About Growing Entrepreneurial Businesses

Dynamic content on all matters to do with growing businesses from Keith Willey

Profits or Scale?

Let’s say you understand and accept that your business will not grow fast right from the start, that you know you have to start small and hone many aspects of the business before customers really start buying.  So how do you know whether it’s all going to be worth it in the end, that one day you’ll have a big profitable business?  Well the chances are greatly improved if you can make it a profitable small business to begin with.  That’s the thinking supported by some recent research .  If you manage to get sales to grow without figuring out how to make a healthy profit on those sales then it seems you are much more likely to fizzle out.  Last week someone told me about an IT business where growth has stalled and which doesn’t make money either.  Allegedly ‘you don’t make money in this business’ or so I was told, you just grow and then sell or I suppose just grow forever.  Well isn’t that a great illustration of what the stats tell us?  It pays to put growth on hold whilst you figure out how to make a big margin.  That way your chances of huge eventual success are greatly increased.  Conversely chasing sales in the hope that profits will follow can be a fool’s game.

This idea fits naturally with the concept of having some special advantage or differentiation over competitors – something which typically takes time or resources or both to develop.  The founders of Pret A Manger still only had two shops after five years of effort (and building advantage) so sometimes you might be in for a long haul.  If you are in those difficult early stages take a close look at whether there’s real profit – the difference between having it and not has a big impact on whether your dreams will come true!

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No Regrets/ Staying Alive until Plan B

Old Blue EyesThose of you who are doing anything in the mobile ad space will probably already have cottoned on to two voices of authority Helen Keegan of Beepmarketing and Russell Buckley of Mobhappy and if you haven’t yet, you really must!  The interesting fact is that they both started in a venture which a few of us funded out of London Business School called Zagme.  That venture goes in the ‘regrets’ section – i.e. we should have kept pouring money in to get through the dotbomb and overcome the fact that we were way ahead of our time.  How many people are trying to enter into that space now or believe it is going to be huge?  Lots!

As if to compound the regret I made an amazing (re)discovery today.  Sitting in a sunny Regent’s Park having lunch with Chris Havemann of Research Now! he reminded me that it was he and his cofounders who came along and bought the old hardware from Zagme when it went bust, with a view to scraping the customer lists off the server.  £12,500 was paid and boy did it leave a nasty taste at the time!  I assumed that it also faded away but no, Chris stuck it out and in the end after a desperate couple more years he found he could build an online market research panel on the back of the mobile customer lists he’d built up. 

With over a dozen offices around the world, an AIM listing and a market cap of about £60million he is a solid example of how hanging on in there until your Plan B comes good really pays dividends.  Fantastic result – for Chris and I think also for the Zagme pair who are at the top of their game even if we investors lost our shirts.  As Sinatra said “Regrets, I’ve had a few, but then again…..”

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Delusions in the Equity Gap

I just finished reviewing a pile of business summaries from people seeking early stage/startup funding. It reminds me about this ‘Equity Gap’ thing – the main reason why people cannot get funded is that they don’t deserve it. Period.

It starts with the people who have the germ of an idea and nothing else. I mean nothing else… maybe just a bit of googling around it. Sometimes less. In fact I have even googled around ideas sent to me and discovered plenty competitors that the so-called entrepreneur didn’t even know about never mind understand. Someone at 3i told me that new recruits used to have to take it in turns to receive the cold calls made to 3i – there were so many looney tunes that it was demoralising to do it every day.

These ones made it into harcopy for review.

These ones made it into harcopy for review.

Then when people have worked up an idea so that it is looking more like a real opportunity they forget that it is in fact new to everybody else and so fail to drive home the killer points about why it will succeed. Too often the summary is a sort of contents page of the business plan that omits the real hooks – the special things about the team, the market, customers, timing.

Anyone experienced in investing will tell you how jaded they get seeing people asking for money for ideas they haven’t actually spent time developing into real opportunities or seeing pitches that are dull and don’t sell effectively.

So now you want my ten points on how to get over this…. well there are hundreds of sites where you can get those tips. Apparently some people cannot even be bothered to read them. Rant over.

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Entrepreneurship UK: 2009

Spent the morning with Craig Kemsley and Mark McKenna of Deloitte and Phil Davis, business writer looking at this year’s survey results. Conclusions embargoed for now of course so here’s a link to last year’s report. We are picking up some interesting issues in this year’s results to explore…. the effects of current economic conditions of course and how they drive behaviour amongst entrepreneurial businesses.

