LINKING ENTREPRENEURS & INVESTORS UK-WIDE Of Shhh-oohs & Chictopia INTERVIEW: Steven Moffat
High Net World MagazineMAY/JUNE 2012 IN THIS ISSUE
Beyond Bedlam: The 4th Great Opportunity in a Generation Also inside: INTERVIEW: STEVEN MOFFAT OF SHHH-OOHS & CHICTOPIA SPECIAL REPORT THE TECH MONOLITHS INTERNATIONAL FOCUS ON... BARBADOS PRACTICAL BUSINESS NO GURUS, JUST GOOD GUIDANCE W.A.W. & W.E.N. WHAT ANGELS WANT WHAT ENTREPRENEURS NEED
RUTHLESS
STEEL’S VIEW
GECKO’S DIGITAL LENS
THE RETURN OF KIM DOTCOM Page 5
ECONOMIC TRICKS-THE IBIZA MIX Page 14
APPLE vs MICROSOFT Page 16
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HNW MAGAZINEMAY/JUNE 2012
Scottish Enlightenment 2.0 Delivers Bright Entrepreneurial Spark BEFORE last night I had never darkened the University of Strathclyde’s doorways, never wandered its renowned hubs of innovation, nor really concerned myself with the institution beyond the annual Global Entrepreneurship Monitor (GEM) report.
McDonald’s and Sir Tom’s passion on the night, it would be doubly so to describe the high-energy visual onslaught of Sir Christopher’s presentation about the journey from Enlightenment to “New Enlightenment” – paralleled with his own meteoric rise to success.
And that needs to change
This was no intentional snub. Quite the contrary. In fact, in light of my dissenting opinions in HNW last year on several of the GEM’s 2011 findings I wondered if they would even let me in the door!
And all eerily encapsulated by his own personal mantra: “Life is a journey, pain is temporary, failure is forever”.
He said: “Thankfully the world fell apart in 2000, because the rest of the world was so far ahead of us at that time that we were headed toward our 16th century roots as the poorest country in Europe. It levelled the playing field. We can’t let that happen again…and yet we are now.”
“But fickle chance offered up a gracious invitation from Scottish Family Business Association CEO and Co-founder Martin Stepek to join him and hear speak the University’s Principal and Vice-Chancellor Jim McDonald, oor very own Sir Tom Hunter and renowned bioscience entrepreneur Sir Christopher Evans.” The theme? The “New Enlightenment”. As I’d missed the 18th century launch with the likes of Francis Hutcheson, David Hume, Adam Smith, Rabbie Burns, Ferguson, Playfair and the others, I reckoned Enlightenment 2.0 and its wily Welsh key speaker might offer up a much needed change of pace in the E-sector. It didn’t disappoint As HNW presses on with the impending launch of its High-growth Entrepreneurial Action Team or H.E.A.T. programme in September, I felt quite humbled by the drive and enthusiasm at Strathclyde’s Barony Hall, and the private dinner thereafter. While it would be difficult to retell in words the impact of Professor Jim
The performance was rapid fire, ridiculously clever, hugely entertaining and downright inspirational. “Not a bad showing from the boy who once fed Lucozade to frogs and very nearly obliterated his neighbourhood’s entire population of schoolchildren during a pubescent experiment with explosives… and a slight miscalculation of the safety perimeter!” Did I mention the $2 billion in cash raised by Sir Chris and his team for cancer research, the $5 billion (call it $6 billion, really) of business value and how he advised PM Thatcher on biotech at the tender age of thirty? Interestingly, none of the speakers were inclined to bask in the glow of their own respective entrepreneurial achievements. Instead, Sir Tom Hunter laid down the “New Enlightenment” gauntlet on the night at the doorstep of his own Hunter Centre for Entrepreneurship, which accepted its first PHD candidate in 2003. He suggested that the business birth rate in 2003 was ‘36 business start-ups per 10,000 adults’, and as recently as 2010 that ratio remained the same.
Sir Christopher underlined this point with one of the most intriguing statements I’ve heard about the spectacular collapse of the dot.com sector at the turn of the century.
HNW magazine has committed to support the “New Enlightenment” initiative which, while at this stage is little more than a talking-shop, holds up the notion that ‘Scotland invented the modern world’ – as asserted by professor George Herman of Georgetown University in Washington DC. The statement resonates well at a time when initiatives like the Sir Tom Hunter and Willie Haughey supported Entrepreneurial Spark programme is birthing throughout Scotland. The New Enlightenment initiative’s intention is to now bring up to 140 business and organisational leaders together. So watch this spark, and enjoy the issue.
Emerson HNW Magazine Editor
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Up Front: Of Shoes & Chictopia
CONTENTS P5
Ruthless: The Return of Kim Dotcom
P6
Showcase: Investable Businesses
P12 Networks: HNW Partners & Supporters P14 Steel’s View: The Most Dangerous Time to Invest P16 Gecko’s Digital Lens: Apple vs Microsoft P19 Mike Williams: The View from Manhattan P20 Beyond Bedlam: Feature Report P24 Marie Marin: Employability P25 Politics: Independence & Interdependence P26 WAW & WEN: What Angels Want & What Entrepreneurs Need P28 Interview: Steven Moffat P33 International: Barbados P34 Angel News: The World Wealth Report P36 Special Report: Tech Trends P41 Practical Business: Legal, Accountancy, Leadership P47 The GEM Report: The Annual Entrepreneurship Monitor P51 Diatribe: The VC Sector’s CV
Published by HNW Magazine Limited. Registered Office 33 Oldwood Place, Livingston, West Lothian EH54 6UJ. The views expressed in HNW Magazine are those of invited contributors and not necessarily those of HNW Magazine Limited. HNW Magazine Limited does not endorse any goods or services advertised or any claims or representations made in any advertising in HNW Magazine, and accepts no liability to any person for loss or damage suffered as a consequence of their responding to, or reliance on, any claim or representation made in advertisements appearing in HNW Magazine. By responding or placing reliance, readers accept that they do at their own risk. Reproduction in whole or part is forbidden without the written consent of the publisher HNW Magazine Limited. ©2012 HNW Magazine Limited.
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RUTHLESS
HNW MAGAZINE OCT/NOV 2011 MAGAZINEMAY/JUNE 2012
The Return of Kim Dotcom
EPILOGUE Kim Schmitz
WE all like a good villain. After all, there are no heroes without enemies, no glories without tragedy, no Yin without Yang. And no ‘dot.com’ without Kim; Kim Dotcom, that is.
IN the midst of a digital explosion that appears frighteningly similar to the dot. com era of the late 1990’s, I recently read with grim interest about the return to infamy of an old tech sector nemesis. Enter the gargantuan 6ft7ins Kim Schmitz, a 38 year old Aquarian also known as Kimble, Kim Tim Jim Vestor, Dr No (from the first James Bond film) by his enemies, and later in 2005 as Kim Dotcom. The German-Finnish businessman rose to prominence as a web entrepreneur during the dot.com bubble, later stealing his new legal surname as an eponymous afterthought. Even as a teenager he was larger than life, physically and technologically, rumoured to have cracked into US corporate PBX phone systems, which led to his first arrest on charges of using and selling stolen calling card numbers. Rebounding in 1994, older but none the wiser, he founded computer security company DataProtect which alongside IVM engineering provided the first in-car mobile broadband Internet access. And so the near-teflon Dotcom capitalised by selling 80% of the shares of DataProtect to TUV Rheinland in 2000, just before the bubble burst. But his devotion to - and delusions of - grandeur about all things URL would later lead to his next convictions, this time for computer fraud, handling stolen goods, insider trading and even embezzlement.
And so his life continued, an alternating universe of legal wrangles and courtroom convictions entwined with glamour model photo shoots, racing supercars and operating from his secure island base in New Zealand. The 38-year-old now has a laundry list of financial and hacking convictions that would make World Wide Web inventor Tim Berners-Lee and youthful Government department hacker Jonathan James scratch their collective his heads. Even Hugh Hefner would blush at some of Kim’s multimillion pound fleet of vehicles bearing number plates such as “GUILTY”, “MAFIA” and “GOD”. The married father-of-three is the personification of living life on the edge…of everything; legality, luxury, pornography and even obesity. Kim’s new punishment arrives in a year of financial tech-sector déjà vu; the media and digital moguls enticing investors and speculators to once again eschew the rules of business modelling and valuation, and indeed, common sense. Who says economies and stupidity aren’t cyclical. The sudden re-emergence of the poster child for the ills of the previous tech sector boom-and bust come as a grim reminder; ten years and total amnesia.
• Kim Dotcom, who also founded Megaupload and its ‘associated websites’ i.e. porn, was placed in custody on January 20 by the New Zealand police on charges of copyright infringement. • Using his online moniker “Kimble” he is considered one of the world’s best players of video game Call of Duty: Modern Warfare 3. • He was refused bail on 25th January 2012 on suspicion of leading a global criminal conspiracy to pirate films, music and television shows via his website Megaupload.com. • If convicted he faces up to 20 years in a United States penitentiary.
And to this scribbler, ensconced in the ruthless truths of many an unwritten story, Kim’s return is far less a strange coincidence than downright prophetic.
5
SHOWCASE INVESTMENT
HNW MAGAZINEMAY/JUNE 2012
Special Thanks to:
About:
Entrepreneurial Spark™ is a not-forprofit social enterprise engine that is geared to drive entrepreneurial mindsets and behaviours in and from Scotland.
Contact:
Entrepreneurial Spark, Caledonia House, Lawmoor Street, Glasgow, G5 0US t: 0141 418 9120
About:
About:
miiCard bridges the imperative for trust online, proving to others that ‘you can trust it’s really me’ and for them to prove the same.
Alpine iQ helps people exchange ideas, collaborate and make decisions openly & honestly at a Twitter speed.
It proves real identities to the same level and traceability as a passport, driving licence or photo ID and puts the user in control of their digital identity for trading, transactions and connecting with more convenience, ease and safety.
Alpine-iQ’s Speak Up platform shows you the pulse of your organisation.
Summary: The Internet is part of our daily lives.
About:
Par Equity is an investment firm with a hands-on investment approach and extensive experience to investment opportunities with significant potential returns.
Contact:
Par Equity LLP, 3A Dublin Meuse, Edinburgh EH3 6NW t: 44 (0)131 556 0044
And as we increase social activity, shopping and business online, the risks of identity theft, fraud and the personal impact of misplaced trust get higher. At the same time our online transactions are growing and we are spending larger sums of money on high value goods and services. The limits of our trust in the web are real as the Internet was born out of anonymity, and for some time now we haven’t been able to prove identities online. Thus we go offline to complete proof of identity checks and remain cautious in our interactions with others.
