‘Action’ agenda

EXTRA >> WHILE the Brisbane G20 Leaders Summit has been hogging all the headlines, many of the changes directly affecting Australian business leaders were announced well ahead of the summit and will play out well beyond.

General media has not covered the Federal Government’s Industry Innovation and Competitiveness Agenda in much other than its political contexts – but it is in the business context that business leaders will be pleased to see some clarity after many moribund years of indecision.

The key questions about the agenda involve what those changes mean, in dollars and cents (and common sense) to the way business is operating now and into the immediate future. At its most basic level, where is the government money going and how do you position your business to gain advantage from such investment?

The Industry Innovation and Competitiveness Agenda is about providing an insight into the Federal Government’s long-term thinking and giving certainty on issues that have plagued Australian business – such as business migration rules, a draconian approach to employee share schemes that have stifled start-up technology ventures, lack of early-stage business funding, over-regulation and education and training
regimes that lag their real markets – to  introduce a more collaborative approach to help drive new ventures.

The reason for this shift is that governments across Australia have realised that new and early-stage ventures are where Australia may be able to play to its advantage – and it is also where most job growth occurs.

This has been known for some years – first being pointed out to the US Government by Kauffman Foundation research – but in Australia the command and control ethos that helped the banking sector through the 2008-2010 financial crisis has impeded small business recovery.

Why? Banks still are not lending to business in the way that is required for 21st century fast-moving technology business success.

The venture capital and alternative lending markets that the US has developed are not here (yet). The risk is that when they do come, they will be stifled by the incumbents and lagging regulatory regimes.

The new approach of the Agenda overall – which in some cases, such as with the industry innovation hubs, is simply an evolutionary approach to steering programs already begun under the previous Labor Government and showing promise – aims to let business and industry steer while the public purse provides some vital impetus. The new ethos is based on ‘money well spent’ rather than the ‘money saved’ restrictions of late.

The agenda also aims to speed up business growth by unshackling it from unnecessary regulation. An early announcement has been the move to accept international standards and risk assessments for certain product approvals, rather than impose Australia’s own regime. It is astonishing how quickly the Australian Design Rules were exposed as superfluous once there was no local manufacturing to protect. Goodness gracious, the automotive design standards of some other countries, like Germany and Britain, may have even been higher than ours … but they still had to be checked and tweaked for Australia.

An example of where this has brought Australia unstuck has been in the biotechnology sector where Australian companies have opted to seek approvals through the US Food and Drug Administration (FDA) rather than navigate the punitive small-market Australian Therapeutic Goods Administration (TGA) process. An FDA approval to a giant market has often been easier than TGA’s stamp to a very small market.

The ludicrous nature of this is now shamefully exposed.

For government it is now about trying to drive competitiveness and ‘productivity’. For business, the Agenda is more about providing a stable and less restrictive environment that will favour innovation and encourage collaboration between researchers and industry – an area in which Australia consistently fails.

Of the government’s six initiatives to boost Australian competitiveness, to be implemented over the next 18 months, the first tick from business was the change to taxation legislation to encourage employee share ownership.

Most successful start-ups in the US use employee share plans to drive development where cash for salaries and services is short – but this has not been an option in Australia due to previous governments’ ‘tax first’ approach and the punitive share options rules introduced in 2009.

Many Australian early stage technology companies ended up developing overseas as a result of the taxation approach in which discounts to share value were taxed and capital gains tax applied. The problem for early stage companies is the difficulty in assessing real share value – and the high risk of failure is not well accounted for.

One fascinating adjunct to the Agenda that has received scant media attention is the promotion of science, technology, engineering and mathematics (STEM) skills in schools. One program being developed is a ‘mathematics by inquiry’ program for primary and secondary schools and the government is providing seed funding for an innovation-focused ‘P-TECH’ pilot program, based on the successful US Pathways in Technology Early Career High college system.

But even in this area there is no need to re-invent the wheel, just enhance what’s working now (F1 in Schools, for example). Get back to basics.

After all, in its original Latin form, the word ‘agenda’ means ‘that which is to be driven forward’.

An Agenda like this requires action, for what is only discussed will be met with disgust.

www.businessacumen.biz

ends

 

 

 

 

 

 

AUSTRALIA's overwhelming business problem, right now, is its financial and economic system is not capable of assisting the entrepreneurial outcomes that this country so desperately needs – right now.

