Taking our Kiwi SaaS companies to the next level – we need to build capability
The Covid-19 pandemic may have presented major challenges for our tech companies, particularly when it comes to securing funding to grow.
But many of the 600 or so software as a service (SaaS) companies working with government innovation agency Callaghan Innovation has also seen record growth this year.
“COVID-19 supercharged global demand for digital services and many of our most innovative companies responded rapidly,” says Bruce Jarvis, Group Manager of Digital at Callaghan Innovation.
He points to the likes of Auckland-based Kiwa Digital, which saw a spike in demand this year for its Voice-Q software, which automates the dubbing of foreign movies and TV shows for local markets. Several of the top Netflix Originals were localised using VoiceQ this year as the video streaming platform sought to keep its content release schedule on track in the face of Covid-19 disruption.
NZX-listed PushPay, which enables electronic donations from churchgoers across the United States, saw its share price jump 235% between March and October, as congregations turned to its app to support their churches in the absence of regular services.
Fledgeling timesheet payroll software provider PaySauce saw recurring revenue ump 52% year on year to $969,000 in the half-year to September 30.
Another player CentraPay only started in April, but has already doubled the size of its team and is likely to hit $1 million in revenue in its first year. The company allows retailers to bypass expensive transaction fees for contactless payments and in October partnered with Eftpos terminal provider Verifone to roll the service out around the country.
Then there’s the giant of our SaaS sector – Xero. Its ASX-listed shares are up around 40% for the year as small businesses increasingly turned to its software to navigate the economic turmoil of the pandemic.
Our SaaS companies, just under half of which are early-stage businesses, says Jarvis, were already growing rapidly. But he sees a unique opportunity to make sure the gains our digital economy players have made translate into sustained growth that gives this weightless industry international reach.
“We’ve got this massive pipeline coming through. We need to ensure we get that multiplier effect in terms of more PushPays, more Xeros, more Kiwa Digitals, more Predict HQs,” he says.
How do we do that?
“The biggest gap is around capability,” says Jarvis.
Capability building essential
“To accelerate the growth of the sector, we need to bring in more capability and experience.”
Building capability is an area of priority that has also been identified by the Productivity Commission, which is seeking ways to address our lagging productivity.
A report by prepared for the Commission by the Berkeley Research Group Institute, suggests that we haven’t “shifted the dial” on closing our productivity gap because we aren’t focusing on the area that could make the biggest difference – bolstering our firms’ management capability.
Firms with strong dynamic and managerial capabilities are more resilient and more productive, allowing them to pay higher wages and support innovative cultures,” the BRG Institute notes.
“Strong dynamic capabilities require alignment of the organisation, its strategy, its employees and the board. Strengthening dynamic capabilities is hard because they generally can’t be bought – they must be built.”
It’s time then to get building. It means having more business leaders experienced in running businesses, more seasoned investors buying into our emerging companies, people who have experience running global sales operations, introducing worldclass management practices into our high-growth companies.
“The two key areas where New Zealand struggles is capability around product-market fit and sales,” Jarvis says.
“We are a great nation of tinkerers, we like building stuff. But Sales is kind of a dirty word. The US is the flip side of that.”
As more entrepreneurs exit their software start-ups, more experienced local business leaders and investment capital is available to the local SaaS sector. But Jarvis says we can’t rely on organic growth to grow the sector – we need to supercharge it by attracting the world’s best minds and the deepest pockets.
“How do we attract to New Zealand those people looking to their next start-up, because they will bring, people, experience and investment,” says Jarvis.
The answer is to trade off New Zealand’s brand, which has been bolstered due to the Government’s effective management of the Covid-19, in contrast to many advanced countries still struggling to contain the virus.
“New Zealand’s brand in the world has, through COVID, moved from the Hobbits and the All Blacks to good leadership and science and technology,” says Jarvis.
Now is the time to capitalise on that by making New Zealand, in the words of the late Sir Paul Callaghan who the innovation agency is named after, “a place where talent wants to live”.
“Look at the West Coast of America alone, its the fourth or fifth largest economy in the world,” says Jarvis.
“Talent there in terms of that we would need to attract is such a small percentage of the top experts in that market, which would make an exponential change to the growth of our digital businesses.”
A handful of tech entrepreneurs, including American gaming billionaire Gabe Newell have chosen New Zealand to ride out the pandemic.
A transformation needed
But getting experienced entrepreneurs to stay here and invest their time and money in New Zealand businesses will take a more sustained effort, says Jarvis.
An Industry Transformation Plan kicked off earlier this year prioritises digital technologies among a handful of areas the Government has singled out for special attention. It will look at efforts to better enable a skilled tech workforce and to inject more capital into the tech sector, among other things.
Callaghan Innovation and New Zealand Trade & Enterprise are undertaking work as part of that to “to assess our current support and enterprise system, with a view to identifying whether there are things that the Government, or industry, can do to increase the likelihood of the next wave of New Zealand digital firms taking on the world with new services that can solve future needs or problems of the global consumer base”.
NZTE is appointing more business development managers around the world to promote our digital technology companies on the world stage, particularly as they remain unable to travel to their key target markets.
Jarvis says we’ll need to get ambitious because organic growth, won’t see the step-change he thinks the sector is capable of. During the election campaign, the National Party pledged to fast track visas for high-tech workers and high net-worth investors to attract talent.
“All those sorts of ideas need to be closely looked at,” says Jarvis.
“Digital exports are around $2.1 billion [annually], up 47% since 2017, but dairying is still number one by a country mile,” he points out.
“If we want to be in the top three in the next ten years, or even number one, what would be required to achieve that? How do we actually make a step change?”
“If we just focus on the traditional routes for growing that, the world’s going to move on. Our opportunity is the next ten years, we’ve got to think differently.”