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Business Management

Australia: The Start-Up Nation Raised by Google Could be Worth $109 Billion By 2033

A report from Google and PwC predicts that although the tech scene currently makes up only 0.01% of the national economy, it could equal 4% in 20 years’ time if correctly nourished. Kathryn Cave discusses the implications of the report, along with the current state of the start-up ecosystem across Australia. 

“Being Googley in Australia is about having fun while doing great things,” explains the promotional video for Google Australia. And I’m sure you can picture the Sydney office: it is is extremely funky, boasts sleep pods (which look excitingly space-age) and offers free gourmet food (served in brightly coloured mini-beach-hut alcoves). All the employees interviewed are ridiculously enthusiastic: it’s “like a resort… but you get paid for it,” says one, whilst another eulogises you “get to do a little bit of everything… like you do in a start-up.”

Google has always been keen to push the Google ‘start-up’ lifestyle as part of its complete company package. Now, some might argue, it is trying to raise an army of mini-Googles by making recommendations on the Australian education system. Don’t worry, it is tech related, they’re not calling for indoor obstacle courses for navigating all classrooms or anything like that, but these recommendations all come on the back of an Australian start-up scene report, which urges for cultural change to promote innovation.

Alan Noble, Google Australia’s engineering director stressed that Australia must ask itself whether it wants to be a nation of technology consumers, or technology creators. "One costs money; one generates money. Shifting our focus as a nation from the consumption of technology to the creation of technology will help us compete in an increasingly global and connected world." Its solution is compulsory computer science in schools until year 10 (aged 16).

How to support tech start-ups and promote innovation in Australia’ was produced in April in conjunction with PwC and stresses the importance of start-ups for Australia’s future. It promises that by accelerating growth, this sector could contribute 4% of GDP and directly employ 540,000 people by 2033. The short term aims listed to achieve this are: encouraging 2,000 people annually to join the community from the existing workforce, supporting and encouraging the culture and community of start-ups across the country and increasing funding. The long term aims are: improving the regulatory environment to reduce barriers to participation and adjusting the education system in order to create the entrepreneurs of tomorrow.

The report includes a case study on Vietnam and highlights a section from Google software engineer, Neil Fraser’s blog. “I had walked into [a] high school class [in Vietnam] prepared to help them in any way that I could. But instead of the school learning from my experience, I learned from them. They showed how computer science education should be done. Start everyone early, and offer those who are passionate about the subject limitless room to grow.” Fraser concluded that grade 5 students were already programming in Logo at a level on par with their grade 11 peers in the US. Google now hopes to bring that sort of system to Australian schools in order to foster the right environment for the future.

The 'Aussie' Start-Up Scene

This report demonstrates that Australian start-up culture is not at the same level as counterparts around the world. This is partly because the country has a considerably higher ‘fear of failure rate’ than many more innovative places like the US and Canada. “Countries where people are not plagued by the fear of failure, which can prevent them from starting a business, consistently outperform others in terms of early stage entrepreneurial activity.”

Australia also lags behind other countries in its interest in entrepreneurialism, with only 54% of the adult population considering entrepreneurship to be an interesting career path, compared to over 80% from the Netherlands. However, PwC’s funnel graph 2011 does show that whilst fewer Australians are interested in entrepreneurialism, more intend to start a business over the next three years and those that intend to do so, are actually far more likely to do it.

 

Overall, Australia may not spring to mind as an incubator of start-ups, however, it does have one real poster-child of scene, Attlassian. This company is so cool it almost out-cools Google. Its website screams about end of year scavenger hunts, Friday beer carts and how employees get five paid days off per year to do charity. And that’s not to mention its annual ShipIt days - where employees spend 24 hours working on a project and then present it to the company. This has received international recognition and been copied by more than 50 companies, including Yahoo!.

Attlassian is a real success story. Begun by founders Mike Cannon-Brookes and Scott Farquhar with $10,000 borrowed on a credit card loan in 2002, it recorded a $100 million year of revenue in 2011… without a single salesperson. But what really socks you in the face is how ludicrously ‘Aussie’ Cannon-Brookes and Farquhar are. They tend to tip up in cut-off jeans and tee-shirts, and get mistaken for maintenance staff so routinely they almost ‘out-laid-back’ their Californian counterparts. Scott Farquhar tells a story about a how an ignorant ‘newbie’ bumped into him on his first day and asked: “How long have you been here?” “Oh, about 11 years,” Farquhar answered noncommittally, “And what do you do?” “Well, I’m kind of in management.” 

