The Coalition government’s growth strategy is not working. The latest news on a whole host of initiatives launched since the election clearly demonstrates that new thinking is required.

Firstly the “Merlin” targets for bank lending to small businesses is not having the desired effect ( See Nasir’s from Entrepreneur Country recent blog for the detailed lowdown). Secondly as the Financial Times points out recent government initiatives to support SME’s to export or invest have flopped with the take up by SME’s being a fraction of what is expected and  now even the Prime Minister admits that more needs to be done to stimulate private sector growth http://www.bbc.co.uk/news/business-15818020 .

Leading up to the Chancellors Statement next Tuesday, there will be a plethora of announcements from the government that will climax in the Chancellor announcing a new “Credit Easing Scheme” to get banks to lend, new tax incentives to get business angels to invest, new incentives (possible NI payment holidays) to encourage businesses to recruit, new exemptions on employment regulations to help micro businesses increase flexibility and a new support scheme for established high growth SME’s.

Capital Enterprise will applaud them all and we look forward to hearing more details and to a few surprises that the Chancellor will no doubt announce. On the 2^nd December Capital Enterprise will hold a network meeting at the British Library where members and partners will be invited to debate with an esteemed panel of senior personnel from Natwest Bank, BBAA, Marketinvoice and Crowdcube on the how the Chancellors announcements will or will not increase  the prospects of stimulating growth amongst London’s SME economy.

I am expecting that we will get a rigorous debate and that the measures announced will be sufficient to at least make a dent in the fact that in London (according to the latest ONS figures) small businesses are getting smaller ( only 24% now employ more than 1 person), that less than 1% of small businesses are officially high growth and that these 2400+ small businesses in London are expected to create the majority of the  new jobs for the 1.2m adults in the Capital who are on unemployment related benefits.

I also hope that it becomes recognised by the movers and shakers in the Capital that over 16% of those in work are self-employed and that the demand for independent advice and support has never been higher or more needed.

So to get the debate going here are my suggestions for policies and initiatives that may get the SME economy growing once again:

1. Support  Start-ups  – The government has a complete blind spot when it comes to supporting and even understanding start-ups. Not only does it continue to neither  incentivise ( through the tax system) or directly  fund face-to-face independent advice and support for start-ups but is also effectively excludes start-ups from using programmes such R&D Tax Credits and TSB “Proof of concept” awards to fund the development  and roll out of new technologies or innovations.  This must change if the country wants the bright and talented to take the risk of starting innovative wealth creating companies rather than taking the easy option of becoming for instance freelance consultants (or if they are very lucky) employees of a bank, supermarket, call centre etc.
2. Fill the funding gap.  The biggest source of funding in Silicon Valley for new and early stage tech businesses (the next Google, Facebook etc) is the convertible loan where initial seed investments of £20-100K can be converted into loans at the bequest of funder if they thing the start-up business they have invested will not grow to a scale where there shares can be sold. This type of money is not available in the UK and it is needed and the government should support the emergence of convertible loan instruments either through the tax system or by encouraging or enabling banks or not for profit CDFI to offer or underwrite a special convertible loan fund.   Speaking recently to a senior person in a bank about how they could “price” the risk in a loan ( i.e. charge high interest rates like credit cards) to enable them to lend to “riskier” ventures, ( such as start-ups) it was revealed that they would consider offering these loan products but are fearful of potential accusations of “usury” from the press or public. The answer to protect the banks brands, would be set up a separate fund (possibly administered by not for profit CDFI’s) to lend to riskier SME ventures at high interest rates. Better this money than none and it will still be cheaper than most Angel investments.
3. Crowdfunding- let it be- The US Congress has recently passed a bill to enable crowdfunding sites to become mini- investment platforms where SME’s can sell equity freely to individuals.  Commentators now expect crowdfunding to become one of the principle ways high growth potential businesses will get funded in America. Why not do the same in the UK?- This Friday sees a Business Bootcamp extra on Crowd funding. Do check it out?
4. Go Lean- We are about launch a lean bootcamp for people with limited resources but high ambitions. For entrepreneurs to build and launch lean business requires a lean business support infrastructure that is able to provide advice, mentoring, hatchery accommodation, access to talent, networking opportunities and small micro-loans  so that innovative high growth business concepts, products and services can be tested and developed in the real world. At Capital Enterprise we are in the process of developing this infrastructure, but to ensure that it is not confined to Shoreditch or Soho it needs to get regional and local government support. A new lean start-up infrastructure in each London borough or sub-region would cost a lot less than was spent by the Mayor’s outer London fund on greening roundabouts or pedestranising high streets and would also create a lot more jobs and wealth.
5. Back London- We know the rest of the UK hates London and resents either is poverty and multi-cultural mix or its wealth and snobbery (you take your pick based on your politics). But London is the driver for growth for the whole of the UK so why exclude it from investment programmes to stimulate private sector job creation such as the Regional Development Fund. Incentivise London to work with the rest of the country but all means, but let’s get behind (not stymie) the entrepreneurial talent in London for the benefit for the whole country.

