Happy New Year! This time of year is a good time to reflect on things.
Everyone wants to be appreciated – it's one of the few universals. Whether this comes from our family, friends or strangers, we want our lives to matter. As such, it's important that we think about what to prioritise in praising, as that's what we'll get more of.
If we think that having a six pack is the pinnacle of human achievement then resources will be diverted from other things to meeting this end. Personal vanity is not inherently bad and can lead to wider positive consequences beyond self-satisfaction, but all things being equal we should glorify things that obviously do more good for more people.
Making commerce a respected thing to do was a catalyst for the British Industrial Revolution and the modern world of higher living standards. And more progress is being made as a fashion favouring tech and start-up culture takes hold.
Anything we can do to reinforce this should be welcomed, which is why we should be encouraged to see so many great entrepreneurs on this year’s New Year’s Honours list, including OBEs for Tom Blomfield, the founder and CEO of Monzo, Paul Lindley, Founder of Ella’s kitchen and an MBE for Amali De Alwis, CEO of Code First Girls.
The more entrepreneurs are celebrated, the more they become an inspiration for the next generation. It's a virtuous circle. If you know an entrepreneur deserving of an honour: nominate them.
Get the Gates?
Successful entrepreneurs often support society beyond their business activities. Bill Gates has gone further than most with the Bill & Melinda Gates Foundation. To wrap up the year he has written about what he learned, including his changing priorities as a 63-year-old: "Did I devote enough time to my family? Did I learn enough new things? Did I develop new friendships and deepen old ones? These would have been laughable to me when I was 25, but as I get older, they are much more meaningful. Melinda has helped broaden my thinking on this point. So has Warren Buffett, who says his measure of success is, 'Do the people you care about love you back?' I think that is about as good a metric as you will find.”
Gates also has updates on his work and thoughts on Alzheimer’s, polio, energy, gene editing, and the potential next epidemic. It’s not all positive, but a valuable lesson in what's on the mind of one of the world’s most successful entrepreneurs, as well as a useful template for entrepreneurs looking to take stock of their own work and personal life.
Marshall the Facts
Now back to policy. More companies than ever before are finding it hard to recruit staff. As Adam Marshall, British Chamber of Commerce Director General, says: “Business concerns about the government's recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy.” As I wrote at the end of last year, access to talent is the number one issue for entrepreneurs and the immigration white paper is a case study in self sabotage. We will be responding to the consultation and asking for your input.
Post-Brexit Immigration Plan Will Hurt UK Startups, say The Entrepreneurs Network
In response to today’s immigration white paper, Philip Salter, Founder of The Entrepreneurs Network, says:
“Entrepreneurs will be disappointed by today’s immigration announcement. In survey after survey, entrepreneurs rank access to talent as the number one obstacle to growth. Yet under the proposed system, startups will face more red tape and will struggle to meet the suggested £30,000 salary threshold to hire the workers they need.
”Entrepreneurs will welcome the abolition of the cap on high-skilled workers and the resident labour market test, but this is offset by the decision to pull up the drawbridge to EU workers. This will make Britain a worse place to start and grow a business and will lead to venture capitalists looking elsewhere.
“Requiring a job in advance of moving will put off prospective European entrepreneurs who up until now have been able to experiment by working for UK startups before building their own business.
“If the Government goes ahead with these plans, it will put the UK at a significant competitive disadvantage to EU countries and result in less investment into the high-growth businesses that drive prosperity and ultimately increase the wages of all workers.”
For further comments or to arrange an interview, contact Philip Salter, philip@tenentrepreneurs.org, (07919 355 290) or Sam Dumitriu, sam@tenentrepreneurs.org, (077 8060 7647)
Known Unknowns
Anyone claiming to know how this Brexit debacle will end is lying – even if they're the Prime Minister. On Tuesday, ministers were found in contempt of parliament, which in the past has led to MPs getting suspensions. Before the 20th century it could lead to MPs being held in the clock tower of the Palace of Westminster. It's probably the best place for a few of the current lot, and I expect they would enjoy the break from the humiliation.
All this political uncertainty might be good for the news industry, but the wider economic costs are significant. Using data going back to 1900 and covering 11 major economies, researchers have found that heightened levels of policy uncertainty leads to firms reducing investment and employment. In fact, we have experienced the cost of this uncertainty ever since Cameron decided to have a Referendum.
Ho-hum!
#LiftTheBan?
Now some good news. Sajid Javid has indicated that he would like to review the ban on asylum seekers working in UK. I think there are a strong moral and economic reasons to do this, which is why The Entrepreneurs Network has supported the #LiftTheBan campaign, and why we signed and helped to coordinate a letter in the Financial Times. Javid is a Home Secretary who listens. He also took on board our suggestion to morph the Graduate Entrepreneur Visa into a Start-Up Visa. What next?
Under Pressure
Launching and running a business can be tough. Christina Richardson – founder of social-impact venture 3Sixty and Member of The Entrepreneurs Network – has put together a short survey as part of a study into the pressure and wellbeing of entrepreneurs. Complete the survey here. All data are anonymised.
A Rising Tide
In the grind of Brexit, we risk losing sight of the fact that the UK is one of the best places in the world to start and grow a business. According to the World Bank's Ease of Doing Business index we're ninth, but this doesn't really do us justice. Outside a few cities in the US, you would be hard-pressed to convince me there is anywhere better to be an entrepreneur than the UK (though, arguably, opportunities aren't evenly distributed well enough across our major cities.)
Just consider the way we incentivise employees. More than 30 business leaders and entrepreneurs have signed a letter to be delivered to European policymakers early next year, urging them to consider updating EU laws on giving employees shares in the startups they work for.
