Industry Analysis of Entrepreneurship Ecosystem Incubator Business FOR GREAT SYDNEY REGION

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Charlie Chen |UTSEMBA Student| December 11, 2014 Industry Analysis of Entrepreneurship Ecosystem Incubator Business FOR GREAT SYDNEY REGION

Transcript of Industry Analysis of Entrepreneurship Ecosystem Incubator Business FOR GREAT SYDNEY REGION

Charlie Chen |UTSEMBA Student| December 11, 2014

Industry Analysis of Entrepreneurship Ecosystem Incubator Business

FOR GREAT SYDNEY REGION

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Table of Contents

Document Objective ..................................................................................... 2

Industry Analysis .......................................................................................... 2

Philadelphia, USA ........................................................................................... 2

Temple University ........................................................................................ 2

University city Science Center ..................................................................... 3

Sydney, Australia ............................................................................................ 3

Porter’s Five Forces Analysis ...................................................................... 5

Rivalry within the market place .................................................................... 5

Threat of Substitutes.................................................................................... 6

Bargaining Power of Customers .................................................................. 7

Bargaining power of suppliers ...................................................................... 7

Threat of New Entrants ................................................................................ 7

Conclusion and Recommendation .............................................................. 8

Appendix: Personal Reflection of Trip ...................................................... 10

References .................................................................................................. 11

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Document Objective

The objectives of this analytical report are:

Industry analysis of entrepreneurship ecosystem of Philadelphia region and great Sydney region

Utilize Porter’s 5 forces analytical tool to analysis the 5 forces of entrepreneurship ecosystem accelerator/incubator business in great Sydney region.

Provide constructive recommendation to UTS management team of how to utilize university strengths and take initiative to lead innovation and support entrepreneurship ecosystem in great Sydney region as what Temple University did in Philadelphia.

Industry Analysis

Philadelphia, USA

TEMPLE UNIVERSITY

One of the key component to a successful entrepreneur ecosystem is quality human capital (Goodner, 2013). Temple University as well as University of Pennsylvania and Drexel University have significant contribution of producing such quality human capital during the period of Philadelphia’s technology transfer.

The author has noticed that there is an unconventional division in the administration infrastructure of Temple University-The Office of Technology Development and Commercialization. As articulated by Judy Curlee, this division orchestrates university-wide program for innovation and commercialization. (Curlee, 2013)

“Through the advancement of the university research enterprise, we ensure our place as a nexus of discovery, education, translational research, and service, dedicated to improving quality of life,’ says Stephen G. Nappi, Director of the Office for Technology Development and Commercialization.”(Curlee, 2013). The author believes this is a strategic approach which enable the university to play an important role in developing and accelerating the regional entrepreneurship ecosystem.

In reflecting upon the engagement exercise we had in Philadelphia, it was useful to observe that the university takes innovated approach to educate student with a different set of skills and promoting critical thinking as well as building character strengths of resilience and creative thought (Goodner, 2013).

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UNIVERSITY CITY SCIENCE CENTER

Daniel J. Isenberg famous diagram “domains of the entrepreneurship ecosystem” has illustrated elements of six domains of a healthy entrepreneurship ecosystem and there interactive relationships.

Based on my observation University City Science Centre, provides lab, office space, IT infrastructure, and Finance service/support which organically connects support domain, culture domain and Finance domain in the same roof. More important, it created a center of attraction for Human Capital domain, Market domain and policy distribution center. As stated by its CEO and Chairman of the Board “the Science Center is by taking a metaphorical journey along the startup path that connects entrepreneurs who have an idea to the infrastructure and the ecosystem that can help them grow and thrive.”(Tang and Carnaroll, 2014).

40,000 jobs are generated by graduate and resident companies of the Science Center and the annual regional economic output was a whopping $9.4 billion. (Curlee, 2013).

Sydney, Australia

University of Technology, Sydney is part of the golden triangle (consists University New South Wales, Sydney University and University of Technology, Sydney), of Australia’s most important intellectual quality human capital breading ground. It has produced many successful and influential entrepreneurs both in Australia and overseas.

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We are glad to know that UTS is one of the shareholders of Australia Technology Park (ATP) Innovations (one of Australia’s leading startup business incubator).

This organization helps startups to:

raise capital,

build the team

secure government grants

create new products and

grow revenue

(Source: http://atp-innovations.com.au/)

Over the last 5 years the organization has worked with more than 80 businesses.

