Startup Ecosystem Recovery & The Role of Government

In today's episode we speak with Mark Gustowski CEO of CEA about the role of government in preparing the Startup ecosystem for recovery in a post Covid-19 world. We also dig into:

• The changing nature of innovation programs
• The importance of mental health amongst delivery teams.

Watch The Interview:

https://www.youtube.com/watch?v=-xPc0nIbDR0&t=375s

Mark Gustowski is a highly regarded Leader of Innovation both in the Australian startup ecosystem and also across the ASEAN region. With a wealth of experience from his role as CEO at QUT Creative Enterprise Australia, as an angel investor and as the director on multiple Startup boards — Mark has designed and run countless accelerator, incubator and investment programs both nationally and internationally.

Brian:

Welcome, everybody, to Episode 2 of Leaders of Innovation, the show where we explore the topics and trends impacting accelerator program and innovation delivery teams both here in Australia and internationally.

Today, I’m based in Melbourne where we’ve just returned to six weeks of lockdown, and we’re very lucky to be speaking to the legendary Mark Gustowski based up in Brisbane who’s going to be joining us for an interview. Mark is a highly-regarded and recognized leader of innovation both in the Australian startup ecosystem and also across the ASEAN region. With a wealth of experience from his role as CEO at QUT Creative Enterprise Australia, as an angel investor and as a director on multiple startup boards, Mark has designed and run countless accelerator, incubator and investment programs both nationally and internationally. In addition to all of this, Mark is also a loving father of three, including two new infant twins.

Mark, you are most welcome to the show.

Mark: Thank you very much, Brian. It’s a pleasure to be here.

Brian: Awesome. I guess the first question is: what’s on your radar at the moment?

Mark: That’s a very, very good question. If you’re looking at the innovation landscape, we are in really unprecedented times. We saw significant downturns in the economy in ’01 and ’08, but I think this has superseded anything that we could have imagined or that those two downturns might have even prepared us for.

At the moment, what I’m spending a lot of time thinking about — and this might sound like a funny metaphor, but how do we reseed a forest that’s been completely burnt? The analogy’s an easy one for Australia, with the bushfires we had earlier this year.

If you look at what the pandemic has done to not just the startup ecosystem but the whole business landscape, if you think of the whole business landscape that we operate in as the forest, you’ve got your top canopy which are the corporates and the enterprise companies and the big firms, and they’ll probably be okay. They’ll hurt but they’ll survive. They’ll get through.

The mid-level of that forest structure is very much the small- and medium-sized businesses, anything that might be $2 million to $100 million in revenue. They might be revenue businesses or highly profitable, they might be stagnant in terms of their size or scaling, but they are hurting tremendously as a result of the pandemic in the moment.

Then at the bottom of the forest, you’ve got the shrubbery, which I call the startups, the mum-and-dad shops, the ideas people, the people that try to keep things off the ground. What we’ve seen is that that layer of the forest is decimated.

So what we’re going to come out of with this pandemic is a top layer, a top canopy of the forest, the business ecosystem that has survived but decimated levels that sit below that. That will then lead on to severe constraints in the economy moving forward.

So a big part of what I spend my time thinking about at the moment is: how do we repopulate that forest? What do we need to do to repopulate that forest in a prolific manner with businesses that are set up and structured to survive in — I don’t want to say “post-COVID world.” I want to say “a new world” because it’s going to change. So how do we reseed this forest? Not just in Australia or Melbourne or Brisbane, but globally? How do we do that in a way that is going to be prolific enough to provide jobs and capability building and customers and export opportunities for the whole of the business ecosystem?

It’s a pretty big task to think about. It’s a very macro-level issue to be thinking about. A lot of what I’m spending my time conceptualizing at the moment is: what do we need to do to rebuild the forest, and what will that look like in a number of years’ time?

The thing that is interesting, when you do go through these economic downturns — when it was ’01 or ’08 — is that smart, driven people hate to be bored. You do see levels of innovation peaking after these downturns. Now, we’re not seeing that yet, and it might take a few years to happen, but smart people hate being bored.

