CORRECTED VERSION OUTER SUBURBAN/INTERFACE SERVICES AND DEVELOPMENT COMMITTEE Inquiry into Local Economic Development in Outer Suburban Areas Greensborough—29 October 2007
Members Mr G. Seitz Mr D. Hodgett Ms C. Hartland Mr D. Nardella
Chair: Mr G. Seitz
Staff Executive Officer: Mr S. Coley Research Officer: Mr G. Russell Committee Administrative Officer: Ms N-M. Holmes
Nillumbik Home-Biz Network Mr D. Brooke, Chairman. Mr Brooke made an affirmation.
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The CHAIR—We now welcome Daryl Brooke from the Nillumbik Home-Biz Network to the Outer Suburban/Interface Services and Development Committee. Everything you say here is protected under the Constitution Act 1975, Parliamentary Committees Act 2003 and the Defamation Act of 2005, which means you can say whatever you like about anybody here and they cannot sue you, but if you say it outside the door it is a different story. Mr BROOKE—I do not think I will be saying anything controversial. The CHAIR—Well, we like to get the truth out and hear the views of people. The committee has decided to take all evidence under oath or affirmation. Could you state your address so that we know where to send Hansard. Mr BROOKE—4 Golf Links Drive, Yarrambat. The CHAIR—Thank you. You address us, and then we will have some questions and some debate. Mr BROOKE—Okay. Firstly, thank you for the opportunity to address the committee. I am here representing Nillumbik Home-Biz Network, but, I would like to think, representing microbusiness as well—so just tiny businesses. In my submission I have put some details about how I define that. My evidence is not based upon research or statistical data; I do not really think there is a lot. My evidence is based on the fact that I am a small to medium sized enterprise, a business consultant; that I run my own microbusiness; that I am a NEIS program mentor and work with a number of very small starting-up businesses; that I am the president of the Home-Biz Network and, within that, have roles in offering some free coaching and facilitating business issue groups and so forth that just, to me, are good development exercises within that; and that I am an associate member of the Institute of Management Consultants. Primarily, my work is in the outer suburbs of Melbourne, mostly the northern and north-eastern, so I think most of the people I work with in all those capacities are in the right catchment area for this committee. I want to talk a bit about the microbusiness business development cycle and explain where the recommendations and what I have put into the submission come from. This is, as I say, just based on my experience of working with them. It is a sector that I think everyone believes is very important to the Australian economy as well as to the local economy but that we do not actually know a lot about. If we look at analysis of what I call microbusinesses, there is perhaps statistical data about how many there are, and perhaps how many they employ, but I do not think we know a lot about the nuts and bolts of how they live or do not live within the economy. I think that information about them needs to be articulated and understood and needs to be addressed better than it has been in the past. This is perhaps obvious, but I think it needs to be articulated. In terms of the business cycle, in year 1 microbusinesses are starting up. Most businesses start in this way, but not all. They start up and they are driven by passion and dreams, and sometimes necessity where they just do not have a job, so they have to. But I think the ones that survive are the ones that are driven by passion and dreams. Quickly, though, within this first year they learn the realities of being in their own business, and that first year filters out the people that probably should not be in business, who cannot get through the hard times as well as the good times, perhaps, or just do not have enough ability. In year 2, which is the year I am most interested in—years 2 and 3—the business model solidifies, and this business model should have compliance, and there are lots of things to comply with. It should also be a business model that is sustainable. Over time, the owner will be confident that this business can sustain them and their employees and so forth. It should have a clear competitive advantage and a clear target market. It should have a clear development strategy and an implementation plan. They may be all in the owner's head, but they need to be clear. This is in years 2 and 3. In years 2 and 3 they will face many barriers to their business, and they will face them mostly without any professional assessment or guidance, as there just are not programs that provide that. They face the barriers limited by their own ability to assess and articulate and act upon them, and so what you have in this two- or three-year period is businesses that are probably employing people and are profitable and, as they come across a barrier, they talk to other small business people, but they never really have the opportunity to get