As the letter states: "universally, stock options reward employees for taking the risk of joining a young, unproven business, and give them a real stake in their company's future success." Currently, European employees own around 10 per cent of the firms they work for, compared to 20 per cent in the US.
The letter – signed by the leaders of top businesses like TransferWise, Funding Circle and Klarna – wants EU policymakers to adopt a similar structure to that of the UK, and ditch "patchy, inconsistent and often punitive rules that govern employee ownership".
This doesn't mean the UK shouldn't strive to be event better. Earlier this year, the UK's popular and successful Enterprise Management Incentive (EMI) share option scheme, was interrupted by the temporary failure of the government to secure an extension of an existing exemption from the EU State Aid rules.
Sanity prevailed, but EMI is starting to show its age, and is probably approaching the point where a review of its operation is required. "The EMI tax reliefs come with a plethora of granular conditions. The rules on independence, the rules that prevent companies with EMI schemes participating in some joint ventures, constraints on making changes to the Articles of EMI companies, working time and employee number requirements, and changes in the mix of the activities of companies with qualifying and non-qualifying trades are just a few of the rules that companies can trip over during the lengthy lifetime of an EMI scheme."
But, ultimately, it's worth remembering that the UK is still one of the best places in the world to be an employee in a fast-growing firm. Whatever happens with Brexit, let's hope our policy influence in Europe doesn't diminish, as we should want European countries to continue to follow where we lead. A rising tide of entrepreneurship lifts all countries.
Policy Updates
Following the Finance Bill scrapping through, this month's Policy Update focused on The Budget. Our Policy Updates are pithy explanations of how Government policy impacts entrepreneurs, as part of our aim to be the bridge between entrepreneurs and policy makers. This month, Research Director Sam Dumitriu explains everything from the (temporary) tax cut for the High Street, the string attached to Entrepreneurs’ Relief and new resources for improving Management Capability in business owners. In the coming months, we'll explain in plain language how the Brexit deal will impact entrepreneurship, as well as deeper dives into how entrepreneurs can benefit from other policies, like R&D Tax Credits, Innovate UK funding and Entrepreneurs' Relief. (Find out how you can join here).
Half full of it
I also asked a few Members what they thought about May's Brexit deal for a Forbes article. As you would expect from people who spend their lives thinking differently for a living, there are some opposing views – but they are united in their optimism for British entrepreneurship.
Blijven
We also pass on press opportunities and speaking engagements to Members. For example, on Saturday 8th December, EenVandaag, a current affairs programme broadcast on the Dutch public television network NPO, will be in town filming a story on Brexit. They already have the pro-Brexit angle sorted, but are looking to speak with a small business owner who voted to Remain. Just let me know if you want to pass on your details (and that of your business) to the producer.
Regulation risks making Big Tech bigger
Should we regulate Big Tech? Writing in CapX, I argue that there’s a risk that regulation could put smaller companies at a disadvantage.
Smaller companies are less able to comply with tough mandates to take down content. While a large firm can hire the best Machine Learning engineers on six figure salaries, smaller firms will struggle to automate content moderation and will instead rely on costlier manual moderation.
This isn’t just theory. GDPR, the regulation that provides the model for the Federal privacy law desired by Cook has stifled competition within Europe.
The EU’s privacy law has led to a consolidation within the market. Google’s market share increased, while Facebook’s fell slightly. But the real victims were smaller adtech vendors who saw 20-30 per cent falls in reach. Dozens of companies have blocked EU users or shut down services entirely in response to regulation.GDPR has also depressed VC investment in Europe. A recent paper from Illinois Institute of Technology found that aggregate investment in the EU’s tech ecosystem fell by 40 per cent once the strict rules came in. As the report’s author put it: “The lesson from GDPR is that whatever regulation you adopt, don’t make it overly burdensome for the youngest companies.”
What do entrepreneurs need to know from the Budget?
This is the first of many policy updates. Through these updates, we aim to keep you abreast of any policy changes that affect entrepreneurs from tax changes to reforms to the UK’s immigration system. We know that entrepreneurs are busy people, so we’ll keep these briefs, er, brief.
This month, we’re focusing on the Budget. While the ‘end of austerity’ and tax cuts for 32m grabbed the headlines, there were a range of measures targeted at start-ups, scale-ups, SMEs and entrepreneurs that are worth looking at.
We’re singling out measures that could directly affect your business (for better or worse). For a broader look at the budget, we recommend the Institute for Fiscal Studies’ post-budget analysis. If you’re working in tech then you might also want to look at our founder Philip Salter’s tech rundown for UK Tech News.
Policy Changes
A (temporary) tax cut for the High Street.
Small retailers got a boost when the Chancellor announced that he would cut business rate bills by a third from April 2019 for retail properties with a rateable value of under £51,000. This will benefit 90% of retailers. But note, this is a temporary tax break. It will expire in 2021. However, the appetite for reform in the long run will surely grow.
Entrepreneurs’ Relief survives (but with strings attached).
Ahead of the budget, there was talk of scrapping Entrepreneurs’ Relief to fund additional NHS spending. The Chancellor ruled that out stating “I do not believe we can have sustainable public services unless we have a dynamic economy. And encouraging entrepreneurs must be at the heart of our strategy.”
But he did announce additional controls on the relief. Currently, Entrepreneurs’ Relief means entrepreneurs pay a 10% (instead of the usual 20%) rate of capital gains tax on the first £10m when they sell their business. Under the new rules, entrepreneurs will need to have held their assets/shares for at least two years (instead of one). This shouldn’t affect most business owners, but might affect tech start-up founders who sell-up after a year to a Facebook, Google or Amazon (See tbh)…
True Stripe
Building on the work of economists Tyler Cowen and Robert Gordon, Stripe's billionaire co-founder Patrick Collison and Y-Combinator’s Michael Nielsen add more meat to the hypothesis that we’re getting less scientific bang for a buck than we used to. They survey scientists, comparing Nobel Prize–winning discoveries in their fields and conclude that scientific breakthroughs look to be getting less significant.
