What is Australia’s tech dilemma? I was recently invited to speak on a panel at an event created by BandT magazine called “Daze of Disruption“. The topic of discussion was “Australia’s Tech Dilemma”. This post is an outline of the notes I put together in preparation for the event and reflect my experiences with Deloitte’s TechFast50, TwoTribes and S4TMT in Australia and overseas.

The topic “Australia’s Tech Dilemma” implies that Australia has a singular ‘tech dilemma’ … but there is more than one. And we have heard them all:

Should we try to be Silicon Valley? Should we be the Silicon Valley of Asia? Why can’t we be more like Tel Aviv? What is our unique technology advantage? How do we attract our share of tech talent and funding? How can we grow a thriving technology ecosystem?…

These dilemmas relate to the growing globalisation of, and competition in, the technology ecosystem (more about this later) as ‘software eats the world’ and smartphones grow to become common household items – everywhere. They are also heightened by the curtain dropping on one industrial era and the birth of another – a virtual one which is causing structural adjustments as job automation, task virtualisation and connectivity force workers to learn new skills. But these dilemmas are not unique to Australia. They are dilemmas for all locations vying for relevance in a global market for technology talent, funding, return on investment and customers.

When visiting Toronto and New York last month I met with a number of local technology founders and VCs who separately expressed similar dilemmas for their locations – Should we be more like Silicon Valley? How to attract and retain technology talent? How can we grow a thriving tech ecosystem? There are some unique dilemmas though. For Toronto, proximity to the mega-hubs of Silicon Valley, Chicago and New York as well as the larger consumer markets of North America bring the unique challenges/opportunities of creating pathways to and from these locations for talent and funding and breaking into markets much like RIM did (maker of Blackberry from Waterloo just outside of Toronto) in the 2000’s. In New York, the high cost of living (7th most expensive in 2015, Singapore was 1st) creates dilemmas of its own with many early stage technology ventures looking to the up and coming (less costly) ecosystems in Austin, Seattle or even Boulder, Colorado.

What are the conditions creating Australia’s unique tech dilemmas?

For Australia, the conditions creating our unique tech dilemmas relate to two major factors:

1) Competition in the global technology ecosystem and our domestic and regional markets for talent, customers, funding and returns.

2) They are also intrinsically tied to our strengths, for example:

We are an island nation which means we enjoy a fantastic quality of life with 90% of the population living close to the ocean But… this also brings an ‘island nation mentality’ – defensiveness, a desire for self-sufficiency instead of fostering connections. Australian businesses are 21 out of 24 of the OECD countries in terms of collaboration.

We have excellent (by world standards) educational institutions and a stable economic and regulatory environment But… many of our most innovative people or foreigners trained in Australian institutions end up going offshore or back home. Approximately 2 million foreign students have been through Australian higher education institutions in the last 10 years with only a small percentage staying on or keeping ongoing ties to Australia.

We come from the land of plenty – agriculture, mining and property But… there has been an historic reliance on the commodity boom and we are disproportionately consolidated in our major industries – we haven’t HAD to innovate.

According to a 2015 Compass report on Global Startup Ecosystems, Sydney ranks #16 (slipping 4 places from 2012) and Melbourne is out of the Top 20. Talent is cited as a strength for Sydney (despite its high cost compared to the region). Sydney however lags in terms of funding, return on investment and market reach – being a small (but relatively sophisticated) consumer base. Creating and nurturing a thriving Australian technology scene in the backdrop of global competition and our unique local conditions comes with some unique dilemmas.

Australia’s unique technology dilemmas

Looking at the technology ecosystem aspects of talent, customers, funding and returns some of our unique ‘tech dilemmas’ are as follows.

Talent dilemmas

Talent dilemmas are the most important for Australia to solve. Technology talent will be the driving force behind Australia’s position and differentiation in the technology ecosystem. Below are a few dilemmas:

Homegrown talent: How do we foster the skills (primary to tertiary) required to fuel a globally competitive technology industry? How do we make being a technology entrepreneur as attractive and stable a career choice as traditional (high ATAR careers) such as law, banking and finance?

