![Westpac's Alastair Welsh says small business owners are smarter about their dealings than ever before.](/content/dam/images/1/3/b/4/0/o/image.related.afrArticleLead.620x350.gsk7b1.png/1478588451789.jpg)
There's a sea change blowing through Australian business, and it's around collaboration. One of the most striking findings of the Businesses of Tomorrow Report, commissioned by Westpac and conducted by Deloitte Access Economics, is that Australian businesses are realising that success is not just about beating other businesses – sometimes, it involves working with them, collaborating and creating shared value.
The Businesses of Tomorrow Report found that through complex supply chains, many businesses rely on other businesses – more than half of the smallest businesses receive most of their income from other businesses, according to the report. Collaboration between businesses – some with the capital, some with the new ideas and others with market reach – will generate value both for the businesses and have broader benefits for Australia's economy and society, going forward.
Alastair Welsh, general manager, Commercial Banking at Westpac, says there has been a shift of mindset since the global financial crisis, as business owners look to where they can generate growth. "On the macro position, Australian businesses are in good shape – we have GDP growth running at 3.3 per cent and unemployment and interest rates at record lows – but there is a reluctance to commit to transactions. All things being equal, we should see business confidence a lot higher and investment a lot stronger – but we don't."
Part of the reason why, says Welsh, is that business owners are unsure of where growth is coming from, and whether the way they conduct business is enough to generate it in the business environment they face.
"Much of the success over the past five years has come through business owners driving productivity and managing efficiencies, which are great things to do, and because of that, Australian businesses are generally in good shape. But a lot of business owners that we talk to say that they can't stay on the same business model unless they can start to unlock growth. The learning from the past five years is that if they're going to unlock growth, they have to think about how to work with others to do that," says Welsh.
Desire to share
Where historically, business owners have been prepared to back themselves on their own, they are now actively looking to collaborate with other businesses, he says. "This could be working with joint ventures or working in other partnerships. People realise they have expertise and skills and there are other people who specialise in different skills in particular areas and we are seeing a strong desire for people to collaborate and work together to drive top line growth."
Small-to-medium sized enterprises (SMEs) are a major player – and beneficiary – of this wider collaboration, says Welsh. "Previously bigger businesses might have invested in and had bigger teams. Now, in the collaborative world, we're seeing that they'll partner with a small firm that specialises in a particular industry, and we're seeing far more smaller businesses drive a lot of their value from working with big businesses.
"Some of our small business clients are first-class and very robust, and have great business ideas, and our role is to back them to be able to support the bigger businesses. That's a big trend we're seeing around collaboration with businesses and how do we help in that – I think it's helping small businesses have the firepower and credibility to be involved in the value chain with bigger businesses," says Welsh.
As a banker, one of the factors that gives Welsh most confidence about the future for Australian small business is that business owners are much smarter about their businesses than before.
"I've been here since 1999 and I've just seen Australian businesses get smarter and smarter around understanding and the insights into their own business. I think that stemmed from the introduction of the GST – before that, people didn't have their financial information up-to-date. Now in today's world, people have partnered with their accountant, with business advisers and they have robust business plans that they want to talk to us about, and get our insights, and stress-test the business plans."
Growing demands
As businesses have become stronger in this way, they have become "more demanding" of their bank, says Welsh – and that's a good thing. "Our knowledge of cash flow and cash flow lending has had to step up, and we've invested big time in that by educating our bankers. Historically, businesses would borrow against an asset, but now, with the next generation of business owners, a lot don't want to own traditional fixed assets. Their asset is their IP or idea and the cash flow that will be generated, so as a bank, we've had to make big changes."
This has brought the bank into the new collaborative mindset, he says. "Historically, we would say, 'give us your financials so we can review them'. Now, our clients are saying, 'you've got my financials, how do you think I'll perform, what do you think I should be doing?'. They're asking their bankers, 'what would you do if you were us, how can we be efficient, how can we fund this and earn the growth we want?' and we have to bring ideas to the table," says Welsh.
That does not mean the old disciplines of banking are outmoded. "We still want to see the business plan and the rationale behind it – we're not banking the idea without the facts – but it's a far more collaborative partnership approach that we are being asked to take these days, and I think that's really positive," he says.