Tech Startups and Technology - Are They Related?

We Explore: Has Rapid Technology Growth Fuelled a Startup Boom?

Wednesday, November 19, 2014

In most economies – developed or otherwise – the vast majority of businesses are likely to be in the small to medium sector. Many of those are fairly new or even recent start-ups, which leads to the suggestion that there may be a boom generation of start-up entrepreneurs busily advancing local and international economies. That may or may not be true, as we shall see. But what we can say without doubt is that communications technology is certainly changing the face of small business and start-ups and altering the landscape of modern business.

So, firstly, is there a boom in start-ups? Well, that probably depends on where you look. In lesser-developed economies, the impact of globalisation and of relatively cheap internet and mobile phone technology, there may well be an uptick in small business start-up numbers. It's impossible to say though, as these economies tend to suffer from limited analysis and reporting.

In Australia, there isn't much evidence of a start-up boom. Figures released by the Australian Bureau of Statistics last year suggest that the numbers of new businesses coming into the Australian economy have stagnated somewhat since around the time of the Global Financial Crisis.

In 2008-2009 for instance, ABS figures suggest there were almost 300,000 new businesses coming on line in that 12 month period. In 2012-2013 however, new business numbers were down to 8,868. That's only 0.1% higher than the exit numbers, which effectively tells us that start-up culture in Australia is trending sharply downwards, certainly over the last 5 to 6 years. 

The reasons for this may be the topic of another article. But, it is likely that usual barriers to entry such as limited access to capital and investment in a risk adverse culture or red tape issues have perhaps been bolstered by challenges delivered by the rapidly changing economic trends characteristic of the period in which we live.

One of the, perhaps the most, significant trends is the rise of IT and its impact on how economic interactions are conducted.

Of the more than 2 million businesses actively operating in Australia, around 96% are considered small to medium. Clearly this group is doing a lot of the heavy economic lifting in this country. Yet, there is some evidence to indicate that many in this vital sector, are struggling to come to terms with communications technology and its impact on their operations.

In 2012, the federal government produced a substantial report on the state of play in the small business sector. In it, the authors noted that many of these small and often new enterprises “emphasise research and development” and were “most likely to be based on young and/or sophisticated technology.”

Which makes the reading on how this sector is dealing with IT via its application of e-commerce infrastructure a little baffling. As the chart on the other end of this link shows, (Table 23, p68 in this report) internet presence via a business website is as low as 29% at the smaller end of small business, while those operators who are set up to receive orders online looks low even at the bigger end of the small business scale. While the report tracked increases in internet savings and e-commerce set-ups across the board, the researchers conclude, perhaps, in understatement, that “e-commerce adoption by small business remains at a relatively early stage.”

So, rather than being motivated by the possibilities of IT, are entrepreneurs perhaps wary of the landscape and/or are they simply falling behind and failing as doing business online hits critical mass?

The above report records the fact that many entrepreneurs who do a have a formal web presence via a website expect to see more of an increased business result in the coming period than those who don't; 34% of those with a website expect to see increased sales in the upcoming quarter, while only 26% of those that have no website feel the same confidence.

However, it is not known whether that confidence is due to their web presence alone, or is a reflection of the fact that perhaps those businesses are simply in sectors that lend themselves more readily to e-commerce, such as retail.

This uncertainty over the actual value of the internet for start-ups is further manifested in the clear confusion over what returns can be expected. 37% of small business proprietors who have invested in e-commerce couldn't say what returns they expected.

Business activity via social media is generally considered a no-brainer for business operators. Platforms like Facebook or Twitter promise prized access to customers and other stakeholders and can drive up the profile and likeability of any enterprise.

The apparent ease and cost effectiveness of accessing and utilising these options seems to indicate that the business universe has perhaps become more levelled out, allowing minnows to compete on the same level as the titans, at least in marketing and public relations terms.

Yet, here again, evidence suggests a broad grey area in regards to how social media impacts on small business and start-ups.

The latest yearly survey of social media usage in Australia by media company Sensis articulates the slowness of local businesses to get onto social media. While 69% of “online Australians” use social media, only 36% of small businesses do, and just 48% of medium businesses have a social media presence. Small and medium businesses spend only between 12% and 16% of their marketing budgets on social media, says the report's authors. 

“Despite consumer usage of social media becoming mainstream,” says Sensis, “businesses are still lagging behind.” 

So, if there is a levelling influence, it doesn't appear to be translating to those small and medium enterprise operators on the ground.

To quote George Orwell, when it comes to the internet and business “Some animals are more equal than others.” Many, it seems, are avoiding the farm altogether.