Before you read further, you need to know that this blog was written before the Corona Pandemic changed the world. It’s still worth a read, because it talks to overcoming our default thinking when we are looking at business strategy. But the global shutdown means that we need to rethink what we previously ‘knew’. I still believe that there is an argument to skip Australia, particularly for fast growing tech companies. But Australia may be the only place that we can travel to, as the two national governments talk of ‘the Australasian bubble’. So we must still engage in the argument, but the parameters of that argument have been changed by the Great 2020 Lockdown.
This article is more controversial than the others in the series. The reason is that I’m trying to make a big bold point, to get fellow Kiwis to stop and rethink their default position. To do that you sometimes have to make a point more forcefully than usual. So here goes:
New Zealand businesses often think of their growth path as a sequence of events. Start doing well in NZ, jump over to Australia and then to the UK, US, Europe or China.
I’m here to tell you to skip the middle step. Australia is the market where great Kiwi businesses get dragged down, sucked dry of capital, energy and, eventually, life itself.
The thesis here is simple and powerful: Australia is simply not big enough or interesting enough to get you to scale. On the other hand, it is different enough and difficult enough that you will spend much longer than you expect, and much more money than you can imagine. And you may even be successful there, but damage your long term plan. A win the battle, lose the war type scenario.
Just 4 counties in Southern Cal (San Diego County, Orange County, LA County and the Inland Empire) cover the same population (about 24 million people), and a larger GDP, than Australia.
All the time you spend fighting the crocs in Australia is time that you are not playing in the big time in the US. In Australia you are capping the size of your win – even if you dominate the market, you have won a prize that is less than half the size of California. In financial trading speak, you are taking out an Option with a capped upside, and no limit to the downside.
From a strategic perspective Australia offers no leverage into other markets either. It is very different in terms of product requirements and marketing approach – so anything that you learn in Australia is unlikely to help you win in any other market.
On the other hand, the downside is real. New Zealanders often think that Australia, and Australians, are like New Zealanders. They’re not. The market is complicated (in the same way that the US is complicated), but it doesn’t have the size to make it worth dealing with those complications.
You will contend with some real market challenges including regulations at State and Federal levels and expensive employment costs (when in the US we once compared our employment costs around the world – our Sydney office was more expensive than our London and New Jersey offices!).
There are reasons to build in Australia. In another article I discuss the ASX IPO as an end goal, and how building a business in Australia is important to that. Alternatively, if you want to build a family business, and you don’t like travelling long distances in aeroplanes, then Australia is a logical place to go.
So long as you understand that it’s not New Zealand; that Australians are not your friends; and that you are putting a natural cap on the size of your business, then you can think through the true benefits of investing in the Australian market and make a good strategic decision.
