Interview with John Bates, Fellow of Strategy and Entrepreneurship at the London Business School and an active investor, who is in Cyprus at the invitation of the British High Commission and the IDEA Programme which promotes new businesses.
The UK government seems to have an active role in supporting the entrepreneurial ecosystem in the UK. Is this because of an understanding that it helps growth?
Absolutely, all the data points towards the fact that in most economies the vast majority of new jobs are created by new and growing businesses. And it’s not just for the young!
There are two ‘spikes’ in entrepreneurial activity; first in the early twenties to mid-thirties as young people acquire the relevant skills to grasp new opportunities (though they don’t necessarily have the management experience or networks to exploit them fully which is why it can be risky). And then again from the mid-fifties when experienced managers, often liberated from family responsibilities and with a secure financial base, can use their experience, contacts and networks to reinvent an industry (though they may not have the skills necessary for technological disruption). The ‘dream team’ of young entrepreneurs with experienced active investor/managers is becoming more of a feature of a maturing ecosystem.
Are there any best-practices for countries such as Cyprus who are new in this area?
The key lesson that was learned in the UK during the 1970s and 80s is that the role of government is best limited to setting broad policy. Trying to pick winners through ‘industrial policy’ or supporting dying industries that face fundamental comparative disadvantages is not a route to sustainable growth.
Supporting research, innovation and skills development on the supply side along with minimising the administrative cost to establishing a business AND highly targeted incentives on the demand side are essential.
For example the introduction of the Enterprise Incentive Scheme where individual investors get a 30 per cent immediate income tax deduction on investment of up to £1m per investor in ordinary shares in start-ups and young companies with a zero per cent Capital Gains tax for sales after three years has transformed the early stage investment market in the UK with £1.4 billion of new investment in 2013-14.
And what is the role of the universities in the UK in supporting entrepreneurship?
Universities sit right at the start of the ‘innovation funnel’ where ideas and concepts are gestated in a collaborative and intense environment. Rigorous peer review and global collaboration are key to creating the type of breakthrough ideas that one day may transform an industry. But it’s a long game. It’s interesting to note that the principal of the liquid crystal was demonstrated in 1888. However it wasn’t until the late 1990s that the first LCD TV’s – now ubiquitous – became the dominant technology. Apart from being ‘ideas factories’ universities play a vital role in the development of the critical reasoning skills essential for any career, not least that of an entrepreneur.
Since the early 1990s UK universities have begun to develop their own entrepreneurial ecosystems whereby faculty, students, alumni and investors work together to accelerate the translation of raw intellectual property into useful products and services. It is now quite common for a university to have a whole network of courses and events focused on the creation of ‘spin out’ companies complete with summer schools for entrepreneurs, business plan competitions, mentoring programmes, an ‘angel investor’ network and even an in-house venture capital fund. I’m delighted to say that London Business School along with our partners at University College London were early innovators in this new model for technology translation.
What advice would you give the Cypriot academia?
Pure research is a scale game which might seem to put smaller countries at a disadvantage; however the good news is that collaboration is getting easier and the ability to gain scale in a defined area of research is levelling the playing field. Exploit all opportunities there are for collaboration particularly in EU Horizon 2020 programmes. Secondly focus on integrating business and management teaching and practice with ‘pure’ research. Encourage researchers to consider how their innovative ideas can be used in practice and help them form teams with commercially sound partners while at the same time protecting their intellectual property.
Both Cyprus and the UK see SMEs as vital for achieving growth. Based on your work with small business owners and entrepreneurs, what are the top reasons why they do not export?
We live in such a globalised interconnected world so I find this such a hard question to answer. Where there is reluctance it is usually fear and lack of direct first hand knowledge of the ‘export’ market. Any island country like Cyprus or the UK lives or dies by its ability to trade, so either the non -exporter can sell everything they make at home or they have no will or desire to grow their business. That may be true for the very few truly indigenous non portable businesses (usually service businesses) but if they have any form of competitive advantage, particularly in quality or uniqueness, then it’s a matter of overcoming inertia.
How can entrepreneurs overcome these barriers or a negative mindset that keeps them from going global?
Most of the companies we invest in these days are ‘born global’. I have one at the moment that has three founders – one Greek technologist, one German/Brazillian technology marketeer and one English/Austrian technology executive. Their business will launch in the UK; however, if it is successful, it will be in at least 20 countries in the second year. That is the joy of ‘asset light’ digital businesses. For more traditional businesses there is only one way – go there! Don’t rely on secondary research or intermediaries – go yourself, get on a plane, go to a trade show in China or the US or India, talk to consumers or distributors in country yourself. Inertia is the greatest barrier. It’s so easy to get on a plane, book Airbnb and really test a market for yourself. It is only fear and inertia that holds you back. Even better join a paid for trade mission, but you must do the face to face with the market yourself.
How does an entrepreneur know if his or her business is “export ready”?
It’s a three stage process. First, understand your target market. Do your homework on market sizes, distribution channels, competitors, consumer demographics and preferences and set realistic sales forecasts. Test this with experienced colleagues, and if you are convinced there is both demand and a feasible route to market, proceed to stage two. Now revisit your business plan and factor in the increase costs and revenues. Is there a timing difference between the two as new capacity comes on line, new staff are hired and trained, as volume builds and payment is received from the new market? If so, sit down with your investors or bank and work out how much financing is required (plus a contingency). If you can obtain an acceptable return on that investment or repay the loan within a reasonable period of time – arrange the deal. Stage three, finalise the arrangements and ‘make it so’! In far too many cases firms jump straight to stage two (or even three) without really doing thorough market research and analysis.
If you had one piece of advice for an aspiring entrepreneur, what would it be?
Entrepreneurship is a team sport. You will need to find people with complementary skills to your own – people you can trust and who trust you to have the venture’s best interests at heart at all times. The most precious resource you have is your reputation as a business, so always under promise and over deliver. And when things go wrong (as they most surely will) try to stay focussed on solutions and don’t be too proud to ask for help. A good mentor is an invaluable asset for any entrepreneurial team.
The IDEA Programme is the first integrated accelerator/incubator programme in Cyprus and is supported by the Bank of Cyprus and CIIM as part of their corporate social contribution. John Bates will speak on Monday, April 11 at 6pm at the Bank of Cyprus headquarters in Nicosia.