Elevate CA Blog

Welcome to the Elevate CA blog - a mixture of interesting and useful observations from our team.

You get what you reward, right?

You get what you reward, right? Give a monkey a handful of nuts every time he jumps through a hoop, and he’ll jump through hoops all day. Compliment a young child every time they say “please” and “thank you”, and pretty soon you’ll have a well mannered kid. Give people massive tax incentives for investing in residential rental property, and before you know it that’s what is happening.

I’m hot on this topic right now, having just returned from Boston and seen firsthand what the American federal and state governments reward. Yup, entrepreneurial behaviour.

I had a coffee with a Kiwi guy in Boston on Sunday. He is an Auckland University graduate and has a very cool Life Sciences venture which might just change the way some aspects of mental health are managed. Potentially a big success story within a small niche of the US$2 trillion American health market. He is located in Boston with a staff of seven techies. The city of Boston pays the rent and utility bills for his offices, because they want to keep him from relocating to Cambridge City, 30 miles to the west. The federal government has stumped up serious six figure cash as an SBIR grant (not a loan) to fund his research and development.

The US machine bends over backwards to make sure his innovation stands the best possible chance of success. Why? Because if he succeeds – and if hundreds of others like him also succeed, then that is great for the American economy. Sure, some will fail. But for the Americans, investment in guys like him is a no brainer.

So if he had stayed in New Zealand, what would the same guy need to do to get massive government support for a venture? Yup, that’s right – he would probably be more incentivised by the system to get a salaried job, and then negatively gear himself into as many residential rental properties as his salary would allow. The benefits for him personally? Government subsidised wealth creation. The positive benefits for New Zealand as a whole? Absolutely zero.

Don’t get me wrong, I’m not dissing the New Zealand political machine completely here. There are some great initiatives going on to encourage entrepreneurship – and I have blogged about some of them before here.

But what if the massive tax incentives (I don’t know what the total is, but I’m guessing in the hundreds of $millions annually) were removed from investment in residential rental property and redirected to NZTE’s budget in support of Kiwi entrepreneurial activity that stands a chance of dominating some niche out there in the wider world?

Why are we still so fixated on the old hand’s off market doctrines of “sink or swim” when even the free market Americans have long ago abandoned that ethos and seen that everyone benefits from nurturing entrepreneurial activity?

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Bill and Phil Show in Whangarei

Elevate CA sponsored the Bill English and Phil Heatley show in Whangarei tonight. Its not that we have a particular political agenda. Actually, if we’re honest it was more about getting our brand out there in front of 100 or so local business people. Chipping in for the beer and nibbles was a small price to pay.

So now that I have that out the way, I can say that Bill and Phil put on a good show in Whangarei tonight at the NZ Institute of Building function. I found myself agreeing with a lot of the stuff Bill English had to say around making it easier for Kiwi businesses to do business internationally.

This is something I have been banging on about for some time: As a country we need to generate wealth internationally if we want to live a first world lifestyle, because funding that lifestyle from borrowing just isn’t sustainable. So it was good to hear Bill English talking about investing in the things that will help kiwi businesses become more competitive internationally. Stuff like improving our roading infrastructure, our electricity generation and distribution, our broadband network – and reducing the pervasive burden of red tape in our business world.

The rhetoric was encouraging.

But the single obvious incentive to encourage Kiwis from “borrowing to spend” towards “saving to invest” was clearly not on Phil and Bill’s political agenda. In this country, a person will almost always do well over the long term by borrowing to invest in residential real estate. The interest and all expenses can be made tax deductible against personal income, while the ultimate capital gains are typically tax free. Nice. Why wouldn’t you do it? Especially with the 24% price increases forecast for Auckland residential property by certain economists over the next three years.

Nice for the individual investor who has the means to borrow hard. But is that productive or beneficial for the country? Hell no. It increases our indebtedness to the rest of the world, and achieves nothing that generates income for the country in the context of the world at large. The wealth generated is not real, so why is our tax system encouraging this behaviour?

How about ending the very generous tax incentives to buy and hold residential real estate in this country, and in turn target those incentives to the parts of the economy that generate real wealth for all of us. Namely entrepreneurial Kiwi businesses that can market innovative, world class products into niches internationally.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Stiff Competition for Kiwi Entrepreneurs

I am writing this post somewhere over Nebraska, returning to Whangarei from a week at the Advanced Invention to Venture boot camp in Boston, MA. The AI2V was a sobering experience. Kiwi Entrepreneurs who want to take their innovation to the world are up against some rather stiff competition.

It’s not that American entrepreneurs are smarter or more tenacious or better educated than their Kiwi counterparts. That isn’t the case – Kiwis are great at coming up with innovative solutions to market pain.

Let’s assume you have a killer one-in-a-million idea. That means maybe four people in New Zealand are having the same idea. But the chances are, you’ll be the only one of those four to put the hard yards in to implement. We all know that great ideas are ten-a-penny, and what really counts is the ability and resources to turn that great idea into reality. So let’s say that only one in a hundred folk with your great idea will put in the massive effort required to make any great idea into a reality.

