Malcolm Turnbull’s Innovation Statement has been well received by the Australian business community, and with good reason. It’s the most comprehensive and integrated package of measures to support innovation and entrepreneurship we have seen for many years.
It’s only a start though. The well developed, integrated ecosystem we need to create the agile, innovative and competitive economy envisioned by Malcolm Turnbull on assuming the Prime Ministership won’t be built overnight.
The Innovation Statement is particularly focussed on start-ups and will provide a range of tangible initiatives to help new businesses get up and running more easily, improve their prospects of getting funding and innovate more effectively.
However, the Innovation Statement should be seen as just a first step in improving innovation and entrepreneurship across the whole business sector. The Australian Government also needs to focus on two other key areas.
First and foremost is how to encourage existing businesses to become more innovative and entrepreneurial. Secondly, is how to ensure innovation is not lost when business ownership changes, particularly ownership of private businesses.
A key point made in the Innovation Statement is that Australians are renowned for their smart ideas, but often fail to commercialise them. In other words, we are very inventive but not so innovative. As the Innovation Statement goes on to highlight – you have to move past inventive and become innovative. It’s innovative companies, not inventive companies, that go on to build and sell products and services, create jobs and drive wealth creation.
Many of our established businesses, both public and private, have under developed innovation or good ideas capable of innovation. The Innovation Statement will provide a strong foundation for further initiatives to encourage greater levels of innovation in established businesses. The emphasis on much better collaboration between industry, the investment community, academia, our research facilities, particularly CSIRO, and government is really encouraging as it’s a key to achieving these outcomes.
The real sleeper though is how we make sure valuable innovation is not lost when business ownership changes, particularly in the case of private businesses.
We are moving into uncharted waters in terms of business ownership transition due to baby boomer business owners rapidly heading towards retirement. While accurate data on the extent of the issue is problematic, it appears that over 70% of our private businesses, worth in excess of $1 trillion, are owned by baby boomers, most of whom are looking to transition out of their businesses over the next 10 to 15 years.
This scenario (being referred to by some commentators as the “baby boomer business exit tsunami”) is likely to result in many retiring business owners being unable to extract full value from their business exit to fund retirement. Worse still, many businesses that can’t be sold will be forced to close.
The potential economic consequences of this are significant including:
- loss of jobs.
- loss of innovation (particularly when businesses fail to sell).
- lessening of competition in various markets.
- the inability of many private business owners to adequately fund their retirement (which will effectively move the burden back to government).
- the loss of key services in some sectors such as professional advisory and health services (in which a disproportionately high level of baby boomers own the smaller businesses) and in rural and regional areas.
In over 30 years working in this area we have never seen such high levels of innovation being lost due to private business owners not being able to effectively pass their businesses on to new owners. And it’s only going to get worse as more baby boomer business owners look to exit their businesses.
There was a good opportunity for this issue to be addressed in the Productivity Commission’s report on Business Set-up, Transfer and Closure, which was released just prior to the Innovation Statement. Unfortunately, there was little focus in the extensive report on the likely loss of substantial innovation as baby boomer business owners exit their businesses.
For a copy of our submission to the Productivity Commission’s inquiry on Business Set-Up, Transfer and Closure click here.
We applaud the Australian Government for the many bold initiatives in its Innovation Statement and for recognising the risks inherent in successful innovation. We also encourage government to pursue initiatives to encourage established businesses becoming more innovative and entrepreneurial and to ensure innovation is not lost when business owners exit.