Should Australian innovators be connecting to global markets sooner?

1st April 2016
Posted by: Scott Middleton
In: News

As a member of a trade delegation led by Assistant Minister for Innovation Wyatt Roy in Israel, I’m seeing some interesting contrasts between the way that innovation and tech entrepreneurship plays out in Israel compared with Australia. This article originally appeared on Technology Spectator.

Israel is lauded for being the second biggest technology startup ecosystem after Silicon Valley. It has a lot going for it – a happy marriage between public and private investment, a resilient, confident entrepreneurial culture with a growing number of impressive exits in recent years.

Israel has an even smaller domestic market than Australia, so it seems quite miraculous that a tiny population of around 8 million can provide a launch pad for thousands of tech and life sciences companies.

How do Israeli companies manage to perform co-development and validation with their customers when so they’re far away?

In a country with a small population it is a challenge to find enough early adopters to accurately reflect the conditions of a global market. When a company or product is starting out it needs access to enough customers to try (and maybe fail), and especially enough customers with the right mindset to adopt new ideas.

In Australia start-ups and innovators within larger organisations too often focus solely on local customers with global markets a distant idea.

We know that access to customers is among the top three reasons that high growth tech companies leave Australia for overseas, and rightly so. The commonly accepted wisdom about product and business development is that you need to be close to your customers to understand their needs, to iterate quickly and build scale. As we’ve heard from Shoes of Prey co-founder Jodie Fox, the best way to do this is face-to-face with your customers and investors and so her firm, like so many other Aussies, has moved the bulk of their operations to the US.

These firms are often viewed as traitors and we all embark in another round of hand-wringing about the state of Australia’s startup community, which loses important experience and role-models, as well as dollars, when they leave.

In comparison, Israeli firms are connecting to their global markets very successfully, very early without having to cut the umbilical cord to home and without receiving backlash from the tech community if they do move abroad.

How does Israel bridge the gap so well?

Some like Eyal Bino, from micro-fund Accelerant Ventures, suggest that commitment and mobility are key for Israeli entrepreneurs who will gladly travel the world to make a sale, secure investment or win a pitch contest.

Israeli entrepreneurs and venture capitalists are in agreement that frankly their local market is not their end user. In a study of established Israeli tech firms, Jeff Bussgang and Omri Stern found that Israeli entrepreneurs accept early on that their home market is too small, and that US venture capital is vital, so they don’t fret about the need to move.

Gabi Reish, VP Product Manager of tech company Check Point, which counts all 500 of the Fortune 500 companies as clients, says the answer for growing a startup is to ‘travel, travel, travel’. Serious Israeli startups tend to budget from the early days for numerous trips outside of Israel, especially to the US.

Many successful entrepreneurs advocate leaving Israel soon after founding. One very early flyer was Warwick Sharp who explained over a drink at the Australian Embassy in Tel Aviv that he had been on a plane to New York within two months of starting his text analysis firm Equivio for days of back-to-back meetings with potential customers. He then went on to sell the firm to Microsoft for $200 million.

It’s a shame that so many commentators wag the finger when Australian startups move overseas. Those entrepreneurs that do move abroad are doing the right thing by their business, forging a closer relationship with their market early on. Of course we would love to have our cake and eat it too, but it’s time Aussie entrepreneurs took a leaf from Israel’s book and considered leaving the nest earlier on. Whether it’s flying to the US, London, Singapore or India, we may get sorer backsides on long haul flights than our Israeli counterparts, but in the long term the leap will likely be worth it.

Scott Middleton is the CEO and founder of Terem Technologies, an Australian company that develops custom software and technology solutions for corporate innovations and high-tech ventures.

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