Start me up Are hubs the answer for new entrepreneurs?
Successful start-ups begin with the same premise. They ask what the customer needs and then they design a solution for them. So, if Australia wants to create a start-up economy, we should take the same approach: ask the start-ups what they need to thrive in Australia and then design the solution.
This is not as easy as it sounds. Governments are full of planners, regulators, lawyers, accountants and people whose job it is to say no. And Australia’s history in innovation is full of things like the Multifunction Polis (now a pleasant suburb), the Australian Technology Park (now with the Commonwealth Bank) and car plates that proclaim the Smart State.
But it’s not too late. While the federal government races to hire digital officers in Canberra and the New South Wales government is figuring out how to turn sand silos into silicon gold at White Bay, the start-up community is full of ideas about how to make Australia agile.
Broadly, their responses range from the prosaic (fast broadband) to the self-serving (give us government contracts then get out of the way). But overlaying this is a desire to change the way Australia does business. And this fundamental change makes beanbags, free beer and old brickworks look like the easy way out.
Some of this radical rethink was flagged by the founder of Freelancer, Matt Barrie, who has lambasted nanny state laws for turning Australia into a backwater. “If you’re trying to attract smart people to come back to Australia, it’s a bit hard when the hashtag #nannystate is trending on Twitter,’ he told the recent Knowledge Nation Summit in Sydney, co-sponsored by The
Australian and Knowledge Society. Spurred by Australia’s hottest entrepreneur, Atlassian’s Mike Cannon-Brookes, the community last month set up its own lobby for the Sydney scene, called TechSydney. This may be followed by other city lobby groups.
But let’s not wait for the lobbyists. Ben Heap, founder of the venture capital firm H2 Ventures, says we only have to look at the characteristics of successful hubs such as Silicon Valley, Tel Aviv or Austin to spot the elements of success.
“It’s access to capital, access to talented entrepreneurs who have three or four start-ups under their belt, and a culture to support it – and that culture bit might be amorphous but at root it’s about attitudes,” he says.
“Right now, if you’re a successful executive who decides to do a start-up, you’re looked at with surprise and sometimes derision.
“It’s not about the built environment but a good environment helps. Look at (Sydney fintech hub) Stone & Chalk and you can see that the right environment can act as accelerator for all those things – attracting capital, allowing entrepreneurs to develop expertise and, most importantly, developing support for them.”
Heap, who is based at Stone & Chalk, says that he sometimes uses the expression Silicon Harbour because “it gives an edge to
A playpen for new companies is all very well, but it will take a cultural shift, not just an office with beanbags in it, to get start-ups bubbling in Australia
what we’re doing, and something like White Bay is another step to building that momentum”.
But then he pivots: “You need to be willing to iterate and experiment and, if it doesn’t work, get on to the next thing; develop clusters in regional centres, around mining tech and agriculture tech. It doesn’t need a large amount of money, just provide a nucleus, make the planning changes or give subsidised rent for start-ups and then step back and see what works.”
Phil Morle, chief executive of Pollenizer, is also sceptical about the special hub. “We have to avoid the theatrics of Silicon Valley, that is, the beanbags, bikes and ‘innovation corridors’,” he says. “There’s a school of thought that says instead of creating new innovation areas, we need to build zones or hotspots, and many of those have happened organically in Australia. There’s a benefit in geographical co-locating but it’s too late to start it from scratch – it’s more a matter of identifying where those hot spots are and supporting them.”
Morle says the co-working spaces need to mature and “have a sense of scale rather than just be hippie spaces. We should think of vertically integrated spaces, where government, business and start-ups can come together in the one space. Some were worried that the Commonwealth Bank has taken over the Australian Technology Park, but why not put fintech start-ups in there with the bank so we can create an explosion of financial innovation?”
While governments can lay out the spaces for innovation, entrepreneurs would prefer it if they opened their wallets.
“The best thing government can do is license services from start-ups – that’s much more useful than subsidies or handouts,” says Morle, whose company has set up an incubator within government to allow government data to be mined by businesses for commercial purposes.
He concedes that getting contracts from government “would change the procurement processes of government. So government would have to ask itself, what is its appetite for risk? Is it prepared to give it a go, take a risk on something new?”
Stuart Stoyan, the founder of a peer-to-peer start-up MoneyPlace, agrees that policies are more important than places and office space.
“What a start-up needs more than anything is customers and often those customers are business or government,” he says. “But if you’re a start-up and a corporation throws a 12-month procurement process at you, well that’s your runway gone.”
The federal budget pledged a “sandbox” for fintechs: a sixmonth period free of usual regulations to test their products. Says Stoyan: “In fintech and meditech and biotech, you operate in a very regulated environment. So something like the sandbox is great for fintech because it means you can do proof-of-concept and test your idea without worrying about breaching rules.”
Stoyan appreciates the role of networking and connectivity: he is founder of Melbourne’s Fintech Meetup, where up to 1800
members meet each month. But he nominates culture as the biggest inhibitor of innovation in Australia.
