The Australian Financial Review Innovation Summit 2019 — reflections for Australia’s entrepreneur ecosystem
Tagged as the “Daily habit of successful people”, the Australian Financial Review provides a comprehensive view on business, finance, and investment news in Australia. These views are focused through the year in a series of policy summits on topics including higher education, infrastructure, banking and wealth, energy, national security, and innovation.
The AFR Innovation Summit provided an opportunity to consider the current state of innovation in Australia from a policy and economic structure perspective. Much of my work is focused on collecting data for mapping and measurement of entrepreneur support in Australia, and developing collaborative approaches for entrepreneur support. The conference provided an opportunity to reflect on the national factors influencing this work.
Writing and sharing here helps embed the experience and bring as many into the room as possible. Below I review:
- Current perspectives on Australia’s innovation strategy;
- Themes from the summit around technology sentiment, tax policy, collaboration approaches, talent gaps, and crafting a national narrative; and
- what this all could mean for local entrepreneur ecosystems.
A review of the innovation state of the nation
Political and public sentiment has shifted significantly from 2015’s National Innovation and Science Agenda where the “Idea’s Boom” promised to bring inspiration and investment. This can be seen to contribute to an expansion of entrepreneur support in terms of accelerator programs, innovation hubs, coworking spaces, and start-related departments in most government agencies.
Fast-forward four years to 2019 and politicians campaign against electric carts taking away our utes, policies consider restricting technology companies who were previously the sector’s aspirational heros, technology giants can both acquire and shut down aspiring Australian startups that leverage global platforms, and headlines promote fear of automation taking jobs. There is an underlying acknowledgment, however, that innovation and technology are critical to promoting widespread prosperity.
In a pre-recorded video at the summit, Hon Karen Andrews, Minister for Industry, Science and Technology, shared about the federal government’s investment in manufacturing, the space industry, and quantum computing, collaborations with Singapore and Japan, and encouraging more women in STEM. Yet her absence in person was noted by the Australian Financial Review as the first summit where the acting innovation minister did not attend in person. The minister shared about how she is speaking with technology leaders in a series of round tables to discuss ideas on how to grow the sector. We can hope this will be part of a more permanent and embedded communication channel between the technology community and policy makers, one that will be resilient to changes in political sentiment.
Mention was made of Australia dropping position out of the Global Innovation Index top 20. Understanding the index rating of Australia’s strengths and weaknesses helps to frame the issues raised in the summit. Australia ranks relatively high on the Index on ease of starting a business (7), but lower on ease of resolving redundancy (19). Anyone can give it a go, but fear of failure may hold some back. The country is at the top of expected years of schooling (1) and tertiary enrollment (2), but lower in science and engineering graduates (76), government expenditure on education (32), and research talent in business enterprise (44). Australians are educated, but not enough in areas of need.
Australia ranks relatively high for ease of getting credit (7) and intensity of local competition (11), but low in ease of protecting minority investors (61) and foreign direct investment (50). Traditional capital is available, but perhaps risk capital and access to new markets not as easy. The rankings also reflect challenges in collaboration with lower state of cluster development (40), research talent in business enterprise (44), and high tech exports (58). These results could be seen to reflect themes through the summit of challenges with access to talent, leveraging technology platforms, and scaling technology research in Australia.
These themes align with sentiment recently shared by startup advocacy body StartupAus, where CEO Alex McCauley focused Canberra conversations on five topics: 1) support for software companies claiming the R&D Tax Incentive, 2) improving access to world-class talent, 3) amending encryption legislation, 4) revisiting social media laws in the wake of the recent Christchurch attacks, and 5) improving the employee share scheme framework. Access to talent, how we approach technology, and investment in idea development are all topics raised in the summit.
The United States Studies Centre at the University of Sydney compared policy approaches between the the United States and Australia in their research titled Myths, Crises and Complacency: Innovation Policy in the United States and Australia. Their four initiatives to energise and strengthen the fragmented Australian innovation system include: 1) increase direct and selective funding of R&D; 2) develop ambitious national missions to focus innovation beyond research; 3) develop Innovation and Science Australia as a central innovation agency; and 4) increase and target government R&D funding to high-potential SMEs.
Finally, a strategy exists to address these challenges in the form of Innovation and Science Australia’s detailed report Australia 2030: Prosperity through innovation. The plan provides 30 recommendations across five imperatives of Education, Industry, Government, Research & development, and Culture and ambition. When asked about their aspirational vision for Australian innovation, a few panel members indicated to see the plan executed.
