NZ’s low productivity is often blamed on businesses staying small. That could be a strength in 2026

For decades we’ve heard a familiar story about why New Zealand businesses choose to stay small. Entrepreneurs prefer comfort, control and lifestyle over ambition, summarized in the old idea that the ‘bach, boot and BMW’ is the pinnacle of ambition.

The statistics clearly show this pattern. New Zealand’s productivity has lagged behind other advanced economies for years, with output per hour worked below the OECD average.

This gap is often attributed to the fact that almost 97% of local businesses employ fewer than 20 people and many remain small throughout their life cycle. Yet a rapidly emerging global trend suggests that smallness is no longer a disadvantage.

In the fields of software, design, digital media and specialized manufacturing, a growing number of international companies are choosing to stay small. Their goal is not to avoid ambition, but to maintain quality, identity and resilience in a transformed economic environment.

This year, that shift could offer important lessons – and opportunities – for tackling New Zealand’s productivity challenge.

When scaling up is no longer the standard

After the global rise in venture capital in 2021, investments have shrunk sharply. Seed funding fell in both 2022 and 2023, with the latter being the weakest since 2018.

While there are signs that activity has stabilized at lower levels, capital has now become much more selective, raising questions about the sustainability of the traditional ‘growth at any price’ model. Strategies that rely on continued increases in external financing face a more challenging environment today.

Artificial intelligence (AI) is also changing what small teams can achieve. AI systems can now automate or accelerate coding, design, analysis, writing, and management tasks.

A small team equipped with advanced tools can generate outputs once associated with much larger organizations. This has increased the viability of small, highly productive businesses focused on specialized software, creative content or digital services.

These AI-enabled small businesses can reach international markets with minimal staff, often at a profit. At the same time, climate disruptions and supply chain fragility have exposed the weaknesses of centralized, large-scale business models.

Events ranging from the COVID pandemic to recent extreme weather have highlighted the risks of tightly optimized global logistics, while agile, modular operations with shorter supply chains can be more adaptable.

For these companies, staying small appears to be a strategy for resilience in the face of environmental and geopolitical volatility.

Taken together, these trends point to an emerging form of entrepreneurship that is very different from our traditional lifestyle-oriented businesses that serve a local market, employ a handful of staff and rarely invest in technology.

Rather than shying away from ambition, these new ‘anti-scale’ entrepreneurs are redefining it and building companies that maximize productivity, specialization and resilience rather than workforce.

Why strategic smallness suits NZ

Smallness can be a strategic choice that protects quality, accelerates innovation, reduces overhead costs and fosters closer relationships with customers. Especially in digital markets, in-depth expertise and precision are often more important than the size of the organization.

This is important for New Zealand because the country’s productivity problem does not stem from its smallness, but from its smallness without specialization or technological influence.

Many of the companies operate as generalist service providers in a thin domestic market, face limited incentives to innovate and remain focused on the local customer base.

However, productivity is measured per employee, not per company. An AI-enabled two-person enterprise serving global customers can, in principle, generate much more value than a twenty-person domestic services firm competing in a crowded local market.

International comparisons reinforce this point. Small but highly productive economies such as Denmark, Finland and the Netherlands thrive by specializing in what they do best, integrating into global value chains and developing capabilities that compete internationally.

This is an encouraging pattern for New Zealand, which faces similar structural constraints. Anti-scale entrepreneurship is much more closely aligned with the success of these small economies than with Silicon Valley’s emphasis on rapid organizational expansion. It represents a form of ambition that suits small countries.

Rethink the way we support ambitious small businesses

Research into entrepreneurial ecosystems also shows that companies perform best when their strategies match the reality of their environment. Conditions in New Zealand can be favorable for small, highly productive businesses that rely on expertise, identity and digital reach.

If these companies adopt AI early, remain export-oriented, and build distinctive capabilities, they can compete internationally without becoming organizationally large.

To realize this potential, New Zealand institutions will need to adjust some long-standing assumptions. Policies that treat company size as the most important measure of entrepreneurial success risk overlooking companies that are small yet highly productive.

Export programs, innovation subsidies and skills initiatives can be better targeted to small businesses that specialize deeply and use technology to increase production. Education could also focus on helping entrepreneurs design businesses for optimal size.

Ultimately, New Zealand’s productivity problem won’t be solved by a single idea. But the rise of anti-scale entrepreneurship suggests that ambition may take a different form than policymakers expect.

The most innovative and resilient companies of 2026 may include those that deliberately stay small, use AI to expand their capabilities and build reputations in tightly defined global niches.

The question for New Zealand is not whether its companies can get bigger, but whether they can grow better.