This matters for entrepreneurs and policymakers around the world. In the UK, the Government has committed to a target of 2.4% of GDP invested in UK R&D by 2027, with a longer-term goal of 3%. If science really has significantly slowed per pound or hour spent – and I'm broadly convinced it has – this should make us question whether the funding processes and institutions are the very best that they can be. After all, a lot of this money is funded by governments with the aim of ultimately stimulating entrepreneurial activity.
As Collison and Nielsen conclude, the "evidence demands a large-scale institutional response. It should be a major subject in public policy, and at grant agencies and universities. Better understanding the cause of this phenomenon is important, and identifying ways to reverse it is one of the greatest opportunities to improve our future."
Easy as APPG
Following last week's publication and launch of the All-Party Parliamentary Group (APPG) for Entrepreneurship's Enterprise Education report, as the Secretariat we're busy scoping out potential research areas for the next 12 to 18 months ahead of our AGM in December. Now is the time to get in touch if you have any areas of policy that you think we should raise with the MPs and Peers across the House of Commons and Lords who make up the APPG's Officers.
Top programming
In last week's political turmoil, we didn't have space to mention the ScaleUp Institute's formidable 2018 ScaleUp Review. The report is packed with useful information on the state of scale-up activity in the UK, but for entrepreneurs looking for a practical angle, Annex 1 provides pithy Local Area Summaries on the top programmes in the area to help them scale their business.
Fintech's 4 Fingleton
Calling all fintech entrepreneurs! Next month we will host a roundtable with John Fingleton, founder and CEO of Fingleton Associates and the former CEO of the Office of Fair Trading from 2005 to 2012. This event will be a chance to hear from one of the UK's leading experts on regulation. In government, he oversaw merger regulation, enforcement of competition rules, consumer protection, and credit regulation. Get in touch if you're a fintech founder who wants to get involved.
Wise Council
Theresa May is setting up five business councils to advise on Post-Brexit policy –one of which will be for Small Business, Scale ups and Entrepreneurs. It will be co-chaired by James Timpson (CEO, Timpson), Brent Hoberman (chairman, Founders Forum) and Emma Jones (founder, Enterprise Nation). All are great appointments. Emma is one of our Advisers and one of the most prolific and most effective defenders of small businesses in the country. Watch this space for updates on its work.
Turing complete
The Alan Turing Institute, the UK’s national institute for data science and artificial intelligence, is exploring how it will work with small companies as a part of their mandate to achieve impact through data science and AI research. They are seeking to understand how UK SMEs could benefit from the Institute’s assets and activities and they are inviting your input via a public consultation. Tell Turing what SMEs need to succeed. The consultation closes on 26th November.
Fiscal Phil loosens up
Chancellor Philip Hammond's Budget delivered the largest discretionary "fiscal loosening" since 2010. While the NHS got most of the money, entrepreneurs weren't ignored. However, it wasn't a perfect Budget.
In response, we were quoted in The Times (£) on the need to make the welcome increase in the Annual Investment Allowance permanent, and our Research Director Sam Dumitriu wrote for CapX explaining why a special tax for tech giants isn't a smart policy.
I also dug into the documents to give a pretty comprehensive roundup of the tech announcement for UKTN. And we were quoted in SmallBusiness.co.uk on what the Chancellor should have done on Business Rates.
Entrepreneurs running businesses of all sizes will breathe a sigh of relief about what wasn't announced. The predicted scrapping of Entrepreneurs' Relief didn't materialise (just a tightening around the rules), and many of the self-employed will be content with the delay in introducing IR35 to the private sector.
Following are our thoughts on a few of the announcements.
On the increase in the Annual Investments Allowance
To help stimulate business investment, the government will increase the Annual Investment Allowance (AIA) to £1m for all qualifying investment in plant and machinery made from 1 January 2019 until 31 December 2020.
This will be a welcome announcement for business owners looking to invest, but by making it temporary the Government is failing to offer businesses the stable environment they need to properly plan for the future. Over recent years the AIA has yo-yoed from £100,000 down to £25,000, up to £200,000, up to £500,000, down to £200,000, and now temporarily up to £1m. This is the epitome of business uncertainty.
On the plan to impose a 2% Digital Services Tax on ‘tech giants’
The Chancellor may live to regret making the tax system even more complex. Corporation Tax needs updating, but any reform should focus on fixing the general rules, rather than papering over the cracks in the status quo. Singling out ‘tech giants’ may lead to UK SMEs paying more to advertise through social media and because the tax is levied on revenue not profits could unfairly disadvantage firms who are still raising money through equity finance.
On additional Business Rates Relief for small high-street retailers
The Chancellor has missed an opportunity to fix business rates. Instead of managing decline, Philip Hammond should have prioritised removing barriers to business growth and investment. Replacing business rates with a business land tax paid by commercial landowners would dramatically cut paperwork for most business owners and create a stronger incentive for businesses to invest in improving their properties.
On increased funding for management training
There’s clear evidence from The Entrepreneurs Network’s Business Stay-Up campaign that improving the quality of management skills in the UK is key to raising productivity. Creating stronger peer-to-peer networks and boosting the Knowledge Transfer Partnership to allow best practices to diffuse is rightly a priority. But the Chancellor should go further and create additional tax reliefs for employee-funded training.
On boosts to R&D spending
A significant amount (£1.6bn) has been allocated to increasing the Industrial Strategy Challenge Fund. Among other things, the Government is taking a punt on quantum technologies, nuclear fusion, artificial intelligence and distributed ledger technologies. It will also put another £115m into the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire.
