Editorial

When are unemployment statistics ‘employment’ numbers?

IF YOU DON’T know the size of the problem, how can you decide on the scope of the solution?

Such a dilemma currently faces Australia. The biggest single economic challenge right now is to develop an environment that creates jobs. 

For many years, the size of that challenge has been masked by the fairly innocuous unemployment numbers that seem to show we have about six-or-so percent unemployment across the board. Political leaders of all persuasions like to tout those reputable figures from the Australian Bureau of Statistics as showing how fortunate we are compared with many other countries.

That may be so, but eventually the facts seem to be overrunning the numbers – both here and in the oft-compared United States.

 The problem, as Business Acumen has highlighted in past editorial columns, is that those numbers do not reflect the average Australian’s understanding of what a job is. For example, if a person has completed more than two hours work in any fortnight, they are statistically regarded as ‘employed’.

Most members of the public still think the ABS works out the unemployment figures by somehow counting the hands held up in the air at Centrelink. Not so. It is a randomly chosen sample that drops a percentage of people on and off the list on a regular basis and polls them predominantly by home phone.

Yes, home phone … ask Telstra how many of those devices have come off out of their directories in recent years. Perhaps this also explains why the statistics hardly reflect unemployment numbers of mobile equipped youth.

For many years, Business Acumen has advocated business leaders take more notice of Roy Morgan Research’s unemployment numbers – which have been complied the same way since their inception in 1948 – which shows unemployment regularly at around 10 percent in Australia and underemployment closer to 20 percent.

Arguments about real numbers and methodology that is too uncomfortable for the political sector to risk change have suddenly sparked in the US along the same lines. This may lead to a desirable wake-up call in Australia too.

When the chairman and CEO of respected polling researcher Gallup comes out and says, “Here’s something that many Americans – including some of the smartest and most educated among us – don’t know: The official unemployment rate, as reported by the US Department of Labor, is extremely misleading,” then people tend to sit up and take notice.

Jim Clifton, who also wrote a book on the subject called The Coming Jobs War, published by his own Gallup Press, puts it bluntly in a recent Linkedin post:

“Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is ‘down’ to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

“None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job – if you are so hopelessly out of work that you’ve stopped looking over the past four weeks – the Department of Labor doesn’t count you as unemployed.

“That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news – currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast ‘falling’ unemployment.

“There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 – maybe someone pays you to mow their lawn – you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.

“Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find – in other words, you are severely underemployed – the government doesn’t count you in the 5.6%. Few Americans know this.”

Sound familiar? It should. Not a lot of Australians know this.

Australia’s unemployment statistics are very similarly compiled as those in the US. Roy Morgan Research has been highlighting issues such as these for many years, but has been fobbed off.

If politicians want to genuinely understand the electoral turmoil that has engulfed Australia in recent years, they only need to look at the official unemployment numbers they are presenting – note that these days officials try to refer to them as the ‘employment’ figures – and compare them with what the public is actually experiencing.

The disjoint is manifest.

Again, it’s eerie hearing the same arguments that have been ignored and discounted in Australia for many years finally surface in the US. You can easily substitute Australia for America in what Gallup’s Jim Clifton says.

“A good job is an individual’s primary identity, their very self-worth, their dignity – it establishes the relationship they have with their friends, community and country,” Mr Clifton said. “When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.

“Gallup defines a good job as 30-plus hours per week for an organization that provides a regular paycheck. Right now, the US is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

“I hear all the time that ‘unemployment is greatly reduced, but the people aren’t feeling it’. When the media, talking heads, the White House and Wall Street start reporting the truth – the percent of Americans in good jobs; jobs that are full time and real – then we will quit wondering why Americans aren’t ‘feeling’ something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.”

Who, in Australian politics, is brave enough to press the reset button to consider and articulate the true scale of this problem? Answer: someone who wants to be re-elected for a second term to genuinely start solving those problems.

www.businessacumen.biz

ends

‘Action’ agenda

EXTRA >> WHILE the Brisbane G20 Leaders Summit has been hogging all the headlines, many of the changes directly affecting Australian business leaders were announced well ahead of the summit and will play out well beyond.