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Credit Crunch Hype & Reality

The City

Reflecting today on the crunch and that somehow it doesn’t seem over, simply because we haven’t yet understood what happened. Chatting on the phone tonight with a pal Mark Fenton O’Creevy who related a story about the BBC seeking his input to a programme. They were attracted by his blog post “Has Robert Peston caused a recession?” It was an eye-catching headline but Mark’s concluding para was clear enough: “The media have an important role to play creating this future; they are not just disinterested bystanders. Whether they like it or not, journalists are not just reporting a financial crisis, they are performing it.”  Mark related how the BBC were disappointed that he didn’t have an ‘extreme’ position to take because they were hoping to set him up on TV with an equally vociferous commentator with the opposite view.  Mark’s point: the irony of trying to over-inflate an issue when that issue was itself about media over-inflation was lost on the BBC.  Maybe the BBC staffer had the wrong incentives?

Meanwhile had a visit from an ex-Lehman’s banker today who described at length the internal course of events before their collapse – essentially taking issue with what has been said in the media, for example by our very own Andrew Gowers.  My visitor’s final take though was an admission that any ex-Lehmans banker trying to defend the taking on and parcelling up of such a huge amount of toxic assets was like trying to “polish a t###”.

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Funding success

Just got word from Dave McDowell that he has closed a second angel round for FSBTech.  Online betting business with Andrew Black  as an investor – got to be a good sign right?

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Europe’s most enterprising place

Scarborough LighthouseI just got notice from UK BERR that Scarborough has been crowned Europe’s most enterprising place (see below).  This is amazing news when you see who they beat – for example look at the money spent on infrastructure in Valencia.  Never mind they obviously delivered a fantastic campaign so weel done to them.  Slightly muddled up my childhood memories of Scarborough beach though… “free wifi on the coast”? 

The reigning champion of the Enterprising Britain competition, Scarborough, is celebrating again after being named the most enterprising place in Europe at this year’s European Enterprise Awards. Run by the European Commission, the Awards saw Scarborough take the Grand Jury Prize, making it the overall winner, and in the jury’s view, the most creative and inspiring entrepreneurship initiative in Europe.

The seaside town was up against the best of European enterprise, including Finland’s capital city, Helsinki; Spain’s second biggest port, Valencia; and Liege in Belgium, known for its beer, chocolate and water exports. Despite its population of just 50,000 – tiny in comparison to its competitors – Scarborough’s work to encourage people to start-up and grow businesses and create jobs saw it awarded the top prize at a gala dinner in Prague’s Zofin Palace on Wednesday evening.

Part of European SME Week, which runs from 6 – 14 May 2009, the European Enterprise Awards recognise outstanding initiatives that support enterprise and entrepreneurship. The awards are inspired by the Department for Business, Enterprise and Regulatory Reform’s (BERR) successful Enterprising Britain competition, which celebrates and rewards the most enterprising places in the UK.

Congratulating the winners, Secretary of State for Business Minister, Lord Mandelson, said:

“A strong enterprise culture inspires communities and creates jobs – something which is vital during these uncertain economic times.

“I would therefore like to congratulate the Scarborough Renaissance Partnership on their success and in being recognised not just as the most enterprising place in UK but in Europe”.

Scarborough’s winning bid was led by the Scarborough Renaissance Partnership, a coalition of local entrepreneurs, Scarborough Borough Council staff and residents, which transformed what was a seaside resort in decline into a thriving enterprise hotspot. Achievements include stamping out seasonal unemployment, diversifying to grow new industry sectors and attracting more than £200m of private sector investment.

The Partnership’s work reduced the town’s economic dependence on the declining tourism and fishing industries, capitalised on the physical regeneration of the harbourside, kick-started a boom in business start-ups and introduced free wifi internet access along the coast, making the internet accessible to all.

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Banks for entrepreneurs – no more Mr Nice Guy?

There’s a steady flow of chatter amongst the business owners I meet about the behaviour of the major banks towards their SME clients.  Maybe this is going to lead to much better buying by the entrepreneurs and much fiercer competition between banks.  Here’s why this could happen…. but first please take the poll if you’re a business owner.

