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Sydney vs Melbourne: Which startup ecosystem is really winning, and why do we care?

Stephanie Palmer-Derrien
26/07/2019
Sally-Ann Williams, chief executive of Cicada Innovations. Source: Supplied.

Sally-Ann Williams, chief executive of Cicada Innovations. Source: Supplied.

Sydney or Melbourne? Melbourne or Sydney? It’s a 120-year-old question that has plagued job-seekers, businesses and backpackers alike.

And, as the proud holder of a temporary working visa, it is one I am intimately familiar with.

Back when I had a mere 457, it wasn’t the thriving tech journalism scene that won me over. I was lured to Melbourne by happy-hour beers and misplaced romantic notions about trams.

The truth is, I spent a week in Sydney and it rained the entire time. I came to Melbourne, enjoyed a ride on the 35, and then had a cheap pint in the sun on a Fitzroy rooftop. It was also the first time I’d found a proper-sized beer since touching down in Australia. For us Brits, this should not be underestimated.

I was uprooting my life. But when you’re uprooting your business ⁠— whether expanding into a new city or setting up from scratch ⁠— there are much more important things to consider.

Sydney is home to Aussie startup darlings Atlassian and Canva, but Melbourne has newest unicorn Airwallex and HR heavyweight CultureAmp.

Sydney has the massive co-working space Fishburners, as well as the Sydney Startup Hub. Melbourne has the Victorian Innovation Hub ⁠— although that’s a relatively new addition.

While it’s been in the works for a good while, we are assured the Sydney Innovation and Technology Precinct is coming, with Atlassian as its anchor tenant.

Melbourne can’t really match this. But, its world-famous coffee culture has been credited with helping fuel startup growth in the city.

In many countries — with some exceptions — there is an obvious choice as to where to launch your startup, or where to expand it into. Think London, Tel Aviv, Singapore or Shanghai.

But in Australia, it’s not so clear-cut, and it’s a bit unusual in that, let’s be honest, the capital often doesn’t get a look in.

There are two top contenders; very different cities offering different ways of life, different communities and different weather. So, how do you choose?

Earlier this month, we saw two international tech startups using massive funding rounds to expand into the Aussie market.

Singapore startup Near will be bolstering its presence in Sydney, while German startup Signavio has offices in both Sydney and Melbourne.

Swiss startup Tradeplus 24 has also recently expanded Down Under, making a very deliberate choice of Melbourne as its base.

The Startup Genome Ecosystem Report 2019, released in May, saw Australian cities, as a whole, slip in the global ranking. Sydney dropped six places compared to the last report two years ago, from 17th place to 23rd.

Melbourne, however, didn’t even make it into the top 30, and was instead named as a ‘challenger’ — an ecosystem with the potential to crack the top 30 within the next five years.

Just 10 days earlier, a different report, StartupBlink’s Startup Ecosystem Rankings 2019also put Sydney in the lead, ranking it the 19th best city for startups in the world. Melbourne came in 35th place.

Innovation breeds innovation

Sally-Ann Williams, chief executive at Sydney-based deep-tech startup incubator Cicada Innovations, tells StartupSmart while there are many factors contributing to success, location-wise, there are three major baseline requirements: access to talent, access to capital and access to customers.

“Sydney, Melbourne, and actually every city in Australia, has that,” she says.

Instead of trying to pick which city is objectively the best, startups should consider which is the best fit for them, depending on what they’re trying to do, and where their target customers are.

“Australia is too small as a market to get into a Sydney vs Melbourne vs Adelaide fight,” Williams explains.

“We really need to recognise that we’re competing with a global marketplace.”

Our competition are those aforementioned tech hubs: Singapore, Israel, London and San Francisco.

“We would be wise, as a nation … to recognise what we have at a national level and look at how we grow the sector in its entirety.”

Part of this includes attracting tech companies to the ecosystem. Both Facebook and Google have their Australian HQs in Sydney. And while Tradeplus24 has chosen Melbourne, that’s not necessarily a trend.

Williams notes it’s important to distinguish here between HQs that are essentially large sales offices and R&D centres. It’s the latter that Australia has to attract.

“Over time, when they grow very, very large, eventually senior engineers and other senior people leave,” she explains.

“If they’re in a thriving ecosystem, they help develop things further.”

Take Google as an example. Canva co-founder Cameron Adams is a former Googler ⁠— as, according to Williams, are a large number of the startup’s senior engineering team.

After gaining knowledge and experience at one of the global greats, these engineers are able to support the growth of the local startup scene, Williams explains.

“That’s an ecosystem at work. That’s what it should be.”

Of course, Williams herself took on the chief executive role at Cicada after 12 years at Google.

Now, she is “driving a whole bunch of new businesses and new opportunities in big tech commercialisation”, she says.

“That’s exactly what we want to do.

“We don’t want to keep people forever in these big organisations. We want to keep them in the industry though, and to be able to do new things, and help build that new economic base.”

Hot competition

So, when it comes to attracting those big companies, is either city better than the other?

According to Williams, when big companies are looking to establish a base abroad, there are a few things they’re looking for.

“Access to talent is still number one,” she says.

“We’re really fortunate in Australia that we’ve got a great tertiary education system.”

But, there are also infrastructure requirements to consider. How easy is it for businesses to find an appropriate space? How easy is it to meet the logistical needs of a particular company? How easy is the process when it comes to navigating local government?