General media has not covered the Federal Government’s Industry Innovation and Competitiveness Agenda in much other than its political contexts – but it is in the business context that business leaders will be pleased to see some clarity after many moribund years of indecision.

The key questions about the agenda involve what those changes mean, in dollars and cents (and common sense) to the way business is operating now and into the immediate future. At its most basic level, where is the government money going and how do you position your business to gain advantage from such investment?

The Industry Innovation and Competitiveness Agenda is about providing an insight into the Federal Government’s long-term thinking and giving certainty on issues that have plagued Australian business – such as business migration rules, a draconian approach to employee share schemes 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 – to  introduce a more collaborative approach to help drive new ventures.

The reason for this shift is that governments across Australia have realised that new and early-stage ventures are where Australia may be able to play to its advantage – and it is also where most job growth occurs.

This has been known for some years – first being pointed out to the US Government by Kauffman Foundation research – but in Australia the command and control ethos that helped the banking sector through the 2008-2010 financial crisis has impeded small business recovery.

Why? Banks still are not lending to business in the way that is required for 21st century fast-moving technology business success.

The venture capital and alternative lending markets that the US has developed are not here (yet). The risk is that when they do come, they will be stifled by the incumbents and lagging regulatory regimes.

The new approach of the Agenda overall – which in some cases, such as with the industry innovation hubs, is simply an evolutionary approach to steering programs already begun under the previous Labor Government and showing promise – aims to let business and industry steer while the public purse provides some vital impetus. The new ethos is based on ‘money well spent’ rather than the ‘money saved’ restrictions of late.

The agenda also 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. It is astonishing how quickly the Australian Design Rules were exposed as superfluous once there was no local manufacturing to protect. Goodness gracious, the automotive design standards of some other countries, like Germany and Britain, may have even been higher than ours … but they still had to be checked and tweaked for Australia.

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.

The ludicrous nature of this is now shamefully exposed.

For government it is now about trying to drive competitiveness and ‘productivity’. For business, the Agenda 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.

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.

One fascinating adjunct to the Agenda that has received scant media attention 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 the government is providing seed funding for an innovation-focused ‘P-TECH’ pilot program, based on the successful US Pathways in Technology Early Career High college system.

But even in this area there is no need to re-invent the wheel, just enhance what’s working now (F1 in Schools, for example). Get back to basics.

After all, in its original Latin form, the word ‘agenda’ means ‘that which is to be driven forward’.

An Agenda like this requires action, for what is only discussed will be met with disgust.

www.businessacumen.biz

ends

 

 

 

 

 

 

Taking the fun out of funding

AUSTRALIA's overwhelming business problem, right now, is its financial and economic system is not capable of assisting the entrepreneurial outcomes that this country so desperately needs – right now.

Perhaps it has never been perfectly capable, but there was enough human contact involved in the past – before we were assuaged by the ‘enabling’ digital world, and bank managers became just managers – to let that vital spark that funds human ingenuity take place. 

There existed the human contact with the local farmer that understood that person’s true recuperative capabilities – they had seen it before – and were willing to extend that belief in monetary terms.

There was also the ability of the entrepreneur to find a way to fund – even through banks.

The opening of Tom Potter’s first bakery, that eventually developed into the innovative Eagle Boys Pizza conglomerate, is proof. When his bank manager would not extend a personal loan to open his first bakery, but would lend for a car, Tom took the car loan.

When that bank manager called around to the new bakery and asked how his new car was going, Tom leaned over the front counter and said, “Great, you’re leaning on it …”

The financial services sector has become so ingrained with its own introspective decision-making process that it is now hampering Australia’s processes in the modern creation of wealth.

How many government reviews on business are led by bankers and those schooled in the financial sector? (Er, isn’t banking the least most entrepreneurial sector in our entire economy?)

This is nothing against senior bankers. They are all fine people who do their best – making sure whatever money passes their front door is clipped sufficiently to enable their sector to thrive in the manner to which it has become accustomed.

