The barriers to entrepreneurship in Australia

This is part two of a two-part series. In part one we looked at the most recent assessment of Australia’s entrepreneurial frameworks by the Global Entrepreneurship Monitor (GEM). Each year, the GEM measures and reports the level and nature of entrepreneurial activity, and support for entrepreneurialism around the world.

Australia last participated in 2019. Here in part two of the series, we examine whether the barriers to entry identified in 2019 have been resolved, and speak with one of the researchers involved in Australia’s assessments up until 2019.

The saying ‘success breeds success’ does not hold true for entrepreneurs in Australia, who operate in an undeveloped ecosystem, says Associate Professor Rui Torres de Oliveira, who is based in the QUT School of Management and is Director of the Australian Centre for Entrepreneurship Research.

The success around entrepreneurs is characterised by a stable and historically prosperous national economy that managed decades without a recession. However, this high level of economic comfort has resulted in a less-than-supportive environment for start-ups.

“Large businesses don’t have an interest in innovating at a fast pace and they negate small enterprises to enter into their space, especially when things are going well for them,” Torres de Oliveira says.

As we discussed when Australia’s ranking on the OECD Global Innovation Index dropped to 25th, there’s a wide gap between the research institutions that are working on new innovations and the small businesses and start-ups that would use these innovations to compete with the incumbent large businesses.

“Currently, the challenge in developing a better environment for entrepreneurs is very complex. It is not an easy problem to solve,” Torres de Oliveira says.

“The solution is about a lot more than funding. It’s also about developing an ecosystem and a change in mentalities, such as failure.”

Solving a complex entrepreneurship problem

Torres de Oliveira’s team was deeply involved in the GEM research that Australia was a part of up until the 2019 report.

Because of funding challenges and the cost of conducting the GEM research, that project was abandoned.

The 2019 GEM report painted a relatively bleak picture of entrepreneurship in Australia, with challenges particularly around the decreasing number of people involved in entrepreneurial projects, the declining image of a career as an entrepreneur, and a lack of institutional and educational support.

At the same time, the Australian Centre for Entrepreneurship Research has kept its finger on the pulse of entrepreneurship in Australia. Those same challenges still exist, Torres de Oliveira says.

“We know the entrepreneurial ecosystem is currently very poorly developed in Australia,” he says.

One cultural challenge comes from the stigma around failure, Torres de Oliveira says. In nations where entrepreneurship thrives, business failure is accepted as an essential ingredient in the recipe for success. In Australia, however, failure is still perceived as shameful, which could be driven by the risk-averse nature of Australians in general.

Then there is the educational challenge.

“Every day, I hear great ideas from engineers, from biotech people, from medical doctors, etc. But they often fail on the basics of management,” Torres de Oliveira says, noting the lack of training in entrepreneurship in terms of business management. Back in 2019, Australia’s entrepreneurial education at school stage scored 3.75 on the scale from 0, very inadequate, to 10, very adequate, with a score of five considered sufficient. Entrepreneurial education at post–school stage scored 4.46. Simply, neither score indicates sufficient entrepreneurial education.

“If more universities had a focus on entrepreneurship they, and other research institutes, could take these new ventures and put them in a much better position from the very start.”

Australia also lacks institutional and private funding infrastructure for entrepreneurial businesses, he says.

Where other territories contain a number of venture capital or family offices – private wealth advisory firms that typically exist to serve high net-worth individuals and that are often comfortable with early-stage business investment – they’re a relative rarity in Australia.

“In Australia, there is a massive lack of venture capital and family offices, which exist in other geographies.” Torres de Oliveira says. “There is also a lack of large funds that will support and take risks on new ventures.”

Large businesses must work with smaller ones

One of the major cultural issues, Torres de Oliveira says, involves established businesses and their lack of support for new ventures.

“We have a lack of companies looking at entrepreneurs – including large, even small and medium enterprises, but particularly large firms. They don’t see how new ventures could complement their business. They are not open to what we call open innovation, meaning dealing and collaborating with these new ventures for whatever problems the established businesses might have.”

The new ventures might offer a solution, Torres de Oliveira says. But the start-up might be run by someone young, or perhaps somebody who has just left university. They may not have years of experience, and this is something large businesses will have an immediate issue with.

And so, as start-up founders try to convince well-established managers of the value of their product or service, well-established managers distrust their lack of a track record.

“There is distrust between the parties when it comes to innovations,” he says. “Many bigger companies don’t have an interest in allowing small enterprises to enter their space.”

“This is the worst situation that we can have in an economic system, but we allow it in Australia because we are very privileged with many other things in our economy.”

Australian start-ups must look offshore

The GEM research also highlighted the fact that Australian entrepreneurs are less likely to look offshore for new markets.

There is an argument that this could be a result of Australia’s physical distance from other major markets, but Torres de Oliveira says the challenge is more complex.

In fact, he says, doing a poor job of internationalisation of a business is not unique to start-ups. Many Australian businesses, large and small, have a tough time when they attempt to expand offshore.

“Even large corporations and small and medium enterprises that have been established for many years, they are not internationalising well,” he says.

“So, the problem with internationalisation is not entrepreneurship. When we do it from Australia, we do it very poorly and many times we fail.”

Torres de Oliveira suggests this is a consequence of a lack of training.

“The poor way our companies internationalise is a reflection of having no knowledge at all of the internationalisation process. I think it also has to do with our way of life, with what we define as economic success. If our economy is growing, do we need more? Maybe not. So, I think we also have a little bit of a lack of ambition.”

The solution must begin with training, not only at the undergraduate or postgraduate level but also for managers themselves, Torres de Oliveira says.

Once entrepreneurs have the relevant knowledge, support networks are developed in Australia, and the stigma around failure softens, start-ups will have a far better chance of success. That will be good for the entire economy.