By Mike Sullivan >> 

JAMES PAULSEN has no illusions about how tough the Australian business market is right now.

“I think the business environment in South East Queensland is probably the most depressed I have seen in 16-18 years. It’s very segmented.” 

The founder and executive director of International Leaders – the collaborative business development organisation that has grown state-by-state and now country-by-county out of Queensland Leaders – gets his information straight from the business coal face. He is in contact, daily, with the most energetic and innovative business leaders in Australia across most industry sectors and company sizes.

“I think for existing businesses that have been around for a long time, a lot of them are tired,” Mr Paulsen said. “This GFC, in one form or another, has been going on for almost eight years so it is taking a toll.

“However, the excess has been taken out of the market, so we are starting to see an equilibrium come in with supply and demand. And I think for a lot of business owners, they always say it is darkest before the dawn, there might be another glitch or two, but fundamentally I am hoping we are near the bottom.

“From that perspective, if you can build a business in this market, then when the times are good it will be exceptional.”

Mr Paulsen said reports in recent months had been encouraging.

“Sydney is emerging and I think that is being driven by a bit more of a stable government in recent times, but moreso increased population,” Mr Paulsen mused. “Melbourne has this unexplainable confidence about it, considering that about 15 years ago it was the basket case of Australia.

“One of the biggest problems we are facing here in South East Queensland and perhaps more broadly across Queensland is an absolute lack of confidence. I would say Queensland has lost its mojo.”

The reasons are many and varied, but the challenge, he said, was to get that mojo back as quickly as possible. Jobs are primarily going to come from early stage, fast growth companies.

“The quickest way to employ people is about empowering those next stage companies,” Mr Paulsen said. “You don’t need to have a company, say, like Youi on the Sunshine Coast all of a sudden employing 2000 people – those sorts of things come across once in a while, like Virgin (establishing its headquarters in Brisbane).

“Governments make the mistake, I think, of buying in big employers and the net cost may or may not work. We have seen them buy call centres before and within three or four years they are shut down – they shed jobs.

“It annoys the local industry who are saying, why are you supporting someone else who has shown no interest here?

“The big opportunity I see is if these one or two people businesses just employ another person.” 

Mr Paulsen said apart from an imperative to sell the brighter picture – in Queensland’s case the onset of the liquefied natural gas export boom and the rebound of tourism – government was largely irrelevant in turning the business environment around.

“Now I think business owners are quite sceptical of what government says. I think the time of having a PR flack pushing out good news stories is gone.” He advocated some practical assessment by government, rather than fairytale telling.

“There should be some factual analysis … embrace that … then it will filter down to the start-up stage and hopefully rebuild the state,” Mr Paulsen said. He noted that some of the best performing growth companies in the Leaders networks were those that were driven by passionate entrepreneurs.

“We’ve got companies like Nimble in the tech space and Corporate Travel Management and they are not hanging around a certain sector – the success behind those companies are the individuals (that run them),” he said. “They have a fire in the belly and they have got a focus on what they want to achieve.

“What such companies are looking for is access to the expertise and resources around them to achieve their goal.” That, of course, is where the Leaders network and support systems come in.

“We always say to companies, ‘work on your business not in your business’ and sometimes that transition is very difficult because they might be a 2-3 person business and they spend 15 hours a day just trying to build revenue,” Mr Paulsen said.

“At what stage do you get the opportunity to start looking strategically? The conundrum there is that until the company can look strategic, they are never going to get out of the hole they are in.”

Mr Paulsen identified two areas of opportunity for Queensland business at the moment.

“We have to look at innovation, we just have to do things differently: embrace technology, better systems, better services … just to create a point of difference,” he said.

“The second point that I think most companies miss is collaboration. No one person has all the skills to build a highly successful company; it is the input of the stakeholders, the external people who guide and provide the feedback for these people to make better decisions.”

HOW LEADERS LEAD

In recent months, Queensland Leaders has collaborated with leading organisations such as CSIRO, to give members access to its Mega Trends analysis, and also over many years with lawyers, accountants and other experts leading their fields.

“It’s great to get peer understanding on a decision, but it is also great to get understanding from a lawyer or an accountant or an adviser who has done that transactions 58 times,” Mr Paulsen said. That is the power of the Leaders networks. 

