hard truth

The Hard Truth About Startups in Australia


hard truth

Startups are a bit of a thing in Australia, right now. You probably know or have heard of someone who has recently become involved with a startup – or may even be that person, yourself. It is no big surprise, considering the steady decline of jobs from traditional “big business” employers who are failing left, right and centre – and either packing up and shifting their operations overseas or shutting up shop entirely. There has also been a more cultural shift away from traditional “nine to five” type work for the past two decades, which has not only seen many people jump from one employer to the next every couple of years but also expanded the concept of “work hours” to basically 24/7, as well as the “work week” from around 38 hours to anywhere between 20 and 70 for many.

This trend has not gone unnoticed.

Many institutions and government bodies have taken note of this shift and have recently begun to say kind words and make token gestures about the burgeoning “startup community” of late. Banks, in particular, have begun to make moves to at least look like they are embracing startups but there are many other examples – mostly from those traditional “big business” employers, like Telstra and Optus.

There are brand new buzzwords like “Pivot” and “Unique Value Proposition” and even dopey catch-phrases like “Fail Fast” and “Celebrate Your Successes“. My favourite is “Vanity Metric” – this is when you are measuring something completely inconsequential which makes you look good – for example pointing to thousands or even millions of people downloading your app which is free and doesn’t make any money but actually cost a fortune to develop.

Now creating a “startup” may sound pretty glamorous. We’re all familiar with the mythology going all the way back to the 1970’s of companies that were founded in someone’s garage which are now major global players and we’d all like to think we could be that guy who creates “The Next Facebook“. You know you’ve become a part of the national conversation when 60 Minutes has a segment on creating that million dollar iPhone app.



Unfortunately, the reality is not quite so gilded in sunshine and roses. Typically the “founder” of a startup leans toward the 70 hour end of that work week – usually unpaid. Often under-appreciated. It can lead to depression – especially for sole-founders – and of course it can drain away all your funds. More often than not those funds are your own precious savings, because the somewhat less obvious but more important fact here is that there is little to no investment for startups in Australia. Worse still, this is exacerbated by successive governments who like to say all the right things about supporting small business and startups, remember, but actually do little more than get in the way with a tax system which borders on punitive.

Steve Sammartino has some useful advice for anyone who is interested in making the transition from Employee to Entrepreneur and notes the most important thing to keep in mind about your startup: IT IS PROBABLY NOT GOING TO BE A PATH TO RICHES. If you just want to get rich, stay in your job and get good at investing in property because that is a far more certain way to achieve the outcome you are looking for.

The hard truth is Australia is not really very well set up for this whole startup thing to actually work, for a number of reasons.

The single most important of those reasons is the one I’ve mentioned above: there’s no money in it. So-called “Seed Investment” (another buzzword) in Australia is a lot like the pot of gold at the end of the rainbow. This is the earliest investment in your business – the legendary $10,000 credit card loan that Bootstraps (another buzzword) your company from idea to ASX-listed billion dollar valuation. The closest thing we have to this (foreign concept, born out of America’s Silicon Valley) is the rising number of “Startup Accelerator” (another buzzword) programs we have, backed for the most part by that Big Money mentioned above – banks, telcos, etc.

The idea is they give you what has come to be colloquially called “Ramen Money” – that is, just enough money to be able to get by but not what you would call an actual, proper salary – and only if you pass through their Reality TV style audition process, where you basically have to prove to them that if they do invest this small amount of coin they have found lying around in the back of a couch, they aren’t just throwing that money away.

They are basically a work-for-the-dole program.



It is a very lazy way for someone who has gone down path B (stay in your job, learn property investment) to get themselves a nice, easy seat on the board of some shiny new company that could potentially become a great business – for very little money down and even less risk. As an investor I spoke to recently put it, it is a completely upside-down model – turning investors into the prize, with far too much emphasis on pitching, rather than the way it should be: the prize being a share in your business, with more of a focus on who is making that investment out of a pool of literally trillions that are actually available, just from super funds alone.

We all know Australians are very risk-averse (ignoring the billions in annual revenues from gambling, the subtle blurring of the lines between sports and betting and a particular horse race in November which is actually a public holiday in Victoria) and perhaps it is not surprising that what we have in this country is literally thousands of startups desperately circling like vultures over a handful of VCs (another buzzword) who prefer to sit back and let the business plans fall into their laps like manna from heaven, cherry picking only the best bets to be the recipients of their walking around money.