Perhaps it has never been perfectly capable, but there was enough human contact involved in the past – before we were assuaged by the ‘enabling’ digital world, and bank managers became just managers – to let that vital spark that funds human ingenuity take place. 

There existed the human contact with the local farmer that understood that person’s true recuperative capabilities – they had seen it before – and were willing to extend that belief in monetary terms.

There was also the ability of the entrepreneur to find a way to fund – even through banks.

The opening of Tom Potter’s first bakery, that eventually developed into the innovative Eagle Boys Pizza conglomerate, is proof. When his bank manager would not extend a personal loan to open his first bakery, but would lend for a car, Tom took the car loan.

When that bank manager called around to the new bakery and asked how his new car was going, Tom leaned over the front counter and said, “Great, you’re leaning on it …”

The financial services sector has become so ingrained with its own introspective decision-making process that it is now hampering Australia’s processes in the modern creation of wealth.

How many government reviews on business are led by bankers and those schooled in the financial sector? (Er, isn’t banking the least most entrepreneurial sector in our entire economy?)

This is nothing against senior bankers. They are all fine people who do their best – making sure whatever money passes their front door is clipped sufficiently to enable their sector to thrive in the manner to which it has become accustomed.

But just because they handle money does not mean they know how to create it. Banks do not create something out of nothing. Entrepreneurs do.

Banks do not risk their funds (or their clients funds, usually) unless it is the sort of investment that other learned and acclaimed bankers would recommend.

But bankers rarely admit that they don’t know what they don’t know. They would certainly never venture into territory that they don’t understand. And that is the problem.

Australian entrepreneurs have to enter uncharted territory all the time. That’s the point.

Creating wealth is an entrepreneurial journey and, often, a great adventure.

The way things are going at the moment, Australia’s banks are still sorting their baggage on the platform while our entrepreneurial wealth creators are self-funding cheap international flights at the airport.

ends

SUBSCRIBER EXTRA EDITORIAL / 

WHERE TO from here, Australia? A saying used a lot in Australian business right now goes something like this: When you are going through hell, keep going.

As told in detail the Business Acumen issue 75 print edition, 2014 is likely to go down as the most disruptive year for Australian business ever (or, on record, as they like to say in the climate change business). 

We have already seen what was unthinkable a decade ago, in business, become disturbing fact and history. The reasons are many, but all are impacted and accelerated by digital technology.

Who would have thought that cold milk would not only retail for less per litre than petrol, but cost 25-30 percent less? And who would once have imagined that this could have come about through the same supermarket duopoly of Coles and Woolworths cross-selling in the food, petroleum and liquor markets? (Now they are into insurance and financial services – and pharmaceuticals are within grasp.)

Who would have thought Holden – Australia’s dinky-di car maker linked comfortably with football, meat pies and kangaroos – would close its 65-year-old local car manufacturing operations … for good … no comebacks?

And who would have thought Holden could have understood so little about the Australian psyche that it could immediately after the announcement produce an advertising campaign telling the very loyal people who had subsidised General Motors Holden not to worry … because even though they don’t make cars in Australia any more, they will always make the best cars for Australia.

What a howler. It will come as little surprise if local products are punished hard, possibly bringing on plant closures earlier than the predicted 2017, because Holden has shown it actually does not understand its relationship with Australian customers. So, we’re not worth it, eh?

SAVE US, PLEASE, NEW BUSINESSES

Governments know what they have to do, for the income fabric of Australia is being torn apart – they have to stitch up ways to help create jobs.

So personal taxes can be paid. So GST can be generated. So companies can pay 30 percent on profits. So the Federal Government can pay off the almost $400 billion national debt. So it can subsidise the essentials – like the agribusiness sector – that are not only vital for the health of Australia but also show increasing and sustained export prospects.

But governments don’t actually know how to do it. They sort of understand new businesses are emerging all the time, many riding a constructive part of the digital business wave that has engulfed others.

Australian government leaders, by now, must surely have read and understood the Kauffman Foundation research in the US utilised by President Barack Obama – which shows entrepreneurs and early stage businesses are where all the jobs growth is.

Big business is, today, all about generating productivity by automating, ‘downsizing’ and shedding jobs. Start-ups need skilled, energetic and enthusiastic people to grow – and they need more of them to keep on growing. They are too busy driving new business to measure ‘productivity’.

These businesses have a major advantage over pre-digital legacy organisations. Start-ups are born in the digital world, where they begin by delivering what the customer wants. They know what the customer wants, more than at any other time, because they communicate with them, listen to them, collaborate with them and watch what their customers and potential customers say through social media.