“I say make a strategic decision, but the more advice you get and the better researched you are, the better that decision is going to be.”

This is the crux of the Leaders formula for helping businesses to generate success. It provides a new way for government to assist the development of the companies that are going to create new jobs.

“We try to bring in a lot of hook ups of Federal Government, Local Government and State Government,” Mr Paulsen said. “Each have different things to contribute to private growth companies. Then we support those private growth companies with peer engagement.

“So the software firm can talk with the advanced manufacturing firm about business models or client retention. But then surround them with the expertise … so you have got access to the lawyers and the accountants and experts.

“I always use the example of MYOB or Microsoft – probably not necessarily the best products in the market, but they are market leaders because they got all the other factors right.”

Mr Paulsen describes the Leaders’ Industry Experts groups as “a better mousetrap”.

“With their expertise they can find points of differentiation and competitive advantage that is outside (a business leader’s) own product. The collaboration point – looking at ways that product can go into a whole different industry or a whole different application that no-one in their organisation would have thought about.”

The final piece of the Leaders puzzle is the Industry Partners group.

“That’s the big public companies, like your TechnologyOnes and your Corporate Travel Managements and such,” Mr Paulsen said. “The lessons they can teach – sometimes it’s very high level – but at the end of the day I think it is some of the most sound information we have received.”

Where the Leaders groups have clearly differentiated themselves from other business support organisations is in the motivation behind those involved.

“It’s an interesting psychology. The people we choose in the network are organisations that I think are very philanthropic and dedicated to working with growth companies. I don’t think we have anyone there with that rape and pillage mentality – they wouldn’t last very long,” Mr Paulsen said.

“We don’t deal with the top four or the top five legal and accounting firms and that’s because this is not their bread and butter. We deal with those organisations that live and breathe SME companies. I think because of that they have got both the experience and compassion to work with these people.”

SME: TOUGH GIG

James Paulsen, whose background is private equity and investment banking, has worked with the SME market for almost 20 years “and it is a very tough market to operate in”.

“Money is thin on the ground, there are so many distractions and there are so many issues facing these businesses. And their ability to focus sometimes wavers,” he said. “You have got to be as dedicated as they are to build the relationship.

For many years Queensland Leaders developed its successful Executive Series, which settled in the range of companies with an average turnover of the $40-$50 million mark. Mr Paulsen said it became clear there was a need to work with earlier stage companies.

“In July last year we started our Future Leaders series, where the average turnover (of the 12 companies involved) is about $1.2 million and these are the next generational companies,” he said. “Fast movers, they are trying to establish a solid foundation and a sustainable business. So many early stage businesses are focused on driving the revenue or focused on all the factors that don’t drive long-term success.

“For most of us in this world, you learn by your mistakes and I guess with the Leaders’ model it is about learning through other people’s experience. They come to an environment that has all this information at their disposal. They go through a structured process where they understand everything from the IP protection, the marketing, the strategy, the brand, the technology development as well as the protection and legal matters.

“For them it’s a practical MBA – I don’t like using that term – but it does take them through a logical purpose and a process that enables them to implement. They cannot just do everything at once because then they take their eye off the ball.”

In July Queensland Leaders launched the second Future Leaders series in alliance Brisbane Angels – and this series is focused on companies looking to acquire capital in the short term.

“Once you start to bring external investors into a business the dynamics change extraordinarily,” Mr Paulsen said. “For a lot of those businesses it is about them understanding how the game is played and what they need to do – and the expectations.”

Feedback had been that knowing how to raise capital and deal with investors as been transformative for the Future Leaders companies.

“I think a lot of companies who have raised funds, probably in hindsight, wouldn’t have done it,” Mr Paulsen said of outcomes he had seen over 25 years in the field. “Part of our process enables them to get that understanding. There are also a lot of companies who haven’t raised funds but if they understood the process probably would. Education plays a strong part.”

A crucial role Queensland Leaders is playing is in matching the various parties.

“The Brisbane Angels tell me there is no lack of capital out there,” he said. “The State Government who runs the Mentoring for Growth program tells me there is no lack of companies out there.