Contact: James Varga t: +44 (0)845 119 3333 e: info@miiCard.com w: www.miicard.com tw: twitter.com/#!/miicard fb: www.facebook.com/miiCard
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Summary: Starbucks was rejected as an idea and investment by 217 out of 242 people approached by Howard Schulz. JK Rowling had twelve publishers reject Harry Potter before being accepted. Yet in organisations an idea is decided its fate by one person, typically someone’s boss. Would Starbucks or Harry Potter be invented at your company? We are aiming to make an application that will transform your organization to one of honesty, transparency and focussed on doing the right things at twitter speed without a hint of bureaucracy or red-tape.
Contact: Graeme Bodys t: 07720 558 540 e: graeme.bodys@gmail.com w: www.alpineiq.com tw: @AlpineIQ fb: facebook.com/AlpineiQ
SHOWCASE INVESTMENT
HNW MAGAZINEMAY/JUNE 2012
About:
About:
About:
Domino Letting answers the ten pain points continually felt by landlords and enjoy 100% approval ratings to date.
Home Stay Friend connects guests who need a short-term spare room, with hosts who have a room for rent.
Realm is a new design practice based in Glasgow designing and planning spaces which are purposeful, resourceful, creative and user centred.
We are a lean, customer focused letting agency with a very radical and very successful approach. Summary: We have 7 pledges to tenants and 7 pledges to landlords that keep us accountable and approachable at all times. Our 5 year expansion structure will see us take on 8,000 of the UK’s 3.3 million private rental properties across Glasgow, Edinburgh, Manchester and London. A core focus throughout this will be maintaining our 100% approval ratings to ensure customer retention and delighted clients, both tenant and landlord.
Contact: James Callagham t: 07939 211 807 e: james@dominoletting.co.uk w: www.dominoletting.co.uk tw: @dominoletting fb: facebook.com/DominoLetting
It’s a friendly, affordable and cultural way to travel. Summary: At homestayfriend we encourage cultural exchange. Our team have studied, worked and travelled abroad and want to give others the opportunity to experience the benefits of interacting with the global community. Homestay is the perfect way to do this. Staying with a host family enriches your experience. Whether you’re a student, traveller, intern or just visiting for work, getting to know your chosen city through the eyes of the host is the best way to truly experience your destination.
Contact:
At REALM, it’s not about the space, it’s about the opportunity. Summary: Realm has been busy working on Strategic Space Planning for the School of Biological Sciences at the University of Edinburgh. Based on a clear strategic approach we completed a series of analytical space studies enabling clarity and speed of decision making around key projects. We work closely with you to understand your needs and develop intelligent space designs which meet those needs and help you succeed. We create spaces that take our clients from where they are now to where they want to be in the future.
Victoria Arnold
Contact:
t: 07786 022 398 e: victoria@homestayfriend.com w: www.homestayfriend.com tw: @homestayfriend fb: facebook.com/homestayfriend
Antonia Cairns t: 07941 677 895 e: antonia@realm-isd.com w: www.realm-isd.com tw: @realm_isd
7
HNW MAGAZINE AUGUST 2011
Barnardo’s Works helps unemployed 16 – 24 year olds into secure and sustainable jobs across Scotland Need staff? We can help…we offer employees with: ■ ■ ■ ■ ■ ■
Employability skills Industry specific training Up to 8 weeks placement – at no cost to you 13 weeks subsidised waged period – we pay you half the wages Regular reviews with you the employer and your employee Mentor training for your staff to get the best out of your employees
Our services cover Edinburgh, Glasgow, Dundee, Highlands & Islands, Renfrewshire and Cairngorm National Park Please contact Helen Brown and quote HNW: helen.brown@barnardos.org.uk 0131 559 3940
5
SHOWCASE INVESTMENT
HNW MAGAZINEMAY/JUNE 2012
About:
About:
About:
Makur helps make the movies of your life, as it happens, Hollywood style and is coming soon to iPhone & Android.
We are a creative crowdfund agency which works with business owners or charity managers who are frustrated about not being able to raise funds to grow.
Visero are outdoors advertisers that specialise in huge inflatable billboards.
And that’s important as we are all Makers now; we all create some form of content on the Social Graph. Summary: The content economy is changing. The 20th Century was the era of mass media, where an elite few created content and the many consumed it. The opportunity for profit was clear. That was the Consumption Economy. Now that model is changing. Consumers now question paying for content. Discovery is now arguably the internet’s greatest problem, and Makur is building bridges to cross the content chasm. Our first bridge will be a prototype content co-creation platform.
Contact: Russell Henderson t: 07789 555 055 e: russell@makur.co.uk w: www.makur.co.uk tw: @MakurMedia
We work with business owners or charity managers who may have heard about crowdfunding, but don’t have the time, capacity or know-how to go about it themselves. Summary: Our aim is to help you grow your ‘crowd’, your customer-base and raise funds at the same time. Crowdfunding is a way to raise funding for a specific initiative from a large number of sources. Unlike crowdfunding platforms or creative agencies Soloco helps throughout the whole process. That means making sure you are ready for crowdfunding, building your crowd, running the crowdfund from your own site, and then maintaining relations with your funders and customers after you have achieved your funding goal.
Contact:
We can take this anywhere, anytime, allowing our customer to reach out and engage with their customer base. Summary: Geo-Targeting - The mobile nature of our billboards means we can reach your customers...wherever they are. Precision Timing - Use our billboards from 4 hours to 4 weeks. Get your message to your people at the right time. Campaign Flexibility - Need experiential marketing? A guerrilla campaign? A quirky launch? We can do it all and make your message stand out. High Visibility - Our billboards create disruptive impressions that connect and engage your customer base.
Contact: Michael O’Donnell t: 0141 418 9634 e: michaelhaggerty@visero.co.uk w: www.visero.co.uk tw: @Visero fb: facebook.com/Visero
Kirsty Burnham t: 0141 418 9615 e: kirsty@soloco.co.uk w: www.soloco.co.uk tw: @solocohq fb: facebook.com/solocouk
9
SHOWCASE INVESTMENT
HNW MAGAZINEMAY/JUNE 2012
About:
About:
About:
TenderCush products have been specially designed for women following breast cancer surgery.
Larosco Ltd specialises in the field of online social network relationship marketing for both the retail and recruitment market sectors.
Kiltr is a next-generation business social networking and media platform.
Summary: The products offer post-op support, comfort and discreet protection to the underarm wounds following surgery. TenderCush supports The Maggie`s Centre and a donation from each sale will go to this great cause. TenderCush design and supply cushioned products offering comfort & support to women following breast cancer surgery.
Contact: Sheila Logan t: 07980 470072 e: sheila@tendercush.co.uk w: www.tendercush.co.uk tw: @TenderCrush fb: facebook.com/TenderCush
Located close to Edinburgh we have been studying and developing recommendation technologies since 2001. Summary: BongoMagic, our core product is an extremely advanced and competitive marketing tool in comparison with more traditional on-line marketing methods. It is designed to turn one customer into many and to reach consumers by using other people’s network of contacts and the associated recommendation of products and services. In effect, a web based ‘word of mouth’ system. To date, the company has secured a number of orders with some of the U.K.’s most prestigious brands and continues to gain momentum with enquiries from Europe, USA and the Middle East.
Contact: Dave Young & Laura Sullivan t: +44 1383 435987 e: info@larosco.com tw: @LaroscoLimited http://larosco.com
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It leverages Scotland’s unique cultural heritage and entrepreneurial spirit to assist professionals, entrepreneurs, companies, organisations, clubs and societies. Summary: Our business social networking platform helps those who are Scottish, or have an affinity to Scotland, to accelerate their success across the globe. The founders of Kiltr, Brian Hughes (CEO) and Stewart Fraser (CTO), met at University in 1992. They are both passionate Scotsmen, focused on harnessing the power of social networking technology to help shape Scotland’s future international success. In September 2009, Par Equity and the Scottish Seed Fund provided start-up seed finance allowing Kiltr’s evolution from prototype to public beta launch.
Contact: Brian Hughes & Stewart Fraser t: 0141 3424240 e: info@kiltr.com http://www.kiltr.com/
COMMON SENSE
HNW MAGAZINEMAY/JUNE 2012
Common Sense: Barclays vs “Bank on Dave” The now infamous “Obituary of Common Sense” has circulated the Internet for many years as a sardonic journey into the heart of lessons lost, and thus, mistakes repeated. If you haven’t read it, do Google/Bing the above quoted phrase.
IT offers insights oft-forgotten and much-required during times of real techbubbles, false Eurozone Armageddons and the brazen complicity of a hundred Nick Leeson’s under a dozen banking roofs. Beloved old friend, whose birth records were long ago lost in bureaucratic red tape, Common Sense preached an eponymous message of living by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge). And in his absence here we sit on the cusp of impending U.S. Justice Department criminal cases being built against financial institutions (Yes, that’s plural) and their employees relating to the manipulation of interest rates. But even as authorities seek to file charges against at least one bank later this year the new deals – which look strangely like the old deals - are rapidly getting done. There is the $450 million “apology” settlement with Barclays in the raterigging case, as well as the resignations of former decision-makers Bob Diamond and Marcus Agius. But even before the desks have been cleared the frontrunner to fill the newly vacant Barclays Chairman role, Sir Michael Rake, is the current head of the audit
committee who monitors the group’s financial reporting. Did Common Sense just turn in his grave? Thankfully, Barclays employees are not shielded from criminal prosecution, but how banks set the London interbank offered rate, or Libor, which determines borrowing rates for $trillions in things like mortgages, credit cards and student loans is a complex animal. And how do you calculate the losses attributable to long-term rate manipulation? These things are better quality controlled at the front end of the process than chased through decades of legal litigation until we’ve all forgotten about it and the world has moved on. The prospect of criminal charges has sent the Libor-rodents scurrying to arrange deals with the government – that’s at least five years since the rate-rigging issue truly began in 2007, and which no audit committee picked up on - where settlements rather than indictments are the more likely result. True enough Barclays is the only bank to admit their Libor involvement…so far. As authorities probe the issue in North America, Europe and Japan, perhaps we
should all simply “Bank on Dave”. And if you missed this one as well as the Obituary of Common Sense then start Google/Bing-ing again or pick up his book: Bank of Dave: How I Took on the Banks. Bank of Dave is a two-part documentary on Channel 4 that chronicles Burnley businessman David Fishwick in his pursuit to open his own bank and help reverse the financial hardships suffered in his home town. It is an incredible 180-day journey to break even, involving up-front costs of £9,000, circa £400 per week in overheads paid out of the mini-bus entrepreneur’s own deep pockets, and an all-out duel with the FSA. Dave meets the people he lends to, knows the property he invests in and exposes an inherent weakness in our banking system by promising to guarantee deposits in his bank with his own money. He’s neither fixing rates nor leveraging assets and lending what he hasn’t got. It’s a Common Sense approach, and as the Obituary tells it, a family of values; born of parents Truth and Trust, reigned in by his wife Discretion, raising his daughter Responsibility and his son Reason. If you remember him pass this on.
