Start-ups, Investment and Education in Australia: we need to do better

(This is a copy of a post I recently wrote on LinkedIN).

I read Stuart McKeown’s post ‘Why Being an Australian Startup Sucks’ with interest. Especially in light of the recent failure of 99dresses and the in-depth exposé of the roller coaster Nicki Durkin went through.

On the face of it Stuart’s article indicates that when Australian’s put their mind to it they can be successful with their start-ups; the only problems (apparently) are that not enough money is coming into the start-up ecosystem to begin with and the tax regime ‘sucks’ compared to elsewhere. Which are fair points, but I think there is something deeper which is wrong with the start-up community & the general community in Australia as a whole, let me explain.

Cast your minds back, if you can, to the days when Microsoft & Apple got off the ground – what enabled them to get going? Was it a 50 page business plan? Was it some cunning new workflow yet to be patented? Was it the equivalent of a deck of convincing big font Power Point slides? Or was it a hand out by the government?

Nope, none of that – what enabled them to succeed was actually quite simple – it was bloody hard focussed effort combined with a focus on the utilisation of the right technical skills & resources to deliver services that people wanted to consume. Yes, some crazy luck came into it (and some real stupidity on the part of their competition) but hard graft was key and a key enabler to that hard graft was technology. BTW The US government had no part in starting them off, in fact most of the big players came from nothing or funded themselves off credit cards or ‘friends and family’ money.

I fear also that there seems to be a cult of start-up developing in Australia which is more about the experience than the result (see this article for more background on why I think this is such an issue) . Something which I find actually quite counterproductive and could be the root cause of why on the surface there appears to be so little private investment in start-ups. People, as a general rule, want to invest in businesses with a future. To me, start-ups are businesses in their nappies and are not a lifestyle choice, when they grow up it can be successful lifestyle choice, but not before. So ideally the sooner a start-up starts calling itself a business and not a start-up the better.

Where do new technologists come from?

We face a real disjoint in Australia at the moment; we want to grow a start-up community yet it seems we are doing little to encourage those who are key to a true start-up community – namely technologists – to call Australia their home.

For instance (and I was discussing this with a fellow nerd a few days back) in our education system maths can be dropped at year 10. Maths is absolutely critical to being able to program or do technical design well – you need to have that analytical mindset that maths gives you to do it well. Yes, anybody can learn to program, but like any skill there are those who just do and those that excel. Plus, perhaps unlike any other field of human skill, in programming you can have multiple orders of magnitude in effectiveness between one programmer and another. Some pick up one language and seem unable to comprehend anything else; yet others (like me) pick up new programming languages in a day or two and just go forth and develop… So missing out on producing one ‘mega’ programmer could mean the difference between the next super start-up, or not…

This educational issue is also further compounded by the focus on making people net consumers of technology rather than net ‘comprehenders’ of technology. Nowhere in school is the difference between commercial and open source software taught and what that means. Nowhere is a basic comprehension of how exactly that tablet or notepad you are using actually came about. No effort is made in general to ‘pull back’ the technology veil; and we wonder why we have such little real interest in technology and so little value given to those who do understand technology?

This disregard for technology and its value also seems to have invaded the start-up space as well. I see articles about starting a start-up without a technical founder and I truly cringe. It’s like trying to run an ocean liner without any engineer’s; possible, but very dangerous and inefficient, you might get away with it for a while but sooner or later you will hit a technical ‘iceberg’ and sink.

The additional problem with lack of technical awareness is that makes the money supply side difficult. If you have no appreciation of technology and instead focus on more traditional business investments opportunities (which in Australia is often mining/construction directed); why would you invest in something like technology that you do not understand or appreciate?

