3 Lessons from the Kiwi Tech Revolution

Kiwi technology startups have reached a tipping point. In everything from rockets to Saas software, the tech tinkerers that used to hide away in their garden sheds are striding out proudly, building big companies, and taking their place on the world stage.

I recently returned from a research trip to New Zealand. I was fortunate to be able to meet with CEOs, founders, CTOs, angel investing groups, and major private investors. Those meetings demonstrated the revolution that is happening in kiwi technology businesses.

From Sheds to Startups

New Zealand has a proud history of resourcefulness and ingenuity. The country sits in a remote corner of the South Pacific. If something wasn’t working, generations of kiwis took it upon themselves to fix it. If you did not grow up in New Zealand it is entirely possible that you are completely unaware of this. But for those of us who did, New Zealand’s list of innovations, from splitting the atom, to the jet boat, to the electric fence, has been hammered in to our brains since before we were old enough to bungy.

New Zealand might have been a nation of backyard tinkerers. But most inventions never became businesses. There was a culture of innovation and invention, but little commercialisation.  

A few years ago that began to change. TradeMe’s sale in 2006 was a seminal moment (for Australians, imagine one business that combines Gumtree, REA Group, Carsales, and Seek all in to one). A business started in 1999 was sold for $NZ750 million to Fairfax just seven years later. Kiwi entrepreneurs began to realise that they could build a big technology business too.

3 Key Lessons From Xero’s Big Win

If Trademe unlocked the door to New Zealand’s tech success, Xero knocked it off its hinges. The cloud accounting software company’s founder, Rod Drury, was a technology veteran. Before starting Xero he had already created and sold two software companies (Glazier Systems: $7.5 million, Aftermail: US$45 million). This time was going to be different. This time he wasn’t going to sell, he was going to take on the giants at their own game.

Today, thirteen years after founding, Xero has over one million small business customers, and a market cap of over $6 billion.

Xero had three major impacts on the NZ tech scene. First, it demonstrated that to build a massive global company required a new skill-set: sales and marketing. Second, it raised the bar. Kiwi entrepreneurs now aimed to build global scale businesses themselves. Third, the wealth created for early investors, and the skills developed along the way, meant that there was a new group of sophisticated technology investors. 

Lesson #1: The Power of Story

“Our only option really was to tell a big story, and explode early from day one” — Rod Drury

Xero developed some pretty great cloud accounting software. But Xero’s biggest innovation wasn’t their tech, it was their sales and marketing strategy. Xero turned accountants in to raving fans.

Accountants could see how much easier Xero made their lives, and so they pushed their small business customers to sign up. Xero brought them in on the deal, with accountants effectively earning a cut of the monthly Xero subscription. It was a masterstroke. Xero invested heavily in the relationship, developing new features to make sure that accountants remained the company’s biggest cheerleaders.

Pushpay, a payments and engagement software company for the faith sector is another kiwi success story that understood the power of sales. Pushpay’s technology was highly innovative, but it was their sales team that really drove their success over the past few years. In just eight years the company has gone from an idea, to processing over US$4 billion of donations annually, and with 55 of the 100 largest U.S. churches as customers. That was only possible because the company developed a sophisticated sales and marketing process.

New Zealand’s culture of humility means that selling is an underdeveloped skill set for many businesses. But companies miss this lesson at their peril.

One small publicly listed software company that I met with had been close to running out of cash after multiple failed sales strategies. The original founder had wasted millions on ineffective international sales teams that did little more than book meetings. A new CEO has stepped in and is currently rebuilding the business, and the marketing process, on a surer footing. I am watching with interest.

Lesson #2: Think Global, Scale Global

It used to be that kiwi tech startups would only think about international sales once they had exhausted their local opportunities. Today the best New Zealand tech companies are global from inception.

But thinking global is only half the story. Companies can’t be everywhere, so they must pick a few key markets, and ensure they scale up aggressively there before then expanding further. That means delivering on customer needs, and building depth in every geography you enter.