These are my suggestions to stimulate growth in the SME economy. I love to find out yours at a time when doing nothing is not an option.

Nowhere in the world will Enterprise week be more celebrated than in London with over 380 events for would be entrepreneurs listed on the Global Enterprise week website http://www.gew.org.uk   . We can rightly be proud that the vast majourity of these events care organised and self-funded by Capital Enterprise members, partners and schools etc.

It also reflects that almost a quarter of all UK start-ups this year will be in the Capital which is about 75,000 formal businesses ( those who open a business bank account) and over 100,000 if you include those who are using personal accounts or cash. Of course the challenge is that less than a 5^th of these new businesses have the ambition to start something that will be more than a lifestyle business and even less will be seeking to invest money and time to have a chance to make their business scalable and thereby able to create wealth and jobs for UK PLC. There is also the awkward fact that London has the highest ration of one-person businesses in the UK and that London based businesses are the least likely in the UK to borrow money for growth and the most likely to leave money on deposit in their bank accounts.

At Capital Enterprise, we for one, think this is a big issue and we hope to be able to announce a whole range of new initiatives and pilot programmes over the next few weeks that will focus on helping those with ambition (but perhaps limited resources) to start and grow scalable businesses in London.

Capital Enterprise will be joining in the fun this week with the launch of the monthly Business Bootcamp Meet-up http://www.meetup.com/BB-Lounge/events/39628862 on Tuesday night at the 02 centre on Tottenham Court and with a Bootcamp Extra event http://capitalenterprise.org/event-details/?eid=116  at the London College of Fashion on Thursday for ambitious growth orientated creative businesses.  For news on the best and most interesting events please check out our what’s on page and do keep reading the blog.

Finally, the revamped national Business Link Website gets launched on Wednesday. If you want a sneaky preview please click here http://www.improve.businesslink.gov.uk . If it was not for Capital Enterprise members this website would be the only source of independent advice and support available in London. Good as it is, I hope you agree that it (and all of this week’s events) are not on their own going to meet the challenge of stimulating and supporting more entrepreneurs to meet the challenge of creating wealth and jobs for the hard pressed UK and London economy.

I recently had a conversation with the head of Economic Development of an outer London Council who were bemoaning the fact that their borough was failing to create  economic activities, jobs or “excitement” needed if their part of London is going to reverse what increasingly seems like an inevitable economic decline. Why can’t we get the private sector to create another “Shoreditch” in our part of London was the envious cry?- Where is our Tech Hub, Trampery, Book Club or Brick Lane, Spittlefields market they cry?- Where are our exciting new start-ups or future growth hubs?

I replied to the council officer ( perhaps optimistically) that their future high growth businesses and entrepreneurs are likely to found locally ( after all it is still London) but that their London borough obviously does not yet have an entrepreneur ecosystem to attract and nurture todays and tomorrows talent and that it will not have until they do something about it.

