Director general, IoD
HSBC regional commercial director, London
Managing director, Molinare
Managing director, Stage Technologie
Chief executive, Casna Group
Chief executive, The Consulting Consortium
Co-founder, Mr & Mrs Smith
Co-founder, Spinning Hat
Founder and director, Frontier Economics
Founder and managing director, Fluidata
Simon Walker Welcome to the IoD. It’s a great pleasure to host the discussion on entrepreneurship, as the spirit of enterprise has been at the heart of everything the IoD does since it was set up 112 years ago. Our Royal Charter charges us with creating conditions that are favourable to entrepreneurial activity and wealth creation.While we hear an awful lot about entrepreneurialism, it’s rather less fashionable to mention wealth creation – but that’s a shame, because wealth creation is job creation. It comes from risk-taking, innovation and understanding the challenges that face entrepreneurs. Like those around this table we, at the IoD, believe that a lot can be achieved by bringing together established directors with start-ups and people just getting into business, and the IoD is uniquely positioned to bring these groups together.It’s a really great pleasure to bring everyone here today. Let me pass over to our co-host, Carol Bagnald, to kick off proceedings.
Carol Bagnald Thank you. The theme for this morning came out of a conversation about where business confidence has emerged following the recession. We’re seeing that a lot in London – the indicators are very strong. At HSBC, we are keen to put funding into the market and this is highlighted through our recently launched £6bn Growth Fund.
Business confidence is up. For the first time the UK is the top G7 nation in terms of expectations. On the bottom line we’re seeing people investing in resources, expanding, and looking at new markets. There is a real sense of confidence emerging and that’s the background for the discussion today – so now it’s time to hand over to all of you.
My first question is about growth. Are your businesses growing? How are you doing it and what has changed as a result of the recession?
Nick Appell There is certainly lots of opportunity for growth but it seems that everyone, whatever industry they are in, is having to work so much harder to make money. Casna is a specialist contract cleaning company and we look after a lot of top-end London hotels.
From my perspective the really important issue is that the people we supply are looking after their own supply chain – that is so critical to the success of their business. It’s really important they don’t screw the margins down to a level where it becomes impossible to operate and that includes pay. If you have a solid infrastructure it allows the hotels to concentrate more on growth. So, yes, there are opportunities, but people need to work together much more, and look after their supply chain as that can help them grow as well.
Maurice Kindler We’re a men’s clothing company – we manufacture in Italy and the Far East, and supply major stores in the UK. One store, a big high-street name, used to closely guard their suppliers. They look after us and we look after them. Over the years margins were squeezed and there came a point when they said, ‘OK you can spread your wings, and you don’t need to concentrate only on us’. We could have seen it as a setback but we regarded it as an opportunity and adapted our business model. We became more creative and that opened doors for us. That’s the entrepreneur’s spirit.
Joanne Smith I agree. There are more innovative approaches now too. One of the big challenges for entrepreneurs is having the right resources at your fingertips. As a small company you struggle to compete with larger firms for talent. We’ve moved to more flexible resourcing. I run two businesses – one technology, one advising on financial services – and we operate a core nucleus of employees but also have 1,000 freelance associates we can draw upon without having the stress of the overhead. That’s helped us move our business forward.
Nikki Scott Do you think, once the job market warms up, you’ll struggle to keep those 1,000 associates? That’s our current challenge at Stage Technologies. We move scenery and fly people on wire above stages in theatres, which needs specialists.?Suitable freelancers with the right skills are in short supply and therefore often already busy with other work.
Smith Often the ones who want to play in the sub-contractor market are people who are coming to an age in their life where they want to have a different lifestyle. But that can be challenging because you are reliant on that sector of the population.
Julie Parmenter We find a step change for growth can be too daunting, especially with cashflow. Molinare is based in Soho, which has incredibly steep rent and rates so if we need another building, for example, the step change in the business is a 50 per cent jump, but there’s a risk of not having the client base multiply at that pace. The freelance model works well for us – let’s win more business, prove the client base is there and then look to take the step change.
James Lohan We started out as guide book publishers and ended in the travel agent website business. A lot of deal sites have come out of the recession, such as Secret Escapes and Jetsetter, but Mr & Mrs Smith chose not to go down the deal route. Everyone’s free time is important – everyone is working harder and we’re more connected – so we’ve tried to remain the site to go to if you’re looking for something really special. We’ve grown during the recession by offering a good product, better service and that trust element. I hope that standing firm to our roots will pay dividends, as people have a bit more money in their pockets.
Piers Daniell We’ve also continued to grow during the recession. Much of our competition has been eaten up or consolidated. What I’ve found is that every rule we had before that – for instance, ‘March is a good month, April is a bad month,’ – doesn’t apply now. And every year we have completely different stats as to where our business is coming from and how our business is growing.