Australia has always been a market in which recommendation is the most powerful sales force. Australian is uniquely placed to exploit this in the digital age. So, of course, is North America, where US and Canadian entrepreneurs are really forging ahead.

PLAYING THE ADVANTAGE

North America right now is undergoing economic recovery by utilising the benefits of this tech-entrepreneurial revolution. But the US, in particular, has a few advantages that Australia is missing or, worse still, ignoring.

First, the US has a low-cost energy advantage, mostly because of new technologies to harvest shale oil and natural gas. In the US, in April, they were complaining that ‘gas’ pump prices were outrageously higher than last year … yes, they have now reached about $1.05 per litre (US$4.15 per gallon). So, last year they were almost as annoyed by $3.45 per gallon … which was about 91 cents per litre in our money.

With Australian fuel prices hovering at about the $1.55 level at the pump, we are only close to 50 percent more expensive.

As an aside, a new challenge for Australia is the demise of oil refineries, with recent closures announced in South Australia and Queensland. We hear the old multinational oil company view that things will be fine and, in fact, petrol will probably be cheaper because it can be produced more efficiently at the new technology refineries in Singapore.

Even if we ignore the arguments of energy security and the recent wild ride of the Australian dollar, here is a little fact out of the US: The three consistently cheapest states for fuel prices happen to be those that have the most refineries. Wyoming has six refineries, Montana has four and Utah has five. How many refineries does, er, the whole of Australia have, again? Five? Six?

While Australia has similar reserves as the US (including Linc Energy’s massive oil reserves in South Australia) the benefits are slow in coming and are mostly earmarked for export – so there is no local advantage to manufacturing, power generators or the public. Zero.

For example, Queensland’s new hi-tech gas-fired power turbine at Stanwell Power station has been turned off and the old coal system re-deployed, because the cost of local gas was climbing in line with international prices.

US giant Dow Chemical CEO, Australian Andrew Liveris, warned of this several years ago, saying Australia would be “crazy” if it did not hive off a portion of the coal seam gas windfall and stock it to develop manufacturing – especially market leadership in petrochemical-based materials manufacturing.

Well, Australia is officially crazy.

MONETARY, MONEY TEARY

A key challenge for SMEs, especially early stagers, is financial support. The big banks play around the edges and create various tech start-up competitions, but beyond that the doors are closed to any sort of business case that does not involve mortgages on the directors’ homes.

Again, the US has this covered with a thriving venture capital, angel investor and philanthropic movement, most notably orchestrated through California’s Silicon Valley. Australia’s angel investors have a few wins under their belts, but in relative terms do not have anywhere near enough money in the market.

Venture capital, in a form that works for start-ups, is almost non-existent in Australia – which is why Silicon Valley venture capitalists and firms conduct periodic raids on Australian early-stagers, with great success.

We Are Hunted, for example, originally backed by Wotif.com founder and philanthropist Graham Wood, was a nice billion dollar addition for Twitter last year.

State Governments like Queensland closed their venture capital operations back in 2010, in spite of a decade-long record of relative success, nurturing Alchemia, Aurion and Technology One, among others.

More fundamental – and something the Federal Government can do something about – are Australia’s taxation rules on staff and supporter equity shareholdings and options.

Many ‘garage start-ups’ in the US made it because they issued shares for services where there was no cash available – take Hewlett Packard, Oracle, Microsoft and Google. This option is fraught with danger in Australia due to a tax regime that, especially since Labor Government changes in 2009, wants payment for value before those early-stage shareholdings have earned any real money.

These kinds of taxation barriers have been known about for a long time but, like the coal seam gas opportunity, are constantly missed by governments deflected by poor planning and rear window advice. Some argue that the loss of skills and experience in the public service sector Australia-wide have now come home to roost.

AUSTRALIA: EXTRACT THE DIGIT

In the middle of graphic change there is always opportunity, but business leaders are going to have to innovate and collaborate like they have never done before to steer a course through this storm.

We live in a society, not an economy. ‘Digital’ bridges both in ways that have never been experienced before.

The fundamental change afoot is not about the technology at all. It is the way digital technologies influence and modify the behaviour and relationships of people. Specifically, the people you do business with.

The power is now in the hands of the customer. Start-ups understand this.

