Enterprise and Merseyside

‘Everything we cherish about this country can only be built on the bedrock of a flourishing culture of enterprise and achievement.’ – Gordon Brown, 2004
As Chancellor of Exchequer, and now as Prime Minister, Gordon Brown is putting some energy into the drive for a more enterprising culture in Britain; he has promised that he will cut tax and regulation for small/medium business, that he will inject a measure of enterprise into the education system, that he will work to improve the image of enterprise and break down the barriers to business.
All excellent news, and things are changing, slowly. Graduates are far more likely to want their own business, far more young people than before see business as a high status activity, and across the board people want to become their own boss rather than work for one.
But – and it’s a J-Lo sized but – they don’t know where to start. The biggest mental obstacle is the fear of failure; this is still a highly risk averse culture.
The single biggest barrier to setting up in business, however, is lack of access to money. A Treasury report in 2004 picked up nothing new – there’s a big gap between those who want money, and those who have it to invest. Tax breaks like EIS (enterprise investment scheme) have had an impact, but it doesn’t help those without the spare £10,000 to invest.
There is a vast amount of institutional money looking for good homes, but apparently few businesses they deem worth investing in. It seems that as well as an equity gap, there is a communication gap. Actually, there are several – between various segments of the business community. The North West is one of the UK’s worst regions for believing that one should or could start a business. So do we organise therapy to improve self-esteem in entrepreneurs, or business skills classes?
Can you teach enterprise? Entrepreneurs are born, not made, but some of them may need their eyes opening to the possibility of using their natural talent to grow a business. Young Enterprise is a superb example of how to introduce teenagers to the world of business – kids need to know that an entrepreneur can spring from any background, regardless of age, education, gender, class, nationality, religion, or fashion sense.
Whatever information is needed can be read, bought, or found on the net; business success can come at any age, and the world is big enough to offer markets to everyone who can identify the opportunities.
On Merseyside, social enterprise is taking hold, with the number of small community businesses being started, funded and mentored to success. Unless we do something proactive to take the whole region – including the disadvantaged areas and the disaffected people – with us on the economic revival, the place will polarise and will be in danger of splitting apart again.
For once the government and the private sector are in full agreement. So let’s spread the message and hold the government to its promises.

• 7,000 people were surveyed recently; a year later of those who said they were planning to start a business, 15% had taken action, 53% were still thinking, and 32% avoided the question.
• In 2004 there were 3.7m SMEs in the UK, of which some 2.5m are self-employed individuals. As a whole they produce 4% of GDP, have annual turnover of £1 trillion, and employ 12 million.
• Blue collar startups account for 55% of all UK new business registrations.

Are you an entrepreneur?

What is an entrepreneur? The media these days seems to equate an entrepreneur with the owner of a business, be it local or global.
Ask the proverbial man in the street for the name of an entrepreneur and you’ll hear Branson, Bill Gates, Stelios. Locally, it might be Malcolm Walker, Steve Morgan, John Hargreaves. All well-known business figures who have built a business from scratch and made a high-profile fortune in the process.
But is every business owner an entrepreneur, and is the boardroom table the only place to find one?
No, of course not.
There are thousands of businesses run by individuals, families, and partners who only want to make a decent living and have little interest in fast growth: they would be better described as owner-managers. The business owner who claims to be an entrepreneur might have the soul of a manager and be, if not allergic, to risk, having what the doctors call an intolerance to it.
A corporate finance expert put it this way: ‘Managers want rewards with no risk. After two hours in the first meeting, managers’ eyes glaze over and they tend not to come back for the second meeting.’
On the other hand, inside organisations, whether it’s a small company, the local authority, a FTSE 100 corporation, an orchestra or a physics lab, there are entrepreneurs: people who spot opportunities and are prepared to take a risk, work hard, make changes and push things forward. These hidden entrepreneurs might be anywhere: the call centre, the shop floor, the second violins, the R&D department, even the council chamber.
It doesn’t matter whether you have a PhD or left school without taking an exam; whether you come from Kensington L6 or Kensington SW1, speak Scouse or Serbo-croat. If you have a winning idea, energy, drive, are prepared to listen and learn, can find good people to join you, others to help you, and are prepared to take risks, then the rewards are there for the taking.
What about the difference between an empire builder and a serial entrepreneur? It boils down to personality. One entrepreneur might have a passion about building one company that will dominate the global market: Bill Gates and Microsoft, for instance. Another might adore new ideas and the buzz of fast growth, so creates, builds and steps back from each business as it becomes established. Richard Branson, or Stelios Hadji-Ioannou, who try very different markets: music to airlines; airlines to pizza. They are the tip of the spearhead, they are the innovators, pattern-breakers, enthusiasts for the new.
There is a difference between a true entrepreneur and an opportunist, however: an entrepreneur wants to change the world; an opportunist only wants to make a quick buck, get out and move on.
Self-awareness is key: what do you want out of life? What are your strengths? Where does your talent lie? And how can you compensate for your weaknesses?

• entrepreneur:
1. A person who organises entertainments, esp. musical performances.
2. A person who undertakes or controls a business or enterprise and bears the risk of profit or loss.
3. One who seizes an opportunity for profit

• enterprise:
1. An undertaking, especially one that is bold, hazardous or arduous
2. Disposition to engage in enterprises; initiative and imagination

Who wants to be a millionaire?

What do management teams expect when they start the management buy-out trail? Is it really possible to trouser a million quid at the end of three years if you don’t have a pile of cash to put into the business? Apart from the Lottery and winning Pop Idol, there are few quicker ways to make a fortune and stay out of jail.
This is crudely how it works. Two managers buy out a company for £1.4m; the managers put in £50,000 each, the bank puts in £300,000 and the VC puts in £1m.
The VC wants an internal rate of return (IRR) of 30% and an exit after three years, by which time they reckon the company will be worth £5m. On that IRR, the VC’s stake ‘grows’ each year by a compound 30%, so in Yr 1 it is £1m; in Yr 2 it is £1.3m, in Yr 3 it is £1.69m, and at the end of Yr 3 it is £2.2m. That is 44% of the company‘s £5m value. So although the VC has put in far more cash than the management, they take a 44% stake, leaving the managers with 56% of the business.
So if, after three years, they sell the business for £6m, slightly more than estimated, the VC will get £2.64m, and the managers will walk away with £1.68m each.
Dividing the equity pie is not necessarily down to personal wealth, either. VCs look to buy-out candidates to put up enough of their own cash to motivate them, but the stake is also based on non-financial contributions, recognising leadership, for instance, or IP ownership. The man with the million-pound brain may be worth at least the same stake as the one with all the cash.

• After the buy-out of the camping equipment chain Milletts, every £100,000 invested by the management team turned into about £40 million at exit. No chickenfeed.