Big fall in start ups a jarring wake-up call

Australian start-up numbers have fallen an alarming 30 per cent over the last three years, crunching the number of operating firms, according to new figures released by the Australian Bureau of Statistics. The alarming fall raises serious questions about whether there is a lack of an enterprise culture in Australia, a threat to long term employment prospects.

Start-up numbers have fallen from 342,753 in 2009-2010 to 239,229 in 2012-2013, according to the measure of exits and entries of trading businesses. In the 2012-13 year the entry rate of businesses decreased by 2.3 percentage points (-48,292) from 13.5 per cent to 11.2 per cent for the year before. This followed a decrease of 0.4 percentage points (6,689) in the 2011-12 year. 

The exit rate is also up: by 1.0 percentage point from 13.1 per cent to 14.1 per cent or 22,190 for the 2012–13 financial year. This follows a decrease of 7,795 or 0.4 percentage points for the 2011–12 financial year. 

The disturbing bottom line is the entry rate (11.2 per cent) of businesses was lower than the exit rate (14.1 per cent) for the financial year. 

This means that for the first time in four years, there was a decrease in operating firms. Just 2,079,666 were in operation, a decrease of 61,614 (-2.9 per cent) from the previous year.

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Source: Australian Bureau of Statistics

Fall in start-ups: 

A key measure of economic growth in any country is the start-up and small business economy. The large fall in start-ups, the rise in exits and the fall in the number of businesses operating should have alarm bells ringing all over the country and warrants an immediate investigation into the causes. 

That this data has not been more canvassed is alarming in itself. Other countries are focusing on building an enterprise culture and measuring its success. These countries are convinced new start-ups and innovation are the way to avoid low wages by value adding and the best way to do this is to encourage a culture of entrepreneurship with the creation of innovative products and services and skilled employees. 

The once in a century technological disruption has created enormous opportunities for enterprising people however the ABS data suggests to date Australian entrepreneurs have not emerged to take advantage of it. 

Small business experts note it has never been easier to start a new venture with a range of enabling technology that provides better, cheaper services than large companies could access even five years ago at significant cost. Marketing is also cheaper with powerful reach via social media. 

Small business experts such as ANZ’s managing director corporate and commercial Mark Whelan hazards it is possible as economic conditions after the GFC improve, large companies are hiring, taking some of the pool of would be start-ups. 

He adds it is possible the recent history of political uncertainty may have dampened people’s enthusiasm for having a go.

“Or perhaps the mining boom moving into second gear has impacted confidence,” he says. “Or the current policy focus on the retiring generation and ‘getting a job’ instead of creating a job has created an unenterprising mindset. At the moment we don’t know.” 

The statistics available on this critical part of the economy are scarce. Australia also pulled out of the highly regarded Global Entrepreneurship Monitor research project that tracks start-up activity across the world.  

However these entry and exit figures are critical and demand further analysis to understand what is affecting people’s appetite to start a business. There is a clear correlation between start up figures and growing economies. While many of the start-ups will not create any jobs, a significant number will. History shows a small number will create a colossal amount of jobs.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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