Special Report
Entrepreneurs Forum Breakfast:Clear blue sky?
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It has been widely argued that economic recovery depends on innovation and entrepreneurship within the private sector. But what has been the experience of UK entrepreneurs in the current climate? Is the market being stimulated to support the evolution of new concepts and start-up businesses? Or is the scope for creativity being limited to established organisations, which are being driven to review their business model?
An Entrepreneurs Forum for hospitality, leisure, travel and tourism was launched this week, hosted by EP magazine and sponsored by IndiCater. Held at Kings Place in Kings Cross, North London, a group of leaders from all sectors of the industry met to discuss the question: Is the recession encouraging or stifling entrepreneurs? Chaired by Forbes Mutch, the former Editor of Caterer & Hotelkeeper, the group debated a range of topics including the appetite for investment and political support for developing businesses.
Sergey Brin, Google’s co-founder, recently said that “Scarcity breeds clarity: it focuses minds, forcing people to think creatively and rise to the challenge.” Whilst the group agreed that the recession has forced a review of procedures, perhaps the definition of ‘entrepreneurial spirit’ is not as traditional as it used to be, as the overall conclusion was that the recession appears to be sparking entrepreneurship within existing companies rather than encouraging new ones.
The forum’s discussion:
Scope of entrepreneurial activity
- The group was represented by a diverse range of companies from within the industry and included small and medium players looking to grow their business and who are presently in varying stages of growing a service or product.
- It became evident that the experience of the more established players was different, in that they had driven a complete review of their existing service in order to respond to increasing pressures from consumers in relation to price and quality. However, smaller operators looking to either build a new concept or grow through acquisition tended to find that a lack of financial opportunity was limiting their potential.
“The good thing about this recession is that clients are being braver about making decisions, they will cross that line as they have nothing to lose.”
“We are seeing opportunities for organic growth increase, particularly those that have struggled in the past 18 months. Their ability to service clients is inevitably weakened; that may be a reflection of our specific market, but it does present opportunities. Our view is that the UK is a big market, particularly next year and the year after. Prices in the UK will still be higher than in mainland Europe.”
“Should established entrepreneurs be encouraging new ones through providing mentorship?”
“We have not engaged in discounting of product, but we have had the opportunity to reflect and our business is in a sector which has remained relatively fluid. So we have introduced new entry level price points and still seen spend transactions increase.”
“The fact is that there is a generation of small businesses that will not become medium businesses, and I don’t think we will see the impact of this for about a decade.”
Investment and growth
- The availability of finance was a major area for debate amongst the group, with a number of delegates stating that their development plans were not presently being supported by the banking and finance community.
“There is no shortage of cash to support start up businesses, however, the questions are: what is the quality of the management team and what is their strategy for growing their business? We have seen investment in start-ups increase by about 2000%.”
“My view is that there is actually a lot of good talent out there, more good than bad. Our business has an established, talented management team and many years trading experience, we have new opportunities to pursue. But there is a huge caveat: there is no funding available despite this track record. We will get it, but it will be very difficult.”
“I think new ideas, pure start-ups, are being shelved due to issues such as private equity sitting on their hands.”
“People, including banks, like comfort – especially if it is not their specialism. It’s too soon for off the wall ideas, so if you have good cash flow then you have a better chance.”
“You have to look at where the opportunities for new business are coming from; about 50% of new ideas are from cash rich individuals who want to pursue something different. Middle management are putting their finger up to corporate players and walking away. The question is: what will happen to UK plc as a result?”
- However, Entrepreneurs and SME businesses looking for opportunities to grow their business agreed that the asset price for available businesses, even those in distress, was premised upon a higher multiple than what investors and entrepreneurs may be willing to pay. As one delegate put it;
“Someone needs to do the first deal that reflects a 2010 multiple. At present the gap in expectations for valuations is too big, using a 2006/07 price as a reference point.”
“I would expect to get up to five times as much for my money compared to five years ago next year.”
“I see a lot of new opportunities for next year. However, there needs to be a period of asset re-pricing and I think that has been a bit slow in coming.”
“The reality at present is that the companies approaching us are those that are in less good shape.”
“Even those companies with a strong balance sheet are exercising caution and I think this is a mistake. Now is the time to grow.”
Government support
- As the UK prepares for a General Election in 2010, the question naturally posed by the group was: how will this impact on UK business?
- A number of delegates made the point that support for entrepreneurs was needed now, not deferred until a later date and that more support could be given to growing businesses.
- However, the risk of inertia in government activity was considered to be a real challenge, as was the severe reduction in public finances.
“We assume that because there will be a change of government, that things will get better. However, we are in for a dose of medicine and that will not be particularly comfortable, particularly the reduction in public finances, so it does not necessarily follow that a change in government will become more business friendly.”
“Banks should not hold back for a change in government, opportunities have to be created now. Politicians don’t create wealth, entrepreneurs do.”
“I actually believe we will see VAT rise to 20% in the short-term future and that will have a huge impact on public facing businesses.”
“The British are good at handling a hardship, but not a lack of leadership.”
“Well, the British are also not good at ‘not knowing’ – the bigger issue is that we are now entering a period where very little will happen.”
Technology & Systems
- Ensuring robust systems and procedures to ensure integrity of data can allow a business to get drive efficiency and deliver quality. The point was made that a lack of systems to monitor financial and other operational information was impeding some organisations, even more established players. So what risk does this present in growing a business?
- There were mixed views on this point within the group; as some delegates noted that they had invested in systems to monitor customer trends, others noted that there was no substitute for operational expertise in ‘reading’ a business and adapting accordingly.
“We have seen increasing churn amongst Finance Directors and companies looking to outsource their financial function.”
“When not in a recession FDs can muddle through, however as the environment gets more competitive, it’s not as easy.”
“We are using technology to get closer to our customers, namely through a reservation system, helping drive our product development and analyse data.”
“Operations Managers must recognise the signs without data; they have to have a feel for the business. It’s not about black magic and voodoo, but a degree of business intelligence and being able to look at the sales mix.”
“But we’ve had a long period of calm and there has been huge level of disruption – have people become less agile?”
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