Start-ups are key to the future of everything

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In Blogs

/ Published on 14 May 2018

Nigel Lake, Executive Chair of global business advisory firm Pottinger, will tell this week's Myriad start-ups festival  in Brisbane, running May 16-19, that Australia needs start-ups to protect its prosperity. 

Pottinger executive chair Nigel Lake will present at this week's Myriad Festival in Brisbane

In Australia, the canary in the employment coal mine is wobbling on her perch. 

Though unemployment is low, real wage growth is stubbornly slow and is further imperilled by an imminent wave of disruptive technology. 

The threat to the Australian dream is severe. More than 90 per cent of the value of Australia’s top 100 companies lies in old economy industries, with the top four companies all banks. In the US, the four largest companies are Microsoft, Apple, Google and Amazon.

Global competitors bring huge economies of scale and the capacity to steamroll local businesses on quality, service and price. New market entrants to Australia such as Amazon aren’t anti-competitive –they’re hypercompetitive.

So far this century, Australia has created just two tech start-ups worth more than A$1bn, namely Atlassian and Canva, collectively valued at about A$20bn. In contrast, the 10 largest US tech companies have created more than A$4 trillion during the same period. 

Adjusting for relative economic size, America is more than a factor of 10 ahead of Australia.

The challenge facing Australia is that without a vibrant start-up sector to create valuable new companies in fields such as technology and life sciences, we will lose jobs to other regions.

Without investment capital to fund these companies, we will lose economic upside to other countries.

And without a determined effort to retain both investment and jobs onshore as companies mature, Australia’s over-exposure to low-growth, low-return sectors will increase, undermining the nation’s retirement savings and quality of life.

It’s not just about products or profits or jobs – we need to weave innovation into our social fabric to sustain the prosperity of our nation, so it’s really about “the future of everything”.

In short, the creation of new businesses and new jobs is of paramount importance. If we don’t seize this opportunity, there won’t be a future of anything.

This technology threat is not isolated to Australia. The EU recently created an advisory panel to ensure that technology creates economic opportunity, rather than destroying it. Its 10 members include Microsoft co-founder Bill Gates, World Economic Forum President Borge Brender, Microsoft President Brad Smith, Google Deepmind’s Mustafa Suleyman and Pottinger’s Cassandra Kelly, who is also speaking at Myriad Festival this week.

At Pottinger, which provides strategic advice and guidance for corporations and governments globally, our work with start-ups comprises just one-tenth of our business, although we believe it represents at least half of our future.

The reason start-ups are so significant is that they embrace and deploy disruptive technology because they are unhindered by legacy investments and business models. While only a few may succeed, those winners can change industries and, indeed, economies.

Without focussed support of start-ups, the odds are against Australia. Massive scale advantages create winner-take-all sectors, with nearly all industry leaders now based in either the USA or China. 

Beyond domestic wealth polarization, wealth is becoming concentrated globally too. Many global behemoths pay little corporate tax and employ fewer people than 20^th century corporations, creating real challenges for governments.

Even this is just the tip of the economic iceberg. Back in 2013, Oxford University published research showing that existing technology could already replace more than half of all existing jobs. This was before self-driving vehicles became an imminent reality – threatening an activity that generates significant employment in many countries.

To date, corporate complacency has held back the threat from technologies such as Artificial Intelligence (AI) and robotisation. With post-GFC economies growing and corporate profits strong, institutional inertia encourages executives to leverage current corporate structures and strategies to collect their performance bonuses.

However, when profits come under pressure from an economic slowdown, management will pull the cord to exploit AI and robotics and other emerging technologies to slash costs and maintain profits.

This will do more than just disrupt industries – it will deliver dramatic changes in employment too. Unemployment will increase significantly, both undermining personal tax revenues and adding to welfare costs.

In Australia, that technology is likely to come from offshore, making domestic economic recovery harder. No sector is immune. For example, Pottinger recently worked with The Pharmacy Guild of Australia to identify how community pharmacies will need to make profound changes as technology and automation reshape the healthcare sector.

Facing these risks, we need to do more than simply hope that employment in caring, creative or cultural industries - where human contact is essential - will grow quickly enough to replace lost jobs.

This did not happen in the agricultural and industrial revolutions, which both saw 50 years of near-zero real wage growth. And it has not happened in the USA during the past 50 years of IT revolution, where 80 per cent of the population earns pretty much the same today, in real terms, as in the mid 1960s.

To thrive in the 21^st century, Australia needs to exploit the coming wave of technological change by encouraging the disruptive opportunities created by start-ups to challenge and change the status quo.

This column by Nigel Lake was first published by The Australian newspaper on May 12, 2018

Start-ups hold the key to the future of everything

Details

In Pottinger

/ Published on 14 May 2018

Pottinger executive chair Nigel Lake will present at this week's Myriad Festival in Brisbane

The Australian dream run of economic prosperity is at risk unless the nation supports start-ups to drive a new wave of innovation warns Nigel Lake, executive chair of global advisory firm Pottinger

Mr Lake, who will speak at this week’s Myriad start-up festival in Brisbane, said creating new businesses and new jobs was of paramount importance to “the future of everything”. “In Australia, the canary in the employment coal mine is wobbling on her perch,” he said. 

“Though unemployment is low, real wage growth is stubbornly slow and is further imperilled by an imminent wave of technology. The threat to the Australian dream is severe. More than 90 per cent of the value of our top 100 companies is in old economy industries, with the top four all banks.

“In the US, the four largest companies are Microsoft, Apple, Google and Amazon. So far this century, Australia has created just two tech start-ups worth more than A$1bn - Atlassian and Canva, collectively valued at about A$20bn. In contrast, the 10 largest US tech companies have created more than A$4 trillion during the same period.  Australia doesn’t even feature on some world tech start-up maps.

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