StartupAus Crossroads report: Why startups and “intellectual capital” are the future of Aussie exports

The fifth annual StartupAus Crossroads report paints a relatively positive view of the state of Aussie startups over the past five years, noting a strong – and continually stronger – fundamental base for growth, along with increased capital in the market, and unicorns such as Atlassian and Canva to inspire the next generation of entrepreneurs.

Although October’s Startup Muster report showed a decline in the number of active and new startups in Australia, StartupAus chief Alex McCauley says the startup sector has still seen rapid growth over the past half a decade.

“It should strike everyone as, at least, being quick,” he says, however, it’s “not a coincidence”.

The Crossroads report notes startups have grown to be part of the national political conversation, and Australia is now producing world-class companies. However, there’s more to be done if this momentum is to continue.

The report lays out 10 recommendations, including changes to the research and development tax incentive scheme, the employee share schemes legislation, and the controversial entrepreneur’s visa.

However, it also suggests startups should have more help when it comes to exporting.

The report recommends improvement in “speed and certainty” for startups under the government’s export market and development grant (EMDG), which it calls “one of the most important parts of Australia’s export support architecture”.

Historically, Australia’s economy has been based on mining and other large-growth areas.

“Countries that are rich in resource habitually draw attention away from other parts of the economy,” McCauley says, unintentionally starving other economic areas of capital.

The “resource boom” in Australia started to trail off in 2012, he adds, and so it’s “no surprise” investment in new areas, such as startups, really picked up shortly afterwards.

“Australia needs this. We need a new driver for growth for the economy,” McCauley says.

“Australian exporters have traditionally been very well looked after by government,” he adds, including through the EMDG.

However, while many startups are exporting goods and services overseas, they often don’t think of themselves as exporters. And at the same time, “exporter support isn’t very well tailored for digital exports, even though this is a huge growth area for the economy,” McCauley says.

“That’s something we need to be thinking about as a country,” he adds.

Currently, 50% of Australia’s export profile is made up of “things we dig out of the ground”, McCauley says.

Particularly in the iron ore trade, the materials aren’t even processed or managed in Australia.

“People think we’re selling metal to China. We’re not. We’re selling rocks to China. We don’t even bother getting the metal out of the rock,” McCauley says.

“That leaves us hugely vulnerable to price shocks, to international demand for those products, which are often controlled by just a few buyers,” he adds.

However, there’s potentially a bigger problem, too.

“We’re not translating our biggest asset, which is our brain power, into value for the country, because we’re literally selling rocks.”

Australia should improve its ability to convert brain power into economic growth through exports, McCauley says.

For a country that’s very distant to other large markets in the world, “there’s no better way for Australia … to export human intellectual capital than through software”, he adds.

We may not consider startups as natural exporters — and many may not think of themselves that way either. However, according to McCauley, they’re actually some of the most natural exporters in the country.

“The born-global phenomenon means you get successful Australian startups that never price their products in Australian dollars. They start pricing their products in US dollars because they fully expected to be exporting from day one.”

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