I have heard plenty of reports about the bank manager who says ‘off the record we’ve all been told not to….’ followed by phrases such as ‘…lend anything’, ‘…renew overdrafts’ etc.  In other words whatever discretion used to be available to the lending manager has been pulled.  The blanket policies cited – if real – seem pretty dumb too, often affecting growing businesses who have yet to feel recession hitting their finances.  One such story even got the banks mentioned on Twitter!  There has been positive PR in reaction of course – the banks occasionally quote lending statistics that would have you believe the complaints are in a minority.  Time will tell what the real picture  has been but I wonder how this episode might change the relationship people have with their business banks? 

For years it has been said that people overpay their banks because they don’t shop around and change to take advantage of the choices that exist.  Some people don’t realise what better terms they can get whilst others think switching is too difficult (it’s much much easier than you think).  The last recession was the one when the banks realised how unprofessional their internal systems were, allowing for example overdrafts to be used as permanent finance.  This recession they are up to speed and putting the screws on customers but maybe they don’t yet realise what the consequences could be.  Perhaps now business owners will say ‘no more Mr Nice Guy’ because they feel that is exactly what the banks are saying to them.  Someone once said ‘there’s more to a banking relationship than time’ and this is coming true for so many businesses – just when they really need their bank relationship of ten years standing to show some understanding they get a slap in the face.  Relationship? Fact is they always found a reason to put off a visit from their ‘relationship manager’ and anyway the bank doesn’t take it seriously either. 

Personally I think changing the bank-business deal would be an excellent development.  One freshly laid-off banker I know is offering his services to businesses as an independent advisor on how to get the best banking deals – I would really like to see him succeed and help lots of business owners improve their profits by keeping the banks honest!

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Accidental Entrepreneurs

FT: Accidental entrepreneurs

Accidental entrepreneurs

By Emma Jacobs

Published: March 31 2009 22:31 | Last updated: March 31 2009 22:31

Success by design: but it was a chance meeting that brought Greta Corke, Jon Sawdon Smith and Richard Woods (right) together as entrepreneurs

James Dunning may have started a business – Geotrupes Energy, set up to sell power from small wind farms to a large utility – but he claims to find the entrepreneur label “a bit repellent”. He tries to explain why he had never harboured ambitions to start a business: as well as distaste for the “entrepreneur” label, he says, there was also the lack of innate entrepreneurial traits (he describes himself as “risk-averse” and “an ideas desert”).

He had no desire to leave the security of his job as a corporate lawyer in 2003. “If you’d asked me 10 years ago to outline my future, ‘Not an entrepreneur’ would have been pretty high up there. If you cut me down the middle even now it would still say ‘suit’.”

Yet in 2003, he was made redundant from a failed division of utility company TXU, in a sector Mr Dunning had hoped would be immune to a downturn. His impulse was to update his CV and try to find another employer. But the prospect of a daily commute gnawed away at him. “I kept thinking if I get another City job I’m not going to see my four children grow up.”

So with an idea developed from “some work that had been going on [at TXU]…coupled with the input of the chap I ultimately teamed up with”, Mr Dunning became, in his own words, an “accidental entrepreneur”, setting up Geotrupes Energy in 2004.

While the stereotype of an entrepreneur is of someone born with a bullish zeal for business, the reality for many can be a confluence of chance. As Gordon Moore, the co-founder of Intel, said: “There is such a thing as a natural-born entrepreneur…But the accidental entrepreneur like me has to fall into the opportunity or be pushed into it.”

Chance meetings and luck – but lack of experience too

Chance can play a big role for entrepreneurs. For DIY Kyoto, the three founders’ biggest financial opportunity came about by luck: “It was accidental. A journalist wrote a profile on us for Blueprint [a design magazine] and then placed it in [the British Airways in-flight magazine]. We had tremendous interest from investors even though we were not investor-ready,” says Greta Corke, co-founder of DIY Kyoto, set up to market their home energy monitor, Wattson 01. Then followed a six-figure investment by bankers “who had made money and wanted to do something with it”.

But their lack of a business background also led to mistakes. “We did not invest in building a sales team early enough to capitalise on the opportunities…It can be hard to move away from being a designer and letting someone else execute the product,” says Ms Corke.

For Mark Greenhalgh, the transition from a caring profession as a family doctor to business also created problems: “I can be naive, I trust human nature. I’m not hard-nosed. I once believed I had sealed a big contract with a handshake – it came back to bite me.”

Keith Willey, professor of entrepreneurship at London Business School, says: “There is a lot of mythology around entrepreneurship. In reality, entrepreneurs are all types. Richard Branson is so un­typical. Most entrepreneurs don’t trade in the school yard. A lot of businesses are started by accidental entrepreneurs.”