So chances are there will be three people just like you in the USA – folk who share your one-in-a-million idea, and are also part of the one in a hundred who will back themselves and execute.

No problem, right? Surely a Kiwi entrepreneur can compete with three Americans and come out on top? Maybe. But here’s what I have seen this week which makes it not that simple:

Government Incentives. The federal and state governments bend over backwards to help their entrepreneurs with support and cash. For example, the federal government doles out US$100 million each year to provide funding to small businesses with early stage ideas that, however promising, are still too high risk for private investors. State governments compete with each other with generous tax credits or benefits such as free office space to attract start-ups to their state.

Presence of Capital. The Venture Capital system is alive and well – and provides investment to early stage ventures that need cash to expand and dominate their target market. For example, despite the current decline in VC funding, the software industry alone received US$614 million (around NZ$1 billion!) VC funding in the first quarter of 2009.

Good People. The USA attracts the cream of talent worldwide. If you’re a start-up in the Silicon Valley or New England and need to hire a talented CEO or tech guy who knows the ropes and has done it before, that person will be available. Try finding such a person in Whangarei – or even Auckland.

Presence of Customers at Home. It’s trite but true to say that the US market is huge. The advantage is more than that; there is a culture amongst US corporates that is normal to purchase and deal with small companies. Often US corporates make a conscious decision to “outsource” their R&D by dealing with entrepreneurial start-ups in the course of developing leading edge solutions in their industry rather than maintaining an in-house team.

Of course, there are fantastic examples of Kiwi entrepreneurs taking on the world. But the competition is stiff and the playing field is not level. We’ll talk more about this.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Something the Americans do Very Well

Here’s something the Americans do well; encouraging and nurturing the art of entrepreneurship that drives that countiy’s economic success. It’s part of the American culture. There are very good reasons why innovations stand a much better chance of making the transition to world class businesses when on American soil.

Entrepreneurs there are taught the skills to conduct critical and strategic thinking around their ventures. Mentors and coaches with genuine experience are available to help start-ups negotiate the road to commercialising their technology. There is a thriving venture capital system which exists to match investors’ funds with ventures with a winning team, a great idea and a plausible business plan. There is a huge domestic market. And the spirit of entrepreneurship and innovation is celebrated.

New Zealand has a way to go if we are to create the sort of environment conducive to creating world beating businesses which the Americans enjoy – and which would edge this country up the OECD tables. Of course there are some great things happening in this space in New Zealand such as the Auckland Business School Spark Entrepreneurial Challenge – and the IceHOUSE Incubator. But this sort of support and encouragement exists only in pockets.

It is with all these thoughts in mind that I prepare to participate in the American entrepreneurial machine first hand next week. As part of the BrightMind LABS team, I have been invited to participate in the Advanced Invention to Venture (AI2V) sessions in Boston, Massachusetts starting Monday. BrightMind LABS have won a place at AI2V on the strength of winning the Global Best Social Impact Assessment at the Global Social Venture Competition in San Francisco in April. We will be the only venture at the AI2V from outside the USA.

AI2V is a great example of the sort of intensive boot training available to American entrepreneurial ventures. It is sponsored by the American National Collegiate Inventors and Innovators Alliance, and is an intensive training camp for company founders who have committed to commercialising innovative technology in certain fields.

I will blog more about our experiences at the Boston AI2V, some of the key points we bring home with us – and how these can be applied to our clients to help their businesses succeed.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Taking Great NZ Health Ideas to the World

New Zealand is a hotbed of innovation. We have all heard that before. The number 8 fecing wore mentality, punching above our weight in all sorts of areas from winning yacht design through to dairy farming techniques. But why is it that this innovation translates into so few world beating businesses?

Numerous studies have been done on this question, and one of the factors which repeats itself is the lack of specific skills in taking these fantastic innovations to the world. New Zealand Trade & Enterprise is well aware of this, and they have identified the Health sector as one area where we are rich in innovation but poor in taking these innovations global.

Hence the NZ Focus on Health innitiative, designed to take great Kiwi health ideas to the world – particularly the lucrative US market where annual health spend is a staggering US$2 Trillion.

Participants submit their health innovation ideas in the form of a robust executive summary – and will compete for $750,000 in prizes designed to help commercialise your great health related idea in the US market.

Up to Twenty semi-finalists will be selected by the Judges. The semi-finalists will be able to attend a “pitch” training workshop to prepare the semi-finalists for pitching their ideas to the Judges in Round Two.

If you operate in the health space, entering this competition really is a no-brainer. Our very own BrightMind LABS from Tutukaka will be there competing for the action, and we would encourage others to join us in getting involved. Entries close on 31 August. Check it out , and watch this space where we’ll keep you posted on progress.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.