Presently places like Shoreditch, Soho, Farringdon, South bank and upcoming areas such as Dalston, and Greenwich Peninsula have all the advantages of being clusters that have a “critical mass of entrepreneurs” that attract other entrepreneurial talent. They work because:

A: The “Buzz” or “Hype” of being the place to be – (The hard facts are that 12-18 months ago the centre of London’s thriving digital economy was not Silicon Roundabout- Tech City ( that title in terms of numbers and scale of digital business belonged to either Soho or perhaps Victoria) but 12 months on from the initial PR story  it is becoming true for now everyone( entrepreneurs, talented staff, investors and cool businesses) wants to be in Tech City or at least somewhere near Old street roundabout.

B: The psychological and practical benefit of having other entrepreneurs in close proximity.- It is a great motivation being around other entrepreneurs, the informal learning opportunities are great and just as importantly knowing that others around you are constantly trying to do something new and innovative in face of enormous uncertainty of succes makes the entrepreneur believe what they are doing is a little less crazy.

C: Good Connectivity. -This is a necessary condition but anyone who has been to Shoreditch will attest it is not the easiest or quickest place to get to and get around.

D: Cheap and flexible accommodation- A place where costs are low so you can experiment and most importantly reduce the initial cost of starting and scaling a business.

E: Support services including those provided by Capital Enterprise members (Universities, Enterprise Agencies, Incubators) and the less formal peer-to-peer learning and support groups such as techmeet-up http://techmeetups.com  , minibar http://www.meetup.com/minibar   etc

In essence entrepreneurs want to start and grow a business in places that are less risky and more fun. This can occur naturally but I contend that local councils and corporate sponsors can give it a little hand. The reason why the private sector is not creating mini Shoreditch’s across London with their own incubators, meet-ups and trendy social clubs is because it is too dam risky. The barriers are too high and the chances of success are too low for everyone but the most imaginative/daring entrepreneurs with the deepest pockets. ( I tend to meet a lot of entrepreneurs with former rather than the latter attributes).  I believe that local councils could work with these entrepreneurs and with their local business support infrastructure ( Enterprise Agencies , Universities etc) to create an eco-system that could seed a cluster of high growth, job creating, exciting, PR worthy businesses in their borough. I think that most (if not every) council in London should co-invest with their local private and not-for profit companies in a plan that will create:

A: Touch down or meet-up space for local entrepreneurs (similar to dreamstake http://www.dreamstake.net  ) in the best connected part of their borough. ( A great use for underused libraries by the way)

B: A hatchery offering free or heavily subsidised desk/office space to at least 10 potential high growth businesses. I would run a competition with the local media to find these entreprenuers with growth potential and offer them a package of support including space at the hatchery, on-going support micro credit, free publicity in the local press etc)

C: A high quality mentoring service for those in both the hatchery and those further along the growth path

D: Access to a high quality training and development programme provided by a business support agency or university.

E: A permanent pop-up shop space where new and existing real world and on-line retailers can try out their latest offerings. ( This will bring back excitement to Town Centres better than most of the ideas funded through the £10m Outer London Fund http://www.london.gov.uk/priorities/business-economy/investing-future/outer-london-town-centres/successful-bids  )

F: A local Entrepreneur dynamo/ champion whose job will be to coordinate activity, organise and facilitate local entrepreneur led meet-ups and to personify the “buzz” around entrepreneurship.

How much will it cost a council to seed is dependent on scale etc but I think most if not all of it could be done for between £50-100K per annum if you could enlist the support of existing players.

Will it work ?- There are no guarantees but I think it is worth a try. The recent McKinsey report on how entrepreneurship and new businesses are driving innovation and job creation       http://www.wamda.com/web/uploads/resources/the-power-of-many-mckinsey-report-20110310.pdf  -  explicitly declares there is a role for government, universities, not for profits and the private sector to work together to create an Entrepreneur Ecosystem.