11
THE NETWORKS
HNW MAGAZINEMAY/JUNE 2012
HNW magazine prizes its relationships with leading organisations in the entrepreneurial and investor sectors and is delighted to provide direct links and information to these organisations below.
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Angels Den
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Footdown
The only Angel investment network to provide free business funding clinics and one-to-one pitching at regular SpeedFunding events throughout the UK and Asia, with regional managers dedicated to supporting and introducing you to the right Angels.
If the confusing messages in the financial media leave you not knowing which way to turn, and you want to reduce your risk and organise your future with more certainty, contact Alan Steel Asset Management’s award-winning team.
Mentoring. Insight. Coaching. Footdown is passionate about improving the performance and quality of leaders, and works from within a peer group to inspire, inform and help leaders respond better to all challenges.
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THE NETWORKS
HNW MAGAZINEMAY/JUNE 2012
Gecko New Media
www.geckonewmedia.com The straight-talking Edinburghbased digital agency that helps you make sense of the web, providing strategic planning, design & build and leading edge solutions that help your business grow.
Kiltr
www.kiltr.com Kiltr is a leading edge professional social network for everyone with a Scottish connection, founded with the local-to-international Scottish Diaspora at its centre.
LINC
Jumpstart
www.jumpstartuk.co.uk The leading research and development (R&D) tax credits advisory business for companies throughout the UK with a 100% success rate for Government R&D Tax Credit applications.
www.lincscot.co.uk The national association for business angels in Scotland, with a membership network of hundreds of investors including those operating individually, many of the best known groups and syndicates, and a number of significant private offices.
Par Equity
www.parequity.com Par Equity is an investment firm with a difference. We bring a pragmatic, hands on investment approach and extensive business experience to investment opportunities that have the potential for significant returns.
Scottish Family Business Association
www.sfba.co.uk The SFBA is the definitive authority on family business issues in Scotland operating as non-profit solutionsfocused organisation created for and by family business people.
stribution Partners ne Distribution Partners
tners
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“ Scottish Social Enterprise Coalition
www.socialenterprisescotland.org.uk Social Enterprise Scotland is the national collective voice for social enterprise in Scotland, bringing together social enterprise and its supporters into a strong force for change.
Thrive for Business
www.thriveforbusiness.co.uk Thrive is a membership based networking organisation for business-to-business SMEs across Scotland bringing together likeminded individuals willing to share knowledge, ideas and contacts in an unrivalled atmosphere of talent and enthusiasm.
The leaders we revere and the businesses that last are generally not the result of a narrow pursuit of popularity or personal advancement, but of devotion to some bigger purpose. That’s the hallmark of real success.
�
Barack Obama 13
STEEL’S VIEW
HNW MAGAZINEMAY/JUNE 2012
When’s the most dangerous time to invest? IN less than 9 month’s time I will reach my 40th anniversary of giving advice as an IFA. Jing’s!
They say the darkest hour is just before the dawn and January 1975 proved no exception.
So as we apparently face another financial Armageddon, this time thanks to an unstable Eurozone and the dreaded Drachma playing hide-n-seek for 2 years now with economists and learned commentators, what key lessons can I pass on to confused readers?
In weeks, shares bounced by over 25% and, over 12 months, the Index doubled.
I started off in the early months of 1973, when we were told everything in the UK’s investment garden was rosy.
It happened in the 1980’s at least twice; in 1984 with all it’s Orwellian overtones and, more famously, in 1987 and the October crash.
Easy peasy; you just bought shares in almost anything and couldn’t go wrong. “It was rumoured it was so simple to invest, even a monkey with a set of darts and a Financial Times could beat any index you threw at it. Come October though, the world caved in.” By January 1975 the FT Index lost 70% of its value and the monkey had its darts confiscated.
“
Why the sudden turnaround, given the mess the UK economy was said to be in? It’s hard to say. But over the last 39 years the pattern repeated.
I remember the latter well. Apart from anything else I had the misfortune of being on an Iberia jet trying to land in what seemed a hurricane at London’s Heathrow on the Sunday night before Black Monday. It was a day when thousands lost their life savings and Sevenoaks should have been renamed Oneoak.
Prior to that crash, investors as I recall were borrowing to buy more shares, similar to the way they would later do in the mid 2000’s - borrowing vast chunks to stick into the latest one way property bet. “You dinnae understand son, you cannae go wrong it’s property…it disnae go doon. Aye right! When had I heard that before? Loads of other times, such as the 1997/8 Asian Contagion which also infected China, then Russia and, just to make a World Tour of it, infected Brazil, Argentina and nibbled away at Mexico for good measure.” Nobody saw it coming. Don’t be mistaken, it was serious. In various Asian countries growth vanished and currencies fell 50% inside 2 months. Russia was bankrupt as was Latin America. But then what happened?
It was rumoured it was so simple to invest, even a monkey with a set of darts and a Financial Times could beat any index you threw at it. Come October though, the world caved in.
14
”
STEEL’S VIEW
Turns out the end of the world never unfolded. The infected countries all recovered miraculously, as did their stockmarkets. Once again, it proved to be the case that euphoria is more dangerous for investors than deep fear.
HNW MAGAZINEMAY/JUNE 2012
guess what’s going to happen to the latest safe as houses home for your money? Time for a sharp exit, folks! Another BRIC in the Fall
Exactly 5 years ago I was at Claridges in London to attend the Official launch of New Star’s International Property Fund.
Investors and forecasters alike have lined up to say that recent economic results for the month of May don’t bode well for China.
It was launched, we were told, thanks to unprecedented demand from private investors for such an investment opportunity.
The Middle Kingdom’s inflation, industrial output and retail sales all flagged leaving a two-month trail of sluggish growth, according the Reuters.
I asked the presenter when, in his experience, had he ever known “the majority” to call it right and didn’t he think this was a high risk investment as a consequence?
More telling was the action taken by China’s policymakers in response to the slowdown, as a surprise cut in interest rates – its first since the global crisis – along with a spate of measures designed to get money flowing back into the economy was announced last Thursday.
Don’t be silly laddie, was his response. £700 million poured in. Investors have not been able for years to get out. The fund is worth £300 million today. Even worse is the experience of those attracted around the same time to so called Limited Property Partnerships, heavily geared with cheap borrowings into the latest “no-brainer”. So far most have collapsed. Investors have lost all their investments. Don’t get me wrong. I’ve made mistakes too. I got sucked in personally to the Dotcom boom. Remember it? The new paradigm! Sitting on big juicy profits on 4 stocks, one up 8 fold in a year - I thought I’d hold on until the new fiscal year in April 2000 to save tax, huh! But that March the crash happened. Guess what these 4 stocks lost? Try 95% and you are not far away. My message is this. The most dangerous investments are the ones that look the safest bets.
The alleged culprit? Who else; the Eurozone and the expanding PIIGS debt crisis, when as recently as this weekend Spain became the fourth country to seek financial support. But the disappointing economic news has unblocked a financial log jam of investment projects and reforms to allow private investments into former state dominated strongholds. Last Thursday’s _ point rate cut was a double-edged sword; both raising market sentiment, albeit briefly, then driving suspicions that May’s data would be less than positive. Fickle market sentiment often gathers the collective “doomsayers’ voice” at times like these, but some take a longerterm view on China’s economic fortunes. “Look at the figures. China’s exports are up 42% year-on-year and its imports have risen by 55%. This does not look like an economy that is stalling.”
Income yields were fixed at anything up to 15% guaranteed. Now at 3% before tax and inflation, folks can’t get enough.
My good friend Mike Williams, President of Genesis Asset Management, says that China’s ability to mask weak data is slowly but surely crumbling, however: “They (China) will reach a point soon where forced debt rollovers for local city debts and the real estate monster creeping around the globe will land solidly on their doorstep.”
And when the World fixes itself, faster than you think, and interest rates rise,
The world’s second-largest economy saw retail sales fall short of expectations,
Nobody thought of buying Government Gilts 20 or even 30 years ago when they represented - in hindsight - the best bargains.
and slower than expected investment in infrastructure and real estate and an easing of consumer price inflation. But is this a BRIC-wide issue or just China? On the heels of Brazil struggling through Q1, India just reported its weakest quarterly growth in almost a decade. However, the BRICs, the relative “darlings” of the emerging market showcase, are experiencing choppy economic data not unlike their more established industrialised parents, who have donned their respective financial flak jackets for the past four years. The upside? Even as manufacturing data caused concern, import and export figures exceeded expectations. Look, recent numbers show China’s economy is still sweet even as inflation is turning sour…and a growing number of pessimists who think their bright future will dim sum more – but those taking China off their menu now may look like dumplings later this year. China’s exports were up over 15% year-on-year and approximately 5% month-on-month, likely due in part to a decline in the Yuan against the dollar in May, alongside exports to the US which rose over 20%. Exports to China’s biggest foreign customer, the Eurozone, also grew at its highest pace since January. Similarly, imports rose over 12% and increased slightly month-on-month leaving a trade surplus of $18.7 billion, with strong showing from Copper and crude oil. Perhaps the largest single problem China faces now and in future is the expectation of growth. Current growth levels exceed 8% yearon-year but are now widely expected to fall short, as the government has set a growth target of 7.5% for 2012. One thing is certain, any country in the Eurozone would be doing back flips right now if their growth rates touched anywhere near to 8% per annum.
Alan Steel, Chairman, Alan Steel Asset Management
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GECKO’S DIGITAL LENS
HNW MAGAZINEMAY/JUNE 2012
Apple vs Microsoft: What’s Beneath The “Surface” THE world, particularly the technology sector, can surprise you in both how fast it can change and in what direction. Even the industry ‘gurus’ get taken off guard. Consider Peter Norton of the fabled Norton anti-virus program once said that there was no such thing as a computer virus and considered the whole idea some sort of hoax. But sometimes we can see what’s ahead; when that thing everyone expects to happen actually does, like the world’s largest software company going tablet. “Microsoft Corp, who for eight years running has worn the software crown title, unveiled its much-hyped “Surface” tablet computer in Los Angeles in June, signalling a major strategic shift in combating key competitor Apple’s iPad tech-market turbulence.” Microsoft’s Surface product takes aim at the iPad’s consumer market stronghold, alongside another, larger machine designed to compete with lightweight laptops. The Nitty Gritty Strategy Powered by versions of the new Windows 8 operating system, the product move breaks with Microsoft’s operating model of the past 37 years, one reliant upon computer manufacturers to make and market machines running Windows software. But what’s surprising is the strategy beneath “Surface”; a potentially dangerous alienation move that puts the megalith into direct competition with long-time hardware partners like Samsung Electronics Co Ltd and HewlettPackard Co. That is surprising, and even more so when you consider Microsoft Chief Executive Steve Ballmer appears to be taking a page from the Apple Inc strategy
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book on how hardware and software integration delivers market success.
considering a similar strategy.
The Tablet Market
Will Past Performance Dictate Future Success?