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professional advice on how to overcome those barriers professionally and well, and so there is this limitation on what they know, how they are able to articulate it to their friends and other small businesses, and then get advice and act upon it. Many of the businesses in this two- or three-year period give up, and it is not because of a lack of cash flow. It is because of a lack of ability to see a pathway through these barriers, because they hit them relatively frequently, and once they have been knocked back a few times, eventually perhaps one of these barriers just becomes too big and they go out and get a job somewhere else; and so a business that in my view—and I have seen this happen—has potential to survive, and the owner has great ability, stops because of a lack of ability to get advice at a critical time, and I think it is mostly in year 2 or 3. In year 4 or 5, the owners have built up a level of confidence in their business to be financially sustainable, so you will get a business that is prepared to spend more money on advice and probably has more money to spend, as well, but I think this does not come until year 4 or 5. But most businesses in years 4 and 5—and I say this from my experience and my colleagues' experience—still have inappropriate business models and practices. I would almost go as far as to say all of them, but certainly most of them. That is a quick summary of what I think is this important cycle of a microbusiness. Now I want to get on to the recommendations that I have put into my submission. I believe that we need to build some state funded microbusiness-focused resources, and I think it is best that they reside inside councils. The reason for that is that it needs to be local. Microbusinesses will tend to go as far as council but they do not tend to want to go as far as, say, central Melbourne or a suburb that is three-quarters of an hour's drive away, so there needs to be this local catchment area focus. Learning from the Home-Biz Network, I think this funding would establish local microbusiness networks that provide to owners a safe and supportive collegiate relationship and a voice. There are a lot of business networks available that are basically businesses, and they are designed to help businesses get referrals. That is not what I am talking about. What I am talking about is where a business can safely say, 'I have a problem with my cash flow,' to other people within that business and they are not going to get referrals from five accountants afterwards. What they are going to get is other businesses that have been through similar issues and have had success and failures, and they will get advice from colleagues that are supportive and safe. There is also an opportunity to coordinate local microbusiness-focused assessment and guidance services. Again, this is based on the fact that I have been providing some of these, and the biggest difficulty people like me have is that microbusinesses just cannot afford it. With this business cycle that I explained earlier, when they, I think, really need it the most is in years 2 and 3 or in this period when they are immature, and they just cannot afford to do it, so people like me spend our time more at the larger end of small and medium sized businesses. You just cannot afford to operate at this tiny business end but, as I say, I believe we have already missed the mark on these businesses establishing bad practices and bad business models, and it becomes far more expensive and difficult to rectify. I am happy that the bigger businesses need to spend more money, if you like, for my own business, but I think it is far more effective to catch them when they are much smaller businesses. I think this local, funded help should also establish local microbusiness measures that are based upon the business financials, but that are also based upon microbusinesses being able to manage and achieve strategic milestones and targets. My experience is that for little businesses, because there are only two, three, four people working in them, one of the biggest parts missing is this ability to strategically plan and then to achieve strategic actions and to prioritise what those actions really should be. They tend to have too many things to do. They tend to be working inside their business and not on their business as much, and waste a fair bit of time on far more tangible outcome activities as opposed to more strategic outcome activities. I would like to see the development of statistics on what is financial viability, in order to be able to benchmark what is a financially viable microbusiness. I do not think there is enough information about these business models that microbusinesses should be operating under and, if there were, perhaps that is something that could be administered through council better. They could gain some information about microbusiness and say,
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'Well, here is what is financially sustainable in businesses of your size,' and give them some benchmarks. If there was a program developing microbusinesses, I would like to see a way of collecting evidence that it is actually working, measuring accelerated business confidence—and this is owner confidence in the business— so that we see they have got to this point that I am saying is about four or five years. I would like to see that happen earlier, that the owner has become confident in the sustainability of the business and that they are confident to invest, to contribute to the local community, to the local economy and to the local environment. I believe that a program like this could be developed through a trial in somewhere like Nillumbik, and I say Nillumbik because I think the council here is very supportive of microbusiness, especially home business, and would be receptive to such a trial. I will put it into the submission, but the other thing I want to run through is the key opportunities. I can summarise them. I would like to shift forward at this point to where a microbusiness becomes confident in its own sustainability, because that is when it starts employing people, that is when it starts thinking about other markets, that is when it starts thinking it might be able to export, and all these other things that are good for the greater economy. I would like to believe that we could encourage what I have called hive type synergy between microbusinesses. I think microbusinesses are very flexible and efficient, and what I have seen is that they can collectively behave like large business and, encouraged to do so, encouraged to work together more, we are going to see microbusinesses with an ability to make a greater contribution than they can as