Capital Enterprise is more than willing to play its role to engage our members and to find and raise corporate support. So we now require London Councils to step up to the plate, embrace new thinking and do something ( rather than nothing) to reverse the otherwise economic decline of their boroughs.

Pick up the phone- send me an e-mail- let’s talk.

I am rapidly losing faith in the Business Plan after 18
years of writing and reading literally thousands of them. I don’t just mean the truism
that business plans as forecast tools are invariably wrong for they never
survive in one piece after first contact with the real world. No I mean
that the content and process of business planning especially for start-ups is
counter- productive. Eric Reis, founder of the lean start-up concept, defines a start-up as an organization dedicated to creating something new under conditions of extreme uncertainty. I coming round to the thinking that business
advisers, financiers and let’s face it the entrepreneurs, by putting so much
emphasis on the business plan as a means to prove that the new business idea
will work, are trying in fact to deny that a start-up is attempting something new and to use the business plan to falsely state that the conditions they will operate in, are predictable.

Of course some start-ups are more predictable than others such as franchising ( which has a given business model and plan for the entrepreneur to follow) whilst others
are so simple to conceive and execute ( e.g. skillspreneurs such as
consultants, child-minders, couriers etc) that very often they do not need a
business plan. But whilst these types of businesses have their own challenges,
they rarely if ever have the ambition and means to create
there own wealth, there own IP and potentially be big enough to trade globally or
make an impact on the world.

So let’s leave business planning to the franchisers and copycat businesses whilst the rest of
us get on with devising ways we can create something new that can help the entrepreneur cope with “conditions of extreme” uncertainty.

In my view what we should be looking at is how we can
help those with an idea, to bootstrap it until they have a “minimal viable product”
that they can sell successfully to customers. In essence we should be giving these
potential entrepreneurs the benefit of our insights, access to our connections
and resources so that they have the opportunity to test in the real world
whether their big idea can take off.

But I can hear my colleagues in business support agencies and in banks/VC’s saying that it is unrealistic to get rid of the business plan for it is useful as a tool for them
to “sift the wheat from the chaff” and that the process of writing a business
plan at least teaches the author’s some essential business know-how. I concede
the later point but I think the business plan is a clumsy way to teach entrepreneurs
about marketing or finance or risk management. I also think that the business
plan is such a bad tool to determine whether you are going to back, support or
fund a new business that most funders or business support providers ignore it,
looking instead at the make-up of the management team, their own knowledge of
the market, and failing that (in the case of banks) whether the new business owners
is able to pay their debts by selling all their worldly assets if it goes wrong.

To determine whether we should be backing entrepreneurs with scalable business ideas to
bootstrap their new venture (leaving aside the question of whether we can
afford too) I think we need to see if they can answer the following questions:

