A leaf out of Israel’s book: Australia needs to step up, or risk falling further behind

Scott Morrison’s $100 million Business Growth Fund offers no reassurance for Australia’s startups, and little benefit for most established small businesses. His proposal targets companies that already have revenues of between $2 and $50 million (leaving many startups out in the cold) and will only support between 30-50 businesses each year.

This simply demonstrates how out of touch the current Australian government is with what makes innovative countries tick. And Labor looks worse, with the only mention of innovation and startups on the ALP website limited to a thin two-pager on science and research calling for an innovation council. To do what exactly, is not mentioned.

This is a worrying state of affairs and leaves Australia lagging desperately behind other countries that are boosting startups — and hence, their economies.

What makes certain countries hotbeds of entrepreneurship? We look on with awe and envy as other countries produce startup after startup, that take off and grow rapidly into multimillion-dollar enterprises. Israel has 3000 startups employing 20,000 people (Australia has half that number), while South Korea can boast of at least six startup companies becoming unicorns in 2018 alone.

It takes governments with common sense and foresight to begin the process of investment in innovation. Israel and South Korea both spend more money on research and development as a proportion of their economies than any other country — about 4.5% of GDP each (see the graph below showing Korea in blue and Israel in red, with the OECD average in black). They realise it’s this investment that is going to create a resilient economy for years to come.  

Australia is a snail in this regard. Not only has Australian investment in innovation declined from a woeful 2.4% of GDP to a pathetic 1.9% since 2007. Even sadder is that this drop has come at a time when almost every country in the OECD has seen a rise.  

Building financial resilience on anything we can drill or dig out of the ground is short-termist thinking. We have to be smarter and look to the ways Israel and South Korea operate. In short, we need our government to play a more active and intelligent role in supporting innovation and startups.

Tangled in red tape

Grants can and should be the way for potentially great startups to alleviate some of that stress and give them space and time to improve and innovate even further. The paradox is, while there may be grants available, but accessing them means negotiating a maze of bureaucratic obstacles.

Small Australian grants require multiple applications, and duplicated information, often in complex and confusing formats. And the inexplicable name changes of some grants seem to have the express purpose of making it more complicated to know what a business is entitled to.

Many grants require matched funding from the start-up.  These sums — which are only applicable at the time the actual grant is being given — could be required months after the application, by which time the company’s available funds have whittled away to nothing.

For the larger grants — the R&D Tax Incentive and the Export Market Development Grants Scheme —  the process of applying is anything but simple or fast. Countless hours are burned up trying to navigate the process of applying and collating information.

Indeed, a whole industry has sprung up to help busy business owners try to deal with applications. These grant consultants can take up to 20% of the value of the grant with minimum figures running into the thousands of dollars. There is something very wrong when taxpayers’ money — which is designed to build a sustainable economy based on innovative new businesses —  is being siphoned off to consultants because the grant application process is too complex and time-consuming. That 20% fee could go a long way to creating employment, sustaining small businesses and creating even more innovation.  

Worse still, after some very public cases, fear of monies being clawed back has led to many businesses simply foregoing grants altogether, rather than spending time and money (usually with consultants) only to risk a potential company-killing event as a result of an inaccurate application that was created by ‘grant experts’.  

Trust in the whole process is flagging, and it doesn’t make any long-term business sense.

Australian business owners and entrepreneurs deserve better

Businesses deserve a clearer application process in plain English, that is also time-efficient and non-ambiguous. They require relevant and accurate advice and support, from the grant bodies to help them apply and not waste their valuable resources in lost causes.

It also requires a government that takes innovation seriously and is willing to invest serious money into creating a nation that can compete with the likes of Israel and Sweden in entrepreneurship.

If the Australian government doesn’t get on board, startups will be left floundering, at best, or, worse still, simply create a brain drain where our best and brightest head offshore.

That outcome will not only be bad for Australian business and a loss to our economy, but a blow to our pride in being a country where you can ‘have a go’.

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