Advertisement

Time for some tough-love parenting for SA business

The real work is doing everything required to enable the child to grow up to be a productive adult. And the same is true for companies.

The real work is doing everything required to enable the child to grow up to be a productive adult. And the same is true for companies.

The focus on South Australian startups misses the point that scaling up companies is the most effective way to grow the local economy, argue Jana Matthews and Shane Cheek.

There has been a significant shift in attitude towards entrepreneurship around the world in recent years. There is hardly a country or city that does not have a startup initiative in one form or another.

South Australia is no exception.

We now have a range of programs, mostly supported by government, that are focused on startup formation and entrepreneurship.

However, if we want to turn this economy around within the short-term, creating more startups should not be the goal.

Rather, our goal must be to figure out how to scale the existing companies with the greatest potential for growth.

As noted in the important StartupAUS Crossroads 2015 Report: “Formation of startups is, of course, not an end-point, but a necessary step in creating large, globally significant and sustaining companies that drive economic growth and prosperity, and create large numbers of high-value jobs.”

Many people seem to think the most difficult and important task of the entrepreneur is to launch a venture. But as any parent knows, giving birth to a child is only the first step.

The real work is doing everything required to enable the child to grow up to be a productive adult. And the same is true for companies.

The real work is in developing products and services that customers value, figuring out the right channels to market, hiring great people and managing them to high performance, deciding how to finance growth, and building an organisation that can sustain that growth.

The second misnomer is what we’ll call “the more the merrier” – that the sheer numbers or quantities of startups implicitly trump the quality of the startup (for example, their ability to scale).

Both of these misnomers are doubtful at best, and dangerous at worst. Entrepreneurship is, by definition, extraordinary value creation and capture – and that cannot occur without growth. Growing a company involves many challenges, all of which are an order of magnitude more difficult than simply starting a venture.

Attracting exceptional talent, entering international markets, building strategic partnerships, understanding capital markets and building a mission and vision for growth aren’t issues that are easily resolved, and they can become significant impediments to growth if not done right.

High growth companies create more jobs

There is a significant body of research documenting that growth companies are the drivers of job creation. The Kauffman Foundation, the World Bank and others have demonstrated that very few – 5 – 10 per cent – companies grow at more than 20 per cent per year.

Those that do, create over half of a nation’s new jobs. Kauffman reported that 4 per cent of the highest growth companies created 70 per cent of net new jobs in America.

Enabling entrepreneurs to learn how to scale their firms to larger companies is one of the best ways to solve the current jobs crisis.

“Upper small” and medium-size enterprises (those with 10 – 200 employees) in South Australia are found in a broad array of industries and sectors. On average, a SME that grows into a large business creates more than 200 jobs, so the potential impact of entrepreneurs being able to scale their companies is quite significant.

While sole proprietors and micro-businesses (one – four employees) do create jobs, they do so on a much smaller scale.

It would take an enormous number of new start-ups or micro-businesses to have a tangible impact on the thousands of new jobs needed in South Australia.

But if we focus on companies that already have 10 – 200 employees, a product in the market, a team and revenue – and help them grow 10 – 20 per cent, we have a fighting chance of generating jobs that will keep people in South Australia.

It is not the number of companies that exist in a region, but rather their growth ambitions that drive regional economic growth.

In short, if we want to grow more companies and create more jobs, we need to focus on scale-up, rather than just startup, we need to identify company owners who want to grow, provide them with access to knowledge and education about how to grow and mentors who have grown companies.

Finally, the media and the whole community need to send positive signals that we want companies to grow, shine the light on companies that are growing, and understand that healthy, growing companies are essential for our economic prosperity.

Dr Jana Matthews is ANZ Chair in Business Growth, director University of South Australia Centre for Business Growth and the founding CEO of The Jana Matthews Group.

Shane Cheek is the managing partner of Acumen Ventures.

Local News Matters
Advertisement
Copyright © 2024 InDaily.
All rights reserved.