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

New Economy Hides a Radical Change

It seems there’s gathering momentum that a New Economy will emerge in the UK post the financial sector meltdown and it will be based on manufacturing – that was the message I took from a Policy Exchange meeting at the Royal Institution today.  Well, that’s a load of twaddle of course because what people really mean is some re-balancing between the sectors, whilst we must mention ‘services’ too because actually that’s where we all work more or less isn’t it?  It is a serious point though and we really do need to stimulate manufacturing because we quite simply look a bit underweight against certain peers plus we need more output that is as readily exportable as manufactured goods.  Otherwise what’s the point of being a trading nation/ an open economy? Clark demonstrated great mastery of his brief and offered thoughts on what might be done about things if the Tories get in next year.  For a start, he doesn’t like the idea of supporting national champions and he feels government needs to really understand the value chain before it offers support.  Regarding the latter he cites a previous government’s mistake in championing chip manufacture as a way to profit from the computer boom (“fortunately they went bust before we could waste any more money”).  He also showed a good grasp of the dynamics in the entrepreneurial sphere – the need to create and support the fast growth companies and the problems facing the VC industry in playing its part in that.  He was at pains to say that the Tories’ policies are known only to George Osborne so we can but hope that Osborne is listening to his elders – for now though it was mission-accomplished for KC as we all felt soothed.  Meanwhile on the Labour side there was a lot of endorsement for some things that have been brought in – not least the Technology Strategy Board which many people felt was the right configuration at last – even if it’s underfunded and hasn’t quite got all its ideas up and running.  If we do indeed change government will they be big enough to keep the good things that have been achieved?

Meanwhile I can’t help feeling that debating the nuances of capital allowances, R&D tax breaks et al might just be a case of ‘fiddling whilst Rome burns’.  Aren’t we in the middle of a massive economic crisis – one that has yet to properly impact most of us?  Another fairly recent report highlights the role of Defence and related industries in the UK economy… written in an effort to stave off cuts to the sector.  Those cuts (as surely there must be some) could have a huge impact on manufacturing in the UK – directly and indirectly.  Right now the focus seems to be on reducing the wage bill for government bureaucrats working in Defence and some talk about all our troops getting the equipment they need.  I cannot help wondering though whether that equipment is in fact going to be needed.  Whilst trying to steer clear of party politics, it strikes me that the warning bells from all points about the Tories’ ‘Little Englander’ stance are well founded.  Norway, yes Norway is being mentioned as the model towards which the Tories would like to work.

It’s all so complicated and beyond simple measures how on earth can the politicians sort this all out?  I really would like to see a high-tech manufacturing-led recovery but I wouldn’t bet on it would you?  I’ll stop on that sobering thought.

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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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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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