While there are strong arguments that at current R&D investment levels increasing Government spending could leads to positive economic spillovers, we need to ensure that we get value for money. For example, just last year the Digital Catapults were heavily criticised in a BEIS commissioned review by Ernst & Young. The devil will be in the implementation.
Fiscal Phil Backs Entrepreneurs but Dodges Overdue Reforms
Philip Salter, Founder said:
“Hammond's Budget wasn't short of pro-business rhetoric, and the Budget document itself contains a number of announcements designed to support Britain's entrepreneurs. And we didn't get the predicted scrapping of Entrepreneurs' Relief which will be a boost to Britain’s ambitious business owners."
“However, it is by no means a perfect budget for entrepreneurs. While spending on R&D, management training and the boost to the Annual Investments Allowance are welcome, the 2% digital services tax on ‘tech giants’ and business rates relief represent missed opportunities for fundamental reform.”
On the increase in the Annual Investments Allowance:
Philip Salter, Founder said:
To help stimulate business investment, the government will increase the Annual Investment Allowance (AIA) to £1m for all qualifying investment in plant and machinery made from 1 January 2019 until 31 December 2020.
This will be a welcome announcement for business owners looking to invest, but by making it temporary the Government is failing to offer businesses the stable environment they need to properly plan for the future. Over recent years the AIA has yo-yoed from £100,000 down to £25,000, up to £200,000, up to £500,000, down to £200,000, and now temporarily up to £1m. This is the epitome of business uncertainty.
On the Chancellor’s plan to impose a 2% digital services tax on ‘tech giants’
Sam Dumitriu, Research Director said:
“The Chancellor may live to regret making the tax system even more complex. Corporation Tax needs updating, but any reform should focus on fixing the general rules, rather than papering over the cracks in the status quo. Singling out ‘tech giants’ may lead to UK SMEs paying more to advertise through social media and because the tax is levied on revenue not profits could unfairly disadvantage firms who are still raising money through equity finance.”
On additional business rates relief for small high-street retailers
Sam Dumitriu, Research Director said:
“The Chancellor has missed an opportunity to fix business rates. Instead of managing decline, Philip Hammond should have prioritised removing barriers to business growth and investment. Replacing business rates with a business land tax paid by commercial landowners would dramatically cut paperwork for most business owners and create a stronger incentive for businesses to invest in improving their properties.”
On increased funding for management training
Sam Dumitriu, Research Director said:
“There’s clear evidence from The Entrepreneurs Network’s Business Stay-Up campaign that improving the quality of management skills in the UK is key to raising productivity. Creating stronger peer-to-peer networks and boosting the Knowledge Transfer Partnership to allow best practices to diffuse is rightly a priority. But the Chancellor should go further and create additional tax reliefs for employee-funded training.
On boosts to R&D spending
Philip Salter, Founder said:
A significant amount (£1.6bn) has been allocated to increasing the Industrial Strategy Challenge Fund. Among other things, the Government is taking a punt on quantum technologies, nuclear fusion, artificial intelligence and distributed ledger technologies. It will also put another £115m into the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire.
While there are strong arguments that at current R&D investment levels increasing Government spending could leads to positive economic spillovers, we need to ensure that we get value for money. For example, just last year the Digital Catapults were heavily criticised in a BEIS commissioned review by Ernst & Young. The devil will be in the implementation.”
Press Coverage: APPG Reports
In mid-July, Sam Dumitriu and Philip Salter were busy writing for the Telegraph, Conservative Home and CapX on the key issue of business tax reform.
Sam wrote for the Telegraph, arguing that the solution to the problem of business rates is obvious – base them on land value.
Furthermore, Sam went on to write an article in Conservative Home, in which he argues that policy-makers should look closely at the regulations and taxations on businesses. Citing an APPG survey, it was noted the taxes that discouraged entrepreneurship the most were business rates.
Our founder, Philip Salter, was writing on the same subject for CapX; saying that tax reform is needed to remain competitive. Philip reasons that regular reviewal by the Treasury to test if policies are cost-effective would be highly beneficial, plus helping to promote property investment. He goes on to write that tax breaks such as the ISA and EIS are both successful and would level the playing field for the smaller, unlisted businesses.
Finally, Stuart Stone’s piece in the MorningAdvertiser comments on the welcoming of a reformed tax by UKHospitality, due to the gross overpaying of the hospitality sector––a £1.8bn sum that is hard to blink. UKHospitality’s chief executive Kate Nicholls says that the tax reformation is “something that we have consistently called for.” and stridently indicates that “The current system of business tax is completely out of date and totally unsuitable[...]”.
Our second report, on female entrepreneurship, has also received extensive press coverage.
Neil Hodgson from TheBusinessDesk wrote an article on the women in leadership paper, quoting the vice chair of the APPG for Entrepreneurship, Seema Malhotra MP, and Lisa McMullan, the organisation’s director for development and consultancy. Lisa stated that ‘it’s about time that we recognise that female entrepreneurship is not only a gender issue, but an economic one, too.’ TheBusinessDesk went on to include some recommendations and highlighted that ‘only a tenth of growing firms with revenue between £1m-£250m are run by women. In the US, this figure is closer to a fifth.’
In the Telegraph, Annabel Denham, wrote about the gender pay gap discussion and how it should help the conversations around female entrepreneurship; calling for the government ‘to review nursery and pre-school teacher-child ratios’ so that self-employed mothers can work ‘while receiving maternity allowance’. Annabel argues that first the societal expectations must be reversed in order for the gender funding gap to be reduced. Annabel ends strongly with ‘If the Government wants UK companies to compete on global markets, it must do all it can to boost the growth of female-led businesses’.