For state governments, this is where the big opportunity is, Williams says.

“Making it easy to understand and navigate the city … Melbourne has been doing a really good job of that.”

Big tech companies want things to be easy, and some assurance that everything will run smoothly, she explains. They’re almost after a “concierge service”.

Singapore, for example, does this especially well. There is one government department that manages new businesses coming into the country.

“They make it very easy and very attractive to go there.”

If state governments want their capital to be considered for big-tech relocations, and for R&D centres that will grow over time, they have to make themselves attractive to them.

“We need to recognise who our competition is, and understand what they’re doing, to see what we can do to raise our game.

“We should really closely examine what Singapore is doing.”

A warm welcome

Case in point, when Tradeplus24, which has its global HQ in Zurich, made the decision to expand into Australia, this element of state government support was instrumental in the decision to base their offices in Melbourne.

The startup connected with various state governments, Adam Lane, managing director for Australia, tells StartupSmart.

“The Victorian government was by far the most responsive.”

The state government helped the Zurich team to understand everything from setting up a bank account here to finding an office space and familiarising the founders with the city.

“While arguably for the international observer, Sydney would be the logical choice, it was the research the team did from Zurich that led them to understand Melbourne was probably the rightful home for what will be our Asia Pacific headquarters,” Lane explains.

While Sydney remained the startup’s second choice, when it came to dealing with the New South Wales government, “the responsiveness was a challenge”.

In Victoria, however, Invest Victoria, in particular, was “very keen to get on the phone”.

And, when it became clear Lane would be heading up the Melbourne office, he was able to interact with key people in the Victorian government almost straight away.

“In my first week, I met with some of the senior policy advisors,” he says.

“They were very keen to try to understand what we were going to do … and extend their networks to us.”

Drive of opportunity

Speaking to StartupSmart, Alex Scandurra, chief executive of startup accelerator Stone & Chalk, which has locations in Sydney, Melbourne and Adelaide, says when considering where to base your startup, it’s important to filter out comments that might be to do with “inducements” from the government.

“Frankly, there is great benefits of being a startup in any city, and what’s your area of expertise and how much of a customer and investor base there is in that particular area,” he says.

“Opportunity drives where startups go.”

In Scandurra’s opinion, it’s a good thing state governments are looking to attract startups to their major cities, and building the ecosystem organically.

What he doesn’t support is different governments competing for the same business, and “not thinking deeply about their natural competitive advantage”.

If the South Australian government was to start targetting fintechs, for example, “does that make a lot of sense, given the vast majority of the industry is in Sydney or Melbourne?”

It makes more sense for SA to focus on space, defence and agriculture where, “given all the other ingredients they have a much higher chance of generating a sustainable competitive advantage”, he says.

“That’s the big bit that’s missing,” he adds.

“A lot of the emotions are still there and driving some of these decisions, but at the end of the day, as an economy, are we getting the best bang for our buck taking that approach?”

State governments could be “a bit more choosy and deliberate” as to what kind of business they’re trying to attract, and have a conversation about who is going to do what.

This isn’t a problem many other countries have. The UK, for example, has one national body and one government mandate. In Australia, we have Austrade, and then the various states that are competing.

“It’s a really confusing message,” he says.

Often, it comes down to who is offering the best financial incentive.

“Do we really want that to be the situation as to why someone went to one state over another?”

The liveable city

According to Lane, there were other things that made Melbourne the obvious choice. While Tradeplus24 does a lot of business in Sydney, it’s a mere 90-minute flight away, Lane notes.

There’s also a “thriving fintech community” in Melbourne, as well as a variety of co-working spaces, and strong startup networks.

Equally, “all the things that make Melbourne the second-most livable city in the world, we have benefitted from”, he adds.

It might not seem like an immediate concern, but the liveability of a place should not be overlooked. The founders of Tradeplus24 visited both Sydney and Melbourne, he says.

“They found Melbourne incredibly easy to get around. They found Sydney less so.”

While the weather in Melbourne is famously changeable, “it was glorious while they were here”, Lane adds.

“They went to a couple of sports events, and immediately fell in love with the city.”

Equally, being Brits who had been based in Zurich, the founders felt familiar with certain elements of Melbourne.

“By virtue of its cosmopolitan nature, a lot of people from different countries will gravitate towards certain characteristics of the city,” Lane explains.

“Sydney has got some obviously glorious landmarks, but I think Melbourne people would often say Sydney is a great place to visit, and Melbourne is a great place to live.”

Where are your people?

All the comparisons, cajoling and rivalry aside, if you’re setting up a new startup, there is one other aspect to consider, Williams says.

“Founding a business is challenging. It’s hard work, and it can be lonely,” she explains.

“I think it’s really wise for founders to think about where their support network is.”

If you put your mind to it, you can build a business anywhere. So it’s not always a Sydney vs Melbourne thing ⁠— it’s about the environment where the founder feels comfortable and supported.

“Where are your family? Where are your friends? Where are the people that are alongside you on this journey?

“It might be better to stay close to them in the early days.”

It’s all well and good to think tactically about your location, but maintaining your own mental health can only be good for business.

“It’s much easier to build where you know people and where you have that support and where you can draw on that on a day-by-day basis,” Williams says.

“Who do you have at 1am in the morning, who you can see or have a phone call with?”

Originally published on SmartCompany

Date: 26 July, 2019