The new software is arguably Microsoft’s biggest overhaul of Windows in years featuring the “Metro” touch interface and readying itself for rollout during the Christmas shopping season.
While the “Surface” product appears sound, naysayers have reminded us that Microsoft’s previous sojourns into hardware are a mixed bag of success and failure.
First to market will be a lighter, thinner version of the Surface tablet with 10.6 inch screen, and 32GB and 64GB memory size options, due for release alongside Windows 8.
Putting keyboards and mice aside, the Xbox game console business is considered highly successful, but those with longer memories recall the $multi-billion investment and years of ‘tweaking’ faulty units - a problem deemed the “red ring of death” by gamers – that went into it.
Microsoft announced the second, heavier “ultrabooks” style tablet will come in 64GB and 128GB models thereafter. “With expectations that tablet sales will triple to over $180 million per annum over the next 24 months Apple has sold 67 million iPads in two years since launch – Microsoft’s move into the market appears logical.” As does the likelihood that Google, after buying phone maker Motorola Mobility earlier this year, may already be
Other Apple innovation ‘follow-ons’ from Microsoft included the “Zune” music player and “Kin” phone. And if you’re never heard of them then you already know how those stories ended. At first glance, and from initial tech-guru feedback, the “Surface” looks smooth, seamless and market friendly.
GECKO’S DIGITAL LENS
HNW MAGAZINEMAY/JUNE 2012
The new software is arguably Microsoft’s biggest overhaul of Windows in years featuring the “Metro” touch interface and readying itself for rollout during the Christmas shopping season.
So now we wait for Christmas… But not before we look back at how the two companies that own the digital planet, Apple and Google, hosted their respective developers’ conferences. For Apple that’s the Worldwide Developer Conference and for Google it’s I/O. The goal for each company; to win the hearts and minds of the developer communities - for he who wears that techno-crown will see the developers build their software by preference and in order to add value to the consumer experience. And that, as they say, is where the money is. So Who’s Winning? It’s hard to say but Apple does offer developers more application-based revenue and Google will have to move its paid-for iOS applications through the ‘app’ store. So what’s all the ‘mapping services’
hubbub in the press about then? Simply this: Apple revealed it had improved the search capabilities of its voice assistance programme called “Siri” after unveiling its own mobile mapping service. Apple CEO Tim Cook, who took over from the late Steve Jobs led on the initiative that it hopes will stymie the growth of Google’s Android mobile platform. “The mapping service is a prize unto itself as one of the most popular functions on both Android smartphones and the iPhone. Its iOS6 mobile software will be ready to go in the fall and will replace Google Maps that has until now been a pre-loaded app on iPhone and iPad.”
Google CEO Eric Schmidt, who once sat on Apple’s board. Admittedly, Apple is late to the game but appears to again be demonstrating its ability to take an experience offered by rivals and “go even further.” “Look out in the near future for iPad and iPhone Passbook apps that organizes a user’s electronic airline tickets, movie tickets and restaurant loyalty cards.” And so we wait as the Apple and Google devout developers, the gathering of uber-geekdom, as they lovingly test the latest products and software, connect with peers, and create waves in the tech market that will likely decide the future of, well, everything digital.
And now that they’ve built it the hope is that “they” will come. Cook’s Apple Tim Cook’s action to remove its dependence on Google for mapping is another nail in the coffin in the relationship between he and former
Mike Octigan, MD, Gecko New Media
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MIKE FROM MANHATTAN
HNW MAGAZINEMAY/JUNE 2012
MIKE WILLIAMS: THE VIEW FROM MANHATTAN Don’t Worry, Be Happy
The Bottom Line
THERE are some choppy markets out there.
In short this earnings season is ranking up there near record territory in relation to earnings and revenue beats. It’s one of the healthier quarters in recent history, dating back to pre-crisis levels.
Be thankful for it, that and the daily ‘red ink’ (read as bad news!) designed to sell newspapers, because it’s playing right into the hands of the clever long-term investor.
Combine that with real and forward earnings in all-time record high territory and the constant red ink becomes a bit of a head scratcher.
We do recall where we were in October, right?
And if you’re in doubt about whether the financial hacks know what’s really going on, ask yourself how many journalists are also millionaires?
Spanish Monster
Hmmmmm… Nope, I can’t think of one either. You’d figure their investment expertise and column inches of advice would have won them a fortune by now. The Chop Is Working If we shut out the media noise we can see the following truths:
Heard the one about Spain stomping down Greece Street and all of the terrible collateral damage it will cause? If so, think about this: In 2008 and 2009, the United States, still by far the largest economy on the planet, arrived at the edge of the abyss. Through extraordinary events, all perceived as terrible at the time, we stayed out of it and the world slowly ticked back in the right direction on the long path to recovery. The query we should focus on is this: If the Great Recession in the US did not literally spin the world out of control, why do we so easily buy into the idea that Spain’s problems will? Think about that.... Just as we stated when relating to Greece months ago, if one is still “at risk” for lending to Spain or any of the PIIGS and not hedged, well, the money deserves to be lost. That is why they call it “investing” and not “fun.”
The Dow Jones continues to bounce back and forth just under and over 13,000.
We are at present repaving the pathway first walked back in 1982. The news then was terrible as well. The 70’s were a lost cause and the problems facing the nation were legion in numbers. The future was bleak--just as the crowd feels it is now. Oddly, many may not recall that 1982 started a period of two decades of surprising growth and new horizons. The market did not go straight up every month. It had many periods where a pause was in order. Each pause ended quietly as doubt headlined everywhere then as now, but each pause was also a benefit. As 2000 dawned, much needed to be flushed from the system, much needed to be pruned back for the next rebirth of growth. So here we are in the choppy waters of 1982 all over again. And the water is nice and warm. Mike Williams is President of Genesis Asset Management in Manhattan, NY
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FEATURE REPORT
HNW MAGAZINEMAY/JUNE 2012
Beyond Bedlam: The 4th Great Opportunity in a Generation From 2008 the Eurozone data was widely available; the ground work had been published for years from authors like Professors Reinhart and Rogoff on the Bank of England and other websites. DEFAULT is good. But the much-hyped collapse, contagion and ensuing global catastrophe? It’s a fairy tale. The big bad wolf of Armageddon doesn’t make it to the curtain call. The point is that capitalism has been a creative-destructive cycle, and in practice this is also true of all socialist states. “The G20 is a financial club of the world’s wealthiest countries, which between them account for over 80% of global GNP and trade. And only 13 of them existed as independent countries a century ago, of which only two have not defaulted on their government debt since then.” Many have done so more than once.
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Default is inevitable and cyclical, yet rarely addressed. Current analytical paralysis is preventing discussion of the next and most exciting phase of this cyclical pattern; that default frequently results in great financial, economic and social benefits.
The idealism of the creators was admirable but not naive as they recognised that the electorate was unready for a single political union.
Grexodus: How We Arrived
“So they identified that the major risk of achieving a full union back to front was that, without controls and limits, the Eurozone could rapidly implode, as had occurred with previous experiments.”
In their memoirs, the architects of the euro admit that the creation of the single currency in 1999 carried serious risks – an understatement, as it was a wild gamble and a leap into the dark.
The 19th century experiment of the Latin Monetary Union has been an invaluable guide, including some of the same rogue players causing the same problems as now.
They took the chance because they were driven by a burning desire to create such an interdependent economic area that never again could there be a war across Europe.
In short, they understood that without discipline the single currency would favour those politicians which overspent the most, to the cost of those behaving prudently and abiding by the rules.
FEATURE REPORT
HNW MAGAZINEMAY/JUNE 2012
The Eurozone Gamble
significant electoral shift is occurring.
the pain is bearable for now.
The gamble could have worked even with occasional political expediency.
During the last year, national and regional elections across Europe are showing a growing anti-EU trend.
Greece & Tax Don’t Mix
It has been the combination of lack of financial discipline and a quasi-religious zeal to create a European supranational state that is again killing the experiment. When Greece joined in 2001, this expediency was very apparent; it was known at the time that the two key rules – a budget deficit and net debt to GDP below 3% and 60% respectively – were being broken. Then as now, Greece was a tiny part of the Union. The Start of the Breakdown The serious breakdown of financial discipline occurred when the Euro’s leading architects, France and Germany, waived the budget deficit rules for themselves in 2003 (thus for all other members thereafter), fearing the electoral consequences of imposing budgetary constraints. A crisis became inevitable. “The continuous refusal by EU leaders to discuss such obvious flaws in the European dream took on many aspects of a religious cult: opponents and critics were vilified. More importantly, they were incapable of imagining, let alone providing rules, on how major changes such as a member leaving, could be made.” Lack of electoral support for a political union gave rise to the much discussed “democratic deficit”. The EU Commission fought all attempts for referenda or elections on the direction of the EU.
This will accelerate because the EU has become associated with financial pain: not what voters signed up for. In practice, throughout the whole EU/Eurozone experiment voters from Lisbon to Helsinki have acted rationally. They were always going to be in favour of ultra-low interest rates and credit availability in unimaginable quantities, along with full employment, rising personal income and house prices. Europe’s electorate continues to vote rationally. “Greek opinion polls show overwhelming support for the euro (it will certainly be worth more than the new drachma), a desire never to be called upon to repay their debts and to receive large development grants from Brussels.” As these wishes have only recently become incompatible, the next phase for them and other voters is clear. The Weight of Self-Interest Comes First They will weigh up their self-interest first, then that of the nation. The score card for all these weaker countries staying in the Eurozone and the EU, or leaving both, has now tilted towards leaving. This is where all the EU’s financially weaker nations are heading, because the benefits of default are considerable.
On those rare occasions when a country voted contrary to the wishes of these Euro-priests, a second vote was always demanded, with victory assured through a combination of threats (such as being locked out of European orders, trade and finance) and bribery (more money from central EU funds).
Appointment with the Dentist
During the credit boom, such threats and bribes worked well. The Euro Kitty
They have reached their overdue “dental moment”: the immediate agony is so intense that they must make a painful visit as soon as possible.
Now the kitty is empty, hence a
For others such as France and Belgium
This scoreboard applies now to Greece, Spain, Portugal, Ireland and Italy. All five economies are contracting, making their debt burdens even heavier.