But just because they handle money does not mean they know how to create it. Banks do not create something out of nothing. Entrepreneurs do.

Banks do not risk their funds (or their clients funds, usually) unless it is the sort of investment that other learned and acclaimed bankers would recommend.

But bankers rarely admit that they don’t know what they don’t know. They would certainly never venture into territory that they don’t understand. And that is the problem.

Australian entrepreneurs have to enter uncharted territory all the time. That’s the point.

Creating wealth is an entrepreneurial journey and, often, a great adventure.

The way things are going at the moment, Australia’s banks are still sorting their baggage on the platform while our entrepreneurial wealth creators are self-funding cheap international flights at the airport.

ends

EXTRA: We interrupt this disruption … to bring you a special bulletin

SUBSCRIBER EXTRA EDITORIAL / 

WHERE TO from here, Australia? A saying used a lot in Australian business right now goes something like this: When you are going through hell, keep going.

As told in detail the Business Acumen issue 75 print edition, 2014 is likely to go down as the most disruptive year for Australian business ever (or, on record, as they like to say in the climate change business). 

We have already seen what was unthinkable a decade ago, in business, become disturbing fact and history. The reasons are many, but all are impacted and accelerated by digital technology.

Who would have thought that cold milk would not only retail for less per litre than petrol, but cost 25-30 percent less? And who would once have imagined that this could have come about through the same supermarket duopoly of Coles and Woolworths cross-selling in the food, petroleum and liquor markets? (Now they are into insurance and financial services – and pharmaceuticals are within grasp.)

Who would have thought Holden – Australia’s dinky-di car maker linked comfortably with football, meat pies and kangaroos – would close its 65-year-old local car manufacturing operations … for good … no comebacks?

And who would have thought Holden could have understood so little about the Australian psyche that it could immediately after the announcement produce an advertising campaign telling the very loyal people who had subsidised General Motors Holden not to worry … because even though they don’t make cars in Australia any more, they will always make the best cars for Australia.

What a howler. It will come as little surprise if local products are punished hard, possibly bringing on plant closures earlier than the predicted 2017, because Holden has shown it actually does not understand its relationship with Australian customers. So, we’re not worth it, eh?

SAVE US, PLEASE, NEW BUSINESSES

Governments know what they have to do, for the income fabric of Australia is being torn apart – they have to stitch up ways to help create jobs.

So personal taxes can be paid. So GST can be generated. So companies can pay 30 percent on profits. So the Federal Government can pay off the almost $400 billion national debt. So it can subsidise the essentials – like the agribusiness sector – that are not only vital for the health of Australia but also show increasing and sustained export prospects.

But governments don’t actually know how to do it. They sort of understand new businesses are emerging all the time, many riding a constructive part of the digital business wave that has engulfed others.

Australian government leaders, by now, must surely have read and understood the Kauffman Foundation research in the US utilised by President Barack Obama – which shows entrepreneurs and early stage businesses are where all the jobs growth is.

Big business is, today, all about generating productivity by automating, ‘downsizing’ and shedding jobs. Start-ups need skilled, energetic and enthusiastic people to grow – and they need more of them to keep on growing. They are too busy driving new business to measure ‘productivity’.

These businesses have a major advantage over pre-digital legacy organisations. Start-ups are born in the digital world, where they begin by delivering what the customer wants. They know what the customer wants, more than at any other time, because they communicate with them, listen to them, collaborate with them and watch what their customers and potential customers say through social media.

Australia has always been a market in which recommendation is the most powerful sales force. Australian is uniquely placed to exploit this in the digital age. So, of course, is North America, where US and Canadian entrepreneurs are really forging ahead.

PLAYING THE ADVANTAGE

North America right now is undergoing economic recovery by utilising the benefits of this tech-entrepreneurial revolution. But the US, in particular, has a few advantages that Australia is missing or, worse still, ignoring.

First, the US has a low-cost energy advantage, mostly because of new technologies to harvest shale oil and natural gas. In the US, in April, they were complaining that ‘gas’ pump prices were outrageously higher than last year … yes, they have now reached about $1.05 per litre (US$4.15 per gallon). So, last year they were almost as annoyed by $3.45 per gallon … which was about 91 cents per litre in our money.

