The UK is a hive of innovation. Revolutionary technologies are being developed here. Graphene, produced in the University of Manchester in 2004, promises to transform everything from electronics to plane journeys. This is just one example of many, and business secretary Vince Cable has pledged £50m to seven new areas of technology where the government thinks Britain could take a leading role.
But does the UK do enough to foster innovation and entrepreneurship? It’s often said that, although we have good ideas, it is outsiders who take them to fruition. A recent seminar hosted by the Guardian, and sponsored by Goldman Sachs’s 10,000 Small Businesses programme, looked at how we can create an environment in which entrepreneurs can flourish. A panel of experts and entrepreneurs recounted their own experiences, and then answered questions from the audience of small business owners. In a breakout session, small groups discussed the topics of support, culture and education.
Panellists agreed that the UK already offers a great environment for entrepreneurs. “This is one of the best places in the world to start a business,” said Tim Barnes, director of Enterprise Operations, University College London. Will King, who founded King of Shaves, agreed that there was plenty of support for setting up a business, including a “plethora of entrepreneurial platforms”. He had recently set up a limited company for his wife in two days – a process that 20 years ago would have taken weeks.
Access to finance is one of the biggest barriers facing startups – but entrepreneurs should explore the number of options available, the panel agreed. Barnes said there are three main sources of finance: grants or prizes, banks and venture capital. He advised entrepreneurs to apply for every grant or prize they could find:
“You don’t have to give away any part of your business and the money is free,” he said. “And if it’s a prize, even better, because the tax man can’t take any of it.”
Jenny Griffiths was able to vouch for the importance of grants. Four years ago she founded Snap Fashion, which enables people to take a photograph of an item of clothing and then upload it to find a retailer who stocks it. A grant from Innovate UK helped her launch her business, and then a year later the business won a Cisco BIG award of £100,000, which came with some helpful mentoring.
The role of banks
Barnes said that banks were often a tougher proposition. “Banks are given, historically, a large amount of stick for not being able to support small businesses,” he said. Some of that was deserved, he went on, but he added that some entrepreneurs mistakenly expect banks to give them credit for businesses that are “more venture than anything else. They want credit for things to keep a business afloat that may not be rescuable.” The role of banks, he said, should be to provide finances for mortgages, assets and purchases – things with “quantifiable cash flow that will be able to generate the amount of money that’s needed to cover the loan”.
When Autins Group, which supplies insulation materials, decided to expand, it was helped by a loan from Santander, but preparation was key, said CEO Jim Griffin:
“I knew my business plan: which customers, which revenue, gross profit. I knew my figures. I had learned them so they believed in me. And that’s critical. If they’re going to lend you a lot of money, they’ve got to trust you.”
The third major source of funding, said Barnes, was venture capital, which was plentiful: the UK receives 60% of Europe’s venture capital. “What usually happens is you get turned down because you can’t articulate why your product is different or you don’t have a decent market plan or you haven’t found the people who can make it work,” he said.
Not everyone agreed. Griffiths said that, although Snap Fashion had received £300,000 from venture capital, in the last year she has met a number of investors who, rather than investing in the firm, have offered to “help” her raise money for equity. She also said that it could be harder for entrepreneurs with little previous business experience or an unconventional background to attract investment, and that in the past three years she has taken on a strong team of advisers to counteract the risk associated with being a sole founder.
Crowdfunding platforms, such as Kickstarter and Crowdcube, represent a new source of investment for startups as an alternative to traditional funding sources. They work particularly well, participants agreed, with the kind of B2C products that capture people’s imaginations. One small business owner said that crowdfunding could have a dual function for a B2C business: as well as raising money, it is an effective way of marketing the business.
Although most felt that the UK does a lot to support business, there was room for improvement. Barnes argued that the current government belief that every county in the UK had to have its own entrepreneurial ecosystem was misguided. “The United States has two main tech clusters,” he pointed out. “We are the size of California – why on earth do we think we should have 30?”
Many attendees argued that the UK lacks an entrepreneurial culture, and that schools, in particular, were poor at teaching students about the opportunities for setting up their own business. One small business owner said that his teachers treated him as a pariah because of his desire to set up a business rather than apply for university. Another attendee, reporting back on a breakout discussion, said: “The culture is that we feel comfortable getting a job; that’s how we’ve always done it, and that’s part of what we’ve got to change. What’s wrong with feeling a little uncomfortable and taking a little risk?”
Entrepreneurialism and universities
Some also felt higher education institutions, particularly those teaching creative fields such as fashion and design, could do more to teach students about setting up a business. Others argued that universities’ attitude to entrepreneurship was improving significantly. Griffin said that Warwick Manufacturing Group, part of the University of Warwick, had helped the firm to grow, and that Coventry University was also working with business.
Several attendees thought that the UK culture needed to be more positive about failure and recognise that an entrepreneur might need to fail initially before going on to succeed. King said that he was actively discouraged from setting up King of Shaves:
“When I said I wanted to do this shaving business, they said, ‘It will never work, you won’t get anywhere’. Nobody wanted it to work. Then, when it starts to work there’s a bit of jealousy. But then, when it worked, everybody wanted to be your best friend.”
But there were also those who felt that it was too easy to become an entrepreneur. One attendee, reporting back from a breakout discussion, said that in the past, it was much harder to set up a business, and that those who lacked the drive to succeed were filtered out at an early stage. “Many youngsters believe they can be an overnight success,” he said. “They believe they can come up with the next YouTube video and they’re going to make a million by just getting some content out there.”
A strong entrepreneurial environment isn’t just about encouraging startups. Well-established businesses also need to be able to scale up, and sometimes that can be harder. Autins Group, founded in 1966, has, in the past three years, increased annual turnover from £5m to nearly £20m. Helped by its Santander bank loan, it did this in two ways: by broadening its customer base – supplying buildings with the heat shield technology it has traditionally supplied to car manufacturers – and by expanding into Germany and Sweden.
The question of international expansion is an important one for many growing businesses. Panellists felt that, for the most part, it was easier to expand into the US than into Europe. Griffiths said that Snap Fashion was making strategic partnerships in other parts of the world, but whereas the US was a relatively easy market to understand, Europe was trickier:
“When it comes to Europe, you’ve got to have so many different partners that it becomes quite difficult to manage all those relationships.”
Barnes said this was particularly true of consumer businesses: “The US’s great advantage is that it is a single market with one set of federal regulations. If you get into a chain, they roll you out nationwide, and that’s huge. You’ve got to do that 20 times over to get into much of Europe.”
In all, attendees and panellists were largely upbeat about the opportunities that the UK offers as a place to start a business, but agreed that sometimes established businesses need help to grow. As King said: “What we now need to have is entrepreneurs, to have not just a small idea but a small idea that can scale: an acorn that can grow into an oak.”
At the table
Phillip Inman (Chair) Economics correspondent, the Guardian and the Observer
Tim Barnes Director, UCL Enterprise Operations; director, UCL Advances
Jim Griffin CEO, Autins Group
Jenny Griffiths Founder and CEO, Snap Fashion
Will King Founder, King of Shaves
Sign up to become a member of the Guardian Small Business Network here for more advice, insight and best practice direct to your inbox.