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Supporting entrepreneurship in New Zealand agriculture.

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Executive Summary

New Zealand has very high rates of entrepreneurial activity by international standards, but this has not translated into the expected numbers of large and high growth businesses. The result is significant loss of opportunities for growth. This phenomenon has been attributed to cultural influences (primarily lack of aspiration) and a possible lack of finance at a transitional stage in business development. Agriculture is not immune to this problem, as it is not performing to its potential in a number of areas. The goal of this study was to find companies or industry sectors in other countries that had experienced growth, identify factors that they had found helpful during the process and then relate those experiences back to the situation in New Zealand. 

Three themes have emerged. They are firstly the use of alternative sources of funding, secondly the value of networks and mentoring and lastly the potential of new strategic tools such as business model generation. These represent effective responses to problems often associated with growing businesses: the need for finance, the need for information, confidence and role models and the need to continue the process of innovation over the long-term. These factors were reported as critical for success and/or may also relate to commonly identified problems here in New Zealand.

As regards alternative sources of capital, crowdfunding was identified as a tool with potential value for agriculture. This form of finance involves large numbers of people who each invest a small amount of money in a business, as opposed to the more traditional methods, which depend on smaller numbers of investors providing large sums. A universal element of crowdfunding is the use of internet technology, to reach many potential investors cheaply and easily. This and other characteristics make crowdfunding particularly suited to the needs of small and medium-sized businesses, which currently make up the bulk of the New Zealand economy. Crowdfunding has its roots in the United States during the 1990s, adopted primarily by the creative and technological sectors. It has now become a significant source of funding, with US$2.7 billion invested in 2012. This figure is forecast to top US$5 billion for the first time in 2013. Governments in Italy and the US have passed legislation to facilitate the practice, seeing it as a valuable aid to economic development. New Zealand has now also passed laws designed to encourage crowdfunding, which will be implemented in April 2014. 

Until now, the primary sector has had limited involvement with crowdfunding, but this is beginning to change. Agribusinesses in Europe and the US are now taking advantage of the opportunities that it provides. Limited access to sources of ongoing investment remains a problem for business in this country. This is forecast to worsen in the primary sector, with a future finance gap of $210 billion predicted for agriculture between now and the year 2050. Therefore, despite some (relatively minor) risks associated with it, crowdfunding may prove a helpful tool to remove some of the barriers to entrepreneurial growth in New Zealand.

Another theme that emerged from case studies was the use of networks and mentoring. Networks have long been known to support business performance and are considered particularly important for their role in enabling the flow of information, that core building block of innovation. However, they often remain under-utilised. New Zealand’s failure to grow large and high growth businesses from a base of early innovation has been attributed for the most part to culture. Innovation is also a largely psychological process, so measures designed to improve entrepreneurship practices must engage the minds of those involved. As demonstrated by the case studies, one of the most effective ways to do this is through networks. 

Some of the characteristics of effective networks were identified as follows :

  • A successful network speaks to the identity of the participants. The best examples become participant-led, allowing them to take ownership of the process.
  • A successful network is also topical and changes with the feedback of the network members. It must be based on a genuine need. Over time, as issues and demands change, the network will alter. At some point, it may look quite different to what it was in the beginning, with different participants, focus and even function. This is to be expected and is not a failure.
  • Different forms of network may preform different functions, so the goal of the network determines in part the form that it should take. For example, to promote radical innovation, global networking should be encouraged. To foster better links across the value chain, an annual meeting of all interested parties in a sector has been shown to be very effective. If the goal is to increase the performance of grassroots businesses, while they may benefit from a large annual gathering, they derive greatest value from regular local meetings and peer mentoring.
  • Finally, networks are vital to building and maintaining the performance of any sector and should be actively fostered at all levels.

The third theme involves the use of a strategic tool known as business model generation. The core assumption behind this technique is the requirement for continuously re-inventing your business model, in order to preserve and strengthen your competitive position. The reasoning behind this is as follows.

A gradual decline in rates of innovation (and subsequently performance) is perhaps the single biggest risk to mature businesses. It is now almost universally recognised that innovation must be ongoing and companies must be preparing to reinvent themselves, even when times are good and they are under no immediate pressure to do so. In this way, they protect their competitive position and ensure the survival and growth of the business in the long run. 

Simple as this sounds, it has proved remarkably difficult to achieve. In an effort to provide tools to help the process, a number of strategic approaches have been explored, of which business model generation has proved an effective example. 

Business model generation is based on a number of other assumptions that have their roots in innovation theory. These include :

  • The need to look holistically at the entire system of doing business and its context. A description of the business model provides this.
  • As people process visual information faster than any other kind, business models are best described graphically. No one person is in possession of all the pieces of the business model. Therefore, multi-disciplinary teams are required to achieve the process of describing current and future models.
  • The current business model must be outlined, before any further work can be done, such as assessing weaknesses and strengths, comparing your model to that of competitors or creating new and innovative business models.

The process of business model generation, its relationship to related theories and role in promoting innovation and growth are described. Although it has been successfully adopted by some of the world’s most innovative companies, it remains an emerging field in agriculture. As earlier outlined, New Zealand has difficulty in translating high levels of innovation and early entrepreneurship into large and high growth businesses. Once larger businesses appear, continuous innovation is widely recognised as necessary to ensure survival and encourage further growth. Some commentators have also described agriculture in New Zealand (dairy excepted) as showing many of the signs of a mature industry, with slowing productivity and use of longstanding business models. By aiding the production of novel and more competitive ways of doing business, business model generation has resulted in increased growth and sustained performance in companies that implement the process. Therefore, it may be of significant value if applied more widely in New Zealand agriculture.

To conclude, we have an opportunity to grow the primary sector in this country, building on our already high level of early stage entrepreneurship and innovation. The message of this report is that we need to create the right environment for agribusiness to maximise this potential. We already have the most difficult element in place – innovation. Now we need to correct the weaknesses in our innovation system. One way we can do this is by encouraging use of new tools in finance and strategy and by taking advantage of the benefits of networking. This will strengthen our industry, ahead of what could be an extremely exciting and rewarding period for agriculture.

Supporting entrepreneurship in New Zealand agriculture. – Lisa Harper