Prof Willey says Mr Dunning is typical of entrepreneurs who get their ideas from ex­perience. “I see many people who have worked for a company – they may have proposed an idea that the boss turns down so decide to do it themselves. Entrepreneurial opportunities [can] coalesce when employees get stuck in their career or [are made] redundant.”

It was a combination of feeling stuck in his medical career as a general practitioner at the same time as gaining technical skills working in healthcare projects that pushed Mark Greenhalgh to set up a marketing agency, Flutter + Wow. “I felt a bit like a rat on a wheel…I needed to break free,” he says. Most of his clients are from the healthcare and pharmaceuticals sectors (“if you talk about something you know about, it helps”). Gradually, he is picking up contracts from consumer brands.

For some “accidental entrepreneurs”, the decision to set up in bus­iness may be down to chance meetings with certain people. Richard Woods, who graduated from the Royal College of Art in 2003 with an MA in industrial design, harboured no ambitions to become an entrepreneur, believing he would “work in a secure environment, possibly for Dyson”. But “it was meeting the other two [fellow RCA graduates Jon Sawdon Smith and Greta Corke] that made me think I could go into business.”

The three designers worked on a project start­ed at the RCA and developed a home energy monitor, Wattson 01. But it was not until they applied for a business development programme run by Nesta (the National Endowment for Science, Technology and the Arts) that the reality of being an entrepreneur sank in for Mr Woods. “I could see the potential of the product but it was going through the process of applying that I realised I wanted to commit to it. It made [me] realise we needed the motivation to see through the business.” The result was DIY Kyoto, set up by the three.

Sir Martin Sweeting went into business because it was the only way he could stay in the UK and work in the space industry.

“I’ve always been inventive and interested in practical things. When I was younger it was amateur radio, then Arthur C Clark and the moon land­ings happened and the two worlds came together. I developed a passion for small satellites, born out of tech and a practical interest.” But just as his interest was piqued in the 1980s, public funding for research in this area was wound down. “The only option was to get commercial contracts. The decision to go into business was a means to an end. I wanted to get money to do things that I wanted to do rather than money for its own sake.” An academic at Surrey university, he set up Surrey Satellite Technology (SSTL).

He says that money not being his principle motivation has, perversely, helped him become profitable – last year the company was sold to EADS for £50m. “If I had been focused on just business and making money, we might not have developed as we did. I wanted to make the UK the world leader in satellite technology. It took a long time to become profitable – 10 years. If I had been motivated by shareholder returns or profit we might not have made it. We had a couple of competitors whose focus was on profits. They went bust.”

While some may become entrepreneurs by accident, success takes commitment: “You have to work really hard,” says Dr Greenhalgh. “You can’t do it if you’re not strongly committed. You can’t be half-hearted.”

Mr Dunning agrees: “I worked hard and kept going with it.” He argues his tenacity was critical: “I have an ability to get whacked and still get up and keep going.” Prof Sweeting feels one trait has been key: “I was never frightened by financial insecurity. That gives you freedom – I wasn’t afraid of failing. Lots of people have ideas and want to set up businesses but fear failing.”

For an entrepreneur, there is no going back. After selling Geotrupes Energy (now operating under another name) in 2007, making a 30 per cent return for his investors and enabling him to take a break, Mr Dunning considered a return to corporate law. “I spent two months at a utility earlier this year and I really struggled. It suddenly seemed like a henhouse.” He is now working as a legal consultant. “I love the fact that I think about my business the whole time; in the shower, brushing my teeth…It’s a real buzz.”

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Cheap Computing

Would you prefer to pay £470 or £680 or maybe less for the same PC?  It is amazing how you can arrive at different prices for near-identical machines when you shop with Dell.  For a start you can go over the web and depending on whether you go the ‘Home’ user or ‘Business’ user route, by the time you have prepared the same spec online the prices can vary enormously.  Then, you have the chance to negotiate with a real person – in my case I just got a call from my ‘single point of contact’.  Is that a new initiative?  Anyway he dropped big hints that I could do a deal so am now in the midst of getting the price down.  Along the way it makes you realise how much unwanted stuff comes with a Dell PC.  Do I really need a new keyboard, mouse, trial software, trial internet access etc etc.  Just dont send me it!  Give me money off instead!

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Entrepreneurship and academia

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