Startup Diaries: Realities of 2013 London Startup Life
Starting a business has never been so difficult – nor more important... SMEs (small and medium sized enterprises) are the lifeblood of the UK’s economy: in 2012 99.9% of all private sector businesses were SMEs and they provide almost 60% of private sector jobs (figures from Department for Business Innovation and Skills).
So, ensuring there is a strong pipeline of start ups is critical to the medium and long term health of the economy. But everyone knows that. And economists up and down the country will have a view for Government on the optimal economic conditions and options for achieving these to encourage the much needed business growth that will get the UKs GDP up (and stay up).
What’s perhaps not so well understood (and I speak as an ex policy maker turned entrepreneur myself) are the practical day to day challenges that make it so tough to succeed in starting a business in today’s climate and what can be done to help.
Because in my experience, if you’re determined to start a business you’ll do it... it’s how hard that journey is that could make all the difference to the extent and pace of your success.
This is my journey.
I have the advantage of coming from a family of entrepreneurs - my Dad a 1950s immigrant from Cyprus set up his own clothing factory in the UK by the time he was 21 and my husband ran his own property consultancy business up until last year, so the main men in my life have inspired me to some extent and it has always seemed to me to be an obvious path to follow. Having said that, like lots of graduates, I was temporarily reprogrammed to seek out a corporate career where opportunities would be plentiful and started life as a drug rep for a well known global pharmaceutical company eventually climbing the ladder to the point where I could jump ship into a relatively senior policy making role within what is now the Department for Business Innovation and Skills. From there a director at the London Development Agency under Ken Livingstone’s administration – helping London’s businesses to grow and start ups to start – until eventually I ended up at City Hall a year after Boris Johnson took over the best job in London. So it wasn’t until I had a family and gave up work that I finally decided to scratch the itch of some 20 years and set up my own little enterprise. Now, I am well known for being focused, driven and some might say bloody minded and it’s a good job as well because I found obstacles and negativity at (almost) every turn.
On top of which we “Mumpreneurs” have the now well reported, heavy dose of guilt hanging over us as we juggle the work/ life balance... and in my case often unsuccessfully.
I think handing my toddler a packet of Haribo to keep her quiet during a press phone call was probably my most reckless moment on that front. And being late to toddler groups/ children’s parties/ swimming lessons etc has become a hallmark of mine over the last year – you can set your watch by my consistent 30min tardiness.
But back to business...there are of course the obvious issues and let’s get the big one out of the way - finance. Historically, policy and programme makers like me have – to a large extent - focused on the market failure of access to early stage finance. Which basically means prototyping and proof of concept funding being scarce due to the high risk nature of the product not ever materialising/ succeeding. Yes, there are programmes for funding e.g.: green energy infrastructure but these are not the domain of your average start up looking to bring a new product or service to market.
Most of us do not have millions invested in us from day one and will need some degree of external funding if only to provide a contingency.
I naively thought that – whilst the financial markets were of course tricky – banks were doing as the Government has asked and were lending (a bit) to small business. This rose tinted view was encouraged by my banking business manager (from a well known high street bank) whom I had courted for some 6 months writing business plans, cash flows and a rather fancy P&L with the help of my PWC trained accountant sister. So it came as a shock to find out that my application for a mere £5,000 overdraft (to ensure I wasn’t a victim of death by cashflow) had been almost instantly dismissed because my newly incorporated company had no credit history – there is a clue in there somewhere. Of course it had no history, it was a new entity and of course I could have been advised that this would be the case at the first meeting with the bank so that I could have taken steps to build up a credit history whilst I was preparing my plans etc. [Lesson number 1. Start building your credit history as soon as possible (e.g.: mobile phone contract).] So undeterred I resubmitted the application on the advice of my business manager (same business plan but using my personal credit history rather than the company’s) and again was rejected on the grounds that it was a start up business with no contracts in place. By this point I was getting quite frustrated... yes of course it is a start up and has no contracts but the bank knew that before I submitted the first application ! Utterly ridiculous but apparently absolutely common place (a rival high street bank told me that I would have had the same response from them)
– so my second lesson is to not believe the marketing blurb from banks and assume that you will need a plan B for any external funding you might need.
There is a small but serious point in all of this... not only are start ups having to waste time filling in forms, business plans and financial data sheets when there are hundreds of other things you need to be doing in your early days only to provide an audit trail for the decisions of underwriters seeking to justify why they are declining such a high % of applications from SMEs, but banks behaving in this way are being actively unhelpful in creating for you a credit track record of declined applications. Not good at all.
