It's a Jungle Out There

I spoke at a recent Insider Spark event on the subject of 'What Education Can Do For Business'
In my experiences partnerships only work when both sides get something out of the relationship and ideally this happens when the whole is greater than the sum of the parts, creating a virtuous circle of success.

Mary Walshaw, the founder of Connect San Diego, talks about Shared Risk and Reward, and a collective sense of ‘ownership’. Community over individual institution or company. She also talks about creating an innovation ecosystem that is more rainforest than plantation. New ideas form at the intersection between disciplines, where cross fertilization occur, serendipity plays it part and diversity thrives in some chaos.

Now I am not saying orderly process and a commercialisation pipeline do not have a part to play, but innovation is non-linear and trying to select the winners and losers at too early a stage is not necessarily useful or doable. A vibrant innovation ecosystem gives new commercial concepts and ideas a fighting chance. Yes, if they do have the right DNA to thrive then the plantation analogy takes hold and that is where real VC funding comes into play. Once something emerges from the 'forest' that looks promising, then the emphasis needs to shift towards control, replication and development with a 'plantation' mentality to leverage value. These stages of a companies development are very different and the people that revelled in the early-stage anarchy may not be best suited to raising things in straight lines to regimented schedules.

But at the Proof Of Concept and Seedcorn stage you have to accept failure is necessarily omnipresent with success. There is a tendency to want to wait until something is proven before wanting to invest in it. We all want to make managed stepwise progress that avoids the risk of failure. The fact of life is that no matter how carefully you plan, you can't avoid making mistakes as part of the journey. Being too focused on the certain winners can be counter productive to the health of the overall ecosystem.

The key question is whether this early stage funding and support is seen as being focused on maintaining the diversity and health of the innovation jungle or is it to grow good ideas in plantations?

A Debt to Equity

A new website http://www.firstfunding.org/ focused on raising debt financing from Business Angels has recently launched which is extolling the virtues of companies of this form of finance, rather than equity funding. As they note, most funding rounds for early stage businesses may incorporate a mixture of debt and equity, normally with the equity funders leveraging off the debt funding that is available from government back schemes, such as the Enterprise Capital Fund. Therefore, I am a bit bemused that the website leads on debt financing.

Making money by lending to companies the banks won't back is a tough ask without the equity element. The reality for most Business Angel deals is that the ones that fly need to pay for the ones that don't and no matter what interest rate you apply to a loan, the reality is that participation in the equity upside is required to make the numbers add up from a portfolio perspective. Our own FastInvest loan scheme seeks to do this by us agreeing with the company an appropriate equity option. Obviously not all companies we back will go on to greatness, but if some do we have a chance of getting back more than the accrued interest and capital.

There is a danger for many young businesses that they take on too much debt too early and not enough equity. Connect Yorkshire exists to help companies make the right funding choices and we offer impartial advice. Just as with the banks, making loans to companies requires that they generate sufficient cash flows to repay on the agreed schedule. The great virtue of equity is that there is usually no obligation to repay it unless there is an exit for all shareholders. Between pure debt and equity are a range of instruments to balance risk and reward. Attending our Investor Readiness Programme that gets underway on the 22nd April is a great way to get to grips with this subject. Why not register to come along and learn more about debt and equity funding!

Is Planning 20/20 Vision?

Someone once said making predictions is hard, especially about the future. So while the G20 where planning our collective futures, the 20:20 Vision event last week featured Mark Faulkner, a former colonel in the Royal Dragoon Guards, who talked about "Fighting the tactical battle whilst winning the war against the economy". So what can waging war teach us about business? Well, quite a lot actually!

'Effect Orientation' was a major theme. Your soldiers (employees) need to understand the intent and context i.e. what your goals are and what stands in your way. The 'How' is devolved down, allowing initiative within constraints. The ultimate goal is to achieve a common purpose, not necessarily just to follow due process that gets you nowhere. This allows proactive action and initiative, rather than just being reactive to the enemy (competitors).

Colonel Faulkner put forward a framework (not a process) for thinking about planning a campaign:

1. Identify the What and the Why.
2. Define what you know and don't know
3. What resources you have
4. The actions to take (which lead to effects)
5. Timeline (when to do things in a synergistic or harmonious way).
6. Monitoring
7. Control

Mike Briercliffe commented in his summation"No plan survives contact with the enemy", so the ability to be adaptive and resilient is just as important as a well thought out cunning plan! However good it is, it's going to change as you engage reality.

For those of you involved in software development this has parallels in object orientated development where the focus in on identifying decoupled activities and focus on the external impact of objects, rather than the internal workings. This also emphasises hierarchical decomposition and solving independent subproblems in parallel.

One attendee commented that this theme might be incorporated into our Investment Readiness Programme. I couldn't agree more! Everyone in business is waging a war on uncertainty and making decisions with limited information. In any campaign, effect orientation (what difference an activity or action makes) is the key.

