This article should not be controversial, but seems to be. For some reason this is the one people want to engage with me about. But I stand by it – for MOST New Zealand growth businesses, Australia will use up more valuable time and capital than it is actually worth in revenue or valuation. So think carefully before you leap the Tasman.
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!).
For some businesses, there are good reasons to build in Australia. I have seen successful healthcare, services and manufacturing entries into the market. But I have seen technology businesses struggle and use up their ‘dry powder’ leaving them without enough to enter the more valuable US market.
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.
Hoboken Consulting 