individuals. Thank you. The CHAIR—Thank you. Mr NARDELLA—You talked about how microbusinesses need to get some of that assistance in years 4 and 5. Mr BROOKE—In years 2 and 3 is actually what I mentioned. Mr NARDELLA—Years 2 and 3. I would say that they need it in year 1, and the evidence that we have received is that businesses need to actually pay for it to get any value out of it. If you give them something for nothing, they will not value it. They will not turn up. Mr BROOKE—Yes. Mr NARDELLA—I understand that you are saying they are much more mature businesses at years 2, 3, 4 and 5, but a lot of them—80 per cent—fall over in year 1. Why wouldn't you bring that forward, and how would you in actual fact bring that forward, to give them assistance so that they could become much more successful and, rather than reinventing wheels, actually learn from others? Why wouldn't you do that in year 1? Mr BROOKE—There is an amount of help that businesses need in year 1, but the main thing that I find in year 1 is that they do not know what their business is yet, and there are a lot of owners in year 1 that probably should not be in business. Mr NARDELLA—Correct. Mr BROOKE—So, to some degree, there needs to be a filtering-out. Maybe that could be accelerated, but what I am saying is that within year 1 most of those people will be gone, and if we could prevent them spending a lot of money getting there, then great. But, also, year 1 is when they learn about themselves and their business and what their dream for the business really is. Unless they have already been in business and are in a second or third start-up, in that first year what they want out of their business, what they think it is going to be, changes dramatically, and it is almost not worth doing plans that are 12 months long because within six months that plan could be thrown out and you would have to start again because it is so different.
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Mr NARDELLA—I find that really difficult, because it is the first thing you do. If you have not got a business plan, you are doomed to fail—a business plan that is, essentially, a flexible one. Mr BROOKE—No, I did not say that they should not have a business plan. I said you would not want to plan for 12 months. You have to plan for, say, three months in the first year or two, not 12. But the reality is that most businesses in their first five years do not have a business plan and, if they do have one, it is one that they put together because it was required to get funding or for some other reason, and they do not use it. Yes, I totally agree that they should have business plans, and part of the advice would be about helping them to get those, but certainly in year 2 and year 3, in that first three-year period, is when they really need to get the help, and they cannot afford to. They will pay money for it, but it is relative. I can give you figures. I would normally be doing an assessment and a business plan for, say, $3,000 to $4,000, and that is going to be quite a substantial plan that includes cash flow forecasts, and actions, including marketing type actions, and what they need to do. With microbusiness, at that price I would get none. No tiny businesses would be doing them unless they have been in business before and have the funding. With my involvement with home business, I recognise that there is a vast need, so I have halved that and I have been offering $2,000 plans, basically working at half what I would normally work for, to try and encourage some of these businesses. At that rate, I could probably do 10 a year, and these are businesses that do not have any money, can hardly afford to, but are the very motivated ones that will invest that kind of money. My point would be that even that is probably too much. There could be a subsidised approach. There need to be people in my type of business that are very motivated to help tiny businesses, because the money is not going to be as good as it is with larger businesses. They need to be very motivated and have the appropriate experience, and not be there to just sell DVDs and books—and a lot of people that are acting in that space basically sell books and DVDs—and perhaps there could be some kind of subsidy to get it to a level where those that are motivated can afford to take that plunge, because if I am working with two or three microbusinesses, I have three or four sitting there that really want to do it, and they have told me they want to do it, but $2,000 is just such a huge barrier. Mr HODGETT—Thanks, Daryl. There are some real key issues that you have listed in your submission, which is terrific. Do you interact, though, and use government services to help address some of those key issues? Mr BROOKE—I do not think there is really potential to get government help with some of those. Mr HODGETT—With Business Victoria or the council's economic development unit? Mr BROOKE—I have spoken to them, yes, but I just do not think there is funding available unless it is going through, say, a network like Home-Biz. I do not think there is funding available for microbusinesses. Most of the funding that I have seen is available to businesses that are employing more people and turning over larger amounts. Mr HODGETT—Not necessarily funding, though. What about business support and development, or referrals? Do you use some of those services? Mr BROOKE—Going to the websites? Mr HODGETT—Online or in person, yes. Mr BROOKE—I can, but if I am talking to a small business owner that has not got the money, what I would usually do is refer them to the government business website, to the local council and to the local TAFEs and say, 'Go and see what's available to you that suits you,' but most of them—no, I should not say most of them—many of them do not do that. Mr NARDELLA—Why not? Mr BROOKE—I think it is because they are just so busy working in their business.