I was also talking with a recruiter at a major technology business in Sydney a few days back, he was commenting that he has incredible difficulty getting people of any true worth to call Australia home. A combination of golden handcuffs, perceived risk and lower ongoing career opportunities makes Australia a hard sell to those at the top of their game. Why come to Australia and operate in a technology pool the size of X when you can be in Silicon Valley and be in a pool at least X*X? Yes, you can pick up school leavers and university graduates easily enough, but access to the deeper higher leverage knowledge pool is comprehensively denied; especially when combined with the stock option taxation issues…

Why you need a technologist

I think it is actually more important now than ever that you have a technical founder (or at least advisor to hand) than ever before. The reason being is that there is so much choice in how to enact technology that it is quite easy to make a wrong choice and not realise it, as you can only choose out of what you know – there could be a whole universe of more effective technologies and approaches that you, as a none technical person, would not be aware of. It still amazes me the number of people who get caught out by this on the regular basis by something I would consider common knowledge, and that’s the crux – because I’m a technology nerd, technology ‘stuff’ sticks in my head with no effort and it won’t stick in yours for exactly the opposite reason – you have an inbuilt technology blind spot & you won’t notice it.

Now this blind spot is actually quite a problem, as you have no way to truly assimilate technology into the product or service you are trying to create. It’s a bit like trying to cook without understanding what each of the different ingredients do – fine if you stick exactly to the recipe – but as soon as you need to make some changes…

Whereas with a technologist involved in your business, you get an awareness into that technology blind spot – this creates what I term ‘technology enablement’ – in effect the technology becomes a lever you can apply to enhance your business. Which, by the way, is exactly what Yahoo did to establish themselves – they got the ability to serve webpages at scale down to a fine art by being technically obsessive about how much could be served off a given box – they knew their rate of growth in ad buy was only limited by their speed of response; more pages served equalled more revenue!

Now, this ‘want’ to create start-ups without technical founders could well be coming from an actual lack of technical founders to be had – but this is a bit like trying to treat the symptoms of a disease and not its root cause – if we truly have a shortage of technologists, what are we going to do about it? We are happy just ‘faking’ it? Probably not.

Things to fix ASAP

I feel we really need a complete sea change in how technology is valued and taught; combined with a higher awareness of its value in creating business over the longer term. This sea change needs to come both from business and government. I think the following needs to be done urgently:

  1. Stock options. I agree the tax treatment of stock options in Australia is just stupid & a complete farce – we are doing exactly the same as France does, and I remember in the early days of Yahoo! employees in France having to get loans from the business to keep them afloat due to the aggressive taxation of their options prior to exercise! Also with the current situation (as shown by Atlassian and all the other start-ups going overseas) the government won’t really get their tax dollars – some other government will. So the current system does the double evil of making successful start-ups go overseas and denying the government tax dollars – how more stupid can a taxation policy be?
  2. Start-up friendly taxation. Borrow an idea from Singapore, let start-ups less than 5 years old have the first $50,000 of profit tax free per year. This avoids the whole silly bureaucratic mess of applying for grants for R&D and ‘expert’ grants – just spend the money growing the business as you see fit. This also has the desirable outcome of focussing start-ups on being profitable and becoming stable entities.
  3. Reduce communication costs. The cost of accessing and using the Internet in Australia is just too darn expensive; it acts as a real brake to innovation and business growth. The solutions are out there, the market is just set up to be inefficient to get them to market. And no, we should not depend on the NBN to save us, I personally think it was already too late even before it started. Essentially competition watchdogs need to be given more & sharper teeth and perhaps GST removed from internet access plans. Another good move in this space would be to give priority to hooking up business centres.
  4. Education. Look at making general technology awareness of higher significance in the curriculum. At least ensure people have a base understanding of the real value of technology and what it can enable. Also make a bigger effort on teaching higher computing skills to more students.

The strange thing is these changes are not actually that hard to implement, it just requires the political and business will to see them happen. With just the 4 simple changes above the environment for start-ups and new businesses in Australia will change markedly for the better and increase the actual money coming into the government. The real question perhaps is: why haven’t they been done?

Feel free to comment below: Do you agree with me? Is there something else you would do?

Addendum

If you have a son or daughter who is interested in IT, I suggest you have a look at the National Computer Science School – it should be right down their street. They are also looking for sponsors, so give them a hand if you can.

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