The ‘Ambitious Australia’ strategic review of Australian R&D from Tesla’s Robyn Denholm is aptly named, but it’s arguably overambitious.
It wants to fix everything related to Australian R&D, even the bits that aren’t broken.
Yes, it identifies many deficiencies in the current system and proposes smart changes. But it also attempts to improve parts of the R&D system that already work incredibly well, where the proposed changes would do more harm than good.
Unfortunately, many of the suggestions designed to increase innovation could do the exact opposite.
Good fixes
I want to give credit where credit is due, because I broadly agree with 90% of Denholm’s report.
As the founder of a hardware startup who has previously worked in North America, where money flows more freely to manufacturing, I appreciate Ambitious Australia’s attempts to support deep tech.
For quite a while now, Australia has backed SaaS, because of the perceived fast returns on investment, but that VC type approach doesn’t make sense for governments. Their priority should be supporting genuine innovation, increasing skills, creating jobs, keeping manufacturing on-shore. Not chasing dollars and unicorns.
Indeed, the review’s fix to the Early Stage Innovation Company framework is long-overdue. It seemed senseless to me that as soon as my startup spent over $1m I was no longer an ESIC, even though we were a long way from going to market.
While software overheads can be kept relatively low at first, hardware startups can spend $1m in weeks, not years. The average time for a hardware startup with complex hardware to get to revenue is at least seven years. The current ESIC limit of three years, or $1m spend is not reflective of reality at all.
There are other great ideas in the 100+ page report.
I can get on board with a production tax credit for developing advanced manufacturing based on local R&D. That would be quite beneficial.
I also love recommendation 15 – to prioritise government procurement of Australian RD&I and implement ‘if not, why not’ as a core tenet. This would be a massive change in government procurement culture. ‘Australian made’ has never been prioritised, and the government has never had to justify buying from overseas. There are instances where the best solution is one developed abroad. However, we can usually find the right skills, products and people right here.
Unforeseen damages
The report is far from perfect. Instead of simplifying the flow of more government money to R&D, there are times where the report adds new layers of bureaucracy and complexity. Instead of building funnels, it adds filters.
Ask any founder, and they will tell you that the single best thing about the system currently is that you can bank on it. You know, that if you are doing R&D, you will get a refund.
It seems counterproductive to differentiate levels of refund, based on a startup’s sector, or the priorities of the current government.
It makes R&D refunds less certain, more like the current grant atmosphere. You simply cannot bank on receiving any grant, as there is no guarantee that your application will be well received. I would hate to see uncertainty be introduced for the sake of pursing quarterly payments, even if the total dollar value of R&D refunds went up.
The report suggests that the government is in the best position to decide where Australia can play to win. But the Australian government usually tries to recreate past successes rather than predicting future wins.
It only invests in companies in spaces where Australian companies have already been successful.
Would Canva or Atlassian have qualified for any support before they demonstrated software could play and win in Australia? Solving the right problems at the right time is the key.
The report also wants to increase the role and contributions of CSIRO.
Recommendation 18b is for CSIRO to collaborate with National Strategic Initiatives to advance subgoals and foster cross-sector partnerships. But it needs serious reform if it is going to play this role in R&D. It is virtually impossible to navigate the capabilities of CSIRO today. Internally, it has difficulty finding individuals who can help with specific fields of research, and lacks the mechanisms to motivate researchers to engage with industry.
Vagueness over clarity
There’s also a vagueness in the report in key areas that require clarity.
For example, Ambitious Australia argues (correctly) that current systems are risk averse. Yet it offers no further details on what sort of risks should be entertained.
It frequently mentions ‘high-risk’, and the need to engage with risk, but stops well short of solving the problem.
Australia needs to develop a better understanding of the government’s role in relation to business success risk.
Most grants and other sources of government funding seem to make assessments much like venture capital. They ask: How successful can this company be? Can they succeed? How much money will this company make Australia?
But very rarely is this balanced against other potentially greater benefits.
Do government funds always consider knowledge growth, skills retention, R&D activities, improvements to infrastructure?
If a startup backed by the government ultimately fails to grow 10x, it has still paid taxes, created jobs, developed skills, and many of its employees will learn from this failure. It’s still ultimately a win for the government and the country.
Perhaps the founders among the employees will go on to build the next big Australian success story, or the technology and skills they develop will benefit the economy in other ways.
The gains are still made.
An ambitious future for R&D
I want to live in a more Ambitious Australia. I want to reverse the decline of Australian R&D. I want to see ideas flourish, problems solved, and things made in this country.
But we cannot forget the most basic and time-tested mantra of anyone who has built anything ever: “If it ain’t broke, don’t fix it.”
- Sam Ringwaldt is the founder and CEO of Conry Tech.