“Start-ups are sexy at the moment and that’s good, but what we don’t have is an acceptance of failure,” he says. “If you are a founder who fails in Australia, nobody wants to go near you. But overseas it means you’re experienced, you’ve learnt from failure and they’ll give you another go.
“Fear of failure crops up everywhere, it’s in all the regulatory systems that try to protect Australians from every possible negative outcome, and that’s a restrictive environment to work in.”
If town planners work with the physical, technology experts are more comfortable with the virtual. So, it’s no surprise that many have solutions that are in the cloud, rather than in concrete foundations.
Dominic Bressan, co-founder of the mobile commerce platform AirService, is “not a big believer in geographical hubs. If you look at that romantic view of Silicon Valley and working from the parents’ garage, they’re not the people who can decamp and work in a geographical hub, especially if they’re still at school or university”.
However, he does think the same sort of support could be offered by a virtual hub.
“It would give you more bang for your buck,” he says. “For instance, you could offer start-ups subsidised software tools, cloud services, even professional services. You could subsidise all the digital infrastructure that start-ups need.”
A virtual hub would enable entrepreneurs in suburban, rural and even global areas to join the innovation party and Bressan believes that even isolation wouldn’t be a problem.
“With conversation channels like Slack, you feel as if you’re always connected. It makes a big difference when you find a community of people who are talking about the problems that you’re working on. So subsidise access to things like Slack,” Bressan says.
One successful start-up that is no longer based in Australia is Jodie Fox’s Shoes of Prey. Now based in Los Angeles, Fox says the small Australian market and distance from world centres still hampers the growth of businesses like her bespoke shoe design house.
A small population, she says, is bad not only for retail but for fundraising. “Perhaps connected to our population size is the shallower breadth of funding opportunities – in particular there is a gap between initial funding and series D-size rounds,” she says. “This is in addition to the size of valuations being lower, which makes it less attractive to remain only local when fundraising.” (Series D is generally the fifth round of investment.) Tim Fung of online jobs marketplace Airtasker agrees with Fox that capital is a problem for globally minded start-ups operating in a small venture capital country.
“Our start-ups are 100 times underinvested when you compare us to Asia,” says Fung. “For every dollar we raise, they can raise $100. And this is especially when it comes to Series A capital – in Australia a series A will raise $4 million-$10m but in the US, it’s more like $30m.”
(Series A capital is mostly sought when a start-up has seed money and has a team on board and a designed product but needs money to get into marketplaces.)
“In Australia, if a venture capitalist gives you $10m, they expect a lot from that but if you try to get it from global investors, they don’t know enough about Australia to give real consideration to it,” he says. Fung’s answer is to showcase Australia. “If I was asked to task it, I’d say go to these global hubs, like Silicon Valley and Tel Aviv, get the best and brightest and get them out here to show them what we’re doing. Spend money marketing it too. The same way that Queensland markets its beaches to China, we should market our tech scene to the leaders in the tech world.
“Talking yourself up works. Everyone in Australia should be talking about the industry and celebrating its win. It’s a cycle – if you talk about how good you are, more people will want to come.”
At Envato, co founder Collis Ta’eed says many of the talent problems facing start-ups would be eased by a cultural shift.
“When we’re hiring we want the sort of person who thinks it’s better to work at a start-up than a big corporation,” says Ta’eed. “Some candidates worry about having a start-up on their CV. That’s starting to change, but we still need to celebrate the entrepreneur, feel good about taking risks and get rid of the culture that says ‘nobody ever got fired for buying IBM’.”
He says the journey of his firm, from Bondi garage to three floors of office space in Melbourne CBD with 200 staff and 90 remote workers, is typical of the past decade of innovation in Australia. And the motif for that journey is expressed in the search for space.
“We started in a garage, then went to a co-working hub, then when we looked for offices we were offered all these five-year leases and I said, what do you mean? We’re only five months old! We’ve been through three offices since and the last one we had to move out of because we needed four times the space and we left the office unused because it was too hard to sublease it,” he says.
“It’s in the nature of start-up planning that you’re thinking of capital planning, not office planning. Everything is uncertain with start-ups and the way to cope with that is to have people around you who recognise that and can cope with uncertainty, whether it’s leasing companies or staff or professional firms you deal with.”
Town planners and government policy wonks are realising that creating an industry of technology will need a different set of tools. It’s not the same as providing cheap land and tax breaks for manufacturers or building ports for miners. And it won’t be done with bean bags and bike racks.
As Stoyan says: “Australia is pivoting. We’re pivoting out of mining and manufacturing to technology and innovation. That requires a different mindset.”
“Some candidates worry about having a start-up on their CV. That’s starting to change, but we still need to celebrate the entrepreneur, feel good about taking risks and get rid of the culture that says ‘nobody ever got fired for buying IBM’.”