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Help for small business – but innovation falters

by Colin Chapman

innovate signWhich country brought you refrigerators, the combine harvester, the aircraft black box, the inflatable aircraft escape slide, the rotary washing line, the two stroke lawn mower, the world’s most used shoe polish, latex gloves, the notepad, pre-paid postage, xerox photocopying, polymer bank notes, the wine cask, the pacemaker, Google maps, and the dual-flush toilet.. Australia.

Sadly, innovation and entrepreneurship in Australia is less visible than it once was. It still exists, and there are some spectacular examples of success, such as the growth of New South Wales animation firm, Animal Logic, which is now heavily embedded into Silicon Valley and elsewhere. But young entrepreneurs, scientists, medical researchers, technologists and other inventors are having a difficult time in getting their ideas to market.

Canberra’s chief scientist Ian Chubb recently noted that every country in the OECD except Australia has a plan to grow its scientific enterprise and aid its translation into technology, innovation and development. Federal politicians seem more attracted to profitless and irritable arguments over social issues, welfare, same sex marriage and a disputed Budget, than igniting a serious debate over innovation.

The Abbott government has taken some small steps to encourage innovation at the bottom end of the economy, with a modest 2.5% cut in taxation of small businesses, immediate tax write-offs for a range of capital purchases up to $20,000 each, plans for more apprenticeships, and a first $10 million tranche for a new Medical Research Future Fund.

The United States has attempted to stoke the pot on this issue with envoy to Canberra John Berry inviting a large group of us to his Ambassador’s Innovation Forum, run by the US Studies Centre at the University of Sydney. Ambassador Berry and consul Hugo Lorens assembled an impressive list of local American business leaders. Lorens described Sydney as “loaded with talent” as a world-class city in a Western democracy that operates by the rule of law.

New South Wales’ new innovation minister was equally upbeat. Victor Dominello said the Baird government was moving the state to the ‘cutting edge of innovation’, and cited figures showing 64% of new start ups were in NSW. He talked of an new app being developed for the Apple watch that would detect when a driver was about to fall asleep at the wheel, and cited other medical possibilities, such as alerts for an imminent stroke or heart attack.

Company leaders from Sydney-based Animal Logic, the government’s scientific research arm, CSIRO, and US giants GE and 3M all stressed the need for a greater emphasis in Australia on science and technology, with Animal Logic’s founder Zarah Nalbandian insisting ‘innovation needs to be built into a company’s DNA’. His is one company that has grown exponentially from its humble start as a ten-person company in 1991, and is now a leading global player in animation, operating in California, Europe and Canada from its Sydney base.

Other innovators have been less successful. A Microsoft report called Culturing Success found that companies are failing to grow as much as they could because of poor leadership and failure to adopt innovative new technologies.

Some of the earliest work on solar energy was carried out in Australia, where there is no shortage of sun, especially in the central deserts. But companies have foundered, due to patchy and inadequate support from Canberra, and now some of them are enjoying success in California. The University of NSW in Sydney is one of the world’s most widely recognised solar panel research centres, yet nearly all solar PV’s retailed here are manufactured overseas. As 3M’s representative at the US ambassador’s round table told the audience, “the big challenge is to take big ideas into manufacturing. Australia needs to build its manufacturing base”.

This is certainly true, but in recent years the trend has been for that base to shrink. Shorn of multi billion dollar subsidies, auto giants GM, Ford and Toyota are pulling out, although GM is keeping its design studio in Melbourne open and active. Boeing, which has an important role in Australian defence industries as well as commercial aviation, has its largest research facility outside the US in Australia. GE is also very active, for similar reasons.

And there is no shortage of innovative ideas. The CSIRO is sitting on what it describes as a “huge number of patents”, but the Abbott government has cut its funding. Regardless of the rights and wrongs of this recent decision, the highly acclaimed government agency does not have the best of records in getting its research successes converted into commercial applications.

Much the same is true of Australia’s highly rated universities. Australia ranks 22 in the world’s league table for patents and inventions worldwide, but only 80 in term of getting them to market. One reason for this is that academics and their faculties earn more kudos from working away in a laboratory and publishing their work to their peers, than in taking risks and pursuing a commercial goal. There needs to be a culture shift to the American way, but many academics are influenced by a cloud of anti-Americanism that hangs over many aspects of university life.

But this is not the main reason for the Australian weakness in developing new ideas, many of which come from outside the universities. An inventor I know who had a major role in photo recognition software pioneered in Sydney, and now introduced in New Zealand, the UK, some parts of the US and elsewhere – saving time for passenger arrivals at airports and reducing immigration processing overheads – found it impossible to get adequate finance for his proposals. He got a warm welcome in London, which, like New York, has an innovative approach to venture capital and equity finance. Many of Australia’s young and not-so-young companies, hitting temporary problems, have taken the same route, finding Australia’s banking system, dominated by a near cartel of four home-loan focused big banks, unreceptive, and an immature venture capital industry.

This needs to change, but who will change it? I observed that at the US ambassador’s roundtable, there were no bankers on parade. The finance industry was not really represented, yet it is the missing piece of the jigsaw in developing innovation in Australia.

The Australian Stock Exchange( ASX), as a big company itself, will list small companies, but there is no second board. Usually an entrepreneur will, like MYOB or Bellamy’s, have enjoyed substantial success, before moving to that stage, given the high costs, risks and the regulatory environment. There is an ongoing debate about crowd-funding, but it remains the case that most entrepreneurs who have a good idea see a global market for their new product or service, and will look for financial support elsewhere. This is not an issue to which either of the main political parties have given sufficient attention.

Colin Chapman is the founder of Australian Strategies