Along with experiencing a cost of living crisis, New Zealand is currently in a recession, because our economic activity has dropped for the past six months.
Joanna Hall has been a senior policy advisor at the Employers and Manufacturers Association (EMA) for over six years so I asked her how young business owners are currently holding up.
Joanna Hall is a senior policy advisor at the Employers and Manufacturers Association. Photo: supplied.
Janhavi: What’s it like for young business owners in this economy?
Joanna: It's really hard, I would say at the moment it's hard for all businesses out there.
Input costs have gone up and the demand side has really dropped.
You’re seeing really, really high interest rates.
And the thing with young business owners is that they won't necessarily have all the backstops and all of those safety nets that a lot of older business owners will.
They may not have as much capital behind them and they may not have a strong support network.
Janhavi: What's a backstop?
Joanna: It could look like owning your own house.
If you were in your 40s or 50s, you've then had maybe 10, 15, 20 years of paying down your mortgage. So you have a lot more capital left in the value of that property.
So then if you were struggling in your business, went to your bank and said “Hey, I'd like to have a little bit more financial reserves, so I could pay my people, I could buy more stock,” or do other things to try and grow your business.
And they could then look at how much capital you've got in your property and then your access to finance will be a lot easier. You'll likely have more finance that you can drill down on.
Whereas if you're a new young business owner, maybe you don't own a house at all. Maybe you've only owned your house a couple of years.
Janhavi: What kinds of businesses are young people starting?
Joanna: A lot of where we see young people getting involved in is tech-related businesses, whether that's an online digital service or something but they have introduced some sort of digital element, whether that's more support services that go along with their products or a new way for their customers to engage with them.
There was a company founded in Tauranga by a guy who worked on super yachts overseas and came back to New Zealand and saw a gap in the market for some technology that he thought was needed in terms of turning a visitor log book or a sign in book that you see at reception desks and offices, turning that into digital.
The subscription model is getting really, really popular. For example, there's a company that I know that sells supplements in gummy form, which is kind of a new popular area.
Janhavi: When I think of young people starting a small business, I immediately think of cafes and bakeries. How are those businesses doing currently?
Joanna: I would say they’re doing it really, really tough right now.
Consumer spending we’re still seeing is incredibly low, the cost of living is really hurting everyone.
Janhavi: Are there currently any perks to being a young business owner?
Joanna: One of the perks is that this government has really come out and said that they want to support the export sector and especially with a focus on those businesses that are either adding value to a product in New Zealand, or a more traditional commodity, or they’re in that services or tech space.
… They’re doing what they can to get inflation down, fight the rise in interest rates and get that going back down to in the right direction, that will be a real help to businesses.
Moving the Reserve Bank back to its single mandate of controlling inflation, that was a really good move that will absolutely support businesses.
Janhavi: Can you explain what a traditional commodity is and what ‘adding value to a product’ means?
Joanna: So traditional commodity things are more the raw products.
So you've got milk, you've got meat, you've got wood.
When I say “add value to a product”, that's something that the government has been really, really hot on.
… For example, there is a sawmill in Kawerau that takes raw planks of wood from our forests and engineers the wood to exactly their customers’ size preference and makes sure that what’s going out the door is almost an end product.
Janhavi: Union membership has fallen over the past few decades, has that been bad or good for young business?
Joanna: Unions and large scale collective employment agreements - it's a very industrial based model.
And in the new world of work, where employers, especially young employers, want to have that flexible one-on-one relationship with their employee, it's probably not as fit for purpose as it was in the industrial era.
You're seeing a lot of these young businesses probably are also a smaller size. They are a lot easier for the CEO or the GM to have that direct relationship with their employee and support them
Janhavi: What are the biggest barriers young people face when it comes to starting a business?
Joanna: What it boils down to is that you don't know what you don't know.
There's no shortage of motivation or creativity with young people.
… One of the areas that can be a real challenge is around cash flow and being able to project and forecast that accurately.
There's a big difference in terms of how much money and capital you have in your business, versus how much cash flow you have coming in and going out to pay your daily costs, whether that’s staffing, whether that’s your overheads, like your renting, or courier charges.
… If you're not really keeping on top of those, that can be a challenge.
Janhavi: What is your advice to young business owners today?
Joanna: Lean on your support networks.
Build a strong network of people around you, absolutely with your peers and other young business owners, because they will have a perspective that you can definitely relate to.
But also with people that have been there and done that. There's a lot of people that have been in business for a long time. They've had some failures. They've seen these economic cycles before.
… Make sure that you're talking to your bank quite regularly and early, especially if you think you're having challenges with cash flow or finance.
These service providers are very aware that it's a tough environment right now for business.
The earlier that you can flag things with them and work with them to create plans to support you, the better.
Janhavi: How do young business owners build their networks?
Joanna: There's a tonne of different ways to do it.
Here at the EMA we have a lot of networking events… Those networking events, that's more of an informal connection where it does rely on your skills to network, which is something young people can struggle with. So any kind of practice in that space is really good for young business owners.
There’s more formal structures like Business Mentors, where you can sign up and be assigned a mentor based on what your company does.
Maybe you think you're really strong in marketing but you need someone who has more of a financial brain to give you some coaching.
… Depending on what industry you’re in and your location, you can find groups [by] honestly googling or Instagram.
…There's a lot of time and energy and emotion into running businesses so it's really important to make sure that you've got a good support network around you.
This interview has been edited for length and clarity.
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