Australia is known as a nation of sporting champions; but when it comes to entrepreneurship we may have dropped the ball.
A recent U.S News and World report ranked Australia 13th (four places down from last year) on its list of ‘Best Countries For Entrepreneurs’, citing technological expertise, innovation, culture and easy access to capital as barriers to Australia’s start-up scene. We spoke to some well-known Australian entrepreneurs to see if they thought this was really a problem.
Technological Expertise & Innovation
When Sam Salter, co-founder of Marketplacer (a platform that enables businesses to create online marketplaces), started building his business 10 years ago, “It felt like the online industry was still immature and even a bit rogue here in Australia. There would be great discrepancy between service offerings, value for money and expertise in the industry.” That has now changed though, he argues, citing an extensive set of resources available for entrepreneurs.
“From Braintree’s payment gateway, to Sendgrid’s email services and Marketplacer’s own marketplace technology, which we’ve developed over the last decade to help anyone create their own online marketplace, entrepreneurs no longer need to build a custom platform from scratch anymore.”
As for Australia’s supposed lack of technological expertise, Sam said that although there is always competition for talent, “There is no shortage of tech expertise here in Melbourne and we seek to hire the best and brightest.”
On the other hand, Patrick Kidd, the owner of PATRICKS, a luxury hair salon, said that when his business was getting started they had to manufacture in the US to get the quality they were chasing, because, “Australia doesn’t have the world leading formulations companies that we needed to get our product to be the best in the world in terms of performance, quality of ingredients and labs that are always pushing the limits of what is possible in the personal care space.”
“Innovation, especially in my industry, is hard in Australia as there is simply not the market size to work with when compared to the US, UK, Asia or Europe, so the money isn’t there to create competitive companies,” he added.
Government & Tax Rates
According to Matt Jensen, founder of M.J Bale, a bespoke, premium menswear brand, we need to get far more competitive on company tax rates—particularly in the developmental stage of a business.
“When it comes to start-ups, what’s really key is getting your staff in the early stage of the business to do a lot of heavy lifting, and one of the things I believe Australia is really deficient in compared to the rest of the world is capital gains tax.”
Basically, people are having to pay tax upfront on options that are deemed to have value when really, “The value is going to come much later down the line.” So this is certainly an area that if improved, could see Australia’s ranking for entrepreneurship rise.
Secondly, he said, “Australia is a really expensive place to do business, whether it’s staff, wages, rent, utilities or cost of living pressure… and it’s very hard to sustain that heavy cost base. You’ve got many other countries around the world with lower tax rates, so if you’re spending more on wages and rent and trying to get a business going, and then paying more tax than your global competitors it’s a significant drain on your cash flow—and cash flow is vital.”
On investment culture, Matt said, “Raising early rounds of capital here is challenging, and I think there’s a risk perception with many investors here that doesn’t exist in other countries. America is much more prone to taking early stage risk. Maybe because the size of the prize is bigger. Culturally investors may be getting a bit better, but there’s opportunity there to improve.”
Patrick expressed a similar opinion, arguing that Australia still has the ‘tall poppy syndrome’, which doesn’t really promote or reward entrepreneurs for success.
“If you drive a Lamborghini or something like that down the street in Sydney people think you are a wanker, whereas in the US people clap and cheer and seem to be pleased for people that have achieved success. I think this definitely has an effect on people pursuing entrepreneurialism.”
Sam looks at it a slightly different way, saying that although it is challenging, “The strength of building a company here in Australia… is that our governance structures mean that only those with strong processes and systems that stand up to scrutiny can prosper – and this means if they work in Australia, they are likely to hold up globally.”
Access To Capital
Matt says that, “If we don’t see important structural change in terms of the government legislation, tax laws and incentives bringing capital to this country, we will likely slip further down the rankings (of the list of best countries for entrepreneurs). If you don’t get that right then other countries will overtake”.
Patrick agreed, suggesting the implementation of greater tax breaks for companies that earn under $1M in revenue per annum, which he says would inspire more start ups and entrepreneurs to take the jump and start a company.
“I think the government could put some pressure on the banks to allow more business funding without the need for bricks and mortar assets prior to lending money. The main problem for small business or concept companies is usually funding or a lack of it. ANZ for example says they have $1B to lend to start ups—but they don’t mention it has to be guaranteed by property or other assets, most young people don’t have these kind of assets!”
The takeaway points are: although we do have a healthy start-up culture, if we want to see it rival that of America or Germany (ranked as number one), we should push for tax schemes that give Australian entrepreneurs easier access to capital. We should also lower tax rates in order to attract investors, because the lower the tax rates—the higher the rewards.