SMART COMPANY : Enztec – Out on a limb

Enztec could be seen as classic example of how Kiwi innovation can carve its own place in potentially lucrative global niche market such as orthopaedics. There are times when being out on limb – geographically speaking – has its advantages.
It’s about thinking differently, says Enztec CEO Stephen O’Neill.
“There’s place called Warsaw in Indiana which is the home of orthopaedics in the world – three of the big five suppliers are based there. And if we were there we’d probably have much bigger business – but we’d be trotting out the same stuff as everyone else.
“Our advantage is that we’re on the edge of the world and don’t always have conventional training. But when we give our tradespeople bit of knowledge of orthopaedics and they turn their design minds to it, we get solutions that aren’t uniform. We may be long way from the market but we win because we’re different.”
The company was originally born from the creative tinkerings of engineer/toolmaker Paul Morrison and local orthopaedic surgeon James Burn who started working together to find solutions to specific orthopaedic problems. It wasn’t until Enztec focused exclusively on orthopaedic instrumentation that orders really started taking off.
That’s also when local investors Birnie Capital Partners came on board, O’Neill was appointed CEO and more formal management and governance structure put in place. Since then it’s been bit of roller coaster ride.
This year Enztec made the Deloitte Fast 50 list for the second year in row with growth rate of 253 percent and also earned recognition as Export New Zealand’s Canterbury Large Exporter of the Year.
Around 96 percent of the company’s multimillion-dollar turnover is gained from exports – with the United States accounting for about 45 percent, while Europe, Japan and the UK comprise most of the rest.
While the aging baby boomer population makes orthopaedics fairly healthy market niche, innovation has obviously been major factor driving Enztec’s growth – alongside some strategic relationship building.
“While manufacturing instruments for orthopaedics is very targeted niche, worldwide it’s big market – big enough to build brand and to get known. We’ve worked hard on relationships in the industry, getting out and seeing the right people – and trying to figure out what they need, not necessarily what they want. There may not be much of difference but enough for them to realise that these guys are really listening. And I suppose that is where the innovation comes in – we are able to innovate, give them different solutions.”
As well as being very customer-centric, the company is small and flexible enough to deliver customised solutions. An idea can quite quickly be turned into prototype, says O’Neill.
“It’s all precision engineering but we can do short runs. We’re not knocking out 1000 of these – it’s more like five of those and now change and do five of something else. So there’s lots of variety.
“That’s competitive advantage for us – we’re fast and flexible. It demands lot of the manufacturing process – this is challenging stuff and it’s place where trades people and apprentices learn lot.”
It’s niche where cost is less important than factors like quality and availability, says O’Neill and ensuring the production side of the business is well geared to deliver has helped contribute to building the company’s reputation.
“Sure, price is an issue, but when you really talk to [orthopaedic suppliers], it’s how soon can I get it and will it keep our surgeons happy.”
Having the right financial structure has also been crucial. Enztec is now owned by Orthopaedic Synergy which was formed last year as holding company that also incorporates US-based sister company Omni Life Science which designs and distributes hip and knee implants.
“It’s kind of good story – instead of Americans investing in New Zealand, it’s us going out to the world,” says O’Neill.
The company has managed to raise quite lot of its capital locally, which means it is still 73 percent owned by New Zealand investors. As well as Birnie, it’s been backed (to the tune of $4.8 million) by Pioneer Capital and by other private investors.
“There is money out there for the right business model and I think that might be something some New Zealand companies lack – being able to present business model that shows investors how they can realise some value. We’ve had really good investors – they’ve been patient and want to see us growing. We certainly couldn’t have got to where we are without that funding.”
The company does have plans to list on the stock exchange but an IPO might still be couple of years away, says O’Neill.
Meanwhile the rapid growth of the past few years has brought its own challenges – it’s not exactly “downhill” ride, rues O’Neill.
“Managing the cashflow can be demanding but the major challenges are really around people. We’ve got pretty good culture so it’s about getting new people on fast and getting them behind the vision and goals while maintaining your culture.”
Then there’s the bane of New Zealand exporters’ life – forex volatility.
“Because we’re not commodity trader, we don’t get the huge swings, but the volatility is hard. If it was at one uncomfortably high rate, then at least you can plan the business around that, but when it’s all over the place, it makes the pricing difficult.”
As to the next phase of growth, O’Neill says it will be pretty much more of the same.
“We’ve got to certain stage where we’ve got 48 staff and we’re in quite few markets, but we just have to keep innovating and focusing strongly on the markets in terms of what customers want. We’re growing as brand and we’ve got good track record – so more product development and more market development.”
Asked about key learnings, O’Neill says there isn’t one thing that really stands out though he suggests there’s been gradual transition from being largely engineering led to being more market led.
“The more successful we got, then the more we got into marketing mode – either consciously or unconsciously. Not in terms of producing brochures but marketing as in finding out what your customer is all about – by getting inside their heads.”
Getting the right management structure in place helped the company grow, he adds.
Then it’s about having the right people and the right strategy.
“Having the right strategy both at business and at board level – having board that’s thinking for the future is important. And persistence is probably important. We’re getting good sales now from products that were born five or so years ago and we didn’t know then where we were going. We showed people prototypes and they said no, so we kept at it, got it into different people’s hands, listened to the feedback and just kept at it.
“It’s about wise persistence.”

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