The Telegraph featured the report in their Saturday paper: “Mumpreneur” and “lipstick entrepreneur” are terms Olivia Rudgard, Social Affairs Correspondent at the Telegraph, used to highlight gender stereotypes before stating their harmful effects on girls’ mindsets. Olivia argues that “The media should move away from gender altogether when profiling Britain’s most successful entrepreneurs.” and quotes the women in leadership paper when it states 31% of women say gender is a hindrance when trying to expand their business. This is due to obstacles such as “networking opportunities that favour men”. With the sponsorship of Octopus, headed by Chris Hulatt, the APPG has suggested that the introduction of a paternity allowance might improve gender stereotypes in the office environment. Olivia also called for childcare laws to be changed for more children to be looked after, i.e. a higher teacher-pupil ratio, as “the UK’s ratios are currently “among the stringent in the OECD””. Chris added that “it is critical that women have the same opportunities to realise their ambitions and create the high growth businesses of tomorrow.”
Annabel also wrote for CapX arguing why if we liberalised the childcare system, options for female entrepreneurship would widen.
Omnishambles
At yesterday's Balkan Summit in London, foreign ministers and entrepreneurs from Serbia, Bosnia-Herzegovina, Montenegro, Kosovo, Macedonia and Albania were stood up by Boris Johnson who was due to unveil £10 million in aid funding to help young people in the Western Balkans improve their digital skills. When he later emerged, Boris followed David Davis in quitting the government. Our politics is an omnishambles.
A year ago, I wrote an e-bulletin entitled M is for Mediocre. It got lots of responses from people agreeing with my pointed conclusion that too many of our current crop of MPs aren't up to scratch. (The exceptions we invite to speak at our events.) Whether through the current political parties, or perhaps through one of the plethora of new "centrist" parties, we need smarter people in power. Now is the time for those with the right skills to enter politics. But as Billy Connolly quips: "The desire to be a politician should bar you for life from ever becoming one."
What a GEM!
It's not all bad news. Last week we helped launch the Global Entrepreneurship Monitor (GEM). Coming out of Aston University and sponsored by NatWest, the GEM is the largest and most comprehensive study on entrepreneurship globally, collecting data on entrepreneurial activity in 54 countries, covering two-thirds of the world’s population.
This year the UK edition revealed that people from ethnic minority and immigrant backgrounds are twice as likely as their white British counterparts to be early-stage entrepreneurs. On the back of the launch, I wrote for City AM yesterday on why Britain should be proud to be a nation of immigrant entrepreneurs.
Unlike a Virgin
Richard Branson and Harland David Sanders are exceptional. Branson was always an entrepreneur, shunning school to trade in Christmas trees and budgerigars; while "The Colonel" waited until he was 65 before starting KFC.
Branson and Sanders are exceptions to the rule – that there is a sweet spot for successfully starting and growing a business. Thankfully, it's rather large: 25 to 49. After this age, entrepreneurship is more likely to take the form of self-employment or micro businesses without growth ambitions.
According to Demographics and Entrepreneurship – a book that we have recently released with the Fraser Institute – leaders across developed countries should be concerned about ageing populations and mitigate the pressure this will exert on reducing the quantity and quality of entrepreneurship.
The ideal demographics for entrepreneurship peaked around 1995, the UK, US, Australia and Canada are all expected to see a significant projected decline in this key entrepreneurial age group across all four countries by 2065.
Short of governments distributing aphrodisiacs – and sadly clinical trials suggest oysters and other natural libido enhancers don’t actually work – what can be done? Across 498 pages, we have some suggestions.
Chapter considers the impact of capital gains tax upon entrepreneurship. Capital gains tax is effectively a tax on future consumption over current consumption. Mitchell and his co-authors argue that high rates reduce start-up activity:
“Compared to other countries in the OECD, Australia, Canada, the United Kingdom, and the United States all have room for improvement when it comes to their top personal capital gains tax rates. The United States and Canada, for example, have top capital gains tax rates above the OECD average and rank in the top third of countries with the highest top capital gains tax rates in the OECD. While Australia and the United Kingdom have top capital gains tax rates under the OECD average, they, too, still have room for improvement as 11 and 14 countries have top capital gains tax rates lower than those in the United Kingdom and Australia, respectively. All four countries are thus able to improve their position on capital gains taxes in order to spur entrepreneurship.”
In chapter 9, Peter Vandor and Nikolaus Franke consider immigration. The evidence shows that immigrants are particularly entrepreneurial, with the Global Entrepreneurship Monitor showing higher entrepreneurial activity among first-generation immigrants than natives:
“The relatively strong inclination of immigrants to become entrepreneurs is not a new phenomenon. Historians have documented the economic impact of immigrant entrepreneurs in different countries and time periods. Jewish immigrants constituted a significant share of successful entrepreneurs in the United Kingdom between the 1930s and 1950s. These mostly Lithuanian and Polish immigrants have left their mark in many industries, creating household names such as Marks and Spencer or the food retail giant Tesco by introducing product and financial innovation.”
Just consider Silicon Valley. As John Collison, an Irish immigrant and co-founder of the payments start-up Stripe, explains in the New York Times: “The U.S. is sucking up all the talent from all across the world… Look at all the leading technology companies globally, and look at how overrepresented the United States is. That’s not a normal state of affairs. That’s because we have managed to create this engine where the best and the brightest from around the world are coming to Silicon Valley.”
Collison is right. Our Government desperately needs to change tack to offset the uncertainty around Brexit. As Vandor and Franke argue:
“The economic and political climate of a country plays a significant role in the attraction of highly skilled migrants, as has been witnessed with the Brexit vote and the election of president Trump in 2016. Even before any concrete policy measures had been implemented, the public perception of these events had already triggered a measurable decrease in graduate student applications for universities in the United Kingdom and the United States. At the same time, universities in countries associated with more open policies, such as Canada and Australia, saw a significant increase in applications in the aftermath of these events, suggesting a redirection of mobile international talent in their direction.”