The great thing about digital technology is that you have more ways than ever before to find out what the customer wants and to communicate with them. The customer has more ways than ever to find out your story, too – what is special about your business – and figure out whether they want to have a relationship with your business, and at what level.

The bad news is that if you are not providing that special ‘relationship’ they are looking for, it is easy for them to search elsewhere and take in recommendations from their trusted other sources.

Digital business is actually more about relationships than business has ever been before.

The basics of getting close to your customers still apply, but the methods are evolving. The scale is greater than ever before, as is the risk and as is the opportunity, as you will see from Business Acumen issue 75’s feature reports and subscriber-only extended reports.

Anticipate and embrace digital disruption before it throttles you. Then you’ll find you can open up the throttle that is digital business to accelerate.

- Mike Sullivan, Managing Editor

Posted March 2014.

ends

 

EDITORIAL

WHERE TO from here, Australia? A saying used a lot in Australian business right now goes something like this: When you are going through hell, keep going.

As told in detail the Business Acumen issue 75 print edition, 2014 is likely to go down as the most disruptive year for Australian business ever (or, on record, as they like to say in the climate change business).

We have already seen what was unthinkable a decade ago, in business, become disturbing fact and history. The reasons are many, but all are impacted and accelerated by digital technology.

Who would have thought that cold milk would not only retail for less per litre than petrol, but cost 25-30 percent less? And who would have imagined that this could have come about through the same supermarket duopoly of Coles and Woolworths cross-selling in the food, petroleum and liquor markets? (Now they supermarkets are into insurance and financial services – and pharmaceuticals are within grasp.)

Who would have thought Holden – Australia’s dinky-di car maker linked comfortably with football, meat pies and kangaroos – would close its 65-year-old local car manufacturing operations … for good … no comebacks?

And who would have thought Holden could have understood so little about the Australian psyche that it could immediately after the announcement produce an advertising campaign telling the very loyal people who had subsidised General Motors Holden not to worry … because even though they don’t make cars in Australia any more, they will always make the best cars for Australia.

What a howler. It will come as little surprise if local products are punished hard, possibly bringing on plant closures earlier than the predicted 2017, because Holden has shown it actually does not understand its relationship with Australian customers. So, we’re not worth it, eh?

SAVE US, PLEASE, NEW BUSINESSES

Governments know what they have to do, for the income fabric of Australia is being torn apart – they have to stitch up ways to help create jobs.

So personal taxes can be paid. So GST can be generated. So companies can pay 30 percent on profits. So the Federal Government can pay off the almost $400 billion national debt. So it can subsidise the essentials – like the agribusiness sector – that are not only vital for the health of Australia but also show increasing and sustained export prospects.

But governments don’t actually know how to do it. They sort of understand new businesses are emerging all the time, many riding a constructive part of the digital business wave that has engulfed others.

Australian government leaders, by now, must surely have read and understood the Kauffman Foundation research in the US utilised by President Barack Obama – which shows entrepreneurs and early stage businesses are where all the jobs growth is.

Big business is, today, all about generating productivity by automating, ‘downsizing’ and shedding jobs. Start-ups need skilled, energetic and enthusiastic people to grow – and they need more of them to keep on growing. They are too busy driving new business by increasing staff numbers to measure ‘productivity’.

These businesses have a major advantage over pre-digital legacy organisations.

Start-ups are born in the digital world, where they begin by delivering what the customer wants. They know what the customer wants, more than at any other time, because they communicate with them, listen to them, collaborate with them and watch what their customers and potential customers say through social media.

Australia has always been a market in which recommendation is the most powerful sales force. Australian is uniquely placed to exploit this in the digital age. So, of course, is North America, where US and Canadian entrepreneurs are really forging ahead.

PLAYING THE ADVANTAGE

North America right now is undergoing economic recovery by utilising the benefits of this tech-entrepreneurial revolution. But the US, in particular, has a few advantages that Australia is missing or, worse still, ignoring.

First, the US has a low-cost energy advantage, mostly because of new technologies to harvest shale oil and natural gas. In the US, this month, they were complaining that ‘gas’ pump prices were outrageously higher than last year … yes, they have now reached about $1.09 per litre (US$4.15 per gallon). Last year they were almost as annoyed by US$3.45 per gallon … which was about 91 cents per litre in our money.

With Australian fuel prices hovering at about the $1.60 level at the pump, we are only about 50 percent more expensive.