With Australian fuel prices hovering at about the $1.55 level at the pump, we are only close to 50 percent more expensive.

As an aside, a new challenge for Australia is the demise of oil refineries, with recent closures announced in South Australia and Queensland. We hear the old multinational oil company view that things will be fine and, in fact, petrol will probably be cheaper because it can be produced more efficiently at the new technology refineries in Singapore.

Even if we ignore the arguments of energy security and the recent wild ride of the Australian dollar, here is a little fact out of the US: The three consistently cheapest states for fuel prices happen to be those that have the most refineries. Wyoming has six refineries, Montana has four and Utah has five. How many refineries does, er, the whole of Australia have, again? Five? Six?

While Australia has similar reserves as the US (including Linc Energy’s massive oil reserves in South Australia) the benefits are slow in coming and are mostly earmarked for export – so there is no local advantage to manufacturing, power generators or the public. Zero.

For example, Queensland’s new hi-tech gas-fired power turbine at Stanwell Power station has been turned off and the old coal system re-deployed, because the cost of local gas was climbing in line with international prices.

US giant Dow Chemical CEO, Australian Andrew Liveris, warned of this several years ago, saying Australia would be “crazy” if it did not hive off a portion of the coal seam gas windfall and stock it to develop manufacturing – especially market leadership in petrochemical-based materials manufacturing.

Well, Australia is officially crazy.

MONETARY, MONEY TEARY

A key challenge for SMEs, especially early stagers, is financial support. The big banks play around the edges and create various tech start-up competitions, but beyond that the doors are closed to any sort of business case that does not involve mortgages on the directors’ homes.

Again, the US has this covered with a thriving venture capital, angel investor and philanthropic movement, most notably orchestrated through California’s Silicon Valley. Australia’s angel investors have a few wins under their belts, but in relative terms do not have anywhere near enough money in the market.

Venture capital, in a form that works for start-ups, is almost non-existent in Australia – which is why Silicon Valley venture capitalists and firms conduct periodic raids on Australian early-stagers, with great success.

We Are Hunted, for example, originally backed by Wotif.com founder and philanthropist Graham Wood, was a nice billion dollar addition for Twitter last year.

State Governments like Queensland closed their venture capital operations back in 2010, in spite of a decade-long record of relative success, nurturing Alchemia, Aurion and Technology One, among others.

More fundamental – and something the Federal Government can do something about – are Australia’s taxation rules on staff and supporter equity shareholdings and options.

Many ‘garage start-ups’ in the US made it because they issued shares for services where there was no cash available – take Hewlett Packard, Oracle, Microsoft and Google. This option is fraught with danger in Australia due to a tax regime that, especially since Labor Government changes in 2009, wants payment for value before those early-stage shareholdings have earned any real money.

These kinds of taxation barriers have been known about for a long time but, like the coal seam gas opportunity, are constantly missed by governments deflected by poor planning and rear window advice. Some argue that the loss of skills and experience in the public service sector Australia-wide have now come home to roost.

AUSTRALIA: EXTRACT THE DIGIT

In the middle of graphic change there is always opportunity, but business leaders are going to have to innovate and collaborate like they have never done before to steer a course through this storm.

We live in a society, not an economy. ‘Digital’ bridges both in ways that have never been experienced before.

The fundamental change afoot is not about the technology at all. It is the way digital technologies influence and modify the behaviour and relationships of people. Specifically, the people you do business with.

The power is now in the hands of the customer. Start-ups understand this.

The great thing about digital technology is that you have more ways than ever before to find out what the customer wants and to communicate with them. The customer has more ways than ever to find out your story, too – what is special about your business – and figure out whether they want to have a relationship with your business, and at what level.

The bad news is that if you are not providing that special ‘relationship’ they are looking for, it is easy for them to search elsewhere and take in recommendations from their trusted other sources.

Digital business is actually more about relationships than business has ever been before.