Greece’s tax collection has always been weak and it deteriorated in the two months before the recent election; at the end of May the retiring finance minister announced it had effectively ceased. This collapse is extreme, yet in other countries similar signs have emerged. In Ireland, the new poll tax has not been paid by over half of the population. An explosive rise in local interest rates and a failure in power supply may seem controversial, yet both are cyclically normal when a country is close to actual default. As domestic and foreign capital flees, competition is intense over what is left in the pot. “Even if banks can open their doors, they strive to recall loans rather than provide new ones; thus borrowers are forced onto other credit providers. This can also happen in robustly growing economies when credit tightens; last year China’s mediumsized private businesses were forced to borrow at rates between 30% and 50% p.a. because the government squeezed the supply of credit (it was being funnelled to state-owned business and government cronies).” The Rules of Departure The cure for addiction is not to increase the dose; so continuous financial infusions into the PIIGS can never result in structural change. And it is only through departure and default that the necessary restructuring and recovery can take place. “Recovery post-default is always driven by a reversal of previous capital flows: deposits come back into the system; foreign businesses see the opportunity of cheap wages and a weak currency; governments are keen to smooth their path so regulations are waived.” These investors suddenly become interested in building factories and buying assets. Tourists find the exchange rate
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FEATURE REPORT
compelling and arrive in droves. Service companies such as offshore gambling, accountancy, call centres and name plate headquarters – find the case for investment has become compelling. Encouraging Precedents 2 July 2012 marks the 15th anniversary of Asia’s bone-jarring economic collapse. One example suffices: of Thailand’s 50-plus listed finance companies (six of which had a greater market capitalisation than global banks such as Barclays), none were quoted 18 months later. Thailand was one of the lesser players during the implosion, when most Asian countries bordering the Pacific underwent some form of default, either on their government interest payments, government entities or state controlled banks. Even China defaulted – not at the national level (as it had virtually no foreign debt) but at the provincial government level. Each of these had a giant investment trust for local development, implicitly and occasionally explicitly guaranteed by Beijing. Many refused to honour any debts. Like the Eurozone today, Asia’s initial problem was an artificially high exchange rate; most countries had pegged their local currencies to the dollar and began accumulating too much dollar debt. “Anyone who in late 1997 suggested an Asian renaissance on an unprecedented scale within a few years would have been lampooned.” Yet in every case, GDP was higher than on the eve of the crash within three years and accelerated thereafter. Inevitability European elections are showing an antiausterity trend as voters have correctly blamed incumbent governments for their folly. Unusually, the stronger donor nations have become equally hostile, voting against those parties which wish to
HNW MAGAZINEMAY/JUNE 2012
deepen the EU or Eurozone. It is like a really bad Christmas; those giving and receiving expensive presents are equally miserable. In practice, both groups are slowly voting for sovereign default. What is plan B? “The curtain has been ripped aside to reveal the Wizard of Oz is powerless. The final taboo is any discussion of the benefits of default and its cyclical normality.” In many countries default is part of economic policy because it works. The old fashioned abrupt refusal by governments to repay debt has morphed into political PR of “haircuts”, “restructuring” and “roll-over”. All are default by a different name. So the relative lack of recent official default is statistically misleading. Better to look at the number of years and percentage of time that each serial bankrupt has been locked out of capital markets through other factors (such as Spain under Franco). The evidence shows that for many countries, being insolvent is almost usual. The Fourth Great Opportunity in a Generation Since 1980 there have been three outstanding investment opportunities. The first was when America re-learnt financial discipline under the Fed’s then Chairman, Paul Volker. He forced US 10-year bond yields to a peak of over 15% to squeeze out inflation, which itself had reached an annual rate of 9%. “For bond investors it proved a once in a lifetime opportunity to lock in real yields of 6%. This bond bull market is now 31 years old; the real yield on 10-year bonds is now minus 0.6%; in 1981, the leading bond guru at Salomon Brothers – the leading bond firm – recommended a zero weighting in government treasuries. After a 31-year bull market, pension fund weightings are at a 20-year high.”
The other two opportunities were of greater benefit to equity investors. The collapse of the Berlin Wall in 1989 dragged many small countries, plus the empires of the USSR and China, as well as India and Brazil into the capitalist system. The number of active consumers globally doubled overnight. Demand and profits soared. The result was a fifteen-year equity bull market. The third opportunity was Asia’s financial crash in 1997. Eurozone default is the fourth great turning point. As in previous crises, investors shun the asset class – equities – about to offer exceptional returns. An extreme example is Greece. The entire stock market is now capitalised at $21bn, the monopoly stock exchange itself at $180m – respectively less than 4% the value and 0.1% of a single day’s turnover in Apple. Italian opportunities are greater. It is probably premature to place bets on the PIIGS or wider equities, if only because of the EU’s amazing record of dither and delay. Yet as decision-making has already passed from the EU Commission to voters – thus national politicians whose priority is re-election – any further weakness will be brief, hardly visible on any longer term chart. This time will be no different. The result will be an enormous boost to equity market valuations as economic reform and corporate renaissance are allowed to happen with the dead hands of government incompetence and inertia temporarily cut off. Yet this is to lose sight of the key issues: multiple defaults are imminent and desirable; the normal result is economic renaissance, the speed of which always stuns investors.
Jonathan Compton
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EMPLOYABILITY
HNW MAGAZINEMAY/JUNE 2012
Staff “Drive To Excellence” Turns Enterprise Around
“
Our vision is to be recognised as the leader in helping parents with dependent children to get into work and to stay in work. Marie explains, “Initially there was myself and one Administrator. We grew to seven, then 10, then 12. In the early days we all knew each other well, our procedures were fairly informal and we were able to be very flexible.
IN the normal run of things any business needs good people, but when you’re in the business of providing a service that depends upon the quality and commitment of your staff, motivating and keeping them happy is of paramount importance. “I think we are in a good place now with our 40 strong staff team,” says Marie Marin, founding chief executive office of Employers for Childcare Charitable Group. “We probably have the right balance of reward and recognition set against challenging targets and personal KPI’s. “But in the last few years, we have had some challenges in keeping staff engaged while transforming from being a small charity to a successful social enterprise.”
“
Irrespective of whether you are making nuclear war heads or discovering the cure for cancer, managing staff is probably the hardest part of any job.
”
Marie Marin
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However in 2008, Marie Marin resolved to take forward her vision of an entirely financially independent charity, implementing what she called ‘Drive to Excellence’. “We were competing in a UK wide market and we were forced to become more business focused. “Our vision is to be recognised as the leader in helping parents with dependent children to get into work and to stay in work.” “Despite our best efforts to explain the reasons why, ie protecting our jobs and growing the business, some people just didn’t get it. I understand that those who had been there from the beginning found it especially difficult to adapt. Our informal procedures and relaxed rules had to be tightened up and that didn’t suit everyone.” Marie says one of the most surprising issues for her was the poor reaction to the implementation of a rota two years ago. “We had previously opened from 9am to 5pm, but needed to extend our hours to be able to handle enquiries in line with competitor’s hours of business. Upcoming Research: Family Friendly Working Policies; to seek the views of employers regarding their experiences and perspectives of family friendly working policies and practices – scheduled for Spring 2012
”
“This meant two staff had to work 8am to 4pm and 10am to 6pm one month per year. The other 10 months they worked their normal 9am to 5pm. “Although everyone said they understood the business reasons for making the change, when it was implemented we had a number of unhappy faces for quite some.
She notes that with the passage of time the rota has now become the norm, and new staff accept it without question. “We learned lessons from this experience and as a result have set up a two stage interview process which has proven successful. See www.employersforchildcare.org to sign our Childcare Affordability NI Petition. “The first stage is with the Human Resource and Function Managers to assess qualifications, experience and required skill sets. Those considered suitable for the role are invited back and I explain the vision of the organisation, how we see the future and what benefits we offer. I also set out very clear expectations about how much we demand, and how we expect staff to behave. “I almost try to put them off the job!! But I believe it’s very important to have an honest conversation at that early stage so we know that if they accept what the post entails and they are serious about their commitment. Marie concludes: “We plan to recruit 100 more staff in the coming year for our new Social Enterprise, and hopefully the valuable experience of the past few years will see us through.”
INDEPENDENCE?
HNW MAGAZINEMAY/JUNE 2012
Independence vs Interdependence Most importantly, when we vote “YES” or “NO”, what are we actually voting for?
TRY “googling” the phrase: ‘Scottish Independence’. You’ll be offered about 1,000,000 or so results, roughly the number of signatures required on the Referendum to guarantee a stand alone Scotland, according to First Minister Alex Salmond. But what’s the consensus business view on Scottish ‘freedom’? And do the numbers add up in terms of public sector revenue to support parochial spend? Most importantly, when we vote “YES” or “NO”, what are we actually voting for? Thrive Survey Renowned networking organisation Thrive for Business carried out a vox pop survey amongst over 60 business owners, managing directors and senior level employees from within the £.5m turnover to £35m turnover range. The survey, part of an organised Referendum discussion, found only 18% of respondents were in favour of independence, compared to 28% who are happy with the current devolution settlement. Additionally, if asked to vote today 59% would said they would not vote for independence, though 24% of that audience believes a “YES” vote would positively impact business. The results of opinion polls of this type are consistent, like that undertaken by former chancellor Alistair Darling that suggests; 33% of Scotland support independence, 57% are opposed, and 10% remain undecided (YouGov – 1,000 voters). And so in the backdrop of an autumn 2014 Referendum the enormous task of securing Mr Salmond’s million signatures looms large.
Show Me the Money Is there is enough public sector revenue generation in Scotland to support Scotland? It really depends who you ask. The latest Government Expenditure and Revenue Scotland (GERS) figures produced in May 2012 has been interpreted by pro-nationalists that Scots would be better off by about £500 per head through independence. So it was no surprise that research conducted in 2011 by ScotCen Social Research found that four-fifths of Scots who thought the economy would be a lot stronger under independence, would back it. Equally, Referendum sentiment changes dramatically in the other direction when people believe the economy would be weaker through independence, as evidenced by support dropping to less than 1/10th in that scenario. However, according to HW Corporate finance from the GERS Report a year earlier – the numbers tell us is that Scotland is spending more than it is raising in revenues just like the whole of the UK - consistent with the UK Public Sector Finance Statistics published in January 2012. Headlines: • Total public sector spend in Scotland was £63.8 bn • Total public sector revenue including a geographic share of North Sea rev is £53.1 bn • Total public sector revenue including a per capita share of North Sea rev is £45.9 bn
The public sector deficit if you use the SNP version of revenue raising is just over £10 billion, and that figure jumps up to £18 billion if you use the Unionist measurement. Either way there is a financial hole here and it’s only the relative size that nationalists and unionists are arguing over – the largest of which is the full UK fiscal deficit including full North Sea Revenues, which is £136.1 billion. What Are We Voting For? But if independence means Scotland’s future will be in Scotland’s hands then perhaps that’s not actually what’s being proposed. Mr Salmond’s vision has said Scotland would abandon plans to join the Euro and continue using sterling. His finance secretary John Swinney contends that the Bank of England will still be Scotland’s lender of last resort. British regulators would continue to supervise Scottish banks, look after consumers’ financial interests, and the currency union suggests Treasury control over Scottish tax and borrowing. And to HNW’s knowledge the nationalists haven’t even asked if the unionists would agree to it. It would appear that “Yes” and “No” are inadequate options in this middling proposition. The Referendum as described is a half-way house where Scots are being asked “Maybe” and “Maybe Not”; the latter offers more of the same, and the former a new stage of “interdependence”, not “independence”.