We need to make sure that as deliverers of accelerator programs and innovation programs and those that advocate for government policy and those that help build ecosystems, we’re putting the framework structures and scaffolding in place that will allow these smart people that are going to build things to do it in a way that is as seamless and frictionless as possible because there are going to be more than enough speed humps on the way that founders, companies, businesses, enterprises are going to have to meet over the next two or three years.

They’re the things that really occupy my mind at a very macro level at the moment. No easy answers, but there are some very smart people that I’m speaking with and working with trying to solve that problem.

Brian: They’re absolutely fundamental, and I think the analogy works really, really well because when you step back, as you say, there’s really been a sea change in terms of not just the kind of challenges that people are facing, but also the very environment they’re actually operating in. COVID has really broadsided what we knew was normal.

As you say, stepping back and looking at it from a macro perspective, there’s a number of different players in there. You’ve got governments that sit at the most macro level. They’ve got the most levers available to them to be able to influence the ecosystem. Below that, you’ve got the partners in the ecosystems, the people who actually design and deliver the programs and essentially build that infrastructure which all of the growth runs through and all those early-stage startups participate in.

What role do you think government plays in building this post-COVID innovation regrowth?

Mark: Governments at local, state and federal level will play an integral role. Really, if you think about the role governments have been playing in the innovation economy, in the innovation ecosystem since the late ’90s — in Victoria, it was the Kennett government that rolled into the Bracks, Brumby government — governments tend to play a key role where there are areas of significant market failure.

Normally, you can both out. You can say, “This is an area of market failure. Government can intervene to kick start industry.” We saw that in ’98, ’99 in Victoria where the Kennett government started supporting, under the Technology Commercialization Program, the first round ever of funding for startups and for startup-supporting organizations. It was very forward thinking.

But it was an area of market failure. They saw that there weren’t enough providers to actually support the startup ecosystem so they needed to seed the provider community. They funded, I think, 12 providers at the time. That grew into any number of programs, and today that program, 20 years later, is a launch vehicle.

I think what governments will look at is: where are the key areas of market failure that they can play a role? The problem with this pandemic is that those market failures are everywhere, and government has only got so many fingers to plug so many holes.

So where can they play the most influential and important role to trigger and kick start economic activity again? I’ve got a number of friends working in Canberra at a federal level and many close colleagues both in state governments in Victoria and Queensland trying to work this out at the moment. I think government as a first procurer has always been an interesting objective that they’ve tried to have in terms of working with startups. Running open innovation platforms and programs where procurement becomes easy for startups to sell to government.

In Victoria, I think back in maybe 2010, 2011, they ran the Small Business Innovation Research program, which was really to help small businesses and startups engage with government bodies. It wasn’t overly successful because the issues that they’d identified to be solved really weren’t solvable by small businesses.

We’ve seen that successfully delivered in the US at a much higher level. But governments need to think: how can they become procurers and customers where the other customers that have existed in the market at the moment have been decimated? That’s one area.

The other area is: how can they re-stimulate economic activity in programs that will help reseed the lower part of the forest? It works up from there. In many years’ time, the startups that exist today will be the mid-tier companies that sit at the middle level of the forest canopy. And hopefully, in years after that, they’ll be sitting more towards the top end of that.

So we really need to make sure that we reseed the bottom part of that forest with businesses that are going to survive in a post-COVID world. This is going to look like everything from the High Street shops on Swanston Street or Queen Street Mall in Brisbane to startups that are actually wanting to build products and solutions for the market at the moment. They will need to be reseeded and supported.

Government really needs to think about how it can play a role in injecting business confidence and consumer confidence into those parts of the market, but also capital. Capital markets have also been devastated. How do we provide capital for whether it’s accelerator programs or whether it’s direct to startups or whether it’s through. How do we start to provide capital and unlock capital that is needed to help these ecosystems grow?

Brian: You touch on a really good point there. Again, you’ve spoken to the fact that government holds all these levers, and as a first procurer, if you like, they have this ability to actually inject huge amount of capital and confidence into the economy by being this reliable customer who will actually pay the small businesses or startups that are actually working with them, and therefore get the cash flow running through the system.