We are in the planning stages of a research-led project on the connection between immigration and entrepreneurship. If this is the sort of thing you or your company would like to get involved, drop me an email to find out more.
You can read the full e-bulletin here and sign up here.
Press Coverage Round Up Q2
Following the launch of our annual report on female entrepreneurship we received a lot of media coverage on a range of different subjects. However, despite the successful launch causing celebration, we’ve not been lying idle.
Q2 kicked off with our Programmes Director, Sophie Jarvis, having a piece in the Telegraph comment section of the paper! She commented on the launch of BBC’s 50:50 project to get more women experts on panels arguing that, although the intention might be to empower women, the project will have the opposite effect.
Also, for the last month we’ve been very active on the recently launched Refresh, a new initiative by the Telegraph on their website providing comment pieces on the biggest problems facing Britain written by young people for young people.
Our founder, Philip Salter, and Sophie have both been in Refresh making calls for Britain, and Tories specifically, to embrace immigration if we want Britain to prosper. Sophie argues that the Tories can once again become the party for entrepreneurs as it was in the glory days of the late Margaret Thatcher if they endorse a new liberalised immigration system. By giving access to a broader pool of talents, entrepreneurs have the opportunity of scaling up their business. As Sophie also notes, scale ups are much bigger generators of economic growth than start ups, although focus should not be on one over the other. According to Philip, this could help detoxify the Tories and shake off their image as the “nasty party”.
On a different subject, our editor, Annabel Denham, was arguing in Refresh that young people have embraced the gig economy. Therefore, if the Tories want to recapture the Millennial generation they must stop implicitly conceding that Corbyn is right by killing off innovation with regulation. Not only will they scare of millenials with regulation, but it would hurt everyone else in the economy as well. In fact, as Annabel argues in the Women Mean Business section of the Telegraph, the gig economy is the future and women can lead the charge.
Those of you who’ve read our report (if you haven’t, you can read it here) know that mentorship is one of the best vehicles for encouraging and supporting entrepreneurship. If you want a slightly condensed version of the arguments, Jarvis was in the Women Mean Business section as well, making the case for why creating mentors are key for female entrepreneurship.
Our founder, Philip Salter, has also been busy on Forbes this month. He has done some interesting interviews with several entrepreneurs. He’s been chatting to co-founder and CEO of Coinfirm among other things, a company that is trying to professionalise the crypto industry.
Chances are you’ve not heard of mixed-reality marketing and you most likely haven’t heard of Landmrk, but Philip have been talking to their their co-founder and CEO to find out more on how mixed-reality can revolutionize marketing.
Ahead of Scale Up Britain, an event we’re hosting to highlight the importance of scale-ups to the British economy, Philip interviewed the co-founder, Chieu Cao, of Perkbox. Cao is not hedging his ambition, he wants Perbox to grow to be a £100m+ run rate business in 2020, followed by an IPO and Philip interviewed him to find out more.
Philip also talked to Kim Palmer, the founder of Clementine, an app helping women struggling with anxiety, low self-esteem or generally overwhelmed by life’s stress to become more confident. She tells her story of how she turned a dire situation into her first start-up.
Christian Owens, founder and CEO of Paddle, a one-stop shop for firms and developers selling software, also spoke to Philip on what lies ahead for his company.
The recently published report on AI by the House of Lords Artificial Intelligence Committee made Philip chip in with his thoughts on the subject. He thinks it’s important that the House of Lords don’t dismiss the risks of AI.
Annabel provides insight into the machinery of the UK’s second fastest growing business, Bloom & Wild. She tells the story of how the company managed to stay on top of the game and to make the step onto the international scene.
If you’re unable to find Sophie in the newspapers, you’ll most likely find her on a radio station near you. This month she was co-hosting Hoxton Radio’s DE:CODE, a program talking about the latest tech news and our event at the International Festival Business in Liverpool on June 12th. She’ll appear around 16:30 min. in. She also went on BBC London to do a paper review with Vanessa Feltz. She’ll be on from min. 48:30, and has appeared on talkRADIO for paper reviews on the day of the Royal Wedding (from 6am to 7am) & earlier on in April (from 7am to 10am)!
And last but not least, Sophie also spoke at Big Tent Ideas Festival Warm Up organised by George Freeman MP. She managed to come second in the finale! Her topic was on the equity funding gap. If you want to read some of her thoughts on the subject, she was in the Guardian this month writing about it. And if you have read all her articles and listened to all her radio appearances and you still want more, you can watch her talk here. In June she’ll be speaking at the RSA.
Demographics and Entrepreneurship: Mitigating the Effects of an Aging Population
Entrepreneurship is widely acknowledged as the basis for innovation, technological advancement and economic progress—and subsequently, a driving force for improved living standards.
Most of us are generally unaware that as our population ages, the share of the population best positioned to be successful entrepreneurs—individuals in their late-20s through to their early-40s—will shrink. People in this age group drive entrepreneurship because they are both willing to take risks to start their own business while also possessing real-world business experience, which increases the likelihood of success.
While there’s little that governments can do to halt the ageing of their populations, a number of policy initiatives could strengthen the incentives for entrepreneurship and improve the likelihood of successful new business start-ups.
Key among potential policy reforms is tax relief, both in the form of reductions in marginal tax rates for individuals and businesses and reductions (or even the elimination) of capital gains taxes. These reforms were broadly determined to strengthen the incentives for people to start and grow businesses (i.e. take risks) and expand the pool of entrepreneurial capital.