“We can see both sides and we see that they are really not communicating with each other.”

 The experience of Queensland Leaders has borne this out.

“When we looked at expanding, we thought we’d have to go and raise capital,” Mr Paulsen said. “It was actually some of the lawyers through Leaders that came to us and helped us to restructure our licensing model that we didn’t have to go and raise funds. The funding required to set up different interstate models was actually sourced from the licensee and repaid back through licensee refunds.

“So there are a million and one ways to skin a cat and what a lot of businesses do is get a strategy in their minds but they don’t have the network around them to explore that strategy and have quite fruitful conversations about other ways of achieving that ultimate goal … without having to raise funds.

“One thing I’d say to other companies is seek as much feedback and advice and case studies as you can, because there are different ways to achieve things. Only so many transactions need capital, external equity. They are the ones where there is a strong reliance on intellectual property or technology development or brand or market development – and that money can multiply quite quickly with the value proposition. If you are just seeking funds to pay yourself next year and to develop a new product, then it is not going to work – you need to bail.”

He was particularly critical of the Silicon Valley-style capital raising hype that is so prevalent in the technology space.

“If you counted up all the businesses that had gone the Silicon Valley way against all the businesses who had tried to replicate that path, it is like winning the Lotto,” Mr Paulsen said.

“Certain people in industry try to create a hype around it. What it does is create a cloud for the entrepreneur and a false expectation for what is going to happen. The scary thing is, how many great technologies have been lost because so many people went down a particular path where the chances of success were minimal or nil anyway? How many of those have been lost instead of asking, well, if we don’t raise capital how can we get this product or service to the market, using working capital or other forms of capital?”

One area the Federal Government could modify for positive impact, given the changing nature of work and companies, Mr Paulsen said, was to add flexibility to the taxation system.

“I think the government needs to have a real strong look at successful models overseas. If every small business just employed another person this year, our unemployment rate would go down,” Mr Paulsen said.

“But what’s the incentive? What they are doing (SMEs) is they are working harder. That means they are not focusing on the strategy they are focusing on the operations. If they employed that person and started focusing on the business, they could actually probably create a good multiplier with the freedom they have to look at the bigger picture.”

In spite of all the barriers and challenges, Mr Paulsen remains an optimist about the capacity of Australians to create great businesses – he just stresses that entrepreneurs need to focus on the basics, such as reaching profitability early, the business’s cashflow dynamics and longer term sustainability, and not heading down alleyways that can prove to be dead ends “such as seeking government grants”.

“You always have a lot of energy coming through with new business owners and there’s that naivety that goes with it, I think, that is a bit of a foundation of success in Australia – that entrepreneurial get up and go.”

www.queenslandleaders.com.au

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RESEARCH by Intuit Australia, the company behind QuickBooks Online, is providing a unique snapshot of what is driving small business leaders and how they are innovating for success.

The Intuit Australia Survey of Small Business Owners has focused on what is driving Australians to start a new business, despite the current challenging commercial environment. Perhaps expectedly, one of the strongest conclusions the report draws is that the key to success is better planning and financial management. 

Tellingly, the study also highlights that less than half (44 percent) of the owners of small startup businesses are very satisfied with the way they run their companies. Another strong trend is that success is not only measured in dollar terms.

The Intuit research found that age and gender have an enormous influence on why people look to start a business.

Women want to be their own boss (50 percent) or to supplement their or their family’s income (23 percent).

About 21 percent of Baby Boomer entrepreneurs started their own business because they were laid off.

Millennials are more likely to be driven by the passion for an idea (35 percent) or a hobby (19 percent).

It is clear from the study that entrepreneurs need to be patient and expect success to take upwards of two years.

One in four (27 percent) have not been able to get their companies to really hum and 58 percent wish they had done some things differently as they established their businesses.

For Millennial business owners, that figure rises even higher to 70 percent.

The responses show that Millennials regret not learning to better manage and track their finances (21 percent); not preparing an effective business plan (18 percent); and regret not spending more money on marketing (15 percent).

Outside of financial rewards, success is largely measured in confidence, work-life balance, the flexibility of working from home, and even being able to decide whether to chase growth or not.