What I’m hearing there is that one of the key things that might be essential for this comeback is positioning for a comeback. So now, we’re thinking about what our position’s going to look like. And because of government’s role, I guess the question one might have to ask is: do you believe that government is aware of how the innovation ecosystem might play a key role in that? The follow-up to that is: do you think there’s a responsibility on innovation program owners and the ecosystem itself to educate government as to the possibilities?

Mark: Yes, and therein lie the challenges with startup innovation and entrepreneurial-type programs that exist within government at all levels. The challenge that we’ve seen in Australia over the last 20 years — and this doesn’t matter whether it’s the state or the federal level — is that election cycles determine policy, very much so.

What we saw for the first time a couple of years ago when Turnbull was going through the federal election was he really positioned entrepreneurship and innovation at the front and center of his campaign for election. Now, what we saw as an outcome of that is that it just didn’t cut the mustard when it comes to people worrying about education, health, tax reform.

So I think what we have seen traditionally is innovation support and startup support and entrepreneurship support comes when times are good, not necessarily when times are being challenged because it doesn’t necessarily win votes at a public level. But what governments do know — and it’s not a dirty secret, they do know it — is that innovation and startup and entrepreneurship form the foundations of economic recovery and economic growth in any market.

So we have the challenge that exists between knowing what works and what’s going to help markets grow, but it requires patience, patience that often extends beyond election cycles, and on the other side, governments are wrestling with, “We know this is important, but we know this might not win the next election from the public policy perspective.”

What we’ve seen, certainly in Queensland and Victoria for the last three or four years through LaunchVic in Victoria and the Advance Queensland initiative through the Queensland government, is times have been good, and so we’ve seen a lot of support for startups. But that’s all winding back, and that’s all slowing down because times are not so easy anymore. You revert to what is most important to the public, which is education, health, tax reform. So herein lies the challenge at a public policy level that we need to play.

The second part of that question is: are we doing enough for startups and as people that are building the entrepreneurial ecosystem to have an awareness of that? Again, it’s very challenging. We’ve got national bodies like StartupAus. Alex McCauley has been running StartupAus incredibly well, acting as their advocate. We’re starting to see in Australia now the rise of the number of the unicorn companies, whether it’s Canva or Atlassian or SafetyCulture or others, starting to act more as policy drivers.

I think we need that because for too long, the entrepreneurial and startup ecosystem hasn’t had a strong enough voice. We haven’t had the big gorilla in the room that’s been banging their chest saying, “This is why you need to support innovation initiatives publicly.”

One, they create incredible capability and skills. These are highly-skilled, highly-capable jobs. They multiply jobs. The general salary or the general remuneration of the highly-skilled startup founder once they move forward is bigger or greater than that of a traditional worker. And the opportunity to scale exponentially and export quickly is also greater than that of a traditional business.

So these are the things that we need to look at and start to advocate more about, and we need to start to unlock the capital for these at both the public and private level, and from the private level I don’t just mean venture and angel. I mean banking. The banks need to play a much, much larger role in the rise of the venture community in Australia. We need to start to unlock all of these different facets and these different stakeholders to really help drive where we need to go as a country forward.

Brian: Quite interesting, the idea of a moral obligation, almost, upon those unicorns that come out of an ecosystem to champion the grassroots members that come behind them. That’s actually quite an interesting concept. Like any kind of moral obligation, it’s subjective, but it’s quite an interesting concept.

Mark: It is. The other thing that we need to do a better job at as a nation — and this will be interesting for you because you’ve come to Australia from Europe — is we need to be putting in place facilities that attract talent back. We have amazing talent in Australia that works either in the ASEAN region or in North America or in Europe, and there is no better time for this talent to want to return home for any number of reasons: pandemic, political upheaval, political unrest, economies — or those successful Aussies that are in their mid-30s who have made enough money to want to return home and want to give back but don’t necessarily have the framework around them to do that.

