Luckily, we live in a small market

I moved to New Zealand from Argentina as a ten-year-old.  My grandfather - who, for good reasons, obsessed over the future - encouraged us to move here.  This country is in the middle of nowhere, speaks English (or some version thereof!) and due to its size, still has a communitarian culture.

When it comes to starting a high-potential business, New Zealand’s lack of scale can have its perils.  Most obvious is the fact that in many business domains, building a profitable domestically-focused company is simply impossible - there are not enough customers to make your idea economically viable. This is especially true for narrow domains, or niches.

But there are thousands of niches to go and get if you have a global perspective.  I operate mostly in the SaaS sector, and in this context, niches are great and aplenty.  In terms of exits, for example, a niche 3D geoscience modelling software company called Seequent was sold for US$1.05 billion in 2021.  Companies like; EzyVet, Cin7, Unleashed, Auror, LawVu, Tradify and Re-Leased are doing splendidly by focusing on niches.  You get the point.

Yes, everyone likes products that are derived from cow milk, but the real potential for New Zealand lies largely in finding pockets-of-intrigue that seem small at first, but are fertile ground for enduring success.  That was the essence of our Productivity Commission’s research report findings which outline how specifically ‘Frontier Economies’ (small, developed economies like Aotearoa) flourish in the long run.

Yes, there are things we need our government to do to facilitate a ‘niche nation’, such as education programmes, tax incentives, geo-political relationships and so on, but founders and their startups obviously have their role to play.

Might Aotearoa become a wildly successful country by focusing on niches?

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Small, but Perfectly-Well Formed

Being ‘small, but perfectly-formed’ feels like a predictable, cute thing to claim, but what specifically does a small economy offer a start up?  What are the tangible benefits?

In my experience with startups, there are many reasons why commencing your business journey in New Zealand can actually help you go further, faster.  Namely: 

• According to the World Bank, New Zealand is the easiest place on the planet to start a business.  Being small means that there are less hurdles to getting going than anywhere else.  This is vital - more people say “yeah, nah” in other countries when it comes to getting started.
• On a related basis, the regulatory burden in New Zealand is much lower than other markets, such as the US or Europe.  That applies to foodstuffs, services (like medical), digital experiences and software alike.
• Because the market is smaller, the cost of experiments - such as marketing to particular verticals or building a proposition for a specific segment - costs less to do here.  It means you can iterate and learn faster.
• Similarly, the feedback loops are shorter, and you have easier access to expertise and points-of-view.  If you need to know what left-handed carpenters think of your product, you can easily find and assemble them.  Ditto with telco CFO’s.  And so on.
• Many startups come along with a ‘second order thesis’ - e.g. if all carpenters buy ‘product A’, then you may be able to create a marketplace for them.  If the scale of the market is smaller, you can more quickly, and cost-efficiently test this thesis.
• It is easier to identify early adopters in a smaller market (and the laggards, and anyone else).  This means that if your products or propositions are innovative and disruptive, you can more quickly directly assess their value to your target users.
• And because your inaugural market - New Zealand - is not your ‘target market’ the mistakes you might make are never terminal.  You can afford to have your reputation amongst Kiwi carpenters tarnished by some failed propositions if your ultimate destination is the US building industry.  And again, more mistakes typically mean faster learning.
• With less domestic competition - because everyone is going after a different niche - you get better levels of collaboration and knowledge sharing.  This makes for a friendly, engaged and more fulfilling business community - something you need to stay in the game for the long-term.
• And most importantly, because you have to aim globally from the foundations of your company, the journey you will go on and the people you will attract to your venture, will likely be more interesting as a result.

Inevitably…

Invariably, Kiwi companies do have to be present in international markets if they want to win their category and change the world.  Sometimes, you even have to erase your ‘Kiwi roots’ to increase momentum and enterprise value; a process that can feel both awkward and inauthentic for many Kiwi founders.  That might be the price you pay to achieve your ambitions, but most likely, that’s not today’s problem.

Many startup founders bemoan the size of our domestic market and its implications.  On balance, I think it can be a competitive edge for your startup. 

Treat it as such!