Since 2006 this organization has:

Raised over $113 million from private investors.

Secured more than $28 million of competitive government grants.

Filed 250 patents and trademarks applications with 122 granted.

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ATP Innovations’ clients have successfully commercialized technologies across a broad spectrum of technologies1.

Porter’s Five Forces Analysis

Porter’s Five Forces Model of Competition

The entrepreneurship ecosystem business consists of many stakeholders and processes in a complicated environment. We must fully understand these dynamic forces and their relationship so we can develop a successful business strategy. In order to achieve this objective, the author leverage Michael Porter’s framework to analyze the environment of the industry and possible impacts of those five forces to an entrepreneurship ecosystem in great Sydney region.

RIVALRY WITHIN THE MARKET PLACE

In great Sydney region, we believe there are several players in the startup incubating business. Most of them are in their early stages. Concentration Ratio (CR) is the method to measure intensify of competition between rivalry organizations. Following diagram provides an overview of CR of entrepreneurship ecosystem in great Sydney region. The intensity of rivalry is influenced by following industry characteristics:

1. Number of competitors: This figure is relatively low in great Sydney region compare with Philadelphia region (total 96);

2. Market Growth: In great Sydney region we did not see the startups market growth as we saw in Philadelphia region. Here are Sydney startup demographics reference figures: Startups: 169; Investors: 1; Seed Funds: 0; Venture Capital: 1; Corporate Funds: 0; Angel Groups: 0;

1 http://atp-innovations.com.au/about/

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Accelerators:1; Incubators:0; Community Enablers: 0; Academic:0; Service Providers:12.

3. Higher fix costs for new rivals: The large portion of the investment of startup incubator is real estate. While Sydney real estate market still in its bubble status, it will be very hard for an investor to use sizeable real estate for a business which has very low returns.

4. Complicated multiple strength resources demand: It is a great challenge for a new rival organization to have all expertise that cover Information technology, telecommunication, finance, legal and business admin domains.

Map of Sydney Startups3

THREAT OF SUBSTITUTES

Threat of substitutes is the competition caused by a threat of substitute comes from product outside of the industry. (QuickMBA Strategic Management, 2010).

The business of incubation for startups is a combination of real estate, office admin, Information Technology, Telecommunication legal and finance services. It is not an easy job for conventional investors to get sufficient resources at the beginning of the business. The higher cost of real estate

2 https://startupgenome.co/sydney-newsouthwales-aus/

3 http://www.bluechilli.com/sydney-startrail-map/

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investment for this business in Sydney and its niche market nature with very low ROI are great barriers of entry. It is hard to imagine this business will attract many investors. The threat of substitutes to existing startup incubation business should be relatively low.

Upon reflection, it was observed that the business model of University City Science Centre has not been changed since it established 50 years ago. Therefore it is hard for us to image there will be alternative business model which will compete with current business model of startup incubation services.

BARGAINING POWER OF CUSTOMERS

Even Sydney is the largest startup ecosystem in Australia, the actual number of startups are very low. One element which also seems important for startups is sense of community belong. Startup usually very much attached with its specific community. Once they involved in the specific community it is hard for them to move to another community.

Due to above reasons, we believe the customers of this market do not have strong bargain power.

BARGAINING POWER OF SUPPLIERS

The suppliers, in this particular business domain, are utilities service providers (i.e. electricity, water, telecommunication, etc.). The deregulation of electricity and telecommunication industry increased the competition between service providers. Businesses have many choices of utility suppliers in the market place.

University can leverage their large business purchasing power to further weaken the bargaining power of suppliers.

THREAT OF NEW ENTRANTS

Due to the size of the market, higher initial investment requirement, low return on investment and complexity of the business, we do not anticipate many competition in this niche market.

Above conditions practically create barriers to entry. Due to the nature of the entrepreneurship ecosystem incubator business, the profit level will not be dramatically increased in its early stage.

However there are several external sources may change the barriers of the entry:

1. Government creates barriers: in normal circumstance, the government role are preserve competition through anti-trust actions, restricts competition

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through granting of monopolies and regulation4. I believe competitors in this niche market should able to have self-regulation roles with respect each other rather than try to destroy each other.

