How growing a tech startup culture could help rural and regional Australia thrive
Australia’s rural and regional communities depend on industries that are being automated fast, and employing fewer people as a result. We’re currently in the midst of the worst drought in recorded history. And we can see that global demand for our coal and gas will be much less in future. How should regional Australia prepare to weather those changes? Knuckle down, scrimp and save, borrow more and hope for the best? Or is there a better way?
The solution is there for any community that has the imagination to repurpose itself for the tech industry, more specifically, the software industry. But to understand why and how, you first need to go back in time.
The three waves of Australian entrepreneurship
Australia has experienced three broad waves of entrepreneurial development in the past, but it is the third wave, which is only just starting off, which has the biggest potential for the development of rural and regional Australia.
Agricultural entrepreneurs
The first wave of Australian entrepreneurialism, centred on agricultural and resources wave essentially created what we know as rural and regional Australia today. But it was not without its problems when considered from a macro perspective.
In both agriculture and resources, a long return-on-investment cycle combined with unpredictable and significant capital demands has tended to wipe-out small players (eg the entrepreneurs) in debt, drought and periodic collapses in commodity prices. This has lead to the development of agriculture and resource industries which strongly favour economies of scale, so most of the economic benefits go to large, offshore owned entities, not rural and regional economies.
Smaller and newer players – the agricultural and resources equivalent of startups – fail to make it past the incumbency advantages enjoyed by bigger, older players, who sit on the sidelines waiting to snap the newcomers up for cents on the dollar when the commodity sine wave inevitably plunges again.
Professional services entrepreneurs
The second wave of Australian entrepreneurialism was in professional services, in the development of professional services networks and franchise models post-WWII. It had some. impact on rural and regional Australia but was limited in its benefits by the small population it can serve in Australia and the barriers to exporting professional services to larger markets.
Even after the significant population growth forecasts of the next decade, the entire Australian population is vastly smaller than even a typical urban area of Europe or the US, much less an Asian city. Differences in business practice and law, forex complications and trade protection makes it very challenging to export an Australian professional services model to other markets, as even our otherwise successful big five Australian banks will attest (even they keep losing money more often than not when they expand internationally).
The tech entrepreneurs
The third wave (tech startup innovation) is only in its first decade and has already created several of Australia’s highest-valued companies (eg Cochlear, CSL, Atlassian, Canva, SafetyCulture, CultureAmp). It has the most promise for rural and regional Australia because for the first time:
- It’s highly capital efficient compared to agriculture, resources, professional services, so the barrier to borrowing for development is low;
- Most business ideas can be developed and proven/disproven as viable in a matter of 3–5 years instead of 10–50 years;
- Zero cost of export because software can be easily localised, translated, marketed and exported in every market in the world at a fractional addition to the cost of developing the product for the Australian market. Global marketplaces exist with well-understood market mechanisms in mobile app stores and Software as a Service (SAAS);
- Startups requiring hardware have been able to efficiently fund their prototype and early customer sales through crowdfunding on eg Kickstarter and Indiegogo and then rapidly scale to global manufacturing and distribution with the help of specialists in China.
Perhaps most importantly for a healthy economy, the tech startup industry is not subject to a sine wave trend in the commodity price of software and hardware. In fact, whether it’s computer chips or a smartphone app, the cost of tech hardware and software has consistently, predictably, fallen every year since it was first measured in the 1970s.
Whereas the sale price of hardware and software has remained largely the same – most SAAS software sales are in the same price categories they were in at the beginning of the decade. Smartphone app sale prices are also relatively stable. And you pay about the same for a smartphone or a laptop today that you paid two decades ago for a flip phone or laptop – only the functionality has increased.
How to refocus as a rural or regional tech hub
Four factors influence to what degree rural and regional Australia can participate in the new innovation economy, and how much of the economic benefit flows to regional communities:
- Availability of skilled workforce;
- Access to high speed internet, 5+G mobile data, hi-res GPS, low-cost, high-res satellite imagery and data
- Easy access to customers and capital; and
- Critical mass of startup community in the region
Availability of skilled workforce
You can’t create a tech startup without skilled tech workers and in no location in Australia do we have enough skilled software or hardware tech engineers. Accelerator and pre-accelerator models make use of experienced tech startup mentors to train up non-technical startup entrepreneurs with promising ideas for tech startups. Over several cycles, an accelerator builds experience and skills in a startup community.
Agricultural and service workers absolutely can retrain as software and hardware startup founders and employees but for this to happen they need credible role models, an accessible and affordable retraining path, and loans, subsidies or seed capital to assist them in making the transition.
You can’t be what you can’t see
Show promise on the football field and you’ll attract sponsorship and scholarship to a selective school from an early age, but show promise as a software developer early in high school and the most likely reaction from teachers and parents will be to stop wasting all your time on computers and go outside to get some fresh air and exercise. Win the premiership and you and the team will get your photo on the front page of the local paper. Win the coding competition or start earning good money doing penetration testing and not only won’t you make the front page, if you do make the paper at all, you’ll be featured as an oddity or an eccentricity, not as a role model but as a special case.
If we want young people to aspire to a career in tech startups we have to help them believe that they can be as popular as a footy hero in your local town.
Even better is giving our youth the opportunity to learn these skills from the beginning, so that the Three Rs become STEM. It’s no accident Mark Zuckerberg created Facebook when he was 25 – he began studying software engineering in primary school, was encouraged by parents and teachers to do so, and when he dropped out to pursue Facebook fulltime, was studying software engineering (at a university which graduates more software engineers in one year than all of Australia’s universities graduated in 2016).