Great examples of people like this Chris Saad, an Aussie rock star from Brisbane that did great things at Uber as the head of platform development. He came back to Australia three or four years ago and has been looking to find things to do, has been looking for ways to engage and help stimulate the ecosystem here. But what he’s had to do is build all of that himself through his networks.

We need to better build systems that are attractive enough to bring people back, and they can act as the advocates and as the people that have loud voices to help lobby the government to understand that investment in this part of the sector that we work in is imperative for long-term success of the country.

We can’t continue to focus on commoditized markets that really aren’t adding value. Tourism is decimated, mining is decimated, and education is decimated. They’re Australia’s three markets. We need to start to do things differently, and we need to think of ways in which we can disrupt those three markets significantly enough to turn them into a positive.

Brian: So champions out there listening to this or watching this, if you are a domain expert or a seasoned professional when it comes to the startup ecosystem, this is the time for everyone to step up when they have the capacity and to put their shoulder to the wheel to help support the ecosystem in its time of need.

Here’s a question for you: how do you think COVID-19 is changing or going to change the way that accelerator or innovation programs actually operate or deliver?

Mark: The biggest challenge that we face — we were going to run a batch at Collider this year, and as you know, the Collider program is a cohort-driven, relationship-based accelerator. You went through Batch 2. There’s no replacement for face-to-face engagement. You can’t do it. You can do Zoom meetings, and you can do virtual all you like, but you can never build the rapport, the confidence, the trust or the network that’s easiest in face to face.

We actually held back from delivering Collider this year because we didn’t believe, from a perspective of adding value to the investors that we have in running a cohort, that we would give the company the best chances to succeed in a virtual program. That’s not to say they can’t be delivered. Sure, some are being delivered very, very well, but nothing beats the ability to sit down with someone and talk face to face to learn about what drives them, their families, to be around for the serendipity that is in-person activity. The cohort-based relationships — you would know from the second batch of Collider — you can’t replace that, and you can’t rebuild that in a virtual sense.

I think the big challenge is: how do we create these relationships, these connections and the trust in a world where we can no longer have that face-to-face activity? Certainly, in Melbourne, you have another six weeks of lockdown before anyone can move again.

These challenges are real, and I don’t think we’ve quite got the answer to that. I think the biggest challenge that programs face is if you are running accelerators that can’t be run traditionally, how do we run them in a way that is going to still extract the value, create the networks and the relationships and the alumni needed for success, moving forward? That’s a really tough one.

Brian: Your response actually really echoes what Alan Jones said. We spoke the other day. He said the same thing in the sense that the education part of the program is probably the easiest element to replicate.

Mark: You can do that online. You can run components and modules of education online. You can’t deliver the in-person engagement in the same manner. It just can’t be done.

Brian: The serendipity, as you say, the organic interaction. And of course, human communication, they say, approximately two-thirds of it is non-verbal. If you can only see me from chest up, you lose a huge amount of that personal interaction. That, of course, goes into the unconscious building of relationships and rapport.

Mark: It’s also more difficult to challenge someone online. If you’re sitting with someone and you’re debating about a business model or a customer product or a market fit or pricing, and you’re going through that, it’s actually a lot more challenging. It’s not confrontational to debate that in an online sense versus face to face because there are so many things you can’t read. At the end of a video conference, you press “Leave” and you’re out. If you have a debate in person, there is no pressing the “Leave” button. You need to take it to a natural conclusion.

So you miss out on all these sorts of things that are important in pulling apart and rebuilding business models and opportunities and products and services when you’re talking about delivering something like an accelerator program.

Brian: It’s such an intrinsic challenge for the programs, as you say. The value, a lot of it is derived from the relationships and the network which come from those relationships that you have as well.

As we go through this series, we’re going to continue talking to other leaders of innovation and getting different people’s perspective on it. Like everything, there’s a perfect solution for this, and chances are, we will never achieve it. We can always shoot, get as close as possible, try and blend as much of a valuable experience for people through the online journey as possible, but I think that is irreplaceable, that one-to-one, in many, many ways.

