A happy medium will drive economic growth

29 Jan 2016

‘Growth’ is back on the business agenda for 2016, underscored by the release of the highly anticipated Innovation Statement. Consumer confidence is 10 per cent higher than a year ago, and the retail sector just had one of its best Christmas seasons in years.

But while the shift towards optimism marks a refreshing change for our economy, disruption is wrecking havoc on traditional businesses. Prime Minister Malcolm Turnbull has recognised that what we’ve been doing in the past isn’t working anymore. He has urged all Australians to think differently, be nimble, and look for segments with untapped potential for economic growth.

Many global economies, including Australia, have identified ‘commercialising innovation’ and ‘more start-ups’ as ‘segments with untapped potential’. 

While both certainly do have potential, it takes time for research to be commercialised, and early-stage companies simply cannot grow fast enough to create the numbers of jobs we need, right now, in Australia.

Where can we draw our growth vision?

Big business (companies with over $40m in revenue and 200 employees) occupies a large part of our mindshare in Australia. Big business has ample access to financial resources, ongoing government support, and is well covered by the media. And even though big business constitutes less than 1 per cent of all companies in Australia, it employs approximately 30 per cent of the workforce and in 2011 provided 43 per cent of the value-add to the Australian economy.

However, big business has recently announced closures and is laying off large numbers of people, with severe impacts on state and local economies.

Of Australia’s 2.13 million companies with ABNs, 85 per cent of them are sole proprietors or micro businesses with fewer than 5 employees. Only 15 per cent have more than five employees and $5m in revenue.

The 2015 federal budget provided tax breaks for Australia’s smallest businesses, and incentives for them to invest in technology and other major purchases. There’s no question that small business and start-ups are important to our economy; they are the seeds from which the corporations of the future will emerge. But any hope that the tax breaks would kickstart a recruitment spree has faded.

Very few Australian small businesses have the revenue or the management capacity to scale up significantly and recruit substantial numbers of new employees.

In short, it’s clear that neither big business nor start-ups are going to be able to solve the employment problem we are facing, right now.

On the other hand, there are approximately 300,000 companies in the ‘upper small to medium’ size category with annual revenues between $5m and $50m. These are the companies that hold the key to our current economic problems.

These companies have products, customers, revenue, a team, and employees. With a bit of education and some knowledge about how to scale, many managing directors and chief executives could accelerate their growth and create a substantial number of new job opportunities in a matter of months, not years.

As a case in point, the University of South Australia’s Centre for Business Growth, with support from ANZ, selected 10 ANZ customer companies from ten different industries across Australia. All had revenues between $5m and $50m. 

At the end of the nine-month business growth program, this group achieved an aggregate revenue increase of 24 per cent. In addition to top-line growth (from $132m to $164m), their bottom line grew as well: profit increased 29 per cent. Jobs increased by 114, and the companies are projecting 332 new employees by the end of the fiscal year.

In 2015 the centre held growth clinics with chief executives and managing directors of 85 mid-sized companies that had stopped growing. The chief executives wanted to continue growing but didn’t know how. We found that some had the wrong people on the bus — or in the wrong seats on the bus. Others did not have the right marketing or channel strategy. Some didn’t understand the roles they should be playing at that stage of growth; others did not understand their leadership responsibilities. Some had the wrong business model; others had hit the ‘ceiling of complexity’.

The good news is that in one day many of these executives were able to learn what to stop doing, what to begin doing, why, and how. They left the clinic with an action plan, and follow-up research indicates that 56 per cent of them are growing again.

Given these results, consider what could happen if we enabled just 10 per cent (30,000) of our ‘upper small’ and medium-sized companies to learn how to grow. The results would be staggering.

In short, we need to continue to support research commercialisation and start-ups. But if we want to create jobs right now, we need to be much more proactive about engaging with the leaders of ‘upper small’ and mid-sized Australian businesses that have the desire and the potential to grow. If we provide them with education and support and develop their capacity to grow their companies, we will unlock the next phase of economic growth in Australia.

Dr Jana Matthews is ANZ Chair in Business Growth, Director, Centre for Business Growth, University of South Australia, and a board member of StartupAUS. This article was originally published in The Australian Business Review: Business Spectator

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