The basics of getting close to your customers still apply, but the methods are evolving. The scale is greater than ever before, as is the risk and as is the opportunity, as you will see from Business Acumen issue 75’s feature reports and subscriber-only extended reports.

Anticipate and embrace digital disruption before it throttles you. Then you’ll find you can open up the throttle that is digital business to accelerate.

- Mike Sullivan, Managing Editor

Posted March 2014.

ends

 

We interrupt this disruption … to bring you a special bulletin

EDITORIAL

WHERE TO from here, Australia? A saying used a lot in Australian business right now goes something like this: When you are going through hell, keep going.

As told in detail the Business Acumen issue 75 print edition, 2014 is likely to go down as the most disruptive year for Australian business ever (or, on record, as they like to say in the climate change business).

We have already seen what was unthinkable a decade ago, in business, become disturbing fact and history. The reasons are many, but all are impacted and accelerated by digital technology.

Who would have thought that cold milk would not only retail for less per litre than petrol, but cost 25-30 percent less? And who would have imagined that this could have come about through the same supermarket duopoly of Coles and Woolworths cross-selling in the food, petroleum and liquor markets? (Now they supermarkets are into insurance and financial services – and pharmaceuticals are within grasp.)

Who would have thought Holden – Australia’s dinky-di car maker linked comfortably with football, meat pies and kangaroos – would close its 65-year-old local car manufacturing operations … for good … no comebacks?

And who would have thought Holden could have understood so little about the Australian psyche that it could immediately after the announcement produce an advertising campaign telling the very loyal people who had subsidised General Motors Holden not to worry … because even though they don’t make cars in Australia any more, they will always make the best cars for Australia.

What a howler. It will come as little surprise if local products are punished hard, possibly bringing on plant closures earlier than the predicted 2017, because Holden has shown it actually does not understand its relationship with Australian customers. So, we’re not worth it, eh?

SAVE US, PLEASE, NEW BUSINESSES

Governments know what they have to do, for the income fabric of Australia is being torn apart – they have to stitch up ways to help create jobs.

So personal taxes can be paid. So GST can be generated. So companies can pay 30 percent on profits. So the Federal Government can pay off the almost $400 billion national debt. So it can subsidise the essentials – like the agribusiness sector – that are not only vital for the health of Australia but also show increasing and sustained export prospects.

But governments don’t actually know how to do it. They sort of understand new businesses are emerging all the time, many riding a constructive part of the digital business wave that has engulfed others.

Australian government leaders, by now, must surely have read and understood the Kauffman Foundation research in the US utilised by President Barack Obama – which shows entrepreneurs and early stage businesses are where all the jobs growth is.

Big business is, today, all about generating productivity by automating, ‘downsizing’ and shedding jobs. Start-ups need skilled, energetic and enthusiastic people to grow – and they need more of them to keep on growing. They are too busy driving new business by increasing staff numbers to measure ‘productivity’.

These businesses have a major advantage over pre-digital legacy organisations.

Start-ups are born in the digital world, where they begin by delivering what the customer wants. They know what the customer wants, more than at any other time, because they communicate with them, listen to them, collaborate with them and watch what their customers and potential customers say through social media.

Australia has always been a market in which recommendation is the most powerful sales force. Australian is uniquely placed to exploit this in the digital age. So, of course, is North America, where US and Canadian entrepreneurs are really forging ahead.

PLAYING THE ADVANTAGE

North America right now is undergoing economic recovery by utilising the benefits of this tech-entrepreneurial revolution. But the US, in particular, has a few advantages that Australia is missing or, worse still, ignoring.

First, the US has a low-cost energy advantage, mostly because of new technologies to harvest shale oil and natural gas. In the US, this month, they were complaining that ‘gas’ pump prices were outrageously higher than last year … yes, they have now reached about $1.09 per litre (US$4.15 per gallon). Last year they were almost as annoyed by US$3.45 per gallon … which was about 91 cents per litre in our money.

With Australian fuel prices hovering at about the $1.60 level at the pump, we are only about 50 percent more expensive.