Walker Dan, as an economist, do you think this is typical of the way the economy has handled businesses?
Dan Elliott I don’t think it is true across the economy as a whole. Some sectors proceeded very strongly throughout the recession, while others suffered. Our business grew continuously. In the advisory sector, where energy markets form a significant part of the client base, you are protected because the energy industry has been very profitable. The key for growth in our business is not so much infrastructure, it’s people. The majority of our costs are people but finding talent is a challenge. However, once we find it we don’t have a problem retaining it as ‘small’ is appealing to highly-talented people in our area.
Walker How important is innovation for growth and how do you get the people who work for you to be innovative?
Lohan Innovation is very important: there’s so much noise out there and if you’re a small company you’ve got to work out how you’re going to cut through that. Without innovation it’s very difficult to be heard. We’ve always tried to be different, tried to break rules and be disruptive in a good way. I want to be at the forefront of people’s minds when they’re thinking about where to go on holiday, so we try to run a very disruptive marketing campaign so that people are talking about us, hopefully fondly, at dinner parties.
I’m fortunate that we have a fantastic editorial team, so the creative streak runs through the company anyway. And the product we’re selling is creative in its own right. A month ago I was in a treehouse hotel in the middle of Swedish Lapland in a mirrored cube that reflects the trees around it so it almost looks invisible. You can’t be more innovative than that.
Kindler In the clothing industry I encourage innovation by telling our staff that the company is merely a vehicle for their ambition and that we will empower them to be the best they can be.
Appell Eighty per cent of our staff are on the minimum wage so getting them to be innovative is difficult, but we also give them every opportunity. We have some incredibly bright, talented people working for us. Last year, I launched the Casna Leadership Academy and when staff come through that you see their growth. It just skyrockets if you give them opportunity.
Scott We have some very creative engineers but we lose them to Formula 1. We are a small engineering company and when they look at, say, BMW, it probably looks quite spangly. My suspicion is when they get there their designs won’t see the light of day for two, three or five years. With us, designs become real every five weeks. The ones we keep enjoy that.
Walker That speed of development and action seems to be a common theme.
Parmenter You can fail if you go too slow. You have to keep up with what clients want. It’s lovely to be in an entrepreneurial business. If someone comes up with an idea you go, ‘Right, let’s get round a table’ and in three hours we’ve decided what we’re doing and we start next week. That is the fun of it. It’s the worst thing in the world to be a big ship that takes forever to turn.
Lohan That’s an interesting point. We’re growing a bit – we’ve got about 100 people around the world and already I’m noticing that decisions are being made more democratically. Global heads of department are all buying into something, but it’s important for the company to understand what they’re buying into and it’s more expensive to make the wrong move. When you’re a start-up nothing matters apart from telling people about what you do.
As you get bigger, the ship takes longer to turn, and each turn is more important. Our challenge at the moment is trying to keep that disruptive entrepreneurial spirit going but we’ve got to be a bit more considerate because you can’t get as many things wrong when you get bigger.
Walker Dan, your business is quite a flexible one, like those around the table, but many of your big customers won’t be. How do you manage that?
Elliott Our customers are big corporations. They are big ships and take a lot of time to turn. The agenda is not set by us but part of our innovation is being permanently on top of where those markets are going so that we are prepared for the triggers. That means we will be ahead when something happens to our clients and they need to find out more about it.
Damon Bonser The lifeblood of Spinning Hat is constant innovation as we make, design and distribute fun homeware and gifts. We’re a small company, and our design base is in London. We foster innovation by building the right culture of everyone being very creative and entrepreneurial. We give them enough autonomy but also structure and guidance so they don’t go off on a tangent. I think the way we keep that going is just feeding that magic bit of mojo in the company. It’s intangible but it’s definitely a USP and we have it on our business strategies. When we’re listing out our USPs, we put down the obvious ones: creative and original, put a smile on people’s faces, supply chain that’s ethically audited and so on, but at the top of the list is the spirit within Spinning Hat. People copy our ideas and we try to protect our intellectual property where we can, but what people can’t copy is our company spirit.
Walker Can we now turn to financing innovation. What do you look for and how have you funded riskier moves?
Lohan We did something quite innovative – a mini-bond. We offered a choice – either seven-and-a-half per cent back in cash, which we pay twice a year over a four-year term, or nine-and-a-half per cent back in holidays. About half took it in holidays, half in cash, and we raised £2.3m. It was fantastic because, from my perspective, it was affordable money compared to private equity VC money out there, and we were giving our nearest and dearest members a really good return. We got a lot more holidays booked through us from these 500 advocates and there was no dilution for us as directors.
