Paul Fletcher MP Commentary on JJC Bradfield Lecture by Scott Farquhar

I am very pleased to have this opportunity to comment on the JJC Bradfield Lecture by Scott Farquhar.

At the outset, I want to congratulate Scott for an insightful and exceptionally well informed lecture. Scott is in an extraordinary position to speak about the software revolution and Australia’s place in it, and it really showed.

In my commentary, I want to highlight four points which struck me from what Scott has put before us this evening. 

Australian Heroes

First, something which Scott could not say: in my view Scott Farquhar and his co-founder Mike Cannon-Brookes are Australian heroes. 

Scott gave us the facts: they started the business in 2001 straight out of university, and today it employs over 1000 people around the world, over half of them in Sydney.  They have brought in over $800 million in export revenue since the company got started.

Let me give you the colour.  This is an extraordinary achievement.  They have built a scale, global business in a ruthlessly competitive sector.  As Australians we should celebrate what they have done. 

As Scott rightly observes, as a country we brag about our sporting achievements but play down our business ones.

This story needs to be widely told and widely known: going well beyond the business pages.  Many Australians know how Mark Zuckerberg started Facebook in his dorm room at Harvard and Google founders Larry Page and Sergey Brin met doing computer science at Stanford.  The story of Scott Farquhar and Mike Cannon-Brookes should be just as well known.

One reason it needs to be well known is to inspire and encourage other Australians who might be considering starting a tech sector business.  The more who take that plunge, the better our prospects of building the self-sustaining flywheel as he puts it.

Importance of Individuals

My second observation is that Scott has given us a really sharp reminder of the importance of individuals, of entrepreneurs, of risk-takers, of the private sector, as the mechanism by which prosperity is generated out of technological innovation.

He told us about their first employee who slept on his couch for a month.  In an early conversation with Scott about his ideas for this lecture, he told me about going to their first trade show in San Francisco in 2003: three of them shared a hotel room at $80 a night. 

This is a really critical point about success in the tech sector: individual entrepreneurial effort is critical and it is not something government can replicate.  If you will forgive me for being political for a second, the previous government seemed to wish it were different.

Its default approach was that if a sector was vital to the economy, then we needed to pump billions of taxpayers’dollars into establishing a state owned enterprise to dominate the sector: hence the establishment of the $43 billion NBN and the $10 billion Clean Energy Finance Corporation.

I have not checked the records, but I rather doubt there are any recorded instances of three NBN Co executives bunking down together in an $80 a night hotel room.

The story of the tech sector globally is that start-up businesses which succeed can create a lot of wealth and a lot of jobs in quite a short time.  As Scott reminds us, Atlassian as well as some other Australian companies have demonstrated this principle.

He observed that at least ten Australian tech companies worth more than $100 m have the bulk of their sales overseas.

A paper issued by Google earlier this year noted that nine of the top ten people on the 2013 BRW Young Rich List made their fortune in the tech sector.[1]

This is great news for the founders of startups who hit the big time.  But it is also important for the broader economy, because of the outsize role of startups in job creation –and in turn the disproportionate role of the high-tech sector in generating startup companies. 

A recent report from America’s Kauffman Foundation found that new business formation was 23 per cent more likely in the high-tech sector of the US economy than in the private sector as a whole. Moreover, in information and communications technology (a sub-set of the broader high-tech sector) it was 48 per cent more likely.[2]

The importance of startups was also noted by the OECD in its most recent Science, Technology and Innovation Report: one third of job creation in the business sector comes from young firms with fewer than 50 employees –even though these make up only 11 per cent of total employment.[3]

Serving Businesses

The third thing I found noteworthy in the lecture was the insights into the Atlassian strategy of serving businesses rather than consumers.

Scott pointed out that Australians can compete on the world stage in software: but you need to be good because every other country can do the same.

One key issue we face in Australia is a small domestic market.  This is a significant challenge when it comes to building market scale in consumer applications.  It is surely no coincidence that the largest consumer facing software and software-based businesses, such as Google, Facebook and Apple, come from the US, a country with one of the largest consumer marketplaces in the world. 

But the Atlassian story suggests that in business to business software, this is not such an issue; just as the experience of German-based SAP over the past thirty years also suggests. 

People with Skills

The final point which stood out for me in what Scott had to say was the importance of public policy settings in a number of areas to underpin our prospects of being a nation with a strong software industry.

He had some very important points about employee share ownership schemes and venture capital, but the point I want to focus on is the need for the right skills in the workforce.

Clearly when it comes to having enough skilled people to support a software industry, two critical policy levers sit squarely with government: education and immigration.

As the Chief Scientist Ian Chubb noted in a report issued last month:

The global economy is changing. New technologies and smart companies lead…Nations at all levels of development are now focusing on the skills required for building new jobs and creating wealth….At the core of almost every agenda is a focus on STEM: science, technology, engineering and maths.[4]

This is important both at university level, where the Abbott Government has a major focus on freeing up universities to be more flexible and responsive to market demand, but also at the school level, as is demonstrated by some of the examples which Scott gave about what other countries are doing. 

Clearly this is a timely point to be raising, when the Review of the Australian Curriculum was released yesterday and Education Minister Christopher Pyne has stated that there will now be discussions with states and territories and other key stakeholders about how to strengthen and refine the curriculum.

Immigration policy settings also emerged strongly in the lecture as a limiting factor on getting the right skills.  Certainly the Abbott government is setting immigration policy with an eye towards meeting the skills needs of the economy.  In this year’s immigration programme, nearly 68 per cent of Australia's migration places are allocated to skilled migration, and there is a reprioritisation towards employer-sponsored visas.

Conclusion

To conclude, tonight Scott Farquhar has given a detailed and well researched lecture explaining the software revolution and what it means for Australia; and setting out some things that need to happen if Australia is to best capture the opportunities it presents.

Scott has put a lot of time and effort into this lecture, no doubt because he sees it as part of his role as a leader within this sector - and he and Mike have consistently made time to give leadership since the early days of their company. 

He has given his point of view - not cleared by me, I hasten to add - ­ but that is exactly what I wanted him to do.  In my view Scott has had some serious and important things to say, and I am very grateful that such a busy tech sector business leader has taken the time to give his frank and unvarnished views. It is critical to sensible policy development in this area that government is in no doubt about what the sector is saying.  Scott - thanks for leaving us in no doubt!

[1] Start with Code: Australia’s Innovation Generation, 2014.

[2] Tech Starts: High-Technology Business Formation and Job Creation in the United States, Kauffman Foundation, August 2013, http://www.kauffman.org/what-we-do/research/firm-formation-and-growth-series/tech-starts-hightechnology-business-formation-and-job-creation-in-the-united-states

[3] OECD Science, Technology and Industry Scoreboard 2013: Innovation for Growth. Executive Summary, p 13.  http://dx.doi.org/10.1787/sti_scoreboard-2013-en, downloaded 20/7/14.

[4] Australian Government, Chief Scientist, “Science, Technology, Engineering and Maths: Australia’s Future,” September 2014, p 5.