As an aside, a new challenge for Australia is the demise of oil refineries, with recent closures announced in South Australia and Queensland. We hear the old multinational oil company view that things will be fine and, in fact, petrol will probably be cheaper because it can be produced more efficiently at the new technology refineries in Singapore. We'll just have to store lots of it here. Give ourselves a three-month supply buffer. How about that? Might end up being five cents a litre cheaper ....?

Even if we ignore the arguments of energy security and the recent wild ride of the Australian dollar, here is a little fact out of the US: The three consistently cheapest states for fuel prices happen to be those that have the most refineries. Wyoming has six refineries, Montana has four and Utah has five. How many refineries does, er, the whole of Australia have, again?

While Australia has similar oil and gas reserves as the US (including Linc Energy’s massive oil reserves in South Australia) the benefits are slow in coming and are mostly earmarked for export – so there is no local advantage to manufacturing, power generators or the public. Zero.

For example, Queensland’s new hi-tech gas-fired power turbine at Stanwell Power station has been turned off and the old coal system re-deployed, because the cost of local gas was climbing in line with international prices.

US giant Dow Chemical CEO, Australian Andrew Liveris, warned of this several years ago, saying Australia would be “crazy” if it did not hive off a portion of the coal seam gas windfall and stock it to develop manufacturing – especially market leadership in petrochemical-based materials manufacturing.

Well, Australia is officially crazy.

MONETARY, MONEY TEARY

A key challenge for SMEs, especially early stagers, is financial support. The big banks play around the edges and create various tech start-up competitions, but beyond that the doors are closed to any sort of business case that does not involve mortgages on the directors’ homes.

Again, the US has this covered with a thriving venture capital, angel investor and philanthropic movement, most notably orchestrated through California’s Silicon Valley. Australia’s angel investors have a few wins under their belts, but in relative terms do not have anywhere near enough money in the market.

Venture capital, in a form that works for start-ups, is almost non-existent in Australia – which is why Silicon Valley venture capitalists and firms conduct periodic raids on Australian early-stagers, with great success.

We Are Hunted, for example, originally backed by Wotif.com founder and philanthropist Graham Wood, was a nice addition for Twitter last year.

State Governments like Queensland closed their venture capital operations, back in 2010, in spite of a decade-long record of relative success, nurturing Alchemia, Aurion and Technology One, among others.

More fundamental – and something the Federal Government can do something about – are Australia’s taxation rules on staff and supporter equity shareholdings and options.

Many ‘garage start-ups’ in the US made it because they issued shares for services where there was no cash available – take Hewlett Packard, Oracle, Microsoft and Google. This option is fraught with danger in Australia due to a tax regime that, especially since Labor Government changes in 2009, wants payment for value before those early-stage shareholdings have earned any real money.

These kinds of taxation barriers have been known about for a long time but, like the coal seam gas opportunity, are constantly missed by governments deflected by poor planning and rear window advice. Some argue that the loss of skills and experience in the public service sector, Australia-wide, may now have come home to roost.

AUSTRALIA: EXTRACT THE DIGIT

In the middle of graphic change there is always opportunity, but business leaders are going to have to innovate and collaborate like they have never done before to steer a course through this storm.

We live in a society, not an economy. ‘Digital’ bridges both in ways that have never been experienced before.

The fundamental change afoot is not about the technology at all. It is the way digital technologies influence and modify the behaviour and relationships of people. Specifically, the people you do business with.

The power is now in the hands of the customer. Start-ups understand this.

The great thing about digital technology is that you have more ways than ever before to find out what the customer wants and to communicate with them. The customer has more ways than ever to find out your story, too – what is special about your business – and figure out whether they want to have a relationship with your business, and at what level.

The bad news is that if you are not providing that special ‘relationship’ they are looking for, it is easy for them to search elsewhere and take in recommendations from their trusted other sources.

Digital business is actually more about relationships than business has ever been before.

The basics of getting close to your customers still apply, but the methods are evolving. The scale is greater than ever before, as is the risk and as is the opportunity, as you will read in Business Acumen issue 75’s feature reports and subscriber-only extended reports.