That brings me to a pretty interest question which is around mental health and delivery teams. There’s a lot of talk around founders and the struggle they go through when they’re on the founder journey, but the teams who actually design and deliver the programs and the infrastructure the founders go through are also going through a tough time right now: uncertainty around funding for some programs and also huge pressure to still deliver despite the fact that delivery might no longer be in the way it was supposed to be originally.

How do you think programs can better support the mental health of their delivery teams?

Mark: I think checking in with the team regularly is important. I think what a lot of startups might not realize as they go through an accelerator is that the program team actually rides that journey with you. The program team goes through the peaks and the troughs that the founding team goes through. They may not show it as visibly as a founding team, but they go through that as well. They feel the turmoil, they feel the joy, they feel the excitement, they feel the depression that happens through the cycle of an accelerator.

I can’t remember if it was when we were running Collider 2, but we showed what the emotional journey of a founder is like through an accelerator, and it’s like ups and downs.

Brian: That’s for sure.

Mark: I think it’s important to realize that delivery teams go through that as well.

Brian: Awesome. Just for anybody who might be watching: Mark actually has a cough today as well, so he’s actually battling through trying not to have a coughing fit [laughs] in the middle of his answer. I’m going to give you 10 out of 10 for doing a pretty good job, Mark. Thank you for struggling through.

Mark: Thank you, sir.

Brian: On this, what we’ll do is we’ll keep the next couple of questions short, just to give you a chance to drink as much water and a lozenge if you want. A key question is: if you have three tips for somebody designing an accelerator or an innovation program today, what would those three tips be?

Mark: There’s a new normal, and no one knows what that’s going to look like, and so you have to try and crystal ball to think about what is going to be needed in the new world as opposed to what we’re doing now that we’ll have to change.

Another area is that impact is becoming increasingly important. By “impact,” I mean the transition of — the big wealthy family offices are transitioning at the moment from the original wealth creators to the children, and the children have a real interesting impact: profit for purpose. How is what you’re doing creating or supporting the purpose of an initiative? That’s important.

And as always, with anything, customer needs are changing, anyway. At the macro level, we’ve got COVID, we’ve got our response to the pandemic. How are the needs of the customers we have in the market changing, and how is what we’re setting up to run as an innovation program or an accelerator program supporting or being agile enough to move with those needs? There are a couple of things that I think are very, very important to think about. Nothing is going to stay the same, so we need to remain agile to continue to move forward and work with what we’ve got.

Brian: We’re definitely in a time of continuous change which is challenging us all, but that is the startup way, as they say: you’ve got to continuously iterate and test your hypothesis.

Last two questions for you. Number one, crystal ball: what does the Australian innovation landscape look like in 24 months?

Mark: There are going to be challenging times ahead for sure as the country tries to work through the pandemic and work out what comes out of it. We’re going to see a tightening up of capital markets. Certainly, bank lending is going to be challenging. We’re going to see a tightening up of the equities markets, certainly at the early stage, the stage.

I think we’re in for a little bit of a period of difficulty for startups coming through the system at the moment. The good ones will continue to move on, will push on, but the volume will not be what it needs to be to continue to reseed the forest, as the analogy I was talking about earlier on.

I think bunkering down is going to be a lot of what happens over the next 24 months that’s going to result in a lack of deal flow and a lack of volume in the startup market and in the small business market as well. We need to be prepared for that. We need to be prepared to understand how we’d deal with that. It’s not going to be a nuclear winter, but it’s going to be a very, very challenging business environment to do things in, certainly with capital markets being very, very limited.

I do think we’ll come out of it. Austrade is doing an interesting study at the moment on what the next mega-trends are. What are the next big trends in Australia that we really need to start to think about and be part of? They’re all sorts of things around digitization and agtech and medtech and other bits and pieces. How do we become part and how do we make sure we structure well to take advantage of these mega-trends? That won’t be in the immediate term. These are medium- to long-term things that we need to focus on.

I think it’s going to be challenging times ahead for the whole of the business ecosystem. It’s going to be challenging times ahead for our traditional sectors and the export markets, and I think there’s going to be a bunkering down.