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WAW
HNW MAGAZINEMAY/JUNE 2012
What Angels Want entrepreneurs better understand their potential financial suitors they will likely remain amongst the dark-end of that statistical table; the 90% who failed to get finance. But, who are those guys? Generally these men and women are known as ‘high net worth individuals’ (HNWIs) who invest, either on their own or in a syndicate or group, in high growth businesses. Now back up a moment and focus on the phrase ‘high growth’. In fact take it to the bank. CONSIDER the sample research figures below before you seek out angel funding: 90% The rate of rejection businesses applying for angel funding encounter at the initial stages 100 Miles The general geographic radius from his/her home in which an angel invests 20% (Plus) The minimum return a business angel investor expects on his/ her money 20 Employees Or fewer is the size of the start-up business most angels invest in 47 The average age of an angel investor Think like an Angel While the above are simply statistics drawn from a variety of angel audience research they are quite important in what they reveal both numerically and strategically. We could summarise by saying; unless you are a small company operating within 100 miles of Silicon Valley offering over 20% return on investment (RoI) you might as well go home. Ok, maybe it’s not as bad as all that, but the mindset remains that unless
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Because if you can’t express to an angel in no uncertain terms how your business can and will be high growth then you’re more likely to be financed by a wellheeled family member; a rich auntie Jane whose pockets are deeper than her well of common sense. By the by, family members with a bit of cash are also considered ‘Angels’, as the classification is far less rigid here in the UK than the US. So how do they operate? In simplest terms they have cash. And in the minefield of securing business funding in the current economic climate – read as the relatively dry wells of banks and credit/overdrafts - angel alternative finance is now seen as very attractive. And don’t expect that trend to dissipate for a long time, thus the growth in the angel investment sector and its growing popularity amongst entrepreneurs. But it’s not an easy process and it’s not for everyone. Unlike venture capitalists (VCs) who also invest in private companies, angels have the freedom to say ‘no’ much more easily as it’s their money. VCs need to invest their funds and make a return within a very specific period of time for the company to work.
So as angel demand is high and supply is low we have a 90% rejection rate as investors can cherry-pick at their leisure. These factors underscore the need to understand the angel investment process, to get it right and get things moving. The facts Generally speaking wealthy entrepreneurial individuals operate in the £10,000 to £250,000 lending niche. That’s because banks need security and venture capital firms want a Silicon Valley address and much higher lending figures on the table. Angels provide capital in return for a proportion of the company’s equity (shares), taking both a high personal risk and, more often than not, get their hands dirty in the process by engaging in the business’ operations. While there are no absolutes, businesses suitable for angel investment normally require up to £1/4million, sometimes more if with a group of angels (syndicate) or coinvestment alongside venture capital funds. And syndicate co-investment scenarios that share out the risk, depending on a company’s balance sheet, can also attract additional debt finance from banks. But here’s the real deal maker…or deal breaker; the angel investment scenario means owners and managers of the business must be willing to work with an investor(s) and his/her/their desire for hands-on involvement in helping managing their new investment. Angels can have a very positive impact on a business by utilising existing contacts and skill sets and in return will look for an annual return of 20% to 30%, most often realised in the form of capital gains at the exit (trade sale, flotation).
WEN
HNW MAGAZINEMAY/JUNE 2012
What Entrepreneurs Need MICHAEL Weaver, chief executive of business investment agency Beer & Partners provided an exceptional tick list to help entrepreneurs deliver a successful business pitch: Elevator pitch – Business owners should be able to pitch their products or services in any circumstances, even when they have a very limited amount of time. An elevator pitch is a quick, yet comprehensive, overview of a business short enough to be delivered in the time span of an elevator ride. Prepare – As Mark Twain said “It takes more than three weeks to prepare a good impromptu speech.” Pitching to a potential business angel could dramatically change the future of a business. Preparation is key to take advantage of this opportunity. Setting up the stage – If possible, it’s always ideal to prepare the room of the meeting well in advance. This is especially important if the pitch includes a product demonstration or the use of multimedia aids.
Product vs. People – Investors are interested in not only the product, but also the marketplace, the competition, the management team, the eventual exit strategy and of course the entrepreneurs themselves. Business angels are investing in people as much as companies, as they plan to work together over the long term. Establishing a rapport with the potential investor is key to a successful partnership. Care – Business angels invest their own money and they would expect to see business owner putting themselves on the line for their project. If an entrepreneur doesn’t show commitment to what he/she is doing, why should investors? Be honest (even about tricky subjects) – A question that angel investors frequently ask is “what are the risks in this business?” Small business owners must be prepared to discuss contingency
plans and potential difficulties the business could face. Angel investors will appreciate a realistic assessment and honest responses as opposed to a rosetinted view. Feedback – Regardless to the outcome of the pitch and if funding gets secured, receiving feedback from potential investors it’s invaluable. Entrepreneurs should be prepared to receive negative feedback and take it on board to refine their business ideas. And finally, remember that no small business owner is alone. The support of experienced investment agencies and other professional advisors should not be understated. In addition, if small business owners prepare thoroughly and follow these best practice tips they will be well-placed to successfully attract potential investors despite the downturn.
Look your best – A common concern for small business owners is choosing the right clothing for a pitch. Wearing a suit is usually preferred as it shows a level of respect for a potential investor. A general rule of thumb is that in these circumstances you can never overdress! Know your numbers – When looking for investment, small business owners should know their accounts insideout and be able to discuss them with investors in detail. Commit key figures to memory and prepare a one-side ‘crib sheet’ to avoid forgetting crucial information due to nerves. Have a clear strategy in place – A solid business plan that identifies the strategy is crucial. The plan must contain a commercial idea which will provide an eventual profit for investors or, as a minimum, sufficient profit to repay the interest and the principal on a loan.
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Steven Moffat Of Shhh-oohs & Chic-topia IT’S an early Friday evening in Edinburgh’s trendy Tiger Lily venue on George Street. Eight or so of us have circled up by the rear bar like a wagon train on the American frontier, guarding our space against the torrent of suits and skirts angling for position. The din of a hundred conversations is suddenly overwhelmed by a mojitowielding forty-something to my right whose name escapes me. “Shhh…” she gushed. “It’s called Shhh…It’s like a luxury shoe boutique, down a flight of stairs, in the middle of Edinburgh. It’s amazing. Champagne. Music. Unbelievable designers…like Bionda Castana, Kat Maconie…”
INTERVIEW
HNW MAGAZINEMAY/JUNE 2012
A glittery thirty-something further around our circle chimes in: “Oh yeah, Galleano and Chrissie Morris and Minna Parikka. It was like something you see in a movie, like in Paris or Milan.” “And this store, it’s called Shhh?” I ask back, bemused by the sudden footwear vibe. “Yeah,” she nods. “And it’s not like a store. You can’t go unless you’re invited as his guest.” I repeat that last line in my head. A vision of F. Scott Fitzgerald’s enigmatic Great Gatsby character hosting an extravagant shoe party in America’s roaring 1920’s suddenly hits me; the mysterious protagonist watching events from afar. I turn to the mojito-wielder on my right and ask: “So who is this shoe savant?” She blinks, attempting to process that last word with the dexterity of a virusridden computer, receding into a quiet Little Orphan Annie-like pupil-less stare. I try again. “Who is this ‘he’ you speak of? What…is…his…name…?” I ask. She’s back to life now. “Oh. Moffat.” She says. “His name is Steven Moffat.” More Than Shhh… That was my first telling of the man; an apparently enigmatic retailer catering to those with expensive pedal tastes, and who had cleverly managed to create a bit of a buying lather amongst the capital’s established elite and business up-andcomers alike. That opinion would soon grow rather dramatically. Some weeks later his name emerged again during a breather from a round table discussion. “He’s that entrepreneur who took on Schuh (since dubbed the ‘Shoe Wars’) last year,” said another delegate at the coffee table. “He won. He’s got like a dozen online retail businesses. There’s much more to it than shoes. You should meet him for HNW.” The Moffat Mystique And so, following a few serendipitous mentions and several weeks classic editorial stalking behaviour, the now infamous Gatsby of Galleano has agreed to have coffee at The Living Room on George Street, just a few doors down from where I first heard mention of him.
There’s a rather eerie and immediate aura of serenity that surrounds Steven Moffat. It was apparent from the moment he climbed down to the table; an unflappable quality, the type you only find hewn from the types of experiences more often read about than actually lived. Straight away I’m on the back foot. He’s not trying to be clever. He is clever, and I’m the Rannulph Junuh to his Bagger Vance, as he coaches me through what I’m supposed to be asking him, instead of what I think is relevant. “It’s ok,” he says. “There’s nothing we can’t talk about.” There’s usually a ‘softening of the barriers’ process inherent in the initial stages of conversation with entrepreneurs. And that’s primarily because there are always skeletons and a myriad of reasons for them. But this reverse ice-breaker is unusual, even after assuring him I don’t write ‘skeleton’ stories. A few things are immediately obvious; to describe him simply as a shoe retailer is like saying Mick Jagger is a pretty fair lyricist, or measuring the scale of an Aleutian Islands iceberg by the apex bobbing along the ocean’s surface, without realising what buoys it from beneath. The cavalcade of web-based retailing businesses to his name, along with the more recent luxury shoe boutique, have all come hard-earned. Before the Business His youth was a quandary; an energetic mind keen to raise awkward questions but soon stymied by a schooling system he saw as hyper-restrictive.
The rebellious 15-year-old and then undiagnosed dyslexic – entrepreneurs suffer this disorder at 5 times the national average - was soon thrown out of school, thereafter working in his father’s factory. “I was really good until 2nd year.” says Steven. “Then I found it difficult and boring. The teachers couldn’t teach me. I lost faith, trust, respect. So I would bark back at them, became the class clown, caused disruption. I spent most of the next year in the corridor before they told me to leave. The old man was not pleased. My next few years were spent in the double-glazing factory, chipping out windows 12 hours per day, five days per week. It’s not easy being the boss’ son on a shop floor. It’s like wearing a target on your back.” He confesses the semi-skilled labour and then spending the week’s wages at the bar on a Friday night helped build his work ethic. The energetic mind eventually led him to run that factory, taking the production from 70 units per week to just under 300. “It was a Machiavellian environment, cast in hierarchies of fear, and I learned fast. But at the time I was just becoming angrier, more isolated and worse, arrogant.” Business Building Blocks Technology arrived in Steven’s life one Christmas at the age of 12, and became a game-changer. “I got my first 48k Spectrum and was soon able to programme games and sell tapes at school. The Internet was just beginning back then and I remember sitting in the office late at night surfing the web’s first jpegs and tables.”
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INTERVIEW
That knowledge would lead me to conceive HUAN.co.uk, under which we won many awards, as did our clients. One event in particular stands out where my clients’ websites took 7 of 10 accolades for internet businesses. The web design business grew into a profit-sharing model, attracting talented people and focusing on skills development. On The Road But before we move to extol that particular businesses virtues, a few words on the untold story - Steven Moffat’s own right of passage.