International talent: How do we attract the best international talent to our shores by promoting our quality of life? How do we keep better ties with the millions of foreign students trained in Australian universities? How do we remove the boundaries to collaboration (the ‘island mindset’) with the best technology talent in the global ecosystem?

Much has been written about potential solutions to these dilemmas including a greater focus on STEM (science, technology, engineering and mathematics) education in our schools and revising visa conditions for technology talent, but there are other options. The Compass report suggests Sydney would be an excellent location for a second office for major technology companies globally. Pundits in Singapore are already thinking along these lines; attracting Google to set up an Asian headquarter in Singapore could be part of the solution for technology talent.

Winning solutions to each of these dilemmas (talent or otherwise) require drawing on our strengths (see above) and differentiating in the technology ecosystem regionally and globally. They may include promoting ‘Silicon Beach‘ in our universities and international technology powerhouses or expanding our tech infrastructure (e.g. spaces, offices, incubators) out of our expensive CBDs to new locations to help democratise tech. We could look to formalising alumni relationships with foreign students educated in Australia to promote their ties to Australia abroad or draw the typically risk-averse talent of corporate Australia into the local technology ecosystem to consider technology as a career option.

Getting more specific, we could highlight and incentivise a particular type of technology talent to thrive in Australia that is valuable to the global ecosystem. The panel at Daze of Disruption considered Design skills as a natural talent advantage for Australia – should Australia be the regional and global design hub for technology? (another dilemma…).

Customers (Market Reach) dilemmas

We are a very small market domestically but we are closely positioned to a number of the largest and growing consumer and enterprise markets in the world including Indonesia, China and India. Many of our fastest growing companies fail to export their product or service (these are typically non-tech companies) and our largest tech companies have the majority of their customers in the US (e.g. Canva, Campaign Monitor, Atlassian). Our unique dilemmas here are:

Customers: How do we leverage the cultural diversity of the Australian population to test and export technologies suitable for overseas markets? How do we develop technology products or services for the major consumer and enterprise markets of Asia?

The solutions here are not obvious or easy. It requires having an excellent understanding of the challenges (of a particular market segment) in these vast markets, not to mention technology entrepreneurs creating global solutions. ‘Pathways to Silicon Valley‘ are often discussed as being important for the Australian tech ecosystem but arguably, pathways to Jakarta, Beijing, Shanghai and Bangalore are more important (a role our governments could play). Australian/Singaporean entrepreneur Marcus Lim has recognised this and is developing a simple payments platform targeting the large Indonesian market after success with an Australian domestic focused consumer tech platform. He sites the difficulties of entering a market like Jakarta (regulation, skepticism of foreigners) but these need to be overcome if we are to improve our market reach.

Funding and Returns dilemmas

The availability of funding has increased in Australia over the last 5 years as the global funding for tech has grown post-GFC and superannuation funds in Australia have again allocated money back into alternative investments (early to late stage VC being one of them). That said, returns on tech investments are still relatively poor compared to global investments with growth of exit valuations under-performing compared to other countries.

Funding: How do we maintain confidence in the Australian technology sector compared to other industries? How do we support technology companies to grow and scale quickly with funding? How do we attract global funding to Australian shores?

Returns: How do we create pathways for founders and investors to realise the value of their ventures through IPOs or other exits?

Tech is a risky sector for investment and Australians are risk averse. Money flowed out of the sector in the early 2000s and again during the GFC – right now is a new awakening for Australian investment in tech. Globally, investors are looking for the next big thing in tech and it could come from Australia. Government plays an important role in signalling and incentivising private investment in Australian tech (particularly more risky sub-sectors or growth stages). For private investors, one solution is smarter investment (tech portfolios which are risk weighted) which will breed returns and success, while attracting more funding to the sector. Another solution includes increasing liquidity for private investment with more successful local IPOs and exits.

We have much to be excited about for Australian tech – our dilemmas are actually opportunities. They are unique and will need unique solutions which play to our strengths but also differentiate us in the regional and global competition for technology talent, customers, funding and returns.