Solving Australia’s innovation crisis

SmartCompany’s roundtable brought together 17 entrepreneurs and experts to to identify the next 10 multi-billion dollar industries – and create an action plan for developing an entrepreneurial Australia.

By Amanda Gome, James Thomson and Colin Benjamin

SmartCompany has assembled a group of 17 entrepreneurs and experts to a Roundtable to identify the next 10 multi-billion dollar industries – and create an action plan for developing an entrepreneurial Australia.

Australia wants a new direction. And since the Rudd Government took office six months ago, there have been a plethora of inquiries and summits announced as the nation seeks to forge a new future. But there has been a glaring omission.

There has been almost no discussion on how to develop an entrepreneurial Australia. Worse, recent support has been stripped away: $1 billion of SME programs were cut in the last federal budget. There is growing concern that a flexible workforce is obsolete with changing IR laws and a fear that businesses may be hit with increased costs such as paid maternity leave.

Last Thursday, SmartCompany asked 17 high profile entrepreneurs and experts to PricewaterhouseCoopers’ office in Melbourne to discuss some very important questions: How do we develop an entrepreneurial Australia? How do we create the nation’s future wealth and jobs? How do we make sure that Australia takes a global, futuristic, proactive approach, not a more nationalist, narrow and reactive one?

The aim of the SmartCompany Roundtable was to identify 10 multi-billion industries of the future and develop an action plan to ensure that SMEs are linked into these global industries and opportunities.

Why is it so important? For a start, it is the small and medium business sector that holds the answers to this Government’s agenda. The Government wants a more productive nation of skilled workers. It is the SME sector that trains staff and creates the innovation that makes the nation more productive.

Secondly, the Federal Government announced earlier this year that it would undertake an innovation review by the Natioanl Innovation Council, the first large-scale re-examination of innovation policy since the Howard government’s $5.3 billion Backing Australia’s Ability program, announced in 2001.

This innovation review is Labor’s chance to re-connect with entrepreneurs. “It’s a great, once-in-a-generation opportunity to put some major stakes in the ground – as long as we can get our act together,” says the review chair, Terry Cutler.

Cutler and Narelle Kennedy from the Australian Business Foundation both attended the SmartCompany Roundtable as observers.

The results from the Roundtable will join more than 700 submissions. Cutler will present the report to the Government by 31 July. The Government has promised a white paper response by September, with the actual programs coming out of the innovation review expected to form the centerpiece of next year’s federal budget.

Cutler gave the most detailed outline yet of the direction that the innovation review is taking. His big focus is around forcing Australian entrepreneurs to look outwards. Cutler describes Australia as the “2% economy”, which refers to the fact that Australian GDP accounts for around 2% of global GDP.

He argues that if Australian business is to be successful, it must look beyond domestic markets towards the huge growth opportunities that exist offshore. “The question is, how do we better internationalise our innovation strategies? How do we tap into that other 98%?”

Kennedy agrees. She says Australian innovation needs to start by looking at the size and needs to the customer base. “We need to shine a torch on the demand pull-through, which where the real wealth is created.”

She also says Australians need to stop thinking about innovation in terms of new inventions and scientists in white coats and start thinking about a much broader definition of innovation as business transformation. “It’s about private enterprises transforming their capabilities and doing things in new and better ways,” Kennedy says. It’s a clear signal that the innovation review will not concentrate on the science and education sectors.

The review will not be shy about picking out certain industries that will receive specific Government support. The process of picking winners is frowned on by some free-market economists, but Cutler is unapologetic, arguing the Australian economy is too small not to concentrate on those areas where Australia has a competitive advantage.

Cutler wouldn’t nominate the industries the innovation review is likely to support, so we asked IBISWorld general manager Rob Bryant to help us identify Australia’s 10 multi-billion-dollar growth areas.

Bryant says the key to these growth areas is outsourcing by households, business, government and other nations.

Here are the 10 big sectors:

• Business and property services – outsourcing non-core functions.
• Financial services – outsourcing of transactions/investment.
• ICT and knowledge industries – communications and data services.
• Health – outsourcing home doctoring.
• Education – outsourcing pre-school, plus universities.
• Personal, household and hospitality services – outsourcing chores.
• Tourism – outsourcing travel and accommodation.
• Recreation and cultural services – outsourcing leisure.
• Mining – energy minerals (oil, gas, coal, uranium).
• Biotechnology and nanotechnology – New age technologies.

We’ll be bringing you a detailed look at the specific opportunities in these sectors over the next few weeks.

Action plan

We also asked our panel of entrepreneurs and experts to come up with an action plan that will allow Australia SMEs to make the jump from local companies to global companies.

The idea was to get beyond the usual whining about how big the barriers are for Australian companies and instead produce a list of strategies and solutions that would help us build an entrepreneurial Australia.

