Australian Innovation

Challenges of Being an Innovator

A leading Australian seed capital investor says some simple practices can help entrepreneurs and innovators in the IT industry meet the challenges of innovating in Australia.

“The barriers to innovation I have encountered over the years are well known and while they have received plenty of coverage, it’s worth revisiting them and offering some strategies to overcome them,” Paul Kristensen said.
Paul Kristensen is executive chairman of Capital Technologies, a company that has created and invested in a number of technology start-ups and provides business development advisory and consulting services.

Based on his experience Paul identifies barriers such as:
the difficulties start ups have finding sufficient investment funding in Australia, including the temptation to therefore look elsewhere;
the absence of effective tax incentives for technology entrepreneurs;
an insufficient pool of genuine entrepreneurs - people with the right skill mix and experience to ensure a start-up is commercially successful and sustainable; and
the reluctance of large Australian based companies to engage in ‘corporate venturing’ relationships with small companies and as a result, lost opportunities for emerging innovators.

“Other traditional impediments however, such as the distance to the main markets for technology are starting to diminish in ways that work to Australia’s advantage.  “Firstly, modern communications technology is literally ‘shrinking the globe’. Secondly, while the main markets are traditionally Europe and the USA, the Asian region is increasingly taking the lead in the innovation and manufacturing of high tech products.

History is evidence that whenever countries establish themselves as leading manufacturing nations, invention and innovation usually thrives. Just think of the UK in the 19th century and the USA in the 20th century. In both instances, driven by imperative, engineers involved in the manufacturing process had to innovate to address real-world manufacturing problems and efficiency pressures. Innovation driven by such business imperative typically results in shorter and more direct change cycles in which innovation spawns new products and services.  Several of our Asian neighbours are applying precisely this strategy to encourage more rapid innovation development. 

Mr Kristensen also identifies an intolerance of entrepreneurial failure as a barrier to successful innovation, particularly when compared with the USA where failure is often regarded as an important experience, provided the right lessons have been learnt.
“This intolerance of failure that still prevails in Australia especially affects entrepreneurs that stumble with their first venture,” Mr Kristensen said.


“Often times it is both easier and more palatable for budding entrepreneurs to turn their attention overseas where markets tend to be both more patient and tolerant of new ventures – including when they falter. While investors and markets are obviously cautious, there is a certain acceptance that false starts and some failures are part of the natural lifecycle of the innovation process.”

From Paul’s perspective, he advocates the following “Dos” when thinking about creating new ventures around innovation and IT:
DO
Seek out and foster groundbreaking IP (intellectual property) and build from that.
Think outside the square - take calculated risks when commercialising and seek to be innovative in the business strategies you develop and execute. Don’t leave the innovation just to the product or the technology.
Select top-notch people for the team - people with the right mix of technical, business, marketing and entrepreneurial acumen to take a product from start to finish through the innovation to commercialisation lifecycle. Of equal importance, think about the mix of temperaments you need on your team to be successful – it’s not just about people’s skills but also their motivation, patience, consistency etc.   
Be accountable for every dollar raised from investors. At the end of the day both the dollars and the investors are precious and irreplaceable. So spend wisely.
Enforce good corporate governance from the start. Companies with a credible board, good governance, robust internal processes and external accountability are always better positioned when it comes to securing the next round of funding.
Interact with potential licensees or customers very early in the process. If there is no interest, the business may have no basis! If possible, get their endorsement, support through investment, development assistance or whatever – any sort of commitment from a major corporation can be gold to a small start-up.
Take advantage of the increasing trend towards ‘open innovation’ which thrives on inspired and constructive collaboration across many parties, both inside and outside a company. This is often a useful approach and different to the proprietary ‘closed’ innovation that traditionally takes place inside a company.
Make use of ‘technology roadmaps’ to guide new developments and commercial aims and avoid entering overly competitive areas of innovation without a true breakthrough.

Now for the “Don’ts”
Don’t:
As an investor, don’t become a minority shareholder in a venture controlled by an inventor without a business track record. Make sure any investment is structured accordingly.
Don’t undercapitalise the venture for the sake of avoiding equity dilution. Speed to market is imperative in almost all cases. This necessarily comes at a cost but the benefits will normally be far greater.
Don’t rely on government support – if you can get it, well and good, but the success of your business should never be dependent on it.
Don’t believe that unlimited entrepreneurial enthusiasm is sufficient to become successful. A venture requires enthusiasm to be complemented with professional management and committed and tenacious teamwork.
Don’t think details are not important. Successful execution includes meticulous attention to detail in every area. Overlooked details can, and often will, sink a venture.
Don’t involve people in a start-up venture who are only seeking a job with a good salary, lots of free share options and a promising future career. If they are not prepared to have serious ‘skin in the game’ they do not belong in a small, entrepreneurial company, regardless of their CV.
Australia is steadily improving its entrepreneurship and innovation, but still has a long way to go to reach the ranks of the markets we are competing in. To make serious headway there is an urgent need for business, academia and government to reach a better understanding of the fundamental drivers of innovation and how to foster continuing improvement.
The scope and diversity of the Industry Innovation Councils, established by the Minister for Innovation, Industry Science and Research Senator, the Hon Kim Carr, are indicative of the effort required to drive innovation at the national level.   

The Strategy developed by the IT Industry Innovation Council for example (http://www.innovation.gov.au/Section/Industry/Documents/ITIIC_Strategic_Plan_Final.ppt) is illustrative of the task at hand.
As the Chair of the IT Industry Innovation Council, Mr John Grant, says
“Fuelling productivity and competitiveness is innovation – innovation in the production and application of new technologies, services and processes and innovation in the application of existing global best practice technologies, services and processes.  Underpinning the production and application of new technologies, services and processes is research and development, much of which is performed in our SMEs, and the skill, commitment and sacrifice of our innovators – in start ups, SMEs and larger corporations”.  
Paul Kristensen agrees, and adds that the development of better entrepreneurial and commercialisation skills, plus the access to risk capital in Australia, would enable the country to compete with the best.

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