue, 38 staff, and a third of their revenue coming from exports.

Liz Wotherspoon, director of growth businesses at The Icehouse, is not surprised at the result.

All too often business owners will put together a “patsy” board that includes their lawyer, their accountant and maybe their bank manager.

“You’re actually better to have no

board at all rather than… that trifecta, because you need independence of thought,” she says.

Some have gone down the route of an advisory board, and that “gives them a chance to get engaged before they get married”.

But for many business founders there is a fear of being exposed, like the homeowner who cleans the house before the cleaner comes, she says.

“The truth is the best time to bring them in is when you genuinely need some help.”

The aim of the BIQ Barometer is to help business owners identify their weaknesses and take time to think about how to address them.

“Many of the weaknesses we’re seeing in the BIQ are all things that are really important to businesses as they internationalise,” Wotherspoon says. “Maybe you can get away with it in a domestic business, but as soon as you go to internationalise, if you don’t understand more about these sub-components… you’re probably more likely to come unstuck.”

Another area where Kiwi businesses are performing badly is in the ability to segment a market – 58 per cent of the firms surveyed scored a red light in this category.

Companies seem to have a sense of what their competitive advantage is, but they struggle to identify what the core competencies are that underpin it, Wotherspoon says.

“Core competency means something that’s difficult to replicate and can be applied across a number of different products, or services or offerings.

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“If they can’t articulate core competency, then any chance of sustainable competitive advantage or even a transient competitive advantage, being able to repeat that… is probably compromised.”

International markets are significantly more complex and cut-throat, and competitive advantage will be lost at a faster rate than locally if it’s not continually refreshed, The Icehouse concludes.

Miranda Smith, founder of nationwide home help and care service Miranda Smith Homecare, was not surprised

when her BIQ result showed up a governance crisis.

The firm hasn’t had a board since she bought out her business partner, who was a director along with his daughter. “I need to start all over again. I knew that but I kept putting it off,” she says.

The business is expanding quickly, and it became clear it now needs people with different expertise, she says.

“I was, ‘we’re growing, I’ve had a board before, I know what I’m doing’. You can actually muddle along, if your businesss is doing well.

“But it can change really quickly… For me it was definitely a bit of a wakeup call.”

The survey also showed that while she had shared and implemented the company’s vision with her managers and co-ordinators, this had not filtered down to staff at the coalface. She is currently on a roadshow talking to carers around the country.

When OutSource IT managing director Philip Adamson did the BIQ, he found that the company had the wrong sort of governance.

“For us it showed that just because you’ve got a board it doesn’t mean it’s the right board, which was quite fascinating.”

The outsourced IT support company’s board were “steer a safe ship” types, he says.

“The people that we’d chosen to help back in 2008, 2009 basically were bean counters who helped us focus on what we needed to do to get through tight times. And when we wanted to turn around and start growing and stuff they were just nowhere [near] enough of risk takers.”

Since its BIQ result the company has got rid of one external director and set up a less formal but more intense advisory board which includes senior people from its suppliers and clients.  “We’ve certainly seen a change in focus [in] ourselves, in that the push is more around growth, particularly around our cloud business.”

Adamson also changed the structure of his leadership team following the result, hiring a new client services manager who promptly entered the firm into the Westpac Business Awards. The firm is a finalist in the excellence in business leadership category.

“It’s a reinforcement that I have got the leadership side of the business… working quite well.

“I’ve got more support than I thought I had with the team.”

– Unlimited