A new champion for start-ups

A recent breakfast meeting which I found very informative was addressed by Professor Jonathan Borg from the department of Industrial & Manufacturing Engineering at the University of Malta.

He explained in detail how successive waves led to the fourth industrial revolution – from the steam engine to the present day, which now embraces AI, IOT, Blockchain and augmented reality.

Jonathan emphasised the need for a well-oiled ecosystem which in his opinion is the vital mechanism that Malta lacks. Be that as it may, we have been reminded by party apologists how as an island nation, we need not rock the boat.

They tell us that we are lucky to enjoy stellar GDP growth and there is no need for disruptive ideas while we can feel snug in our cocoon in an island blessed with clear blue seas and sky. This ignores reality. The world is experiencing astronomical growth in areas such as Artificial Intelligence, Big Data, machine learning, bio-technics and Fintech in the financial services - among others.

The truth is that living the status quo is akin to obstructing change. To start with, one cannot deny the fact that industry cannot rely on outdated technology that simply meets yesterday’s manufacturing standards. Again, Borg reminded us of new building blocks of disruptive systems where young businesses compete to provide cutting-edge services and products – having access to research and innovation facilities coupled with proficient management resources.

Just take a look at the vast amount tech giants spend on R&D. Amazon leads the pack with a budget of $23 billion annually. Google is currently spending $16 billion on research, Intel $13 billion while Microsoft devotes $12 billion and Apple $11 billion. In all that is upwards of $75 billion annually.

This arsenal of funds is being spent researching artificial intelligence, robotics, drones, green energy, driverless cars, smart homes and the Internet of Things. The Economist informs us how since a few years ago, Chinese innovation meant copycats and counterfeits. All this has changed and their driving force is now an audacious, talented and globally minded generation of entrepreneurs.

Back home, our investment on technological research and development is a modest one - reaching a mere 0.6% of GDP. Finland spends 3% of GDP whereas the EU expects a minimum of 2%. Yet, one cannot blame our political leaders for being frugal seeing that spending millions in such a risky venture needs nerves of steel and foresight.

Can Malta afford to invest €250 million in applied research? This roughly equates the annual interest we pay to service national debt. Surely, the answer is that the state has other priorities. This means that over the years, there will be patching and piecemeal solutions in our quest for innovation.

Surely, without risking capital, the future of our manufacturing and services industry face an upward struggle partly due to the double insular handicap located at the periphery of Europe not helped with ageing demographics and fewer students excelling in the maths, ICT and science faculties. Regardless of these drawbacks, we are cautioned that the solution is a fundamental reform in our educational setup.

These evangelists wax lyrical about the utopian way to upgrade our educational facilities, invest in top research and to link academia and industry to work together.

Readers may argue that this seems like pie in the sky claiming that Malta can never be an innovation leader. We simply cannot afford it. Without the necessary funds, how can we seek disruptive ideas and turn them into improved manufacturing and servicing outputs. On the contrary, rationality tells us reform is doable. It starts with creating a can-do attitude, fostering knowledge exchange.

This acts as a catalyst for invention. Moving on, we heard it many times in budget speeches that the government of the day will provide clear leadership to lead us out of the woods and while we made good progress - there is still a long way to go to be able to surmount future tech challenges. The medicine is bitter and enablers of the economy need strong nerves, good leadership and weaned on proper funding.

The cure involves reinventing the way things are done, collaborating more widely with ecosystems of organisations, cutting dead wood in bloated bureaucracies. In my opinion, we need to inculcate meritocracy by investing in people of calibre. Purging cronyism in political appointments leads to a better and more equitable cohort of able-bodied persons running the top echelons of government.

A country which leads the pack in active innovation is Israel. Its administration, has been successful to attract IT giants such as Microsoft for new sources of innovation. Traditionally, large companies engage in internal or external research and development, whether by having their own in-house R&D teams or acquiring companies for their human or knowledge capabilities. Israel is proud to claim over 300 multinationals have tapped into Israeli innovation niche by setting up R&D labs in the country, usually to work on their most cutting-edge products.

Can Malta take a leaf from Tel Aviv’s book and seriously start to attract business accelerators which are adequately funded by venture capital?

This looks utopian to many young entrepreneurs who battle against all odds to create opportunities for their ideas. Most end up migrating. The concept of mentors has been a clarion call by Malta Enterprise for a number of years. So far, we have not managed to adopt a working pattern to help start-ups and mentor entrepreneurs.

There are too many strings attached to start-up aid. Quoting Maya Grossman, head of communications for Microsoft’s accelerator program, she describes, “Innovation is not easy. If you want to stay close to innovation, you need to stay close to start-ups”. Last week, during a press conference, Minister for the Economy, Investment and Small Businesses Chris Cardona (see picture) launched the Start-Up Malta Foundation (SUM) to establish a better and more efficient support system for young and maturing start-ups.

In his words, Dr Cardona invited all business leaders in a position to contribute to the ecosystem development, to take a more active role in the start-up community, by listening and engaging with local start-ups and supporting them through guidance, vital introductions and networking. “We know that entrepreneurs must lead the start-up community”.

The dawn of the SUM Foundation as a public organisation can possibly be the answer to our prayers. It is a foundation run by a board of administrators, where the government will be represented. I sincerely augur Minister Cardona on this initiative. His approach is palpable.
If it works, this is sweet music to start-up firms struggling to make headway up the slippery slopes.