HNW MAGAZINEMAY/JUNE 2012
away to travel the world with £600 in my pocket. I was looking for basic truths in life, started reading books like Richard Bach’s Illusions, Jonathan Livingston Seagull… “From all of that I learned that we create the world around us; our moral compass, our right and wrongs and the truths in our heads. Whatever you want in life you make it happen and make it real from your mind forward.” Shhh…..
William S. Burroughs, Allen Ginsberg and even legendary beat poet and novelist Jack Kerouac could have included a few chapters on this guy’s journey.
Hidden away in Scotland’s capital city beneath the gaze of Edinburgh Castle and only accessible by appointment or invitation, Steven Moffat is seeking to change how women go about buying fine footwear.
“I was 19, call it the early 90’s, when I went
Shhh…is a unique shopping
experience. You come to this place by appointment or invitation. You’re greeted with a glass of sparkling wine, ensconced in the plush environment that includes pampering rooms, the VIP White Room and personal assistants. It’s a universe away from any traditional retail experience. The venue is adorned with designer products from iconic brands depending upon the exclusive event - Castana, Maconie, Galleano, Morris Parikka, Raphael Young, Diego Dolcini, Iris Van Herpen, Natacha Marro and the list goes on. These designers allow him to stock the types of product worn by stars like Kylie Minogue and Lady Gaga. And they range in price anywhere from £100 to £2500. “The high street is doing it wrong,” says Steven. “It should be like going out for a fine meal amongst friends. Many years ago stores were staffed by motivated professionals who lived and loved what they did and knew every product they sold. “That has all changed now. So this is a return to that level of care and dedication. If I’d just wanted to sell shoes I’d have done it over Internet. “What’s been created here is unlike any other shoe salon in the world and we take pride in that. It cultivates desire, a sense of occasion and making the customer feel very very special. It’s something to remember in an often forgettable retail world.”
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Business angels More than just money Millions of ÂŁs, Thousands of jobs, Hundreds of deals, One Network...
LINC Scotland is the national association and representative body for the business angel community in Scotland, and was a founder member of the European Business Angels Network (EBAN). Since our establishment in 1993 our members have made investments in hundreds of companies. In doing so they have provided tens
EUROPE & SCOTLAND European Regional Development Fund Investing in your Future
of millions of their own risk capital, on average levering three times more from other sources. Just as importantly they have invested their own skills and experience in the next generation of SMEs. The companies supported have created thousands of high quality jobs in the Scottish economy.
www.lincscot.co.uk
ECONOMY & INTERNATIONAL
HNW MAGAZINEMAY/JUNE 2012
International Focus on... Barbados Even in the face of global uncertainty the prognosis for Barbados in 2012 is at worst more stability; the type of which few geographies enjoyed in 2011. FOREIGN exchange spending of £5.5bn was financed by tourism, international business, financial services, exports and capital inflows, leading to a minimal need for draw-downs on central reserves. In fact the tiny nation’s fiscal strategy managed to reduce debt from 7.4% to 4.7% of GDP, steaming toward a 2016-17 balanced budget target date. Major Companies in Barbados: Ernst & Young, Marsh, KPMG, Aon, Deloitte, PricewaterhouseCoopers, CIBC Offshore Bank, Swiss Re, Amicorp, Cidel Bank & Trust, Tricor, Gildan, Lenstec, CITCO Over 5000 Financial Service Companies present. Barbados also maintained its share of expenditure in the Caribbean tourism market, particularly its competitive edge in the top end. However, no actual market expansion occurred in international business or financial services as fiscal consolidation was tempered by growth in construction (4.4%) and transport and communications (0.6%). And the lingering effects of the international crisis have, in many sectors dried up business cash flow Gulf of Mexico
U.S.
and profitability, as well as driving up unemployment levels to 12% in 2011 and inflation to 8.7%. Major Business Sectors
GDP Contribution
Wholesale & Retail Business & Finance Tourism Construction Manufacturing General Services Agriculture
21.8% 19.0 % 14.8% 6.0% 4.7% 6.4% 4.4%
While investment in tourism, luxury accommodation and amenities and refurbishment continues, growth is expected in agri-food industries and support is being made available through IDB finance programmes for alternative energy use. The diversification of the economy from one historically dependent upon sugarcane cultivation and related activities, now sees 75% of GDP from light industry and tourism and 80% of exports attributed to services. Import / Export Statistics £40.5m in Exports Went From UK to Barbados In 2010 £31.5m in Imports Went From Barbados to UK In 2010
BAHAMAS 200 miles 200 km
ATLANTIC OCEAN
CUBA HAITI
DOMINICAN REPUBLIC Puerto Rico (U.S.)
JAMAICA
An Average of £23.8m Imports Went From Barbados to UK Between 2000-2010 Balance Of Trade is In the UK’s Favour on Average by 2:1 over this 11-Year Period
Caribbean Sea
BARBADOS
COLUMBIA
An Average of £46.8m Exports Went From Barbados to UK Between 2000-2010
Main Trading Partners – USA, CARICOM, Japan, Canada and UK.
Top 10 Market Intelligence Tips for Barbados • Secure Local Representative OR (J-V) Partner • Have Formal Written Contract(s) • Maintain Contact • Respond When Requested • Regularly Review Local Media • Review Published Tenders • Watch Your Competitors • Undertake Market Research • Have That Research Undertaken For You (UKTI) • Visit The Market (At Least Annually)
Top 12 Sector Opportunities in Barbados • Education, Training & Human Resource Development • ICT • Financial Services • Alternative/Renewable Energy – solar, wind, wave • Environment - Climate Change, Disaster Management/Risk Reduction • Energy – offshore oil and gas development/production • Construction/Infrastructure including Housing • Healthcare • Tourism • Food & Drink and Consumer Items • Good Governance • Security plus • Aid funded business cuts across all of the above
VENEZUELA
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NEWS
HNW MAGAZINEMAY/JUNE 2012
Business Angel News The World Wealth Report If the 16th annual edition of The World Wealth Report tells us anything, it’s that Armageddon is not around the corner. SAT here in the Third World (otherwise known as Glasgow Airport) watching a celebration of the world’s worst dressed people come and go, I can’t help but imagine that places like Greece probably wish there really was a recession – to stop this fashion death march from spoiling their views! On to the ‘Rich Report’, and I always believe that the real wealth in the world will do what it takes not to be plunged back into quasi-poverty. That sentiment bears out in that, while the previous 12 months of global political and economic upheaval did make a dent, it doesn’t require a panel-beater to fix it. True enough the overall financial wealth of high net worth individuals (HNWI) declined across all regions in 2011, with the exception of the Middle East. A Decline, But Not Steep But to put that into perspective, the reported 1.7% decline is the first in four years, back when the world economy looked even scarier than the bulbous course of humanity flowing through the Glasgow Arrivals Terminal this morning. Back in 2008, HNWI global wealth declined by 19.5 percent.
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According to Alan Steel, Chairman of Alan Steel Asset Management this is not terrible news: “That’s a dent. A bad one. But it’s not the end of the world, because financial times have been worse that 2008, much worse…a whole hell of a lot worse. “Given all the bad news of this past twelve months, that the rich have seen wealth fall on average by less than 2% is a good sign that there’s a lot of resilience out there. “And it’s about time we started taking a more positive and confident view of the financial world.” Europe and North America attributed reduced levels of wealth to the impact from downgraded sovereign-debt ratings – which in turn led to increased market volatility -best exemplified by the financial market’s surprise rollercoaster back in August 2011. Asia Pacific’s rising inflation, declining exports and natural catastrophes certainly slowed growth, but the region also laid claim to the largest number of HNWI’s for the first time ever, unseating North America by approximately 20,000 to take pole position. Finding the positives!
And HNWI wealth did not dip in the Middle East, though doomsayers will always say it’s continually vulnerable to protests and regime changes, which has kept oil prices high. Check America’s rising oil production for the Middle East’s next market challenge! “But there’s a type of Black Swan swimming on the global wealth pond that will always pose a bigger danger than all of those things noted above,” says Alan Steel. “The true Black Swan…Lehman…is what happens when we’re taken unawares while we’re all busy gazing the other way at what we’re being told will go wrong.” A bit like me right now as my guest has just come through the gate…in a far better state than the rest of this crowd. By The Numbers HNWIs in Asia-Pacific expanded 1.6 percent to 3.37 million in 2011, making Asia-Pacific the largest HNWI region for the first time, surpassing North America’s HNWI population of 3.35 million. North America remained the largest region for HNWI wealth at US$11.4 trillion compared to US$10.7 trillion in the Asia-Pacific region.
NEWS
“
HNW MAGAZINEMAY/JUNE 2012
Given all the bad news of this past twelve months, that the rich have seen wealth fall on average by less than 2% is a good sign that there’s a lot of resilience out there.
HNWI population edged up slightly while aggregate investable wealth declined After witnessing robust growth of 8.3 percent in 2010, global HNWI population grew marginally by 0.8 percent to 11.0 million in 2011. The majority of this growth can be attributed to HNWIs in the $1-5 million wealth band, which grew 1.1 percent and represents 90 percent of the global HNWI population. By contrast, global HNWI wealth in 2011 fell by 1.7 percent to US$42.0 trillion (compared with 9.7 percent growth to US$42.7 trillion in 2010).
”
But is tax avoidance a risky strategy, and is there a better way?
year - just like what you earn today if you put your cash into a bank account.
First, while often not in the “true spirit of the law” tax avoidance schemes - essentially loopholes – can be legal but can also carry a higher likelihood of eventual audit.
And let’s also say you deposited that money way back in 1969.
The vast majority find the tax avoidance endgame means paying it all back, albeit some years in the future, in addition to the accountant’s fees.
In other words it took you 43 years to earn £500 on the original £1000.
Privy Advice, Privileged Treatment
The global population of Ultra-HNWIs declined by 2.5 percent in 2011 and its wealth declined by 4.9 percent after increasing by 10.2 percent and 11.5 percent respectively in 2010.
Second, there is an inherent expectation that the uber-wealthy are somehow privy to special tax advice and treatment reserved for, well, the uberwealthy.
The HNWI population country ranking saw South Korea replace India for the 12th position, while the top three countries, U.S., Japan and Germany, retained 53.3 percent of the total share of HNWIs, slightly up from 53.1 percent in 2010.
But like the lyrics from George and Ira Gershwin’s famous musical opera Porgy and Bess: “It ain’t necessarily so”.
Of the top twelve countries by population, Brazil saw the greatest percentage rise (6.2 percent) in the number of HNWIs. The annual World Wealth Report is the global benchmark for tracking HNWIs and covers HNWI market sizing with a review of global economic drivers, HNWI investing behaviours and asset performance trends. Super Loopholes & The Super Rich HMCR has, for the first time, published the true figures for tax avoidance* by the UK’s mega-wealthy.