1.  Does their management team have any previous entrepreneurial experience or business acumen preferably in the sector they are about to enter? ( i.e. Is there any evidence that they know what they are doing?)
2. Does their management team have first-hand experience of the market they are about to launch a product in? ( I mean do they know personally the people they are about to sell to and do they have insights into why these customers are so dissatisfied with what the market presently offers that they will try a new product from a relative unknown).
3. Can the management team design, pro-type, make and deliver the service/product to the market without outside help? (Preferably all the important talent should be inside company but if not then they better have the money and connections to get their product beyond “proof of concept” and “proof of market” stage. Why?- because it is highly likely that no one but family, friends and fools will fund them until they have)
4. Can the management self-fund their own living costs for at least 6 months? ( It is highly likely that the founding management team will not be able to pay themselves any wages until the start-up breaks-even. So what will they live on?- Savings, the goodwill of your partner, other income, fresh air?)
5. Can they earn before you spend? ( Commission vs IP revenue model connundrum- Commission based revenue models depend on getting paid by a customer to develop and deliver a service or product but any IP developed stays with the customer. So its good on the cashflow but bad for long term development if you plan to scale. Damned if you do and damned if you don’t?)
6. Is their sales cycle short? ( If it takes to long to get a client to first want their product and then eventually buy their product then they are likely to run out of money before you get a sale. The answer is therefore is to initially sell something that customers find easy to say yes too)
7. Can they validate the “Sales Funnel” first? (How they are going to reach and then sell to customers needs to be tested prior to start.  Do not trust what their sales channels tell them will be likely demand. Get these channels to confirm their orders first before going into production. From painful personal experience i can tell you that pre-sales are vital).
8. Can they access the “Beachhead” market for free or at least for very little money? ( The beachhead is the first set of customers that a start-up needs to acquire whilst spending as little money on marketing etc as possible. Feedback from these early adopters is vital if they are going to adapt and develop their value proposition so it can sell into a wider/ bigger market. The problem arises if the “beachhead” customer (chosen because they are cheap or free to reach) have little or nothing in common with the wider audience.
9. Can they cut out or delay any cost to a latter stage? ( Can the business be developed in stages -each stage with their own resource and asset needs. If it can then they can delay hiring lots of staff, big premises etc until it is needed. If not then…)
10. Can they within 3-6 months of selling in the market place be in a position to know if the business will succeed or fail? ( If you are going to work for no money for 3-6 month’s and risk money and reputation then they better know whether they will be in a position at the end of 3-6 months to know whether it will be worthwhile to continue)

These are the 10 questions I would ask before determining what kind of help (from funding to mentoring, from free accommodation to access to my contacts  etc) i can provide to enable them to bootstrap their new venture.  You may have better ones- I would be happy to hear your suggestions. We can then together develop a “action plan” (similar to a project plan) which we can use to help the entreprenuer bootstrap their venture. A Cashflow forescast would also come in handy and before we know it we are back to …. Damm.

So since I am down on Business Plans for start-ups it might seem a little ironic that I am running a Business Planning course this Thursday for graduates of the business bootcamps. Hopefully most of the attendees will be past initial start-up stage and will now have some real world market data and experience which will enable them to plan to scale. If not, it could be a little embarrassing…

Today, we celebrated the half way mark in the Business Bootcamp programme at the launch of the Green Growth Bootcamp organized by Kingston University and Merton Chamber of Commerce.

Over a 100 people gathered at the Knights Park Campus exhibition space to learn about the green businesses and initiatives pioneered by Kingston, as well as the Business Bootcamp aimed at the sustainable sector.  The Mayor of London was one of several guest speakers, who came to show their support for the programme.

Martha Mador, the head of Enterprise Education opened the event by stressing the importance of promoting enterprise among students and building a support ecosystem that extends beyond university. Thom Kenrick, Group Sustainability of RBS Group spoke about the support that RBS and Natwest provide for entrepreneurs, their new fund for green business and clean tech initiatives and the eagerness to see more startups in the sector. Julius Weinberg, the Vice-Chancellor of Kingston University, made a brilliant comment that university is about changing lives. Design is about changing ways of seeing, and thus being and doing. The green agenda is very high on their priority list and the exhibition of the projects coming out of the university is good testament to that. Kingston University is soon to unveil a new building, that will be one of the most sustainable in the UK.

Boris Johnson entertained the crowd with his take on the underwear made out of mould and stories about the lack of ‘Boris bike’ thefts during the riots.  On a more serious note, he stressed the importance of going green, encouraging innovation and supporting businesses that are contributing to a cleaner and better tomorrow. After his speech he tried out the electric scooters, leaving a few people worried he had wizzed off back to London!

Capital Enterprise did not fall short, and we also had a go at the adorable but mighty Ecospin — a new vehicle which will be aimed at businesses that require a lot of distribution (such as the Royal Mail).

Overall we had a brilliant morning, inspired by fantastic ideas coming out of Kingston University and all the great people we got to meet at the event. We are looking forward to meeting the Green Growth Bootcamp attendees and welcoming them to our Alumni network.  With so much talent, a sustainable future is not a far reach!

To see more photos from the event check out our Facebook album

http://tinyurl.com/5weo4cs