Yet as Sarah Lacy wrote last year in Pando Daily the company’s ascendency has been meteoric: “It has had a compound annual growth rate of 47% for the last five years, forty quarters of straight profitability.” In 2010, Accel Partners invested $60 million in the largest enterprise deal the VC firm had ever done.  Whilst Pando Daily went to report last month thatthe managing director of venture capital firm Southern Cross Venture Partners, William Bartee, recently said he had heard rumours the float would value [the company] at nearly $1 billion, meaning it is verging on becoming a worldwide success story.”

How Culture Affects Start-Ups

Interestingly, local cultural differences have a fundamental impact on the start-up scene around the world and being ‘Aussie’ could be what sets many new Australian companies aside. ‘The World Start-Up Report' on India, published in March for example, provided some fascinating insight into the Indian culture of entrepreneurialism. One commenter from the Delhi start-up audience commented, "If you want to get married don't do a start-up," whilst the presentation itself added, "It's a bad point on the matchmaking checklist, like being a struggling artist (without the glamour)".

This is a fascinating – albeit negative – social point, which is seconded by Talvinder Singh, Founder of Tushky.com: "Getting married and prospective in-laws are a major issue in Indian Entrepreneurship circuit. [The] world expects you to be some millionaire by now. Three years is like the litmus test of survival for any start-up. And that's when you are expected to marry. Well, a broke founder (ok, not really broke. Yet) of a crazy idea isn't a hot selling product, after all."

In India, part of the problem is that the country already has a high volume of traditional entrepreneurs who have made a lot of money. These tend to be fairly risk averse and stick to traditional cash-flow businesses and family affairs. This existing trend makes it hard for young tech start-up founders with an innovative ‘gap-in-the-market’ start-up dream to be taken seriously. However, with India’s mass of social and infrastructure problems this is precisely what the country needs, and it is navigating this tension which is likely to promote India’s most successful businesses.

These are not problems experienced in Australia and the Google/PwC report shows that support for tech start-ups has expanded rapidly over the last two years. “Australia already has one of the most favourable environments for entrepreneurship. There is no better time to be an entrepreneur.” In fact the country ranks at number 29 on the ‘PwC analysis of Global Entrepreneurship Monitor’, compared to the US at number 24 and the UK at number 37.

What Comes Next for Australia

 “It’s really only in the last five or six years we’ve seen start-up culture start to permeate this country,” says PwC partner Jeremy Thorpe. However the full report warns, “Australia needs to accelerate the use of technology in industry to ensure we maintain our global economic position. The internet and computing power are allowing technology companies to disrupt the global economy, leading to a redistribution of industry revenues (and wealth) across geographic borders.”

At present the Australian tech sector is made up of about 1,500 firms. These range from one-man-bands and duos started in the last 12 months to more established businesses which have been around for a decade. The vast majority however, are in the media or telecoms sector. Yet the report is keen to stress there are clear untapped opportunities in health care which is destined to surge with an aging population.

The report highlights key actions for start-up growth such as the up-skilling of entrepreneurs, the opening up of markets to Australian start-ups and most critically, more early stage funding for businesses and an improvement in the regulatory environment. Interestingly, the report notes that Australian VCs have had an overall industry track record of poor returns and that investment funding is lower than elsewhere in the world at just $US7.50 per capita, compared to $75 in the US and $150 in Israel.

As the global economy struggles and flounders, the light at the end of the tunnel really is new tech focused businesses that take an innovative approach to problem solving. This report is ultimately highlighting this opportunity in Australia, whilst pushing the need for a true start-up community. It follows a trend which is sweeping and is incorporated in numerous other initiatives. These include ‘Start-Up Chile’, which seeks to drive a network in Santiago, or (again) Google’s proposed plans to sink $10 million into 10,000 new Indian businesses in five years, not to mention all the innovation hubs springing up across the African continent.

The message here is loud and clear:  tech communities can be fun, exciting, stimulating and ruminative. And maybe, just maybe, with the right assistance, 'Aussie' tech could be like one large Google office…

 


The following action points emerged for start-ups in Australia:

Short term actions to promote Australian tech:

  1. Encourage over 2,000 additional tech entrepreneurs annually to join the community from the existing workforce
  2. Build the necessary community and culture to promote existing participants
  3. Help needed to sell start-ups to larger corporations and the government
  4. Increase the pool of available funding


Long term actions to promote Australian tech:

  1. Adjust education system to produce more skilled tech entrepreneurs
  2. Improve regulatory environment to reduce barriers to participation


Other information:

Start-up Genome 2012 ranked 20 global start-ups based on 50,000 organisations. Evidence from the Sydney and Melbourne ecosystems suggested that Australia could improve in the following areas:

  1. For investors: increase seed stage activity, especially by super angels and venture capitalists
  2. For entrepreneurs: diversify focus beyond simply targeting small and medium enterprise customers in niche markets
  3. For government: improve immigration policies, tax breaks and tax incentives for start-ups and their investors

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