As an aside, a new challenge for Australia is the demise of oil refineries, with recent closures announced in South Australia and Queensland. We hear the old multinational oil company view that things will be fine and, in fact, petrol will probably be cheaper because it can be produced more efficiently at the new technology refineries in Singapore. We'll just have to store lots of it here. Give ourselves a three-month supply buffer. How about that? Might end up being five cents a litre cheaper ....?

Even if we ignore the arguments of energy security and the recent wild ride of the Australian dollar, here is a little fact out of the US: The three consistently cheapest states for fuel prices happen to be those that have the most refineries. Wyoming has six refineries, Montana has four and Utah has five. How many refineries does, er, the whole of Australia have, again?

While Australia has similar oil and gas reserves as the US (including Linc Energy’s massive oil reserves in South Australia) the benefits are slow in coming and are mostly earmarked for export – so there is no local advantage to manufacturing, power generators or the public. Zero.

For example, Queensland’s new hi-tech gas-fired power turbine at Stanwell Power station has been turned off and the old coal system re-deployed, because the cost of local gas was climbing in line with international prices.

US giant Dow Chemical CEO, Australian Andrew Liveris, warned of this several years ago, saying Australia would be “crazy” if it did not hive off a portion of the coal seam gas windfall and stock it to develop manufacturing – especially market leadership in petrochemical-based materials manufacturing.

Well, Australia is officially crazy.

MONETARY, MONEY TEARY

A key challenge for SMEs, especially early stagers, is financial support. The big banks play around the edges and create various tech start-up competitions, but beyond that the doors are closed to any sort of business case that does not involve mortgages on the directors’ homes.

Again, the US has this covered with a thriving venture capital, angel investor and philanthropic movement, most notably orchestrated through California’s Silicon Valley. Australia’s angel investors have a few wins under their belts, but in relative terms do not have anywhere near enough money in the market.

Venture capital, in a form that works for start-ups, is almost non-existent in Australia – which is why Silicon Valley venture capitalists and firms conduct periodic raids on Australian early-stagers, with great success.

We Are Hunted, for example, originally backed by Wotif.com founder and philanthropist Graham Wood, was a nice addition for Twitter last year.

State Governments like Queensland closed their venture capital operations, back in 2010, in spite of a decade-long record of relative success, nurturing Alchemia, Aurion and Technology One, among others.

More fundamental – and something the Federal Government can do something about – are Australia’s taxation rules on staff and supporter equity shareholdings and options.

Many ‘garage start-ups’ in the US made it because they issued shares for services where there was no cash available – take Hewlett Packard, Oracle, Microsoft and Google. This option is fraught with danger in Australia due to a tax regime that, especially since Labor Government changes in 2009, wants payment for value before those early-stage shareholdings have earned any real money.

These kinds of taxation barriers have been known about for a long time but, like the coal seam gas opportunity, are constantly missed by governments deflected by poor planning and rear window advice. Some argue that the loss of skills and experience in the public service sector, Australia-wide, may now have come home to roost.

AUSTRALIA: EXTRACT THE DIGIT

In the middle of graphic change there is always opportunity, but business leaders are going to have to innovate and collaborate like they have never done before to steer a course through this storm.

We live in a society, not an economy. ‘Digital’ bridges both in ways that have never been experienced before.

The fundamental change afoot is not about the technology at all. It is the way digital technologies influence and modify the behaviour and relationships of people. Specifically, the people you do business with.

The power is now in the hands of the customer. Start-ups understand this.

The great thing about digital technology is that you have more ways than ever before to find out what the customer wants and to communicate with them. The customer has more ways than ever to find out your story, too – what is special about your business – and figure out whether they want to have a relationship with your business, and at what level.

The bad news is that if you are not providing that special ‘relationship’ they are looking for, it is easy for them to search elsewhere and take in recommendations from their trusted other sources.

Digital business is actually more about relationships than business has ever been before.

The basics of getting close to your customers still apply, but the methods are evolving. The scale is greater than ever before, as is the risk and as is the opportunity, as you will read in Business Acumen issue 75’s feature reports and subscriber-only extended reports.

Anticipate and embrace digital disruption before it throttles you. Then you’ll find you can open up the throttle that is digital business, to accelerate.

- Mike Sullivan, Managing Editor, March 2014.

EDITORIAL - Business Acumen's mantra, since its inception in 2004, has always involved being overwhelmingly positive about business. As a small business witnessing and experiencing the challenges that face business leaders right across the spectrum, we adopted that positioning naturally - it is, after all, the attitude and behaviour that characterises all who drive forward in business.