Anticipate and embrace digital disruption before it throttles you. Then you’ll find you can open up the throttle that is digital business, to accelerate.

- Mike Sullivan, Managing Editor, March 2014.

Re-think on climate for start-ups

EDITORIAL      Australia's economic recovery is dependent on businesses yet to exist, in many ways. This is especially true for growth in Australia's regions.

Australia's economic growth depends on fostering that sector of the economy which is the most vulnerable - and certainly the sector most unlikely to win loans from banks, nor the favourable attention of the government: start-up businesses.

Entrepreneurs who develop high growth businesses are the keys to our success.

How can this be? It seems counter-intuitive that the sector (research shows) we can genuinely rely upon to grow our economy - start-ups - is the very sector most policies, and pollies, hold as the riskiest and are loathe to support financially.

(Except, perhaps, Queensland, which has announced a series of $50,000 grants for businesses developing what it calls ‘Big Ideas' that will benefit the state's economy).

But research by the Kauffman Foundation in the US is clear: Over the past 20 years, from looking at the employment and economic data, most growth in the US has come from SMEs in their first five years of operation.

The Kauffman Foundation is an organisation that fosters education and entrepreneurship - they started Entrepreneurship Week in the US (mid-November) and that has now received the strong endorsement of US President Barack Obama.

President Obama gets it: he needs innovative start-ups, and lots of them, to bring the country out of the unemployment mire.

Staggeringly, real net job growth comes consistently from start-up businesses, no matter what condition the economy is in. Established organisations, however, reach a point in which net job losses come regularly - and especially in times of recession - in the name of efficiency and as new labour-saving technologies are utilised.

This information has come to Business Acumen through John Sheridan's Digital Business Insights organisation, which has been surveying and conducting case studies into Australian business for the past nine years. Business Acumen is working with DBI to produce what is likely to be the most salutary report ever produced on the real business of construction (to circulate in January).

Mr Sheridan's own research over the past nine years supports the US claims that most job growth in the economy comes from start-ups in their first five years. It is also true that 84 percent of incubated businesses stay where they were founded. This is great news for regional Australia.

A few regions have recognised the challenge of increasing economic development by backing start-ups and early-stage innovators - regions as diverse as Cairns in Tropical North Queensland and Whittlesea in Victoria.

The Kauffman studies show that so-called ‘gazelle' firms (age three to five) comprise less than one percent of all companies, yet generate roughly 10 percent of new jobs in any given year. The 'average' firm in this gazelle category contributes 88 jobs per year, and most end up with between 20 and 249 employees. In contrast, the average firm in the economy as a whole adds two or three net new jobs each year.

These are astonishing statistics.

While there are also high rates of failure of start-ups, on balance the way to boost and sustain an economy is to have a genuine focus on fostering start-ups and early-stage innovators.

Australia, if it is serious about a future beyond its recent reliance on resources, must genuinely ask how government policies, finance industry policies and regulatory policies positively enhance the environment for start-ups and entrepreneurs.

Right now, that's a very nasty question indeed.

-Mike Sullivan, Managing Editor, December 2010.

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No crystal ball required: See the warning signs of the times

EDITORIAL - Business Acumen's mantra, since its inception in 2004, has always involved being overwhelmingly positive about business. As a small business witnessing and experiencing the challenges that face business leaders right across the spectrum, we adopted that positioning naturally - it is, after all, the attitude and behaviour that characterises all who drive forward in business.

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Business triage: insolvencies at record levels.

 

Traversing the ups and downs of the business cycles, along with our readers who are, in the main, business owners and leaders in business, we have retained that positive outlook and it is reflected upon and relied upon in our coverage.

It is the only way to avoid the paradox spoken of eloquently by French Renaissance writer and commentator Michel de Montaigne: "He who fears will suffer, he already suffers from his fear."

But certain worrying long-term trends and changes in the nature of business give rise to long-suffering fears for certain sectors of Australian business. More concerning is the fact that key indicators of an Australian business environment under heavy and widespread stress are not seemingly recognised by various levels of government or the mainstream media.

