Spirit of the Age

There can be no escaping the economic climate; for all but a rare few, its impact is being felt daily and affects our quality of life, employment, trading and confidence. We are adjusting to this slowly but surely – cutting our cloth accordingly.

The basic steps are survive, thrive and exceed expectation and for many the survival bit is not guaranteed. So it has been refreshing this month to have been involved with entrepreneurs who see opportunity and reasons to optimistic even in the constrained environment we live in.

A fundamental shift in thinking now has spawned what you might call businesses of the hour.

They tend to fall into two camps – the opportunistic advantage takers and the companies that seek to ease the pain whether directly for consumers or for companies. The former are easy to identify – the payday loan companies with interest rates measured in 1000s must surely be brought to book soon and regulated (and probably put out of business). The mood has changed, we are starting to see a re-emergence of community spirit, social responsibility, an ethos of helping rather than exploiting other’s pain. The short term loan companies will have their day for a while, but they do not solve anything – they are grubby and will be seen in retrospect as the last vestiges of the greed that got us here in the first place.

The second category of business is more interesting and more sustainable in the long term. There is a deep seated belief in certain quarters that a good business has to be ruthless, cannot “do good” or “be nice”. Well I for one think this is symptomatic of the type of people we really don’t want running our companies any more – those days are gone just like the days of bigotry and racial stereotyping.

A new breed of entrepreneur is emerging with a strong sense of community, of helping whilst profiting but not exploiting. I have seen several companies recently which give a fixed percentage of their profit to charity from the start of operation (big corporates do this too, I know). The emergence of small community centric companies is a reaction against the excesses and greed. These companies will not appeal to VCs at all (good!) not driven to grow as big and as quickly as possible, they will grow more organically, in tune with their market and clients. They will generate profits, jobs and societal well-being and will be dismissed by the greed & avarice motivated crowd as “life style” companies.

How did “life style” become a negative thing? The implication is a lack of ambition on the part of the owner, the desire to ensure their own comfort at the expense of unbridled greed and lust for profit. This from the people who paid themselves bonuses to lose all our money.

Personally I think the new breed of entrepreneur is more interesting and investable. Less risk, but lower returns. Adjust your sights at this new target and think about it for a while. A large number of small investments, that overall generate lower returns but do not suffer the scale of losses.

Next time you meet a fund manager who tells you about an IRR based on paper profits – ask him or her how many exits they’ve had, at what value and TOTAL cost to all involved – including the founders & employees. And ask them about their losses which they don’t put out press releases for, and the moribund companies they cannot exit and end up “off loading” or “hiving off” to anyone who will buy it simply to release their cash.

And if they are a “tax efficient” investment fund such as an EIS fund, ask them if they have ever liquidated a position to get the loss relief to avoid having to put more cash in (which they probably don’t have) or sit out another 3 years whilst the company turns the corner (because they don’t have the patience – or their investors don’t).

Am I a soft hearted former roadie & hippy as someone recently described me? Yes in a way. But the loathing many members of the public feel for “bankers” covers all aspects of the finance industry – they simply get lumped together and the braying corporate donkey hasn’t gone away – at least not yet – as I discovered at a networking event last week.

On the positive side, I met 30 SME clients of UKTI whilst running a training course on Intellectual Property for CASS Business School last week, I met 6 fantastic technology companies at the Shell Springboard Awards, I met a couple of dozen tech entrepreneurs in Milton Keynes at InvesTechMK and even met a passionate entrepreneur at a beer festival in Camden. All of that in one week.

I am a positive person and weeks like this recharge my positive energy batteries for months on end!

Stuart, March 2012

 

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