If you follow the start up scene, care of industry blogs like TechCrunch/GigaOM/VentureBeat/etc, the lack of Australian companies making waves is glaring obvious. It’s not like we haven’t had successes here, indeed you don’t have to look far to find quite a few notables, but there’s no question that we don’t have a technology Mecca where all aspiring entrepreneurs look towards when trying to realise their vision. You could argue that Sydney already fits this bill since that’s where most of the money is but it’s not the place where the innovation is most concentrated as Melbourne as arguably given risen to just as many success stories. This decentralized nature of Australia’s start-up industry presents a significant barrier to many potential businesses and whilst I don’t have a good solution to them the reasons behind it are quite simple.
Reserve bank governor Glenn Stevens gave a speech at the CEDA annual dinner a couple nights ago and hit the nail on the head as to why Australia doesn’t appear to have the same vibrant start-up ecosystem that can be found overseas:
Only 4.8 per cent of start-ups in Sydney and Melbourne successfully become “scaled” (large enough to be sustainable) which is another way of saying that 95.2 per cent fail. In Silicon Valley, the success rate is 8 per cent.
The difference is capital: start-ups in California raise 100 times as much money as Sydney ones in the scale stage, and they raise 4.8 times as much in the earlier stages of discovery, validation and efficiency.
Yet as everyone knows, Australia punches well above its weight in capital formation, thanks to compulsory superannuation and the $1.4 trillion super pool. Why doesn’t any of that money find its way to supporting
Current fiscal policies are quite conducive to long term, low risk, moderate return investments (such as property and bank stocks) and the investment practices of our superannuation funds reflects this. Indeed even at a personal level Australian investors are risk adverse with majority preferring things like property, extra super contributions or term deposits. Partly you could also put some of the blame on Australia’s culture which is more inclined towards property ownership as the ultimate achievement a regular Australian can aspire to, whereas the USA’s is far more entrenched in the entrepreneurial idea.
We then have to ask ourselves that if we’re aspiring to create a Silicon Beach here in Australia what we need to do in order to make that happen.
The report itself details a couple ideas that can be done from a policy perspective, namely making certain company structures and incentive schemes cheaper and easier, however that’s only part of the issue. Ideally you’d also want some policies that make investing in risky start-up companies more attractive than the current alternatives. I don’t think abolishing current legislation like Negative Gearing would help much in this regard but it could potentially be extended to cover off losses made on start-up investments. There are many other options of course (and I’m not saying mine is the perfect one) and I’d definitely be supportive of some investigation into policy frameworks that have been used overseas and their applicability here in Australia.
There’s also the possibility of the government intervening with additional funding in order to get start-ups past the validation phase in order to increase the hit rate for the venture capital industry. I’ve talked a bit about this previously, focusing on using the NBN as a launchpad for Australia’s Silicon Beach, and really the NBN should be the catalyst which drives Australia’s start up industry forward. There’s already specific industry funds being set up, like the one that just came through for Australian game developers, but the creation of a more general fund to help start up validate their ideas would be far more effective in boosting the high tech innovation industry. It would be much harder to design and manage for sure, but no one ever said trying to replicate Silicon Valley’s success would be easy.
For what its worth I believe the government is working hard towards realising this lofty goal (thanks to some conversations I’ve had with people in the know on these kinds of things) and as long as they draw heavily on the current start-up and innovation industry in Australia I believe we will be able to achieve it. It’s going to be very hard to break the risk adverse mindset of the Australian public but that’s something that time and gentle pushes in the right direction, something perfectly suited to legislative changes. How that should all be done is left as an exercise to the reader (who I hope is someone in parliament).
There’s been many times when I’ve caught myself with some kind of random idea for a product, service or whatever that I’ve quickly thrown on an ever growing pile of ideas. It doesn’t seem to take long for that one idea that I’ve had to turn from something I thought that I only thought of to someone else’s business venture upon which time I curse myself for not following through on it. Granted many of these ideas have been kicking around in my head for years without them coming to fruition and my recent attempts to develop one of them has been quite the eye opener, showing me that ideas are great and all but implementations are still king.
This is one of the biggest challenges that anyone will come up against when trying to develop a product or service: someone has already done it before. In this world that thrives on innovation being the first to market with a new widget is a powerful force and almost guarantees you the lion’s share of the early adopter market. The problem here is though that being first to market with something means one of two things: either you’re creating a market that didn’t exist before (see Apple and Nintendo as good examples of this) or you’ve seen an established market and noticed something sorely lacking, which pits you against established players in this space. In both these cases if you’re just starting out at being an entrepreneur your friends, family and potential business partners will more than likely shoot a skeptical eye your way telling you that there’s no way it could work.
For the most part they’re right, in a traditional business world starting from scratch is a pretty risky business and whilst the jury is still out on how you can judge failure rates of new companies it’s no secret that you’re more likely to fail than succeed. To an investor a business plan that builds on proven methods will look a lot more attractive as there’s a much better chance that they’ll get a return on their money even if it would be smaller than something that could be perceived as a higher risk. Consequently this has the effect of stifling innovation for certain high risk ventures, although that trend is starting to change.
In the tech industry at least this can be attributed to investors gaining back the confidence they lost in the tech industry back in the dot com bust. After the crash many investors sought more stable investments (and look how that turned out!) and shied away from funding what looked like high risk ventures. As a consequence many hungry start up founders started to make do with a lot less and this drove a phenomenal amount of innovation. Primarily this was to attract their once bitten investors back into the fray and the last couple years has seen the resurgence of the high tech start up craze that we lived through only a decade ago.
For those looking to lash out into the world of tech start ups this means that for any idea that you might have you’re going to be compared to those who’ve come before you. That doesn’t necessarily mean that you’re destined to fail, it just means that you’ve got your work cut out for you if you’re looking to make an impression in the tech world. Innovation in this fast paced tech world is the name of the game and whilst any market you may care to get into (hats off to you if you manage to create one) may appear to be completely saturated that doesn’t mean you can’t succeed in that space. It all comes down to how you differentiate yourself from the pack.
Maybe this blog post is more for my benefit than anyone else’s as I’m currently staring right down the barrel of trying to attempt such a feat myself. The location space is heating up like crazy and all the large players in other spaces are already integrating location based services into their current offerings. Initially this was a boon for me but I’ve come to realize it first as a hindrance to me progressing my core functionality (Oh another information feed with co-ordinates in it, better integrate that one too!) and secondly as another blow against a product I’m looking to deliver. Realistically though I know what I want to do is different enough from every one else to warrant at least an attempt to make it successful and should it fail I’ll be that much wiser about the whole process, ready to try over again with yet another idea.
Realistically I’d need a team of 100 people to try all the ideas I have, so I could be in this cycle for quite some time 😉