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Mr NARDELLA—So busy working to fail. Mr BROOKE—Exactly. Where they need the help is in their business, so when I am working with microbusiness I am sitting in their house working with them, and I am doing it on the weekend and in the evenings, because they are out earning a living for the rest of the time. But many small businesses do get some help and advice; they do obviously use those services. The part that they miss out on is the strategic advice. They end up with business models and business practices that are limited by their own ability to manage and lead a business and the only way they are going to get beyond that is if someone actually does an assessment of their business—someone who knows. You cannot get it from being in a network or going to a website. It means someone spending a number of days on it, probably. I would spend half a day with them, talking about their business. We have tools to use that quickly get to the good bits about their business, because they cannot afford for me to spend a week with them. Then I would go away and analyse what I know, ask them more questions, talk to them about what the beginnings of an assessment is, and then start working on, 'Right, this is what you need to work on. These are your priorities.' That can only happen with people who are experienced in business and can quickly assess a business and what is strong and what is weak within a business. Mr HODGETT—We heard in an earlier submission about some difficulties in getting taxis and couriers to Nillumbik. Do you get feedback that that is an inhibitor to business—and also communications, access to broadband? Is courier service an issue? Mr BROOKE—Yes. Specifically in Nillumbik that is an issue. I have had clients that are tiny businesses that have grown and need to get premises, and all of them have had to leave Nillumbik because they just cannot get a location. They have plenty of colleagues in microbusiness who they cannot send larger files to because they do not get broadband, so that is an impediment specifically to Nillumbik. I wanted to try and keep my submission more broad. Mr HODGETT—Yes, that is all right. Mr BROOKE—Although I would like to work just in Nillumbik, I work in a greater area than Nillumbik at the moment. Mr HODGETT—Daryl, some of the small business home based networks that I talk to say that one of their problems is that they do not know how big their membership is, although they know who is a member and who has sought help. Does your organisation actively go out and seek to get members that are not currently members? If so, how are you going about doing that? How are you identifying the home based businesses out there that you have never had contact with or the council has never had contact with? Mr BROOKE—We promote through local newspapers and so forth, but by far the most effective way is word of mouth. When you are in a larger business, a lot of business development and personal development happens just by sitting around and having a cup of coffee, but when you are in a tiny business there is very limited opportunity for that, so microbusinesses are good at networking. If you go into, say, Nillumbik, I would go so far as to say that every microbusiness and home business out there knows and probably talks to at least two or three other small businesses, whether they are suppliers or whatever, and becomes quite close to them, so word of mouth is the best way of making them aware of something like the Home-Biz Network. Mr HODGETT—How good is your data, though? Have you got a potential size of what your membership could be? Mr BROOKE—We have a database, and Julie could answer better, but we would have a few hundred on the database—people who have expressed an interest in the Home-Biz Network—probably 300 or so. Ms FRENCH—Nearer 400.
