Snakes, and their ladders

Tim Ayres gave a revealing and highly divisive speech during the National Innovation Policy Forum this week.

It confirmed the worst suspicions of embittered Australian startup founders and small business owners.

We are an afterthought. We are not in consideration for serious Government funding, but if we’re lucky, someone at the top might throw down a ladder. 

Tim praised big business, and his record of giving financial support to the companies who need it least. Including $120m in NRF funds to Built Living, a housing joint venture that barely meets the criteria for NRF funding based on its original objectives.

One of whose CEO took home $12m last year, the other reporting they double their profits last year, and paid out a $42.5m dividend. 

Parts of the speech felt like a thinly disguised rebrand of 1980s trickledown economics. 

“Large firms are just 0.2% of Australian businesses, but they produce around 44% of industry value. You lift their productivity and their innovation, and you lift the national number. […] They create a ladder for smaller companies to climb, helping to grow Australia’s missing middle and providing an avenue for which to inspire.“

Sitting in the room, I was not the only one shocked to hear this spoken so plainly, as it is completely contrary to the messaging promoted since 2022.

Money is intentionally being given to businesses at the top of the food chain. Everyone else must settle for the promise of theoretical ladders, and the opportunity to be inspired by their success. That’s not good enough, and doesn’t align with the stated ambitions to rebuild Australian capabilities, retain talent, or foster innovation.

The 3Bs: big business bias

The 44% figure is truly baffling, and frankly misleading. It is likely a reference to industry value added (IVA), a measure from the ABS’s annual Australian Industry reports. Industry value is not the same as revenue or GDP.

It excludes major sectors of the economy, like the entire public sector, and financial services/banking. Mining and real estate have high IVA figures, so by Ayres logic, should we give all Government funds to property and mining businesses and hope the money also flows elsewhere? Of course not.

But this isn’t too far from the reality. 

Large corporations are rarely the source of innovation, innovating primarily through acquisition rather than through in house R&D. In my experience, once innovation is being driven by a large committee, and numerous departments are each contributing to a central idea, innovation in fact grinds to a halt. The most effective way to translate research into commercialisation is through the type of agile environment that startups and SMEs inherently provide. 

I acknowledge that it is possible that startups could succeed by partnering with the enterprise, but this cannot be the only viable business model for growth, and it rarely works in practice as early stage startups inherently represent too much risk for most large enterprises.

If you give government money to Australia’s biggest companies, it doesn’t make a meaningful difference to them. It certainly doesn’t boost the entire economy, and benefit everyone around them. But withholding opportunities and money from startups makes a profound difference to them.

They leave Australia to more inviting business landscapes, like the US. They build in China, not here. They die in valley of death. 

Stop kicking ladders

We need a balanced economy where small businesses are given the same if not more opportunities than big ones. Where support is based on merit, innovation and need, not ROI.

Government funds need to be spread across more targets, with more shots on goal. $100m headlines are great, but I’d rather see twenty $5m investments. After all, the government does not have the same incentives as VCs. It does not need to 10x its investments.

It needs to give businesses a chance, to build products, hire workers, grow skills, build sovereign capabilities. Even when a startup fails, those skills and experience remain, and the capital equipment purchased gets utilise for decades by other companies in the eco system.

People go on to do other things, and to build other successful companies.  

Under the Labor government, so many startup schemes have been axed, or changed so that they are no longer fit for purpose. Startups spend months working towards a goal, only for the latest budget to move the goalposts or knock them down entirely. 

In addition, the catalysts that have helped startups in the past are now being altered, and it is unclear what problems are trying to be fixed. Changing the RDTI, and CGT without considering the long gestation period of many deep tech startups has further complicated the startup scene in Australia.

When we are told we can rely on Government grants and schemes like the MVP grant, R&D credits, the industry growth fund, they need to still be there 12 months later. These are the ladders we actually need. We just need someone to stop kicking them out from under us.   

• Sam Ringwaldt is the CEO and cofounder of Conry Tech