What's next for Aussie start-ups?
The small business landscape is changing incredibly quickly, and nowhere is that more apparent than in the world of start-ups. With a host of incubators, angel investors and pleas for funding to get great ideas off the ground, coupled with an extraordinary number of people fighting for those dollars, it can be an extremely difficult minefield to navigate.
So this month, we decided to peer into the crystal ball a little to see if we could figure out what lies ahead for start-ups in Australia, by speaking to a few experts in the field to see what they have to say.
But to understand the future, it’s important to understand the lay of the land as it stands today.
Over the past few years, Australian start-ups have seen some pretty dramatic changes to the landscape, says Edward Mallett, Managing Director of Employsure, one of Australia’s leading workplace relations firms.
“As a result of well-known global success stories, start-ups have become increasingly fashionable, resulting in some of the best talent establishing and working for start-up businesses, where historically it might have channeled towards sectors such as finance,” Edward says.
“Combine this with the “have a go” attitude that exists in Australia and you have a thriving start-up scene. Just look at the volume of incubators across Australia, he continues. “When I started five years ago, there was only really one in Sydney. Today, every major city has a number of shared office spaces designed for start-ups.”
Carl Spurling and Ricky Lam, co-CEO’s of Proquo, an online marketplace that allows small businesses to buy, sell and trade, agree that there have been some tremendous changes in the past few years.
“The changes are mostly related to the sheer number of companies that are starting up and therefore the infrastructure and community that has grown around them,” Carl says. “This includes everything from the availability to venture or seed funding, through to multiple co-working spaces and, in our case, digital platforms that enable start-ups to access the expertise and customers that they need to prosper.”
“Big business has also become a lot more interested in innovating through investment in start-ups,” he says. “In our case, Proquo is supported by two well-known Australian companies, NAB and Telstra.”
The changes have meant that the direction a lot of start-ups take in the beginning is wildly different to the way things used to be done.
“Startups now have a greater license to experiment and pivot than perhaps they did previously and can do this within a more forgiving environment,” Edward says. “There is greater encouragement for startups to not stick to their original business plan, but rather to change their business model and product features to meet customer demand. The presence of a community has made it easier to find help with problems that you are facing.”
“The trend in start-ups flows through to funding,” Ricky adds. “Five years ago, funding a start-up was relatively unheard of, but as the focus on start-up continues, so does the flow of investment into the sector, with everyone hoping to have a stake in the next ‘unicorn’”.
By ‘unicorn’, Ricky means a start-up that is valued at more than $1 billion – they’re very rare, which is why they’re called unicorns.
“This is occurring through a proliferation VC funds, crowd-funding and, now, even big institutional investors wanting to get in on the action,” Ricky says.
But with all that change, is it getting easier or harder for start-ups to get a toehold in the Australian business landscape?
Ease of direction
“Australia has benefits from a start-up perspective, not least local talent and access to capital, but it is a country steeped in regulatory red tape and multi-tiered bureaucracy, which challenges innovation,” Edward says.
It’s a common complaint from many start-ups, which are often hamstrung by government interference in the way they perform. This ranges from immigration rules that restrict skilled migration, to the heavy burden of workplace regulation, which was established for a different generation.
“The diminishing influence of unions in modern Australian workplace regulation is having a huge impact on start-ups,” Edward continues.
“The wages system in Australia, for example, is the most prescriptive in all of the developed economies, including anachronisms like penalty rates and industry based minimum wages. These have the effect of inflating wage costs in Australia, which serve as challenges to starting up businesses.”
“Malcolm Turnbull’s innovation agenda is at least looking at the challenges, however some of the problems are deeply ingrained and will require significant commitment to change,” Edward says.
However, Ricky and Carl have a different view on how things are progressing for Australian start-ups. “We think it’s getting easier from a logistical point of view, as there are so many tools and services in place to help businesses to launch and get going,” Carl says. “However it is probably harder from a competitive point of view, given that certain markets are getting very crowded and the pace of innovation has increased.”
