Startups could contribute $109bn to economy by 2033: PwC

Backing the startup sector's claim that it could help save the Australian economy once the mining boom goes bust, PwC has released its report showing that entrepreneurs could provide an injection of $109 billion and 540,000 jobs to Australia.
Written by Michael Lee, Contributor

Recent claims about how the Australian economy will flounder unless the country invests in startups has left critics questioning what impact entrepreneurs could possibly have. According to PricewaterhouseCoopers (PwC), it's AU$109 billion and 540,000 jobs.

The report, "The Startup Economy: How to support tech startups and accelerate Australian innovation", estimates that there are 1,500 tech startups in Australia run by 2,000 entrepreneurs, and examines how this sector will contribute to the future economy.

The report itself was commissioned by Google Australia, which is one of six organisations behind the startup community group StartupAus. The other members of StartupAus consist of four startups and a venture capital firm.

The research highlights much of what has already been suspected in the industry, namely that the majority of startups will fail. PwC expects that of the 1,500 startups, 1,100 will fail by the end of the year (a failure rate of 73 percent), but more positively, 40 percent of the entrepreneurs behind them will try again.

Examining the growth of the sector, PwC expects that in 20 years, Australia could have 5,600 new tech startups and 5,600 new startup community members. There are a number of key assumptions behind this model, including the proviso that successful tech startups reach AU$200 million in revenue in its 8th year and generate AU$300,000 revenue per employee. The report also recognises that only 1 percent of Australian tech startups ever reach AU$200 million revenue.

PwC's report highlights that reaching the targeted AU$109 billion figure — which represents 4 percent gross domestic product — as well as the 540,000 created jobs, would be possible, but would also be "a significant task for the ecosystem to achieve".

Yet Google Australia engineering director Alan Noble believes that not only is this target achievable, but that the startup sector could contribute more than that.

"That's a conservative figure, and really a lower bound if we basically can sustain this momentum and grow the community. It's by no means an upper bound," he told journalists during a media briefing at its local headquarters on Monday.

To reach its targeted goals, there are four key issues that the country and community need to address.

The first involves attracting entrepreneurs with the right skills, highlighting that in terms of education and skills, the market for entrepreneurs is all but drying up.

The report notes that although 29 percent of startup founders have a computer science degree, only 2 percent of all domestic graduates have a computer science-equivalent qualifications.

"Even if all international students were to stay in Australia post graduation, the supply of computer science and engineering graduates would still fall short of the numbers needed to accelerate growth," findings from the report read.

Rather than tackling the issue at the tertiary education level, however, the report backs Noble's claims, as well as those recently made by entrepreneurs Michael Fox and Matt Barrie, that instilling the need for computer science degrees has to occur at the secondary education level.

"We need more people, we believe, with computer science backgrounds. We've actually seen ... a decline in computer science adoption," PwC partner Jeremy Thorpe told journalists.

"This is not a higher education issue. This is really getting people immersed in that sort of skill set at an earlier age; at the high schools — this is a high school policy issue."

The second looks at encouraging early stage funding, but with the caveat that money alone won't solve the problem.

"Encouraging more early stage funding is important, but this is not the answer. Throwing more money at the tech startup space will not necessarily achieve what we want," Thorpe said.

It has been argued that this is the approach some governments have been taking to try to jumpstart their own communities, but the findings from the report indicate that government initiatives and efforts are ultimately unsuccessful.

"The consensus of respondents in a PwC survey of over 100 tech companies in the UK was that governments should focus on creating a supporting environment for innovation and entrepreneurship, but should not intervene further," the report read.

The third issue does show how governments are effective however, highlighting that they are major consumers of goods and services developed by startups, totalling AU$41 billion in 2012.

The report notes that the major hurdle that startups face when it comes to attracting government bodies and large corporations as customers, is the amount of red tape and legal hoops startups are required to jump through to compete with well-established, larger technology companies.

"Simplifying procurement processes and open innovation will have mutually beneficial outcomes," the report read.

Lastly, Australia could take lessons from other entrepreneurial communities that have shown to be more successful due to their more inclusive environments and the greater number of personal connections made within them.

"It sounds soft, but in fact, culture becomes one of the critical elements to seeing startup communities succeed at a national level and at a local, regional level," Thorpe said.

"The startup community needs to see other members of the startup community not as competitors, but rather as potential collaborators and drivers of the ecosystem. [They] also need to see government not as the enemy, but as part of the ecosystem."

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