At a glance
- Digital technology has boosted Australian startups, with funding hitting A$1.9 billion in early 2024.
- Women-led ventures struggle with funding, as deal sizes plummetted from A$2.5 million to A$700,000 since 2021.
- Market research and solid strategy are vital, with most ‘quick wins’ actually taking a decade to achieve.
The rise of digital entrepreneurs has disrupted industries and broadened access to global marketplaces previously inaccessible to traditional businesses. This trend has accelerated since COVID-19, shifting more businesses online and paving the way for niche markets and micro-multinationals.
Digital platforms now allow entrepreneurs to cater to global audiences that were previously unreachable. Emerging technologies like artificial intelligence are creating new opportunities for digital entrepreneurs, revolutionising everything from product design to customer service.
There are positive signs in Australia’s entrepreneurial sector after a period in the doldrums. Australian startups raised $1.9 billion in the first half of 2024, up 30 per cent compared to the same period last year, Cut Through Venture data shows. There are green shoots though it remains below 2021 and 2022.
Artificial intelligence (AI) and big data are emerging as hot sectors, attracting $75 million in funding across 11 deals.
This marks an upturn since The Global Entrepreneurship Monitor (GEM) 2019 report for Australia showed significant declines in all major measures of entrepreneurial activity between 2016 and 2019. It found early-stage entrepreneurial activity dropped from 14.5 per cent to 10.5 per cent, nascent activity decreased from 9 per cent to 5.8 per cent and new business ownership declined from 5.8 per cent to 4.7 per cent.
A recent OECD and International Council of Small Business (ICSB) workshop explored the diverse nature of global start up exits and how supportive policies can transform failures into success stories. They found on average, more than half of new business start-ups in OECD countries exited the market within five years of incorporation.
“Start-up exits are often misunderstood as failures; however, there are many kinds of start-up exits, including private acquisitions, public listings (IPO), and voluntary liquidations, not just bankruptcies,” ICSB Expert Member Ayman El Tarabishy says. “Exits can represent success as well as failure. Moreover, failure can result from various chance factors and strategic or operational errors. Even when unsuccessful, exits can be a source of learning for the entrepreneur that can help them re-engage and generate new successful ventures.”
For digital entrepreneurship, the path to success is paved with challenges. Defira Novianti Crisandy
NC from ICT Watch, an organisation that promotes digital literacy in Indonesia, says digital technology and social media demand mental resilience. Algorithm changes, content creation burnout and the need for constant audience engagement create hurdles for aspiring digital entrepreneurs. “We need to be agile and adaptable in this unprecedented era of technological advancement.”
Digital entrepreneurship significant opportunity for Australian entrepreneurs
Tanya Titman, BDO’s Chief Digital and Innovation Partner, says digital technology presents a significant opportunity for Australian entrepreneurs to revitalise their efforts and expand their reach. A lack of local funding has seen a lack of ideas translated into commercial realities, propelling aspiring start-ups to explore offshore markets.
“Digital has opened up a worldwide marketplace and reduced many barriers to entry to run a global business,” Titman says.
“Everything is influenced and mobilised through digital. Think about marketing, this is now all about digital channels and the growth and scale that can be achieved through digital channels is significant compared to traditional channels.”
The decline in entrepreneurship is not unique to Australia. Many developed countries have experienced similar trends. However, some nations have been more successful in embracing digital entrepreneurship and supporting their start-up ecosystems.
“It is harder to break through and scale up a digital business in Australia,” Titman says, “Many Australian entrepreneurs end up going overseas to fully realise the potential of their business and access greater funding opportunities and a larger market.”
Lack of funding key challenge
Recent government initiatives in Australia include tax deductions for digital adoption expenses and support for cybersecurity and digital literacy among small businesses. However, business grants for start-ups and small businesses that could be a lifeline for some have proven controversial. The Institute of Public Accountants-Deakin University Small and Medium Enterprise Research Centre tracked the performance of more than 140,000 firms that received grants from 2018 to 2022, finding that many of the grants did little to improve firm performance.
Titman believes more can be done: “We need a more comprehensive approach to nurturing digital entrepreneurship. This includes improving access to capital, enhancing digital infrastructure, and fostering a culture of innovation and risk-taking.”
Despite the potential of digital entrepreneurship, the failure rate remains high “about 90 per cent for digital entrepreneurs”. “You have a limited cash flow runway to get your product/service to market and you need to stretch this funding as far as possible,” Titman says.
However, the future of digital entrepreneurship shows strong growth in sectors like education, finance, healthcare, and retail e-commerce. Success stories like Go1 and Canva demonstrate the potential for Australian digital entrepreneurs to achieve global success.
While digital is the fastest pathway to growing an international business, having an online presence does not guarantee global success. A well-researched and robust business strategy is critical for gaining a foothold in overseas markets.
“Many businesses are disappointed when they have a ‘great’ product that launches and doesn’t get the traction that they expect,” Titman says. “Running an international business from Australia is often difficult and we do see many businesses establishing sales teams in overseas markets to help support growth.”
There is no such thing as an overnight success. “The ‘overnight’ successes we see today are typically 10 years in the making,” Titman says.
“It’s inevitable that the digital transformation journey will continue to thrive and grow and transform industries that impact all parts of our lives. The speed of change will continue to gain momentum, and ultimately, traditional businesses need to evolve into digital businesses if they are going to survive and thrive into the future.”
Pathway for womenpreneurs
Digital entrepreneurship has emerged as a powerful lever for economic empowerment, particularly for women. However, the latest 2023 State of Australian Startup Funding report showed that women-led start-ups raise less capital than men-only led companies across every stage of the funding cycle. The average deal size for women has dropped from $2.5 million in 2021 to $700k in 2023.
Yet across the world, digital entrepreneurship provides more women with a pathway into business. Ima Eka Sari from UNDP Indonesia’s Youth Digitalisation Employment Entrepreneurship Program says: “Digital platforms allow women to expand their businesses beyond geographical boundaries and reach global markets.” However, she notes that “women in marginalised communities often face more barriers, such as access to technology.”
Research, strategy, financial management to avoid failure
Titman recommends conducting thorough market research, developing robust financial models, testing the market with a minimum viable product and upskilling across various business-building blocks.
Before taking the plunge, Titman urges aspiring entrepreneurs to do their research: “Understand the market opportunity in detail, do the financial modeling to understand your cost to deploy (or get support from your accountant to build these), test the market to validate your model (this can be done as a MVP – minimum viable product), and upskill across the business building blocks.”
She cautions about the blurred boundaries between work and home life exacerbated by technology: “The last 30 years have seen a significant amount of focus on work/life balance and this is likely to transform to digital/life balance over the coming years. Our biggest challenge will be to find that healthy balance between our digital life and our real life so we can realise the benefits of both.”
The IPA will host the ICSB World Congress in Sydney from 7-11 July. More information here.