Other key potential reforms include reducing red tape to make it easier to start new businesses and grow existing ones, changes to banking and financial regulations that would make it easier for entrepreneurs to access the financial capital needed to start and grow their businesses, and policies encouraging increased immigration of individuals with skills and other attributes that make them potential entrepreneurs.
Developed countries face a long-term decline in entrepreneurship that is at least partially driven by demographics. Since demographic trends cannot be easily reversed, countries will have to improve the environment in which entrepreneurs and businesses operate, to encourage more and better entrepreneurs.
Read Demographics and Entrepreneurship: Mitigating the Effects of an Ageing Population to find out how we can mitigate these demographic trends. It's a collaboration with Canada’s Fraser Institute, the Centre for Strategic and International Studies (CSIS) in the US and the Institute of Public Affairs in Australia.
Why Britain’s Businesses Need To Scale Up
Editor, The Entrepreneurs Network,
A decade ago, entrepreneurship became the national obsession as thousands of bold entrepreneurs struck out alone, built businesses and lifted the UK economy out of recession. Though the start-up revolution shows no sign of abating – with the number of companies founded reaching new highs in 2017 – the challenge now is ensuring new companies fulfil their potential, scale, and go global. Britain’s businesses need to scale up.
The UK is third in the world for new company formation, but our record on scale-ups is less impressive.
According to the OECD, the UK is third in the world for new company formation, but our record on scale-ups is less impressive. The most recent Scale-Up Institute report has revealed there are currently 31,440 scale-ups – defined as an enterprise with average annual growth in employees or turnover greater than 20 per cent per annum over a three-year period, and with more than 10 employees at the beginning of the period – in the UK. We can and must do better.
Access to talent, finance and management experience are brakes on scale-up development.
The ratio of companies making it through the start-up phase to establish themselves as sustainable and substantial businesses is an important one. High levels of productivity are twice as common among scale-ups, which average £235,000 per employee. Scale-ups are twice as likely as their peers to be trading internationally, and twice as likely to have innovated in the past three years. Close to three-quarters of scale-ups offer opportunities to young people through internships or apprenticeships. And almost half have at least one female director.
Access to talent, finance and management experience are brakes on scale-up development. Longer-term government policy is important, but here and now there are businesses struggling with those issues and looking for support. For this, there is an increasing role for large business, the media, financiers, academia and our flourishing entrepreneurial ecosystem to provide support to those at an earlier stage on the journey.
The Entrepreneurs Network is an increasingly important part of the UK’s entrepreneurial ecosystem. Through the media, research and the APPG for Entrepreneurship, we have an impact on public and political debates and influence government policy. But we also run a number of programmes designed to help entrepreneurs start, run and scale their business.
Setting your company on the path to growth is always a challenge. That’s why next month we will be holding an all-day event at the International Business Festival with high-profile entrepreneurs. Hosted every two years in Liverpool, the festival gives businesses the space, support and expertise they need to make connections, do deals and realise their potential
The UK’s economic recovery was built on the success of start-ups, but our future prosperity relies upon turning those start-ups into scale-ups.
Our one-day event will comprise of five panels with leading scaleup entrepreneurs, covering the key challenges of scaling in an uncertain world; the power of tech; scaling with social purpose; going global and the next generation of talent.
The UK’s economic recovery was built on the success of start-ups, but our future prosperity relies upon turning those start-ups into scale-ups. Scale Up Britain will be an opportunity to be inspired and learn from the best in business – giving entrepreneurs the first step towards ensuring they are able to fulfill their ambitions.
Hear more on this from Will Butler-Adams, CEO, Brompton Bicycles; Celia Francis, CEO, Rated People; Giles Andrews OBE, Founder, Zopa; Kresse Wesling, environmental entrepreneur & Co-founder, Elvis & Kresse; Jeff Lynn, Executive Chairman and Co-Founder of Seedrs; Cameron Stevens, Founder, Prodigy Finance, Chris Baker-Brian, Co-founder & CTO, BBOXX; Simon Coley, Co-founder, Karma Cola; Lauren Armes, Founder, Welltodo; Chieu Cao, Co-founder, Perkbox; David Taylor, Managing Director, World First Group
Don't Eat the Rich
For most of history, generation after generation have lived a similar life to that of their parents. If your father toiled the soil, the odds are you would do the same. If your mother married young and had a dozen children, you would do the same. The Industrial Revolution changed this.
However, it didn’t change it quickly. Even in 1989, wealth in Britain was dominated by the landed gentry. As the latest The Sunday Times Rich List reveals it’s taken 30 years for entrepreneurs to win out.
Here are the key stats:
• 1,000 richest individuals and families have a combined wealth of £724bn — a 10% rise on last year’s figure of £658bn
• 145 billionaires — 11 more than last year
• 141 women in the top 1,000 (14%); in 1989, there were 9 of 200 (4.5%)
• 86 ethnic minorities (8.6%); in 1989, there were 5 of 200 (2.5%)
• 29 (2.9%) landowners; in 1989, 57 (28.5%) were landowners, then the largest single category of wealth
• 5.7% of this year’s list represent wealth passed from one generation to the next
At the top of the Rich List is Jim Ratcliffe – a self-made, British-born industrialist who grew up in a council house in Greater Manchester. Over 20 years, he has amassed a fortune in excess of £21bn.
Shadow Cabinet Office Minister Jon Trickett MP has come out against those on the list: “People have had enough of years of the elite pinching wealth from the pockets of ordinary working people. Labour will overturn the rigged economy that the Tories are obsessed with protecting.”
Trickett is taking the wrong approach. Rather than trying to tear down the hardworking entrepreneurs who deliver products, services, jobs and growth, we should be thinking about how to ensure that the current trend towards meritocracy continues. Short of eating the rich (which would reduce inequality), the best thing the government can do to decrease national inequality with the UK is to increase the stock of houses. The only long-term rise in capital’s share of income is in housing. Global inequality is best addressed by easing mobility.
