Jim Chalmers has a point. Australians need to think differently about how to achieve economic growth, because what got us “here” is not going to get us “there”.
Our country has been blessed with natural resources, and we have been happy to have a small number of companies dig them up and ship them off to other countries. Although we’ve talked about it, we haven’t been able to develop the kind of robust innovation and commercialisation systems required to develop a broad spectrum of companies, of all sizes, across multiple industries. As a result, the Australian economy lacks the kind of complexity one would expect to see in a developed country, is quite reliant on a small number of customers, and has problems getting companies to grow.
Look, for example, at the composition of our SME and large business sectors. In the US, approximately 13% of companies are medium-sized (20 – 199 employees) and 1.5% are large (200 or more employees). In Australia, only 2% of companies are medium-sized and a fraction of a percent (0.2%) are large.
This inability to grow companies from small to medium to large is not a recent phenomenon and is not related to COVID. In 2017, Mark Cully, Australia’s Chief Economist in the then Department of Industry, Innovation and Science wrote about the missing middle of our economy. His analysis indicated that medium-sized companies were ten times more likely to fall back to small than grow to large.
Long-term, we cannot achieve the future we desire when six out of seven Australian companies have fewer than five employees. We must do better — and that requires us to change what we have been doing because what got us here won’t get us there!
A few Australian companies like Kelly Tillage, Seed Terminator, Fivecast, and Bluedot — have followed Canva, Atlassian, and others in taking their innovations to the world. But they are the exception, not the rule. ABS data shows that 98% of Australian companies have fewer than 20 employees. Most business owners use their company to support their lifestyle or create a legacy to pass on to their children. Very few SME business owners understand how to grow a company with increasing revenue, profit, and jobs — that can go global.
Company growth is dependent on figuring out who you are (mission, values, vision), who your customers are, and what they value, measuring that you are delivering value, then developing a plan that enables the company to deliver more value to more customers. It sounds simple, and once you understand what to do, when, why, and in what order, it becomes much easier.
Values-based growth really is the key to success
Why aren’t more Australian companies growing? Is it that SME owners want to stay small? Or are company owners and their boards so afraid of risk and failure that they are willing to forego the opportunities growth provides? Or do they just not have the knowledge required to grow?
The good news is that SME Australian company owners and teams who have been taught to define their company’s values and use principle-based management are delivering more value to more customers — and are growing — sometimes at exponential rates.
To those criticising the Treasurer’s call for values-based capitalism, I argue that the key to Australia’s future economic success depends on consciously teaching business owners how to grow values-based companies! Natural resources will continue to contribute to our economy, but going forward we need to focus much more attention on the development of our human resources, in particular the SME business owners and CEOs. Why? Because successful business owners create companies that deliver value to customers. As they grow, those companies create jobs, and more people are hired. More jobs enable more people to become self-sufficient, and that translates to healthier communities.
Even before COVID, research showed that employees are looking for companies that are concerned with more than making money for shareholders. People want to work for companies that have a vision and a plan for the future, that operate according to a transparent set of values, principles, and expectations. They want to work with other employees who perform at a high level and share those values. They want to be led by people who “Walk the Talk” and live their values, who recognise and acknowledge each person’s contribution to the company.
Values-based capitalism means understanding that we, and the companies we lead, have a responsibility to do more than just deliver value to shareholders. It means acknowledging our responsibility to the many stakeholders that enable our success, and that includes employees, customers, suppliers, vendors, service providers, and our communities.
Companies that take the time to formulate and communicate their principles and values, then make value-based decisions based on them, will attract the kinds of employees they need, will provide more value to customers, and will generate more revenue and profit — and that will result in higher returns to shareholders.
Having worked with and taught hundreds of Australian business owners, CEOs, and their teams over the past decade, there is no question that spending time and money teaching company owners how to implement values-based capitalism, be principle-centred leaders, support teamwork, joint problem-solving, and collaboration accelerates company growth, creates jobs, and results in more exports.
So, if that’s what it takes to get from “here” to “there”, let’s get on with it and build the economic future we want for Australia.
Dr Jana Matthews is the ANZ Chair in Business Growth, professor, and founding director of the Australian Centre for Business Growth at UniSA Business.
This article was first published by Smart Company