Intuit Australia managing director Nicolette Maury said it was a concern that with more than half (56 percent) of business owners surveyed still relying on ledgers or spreadsheets to handle their operations, they were not yet tapping into the power of the affordable online financial management packages that are now available to every new business.

She said the time savings, streamlined invoicing and access to accurate financial and inventory information help solve many of the problems experienced by busy entrepreneurs.

“This research is key to better understanding how Australia’s entrepreneurs are approaching their small startup businesses,” Ms Maury said. “We are passionate about helping them set the right foundations for long term success, including educating them on the power of cloud accounting.”

A surprising fact that came out of the research was that 43 percent of owners do not currently use an accountant or bookkeeper to monitor the financial and compliance side of the operation. Even those who do use them are not leveraging those relationships for advice or planning.

Ms Maury said the study was only one of Intuit Australia’s investments in support of small business.

“The company acknowledges the hard work required to bring new ventures to fruition and recognises the value of SMBs to this country’s economy,” she said.

Intuit is the lead sponsor of the nationwide Startup Weekend Australia program that has events scheduled across the country from March to help local innovators succeed.

The Intuit study, conducted by Galaxy Research, was based on the responses of 500 small business owners throughout Australia, who employ 20 people or less and generate annual turnovers of $2 million or less, and who have been in business for less than five years.

www.intuit.com.au

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EXTRA >>

AUSTRALIAN business – large and small, strong and struggling – has been waiting for the Federal Government to announce its framework for industry, innovation and start-up support. It happened last week and is – sensibly, for a business sector craving movement as much as stability – more evolution than revolution.

The Industry Innovation and Competitiveness Agenda strives to provide certainty on issues that have plagued Australian business – such as business migration rules, a draconian approach to employee shares that have stifled start-up technology ventures, lack of early-stage business funding, over-regulation and education and training regimes that lag their real markets – and introduce a more collaborative approach to help drive new ventures.

The reason is that new and early-stage ventures are both where Australia may be able to play to its advantage – and it is where most job growth occurs.

Prime Minister Tony Abbott and Industry Minister Ian Macfarlane jointly released the Industry Innovation and Competitiveness Agenda on October 14. The plan takes a holistic approach to reform, embracing taxation, investment, skilled migration, collaboration, regulation and training in the mix.

For government it is all about trying to drive competitiveness and ‘productivity’. For business it is more about providing a stable and less restrictive environment that will favour innovation and encourage collaboration between researchers and industry – an area in which Australia consistently fails.

And it aims to speed up business growth by unshackling it from unnecessary regulation. An early announcement has been the move to accept international standards and risk assessments for certain product approvals, rather than impose Australia’s own regime.

An example of where this has brought Australia unstuck has been in the biotechnology sector where Australian companies have opted to seek approvals through the US Food and Drug Administration (FDA) rather than navigate the punitive small-market Australian Therapeutic Goods Administration (TGA) process. An FDA approval to a giant market has often been easier than TGA’s stamp to a very small market.

“Building on our deregulation agenda, the government will adopt a new principle that Australian regulators should not impose additional requirements beyond those already applied under trusted international regulation, unless it can be demonstrated there is good reason to do so,” Prime Minister Abbott said. “The government will review existing regulation against this principle.”

Ironically, the loss of car manufacturing in Australia has helped to speed up this process of untying red tape in the automotive and manufacturing sectors. 

SHARE ADVANTAGE

Of the government’s six initiatives to boost Australian competitiveness, to be implemented over the next 18 months, the first tick from business was the change to taxation legislation to encourage employee share ownership.

Most successful start-ups in the US use employee share plans to drive development where cash for salaries and services is short – but this has not been an option in Australia due to previous governments’ ‘tax first’ approach and the punitive share options rules introduced in 2009.

Many Australian early stage technology companies ended up developing overseas as a result of the taxation approach in which discounts to share value were taxed and capital gains tax applied. The problem for early stage companies is the difficulty in assessing real share value – and the high risk of failure is not well accounted for.

“The government will change the taxation treatment of employee share schemes to encourage start-ups to attract and retain employees and commercialise good ideas in Australia,” Mr Macfarlane said. “The government will also reverse for all companies the changes made in 2009 to the taxing point for options.”

