Australia performed poorly in the global startup ecosystem ranking 2015 which was published recently (http://goo.gl/UXcGcO). Sydney fell 4 spots and now ranks 16th in the world, while Melbourne fell entirely out of the top 20 despite being on that chart in the previous version of the report published three years ago. The study expresses concerns about the Australian ecosystem that echo those in other studies performed by academics as well as in the Australian Government’s Innovation System Report (http://goo.gl/kvQZhK). The 2014 AIS report sums it up nicely: “Australia performs relatively poorly on ‘new to market’ innovation”.
Yet on the ground, interest in innovation and startups has never been stronger than before in Australia. Compared to five years ago, we now have many more ‘meetup’ groups in Melbourne and Sydney for founders and entrepreneurs, a variety of incubators and accelerators, and a number of innovation-oriented programs at leading universities including Melbourne, UTS, Swinburne and QUT. There is strong interest in courses on “design thinking” and “lean startups”. MBS has our innovation bootcamp for MBA students, while the University of Melbourne now has an accelerator and is about to launch a new Masters in Entrepreneurship program. A growing number of entrepreneurs are contacting me to discuss new business models, market entry and how to protect their innovations. These will take time to bear fruit.
How do we reconcile the weak findings at the ecosystem level with growing interest at the ground level? Part of what’s happening is that other startups ecosystems are maturing faster than the one in Australia. Many ecosystems abroad have continued to enjoy stronger government support, better access to venture capital and closer industry-university linkages. The most successful ecosystems (including Silicon Valley, New York, Los Angeles, Boston, Tel Aviv) have continued to develop and reinforce a coherent system for connecting resources, talent, funding and market access. Here in Australia, we have bits and pieces that are good in each major city, and we also have specific firms and sectors that are incredibly innovative. But that distribution is uneven and the parties involved are not as seamlessly interconnected as they could be.
A second part of the explanation is due to the business environment in Australia. Given our small domestic market, many of our startup entrepreneurs will continue to sink at least one foot (if not both feet) into other ecosystems. This makes sense from the point of view of being close to market and expertise.
A big change however is the growing interest in innovation by existing firms. In recent years, incumbent firms in industries ranging from retail to energy, news and financial services have been jolted out of a comfortable (often monopolistic or duopolistic) existence due to the threat of entrants, both online and offline.
The embrace of innovation by Australian firms has taken a long time, partly due to the difficulty of changing the mindsets of senior executives who run these organizations. However, it is clear that in a variety of industries across the globe, the terms of competition have changed and Australia is no exception. In conversations with senior managers at Australian organizations, I am discovering a growing interest in innovative strategy, business transformation, ‘design thinking’ and ‘business model innovation’. These conversations often begin with a reactive or defensive tone reflecting a need to respond to market or technological threats. However at some organizations the discussions have begun to advance beyond that stage: managers at some firms start to view innovation as an opportunity to reconsider their existing ways of doing things, engage new stakeholders and to develop new capabilities.
In the short run, I see a good opportunity in helping existing Australian firms learn to innovate and become more agile and competitive. In the longer run, it would be nice to see the startup ecosystem flourish in Australia, but that is something that will take time and sustained effort.
Note: I was invited to write this article for the Melbourne Business School student newsletter. It is reprinted above, sightly edited.
Core Economics 
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