Image
Business triage: insolvencies at record levels.

 

Traversing the ups and downs of the business cycles, along with our readers who are, in the main, business owners and leaders in business, we have retained that positive outlook and it is reflected upon and relied upon in our coverage.

It is the only way to avoid the paradox spoken of eloquently by French Renaissance writer and commentator Michel de Montaigne: "He who fears will suffer, he already suffers from his fear."

But certain worrying long-term trends and changes in the nature of business give rise to long-suffering fears for certain sectors of Australian business. More concerning is the fact that key indicators of an Australian business environment under heavy and widespread stress are not seemingly recognised by various levels of government or the mainstream media.

That small business insolvencies are at record levels is cause for debate. That this has been a growing trend since 2008, rather than a diminishing one, should be cause for concern by all levels of government.

SME TRIAGE

Much is made of small business being the lifeblood of the commercial economy, but not much is being done to stop the current bleeding. It is death by a thousand cuts for small business right now.

Here is a digest of the main wounds not receiving attention:

  • Too much time and money that is crucial for business development is soaked up by compliance and tax collection obligations.
  • New changes in business regulations have not been well communicated to those being held responsible for complying with them, for example: the new Workplace Health and Safety (WH&S) rules (applied January 1); the Personal Property Security Register (applied January 30); the Carbon Tax (coming June 30);
  • Several new regulations, such as WH&S, put managers and directors in the firing line personally for ‘duty of care' where they were not directly liable before;
  • Small business loans are over-secured and over-priced by the major banks which, paradoxically while enjoying record profits, set the security bar and the interest rates too high for most SMEs. Incredibly, banks are now acting to lift interest rates in fear that their loan volumes are dwindling, placing profits ahead of public interest;
  • Debt collection and control methods that were trumpeted, bundled and marketed in growth times - especially by legal firms - do not work in the current periods of steep cashflow decline;
  • The Australian Taxation Office's ‘compassionate' approach during the GFC period has been replaced by record insolvency actions against defaulting businesses.
  • Insurance premiums for business have soared unreasonably beyond the protection they actually provide;
  • Many large organisations are increasingly heavy handed with small business clients and service providers - and have forsaken common sense and courtesy for the branding advantages of a corporate social responsibility (CSR) program

The numbers are telling: 2011 was a record year for insolvencies in almost every state, according to Australian Securities and Investments Commission (ASIC) records, and 2010 held the record before that. The average value of insolvencies is diminishing, but only because the blood-letting is moving down the line to small value businesses whose litheness and ability to react quickly to changing business conditions has kept them going so far.

Insolvencies for November 2011, at 983, were up 17 percent on November 2010. The 11 months to November 2011 exceeded the full calendar year of 2010, which was the previous highest full year. There are now well over 10,000 businesses a year going belly-up.

A recent survey by Dunn and Bradstreet revealed small business failures rose by 48 percent last year. Tellingly, the number of small business start-ups in the same period dropped 95 percent on the previous year.

 

WHAT ‘CRISIS'?

Strangely, the term ‘crisis' is missing from most commentary on these figures. The types of securely employed people who analyse these things seem instead to take heart from the fact that the numbers ‘seem' to be tapering off. That has more to do with the mathematics than the statistics.

There are fewer and fewer numbers there to draw from, statistically, as business failures are not being complemented by start-ups.

The human cost of this is fast becoming a national disgrace. Financial institutions don't like to think in these terms, but some of their current decision making is costing lives as some business people are pushed to the precipice of financial ruin.

Australia likes to pat itself on the back that it has been ranked as one of the easiest places in the world to start a business.

What Australia must face up to is the fact that at the moment it is also one of the hardest places in the world to operate a small business reasonably successfully.

Credit is tight. Regulation is on the ascendancy and penalties and personal risk for business leaders are on the rise.

Consumers are fearful of debt and spending in general. Costs are going up for basic services continually, while the ability for consumers to earn more is diminishing.

Asset values are static or in decline. A high dollar and high interest rates, compared with our competitor nations, are having a debilitating effect on Australian industries including agribusiness, tourism, education and manufacturing.

The behaviours and financial mind-sets that caused the GFC are in ascendancy again, but this time the effects are immediate on a weary phalanx of business owners and leaders.

The Australia that loves to tout its advantages, both economic and societal, must surely look realistically at the business blood-letting that is going on and recognise that things have to change or the touting will soon be that of snake oil salesmen.