The challenges for Australian innovation are known. A considered strategy is available. The opportunity is to execute.
The two days covered a range of topics, including: Providing a big picture view of innovation in Australia; Technology as a force for good; Challenges with scaling up; Technology and sectors — Artificial Intelligence (MYOB), Defence (BAE), and the Space sector; Trust in online transactions (Mastercard); Corporate investment in R&D and corporate innovation; Government research spend; Hauwei, China, and trust; Entrepreneurial mindset and technology language; and Board innovation governance.
Rather than a play-by-play recap, some themes are outlined below. This is based on personal reflection and interpretation. Some points may have been missed based on interest or not included in an attempt to be succinct. Feedback and comments are always welcome.
Opportunity and fear of innovation and technology
Two topics that came up in a discussion on technology was opportunity and fear. Many of the panelists spoke of the benefits of technology. Questions such as breaking up big technology firms and security and privacy concerns were driven in part by the recent release of the Australian Competition & Consumer Commission’s Digital Platforms Inquiry which provided 23 recommendations considering competition, consumer protection, and data protection and privacy for digital platforms.
Large technology companies benefit from economies of scale and significant data to train advance artificial intelligence, as shared by Maile Carnegie from ANZ and Innovation & Science Australia. Representatives from Google and Facebook both acknowledged the challenges while reinforcing the value provided by such large entities in the value of cost effective advertising at scale for small businesses, ability to offer tools to other developers and emerging startups, and provide free training to local communities.
Yet there are concerns that market pressure from competition alone is insufficient to ensure necessary commercial and privacy protection. The story of Google banning and effectively closing Australian startup Unlockd demonstrates big tech is as much a source for acquisition as a threat in a competitive market. Breaking up large technology companies was not seen as realistic, but as CSIRO CEO Larry Marshall shared, big corporates have a responsibility to benefit the society in which they live and work.
Richard White, CEO of Wisetech, reflected that technology creates value in society and has done an enormous number of positive things and some negative. The negative impacts usually happen during transition, which we are experiencing in Australia and globally. The real issue is that if Australia fails to embrace technology, we will be left behind and people will be guaranteed to lose their jobs.
The example of Microsoft was used by a couple of panelists to demonstrate the value of innovation for local supply chains, flow-on effect from startups created by ex-employees, and creating clusters of like-minded individuals. Dr. Kate Cornick from LaunchVic reinforced the network effect from entrepreneur and innovation activity of increasing traditional jobs like doctors and other service-based sectors based on what is happening across Victoria and what can be seen in similar entrepreneur ecosystems across Australia.
Even as the discussion focused on AI and data, Larry Marshall commented that we risk chasing a boom that has already happened. Silicon Valley has already moved on and is leading with market vision. We are experiencing a fundamental market shift, challenged by the toxic side of politics. Larry gave an example of one side holding coal, the other solar, rather than bringing them together through technology. It is not a matter of accepting one form of energy over another, but leverage innovation to make all forms work for us as we transition and respond to the market shifts.
The long play of tax policy and collaborations
Challenged from a dynamic market in transition can be compounded if there is uncertainty in the underlying tax and structural support for innovation activity.
Direct investment into research and development and tax programs such as the R&D Tax Incentive were raised throughout the summit. Richard White noted that while the best companies do not need R&D tax credits, the program is helpful in reshaping business focus. The key is to focus on what adds value rather than pushing down program costs. Tax credit could be applied for using existing science in new ways as much as for developing new science.
Kate Cornick from LaunchVic commented that the R&D tax credit can be a paycheck at the end of the year for early-stage innovative businesses, but there are other radical things that can be done to unlock innovation. Consistent and reliable government support for R&D is critical. Dr. Andrew Nash from CSL and Dig Howitt from Cochlear both noted tax implications played a part in the company’s decision to base operations in other countries, along with a broader risk mitigation strategy to geographically diversify operations. Kathy Connell from Johnson & Johnson Innovation and Dr Nash both commented on a need for consistent policy particularly when a product can take 10 to 15 years to get to market.
This long-play approach places an emphasis on collaboration. Kathy Connell reinforced the role of government, industry, and universities in the two J&J Innovation hubs in Queensland and Victoria. The key is to have all partners have as their north star the commercial and human potential, aligned objectives, and to see the best of the technology.
Vicki Thompson from The Group of Eight noted by comparison that Israel tells the story well. That said, comparisons are not like for like. Australia has a different landscape and structure. We need to work with what we have, which is a small SME industry base and a lot of research in university sector. The opportunity is to bring the researcher and industry base together.