Also well received in the Industry Innovation and Competitiveness Agenda has been theannouncement of Industry Growth Centres, which are morphing out of the former government’s Industry Innovation Hub approach.

Prime Minister Abbott said the Federal Government would provide $188.5 million to fund Industry Growth Centres in five key sectors: food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing.

“These industry-led centres will foster better use by industry of Australia’s world class researchers so that the community sees stronger commercial returns from the $9.2 billion annual Commonwealth investment in research,” Mr Abbott said.

Mr Abbott said the Agenda was “an important step along the path of economic reform”.

“Its guiding principle is to focus on Australia’s strengths and not prop up poor performers,” he said.

“The Agenda sets out four ambitions that Australia must pursue to ensure job creation and higher living standards: one, a lower cost, business friendly environment with less regulation, lower taxes and more competitive markets; two, a more skilled labour force; three, better economic infrastructure; and four, industry policy that fosters innovation and entrepreneurship.”

EDUCATION AND VET CHALLENGE

There are also reforms coming to Australia’s Vocational Education and Training (VET) system. From July 1, 2015, the Federal Government will invest $200 million each year to establish the new Australian Apprenticeship Support Network to lift apprenticeship completion rates “and provide employers with the skilled and productive employees they need to grow their business”.

Of great interest to regional business is the planned government investment of $38 million to provide 7,500 scholarships in specific regional areas where youth unemployment is high, through the Training for Employment Scholarships.

The new Youth Employment Pathway will also support community programmes for 3000 disengaged 15-18 year olds in regional areas.

The Federal Government and other Council of Australian Governments (COAG) members have also highlighted a number of priority actions to achieve a modern and responsive national regulatory system for the VET sector, Mr Macfarlane said.

One issue being address is the promotion of science, technology, engineering and mathematics (STEM) skills in schools One program being developed is a ‘mathematics by inquiry’ program for primary and secondary schools and providing seed funding for an innovation-focused ‘P-TECH’ pilot program, based on the successful US Pathways in Technology Early Career High college system.

INTERNATIONAL COMPETITIVENESS

Enhancing the 457 and investor visa programs are a key ingredient to boosting international competitiveness, according to the government. For technology businesses and start-ups, it may help to change the landscape in terms of developing global businesses in Australia.

The Federal Government wants to improve the Significant Investor Visa program by involving Austrade in the process of determining eligible complying investments, aligning qualifying investments with Australia’s five investment priorities and introducing a premium stream for people investing more than $15 million.

The Federal Government will reform the 457 visa program for skilled migrants, while “improving program integrity to ensure that sponsored workers on 457 visas are a supplement to, and not a substitute for, the local workforce”. That may help allay the political fears about the scheme, but it is also a sensible economic approach.

“Consistent with the recommendations of an Independent Integrity Review, the government will reform sponsorship requirements; streamline arrangements for existing approved sponsors; reform English language requirements and move to a risk-based approach for compliance and monitoring,” Mr Macfarlane said.

“Safeguards will remain in place to ensure that the 457 visa programme is not rorted. It will continue to be a requirement that a foreign worker receives the same market rates and conditions that are paid to an Australian doing the same job in the same workplace.”

Mr Macfarlane said the new agenda is part of the evolution necessary for the Australian economy to meet its many challenges.

“We’ve already scrapped the carbon and mining taxes; cut over 10,000 pieces of unnecessary legislation and regulations; commenced the largest infrastructure construction program in Australian history and signed free trade agreements with Japan and Korea,” he said. “Job creation, growth and competitiveness need constant attention.

“The competitiveness challenge is an ongoing one, and further reforms to promote the Agenda’s ambitions will be developed over the longer term.”

Mr Macfarlane said the Federal Government would host a series of roundtables around Australia over coming months to consult the business community, industry associations and peak bodies, as well as academia, on the policy directions outlined in the Competitiveness Agenda.

Sessions are to be chaired by ministers and co-chaired by business leaders, including the heads of the Business Council of Australia, ACCI and Infrastructure Partnerships Australia, he said.

www.industry.gov.au/growthcentres

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