Finding Australia’s best start-up state

Locating a start-up business in the multinational hub that is Sydney, the creative stronghold of Melbourne or the spiralling population of Queensland may appear to provide the best opportunity for growth. And, in many cases, you’d be right.

However, in terms of business survival, the major economic hubs lag significantly behind. To find the leading state in terms of start-up longevity, you have to lower your gaze. To Tasmania, to be precise.

The Apple Isle has the lowest start-up failure rate of any Australian state or territory. According to a recent Australian Bureau of Statistics report, 75.7% of businesses that started in Tasmania in 2007 survived until June 2009.

Given the upheaval in the economy during this period, Tasmania’s start-up survival rate is impressive, particularly compared to the powerhouses of Victoria, New South Wales, Queensland and WA, all of which recorded at least 4% more closures during this time.

Tassie on top?

There are, of course, caveats – only 4,790 start-ups launched in Tasmania in 2007, compared with 101,116 in NSW. Also, many Tasmanian firms are family-run operations not seeking the lucrative but risky growth targeted by many Sydney and Melbourne businesses.

However, Tasmania does appear to suit the start-up of the 21^st century – strong educational links, a thriving clean energy sector and a hands-on state government.

“There is a large public sector in Tasmania, so the state wasn’t hit so much by the vagaries of the financial crisis – people still have money to spend,” explains Robert Wallace, CEO of the Tasmanian Chamber of Commerce and Industry.

“Businesses that have a commodity product don’t perform quite as well in Tasmania but there is a real area of growth in the IT and renewable energy markets. Any kind of business offering a service can do well and there’s a huge amount of intellectual property in the state.

“Tasmania is very active in setting up incubators and the University of Tasmania has been given $180m for research. We’ve had a lot of people move here from the mainland in the last 10 to 15 years for the lifestyle change, there’s optic fibre here and low-cost flights from Sydney and Melbourne. There’s quick and easy access to government agencies because it is a smaller state – we speak to them on a weekly basis.”

Wallace concedes that firms looking to build a large-scale manufacturing operation would probably do better elsewhere, but says he sees “no down-side to starting up in Tasmania, as long as you don’t want large volumes of materials or labour.”

NSW bottom of the pile

At the other end of the survival scale, perhaps surprisingly, is New South Wales. Just 70.3% of companies that started in 2007 lasted two years, the lowest proportion of any state in Australia.

With the state accounting for around a third of the national economy, start-up churn is to be expected, according to Paul Ritchie, public affairs manager at the NSW Business Chamber.

“I wouldn’t really attribute the difference to any state conditions,” he says. “Our members say the biggest challenge is the issue of business finance and the culture of the banks, which is a national problem.

“There are more people taking a risk here, so there is more churn. There are red tape issues, but nothing game-changing. There’s still a strong service and tertiary sector here.”

Richie admits NSW could be suffering from an image problem.

“People seem to be down on the state due to the nature of the state government,” he says. “If the polls are to be believed, that will change and we will see a state government more aggressive in seeking out business opportunities. The current government appears to have run out of some puff.”

Risk v reward

Classifying whole states as good or bad for start-ups, rather than regions within them, is a broad-brush approach, according to KPMG demographer Bernard Salt.

“There are simply more start-ups in large cities because there is more diversity, energy, more connectivity and exposure to new thinking,” he says.

“There’s a ‘take a chance’ culture in Melbourne and Sydney. There are opportunities in Hobart, but they aren’t quite as ‘edgy’. The more edgy the business, the higher the risk.”

Salt identifies certain areas as being increasingly attractive for start-ups due to population and infrastructure growth, including the Pilbara region in WA and the coastal area between Townsville and Brisbane in Queensland.

Regional population incentives, such as Queensland’s $4000 grant to attract individuals to regional areas, could benefit small firms, Salt says.

“People are moving for jobs, such as in WA for the mining industry, but this also creates business opportunities, such as dry cleaners for the increased population, for example,” he says. “The growth in scale will create incidental opportunities for small businesses. But it’s not always as easy as that – getting the right people to work for you can be a hurdle in growth areas.”

State quirks

While population growth and booming industries can encourage people to go it alone, it’s advisable to be wary of the regulatory quirks of individual states before launching or expanding.

For example, in Queensland there are stringent insurance and qualification-based requirements for those hoping to run a business based upon electrical appliances.

ATS Franchising, which tests and tags electrical appliances in the workplace, found this out to its cost when attempting to expand into the state. Owner Sarah Allen says that the company has five franchisees in the state, whereas it would have eight “all things being equal.”

“It affected our growth in Queensland dramatically,” she says. “We had to change the way we worked and it was a real pain in the neck. Queensland is quite different to other states when it comes to certain legislation.

“When you’re based in another state (Victoria) it’s hard to keep up with the legislation changes. The regulations in Queensland cost our franchisees there an extra  $400 to $500 a year, which they are quite grumpy about.”

It’s advisable for start-ups to check on state law and sector conditions before launching – for example, becoming a franchisee in South Australia will get either dramatically worse or better, depending who you believe, if a private members bill protecting  franchisee rights is made law next year.

Business lobby groups are pushing for the playing field to be levelled across the states, with some success, such as start-ups’ new ability to register a business name once rather than in each state.

Regardless of these efforts, Tasmania, so often overlooked in the business world, will wear the crown of start-up GFC resilience proudly.