Yet without a central Australian policy it can be difficult to bring these collaborations together outside of structured CFCs, local initiatives, or ad hoc programs. Professor Alex Zelinsky from the University of Newcastle noted the Australian pioneering and independent culture can also create silos and a competition policy as compared to more entrepreneurial cultures in the United States. Mike Molinari from IP Group Australia pointed to academic incentive structures not aligned with a central goal. The result can be more “me too” research where for example every university has at least one bio scaffold rather than each focusing on strengths.
Cross sector and industry collaborations form over time with entrepreneurs and innovators at the centre. Kate from LaunchVic commented on the need for multi-generational entrepreneurs who have failed and then gone on to succeed big. It is a skill set that we need to help people learn. It takes years, and much of that time is slow or emerging growth that does not grab the headlines.
The need to share the story related to a need to attract and retain top talent. Technology such as artificial intelligence or financial incentives such as tax credits have little value without the human capital to leverage them. Kate commented on the need to position startups as a trusted brand for graduates — a viable career opportunity to see more of a business and gain valuable experience.
Talent applies to both new graduates as well as retraining the existing workforce. Maile Carnegie reinforced this based on her experience at ANZ with intentional approaches to helping people to improve their employability. Wisetech’s Richard White shared a concern about a “hollowing out” of jobs in the middle. If you have access to education, you can take two to three steps across into a new role, but the lowest skilled and lowest educated are at risk. It may take 10 to 15 years to hit, but jobs will not be available for our children’s children.
Solutions mentioned include changing staid forms of education to be more outcome rather than process driven and make it easier for higher skilled people to come to and stay in Australia. A challenge to this is what is seen as an Australian anti-reaction to people from overseas which then prevents bringing advanced knowledge to Australia.
Part of attracting talent is telling the right story and a need to share the story beyond the top headline companies such as Canva or big banks. This was reinforced by Daniel Petre from AirTree Ventures. It is easy to talk about the large companies, but the small to medium success stories need to get the press.
Adrian Turner from Data61 commented on the knowledge gap in the country with data cooperatives as key to what is next. Unless we organise our industry sectors in ways of accessing and sharing data, we will be insufficient to compete. Telstra CEO Andrew Penn noted they are recruiting 1,500 data scientists, more than what is produced in Australia in a given year. Kate from LaunchVic noted a gap in visas to attract talent, which are favorable to attract clinical trials but not retaining them due to our visa policy.
Crafting the narrative
The need to craft a compelling, shared narrative could be seen as a key point across the sessions. Bill Ferris, CHAMP Private Equity co-founder and previous Innovation Australia chair, noted that in the Turnbull election campaign, innovation was code for ‘threat to my job’. What is needed is not silence. Innovation is core to the future of Australia. It needs leadership and conviction, plain truth speaking about pluses and minuses.
Rob Hillard from Deloitte echoed this to encourage a reframing of an innovation debate into the future of work debate. If you can encourage people to be part of innovation, they are better prepared. Wisetech’s Richard White reinforced the need to talk about the positive side of innovation as the catalyst of the future.
This positive perspective shifts the conversation away from a fear of picking winners. As Bill reflected, it is not about picking winners, but most of our lives is spent on not picking losers. There is no shame in picking winners and placing bets. With an average $60 billion government procurement spend, making decisions on a selection of innovation companies is a huge unspent opportunity.
CSIRO’s Larry Marshall reiterated this in his observation that Australia is a nation of sports lovers. How can we reframe public perceptions of innovation around training, strategic plays, and winning? This requires a focus on the big challenges including energy, health, food, the cross-section of agriculture technology, AI, and genetics, and space.
Personal reflections and next steps
Image credit: Twitter — @DeloiteNewsAU
We need to hack our summits and conferences
Over the past 18 months, I have attended a number of innovation conferences, including the Global Entrepreneurship Congress in Bahrain, the Kauffman Foundation’s ESHIP Summit in Kansas City, Segra in Mackay, Economic Development Australia in Rockhampton, Thrive in Melbourne, 8point8 in Wagga Wagga, Qode in Brisbane, and the Australian Centre for Entrepreneurship Research Exchange in Sydney. Each of these events has a specific focus, such as entrepreneur research, entrepreneur ecosystem building, regional community support, startup engagement, or policy development. Each event attracts leaders from industry, the entrepreneur community, academia, and broader communities who bring experience and wisdom in relation to building entrepreneurial ecosystems.
