MGI Australasia: Balancing Innovation and Experience

Article written by Sue Prestney for 'Charter', the magazine of the Australian Chartered Accountant
Sue Prestney is a Senior Partner with MGI Melbourne
Article reprinted with the permission of the Institute of Chartered Accountants in Australia, www.icaa.com.au

I have recently seen many businesses being started by young people who have just left university, often in partnership with friends from their course or even from school.  Not surprisingly these businesses are often IT based.  These young entrepreneurs leap from graduates to business owners with the most current technical knowledge, boundless energy and a risk appetite that comes from having nothing to lose (except perhaps their parents’ houses).

With rapid technology changes, it is those people who have the most up to date knowledge and thinking who will be at the forefront of innovation – those newly educated are now, more than ever, the ones who will be the drivers of change in our economy.  It is critical for all of us that they succeed.

While technical knowledge, free thinking and enthusiasm may generate wonderful new ideas for products or services (often online), that is not enough to make a successful business.  A business with even the most innovative products is highly unlikely to succeed in the absence of attention to the traditional pillars of business; strategic planning, corporate governance, risk management, financial management, human resource management, systems and procedures.  Many of these are based on experience and the craftiness that comes from years of being in the cut-and-thrust of business.  Technical knowledge is one thing, understanding the human aspects of business, the psychology of human behaviour and how to deal with it, is quite another.  Those who are green to the business world can fall prey to their own optimism and naiveté and the cunning and greed of others.

Successful young entrepreneurs have recognised their deficiencies from the outset – many comment on the value of their business coaches and mentors who are often their accountants.  They establish proper boards or panels of advisers that give them access to the experience and skills that the business cannot afford on a full time basis. They follow the advice of these people and prepare shareholder’s agreements, put processes in place to identify and manage their risks, undertake strategic planning, establish relationships with their financiers and prove their credibility with business plans, budgets and reliable, accurate financial reporting. Importantly, they create a sustainable, strongl culture from values that resonate not only with them but with their employees, customers and suppliers.

A wise man recently expounded an observation that technical knowledge and experience tend to peak at opposite ends of a person’s career.  You start out with the latest technology and energy but with no experience or street smarts.  Towards the end of your business life you have vast experience; you have learned life’s lessons in dealing with people; you have seen any number of economic cycles and learned how to react to them, but you may have lost touch with the cutting edge of technology and your energy levels are not what they used to be.

Business operators at either end of their careers should recognise that they need people in their business from the opposite end.  Older business owners need to recruit young graduates if they are to keep the business innovating, vibrant and dynamic, just as much as young entrepreneurs need access to the wiles and wisdom that come with grey hair.  It also takes some hard introspection to recognise the point at which the downward trajectory from the technical proficiency axis meets the upward trajectory from the experience axis on your personal graph.  This is probably when you are able to perform at your personal best, but you are still likely to need support from both ends.

It is so important that we nurture the ideas that our smart young graduates are producing – this is what can make us the clever country.  Technological change is so rapid that today’s good idea can be superseded by new technology in a few years or even months.  There is no time to slowly build a business – the window of opportunity may be very narrow.  We have to have structures in place to allow the young innovators to hit the ground running.  They need access to funding, traditional skills and experience.  Never before have business angels, who can often provide all these things, been so important but .it is also good to see .the corporate sector investing in, and supporting, young technology companies. This can give new businesses the big boost they need to get off the ground quickly.

Established businesses can benefit greatly by employing creative young people at the forefront of technology, but must also recognise that this generation needs to be in an environment that is constantly evolving and innovating – one that encourages new thinking and nurtures it in the relative safety of traditional business structures and principles.  Establishing such an environment is often challenging for people who have been in business for a long time and take exception to having their long-held systems and strategies challenged.

For everyone, it is all about getting the balance right.  Perhaps there’s no magic formula for this – for most business owners simply recognising the need for the balance may go a long way to achieving it.  What I do know is that not getting it right will result in many exciting young businesses missing out on a real opportunity to succeed and in established businesses stagnating and failing.