Cutting off your innovation nose to spite your export face
Australia’s universities are in desperate trouble, and their first move has been to cut the entrepreneurship and innovation arms they should be defending at all costs.
Sometimes, there’s no satisfaction in being right with predictions; like the time back in early March, when I predicted that the tech startup accelerator programs and incubators being offered by most Australian universities would be closed or suspended, due to the current pandemic recession. I said,
Incubators and accelerator programs have been the startup industry’s work-around to address the shortage of early-stage investment in Australia, so you might have been expecting the number in Australia to hold steady, or even increase, if early-stage investors are planning to go into hibernation.
But Australian incubators and accelerators are mostly corporate or university-backed programs, which cost a lot of money to run in the short term and have an unproven long term return on investment, maybe.
Corporate leadership teams in most industries will be looking for non-core expenses they can shed, and accelerators/incubators fit the bill nicely. Expect many of them to ‘be put on hold for the time-being’ aka no intakes. Australian universities reeling from a rapid double-digit shortfall in revenue will shed their accelerators/incubator costs too, though because most Australian universities are slow to make decisions, it might not happen until the end of this year.
Since then, I’ve heard from friends working in this area that their universities have begun cutting accelerator and incubator budgets by a third or more, as institutions struggle with the rapid and dramatic downturn in fee-paying international student revenue. That cuts close to the bone, but it gets worse with each passing month.
Yesterday, Queensland’s QUT announced it was closing Creative Enterprise Australia (CEA), which provided several valuable functions. It ran an incubator space for startups to work together at low cost with support from experienced mentors; ran two successful accelerator program intakes per year; operated a successful early-stage investment fund; and ran a variety of entrepreneurship skills programs in Australia and bridging into SE Asia.
QUT had already closed its Bluebox research commercialisation unit. Both decisions were announced with similar weasel words, along the lines of how ‘the resources, activities and key staff would be retained and reassigned’, about how, despite budget and staff cuts, somehow (magically?) innovation, investment and entrepreneurship would continue.
Yah, sure it will.
Well, what did you expect? There’s a pandemic!
We’ve all read how some of Australa’s world-class universities may be teetering on the edge of closing campuses and laying off thousands of staff, so is it really so surprising that innovation and entrepreneurship offerings might be cut?
Well, yes, it is surprising. And I’m disappointed and worried, not for me, but for Australia.
Australia wants to continue to be “the lucky country”. We want the best of a first-world economy, society and living standards. And for a long time we’ve been able to sustain it (despite two hundred years of infrastructure underinvestment and short-term planning) by just scaling up the volume of stuff we dig out of the ground and export.
However we’ve made relatively zero progress in adding to the value of what we export in any sector, we’ve just found new ways to reduce the cost of digging it up and exporting it. It’s been true of whatever we’re exporting, whether it’s meat, grain, gas, coal, ore, or in this case, education.
The remarkable growth of the Australian tertiary education system over just the past decade hasn’t come from more young Australians going to university (their numbers are growing slowly enough that growth will stop, or may already have stopped). Instead it has been fuelled by a doubling in the number of international fee-paying students looking for what they perceive as the same quality they’d expect from a French, English or American university, but at a cheaper price.
We perform this miracle by expecting our university professionals to work longer hours, manage lower staff/student ratios, at declining rates of pay compared to their overseas peers. We turn costly libraries full of books into glossy-looking study spaces and invest our capital into student accomodation, where we can charge international students to live while they study here. We deliver more of each subject online.
And our government contribution to the funding of universities has fallen in real terms. In fact, our government has incentivised our administrators to act like private companies so effectively that they could be mistaken for property developers, on their balance sheet.
The current government hasn’t even allowed universities access to the Jobkeeper scheme meant to reduce the impact of the pandemic recession on unemployment.
As Opposition spokesperson Tanya Plibersek says, “The federal government cannot explain why a university student working a $100 shift per week receives the full $750 a week jobkeeper wage subsidy, while a full-time university worker with kids to support, gets nothing.”
It’s like we’re choosing to stick with wind rather than invest in steam
There’s no question in any economist’s opinion that “software is eating the world”. It’s no accident that most of the world’s most valuable software is conceived, developed and commercialised in either Silicon Valley or China — both nations have invested heavily in fostering the growth of their startup industries. The US did it relatively gradually, with mostly private capital, and China has done it very rapidly with mostly state capital, but in both cases the percentage and the value of investment on a per capita basis dwarfs the investment we’ve made in Australia.
As more of the world’s economic output is generated by those who own the capacity to develop software (and hardware-controlled-by-software), does Australia really think we can continue to sustain a first-world nation on the back of exporting ever-increasing quantities of unimproved resources?
In 20 years’ time, how many tonnes of coal per Australian will we have to export to provide first-world living standards?
Startups are where valuable software skills are improved, from raw ore to refined, high value end product.
A thriving startup industry is a rolling boil of rapid experimentation and capital-efficient innovation; a self-reinforcing, positive feedback loop of successful entrepreneurs becoming the mentors and investors that put smart money into the next generation of promising ideas.
Where it might take 30 years to 10x the value of a dollar invested in mining, and 50 years to 10x it in agriculture, we can 10x it in software in 5 years — or even more — when we’re performing at the quality of Shenzen or San Francisco.
Both the professionals and intellectual property we refine through a growing startup industry must become our nation’s export focus.
Australia’s universities are cutting their startup innovation and entrepreneurship investments in order to shore up their rent-seeking exports of low-value, base-level degree qualifications.
I was Entrepreneur-in-Residence for QUT CEA’s Collider tech accelerator program in 2018. Two of the startups I mentored in 2018 are great examples of the dynamic potential of supporting tech startups. Brandollo and Tixel were both startups with just two cofounders when I first started working with them.
No salaries, no staff, living off savings and gig work, their early software prototypes raw and unrefined. Now each of them are worth many millions of dollars, employing growing teams of Australians, servicing a growing international market, developing new, polished products that their customers love, taking the world by storm.
These are privately-held companies so I can’t disclose their confidential financial information but on my prior investment experience I’d expect to see each of them deliver a greater and faster return for shareholders (including QUT) than a new coal terminal or a new apartment block.
QUT CEA provided essential space, mentoring, and early-stage capital that undoubtedly made the difference for these teams and others. Closing QUT CEA means none of that support exists, and the ‘shareholders’ of QUT (you and I, the taxpayers) will miss out on the returns on investment that were already revealing themselves in QUT CEA’s balance sheet.
It’s like we’re choosing to ignore the future and hoping to find ways to export even more of the past.