Furniture success rests on branding
"Do you want to know the secret of making a small fortune in furniture?" Blair McKolskey asks conspiratorially. "Start with a large one," he laughs.
"Start with a large fortune and you'll end up with a small one.
"It's a tough game. I have to love it."
But the general director of custom-made furniture company Finewood doesn't have much to complain about. The Auckland company booked 10 per cent growth last year, in a market where the industry benchmark was a 40 per cent loss.
"That's a 50 per cent outperformance if you wanted to look at it that way. So it's all relative to what the industry is doing. We're moderately pleased, but we're not going to relax either," he says.
The Canadian began to work at Finewood four years ago, after spending a decade in the financial services industry in the Cayman Islands. He met his New Zealand wife on holiday here while trying to delay his entry into the corporate world after university.
But after a decade in the Caymans with children in tow, they made the call to come back.
"When we were living in Cayman, we had one young child and we were there when a category five hurricane hit. We got wiped out pretty bad and we went for three months without power.
"So if you imagine living in, say, Fiji for three months in the summer without airconditioning and having a young child, that was sort of the deciding point where we said, `OK, we need a way to get back into a better lifestyle for our kids'."
It so happened that Mr McKolskey's father-in-law, John Mihaljevich, was looking for an exit strategy from the day-to-day running of his furniture business.
Mr Mihaljevich remains managing director of Finewood, looking after the sales side of the business. As general director, Mr McKolskey manages the daily bustle and long-term strategy.
"It's a role which needs a good, steady hand," Mr Mihaljevich says. "Obviously, I know him very well and he's very capable of making the right decisions. He's done a wonderful job. We're actually, if anything, growing slightly, whereas the whole industry is shrinking. He's done an amazing job to be able to hold our position."
The transition from selling a service to selling a product has not been difficult, Mr McKolskey says, although the way people operate is a little different.
"You still have to have a human resources strategy, you still have to have an overall strategy, you have to know how to run administration and finance and sales. Just learning that 20 per cent specific to the industry, which can often take 30 years, that's probably the biggest challenge."
Another big challenge Mr McKolskey is wrestling with is one facing New Zealand's furniture industry as a whole – moving from price competition to adding value to its products. He is vice-president of the Furniture Association, and says manufacturers can no longer compete with the prices of overseas-made furniture.
"The biggest component of cost is labour and this is not a country to be competitive in labour costs, for the most part, when it comes to the trades in this type of industry.
"Strategically, if you're trying to go cost-based, forget it, give up, go home."
Seventy-five per cent of furniture businesses in New Zealand have five or fewer staff, which also makes it more difficult to add value to the industry.
"There are three pillars that the industry has come to accept as the core disciplines that we need to be good at: seeking an export market, being design-led – not on a cost-basis competition, and productivity. Two of those three are very hard to obtain if you have five staff.
"Your turnover with five staff is going to be tiny, and if you try to enter a new market, if you can come up with the capital, the risk is going to be disproportionate to the size of the business."
Regulation makes it hard for businesses to be productive here, Mr McKolskey says.
He compares New Zealand's situation with that of the Cayman Islands, which is more liberal but what regulation it has is robust.
"Ultimately, I think that's where we're a little unstuck right now.
"We're a little too much on the paternalistic side. Businesses aren't fluid. They aren't agile. They're not able to respond to market pressures.
"I can relate a lot of scenarios back here to how we're unable to respond to market issues because of various policies in government."
One market issue to which Finewood is responding is the trend towards sustainability. Being design-led is not enough, as long as low-cost manufacturers can imitate products.
"OK, let's say that's a brand new chair that nobody's seen before and the world loves it. We go to Italy, Milan, and the world goes `fantastic'.
"How long do you think it would be before China or some sort of low-cost manufacturing centre knocks it off and does it for a quarter of the price? It's not sustainable.
"How do you get sustainable competitive advantage in the furniture industry? Well, I think design is part of it, but I think it's also a brand. If you can engineer a brand that speaks too, that's a defensible strategy."
Branding is all-important, but for a small company such as Finewood, taking over the world is not an option. However, building on New Zealand's clean and green, 100 per cent pure brand is. "I'm a 25-staff company in New Zealand. I'm not going to set a global brand up unless I come up with some rather extraordinary amount of capital.
"So, how about we leverage it off something else? Again, I'm just enamoured with New Zealand and the brand. Love it or hate it, it's a brand that has recognition.
"I think it's the only way we can survive," Mr Mihaljevich says. "It's one of those things. We need to look at it through different eyes and come at it from different angles."
The practical outcome of Mr McKolskey's thinking about sustainability, design and branding has been a partnership with Unitec. Under the partnership, launched last year, final-year design students had to submit furniture designs as part of the curriculum.
Two students were selected to work with Finewood to create prototypes and one, a green chair modelled on New Zealand landforms, is nearly ready for market.
The programme is a win-win, Mr McKolskey says. Students receive valuable practical experience before they even step off the campus, and the company gets to develop cutting-edge design.
"It's expensive for us in the first year," he says, "and it's going to take a couple of years to pay dividends. If the chair goes nowhere, I'm not going to be disappointed.
"Economically, yeah, but it was driven for the right reasons and that's a way you can always be happy."
He hopes the programme will soon be expanded to include other furniture companies. There are numerous other design schools around New Zealand and thousands of keen students, so his goal is to create a cookie-cutter plan for businesses that want to be design-led.
"It's a way to be innovative without taking the North American, heavy budget driven, heavy-handed research and development approach to it. We've got to be creative here because our resources are constrained. So here's a way to really tap into what makes us us.
"It's inventive, it's creative, it's clever, but it's not achieved through just mass budgets, it's effective and that's rewarding in itself."
Living in the Caymans allowed the blossoming of Mr McKolskey's interest in triathlons. He qualified for the Cayman Commonwealth Games team, but couldn't go because of injury.
"The Commonwealth is an inclusive, participatory sort of games, it's not like swimming here, where you've got to be world ranked or anything like that."
But rather than allowing injury to get the better of him, he got involved in sports administration and ended up on the national Olympic committee.
When he started, the Cayman Islands had only five athletes who could take part in the games. By the time he left, it had more than 10. "It sounds great, but in a small country it's easy to be a big fish in a small pond."
Not that different to here.