When it becomes easier and ‘safer' to surrender than soldier on in business, the war will end with a whimper.

Back to Michel de Montaigne who summed it up the condition five centuries ago: "Poverty of goods is easily cured; poverty of soul, impossible."

- Mike Sullivan, Managing Editor, March 2012.

ends

 

EDITORIAL      Australia's economic recovery is dependent on businesses yet to exist, in many ways. This is especially true for growth in Australia's regions.

Australia's economic growth depends on fostering that sector of the economy which is the most vulnerable - and certainly the sector most unlikely to win loans from banks, nor the favourable attention of the government: start-up businesses.

Entrepreneurs who develop high growth businesses are the keys to our success.

How can this be? It seems counter-intuitive that the sector (research shows) we can genuinely rely upon to grow our economy - start-ups - is the very sector most policies, and pollies, hold as the riskiest and are loathe to support financially.

(Except, perhaps, Queensland, which has announced a series of $50,000 grants for businesses developing what it calls ‘Big Ideas' that will benefit the state's economy).

But research by the Kauffman Foundation in the US is clear: Over the past 20 years, from looking at the employment and economic data, most growth in the US has come from SMEs in their first five years of operation.

The Kauffman Foundation is an organisation that fosters education and entrepreneurship - they started Entrepreneurship Week in the US (mid-November) and that has now received the strong endorsement of US President Barack Obama.

President Obama gets it: he needs innovative start-ups, and lots of them, to bring the country out of the unemployment mire.

Staggeringly, real net job growth comes consistently from start-up businesses, no matter what condition the economy is in. Established organisations, however, reach a point in which net job losses come regularly - and especially in times of recession - in the name of efficiency and as new labour-saving technologies are utilised.

This information has come to Business Acumen through John Sheridan's Digital Business Insights organisation, which has been surveying and conducting case studies into Australian business for the past nine years. Business Acumen is working with DBI to produce what is likely to be the most salutary report ever produced on the real business of construction (to circulate in January).

Mr Sheridan's own research over the past nine years supports the US claims that most job growth in the economy comes from start-ups in their first five years. It is also true that 84 percent of incubated businesses stay where they were founded. This is great news for regional Australia.

A few regions have recognised the challenge of increasing economic development by backing start-ups and early-stage innovators - regions as diverse as Cairns in Tropical North Queensland and Whittlesea in Victoria.

The Kauffman studies show that so-called ‘gazelle' firms (age three to five) comprise less than one percent of all companies, yet generate roughly 10 percent of new jobs in any given year. The 'average' firm in this gazelle category contributes 88 jobs per year, and most end up with between 20 and 249 employees. In contrast, the average firm in the economy as a whole adds two or three net new jobs each year.

These are astonishing statistics.

While there are also high rates of failure of start-ups, on balance the way to boost and sustain an economy is to have a genuine focus on fostering start-ups and early-stage innovators.

Australia, if it is serious about a future beyond its recent reliance on resources, must genuinely ask how government policies, finance industry policies and regulatory policies positively enhance the environment for start-ups and entrepreneurs.

Right now, that's a very nasty question indeed.

-Mike Sullivan, Managing Editor, December 2010.

ends

 

EDITORIAL - The disjoint between what Australian business people witness daily in operating environments and what is presented in upbeat government economic figures has its roots in statistical changes made during the Howard Government era.

Image
Business should not have to grind away at official statistics to verify the facts.

That has been highlighted in the recent website re-posting of an unpublished letter to the Australian Financial Review in 2003 from Roy Morgan Research.

Titled 'It's Time' for a Realistic Measure of Unemployment in Australia, the letter by Roy Morgan Research executive chairman, Gary Morgan, responds to articles questioning changes to the way unemployment statistics were created at the time.

It is now clear that the anomalies raised in this letter have morphed even further towards a rose-coloured glasses approach to unemployment and underemployment measures by successive Australian governments, including the current Federal Labor Government.

It also explains why an exchange on a recent edition of ABC Television's Q&A program, in which Liberal National Party Senator Barnaby Joyce was taken to task by a Labor Government panellist for questioning the Australian Bureau of Statistics' unemployment figures, suddenly petered out.

It is astonishing that such a myth of 'low 5.5 percent' unemployment in Australia is being perpetuated when the country is facing the sorts of economic challenges that demand a clear picture.