Entrepreneurs need defending. To do this it’s is incumbent on all of us to give a realistic impression of the trials and tribulations involved in starting and growing a business. People aren’t as bothered by economic inequality as many presume – as long as people think that it's fairly earned. What people care about economic unfairness.
Entrepreneurship isn’t anti-worker – quite the opposite. Entrepreneurs are the job creators. Any government intent on improving the lives of its citizens needs to understand this.
Join Us
The Entrepreneurs Network is growing. Over the last year we have substantially increased our network to well in excess of 10,000 entrepreneurs. Through the media, research, the APPG for Entrepreneurship, consultations, evidence to committees and events, our small, hard-working team has an impact on public and political debates and increasingly influences government policy. Also, through a growing number of programmes, we support entrepreneurs in their efforts to start, run and grow a business.
The Entrepreneurs Network doesn't take government funding. Instead, we rely upon individuals and companies that share our goal of making Britain the best place in the world to start and grow a business.
Due to increasing demand at our events and a growing capacity to support entrepreneurs and experts, we are now creating an annual membership of £50.
The key benefits of membership are:
- Free, priority invitations to our popular events;
- Regular press opportunities from journalists to help promote you, your expertise or your business;
- Monthly updates explaining changes to legislation, as well as established government schemes designed to support entrepreneurs.
We are giving one year's free membership to anyone signing up to attend Scale Up Britain – our biggest and best event – on 12th June in Liverpool (£50). This also gives you access to the whole 12-day festival.
Become a member here!
Anyone further along in their business journey may wish to enquire about becoming an Adviser. And feel free to drop me message if you have any questions.
Don't Belt Up
Britain's housing crisis is deepening. We need more homes in places where people want to live and work. It's time to build upon the antiquated Metropolitan Green Belt that's throttling London.
If you agree, please consider putting your name to a campaign we are supporting.
This isn't about concreting over areas of outstanding natural beauty, protected habitats, local green space etc. – those would remain protected. We just need a presumption in favour of housebuilding on the scattered plots of Green Belt land within a 45-minute travel time of London Zone 1 and less than a 10-minute walk from a train station. This would free up space for over 1 million new homes.
It's a policy of such moral force that the smartest thinkers from the left, right and centre of British politics are now making the case for it. On their side, they cite strong evidence of its drag on economic growth, sympathy towards the increasing numbers of homeless families, the inability of next generation to afford to buy, or its often misunderstood negative environmental impact. The other side just Nimbyism.
Not In My Back Yard (NIMBY) doesn't cut the mustard. That's why we are getting behind Siobhain McDonagh, Labour Member of Parliament for Mitcham and Morden, who is campaigning on this issue. The first step is a collective submission to the National Planning Policy Framework consultation and later McDonagh will present an Early Day Motion in Parliament.
Entrepreneurs rely on talent to grow their businesses. A limited presumption in favour of housebuilding on the scattered plots of Green Belt would go a long way to help. Get in touch if you're interested in reading a one-page outline of the submission, with a view to putting your name on a letter supporting it.
Oh, Boy!
Understandably overshadowed by the birth of the Royal baby, the weekend saw another royal story: the release of the latest Queen’s Awards for Enterprise, with 230 businesses from across the UK recognised for their contributions. Countries, like companies, succeed by making the most of their competitive advantages, and even Republicans can't deny that the institution of monarchy is an unrivalled asset in global prestige. The Queen's Awards are a way for businesses to tap into this, particularly as they look to export and internationalise.
But don't take my word for it. Francis Toye – founder of Unilink, a previous winner of the Queen’s Award for Enterprise in Innovation and Adviser to The Entrepreneurs Network – is clear about the benefits it has brought his business: "Winning the Queen's Award for Innovation gave a fantastic boost to our staff and a fillip with our customers. We were even lucky enough to meet Her Majesty. One of our customers in the Ministry of Justice said 'we had approval from as high as you can get.'"
Entries for 2019 awards open on 8 May 2018. Find out more.
Management Matters
"We have a large tail of businesses which, for a variety of reasons, have struggled to adopt and embrace the new technologies," explains Robert Jenrick MP, the UK Treasury's lead spokesperson on economic growth and productivity, in a Business Insider interview. "Within [any] industry there's a quite a large group of businesses which are slow to adopt new technologies – where there is less automation than some of their competitors in France and Germany – where perhaps management skills and training is lower," he add.
What can be done? The interview doesn't really get into solutions, but here are some ideas. First, the government should incentivise investment by allowing firms to immediately deduct capital expenses. We proposed this in A Boost for British Businesses (p.16) and its one of our key tax policy asks.
We also need to understand the problem better. And that's what we are doing with our research-led Business Stay-Up campaign. As Rob May, founder of ABE, wrote in City AM: "Improving management skills may require a rethink about how business owners learn. Few will have the time, money or inclination to put their business on hold to enter the classroom full-time. Bespoke, accessible, on-demand learning may be better placed to help more people." We are currently reaching out to individuals and organisations who are interested in getting involved in this project – let me know if you would like to find out more.
Third, economist Robin Hanson has a zany suggestion: "Record the full lives of many rising managers over several years, and show a mildly compressed and annotated selection of such recordings to aspiring managers. Such recordings could be compressed by deleting sleep and non-social periods. They could be annotated to identify key decisions and ask viewers to make their own choices, before they see actual choices." Economist Alex Tabarrok has also written about this.
On the subject of videos, check out this inspiring 10-minute documentary produced and directed by Sophie Sandor about the 23-year-old fashion entrepreneur Tianah. It's a powerful defence of enterprise and the beauty and necessity of the profit motive.