We know that exceptional students, intelligence and dedication to hard work exist in classrooms all through regional Australia, but if they don’t have the motivation, the role models or the expectation that they can be successful, that this is as meaningful a career path as running the family farm or rural business, it won’t happen.
Remote learning
You don’t need a university (or be bound by the limited intake of your local university if you have one). Software engineering is one of the few qualifications which can be successfully taught and studied remotely. Melbourne University celebrated the graduation of its first 100% remote student in December 2016 and expects that greater than 40% of its total student population will complete the majority of its study online by 2020. The great engineering and business schools of Stanford and MIT are increasingly releasing their curriculum online for students all around the world to study. Rural students are no longer limited to studying face to face, or to travelling long distances and incurring big expenses to live on campus in our cities.
And I hope Australia’s regional university vice chancellors recognise that is both an opportunity and a massive competitive threat. I want to see them grab that opportunity by the horns with both hands.
Wherever our secondary and tertiary students have reliable and affordable access to high-speed internet services, they can now gain the best technology innovation qualification in the world and compete on a level playing field with the best in Silicon Valley. With the right role models, curriculum and support from their local community.
Access to high-speed internet, data sets
Yeah, sorry about the NBN. Unfortunately the way it’s been designed to roll out across most of Australia, the more devices on your local NBN loop, the slower it will be for each device. That means growing a community of software developers in a regional community may stretch bandwidth to the limit, and since bandwidth is the highway we ship our software on, it’s a critical part of the required infrastructure. But smart solutions are available from private providers that will, with sufficient advance planning, make sure your town centre is able to cater to the needs of a thriving tech hub.
Much of the potential in the next decade of the tech industry lies in automation, machine learning and artificial intelligence and these three fields require access to large data sets, which can be costly and slow to acquire. A regional community seeking to foster the development of a tech hub might consider subsidising the cost and facilitating the acquisition of data sets such as GIS, satellite imagery and agronomic data.
Easy access to customers and capital
It’s a mistake to invest too heavily on developing solutions for local customers in your region, since they are unlikely to be as quick to adopt new technology solutions than more opportunity-biased business cultures in the US, SE Asia and China. Instead, focus on developing lean, effective guided travel opportunities for tech startups from your region to visit – not the tech hubs but the potential customers you can help them find in other markets. Air travel has never been cheaper, AirBnB is much cheaper than a hotel, thanks to Google and LinkedIn you can research and reach out to all your potential customers before you leave Australia, and Australians are welcome at most passport control desks.
Investment capital is probably something you’re going to have to bootstrap within your regional community first and show results before you reach out to the angel and venture capital communities in Sydney, Melbourne, Brisbane and Perth. Why? Because there’s already too little venture capital in those cities to service the boom in tech startups seeking investment. It’s too much to ask them to consider opportunities in regional Australia until you can show them some early results.
But the good news is: getting started building a local investment community is not only not that hard, it’s also what you need to do to retain as much of the long term value of tech startups in your community.
The government provides big tax incentives for investors in tech venture capital funds operating as an Early Stage Venture Capital Limited Partnership (ESVCLP). An ESVCLP has a minimum size of $10M but you can start smaller than that.
Get ten local business leaders to each contribute $100,000 to an unlisted unit trust (called an ‘angel fund’) and you have enough to fund the first-round funding of 4–5 early-stage tech startups. Do that every two years and in six years (allowing for some failures) you’ll have enough startups to be creating jobs and even drawing talent in from cities. Seek the advice of angel groups and the small VC fund managers in the city on how to set up and operate these funds and I’m sure they’d be happy to assist.
Establish who the ‘operating partners’ will be (the investors who will step up to do most of the evaluation and due diligence on investments) and how the group as a whole will decide to invest, or whether each investor will make their own decision individually.
If your local angel funds perform well enough, you will find it possible to raise further capital from the city and from overseas, and in a decade you could have three or four local tech venture funds competing to invest in your community’s best tech startups. Look to Boulder, Colorado for a great example of how this can work.
Critical mass of startup community
Once you’ve got startup people in your community coming back for their second or third attempt at growing a startup, it’s cost maybe $200,000 per failure but you’ve gained millions in terms of them gaining experience, skills and connections that will serve not only their next startup but the startups of those who are just setting out to build their first.
In Sydney we’ve seen tremendous momentum form around the startup founder alumni in private accelerator programs such as muru-D, Startmate and BlueChilli, as well as those run by the universities.
Now the most likely source of first round capital for the current generation of new startup founders in Sydney or Melbourne is from successful tech startup founders who started on their first idea 5–10 years ago. That positive feedback loop has also created some of Australia’s most successful tech startup venture funds, such as Blackbird Ventures.
Where to from here?
Don’t listen to those who’ll tell you there will always be a future in coal or gas – there will, but it will be a very small, very narrow future compared to what it has been in the past. There will always be agriculture too, but if you’re sick of your community being subject to the destructive side of globalisation and suffering from the effects of drought, then building a software startup industry in your community will help moderate and maybe even insulate you from that entirely.
Want well paid, secure jobs for your kids and your grandkids? Want a local economy resistant to drought and commodity prices? Want educated, talented professionals to migrate in, instead of out? Want closer trade ties direct with customers overseas?
I’ve delivered a speech based on this blog post and participated in business community round tables in Armidale, Tamworth, Coffs Harbour, Port Macquarie, Gold Coast and Central Coast. I’d be happy to come talk to any regional community in Australia interested in learning more. You can reach me at m8.ventures.