Investing in NZ
The iMatrix investment network wants to make 30 multi-million dollar investments this year. Unlimited spoke to the founder of the company behind the network.
Tuesday, March 29 2011 || The Conversation || BY Lesley Springall
A former engineer, Howard was once charged with getting to grips with the potential synergies within Courtaulds, a massive British conglomerate whose 437 businesses spanned textiles to chemicals. Though Howard’s consultancy budget kept leagues of management consultants in pocket, there were few answers. This knowledge gap led Howard to embark on 20 years of research, initially inspired by the work of Hard Business School’s Professor Ramchandran Jaikumar. Their work led to kMatrix, whose risk assessment tools are based on their studies of more than five million businesses, across some 10,600 industry sectors.
Today, kMatrix’s client list includes a who’s who of governments, academic institutions (including Auckland University), local authorities, multinationals (such as Philips, British Aerospace and Siemens), as well as tiny companies no one has ever heard of – yet all wanting to know how they can take what they’ve got and make it much, much bigger.
What do you look at when you assess risk or look for opportunities?
For any technology we look at what competing technologies there are, including how a changing market might receive those technologies; what the business model might be ─ because not all technologies should be free-standing businesses, some might be better released on a licensing basis; what are the most appropriate channels to market, how many are there, where are they; how is the market broken up on a global versus a local basis; what are the timing issues; and what are the current financial market conditions.
What makes kMatrix differ from other management consultancy firms?
Critical mass. A good consultant will look at what other companies have done, where they’ve failed or how long it took them to be successful, what sort of margins they achieved and what hurdles they had to overcome. But where they might have five cases to compare, we’ve got 20,000 ... it’s like having several thousand good consultants compared with just one.
What’s a good example of your work?
Philips. Philips was closing its flat screen manufacturing plants in Europe and moving production to China. Each factory had several thousand people on site, lots of different skill sets and lots of different technologies. We used our system in reverse, saying, ‘we’ve got these skills and these manufacturing capabilities, what other markets can we use them in?’ Our work has taken Philips into new markets, such as medical instruments. The plants have become companies in their own right, and we’ve helped save more than 40% of the jobs. We also moved Panasonic’s car stereo plant in Belgium into agricultural technologies and Sony’s old [VHS tapes] plant in Italy is now recycling PET bottles and producing fabric.
All plants are just a suite of technologies and skill sets. You just need to find market areas that are similar to the capabilities of the business and keep dropping the risks until you get a match and can do something about it.
Do most companies do enough market research?
You can never do enough market research. But most get it wrong, not because of their own capabilities but because they’ve got a lack of evidence to support their decision making. They look at things too narrowly. You shouldn’t just focus on your product and your direct competitors, you need to look at what’s coming out of left field. For example, we were looking at a new laser cutting knife for brain surgery being spun out of a London hospital. They were looking for about ₤5 million of investment, but it failed at the first fence – the technology. Within a few hours we’d found a competing technology, a white light cutter, that would have wiped their laser cutter out because it had no measurable radiation risk associated with it, unlike lasers. The problem was the competing technology hadn’t been developed for brain surgery so they didn’t spot it. What they should have looked at was what other cutting technologies are out there, not what other brain surgery cutting technologies there were.
What other problems do organisations have when looking to grow their technologies?
The other big one is being ‘investor ready’. This is a worldwide problem and we see it time and time again: companies have got their technology to the appropriate place, but there’s an issue with the management team and a lack of understanding about what an investor wants versus what the in-house business team wants. An investor is looking at EBITDA and exit points. The business is looking at sales volumes and profitability. This is especially a weakness when technologies have been spun out of universities.
The other problem we encounter all the time is understanding the value of capital. So many times I’ve come across an excellent business, but then they’ll say, ‘I want to raise $100 million and I’ll put up 5% of the business.’ Well, forget it. It won’t happen. $100 million is a lot of money for anyone and no business plan is 100% secure. The old adage stands true – 80% of something small is never as good as 20% of something that’s a world beater.
Read more about iMatrix.