2. Organizational Economies of Scale: in a normal business environment this is related to product unit cost (fix cost + variable cost). In this special business environment, I believe it consists 2 elements:

a. Source of funding in its early stage: since it requires initial investment (acquire real estate, interior renovation, etc.) it is critical for securing the funding in its early stage. It is a big challenge because it is a low ROI business and hard to quantify its positive social impact even the investor willing to consider this aspect.

b. Sustainability from financial perspective: the service charge have to be low or even very low in order to achieve its goal to become a real entrepreneurship ecosystem incubator/accelerator rather than a commercial real estate service provider. However the business should be able to self-sustain after passing its infant stage. The administration of the business must eliminate any possible resource wasting and find any possibly way to minimize the running cost. Denial Isenberg has pointed out “Incubators can take 20 years or longer to generate a measurable impact on entrepreneurship.” (Isenberg, 2010).Realistically, we anticipate there will be several players exist from entrepreneur startup accelerator/incubator business rather than many new players to enter this business.

Conclusion and Recommendation

Sydney is Australia’s largest startup ecosystem, however, it has not reached a position where it has significant impact to industry and broader societies in Australia.

We believe one of the reasons is lacking of sizable entrepreneurship ecosystem and its supporting environment.

Another reason is lacking of venture capital business society that we see in US and even some of developing countries.

There are also other reasons which has been articulated in the article: Silicon Beach Building momentum, A study of the Australian Startup Ecosystem.

In order to accelerate great Sydney region entrepreneurship ecosystem development, UTS should leverage its available resources such as libraries, unused spaces in campuses, Internet connectivity and other facilities for supporting start-ups. The university should also leverage its intellectual resources (educators and researchers, etc.) to mentor students and graduates to become entrepreneurs. Furthermore, UTS should leverage its

4 http://www.quickmba.com/strategy/porter.shtml

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industry relationship to engage private sectors to finance and commercialize new business ideas, innovations.

The author also suggest that UTS should take leadership in:

Further enhancement of ATP hub and eventually make it as a flagship of entrepreneurship ecosystem incubator in great Sydney region.

Lobby government to make policy changes.

The commodities boom in Australia has become past. This nation need to start an entrepreneurial revolution in order to have sustained economic growth. “The entrepreneurship ecosystem consists of set of individual elements-such as leadership, culture, capital markets and open mined customers.” (Isenberg D. 2010). Universities arguably are natural incubators of these elements.

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Appendix: Personal Reflection of Trip

The ultimate goal of this trip, as it been addressed in the subject outline, is for us to study/assess the Philadelphia entrepreneurship ecosystem and understand and explain the role Temple University has played in its development.

Personally, I always fascinated by success startup stories since I was young. I tried to start up a business in nineteen ninety eight which failed to take off. I have been looking for answers since then. I believe that I finally found answer via this well-structured study/business trip.

I believe horizontal and vertical collaboration is one of the key elements which will lead to a success of innovations/startups. I have observed and learnt how to use this powerful method during this trip.

We had extensive collaboration with established businesses/businessman, start up business owners, venture capital investors and innovated project leader/lecturers of Temple University community.

One of the benefits of this trip is it provides us a opportunity for deep diving in to a real successful entrepreneurship ecosystems. I will never be able to understand how it works without this trip.

There are few learning highlights of this trip:

The underground market research project was a groundbreaking master piece. The project leader and lecturer revolutionary merged market research and business process analysis in an Art School lecture/project domain. The outcomes opened everyone’s mind.

The multi-dimensional support entrepreneurs able to obtain from the business society and academic society in Philadelphia is one of the key factor of success of entrepreneurial startup businesses.

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References

Bluechill Sydney Startrail Startup map update. http://www.bluechilli.com/blog/sydney-startrail-map-update-3-released/

Culee, J. (2013, October 31). How Universities Are Fuelling the Local Economy. Http://Phuladelphia.regionsbusiness.com/

University City Science Center 2014 Annual report

Part One, Startup Ecosystem Report 2012

Startup Genome Report

Isenberg, D. (2010). How to start an entrepreneurial Revolution. Harvard Business Review June 2010

Isenberg, D. (2011). Introducing the Entrepreneurship Ecosystem: for Defining Characteristics. Http://www.fprbes.com

Morle, P., Kitschke, Z., Jones, A., & Tanchel, J. (2012). Silicon Beach, Building momentum, A study of the Australian startup ecosystem.

Khatri, M. (2013, September 23). Porter’s Five forces A model for Industry Analysis. http://www.slideshare.net/mayurkhatri5/porters-five-forces-26443199