The positive that comes out of that is that there’s a lot of talent on the market at the moment. So if you are a startup that exists and you’re capitalized or you’ve got some runway, finding good people isn’t hard right now because there are so many good people out there.

The other thing which I mentioned earlier is that good people hate to be bored. I think anyone at the moment that is driven is building something right now. They’re trying to build something. We’re going to see the best of those things coming out over the next 24 months.

Brian: Awesome. And this goes back very much to that original point around the idea of the role of government in enabling the ecosystem to bounce back. There are so many unknowns here in terms of what the economy is going to look like and what the ecosystem is going to look like, but at the same time, we have to think about positioning ourselves for a bounce back, for a comeback, and that’s an important conversation to have.

Last question. Congratulations, Mark: here is an imaginary check for half a million dollars. You can take this and you can invest it in any kind of innovation program that you’d like to run. The key question is: what startup niche or vertical would you choose to run a program in, and why?

Mark: Good question. A bit more than $500 thousand would be nice.

Brian: [laughs]

Mark: I’ve often thought, even since the first round of Collider, or the first accelerator I designed in 2009 — that first batch of Collider was in 2017 — even at that point, I was thinking, “What comes next?” The accelerator model has a lifetime, a life cycle where it has relevance. And accelerator models are like catching lightning in a bottle: you’ve got to get the right company at the right time at the right stage with a product at exactly — you’ve got to find ten of them at that exact same stage.

Brian: Easy. [laughs]

Mark: It’s incredibly challenging because you can’t run an accelerator where you’ve got a company that’s very mature, product in market and a company that’s only got an MVP because the content you need to deliver is so different, and the experience you need to deliver is so different.

What I was thinking a lot about even three or four years ago was, “What’s next? What do we build next that’s actually going to help build businesses that are designed to succeed at a higher clip, at a higher success rate than in an accelerator? In an accelerator, you might get two of ten go on and be successful. That’s probably a good outcome, two of ten. “How do we reduce the risk and increase the likelihood of success?”

I’ve been looking at a lot of various models — sometimes they’re called “studios” or they’re called “labs” — where you’re actually rapidly building your own product in-house or you’re working with very smart founders. I might say, “Hey, Brian, we know there’s a problem that exists here. We need this solved. Will you come to our lab and help”

Rapidly building products in an environment that needs reseeding — again, using that analogy — in a studio model is probably where I would put some investment in. We’re looking at spinning out a lot of early-stage products but are specifically designed for the environment we’re in at the moment.

So we choose or we pick or we identify the problem, whereas in an accelerator, you’re working with founders that have already identified and work with their own problem. I would consider working with very smart teams of people to identify a problem and build teams around that to build solutions rapidly, not over years but over weeks and months, and then spin those out.

I think that is something that is interesting to me next in terms of, “What do you do next? How do you rapidly reseed a forest that has been decimated?” but with things that you know are designed to survive in a post-COVID environment. $500 thousand might not be enough, but that’s probably where I’d start to look .

Brian: That’s a good answer. I think, as you say, it’s the evolution of the ecosystem. Also, at a time where we may be discovering that there are more skilled people available to devote their industriousness and skills towards a particular goal, the idea of a startup studio might actually be perfectly timed in the sense that there are the right skills on the market to be able to deploy and focus on these new problems for a post- or an ongoing COVID world. I like that quite a lot, actually.

Mark: Let’s see where we can go with that one.

Brian: [laughs] Phenomenal. Mark, I won’t take too much more of your time. I can see in the background there, you’ve got some absolutely beautiful Brisbane sunshine spilling through the window.

Mark: [laughs]

Brian: I’m not jealous at all. It is a winter’s day down here in Melbourne with grey skies. If I could get on a plane to Queensland, pop up and have a coffee with you, I’d do it in a heartbeat.

Mark: You’re always welcome, Brian. You know that.

Brian: Thanks a million. Mark, you are a gentleman and a scholar. I will leave you to the rest of your afternoon. Thank you very much for coming on Leaders of Innovation.

Mark: Thank you, too.