The fact is, both sides of politics know the figures do not reflect the reality of unemployment in Australia today.

But who in politics would be brave enough to step up and say so?

Small and medium business people deal with the real numbers every day. It is no wonder they are becoming increasingly cynical of messaging coming from the Federal Government when there is a clear example in these 'enviable' unemployment statistics that the books are still being cooked.

In fact, today they are being cooked in a reflection of the distractive 'reality TV' era of Masterchef and My Kitchen Rules.

Small and medium business is where effective employment growth will come from. That is a present-day as well as historical fact.

The sort of change and initiatives within the economy that SMEs need to do that will not emerge while political decisions are mis-directed because of misleading numbers.

-Mike Sullivan, Managing Editor, January 2013.

Here is the text of the 2003 letter, as presented on the Roy Morgan Research website:

Roy Morgan 'Paper No. 20030801 - Letter to the Editor, Australian Financial Review.: August 22, 2003'

Peter Saunders' commentary on unemployment figures (1) addressed only part of the problem with the official unemployment statistics.

By re-classifying some unemployed people as permanently disabled (or by inventing a Youth Allowance that disguises youth unemployment figures), the official statistics hide a huge number of people who would actually like to be employed.

But re-classification of people on welfare benefits is only part of the masking problem.

Hugh Morgan's weekend essay correctly pointed out that "the monthly unemployment statistics…understate the numbers of people who are seeking more work, or would like to get a job but did not fit the official definition of unemployed"(2).

The Australian Bureau of Statistics Unemployment Estimate classifies an unemployed person as part of the labour force only if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

That instantly cuts out those who have become disenchanted with the process of looking for a job and so are not regularly seeking employment — not because they don't want a job but because they have given up hope of finding one.

It is obvious that these people must be included in the unemployed if Australia is to have an accurate picture of the true state of unemployment.

As pointed out in Michele Levine's article in September's New Investor (3), these unemployed people are included in the Roy Morgan Unemployment Estimate.

By asking respondents who are not employed if they are actually looking for a paid job (regardless of whether they've looked in the last four weeks), the Roy Morgan Unemployment Estimate (4) obtains a more accurate number than the official ABS figure.

This was pointed out by Dr Peter Brain, Executive Director of the National Institute of Economic and Industry Research, after the Institute released a report on unemployment in Australia's regions in 2001 (5).

"Underemployment" is another issue that also needs to be measured properly. The ABS Estimate does not take into account people who have been employed for a small amount of part-time work but would like to work additional hours.

The Australian Council of Social Service (ACOSS) and other commentators have estimated that by taking into account "hidden" and "underemployment" the real level of joblessness is approximately double that given by the official data (6).

Even the ABS's Labour and Statistics Branch acknowledged in 2001 that the official unemployment rate alone may provide a misleading picture (7).

Unfortunately, no Government will change the way unemployment is measured if the "number" is higher.

But until the Government is honest with the electorate, the problem of joblessness will not receive the attention that it deserves.

The unemployment measurement issue is too important to ignore for the sake of political expediency.

Mr Tony Abbott, Minister for Employment and Workplace Relations, knows the ABS unemployment figure is deceptively low. He must show leadership by correcting an ongoing error.

- Gary C. Morgan, Executive Chairman, Roy Morgan Research.

Footnotes:

1. Saunders, P. (2003) 'Lies and Statistics - It is easy to fudge a low employment rate (PDF 48kb)', AFR, August 16-17, p. 71.

2. Morgan, H. (2003) 'Unlocking jobs is key to sustaining growth (PDF 111kb)', AFR, August 16-17, p. 70.

3 Levine, M. (2003) 'A delicate balance - national security and domestic issues (PDF 495kb)', New Investor, September pp. 14-15.

4 Roy Morgan Research (2003) Unemployment still low despite slight rise to 8.0%, July 2003. Retrieved August 21, 2003 from /news/polls/2003/3654/ .

5 Milburn, C. (2001) 'Is unemployment at 10%? (PDF 473kb)', Age, June 13, p.13.

6 ACOSS Paper 325: Overcoming joblessness in Australia: 12 Budget priorities, February 2003. Retrieved August 21, 2003 from 7 Long, S. (2001) 'Hidden jobless could bring Howard down (PDF 411kb)', AFR, June 15.

http://www.roymorgan.com/news/papers/2003/20030801/

ends

 

 

Contact Us

 

PO Box 2144
MANSFIELD QLD 4122