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Mr BROOKE—Nearer 400. That is probably a quarter of the home businesses and tiny businesses that are out there. Then we have 80 or so that are actually members. Mr NARDELLA—Do you use the small business mentoring program or do you refer people to it? Mr BROOKE—The mentoring program? Mr NARDELLA—Yes. Mr BROOKE—I am probably not so aware of the small business mentoring programs. I am aware of NEIS, obviously, and I have been to the small business websites and seen the mentoring program and wondered whether or not it would be something I would be involved with, but that is as far as my experience has gone with that. What I could add is that there is certainly a need for mentoring, but I think within this period that I am talking about, in the first three years, there is a need for assessment as well. I do coaching and mentoring separately, but what I find is that it could take me six months or a year, and I may never really understand that business and what the issues are because I have never gone through a structured assessment of that business; so I think there is a need for an assessment in there, and then mentoring after that, certainly. Mr NARDELLA—When do you hold your meetings? Are they in the evening, during the day? What works best? Mr BROOKE—It is a mix. We have a breakfast that is just at a local cafe once a fortnight. About 20 people attend, off and on, but we would always have 10 to 12 there. We have evenings where what I would call relatively professional speakers come along, and we have annual activities and professional development and expos and things like that. Mr NARDELLA—How many people did you get through your expo this year, a couple of weeks ago? Mr BROOKE—A few hundred went through. What is, to me, most important is how many actually exhibit. It is a business to business expo. The biggest outcome is the amount of networking that happens among the people that spend half a day together. Then a few hundred other people come through and network as well. It is not really a big selling opportunity; it is really a networking opportunity. Mr NARDELLA—Whereabouts was that held? Mr BROOKE—In Diamond Creek at Ashton Manor, the reception facility there. The CHAIR—What types of small businesses do you run? Is it fashion designers, photography? Mr BROOKE—In Home-Biz? The CHAIR—In Home-Biz, yes. Is it accountants, architects, draftsmen? Mr BROOKE—Certainly the majority are business services. I am not sure what it would be now. Perhaps 70 per cent are business services, and mostly professionals, so they are accountants, bookkeepers, probably three or four consultants similar to mine, various other forms of consulting, graphic design. Because of where we live, there is probably almost a tree change type of element: they have had a gutsful of working in the city and trying to get into the city and so they have set up their own business. There obviously are a number of craft type businesses as well, but in the network they would be a minority, and perhaps it is because it is a lifestyle choice, and many of them have been doing that for a long time. The rest are small franchises and other small businesses that can be operated from home or that cannot afford to operate from a premises yet. Mr NARDELLA—Do those franchises get business support? Do they get services from their franchisor?
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Mr BROOKE—They probably do, but the ones I am thinking of are the smaller franchises like Jim's. Because they cannot afford to be going to conferences once or twice a year and that sort of thing, it is more about inquiries and accessing websites; that is the sort of support that the smaller franchise is getting. Again, that would be a minority, but it is that type of business. They purchase the franchise and start operating from home. They are looking for where they can get some help to grow their business, and they end up in the Home-Biz Network. But easily the majority are business services, and maybe that is because of the area; I would not really know. But lots of home businesses are professional services, and maybe it is because professional services are easily operated from home, as my business is. The CHAIR—What about paramedics—physios, chiropractors, psychiatrists? Mr BROOKE—Yes, there are a lot of health practitioners—alternative health practitioners as well. We have chiropractors; there is a first aid teaching company; dog kennels. There are some businesses that, by nature, are home businesses—for instance, dog kennels are usually a home based business. But invariably the businesses that join us do so because they are looking for support and help in their business. They do not join because they are trying to get referrals. They need someone to talk to and that is what they find. It is not easy to find one-on-one help when you are a tiny business. The CHAIR—Would TAFE or other educational organisations run any courses to assist or promote that? Mr BROOKE—There are some, but most of the microbusinesses that I deal with, if they have done a TAFE course, they did it before they started the business. Once they are in the business, the TAFE courses tend to run too long. I do not know exactly what it is, but when I suggest that they go and look at TAFE courses, not many seem to take them up. I suspect that it is because they go over too long a period and they want something that is quicker. When they are asking, 'Where can I learn about marketing?' it is because they want to do something now. I have not done any research on why they have not used a TAFE but my view would be that not many do. The CHAIR—Anything else? No? Thank you very much, Daryl. We will send you a copy of Hansard in due course. Mr BROOKE—Thank you.
Witness withdrew. Committee adjourned.
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Outer Suburban/Interface Services and Development Committee