​The startup battle: Bridging David and Goliath

There is a lack of trust between startups and enterprises, which are hindering the success of both parties in Australia, according to a group of venture capitalists, startups, and KPMG representatives.
Written by Aimee Chanthadavong, Contributor

There are distinct problems hurting the opportunities for startups in Australia, as well as enterprises.

Based on a roundtable discussion hosted by KPMG earlier this week, it was clear some of the most common problems hindering on the success for startups in Australia included the lack of trust between startups and enterprises; the lack of entrepreneurial culture within Australian businesses; and the lack of local funding for startups in comparison to markets such as the United States and Israel.

The roundtable was joined by the likes of James Mabbott, KPMG head of innovation services; Stone and Chalk CEO Alex Scandurra; H2 Ventures managing director Toby Heap; and Amanda Price, senior vice president of innovation at Advance.

The group agreed that more conversations need to happen between enterprises and startups to drive greater innovation in Australia. They said that enterprises often have issues with innovating, and startups are often the solution.

But according to Benjamin Chong, Sydney Seed Fund general partner and Right Click capital partner, the reason why so few of these conversations happen is because startups do not trust enterprises with their ideas, and believe that enterprises will instead claim them as their own.

"Some [startups] are saying: 'The last thing I want is Mr Innovation from Commonwealth Bank and wanting to know what's underneath here', and then, voila, the next thing I know it's in the next iteration of Albert'," he said.

"I really agree there does need to be a conversation. There needs to be a passing of information and value across larger organisations and startups with great ideas, and for this to happen there first needs to be a bridge of trust.

"There needs to be an understanding of 'I'll show you a little bit, and you show me a bit, and we can help each other'. I certainly know in payments ... they're thinking I really don't want Westpac stealing my X, Y, Z, or another bank stealing my A, B, C. I think there needs to be some way where there can be a slow reveal, and robust but productive conversation."

On the other hand, Scandurra highlighted that enterprises are often stubborn and believe they do not need the help of startups. Instead, he said they often try seeking the same help within their company, until they realise how difficult it is to create a new solution.

"Startups need to say, 'Hey we got this technology and are happy to license, partner, or have you invest', but setting that up from a commercial perspective is tough. Ultimately, the startup winning is the key."

Heap said enterprises such as those in finance that have opened their doors up to startups are the ones benefiting, noting that startups should not be seen as a threat but an opportunity. He said, for instance, there is one Australian bank that could have potentially worked with startups to build a new wealth platform, however chose to not do so, and has since spent the last five years and AU$6 billion building it.

"I know speaking with people internally, it's not going to make anywhere near what they've spent on building it, and are internally trying to manage down expectations at the moment," he said.

"The financial services companies that have been open and two-ways about things -- they're the ones that the startups want to keep talking to. The handful that have sat there and not given anything... everyone knows that's not the man to deal with. I don't think some of the banks realise the damage they're doing to the prospect of working with startups by the way they're behaving. But I don't think that's an issue for the startups because they're totally on top of it."

Ultimately to address the openness of enterprises, it begins with the executive managers, who need to drive the decision, as well as the culture within the company from the top down, the group said.

Julian Fogarty, KPMG Australia head of innovation and the company's former chief technology officer, admitted that for KPMG, it started with the support of the company's executives.

But as pointed out by NRMA non-executive director Melanie Willis, the hesitation for many executives is because of risk adversity, as many question how viable it will be for companies to invest into the work of startups.

"It goes back to leadership, and that needs to come from the president, chairman, and the board, and giving the CEOs KPIs around innovation, and that cascades through the organisation," she said. "It's actually having the real buy-in from the top level that are committed to innovation, and looking outside what we can do to think about this differently.

"There is too much risk talk; it's good to talk about risk, but it can shut down opportunities."

Jeremy Rolleston, Artesian Capital Management managing director, agreed saying there is a real fear in senior executives to embrace technology changes. As a result, he said they've "boxed in" the way they approach innovation, saying they don't think about how they can use it to expand not only their core business, but across verticals.

For example, he said financial services firms in Australia are only interested in speaking with fintech companies, and not other startups that are not related to their sector.

"But yet, if you look at the example of Coles being a retailer going into financial services, there's technology being used across verticals there. The States understand that cross vertical innovation a lot more, and therefore are more keen to engage with innovation," he said.

Scandurra said another reason why there has been no intense rush for enterprises to be innovative in Australia is, unlike countries such as the United States or the United Kingdom, the Australian economy has never faced a "real shakeup".

Speaking about his time at Barclays as head of the company's accelerator program, Scandurra said the reason why the company took the initiative to be innovative at the time was driven when it realised its threats were no longer other banks, but technology companies such as Google, Facebook, Amazon, and Apple.

"As an organisation, we benefited from what the UK government was doing, given that they had just gone through the GFC and had almost destroyed their economy. So the Prime Minister from the very top had mandated that Britain was going to be the number one place for startups, and that's important because they then created investment incentive schemes, the entrepreneur visa, and from a policy framework perspective, it was creating the right conditions to promote startups and entrepreneurship.

"What I've observed is Australia hasn't gone through a crisis. We had a mining boom that was massive and now it's dwindling off; we had manufacturing that was kind of there but that's dwindled off; we're buoyant in terms of agriculture when don't have a flood or drought; so we haven't really had a crisis point where everyone is looking and thinking what are we going to do. That's what the GFC did for the UK, and that really helped propel the government into developing policies to encourage startups."

In efforts to address such problems, the Queensland government has committed to give the state's startup industry a AU$24 million funding injection as part of the government's AU$180 million Advance Queensland initiative, in advance of the state's 2016 budget.

The intention of the funding is that it will increase the attraction of forming a startup in the state and to build a "thriving startup culture", as only seven percent of Australia's tech startups are said to have been formed in Brisbane.

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