While information sharing has value, increasingly it would be good to see participants being brought into the conversation. Many of those in the seats could just as easily be on stage sharing their experience. As they say, the wisdom is in the room.
The term hackathon may be overused, but a similar facilitation approach to engaging the significant experience in the room at these conferences would be good. We need more than a few questions from the floor or through an app to take advantage of the knowledge and value sitting a few tables away.
We will not see change by following the traditional approaches to collaboration and information sharing that got us to where we are now. The ability to crowdsource input with the leaders present in the room could provide significant outcomes.
Practical application for local regions
Developing place-based innovation capability and capacity is by nature a complex task. There are significant unknowns, multiple diverse stakeholders, constantly changing environment, competitive tensions, and local variances. And that is even before you consider that people, culture, and local history is involved.
Yet the themes from the summit point to practical actions that regions can take now to enable greater innovation outcomes, particularly for aspiring and scaling entrepreneurs.
I am not a tax expert so perspectives on tax incentives are simply opinion. It appears as though we have three challenges / opportunities. On the one hand, there are fears that the R&D tax incentive is being misused or not applied as intended. On the other hand, early stage, high risk technology companies can benefit from greater and easy access tax incentives. Large corporations also welcome incentives for them to base their R&D locally. Perhaps the needs of innovation are greater than the scope of the current program and an alternative variation needs to be introduced in parallel with increased focus on the current approach.
Local governments may rightly feel that advocating for federal tax policy my be outside their influence. However, we can learn from and apply principles for local financial incentives. Entrepreneur activity, particularly startup creation and scale, provides local value in economic diversity, resulting in local community resilience against market shocks. This places support for startups in both the community development and economic development portfolios of local governments.
It makes sense then to examine how public funds can be deployed to incentivise business behaviour and attract business activity.
The task for local governments is to examine grants, procurement policies, rates, or other mechanisms that might be available as a key part of economic development and community development portfolios.
Begin with the vision you want to achieve for the region, then work your way back and explore what financial tools are available that could make it happen.
There is a risk that the pendulum of policy and public policy may swing too far. We are moving from the wild west season of unbridled technology growth. We need to take care that we do not react through fear and regulate the innovation out of our region. Get the balance to embrace the value, incentivise behaviour, and ensure an even playing field.
We need to consider appropriate governance and structures for technology and collaboration that accomodate flexibility, allow for competition, and provide transparency and security.
New forms of structures are emerging. I am personally an advocate for structures such as backbone organisations as part of collective impact frameworks. These frameworks bring local stakeholders together to drive outcomes for local entrepreneur support. I am personally familiar with approaches in Goondiwindi and Logan City through Innov8 Logan. Other examples in Australia are coming out of the Queensland MIT REAP program for Toowoomba and Gladstone.
Whether you are Telstra or the startup in Wagga Wagga, access to local skilled talent is a challenge. Federal immigration policy needs to ensure visas are efficient and effective. Public messaging needs to be welcoming to attract talent, particularly to take advantage of reactions to global trends towards nationalism and xenophobia.
At a local level, there is a big opportunity to link tourism and economic policies, focus on the core strengths and challenges of a region, and collaborating locally to attract new entrepreneurs.
- Know and communicate the regions strengths, the thing that will attract people to be a part of what you are doing, the thing that they might not get anywhere else.
- Engage local business and community to identify key challenges in the region around a focus area that might be addressed with new technology and new ways of thinking. Find out who this is a problem for and who would pay to have it addressed in your region, and where it might be applied in other regions globally. Identify local, national, and global partners in corporate, government, and university who could benefit from the exercise.
- Develop a program of events to attract those who might solve the problem, and secure funds to support their journey. Align the program with local tourism activities for an experience that fully celebrates the local value.
These programs are emerging across regional Australia and have potential to result in significant outcomes.
Leadership and vision
A need for central, consistent leadership is key to ensuring support for local entrepreneurs.
The leadership function includes establishing a consistent and shared vision, developing a clear narrative for people to get behind, backing those who support the direction, while being open and flexible to experimentation and change. This may mean failure at times, which can be framed as learning as we head in the forward direction.
Australia’s changing election cycles and oppositional approach to change can make this a challenge. This should not hold up the development of local leadership and consistent and collaborative leadership by those in the entrepreneur ecosystem.
What we focus on, we create. The regions that provide visible and evidenced-backed support for new forms of economic development will attract that to their regions.
These are a few perspectives on two days of the Innovation Summit. It is not comprehensive but top of mind. I welcome your thoughts and collaboration to ensure maximum value from the experience as we continue the work ahead of us.