What is a little less obvious is WHY things have become like this. Is it really as simple as just being so much easier to let business opportunities come to you – or fail – rather than try to find them yourself? Are we really so blind to opportunity we will not even be interested in talking to you unless you’ve already built up enough “Traction” (another buzzword) to prove your business actually makes a profit – at which point you wouldn’t actually need our money any more so what is the point in even bothering to ask us, now?

Surely every one of those prize winners has thought “where were you last year, when I was spending all my time building the product instead of working in a ‘real job’ and spending all my own hard-earned cash bringing it to market and living on Ramen Noodles with whatever was left over?” – as they contemplate another year of the same, this time in search of the Series A funding their new shareholders will be demanding.



A recent article about “Mutual Obligation” mentioned the often uncomfortable fact that multinationals “assert their right to government assistance, both direct and indirect, avail themselves of legal systems, infrastructure, political influence and the many other benefits of civil society” – which they are usually forgiven for (even while actively avoiding their obligation to pay taxes) because they are regarded as “job creators” in a society where that idea of the 9 to 5 “real job” is deeply entrenched. That idea comes from the Industrial Revolution and was in part popularised by Ford – a company which is closing its factories in Australia – which ironically found that it doubled the profits from its factories.

When Ireland offered sweet tax breaks to companies like Apple, it was in exchange for jobs. Despite all the rhetoric about support for startups and gestures like co-working spaces and free seminars on how it works in Silicon Valley and what all the various buzzwords mean (and of course those accelerator programs) it seems like what Australia really wants is to go back to that Industrial Era way of doing business. It is almost like they want you to fail – and then get a real job.

We recently had someone interested in working for us who liked the product, had a relevant background, was excited about the space we are operating in – and was also looking for other work. While we were able to offer a pretty sweet deal in terms of employee equity options, there was little in terms of cold hard cash on the table and even with the extremely part time approach he had adopted, it was never going to work. We still have some ways to go if we want our startups to fulfil that “job creators” promise we (I will admit even I) find so attractive.

If you define a “small business” as one with less than 20 employees, then that represents 99.98% of all businesses in Australia. Change your definition to less than 5 employees and you’re still looking at 98.98%. Big industrial era employers are a shrinking feature of Australia’s landscape but if you’re thinking of maybe creating your own startup in this landscape, there are a few hard truths you are going to need to be aware of before you begin.


Michael Mehmet

Michael is founder and managing director at eLEDGER and his opinions are usually the result of having a bad day.

There’s nothing wrong with you!

confused Joey“Everyone keeps telling me Xero is awesome but every time I try to use it I just get confused and can’t figure out what I need to do. What’s wrong with me?”

There is NOTHING wrong with YOU!

The problem isn’t you. The problem is the fact that most accounting products – including Xero – were designed by accountants and if you don’t happen to know anything about accounting, then you are naturally going to be a little bit confused when you’re using something that is meant for your accountant.

FOR DUMMIESCan I just use a self-help book?

Sure – there’s one of those “for dummies” books which, if you’ll pardon the insult to your intelligence – once again, assuming there’s something wrong with YOU – is only going to cost you an additional $30 on top of what you’re paying to use Xero, in the first place.

Rod Dury asks nicely

Xero was having a usability problem

The creator of Xero actually asked the author to write it! I guess there were a lot of other people out there, like you, who couldn’t figure out how to use his product…

Why does all this cost so much?

Well… it depends what you need.

You might be able to get away with Xero’s basic entry-level product, BUT you are extremely limited by that product and you might not be able to get everything you need done with it. This is no small coincidence! Xero hasn’t yet made a profit since they began in 2006 – they get their money from shareholders and rounds of investor funding. They need to maximise the amount of money they can squeeze from their customers, so they can turn around those losses and start making those shareholders happy.

Make no mistake:

they want you to upgrade to the $50 a month version – and then pay extra for other things you need, maybe even a self-help book they helped to write!

Here’s a quick comparison with eLEDGER:

comparison chartNotice the lack of green arrows on that $25 a month plan? Even if you upgrade to the $50 a month version, you still need add-ons to access some features – features which come standard on the “Executive” plan with eLEDGER, at less than their limited, basic package – features which will cost you extra and complicate your accounts because they come from third party providers that charge you separately!

What if my needs are simple?

Good news – you can get away with the most basic package from Xero! You might want to take a moment to consider what you are paying, for that. If you don’t need all those fancy “Premium” features, do you really need to pay what you might call a “Premium” price?

If your needs are simple, there’s no reason your accounts need to be complicated.

