The differences in entrepreneurship and incubators between Australia and the USA

This post has been inspired from a few different places. Recently I’ve been watching some Mixergy interviews with founders of the Techstars and DreamIt Ventures, two incubator programs in the USA. It got me thinking about what equivalents there are in Australia. More on that later.

I was also listening to PennSays – the video blog of Penn from Penn & Teller (the Vegas magicians). Penn is a libertarian that thinks government should stay out of pretty much everything. Not to say libertarians are any less in number here, because I have no idea if that’s true or not, but I certainly have never met one, and very rarely see them in the media. That got me thinking about different political attitudes in the USA, and how they effect entrepreneurs.

And finally, I was watching a video interview by Jason  Calcanis with David Heinemeier Hansson (37 Signals), where they briefly talked about the differences between entrepreneurship in Europe and the USA. More specifically about taking on personal liability for finance in Europe.

Finally, for the purposes of this article, I’m talking about start-ups that aren’t seeking substantial outside funding to start up.

In Australia

I’m not claiming to know much about the entrepreneurship community in Australia. I’m not part it, and there’s probably way more going on than I could ever know. Regardless, here’s some of the things I know about the support for entrepreneurs in Australia.

NEIS

Firstly, we have the government backed NEIS (New Enterprise Incentive Scheme). NEIS is a program whereby eligible people can be supported on government welfare and receive training, mentorship and support.

To enter NEIS, you have to be currently receiving welfare. That pretty much means, you can’t have a job or assets over a certain amount.

The NEIS scheme puts you through a training course that goes for about a month, where you learn about the basics of business. At the end of the course, you receive a certificate 4 in business.

During the course you learn about writing a business plan. Then, over the next month or so, you make up your business plan in consultation with the “business specialist” who takes the course.

Then you go off and start your business and check in on a quarterly basis with some reports.

So from NEIS you get:

• $10-15k for living expenses over the course of 1 year
• Training and a formal qualification
• Write up a business plan with someone who knows about business
• Mentorship

The NEIS scheme is kinda cool, but it has a few drawbacks.

The teachers get paid sweet f*ck all. The guy I spoke to was on 40k/year + a car. That’s a pissant wage. You can get the equivalent of that straight out of uni. How on earth can they expect to get good teachers if they get paid like entry level accountants?

There is a NEIS course running out of the office complex I have my office in. The teacher was really awesome. He had run 2 businesses, was very experienced, very smart, and one of those people who are just born to be a teacher. Unfortunately, he left when he got offered a job that paid 6x more. I haven’t met the new teacher yet, and hopefully she’s really good, but when first year grade 1 teachers get paid somewhere between 50-60k straight out of uni, you’ve almost got to question why does anyone even take the job? And more importantly, the people that are taking these jobs, and presumably the pay cuts that come with it, are they the best people to be mentoring a startup?

It’s really focused on small businesses. Local businesses. Perfect for if you want to start a freelancing business (unfortunately I couldn’t qualify for the scheme), but if you’re idea is something bigger, the mentors will be useless to you. In fact, they’d probably be harmful to you because they work in an environment where they help small (and limited) businesses start, and their advice would be totally off.

Qualifying for the scheme isn’t based on merit, but based on your situation. If you have a job, or have assets over a certain amount, you don’t qualify. The scheme is more of a scheme to help unemployed people get work than to help entrepreneurs succeed.

NEIS boasts that about 80% of their participants is still in business in 5 years. I would like to see what they mean by “in business”.

This scheme seems to be more geared at the unemployed, and reducing the governments long term welfare burden, than actually being setup for entrepreneurs, and the type of people that are constantly motivated and will find a way to start a business no matter what they’re given.

Innovation grants

There are a number of innovation grants in Australia for entrepreneurs.

Firstly, there is the R & D tax credit. Basically you can claim 150% of your R&D as an expense.

Then there are business grants. There are different grants at local, state and federal level, that offer a wide variety of amounts for a wide variety of things. There are so many different ones for different approved activities. I just took their quick tool to find out if I was eligible for grants and based on my answers, I got this:

Based on your responses, you may be eligible to apply to government programs that could give you:

• up to $200,000 in grants representing up to 50% of your export market development costs
• up to $250,000 in non-repayable Proof of Concept grants, with a further $2 million in repayable grants to bring your product to market
• up to $15,000 in non-repayable grants

So basically, there’s quite a lot of this sort of stuff. Having said that, I don’t know how hard it is to apply and get the money, I’m guessing it would be fairly hard. And I’m also guessing once you do it, they’d check up on it as well. If someone knows better, please correct me.

Private courses

As far as I can tell, and I did a little bit but not a lot of research on this, there aren’t any programs like TechStars and DreamIt Ventures where the program takes a percentage of the business and helps you launch your startup.

The closest I could find was a great program called Startup School. This program is run by Steve Sammartino, who writes the excellent Startup blog, has a startup of his own Rentoid, and lectures on marketing subjects at RMIT university.

The Startup School program costs about $1k and is a crash course in things that actually matter to a startup (unlike NEIS and most university courses). Then there is an ongoing mentorship part as well.

In America

I’m definitely no expert in the situation in America. Absolutely everything I know is from reading about it on the internet. If I’m wrong about anything, please correct me in the comments. In the meantime, I’m going to be an idiot and write about my observations.

Belief in the market

I can’t find anything anywhere about a program similar to NEIS in America. Instead, this gap has been filled by the invisible hand.

As a result, we get programs like TechStars, DreamIt Ventures and YCombinator. These companies take a piece of the startup, give a little bit of money, a lot of mentorship and advice, facilitate a buzzing community, and help the business become successful.

Once again, if a program like this exists in Australia, I haven’t heard about it, and would love to be made to eat my words here.

I believe there’s several benefits in a system like this compared to Australia’s system.

The people that run these programs, are fucking awesome. They have lots of experience in launching companies, they have lots of contacts with potential customers, potential investors, mentors, etc. The benefits for a startup to be involved with these people is immense.

In Australia, as mentioned above, the teachers are paid poorly, and the turnover is high (The program in my office complex has had 3 teachers in the last 2 years). The quality of the teachers aren’t as high. Rather than mentors who have created successful businesses, you have teachers who are teachers (They can’t do, so they teach). I’m generalising here, the last guy who taught this program was absolutely awesome.

The program improves to society. The businesses that go through these programs, are there because they have value and are likely to give a return to the incubator. The selection process is rigorous. Both the incubator and the businesses that start are going to hire people and pay taxes.

Compare that to Australia where the government is sinking tens of thousands of dollars into businesses that are (mostly) going to stay small. It will take years for the government to get that money back in taxes.

In Australia, the selection process of the government scheme, is basically “if you don’t have a job or existing assets, you’re in”.

Summary

I think this is a great example of the differences in how a system works with or without the government stepping in.

In Australia, the startup incubators serve a bigger number of people, creates smaller businesses, and costs far more to society.

In America, the market forces means that less companies are created, but they’re bigger companies, most often tech related, and has immediate benefits to society.

I don’t know whether it’s the size of the population, the culture, the regulations or whatever, but from my point of view, the American way of doing things is better here. Several programs like Startup School are starting to bridge the gap, and hopefully we’ll see them grow.

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