“At Proquo we are seeking to help businesses get going by helping them to create a circle of trusted suppliers to interact with via the platform, but also to generate demand and create access to a significant pool of potential buyers,” he adds.
So how does this all compare to what’s happening overseas?
“From our experiences it’s mimicking the trend, certainly in some of the major startup centres overseas, where graduates have a strong expectation that they will choose an entrepreneurial career as a first choice before a corporate career,” Ricky says.
“ We’re definitely experiencing growth, but it is shackled by the environment to a degree,” Edward says. “Atlassian, for example, has been bemoaning the problems with migration and other labour regulations, with little support or reaction. As Australia’s greatest start-up story, it is surprising that they are not being more closely listened to,” he adds.
“You also see companies moving off-shore as soon as they are starting to get real runs on the board. Australia needs to take care not to spend all of its innovation energy on grass roots companies and then failing to support those that grow into success stories,” Edward says. “A tall poppy syndrome will ultimately damage entrepreneurialism.”
What about the government?
For a lot of small business owners and managers, the topic of how the Australian federal government could make changes to ease the passage of start-ups is often quite polarising – so we asked our experts what they thought the government could do.
“The innovation agenda has been a step in the right direction, but there is a lot more that could be done,” Edward says. “The UK model is far broader and has had a huge influence on the start-up investment community, encouraging more investment with tax break incentives to invest in early stage businesses.”
“Whilst there is a trend towards start-up, it should not be forgotten that early stage and innovative businesses are not immune from the red tape that exists, he continues. “They need to set the same solid foundations to succeed that any other business does, including setting up safe and fair workplaces.”
Building your business without these foundations runs the risk of problems arising, whether that is by employee dispute or regulatory investigation,” Edward says. “Either way, they are issues that you do not want to be distracted by when trying to grow and innovate. They are certainly not issues that investors want to see clouding a business model either.”
For Ricky and Carl, it’s a little more simple, and more about making sure the right people are here in Australia to tackle the job.
“We don’t think we have particularly different requirements to anyone else, and would just emphasis the need for very high quality ICT graduates who are looking to take a chance on a startup company,” Carl says. “We need software engineers that can outcompete internationally and help Australian companies become global companies.”
Can big business help?
Despite any help that the government may or may not be providing, it’s important to remember that there’s another player in the marketplace for a lot of start-ups – and some of them are already absolute behemoths. So… what should big business be doing to help our start-ups?
“Keep doing what they are doing!” Edward exclaims. “Big business is in many ways what inspires start-ups and allows them to thrive. The inability of big business to innovate at pace and be nimble in response to challenge is what allows start-ups to get footholds so quickly.”
“Look at the banks’ reaction to fintech where, aside from a couple of small investments in start-ups, most are sitting back and waiting to be disrupted,” he continues. “It is said that there are three stages of change: ignore, ridicule and adopt. Big business tends to sit in the first to stages, not reacting to disruption until it is too late.”
“Relevant to Employsure, in the professional services sector a lot of bigger businesses are inhibited by their structure. As partnerships, there is typically very little incentive to risk today for tomorrow’s growth, meaning that organisations like law firms are very vulnerable to disruption,” Edward says.
“They need to work out ways to get past the financial dis-incentive for partners, who have worked their entire careers for a small window of reward, to invest in tomorrow.”
“This might mean working closely with start-ups, like Employsure, enabling growth outside traditional business models,” he adds. “See, for example, how QBE and Sparke Helmore have supported Employsure and seen a new channel of business result from this.”
Carl and Ricky have a more detail-oriented desire for big business – and it’s a tune that small business owners have been singing for decades.
“One of the things that Big Business can do, and which we also have as a key goal for Proquo, is to open up their procurement processes to small businesses,” Carl says.
“Often big businesses require providers to be part of an approved panel before they can be considered for some work, however this is not always practical for smaller contracts that would naturally fall to smaller providers,” he says. “It would help startups to be able to sell into big businesses via a platform like Proquo.”