The Australian economy is at an interesting period of transition.
Announcements of job cuts at Qantas, closure of both Holden and Toyota’s Australian plants, and SPC Ardmona’s call for help have all put serious dents in the validity of our manufacturing (and economic) future.
The slow extinction of mining, which has been fuelling recent growth, adds another dimension to the economic outlook.
PricewaterhouseCoopers (PwC) recently noted that Australia’s economy is likely to fall out of the world’s top 20 by 2050. Looking at where growth will come from in the next 20 years, Deloitte have predicted gas, agribusiness, tourism, international education and wealth management will stepp up to fill the gap left behind by mining.
Economists believe that entrepreneurship and diversified spread of sectors will be key to shaping our financial future. If this is to be, the fact that and only 50% nascent firms even reach operational stage needs to change. With the SME sector in Australia employing 70% of the workforce, it is crucial for the country to sustain and grow the entrepreneurial community.
While the spirit of entrepreneurship and innovation is alive and well in Australia, some fundamental changes are needed to the system to ensure ideas fuel future growth.
Innovation vs success: Australian entrepreneurship is ranked high globally with 2011 Global Entrepreneurship Monitor (GEM) placing us second behind the US. However, we rank 20th in the OECD in terms of patents per capita, which accounts for less than 0.8 per cent of the world’s patents. Given the low long-term success rates of most businesses, definite steps need to be taken to foster entrepreneurs and innovation at a fundamental level.
Mentorship, increased government involvement, more support from banks and other financial institutions will all help the long-term commercialisation of ideas. While start-ups need help in navigating the initial tough years, small businesses need support that gives them confidence to grow and maintain operations locally.
Perception of failure: According to PwC, “fear of failure” is more common in Australia than in the US. Being risk averse and viewing failure as a bad thing is a trait that sets us apart from entrepreneurs in other developed economies. The discussion of possible failure and steps to address it should be encouraged rather than shunned.
Majority of entrepreneurs who cannot make their first idea stick, give up and get back into the workforce as an employee assuming business isn’t for them. Entrepreneurs tend to fail because of lack of proper preparation. Failure needs to be reflected upon so you can get it right the next time. Was the product right for the market? Could it have been priced differently? Were you priced competitively? How much research did you do? Were your expenses and investment significantly higher than your returns?
Not every idea is a brilliant and failure can teach us a lot. Reflection on the mistakes of the past gives us the opportunity to learn and get it right the next time
Funding: Funding models in Australia need to change on two intrinsic levels: 1) increased awareness of and requests for funding by entrepreneurs at nascent stage and, 2) more funding available at VC stage.
Over 70% of nascent firms seek external funding in the initial stages, choosing instead to use their personal savings and credit cards to fund their idea. We need more education on entrepreneurship at a general level (addressed in the next point) so innovators across the board know how to get funding at start-up stage.
On the other hand, Australia regularly loses smart innovators and successful businesses to the US (especially tech start-ups) due to lack of a mature venture capital (VC) market. While it is easier to start a business in Australia (compared to many other countries) and the network of angel and VC investors is growing, we still have a long way to go in – especially in supporting businesses that need over $5 million in capital. It is the rare successful global business such as 99designs that has managed to maintain a presence locally whilst sourcing funding from the US.
Education: The University of Western Sydney recently started a first-of-its kind program called The Academy where students were brought together from different disciplines (medicine, law, arts, etc.) for common academic learning. The program shapes new leaders of tomorrow by teaching them skills that transcend sectors and specific roles. It teaches them to be achievers regardless of changing economic climates.
Likewise, a fundamental change is needed in the education system to teach all students about entrepreneurship. Beyond business schools, entrepreneurship has not been promoted well in academic curriculum across all levels from high school to universities. This has to change if we want more innovators to create successful businesses that stay on Australian shores.
Entrepreneurship needs to transcend from innovation and starting a business to creating a change in the society and be relevant not just in 2050, but beyond.