Here is our action plan:

Develop a tax system that energises emerging industries

It is essential to have a tax system that energises emerging industries. This may include the expansion of current initiatives such as tax concessions for research and development or the development of new tax structures that encourage entrepreneurs and investors to take risks.

Tax incentives need to be provided to develop intellectual property and infrastructure. There was widespread criticism of payroll tax as a tax on employment and a disincentive to employ.

Import entrepreneurial skills

While there was widespread support for moves to invest more in education, skills shortages remain a problem across most Australian industries and entrepreneurs are clearly impatient with long-term strategies to solve these problems.

The entrepreneurs say it is crucial they get increased access to skilled and unskilled workers from abroad (through, for example, expansion of guest worker programs) and a great emphasis on retaining highly-skilled Australians.

There was also a suggestion to broaden the skills required when migrants apply to come to Australia to include entrepreneurs; why not import proven entrepreneurs who could establish businesses in Australia and pass on their skills?

Get the right infrastructure – now

Our entrepreneurs and experts were unanimous in calling for increased investment in new infrastructure such as ports, road and rail – but particularly a robust national broadband network.

Help Australian companies shift from local to global

Given the outward focus of the innovation review, steps need to be taken to help Australian businesses compete on the global stage. Our entrepreneurs and experts want the Government to help lower the cost of access to global markets by, for example, helping to provide better broadband infrastructure and expanding on Austrade’s export support programs.

They are also keen to see cross cultural access improved (though the negotiation of free trade agreements and establishment agreements) and protection of intellectual property strengthened where possible.

Of particular note was the support that the Export Market Development Grant had provided. And it was anathema that it would cut out when companies had $30 million revenue. As Darrell Wade, founder of Intrepid Travel, says this is when the company has a proven track record at home and is in the best position to expand globally but needs assistance with marketing.

Improve access to capital

Many of our entrepreneurs and experts noted the ironic problem of small companies struggling to attract funding while Australia’s superannuation coffers contain more than $1 trillion. They want to see Government offer created front-end and back-end incentives (such as tax breaks) for investment funds to become involved in funding start-up companies and early stage projects.

Another suggestion by venture capitalist Doran Ben-Meir, founder of Prescient Venture Capital, was to follow the Canadian model, where super funds are legislated to spend a certain proportion of their funds in SME venture capital.

Mandating Government purchasing

Australia should follow the US and Britain by ensuring that small and medium businesses get a much greater share of Government procurement and research deals, Cutler said at the SmartCompany Roundtable.

In the US, 2.5% of research contracts from government are awarded to early stage companies, which assists bringing early stage R&D and technology to market. Also in the US a huge amount of government procurement contracts go to SMEs.

While the SmartCompany Roundtable entrepreneurs supported the idea, some had problems with the idea of positive discrimination; that is the idea that governments would be forced to buy inferior products.

Shift the focus from local to global

Entrepreneurs made the point that there is Government assistance for those that seek it out. Carolyn Creswell, founder of Carmen’s Fine Foods, says she has had tremendous support from Austrade to assist breaking into new markets and from AusIndustry to access new grants. However our experts note that too often the mindset of Australian business people is local – not global. Some type of program/encouragement where the benefits of a global outlook were highlighted would be beneficial.

We want our action plan to be a living document. How do you think it can be improved? What have we missed? What ideas do you want to see? Please give us your feedback. Email feedback@smartcompany.com.au

 

Who attended the SmartCompany Roundtable

Amanda Gome: Founder/publisher SmartCompany.com.au

Previously an editor and senior writer at BRW magazine where her passion and interest in entrepreneurship led her to founding and editing the Fast 100 list and the Emerging Companies section. Over two decades in business journalism, Amanda has interviewed almost every entrepreneur in this country worth their salt… and plenty that weren’t! She is also an adjunct professor of business at RMIT University, lectures students in entrepreneurship and regularly comments on business.

 

Terry Cutler: chair of the Federal Government’s review of the National Innovation Council.

Principal of Cutler & Company. Currently a member of the board of the Commonwealth Scientific and Industrial Research Organisation (CSIRO), a member of the Victorian Government’s Innovation Economy Advisory Council, a member of the International Advisory Panel of Malaysia’s Multimedia Super Corridor, and a director of Malaysia’s Multimedia University.

 

Robert Bryant: general manager, IBISWorld.

Robert joined IBISWorld as national sales manager in 2005 and was appointed as general manager in December 2007 to head up operations for IBISWorld Australia. In this capacity he is often called upon by IBISWorld clients from a diverse range of industries to speak about likely issues and challenges to be faced.

 

 

Colin Benjamin: futurist and principal Marshall Place.

Colin is also director general of Life: ‘Be in it’ International. Colin has a professional doctorate in business administration at the Australian Graduate School of Entrepreneurship and is widely known in marketing circles as the author of the Roy Morgan Values Segments.

 

James Thomson: editor SmartCompany.

