Aussie startups still being held back by local oligopolies: Stone and Chalk

Five years later, Stone and Chalk has again highlighted the need for bureaucracy to take a backseat.

Sydney-based non-profit innovation hub Stone and Chalk has said startups in Australia are being held back from success by the players that dominate the market, as well as by a lack of support from governments and corporates.

"For fintech startups … to succeed in Australia, they need to be able to sell to corporates and governments," Stone & Chalk CEO Alex Scandurra said. "In other words, governments and corporates need to buy solutions from Australian startups and scaleups."

Scandurra, appearing before the Select Committee on Financial Technology and Regulatory Technology and its probe into the opportunities the two sectors present to Australia, said there's a bigger force working against the success of startups in Australia: Being plagued by oligopolies in almost every industry.

"Oligopolies exert significant market power and it continues to be the Australian consumer and smaller businesses that are paying the price," he said. "This dynamic is acting as a handbrake on the economy and stifling innovation renewal and growth."

According to Scandurra, rather than being proud to be the first customer of a startup, as is the case in the US, Australian decision-makers insist on being the third or fourth customer.

"What makes things worse is that in many cases, it takes an average of 12 to 18 months to sell into government and large enterprise," Scandurra continued.

See also: Has Australia lost the startup bug? Fishburners doesn't think so

While the state of venture capital is a lot better than Scandurra would argue it was five years ago, he said many investors have made their money in traditional industries such as mining and agriculture, and not technology.

"They don't really understand technology and therefore perceive it to be a very risky investment class, wanting to see customer contracts secured before investment," he said.

"So without realising it, what we have in Australia is a vicious cycle -- a catch 22 -- where startups need seed investment in order to fund their product development and these lengthy sales phases where investors don't put their money in until the contracts are secured.

"They're failing before they even get off the ground."

Bureaucracy also needs to get out of the way, with Scandurra saying Stone and Chalk has seen many contracts fall through due to "perceptions of risk" from some of the regulators, resulting in corporates and government not proceeding with the procurement of a startup's product or service.

"In some cases, they've basically struggled to survive," he said of the fate of some startups following a failed procurement.

See also: Moving from startup to established company: Four big shifts (TechRepublic)

The big four -- Commonwealth Bank of Australia, National Australia Bank, ANZ Bank, and Westpac -- hold around 80% market share of the entire Australian finance industry between them.

Scandurra would argue that due to the forces of competition and capitalism, the big four are introducing a high degree of automation, which he said equals a loss of jobs.

"I believe it is a significant handbrake on any economy where four big banks dominate the Australian Stock Exchange and are the most profitable banks per customer in the world," he said.

"What that says to me is that a huge amount of profitability is shifting from industry to a financial service, which arguably doesn't contribute that much to productivity as [much as] potentially other areas of industry could, particularly when it comes to technology creation."

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