Scott We haven’t needed huge amounts of cash but HSBC rescued us by helping us with one of our big issues – providing performance bonds for overseas construction projects. We also had help from the government through UK Export Finance, who underwrote several of our bonds. If it hadn’t been for their support we wouldn’t be working currently in China or in Saudi Arabia.
Kindler We’d been with our previous bank for generations but they had never really taken the trouble to understand our business. When we moved from Italy into the Far East it involved a much longer lead time of money out for raw materials. I changed to HSBC because I knew they understood international trade and were well established in the Far East. They came up with a strategy whereby we could combine import loans with supply invoice financing, so I was covered.
Daniell We generate quite a lot of cash as we are delivering a service every month, therefore we need to ensure that everything we sell is on an operating expenditure model. It allows us to partake in asset financing and because the hardware is used as collateral we don’t have to put up personal guarantees.
Bagnald Whoever people bank with, I would say that if you start to change your business model and, for example, go overseas, you should do your research and talk to your professional advisers first. It will take at least a couple of meetings to really understand the trade cycle and how a business is operating, and there’s a lot of support and options out there but people don’t always know about them.
The key is getting in front of the right person who’s got the knowledge, the contacts, and can explain the whole piece. There are a lot of things investors/funders need to look at – the figures, of course, but it’s not just the past, it’s the future. We now look at websites and social media trends in the same way that we look at the trade book and the invoice finance book. We have people who understand business and very different types of business. My career spans 37 years and I’m still learning – every day I find a different company with a different business model that I’ve not come across before.
Lohan I’d love to understand the decision process because I always get the impression that you can have a good relationship with your bank manager and then it gets pitched to a board, who sit in some ivory tower and say ‘No’. They’ve never met us, they have no idea about what the business is – that detached process doesn’t sit well with me.
Bagnald Firstly, we [at HSBC] approve over 80 per cent of lending requests and the £6bn Growth Fund I mentioned earlier has been allocated across the country [to local business centres]. It is important to remember that there are a range of financing options available to businesses that can meet different needs. I think it’s really important that before applying for funding businesses do their planning and research and also give their bank the time to understand their business. If a business is unhappy with a lending decision there is an appeals process in place and this has also improved the dialogue between banks and customers. Recently Professor Russel Griggs published a report that concluded the appeals process is clearly improving the conversation between banks, helping SMEs to secure the right finance and banks to make good lending decisions. We [HSBC] launched our lending appeals service in April 2011 in association with the other Taskforce banks. The objective was to provide a transparent, fair and prompt appeals process applied consistently.
Smith We’ve taken some finance into our business by using the Business Growth Fund (BGF). They have £2.5bn to invest and obviously sit in front of the banks as the mini-private equity firm. We took investment from them because we wanted a strategic relationship with our bank. It’s early days but it will be interesting to see how we can leverage those relationships, and whether the BGF sitting in front of the banks makes a difference.
Walker What are the other barriers to innovation? London taxi drivers are taking Uber to court to try to stop them from operating. Airbnb has had real tax on it by regulators. How much are regulatory barriers a problem?
Elliott I work in the aviation sector and there is a global phenomenon of tension between the transport department and the competition authority. Aviation is tightly regulated – it’s all governed by inter-governmental agreements, service agreements and it’s complicated. Treasuries and competition authorities have a different attitude to how these markets should be run.
Daniell Ofcom is quite a big part of our sector but we’ve never had any contact with them. They don’t understand what we do. I assume once we hit the radar, there may be some interaction.
Bonser We use regulations to our advantage. In the US they don’t test their products that well, so we make a song and dance about it and always put it on the first two pages of our introduction if we’re going to a new group. We say ‘Look, this is just to let you know we are covering all this’. We don’t say no one else isn’t, but we explain this is factored into how we innovate our products. The only regulation we find that’s disruptive are the trade barriers.
Walker Finally, can I just wrap up by asking about the British stamp? How important is that for you?
Smith London has definitely had its profile raised over the last five years and it’s quite cool to be headquartered in London.
Kindler The traditional elements of what Britain is all about – being authentic and, in my business, elegance, quality, integrity – are important for us.
Daniell I think it’s also awards. We recently won a Queen’s Award for Innovation and that provides credibility and integrity.
Elliott The one area we have seen a change is France. Traditionally, it was like a different planet but due to the economic pressures they’re under, there is now more interest in how others work, and the British team is actually getting some traction.
Parmenter Britain is seen as the home of the most creative, innovative designs. A film might be shot in Budapest, for example, but it will come back to the UK for post-production, because we have creative people you don’t get elsewhere.
Walker Thank you all very much. It’s been a very interesting discussion.