If Xero is not really helping you to cut down the confusion and save time with this stuff, try a “Leanaccount with eLEDGER – it’s going to cost you less than half the price and you can try it FREE for 30 days to see if it works for you.


The best part is there’s no such thing as “eLEDGER for Dummies”!


Sterling Smith

Sterling has extensive experience in important sounding stuff and something about his opinions and blablabla are you seriously reading this right now?



What changes on 1st July will affect your business?

The only constant with our tax system is that it is ALWAYS CHANGING. With the new Federal Budget comes a bunch of changes, which may or may not affect your small business. Let’s take a look…

Superannuation Going Up

Contributions are going up, again

The “Superannuation Guarantee” (compulsory super contributions) was always meant to change from 9.25% to 9.5% on the 1st July and this is still happening – this change will not be changing. Apparently we are also still aiming for 12%, but the “schedule” has changed so that the (new) rate of 9.5% will remain fixed until 30th June 2018. It is supposed to then resume increasing by 0.5% every year after that. So far, we’ve only had the rate increase once (twice, if you include the change that’s about to happen) and the politicians have already fiddled with it, so let’s not be too surprised if this changes again NEXT year…

Will you need to update your accounting system or is it something like eLEDGER, which will automatically update this sort of thing for you, behind the scenes?

Deficit Levy Coming In

Starting on the 1st July will be yet another new tax – the (apparently three year) “Deficit Levy” will be imposed on anyone earning over $180,000 (per annum) at a rate of 2% (of each dollar you earn over $180k). So for example:2% tax on high income earners

  • You make $200,000 – you pay an extra $400 (2% of $20,000)
  • You make $300,000 – you pay an extra $2,400 (2% of $120,000)

This could affect small businesses operating as Sole Traders and Partnerships, like husbands and wives or a couple of mates who have started a business together and reinvest their profits into their business – if you haven’t already done so, you may need to review your salary packaging arrangements to keep those salaries under the $180,000 threshold.

Be careful with those salary packages – the government is also increasing the Fringe Benefits Tax rate to 49% on 1st April, 2015 (it already increased to 47% on April Fools Day, this year) so you may well be better off paying the 2% instead of creating a salary package which triggers the FBT!

Fuel Excise Going Up

petrol pump

Will you be hit at the pump?

In 2001 the government had cut the Fuel Excise Levy by 1.5c and frozen it “in perpetuity” at a rate of 38c per litre. The unfreezing of this federal excise will increase petrol prices twice a year in line with inflation, from 1st August 2014. It is expected to add around 2c per litre to the cost of fuel and keep going up from there. The Prime Minister recently admitted this is essentially the new government’s version of a “Carbon Tax”.

If your business is heavily reliant on company vehicles (which use petrol) then this could hit quite hard – it will certainly add to the already high cost of fuel you are paying, now.

Some Fiddling Around the Edges

The Medicare Levy will also be going up, from 1.5% to 2%,
on 1st July. As with changes to Super, you may need to update your accounting system if you aren’t using something like eLEDGER, which automatically makes these changes for you.


Less money for developing your product

R&D Tax Concessions will be going down by 1.5% – that’s less money to help you develop your product.

  • refundable offset will be 43.5%
  • non-refundable offset will be 38.5%

mature age worker

The Dependent Spouse Offset will be gone, as will the Mature Age Worker Offset – which will be replaced by a new incentive scheme called “Restart”. Details of this new scheme are a little thin on the ground at the moment, beyond that it will be “up to $10,000 to employers who hire a job seeker aged 50 or more who has been on income support for at least six months.” The Dependent Carer Offset will increase to a maximum of $2,535 per dependent.

Strictly speaking not a budget/tax decision, but the Fair Work Commission also recently announced its Wage Review, which will also come into effect 1st July. Notably the Minimum Wage will be increased from $16.37 per hour ($622.20 per week) to $16.87 per hour ($640.90 per week) – basically an extra 50c per hour. Leave loading will also be reduced from 75% to 50% on Sundays for (casual) bar, café and restaurant workers, starting in July. Other casual staff will be unaffected.

So… Are you going to have to madly scramble to rethink how you run your business – and possibly do that whole “Please Wait While New Updates Are Downloaded” thing with your accounting system – or are you going to be able to carry on, “business as usual” when this Financial Year ends and another one begins? To be fair, this year’s changes are relatively minor compared to some from past years – although there’s still the spectre of messing about with the GST looming in the shadows…


Sterling Smith

Sterling has extensive experience in important sounding stuff and something about his opinions and blablabla are you seriously reading this right now?