Another key point was in resource limited situations, you don't simply respond by spreading your jam uniformly thin, but focus resources where they can make most impact. Companies that are responding to the recession by simply freezing wages or cutting marketing budgets may end up surviving the battle but lost the war.

Are Two Heads Better Than One?

The controversy surrounding Sir Stuart Green's stewardship of Marks & Spenser by combining the Chief Executive and Chairman role has resurfaced once again with shareholders up in arms that so much power resides with one man. They are right to be agrieved that anyone, however good, believes they alone can be relied upon to deliver superior returns for shareholders.

Any good CEO needs a good chairman - the two roles are different and necessary. Even small SMEs can benefit from the perspective an external chairman or mentor can bring to the company. It is widely recognised that a CEO can perform even better with a sounding board for his or her ideas. I would be with Sir Stuart in resisting having an executive chairman on board. Anyone full time in the role is simply going to get in the way operationally and loses that all important external perspective.

Similarly, I am not a fan of joint roles and responsibilities, which just serves to be divisive and confusing to other staff. If you have functional heads accountable for the performance of the company in that area then that focus is beneficial and good. Everyone needs to be part of the team, but in the end someone needs to do something to move things forwards in specific areas. I do hope that Sir Stuart is a good delegator because doing the work of two people (as soon as you can afford not to) ain't a smart move in business, however good you are.

Taking The Plunge In A Recession

Some top tips if you are thinking of starting your own business:

1. Do not be put off by the downturn. Many companies will be reconsidering their cost base and you may be able to offer a more cost-effective solution. Adversity stimulates change.
   
2. Don't leave your job too soon. Develop your new project at weekends, in the evening or in your lunch break for as long as you can. You need to keep the cash coming in and when you make the leap, make sure you are not going to run out of it.


3. Do not take on overheads. Fancy offices and expense accounts can wait. Be ruthless about keeping fixed costs low.


4. Do not spend money on shotgun advertising. PR and targeted advertising is a much better bet for a young company.


5. Do not engage expensive professional advisers too soon. Learn the basics yourself and tap into free advice available from the likes of Business Link and Connect Yorkshire!


6. Do not rely on bank debt exclusively (chance would be a fine thing). You need a range of sources of finance. Equity, leasing, invoice discounting, customer discounts to pay upfront (or even before you can ship anything to them if you can).


7. Do not be too ambitious, too soon. By all means dream, but set achievable goals and realistic targets. You need to get to base camp before trying to reach the summit of your ambitions.


8. Know your customer. Every product needs tweeking once the first customers get their grubby hands on it - don't expect to get it right first time nomatter how hard you try.


9. Know your market sell into it well. No matter how good you think you are, you need to beat a path to the customers door and not the other way around.


10. Keep going. You have to be in the game to win it.
    

To find out more about getting fit for finance and developing your business idea, come to our upcoming Investment Readiness seminars.

Reflections On The Enterprise Show

Having spent a day at the Enterprise Show it reminds me of the need to have an alignment from encouraging entrepreneurs to providing the right start up advice, access to finance, and networks to inspire enterprise and growth ambition. The right business support made available at the right time, especially so at the early stage, is essential for innovation to flourish. Most importantly, innovation requires strong and effective business networks. The evidence is that building a successful business is a contact sport and partnerships, teamwork and community are essential.

Physical closeness is undoubtedly important. Silicon Valley and the Cambridge cluster, the rise of the high-tech community around Boston and San Diego all have things in common, not least the active involvement a dominant research-led university. Yorkshire is blessed with not one but at least five world class academic institutions which not surprisingly tend to vie with each other for superiority which with this catalysing focus in mind is not necessarily entirely a good thing. Good networks and geographic focus can help to foster commercialisation and growth.

The Enterprise show is a good example of a key element that fills one of the gaping holes in provision - which is help for the general public to get their business idea off the ground. This is also the space where Connect primarily operates. It will be interesting to see whether the new innovation voucher scheme leads to more engagement between the general public and the universities in pursuing enterprise and innovation. They have thirteen in the region to choose from...

Is Research Opinionated?

Coming from a scientific background, my idea of research is to have a question, then collect evidence to inform it. The opinion formed or conclusions is the real crux of any research project and the ability to analyse and organise information to further the understanding of a subject - by whatever small amount - is what really matters.

Is a bunch of statistics and facts however well laid out a sufficient body of work to be classed as research? A recent piece of market research for one of our companies consisted of over 100 pages of information primarily extracted from Mintel reports. Similarly, I recently read a commissioned report that purported to be a piece of research, but again was just a collection of pertinent facts relating to a particular market and geography.

While no doubt this information is highly relevant and informative to certain readers, I question whether this should be called research. Or am I just being too protective of the phrase?