When it comes to financing new/ small business it seems to me that the nature of the market failure has changed or rather simply expanded. The private sector is not providing the financial services they traditionally have done but are not willing to admit that so we on the receiving end have to engage in this perfunctory dance until they eventually prove that you are a bad risk and they should not lend. This coupled with the need to pay VAT upfront (and wait at least 3 months to get it back), suppliers upfront, and - if you make it to year 2 – corporation tax upfront , means that unless you have a plentiful supply of cash it is still access to all forms of finance that seems to me to be the biggest barrier. But of course there are things that can be done to help - starting with HMRC and I would love to sit down with David Cameron and offer my thoughts.
OK, now I have that off my chest I feel I can move on from finance and on to the more hidden issues where there are some real opportunities to intervene in ways that wouldn’t break the bank (excuse the pun).
There is some great information out there... Companies House and the Patent Office are brilliant sources of the basics and I would advise anyone to start there
(and by the way make sure you register your intellectual property early because as soon as you start talking to people about your business you expose yourself to being copied – Lesson #3). There are also areas where information is opaque at best and almost deliberately baffling at worst ! I am thinking of health and safety regulations which is one area that is, frankly, a mess and not helped by the approach of my local Trading Standards office who seemed unable to give me a straight answer when I asked whether I was breeching / about to breech any EU standards or regulations. Trading standards officers are in a great position to reach out to local businesses and provide all sorts of information and support and in my opinion we could be using them far more effectively as one of the few remaining in situ sources of Government advice.
The third issue that I believe has a profound impact on the UK’s ability to become an island of entrepreneurs is the British reserve/ tendency towards assuming the worst. I can’t recall exact numbers but I can tell you that it seemed to me to be upwards of 80% of the people I met and talked to about my business in the early stages (whether that was potential suppliers, friends and even family) discouraged me from continuing on the basis that it would be so hard/ most people fail/ wouldn’t it be easier to go back to normal work etc etc. The few exceptions are the ones that have kept me going and had faith in me (and you know who you are Victoria & Jas).
I have a hypothesis that the negativity and presumed failure which budding entrepreneurs face when starting out is a major contributor to the failure rate of new businesses in the UK.
Now I can’t provide any scientific proof of this hypothesis but (as a psychology graduate) I believe there are proxys for the same phenomenon that are well evidenced e.g.: if you tell a child they are no good at something they tend not to be. And there are examples of this in daily life - if you are riding a bike/ horse/ motorbike you will go in the direction you are looking ! Alongside this negativity is a reluctance or perhaps it is shyness in the UK to be sold to or to ask for business which seems to prevent those around you from helping to push your new product/ service etc. This is not something e.g. our American friends suffer from and I am certain that this cultural difference is economically significant. I would encourage Government to invest a small amount of funding to properly research this cultural barrier because it is not until you shine a light on a subject that you see its true form and potential. Who knows where that might take us in terms of policy and programmes of support... maybe we could all be issued with a business start up coach whose job is to motivate, support and encourage entrepreneurs as well as point them in the right direction for information and advice ?
My last thought for Government is this – the age of celebrity and social media provides a fantastic opportunity for relatively cheap Government interventions that provide new and small businesses with a platform they would otherwise spend scare resources on or simply not use. Take a lead from the likes of Theo Paphitis who uses his Twitter following to promote new businesses every Sunday to great effect. We have also seen the commercial success of group selling websites such as Not on the High Street – again something that could be shaped into an effective public sector programme to help provide SMEs with a sales platform (and yes, competition regulations could be adhered to in the process).
And my very final thoughts are for anyone thinking about – or in the process of - starting a small business...
if you really believe that you have something unique, different or simply better than your competitors and you have the drive and persistence to overcome whatever is thrown at you then go for it.
Businesses can and do succeed every day in the UK and if you work hard and relentlessly pursue your vision you stand a really good chance of getting there. Listen to the advice and caution of others of course, but trust your own judgment to make the decisions you feel are right and if you really believe in it – don’t give up!
As for me, well I am now on the look- out for a investor to help me grow my business and crack the US market as Little Punk London goes global (I know, ambitious but then you’ve got to be – look at Simon Cowell)... I’ll keep you posted on what I find along the way.
Helen Keenan launched Little Punk London children’s clothing label in November 2012. www.littlepunklondon.com
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