Xero serves customers in dozens of countries, but focuses on just three major markets: Australasia, the UK, and the U.S. Pushpay similarly realised early on that there isn’t enough large churches in New Zealand and Australia to reach their ambitions. The company set up their headquarters in Seattle, and built an efficient U.S. sales machine that employs hundreds.

When companies lack a scalable sales and marketing process, thinking too big can actually be a trap.

I met with the very smart founders of kiwi tech startup StretchSense. The company develops sensors that can be stitched into clothing to measure body movement – with fascinating applications for everything from precise Virtual Reality gloves, to biomechanical measurement. Early in its life StretchSense had won a major contract with a Japanese retail giant to develop a suit which gave customers exact body measurements to check if products bought online would fit them.

The agreement would have valued the company at over $100 million. But the demand was vastly greater than the small startup was able to deliver. The deal eventually fell through, and StretchSense had to lay off 140 staff. The company pivoted quickly and has been able to rebuild with a new business model, but the near-death experience highlights the lesson: think global, scale global.

Lesson #3: Sign up Sophisticated Tech Investors

Early in its journey Xero was able to secure investment from billionaire, and Silicon Valley legend, Peter Thiel. That stamp of approval put Xero on the map and attracted both top talent and further capital. Rocket Lab followed a similar strategy, heading straight to Silicon Valley to fund the business, and attracting one of the world’s leading venture capital firms, Khosla Ventures.

For a long time New Zealand struggled with a lack of experienced technology investors. But today’s tech success is creating a virtuous cycle. The wealth created by early investors in Trademe, Xero, Pushpay, and other startups, and the skills developed on the ride, mean that there is now a growing pool of skilled and wealthy technology investors.

As these investors gain experience from multiple technology investments, the companies they invest in are able to benefit from this accumulated knowledge. Taking one example, the Huljich family have had a string of successful technology investments from pre-IPO all the way through to multi-million dollar exits. They have invested in several Saas software successes, from Diligent, to Pushpay, and recently Valocity. Other early investors in Pushpay such as the Bhatnagar family have likewise gone on to fund further tech startups. These sophisticated technology investors thereby ensure that lessons are passed on from one generation of startups to the next.

Conclusion

The Kiwi tech ecosystem has reached an inflection point. Pioneers like Xero have pointed the way, and a new generation of startups are striking forth on to the world stage. Kiwi tech companies are taking on the world by understanding the power of story, the need to scale globally, and the value of attracting sophisticated technology investors. The revolution is fun to watch, and with most of the world still to pay attention, a lucrative place to find new investment opportunities.

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5 thoughts on “3 Lessons from the Kiwi Tech Revolution

      • Hi Matt
        Will this email be posted on your website or is it private?
        I would like to engage with you without being published. If it is not published I can email my phone number if you are prepared chat. Thanks Gary

  1. Hi Matt,

    I really have enjoyed reading your articles on here since finding you through the Three Wise Monkeys podcast. I was disappointed to find out that you three lads are finishing up (for now) as I have looked forward to listening every week.

    Anyway, my question related to your article here is what is the name of the small company which you mentioned above? – “One small publicly listed software company that I met with had been close to running out of cash after multiple failed sales strategies.”

    Was this referring to StretchSense which you mentioned later on or another company?

    Also, do you have any recommendations for where some of us small time investors can keep track of the new companies coming out of NZ? I will sign up for information from the NZX (https://www.nzx.com/) and I have started listening to the Stock Market Movers podcast too (http://stockmarketmovers.co.nz/).

    Cheers,
    Chris

  2. Hi Chris,

    Thanks for the kind words and great to hear you enjoyed the podcast. It was a different company to StretchSense that I have not publicly disclosed yet. Although StretchSense also had very similar challenges with its go-to-market strategy.

    There aren’t a lot of resources on the NZX, the podcast that you mentioned is a great place to start!

    Best,
    Matt

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