Prime Minister Turnbull is clearly positive on the role of innovation and start-ups in the Australian community, which is really great. But as he gets ready to unveil his long awaited innovation statement, let’s be honest about the effectiveness of this policy document.
Will it meet the needs of all start-ups? To answers that, it’s important to understand that a start-up has a life cycle and depending on what stage of the cycle a start-up is in will depend on what it needs.
As such trying to find policy that fits all start-ups, isn’t going to be easy and certainly won’t be able to please everyone; the first step in the process will require clarifying the stages that a start-up has to go through.
Ideation
The founder(s) will see a problem in their world and make a decision to solve that problem. They will brainstorm and come up with a solution that solves that problem and then ideally go do some research to check that that problem-solution combination has not already been addressed and that there is a market for their idea.
MVP
They start building a proof-of-concept/prototype/minimum viable product (MVP) that demonstrates the solution to the problem. Then beta testing begins with a small group of trusted test subjects. Valuable feedback is received and changes are made accordingly.
Early stage commercialisation
The product is ready to show to the world. Marketing begins and real users start using the product. At this stage the founding team are still wearing many hats each and stretched to their capacity while they grow their user base and hopefully their revenue.
Commercialisation
The company now has proven there is a demand for their solution. They have real customers and now they start to scale out the business by bringing on staff and spending money to further grow their user base.
The company will continue in this growth pattern until it becomes a stable real business and no longer a start-up. Each of the steps can take a different amount of time depending on the kind of business and the success they see and the support they get along the way.
So how can the government help?
It’s during the first three stages that start-ups need the most help to survive, as generally once they reach commercialisation, they can raise funds from the private sector.
Where policy can help is by looking at the common things that all start-ups need going through these three stages.
The first place to start would be to give start-ups the help they need to turn their product into a reality. A great product doesn’t mean much if no-one knows about it and while the current incentives such as the R&D Tax Incentive and Export Market Development Grants (EMDG) are great they are limited to building a product and marketing overseas. What about marketing locally in Australia which is where most start-ups test their product? There is a gaping hole here. Marketing and getting customers is a key to the success of any start-up and a rebate, like the EMDG, but one that includes expenses for promotion in Australia could help. However, it would need to be limited to companies with less than $500,000 in revenue.
All start-ups need a place to work and spend a substantial portion of whatever funding they have on rent. One way the government can help is by providing free or subsidised rental for start-ups in government funded co-working spaces.
Many start-ups make the mistake of doing too much themselves. This is understandable when you are bootstrapping and limited for funds but sometimes it can come back to bite you and can lead to a poorly run company which ultimately leads to failure. The government can play a role in helping many start-ups gain fiscal knowhow by providing a rebate for start-ups who spend money on running a good business by hiring a bookkeeper, tax agent and lawyers to make sure their basics are properly covered or alternatively incentivise service providers to give start-ups lower rates or even free services.
My final suggestion to the government would be to partner with those that know. There are a number of experienced entrepreneurs in the Australian community who have setup workspaces, incubators, accelerators and mentor/training programs. Programs like Accelerating Commercialisation show great intention but have clear limitations.
Instead of sheltering the money in government run programs that are limited by bureaucracy, partner with existing private organisations by providing them the funding to allow them to better do what they do best and support start-ups in succeeding.
Gary Shapiro is a director at Rimon Advisory