That small business insolvencies are at record levels is cause for debate. That this has been a growing trend since 2008, rather than a diminishing one, should be cause for concern by all levels of government.

SME TRIAGE

Much is made of small business being the lifeblood of the commercial economy, but not much is being done to stop the current bleeding. It is death by a thousand cuts for small business right now.

Here is a digest of the main wounds not receiving attention:

  • Too much time and money that is crucial for business development is soaked up by compliance and tax collection obligations.
  • New changes in business regulations have not been well communicated to those being held responsible for complying with them, for example: the new Workplace Health and Safety (WH&S) rules (applied January 1); the Personal Property Security Register (applied January 30); the Carbon Tax (coming June 30);
  • Several new regulations, such as WH&S, put managers and directors in the firing line personally for ‘duty of care' where they were not directly liable before;
  • Small business loans are over-secured and over-priced by the major banks which, paradoxically while enjoying record profits, set the security bar and the interest rates too high for most SMEs. Incredibly, banks are now acting to lift interest rates in fear that their loan volumes are dwindling, placing profits ahead of public interest;
  • Debt collection and control methods that were trumpeted, bundled and marketed in growth times - especially by legal firms - do not work in the current periods of steep cashflow decline;
  • The Australian Taxation Office's ‘compassionate' approach during the GFC period has been replaced by record insolvency actions against defaulting businesses.
  • Insurance premiums for business have soared unreasonably beyond the protection they actually provide;
  • Many large organisations are increasingly heavy handed with small business clients and service providers - and have forsaken common sense and courtesy for the branding advantages of a corporate social responsibility (CSR) program

The numbers are telling: 2011 was a record year for insolvencies in almost every state, according to Australian Securities and Investments Commission (ASIC) records, and 2010 held the record before that. The average value of insolvencies is diminishing, but only because the blood-letting is moving down the line to small value businesses whose litheness and ability to react quickly to changing business conditions has kept them going so far.

Insolvencies for November 2011, at 983, were up 17 percent on November 2010. The 11 months to November 2011 exceeded the full calendar year of 2010, which was the previous highest full year. There are now well over 10,000 businesses a year going belly-up.

A recent survey by Dunn and Bradstreet revealed small business failures rose by 48 percent last year. Tellingly, the number of small business start-ups in the same period dropped 95 percent on the previous year.

 

WHAT ‘CRISIS'?

Strangely, the term ‘crisis' is missing from most commentary on these figures. The types of securely employed people who analyse these things seem instead to take heart from the fact that the numbers ‘seem' to be tapering off. That has more to do with the mathematics than the statistics.

There are fewer and fewer numbers there to draw from, statistically, as business failures are not being complemented by start-ups.

The human cost of this is fast becoming a national disgrace. Financial institutions don't like to think in these terms, but some of their current decision making is costing lives as some business people are pushed to the precipice of financial ruin.

Australia likes to pat itself on the back that it has been ranked as one of the easiest places in the world to start a business.

What Australia must face up to is the fact that at the moment it is also one of the hardest places in the world to operate a small business reasonably successfully.

Credit is tight. Regulation is on the ascendancy and penalties and personal risk for business leaders are on the rise.

Consumers are fearful of debt and spending in general. Costs are going up for basic services continually, while the ability for consumers to earn more is diminishing.

Asset values are static or in decline. A high dollar and high interest rates, compared with our competitor nations, are having a debilitating effect on Australian industries including agribusiness, tourism, education and manufacturing.

The behaviours and financial mind-sets that caused the GFC are in ascendancy again, but this time the effects are immediate on a weary phalanx of business owners and leaders.

The Australia that loves to tout its advantages, both economic and societal, must surely look realistically at the business blood-letting that is going on and recognise that things have to change or the touting will soon be that of snake oil salesmen.

When it becomes easier and ‘safer' to surrender than soldier on in business, the war will end with a whimper.

Back to Michel de Montaigne who summed it up the condition five centuries ago: "Poverty of goods is easily cured; poverty of soul, impossible."

- Mike Sullivan, Managing Editor, March 2012.

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