Chain Reaction Foundation

The Innovation Reluctance Holding Australia’s Small Businesses Back

by Margaret Bell | August 29, 2016

Innovation is the flavour of the month. Small business can become the key to open the innovation door but first leadership in small business or indeed any business will need to be understood as the act of enabling the other. If each person we have a conversation with goes away feeling better about themselves the result is likely to be all hands on deck to make a success of the new venture. When people feel they belong they want to make it happen.

In Australia, small business is a big deal. There are over two million actively trading businesses in the country today, and over 99 percent of these organisations are in the small- and medium-sized enterprise category. Of these SMEs, the overwhelming majority are micro-businesses employing fewer than four members of staff.

In terms of economic contribution, these small businesses are similarly impressive, employing 70 percent of the Australian workforce and boasting employee figures of well over 700,000 in industries as wide ranging as construction, scientific, retail, and accommodation and food services.

These statistics are not anomalies. Time and time again we see that small businesses are Australia’s fiscal engine room, driving the economy and powering the ongoing evolution of our society. However, the picture is not a wholly positive one, as the latest figures from the Australian Bureau of Statistics have highlighted.

Driving Forces in Innovation

In business, innovation is key. Without innovation, businesses become staid and listless, markets become stagnant, and the repercussions on the wider economy can be very grave indeed. With small business playing such a key role in Australia’s financial landscape, we need entrepreneurial small business owners to lead the way in terms of innovation, picking up the baton and carrying it as far as is possible.

Unfortunately, it appears that this is not the case. The ABS’ findings showed that larger businesses are twice as likely to experiment and innovate during the research and development phase, experimenting and developing new ideas as they go. What’s more, the margins are not small; the ABS’ survey found that 73 percent of businesses employing 200 employees or more were defined as "innovation active," with only 37 percent of the micro-businesses discussed above falling into the same category.

This goes against the public perception of the smallest businesses as agile, adaptable, flexible and constantly willing to meet new challenges. Instead, it is the larger corporations which are flying the flag for innovation in business and industry.

Risk and Innovation

One of the reasons for this is the relative levels of protection enjoyed by each stratum of business. It is not always the case, but larger businesses tend to be more established, with diversified revenue streams, and can afford to take calculated risks with regard to product development and general business innovation. On the whole, small business owners are more reluctant to expose themselves to risk in this way, simply because the stakes are higher.

Another factor is capability. Despite making up more than 99 percent of the total number of businesses operating in Australia today, small- and medium-sized enterprises invest only $5 billion in research and development each year. This is in stark contrast to the $12 billion invested by large businesses over the same period.

If small business owners feel discouraged when approaching innovation, or feel that the precariousness of their situation precludes them from taking risks and pushing the boundaries in their field, then this is a severe problem. It is in the interests of all of us – not just small scale business leaders and entrepreneurs – that these SMEs are in a position to develop, grow and evolve. If we create an atmosphere in which that cannot happen, then all of us suffer.

Margaret Bell, AM - Founder and CEO of Chain Reaction Foundation.

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