Start me up Are hubs the an­swer for new en­trepreneurs?

The Australian - The Deal - - Front Page - Story by: Deirdre Macken

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’.”

Illustration by: Sam Vanalle­meer­sch

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