A scan of recent activity in the Australian start-up sector suggests that, for many Australian new ventures, launch planning is rooted in a single, dominant objective: ensuring the business is “born global.” Nowhere is this mindset more apparent than among software-based start-ups, led by organisations such as Atlassian, Tangler, Freshview, and 3eep, among many.
Australian businesses have a long history of being export motivated. Nonetheless, the traditional approach to internationalisation required that companies first establish a solid local market position before commencing offshore activities. Even then, export market development tended to be a gradual process, following a series of incremental and sequential stages, with commitment decisions made according to a range of factors, including market perceptions, offshore experience, and management capacity.
What is driving the Born Global attitude?
A ‘born global’ business is one that starts international activities right from birth, entering overseas markets immediately, often multiple countries simultaneously.
What is causing new ventures to opt for such a potentially high risk strategy? This more aggressive approach to offshore market development has emerged for a number of reasons.
Chiefly, it is as a result of Australia’s size. While Australia’s economy is in good shape – it is currently valued in excess of $750 billion, was last in recession in 1991, and has averaged 3¼% growth in GDP since then – the fact remains that we are a relatively small population. We constitute less than 1/3 of 1% of global population, our economy is the 16th largest in the world, and we account for little more than 1% of global GDP.
With over 98% of global populations and global trade outside of Australia’s borders, a compelling argument exists for adopting a globalist perspective. Undoubtedly, those start-ups who choose to ‘leapfrog’ the traditional business growth cycle, and launch directly into international markets, see the world as their marketplace from the outset.
Additionally, over the past decade, we have seen significant developments in communications technologies. The rapid penetration of fixed, wireless, and mobile broadband services are not only enabling technologies for servicing a global market, but also a key driver of market demand for innovative software services.
Finally, Australia’s growing ex pat community is playing a role. Only a few decades ago it was quite rare for Australians to gain offshore work experience. Today, it is not only increasingly common; it is relatively easy for those still firmly rooted in Australia to tap into this network of experience.
Are Software Start-ups Unique?
Several other drivers peculiar to the software sector are shaping launch strategies:
- Export market homogenisation – Since the demise of the Berlin Wall led to the broader embrace of free market ideologies, both Western and Eastern cultures have become increasingly homogenised by entertainment technologies and the activities of modern conglomerates. This market homogenisation makes for expanding global consumer segments with readily identifiable and uniform tastes, interests, and desires.
- Operating system monocultures – While there are usually myriad OS offerings for any given hardware or device platform, the general trend is towards monocultures, where a single operating system has the dominant share (as Microsoft Windows does, for example, in corporate, home and online environments). The presence of software monocultures significantly expands the market for complementary software products while reducing development risks.
- Open Source – The growing availability of robust Open Source software development tools and environments such as Ruby on Rails, MySQL and PHP, and the communities of interest they attract, has dramatically reduced the costs associated with launching software products capable of scaling to meet global market needs.
Two further factors can be isolated as having a disproportionate impact in fostering a globalist mindset among software entrepreneurs.
The first is lowering barriers to entry into the Australian market. Industry giants, such as Google, Yahoo!, and Microsoft, are serious competitors for any software start-up. Their existing audience reach, brand dominance, and capitalisation, together with mainstream consumers’ preference for ‘tried and tested’ companies, mean start-ups must assume offshore competitors will capture a large portion of the local market. One logical competitive response is to seek critical market mass by aggregating small pockets of customers across multiple markets.
The second is the desire by founders to position their start-ups to secure offshore investment. Australian entrepreneurs have long complained about the ‘immaturity’ of the local private equity market, pointing to the lack of money available for early-stage funding and less tolerance for risk among Australian VC firms. Attracting offshore investment is problematic, as investors prefer businesses with local market operations, the dynamics of which they are more familiar with. Positioning a start-up to enter attractive private equity markets, such as America or Europe, provides greater options for securing investment.