Most recently James was a senior editor at news and commentary website Business Spectator. Prior to that, James was editor of BRW’s Rich 200, Young Rich and Executive Rich editions. James specialises in wealthy entrepreneurs and business strategy.

 

Darrell Wade: founder Intrepid Travel.

Darrell cooked up the idea for Intrepid Travel with co-founder Geoff Manchester in 1989. Eighteen years on, with turnover of $130 million, they have 800 employees across 23 companies in the Intrepid Group and operate in 96 countries. Intrepid now takes 50,000 travellers worldwide each year, and has offices in Melbourne, London, Auckland, Los Angeles, Bangkok, Hanoi, New Delhi, Quito and Lima. 

 

 

Simon Baker: chief executive Realestate.com.au

Since joining realestate.com.au in 2001, the business has increased revenues from $4 million to over $100 million, become profitable and increased its market capitalisation from $8 million to $800 million. Prior to becoming CEO, Simon was chief business development officer at News Interactive, was chief technology officer in a US start up and spent five years with McKinsey and Company providing strategic and organisational advice to senior management at major Australian and international companies.  

 

Eric Beecher: founder Text Media, Business Spectator.

Eric has worked as a reporter on The Age, The Sunday Times, The Observer and The Washington Post. He has been editor of the Sydney Morning Herald and editor in chief of the Melbourne Herald and Weekly Times newspaper group. Eric is currently co-owner of Crikey, SmartCompany, Eureka Report and a founder of Business Spectator.

 

Carolyn Creswell: Carmans Fine Foods.

Carolyn bought herself a job when she was just 18. She was working part time making muesli, heard she was going to be laid off and bought the business herself for $1000. Two years later she bought out her partner and began putting her muesli and muesli bars into supermarkets and delis. Now the company has revenue of more than $10 million and exports to 15 countries.

 

 

 

Leigh Jasper: founder Aconex.

Previously with McKinsey & Company, Leigh advised clients in the media, financial services and building materials industries on strategy, mergers and acquisitions, and business growth issues, with a particular focus on the emerging impact of the internet.

 

 

Richard Treagus: chief executive, Acrux

Richard joined Acrux in May 2006. He is a medical doctor, with 15 years experience in the international pharmaceutical industry. He was responsible for the sales, marketing and strategic business development at Aspen Pharmacare and a member of the senior executive team that took the company through a rapid growth phase following the acquisition of South African Druggists in February 1999. More recently, as general manager of sales, marketing and business development at Sigma, Richard played an integral role in establishing growth opportunities for the business.

 

Tony Douglas: Essential Media

Tony specialises in designing communication strategies based on research and creating advertising campaigns for TV and radio. Tony wrote the communications strategy and produced the TV and radio advertising campaign for the ‘Your Rights at Work’ campaign for the ACTU. Prior to EMC, Tony founded and managed an independent radio current affairs production house, Public Radio News that produced news, daily current affairs and specialist weekly programs for the Public Radio Network (PRN) and the ABC; before founding and managing an independent radio communications consulting business in Canberra.

 

Gregory Will: partner PWC.

Business adviser to private businesses, entrepreneurs and high net worth individuals. Advises businesses on strategic planning, due diligence, valuation and exit strategies to maximise shareholder wealth and business return.

 

 

 

Doron Ben-Meir: founder of 10 IT companies, founder and CEO Prescient Venture Capital.

Doron has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and was principal with Jagen, responsible for the management of a number of Jagen’s private equity and venture capital portfolio assets as well as the qualification and structuring of new investments. Previously, he held a general management position at ES Group Ventures, a venture capital business. Prior to that, he was a consulting investment director of Momentum Funds Management. Before focusing on the venture capital industry, Doron was a serial entrepreneur over a 12 year period, co-founding new technology based businesses.

 

Kosmas Smyrnios: leader, innovation & entrepreneurship, RMIT University.

Kosmas holds the position of Professor and Director of Research in the School of Management at RMIT University. Kosmas is associate editor of the Family Business Review, and on the editorial board of a number of academic journals.

 

 

Sue Prestney: Institute Chartered Accountants small and medium policy.

Sue is regularly interviewed in the press, radio and television. She also writes the monthly Enterprise column for Charter magazine. She is a member of the ICAA’s National Advocacy Taskforce and was a Victorian State Councillor from 2000 to August 2004. Sue is author of “The ABC of GST” (published by Information Australia) which was listed in BRW’s Top 10 Business Titles in April 2000, and “The ABC of BAS”.

 

Narelle Kennedy: Australian Business Foundation, member Review of the National Innovation System.

Narelle is a founding member of the Society of Consumer Affairs Professionals in Business, a member of Chief Executive Women, a director of the Entrepreneurship Centre, member of the Institute of Public Administration Australia and a fellow of the Australian Institute of Company Directors. She holds positions on various boards and advisory councils and has represented Australia at the Business Advisory Committee to the OECD.