The problem remains that the rich and not-so-rich alike are focused on avoidance and wealth protection instead of better investment practices to achieve both aims. Those familiar with the Treasury’s now patent response to any usurpers of its holier-than-ever tax system; a crackdown, would suggest HMRC warnings are an empty war cry designed to vilify the wealthy and through fear, bolster the public purse. Or worse, that the Treasury can not enforce its authority due to more internal austerity experience and loss of resources than the PIIGS Euro-nations consortium will ever know. Don’t be fooled by that.
The findings revealed almost 1 in 10 people earning £10million or more per year are paying less than the 20% basic income tax rate.
There are better ways to legally protect and grow your wealth while retaining access to your money and minimising tax burdens.
And that figure increases up to 25% for the high net worth individuals (HNWIs) who pay less than 40% tax.
Consider this: Let’s say you had £1,000 earning 1% per
If you checked your account today you’d have about £1,500.
And you can’t retire on £1,500.00, well you can but not for long! Now let’s say that instead of putting the money in the bank you asked somebody back in 1969 what to do. You told them you wanted an investment that was safe, would allow you access to your money if you needed it, and would have a shot of a better return than forty years in the bank. So you put that £1,000 a fund like M&G Recovery - which was launched in May 1969. Today you would have about £422,000. That’s called compound interest! And for you doubters out there that a pension is worthwhile, if that same £1,000 was put in a one-off pension plan, net for a 40% tax payer, you’d have a cool £700,000 today. Now imagine if that investment was £10million instead of £1,000! The point here is two-fold; focus on making your wealth work for you instead of after-the-fact tax avoidance schemes and don’t entrust your retirement to a bank teller - no offence intended.
“
The true Black Swan… Lehman…is what happens when we’re taken unawares while we’re all busy gazing the other way at what we’re being told will go wrong.
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SPECIAL REPORT
HNW MAGAZINEMAY/JUNE 2012
The Tech Monoliths Leading Media Trends for 2012 AS American writer Stewart Brand wrote: “Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road.” And sure enough, even a two week vacation can leave most of us miles behind on things like email, social media and even what relics like I call ‘paperwork’. For the uninformed the latter also requires external hard drives, a chipped ‘40-something’ coffee cup and other such desk shrapnel to masquerade as paper weights for each stack. But perhaps that ‘disconnected for a fortnight’ mentality is only for those of us who still haunt an office-based desk, and not the Wi-Fi entrepreneurial community stealing free internet access and electricity from the local Caffé Nero. Regardless, even the new wealth creators have to sleep!
Large scale adoption led to the other inevitability associated with developments that drive wholesale cultural and economic change; market overpopulation, driven by easily accessible finance, ridiculous market valuations and the eschewing of investment theory and business planning, followed by a market bust.
bandwagon hopper. Just ask those who dismissed Foursquare as a toy or Pinterest as an online knitting tutorial. Ultimately, time will tell if we remember any of the names of those that came and went during this current ‘madtech’ era. Indeed, can you recall a big name late 90’s dot.com boom and bust company? The First ‘Madtech’ Era
The key to navigating the modern cluttered life seems anchored in early adoption of new technologies with a future ‘opt-out’ clause, if said new tech fails to unclutter the ‘old’ new tech.
Since the global network was borne in the early 1960’s (quiet all you acolytes of the pre-60’s secret Government research scenario or UFO alien intervention) and the eventual arrival of the World Wide Web in the 1990’s, an economic boom or three was inevitable.
Oh, and late adoption is not an option because then you’re just considered a
Anything that reduces space and hastens time makes money.
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Large scale adoption led to the other inevitability associated with developments that drive wholesale cultural and economic change; market overpopulation, driven by easily accessible finance, ridiculous market valuations and the eschewing of investment theory and business planning, followed by a market bust. Excitement moves sentiment, moves markets, moves mindsets. In 1999 there were a total of 457 IPOs in the US, the majority were Internet and tech companies. Out of those, 117 managed to double their value within the first day of trading. The debt mountain grew, venture capital backed tech companies burned all their funding and a tidal wave of bankruptcies ensued; entrepreneurs and investors alike.
SPECIAL REPORT
On March 11 2000 the tech company financial markets fire sale had begun. By 9th October 2002, the NASDAQ hit a low of 1114.11 points, a 78% loss of value compared to its peak just 30-months prior. And the masses were screaming “the URL is dead”. So much for tech-sector fortune telling. Back to the Future Meanwhile here in the current tech furore we seem destined for a repeat – still can’t get my head around the Facebook “pre-IPO valuations versus sales revenue” equation. But while the astute eyes of the initial tech adopters are open to what’s coming, and the en masse opt-out is minutes or months away, the new stuff awaits recognition. Deloitte’s recent report on 2012’s top media trends included predicting a 50% increase in online branding, making it up to a $20 billion industry. The report went on to suggest that more traditional advertising will grow by only 5% as more companies look to digital for growth. Developments like Real Time Bidding, allowing companies to specify where and in what context their ads will appear, have transformed digital marketing campaigns from the once humble banner-advert-with-hyperlink of the ‘noughties’. And ye of the smart phone and computer tablet are expected to watch five billion hours of catch-up TV from 500 million iPads, to the continuing distress of free newspaper publishers and the makers of video games consoles. Coupons & Geo-Targeting In loyalty marketing the mantra is about relevancy: “The right message, to the right customer, at the right time”. Geo-targeted mobile marketing’s promise to increase consumer action and loyalty, two Holy Grails of effective marketing communications, has the digital world in a bit of a tizzy.
HNW MAGAZINEMAY/JUNE 2012
In simplest terms geo-targeting is simply that; targeting an audience or an individual customer based on location – post code, city or within a specific distance of an address.
Developments like Real Time Bidding, allowing companies to specify where and in what context their ads will appear, have transformed digital marketing campaigns from the once humble banner-advertwith-hyperlink of the ‘noughties’. There are a number of executions but offers mainly involve; in-the-vicinity loyalty programmes, store shelf codes, mobile phone scan-able coupons, and in-store members rewards. Obviously all of these take takes place via a mobile device. But beware; while the coupon sector has evolved quickly from novelty to celebrity, the potential for pestering is high. So when engaging in geo-targeting don’t make a statement without a coupon to link to it, and make the mobile device the only way in which the recipient can access the discount. Social Media Marketing The marketers are expected to step outside the triangulated social marketing platforms monopoly of Facebook, Twitter and LinkedIn this year with ‘new’ networks stacked high on the expenditure consideration list, including; Blogs at 91%, YouTube at 86% and Foursquare at 59%. Network proliferation marketing appears to be the modus operandi of choice as market fragmentation remains the biggest marketing budget nemesis. However it is likely the trends will dictate
the channels. According to Awareness Inc’s State of Social Media report, some key themes for the coming year will emerge:
• Executives and senior managers are looking for traction in three key areas – ROI, integration of social with lead generation and sales, and expansion of social presence and reach. • While social marketers feel they do not have the necessary resources to execute initiatives successfully, they must meet the expectations of senior management who demand to see tangible business value. • Companies experienced in social marketing are moving beyond growing social presence and reach. Their focus will shift to active social media management for increased lead generation and sales. • You will see lessexperienced marketers following their visionary peers, adopting established practices as they move along the maturity continuum. Monitoring: Lord Leverhulme’s Revenge The famous English businessman who became rich by making soap, and whose company later became known as Unilever, gave us the marcomms quote of the (past) century when he said:
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Aye Cloud
New Technologies New Economy New Scotland One Constant ...
To find out more visit nvtgroup.co.uk Tel. (+44) 08453-893-300 NVT Group
SPECIAL REPORT
“Half the money I spend on advertising is wasted and the trouble is I don’t know which half.” M’Lord, if you could only see us now. 2012 has been deigned the year Leverhulme gets his answer as monitoring tools and software are expected to explode. Controlling the flow of information, the multiple media feeds, at one central point with the ability to instantly respond will become priority. These in turn will allow businesses to pinpoint their “radius of influence” around social media campaigns to identify and make best use of core prospects. Content is King Have we not yet moved beyond games and giveaways, unexciting direct marketing drivel and extolling our own company virtues behind the veil of ignorance that it’s even remotely interesting to an audience?
HNW MAGAZINEMAY/JUNE 2012
Whatever happened to content? That’s right, original content remains, and always will remain, king. Content encourages positive word-ofmouth, engenders discussions, and associates quality with product or service. You gotta give them something they can use. This is probably the oldest ‘new’ thing there is and it never fades in importance or relevance. RODI: Return On Digital Investment Likes, follows, comments and criticisms have been the mainstay for measuring social media. Traditional use of Google Analytics has helped us to know which content creates a buzz and generates interest, and equally which doesn’t.
providers to offer greater drill-down analytics is predicted to continue, where the actual “value” of a comment or like is assessed, otherwise known as lead scoring. This type of analytical steering is proposed to help get more bang for your digital buck. A Tale of Tomorrow In our click and drag society the apex of the technology curve is never clear. And while the view may be nice atop the world but it can also be momentary. The ‘downside’ is often steep and traction free. That slippery terrain appears set to remain underfoot until the next tech reckoning, when we’ll once again ring the death knell of the URL, even while its digital pulse beats on.
The move by social media channel
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PRACTICAL BUSINESS
Practical Business HNW Magazine’s Practical Business section looks at key areas of business needs across legal, accountancy, marketing, finance, leadership, strategy, research and other areas of support. In this issue we look at; the legal sectors push toward mergers and acquisitions in the face of challenging economic issues, the value of leadership and its design in an era of decreasing senior post tenures and rising expectations, and the University of Strathclyde’s annual GEM report on the performance of the entrepreneurial sector throughout the UK.
LEGAL: Mergers & The New Economy
LEADERSHIP: The Maverick vs The Morning Star
GEM 2012 Rough Entrepreneurial Diamonds
Law firm M&As were up 54% in the US in 2011 and the UK is following suit. But is it the right strategy?
Peter Drucker said: “Management is doing things right; leadership is doing the right things.”
Some call it the world’s largest study on entrepreneurship. Others reckon it’s an economic call to arms.
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LEGAL
HNW MAGAZINEMAY/JUNE 2012
Legal Mergers & The New Economy Is the rampant level of legal sector consolidation nationally and internationally a good strategy for the industry or just avoiding the real problems? IN either instance the UK and US mergers and acquisitions (M&As) market is certainly back in action.
and the third involves the increasing use of external service providers to reduce costs.
A total of 60 law firm mergers were announced in the US during 2011, up 54% on M&As in the sector during the previous year, and marking the highest levels since 2008.
ABS Means No Brakes
The surge is perhaps best heralded by the November 2011 joining up of Clyde & Co and Barlow Lyde & Gilbert (BLG) – the biggest-ever merger between two UK law firms, dwarfing even the benchmark 1987 formation of Clifford Chance (by Clifford Turner and Coward Chance). But is this activity simply protectionist and another attempt to rehydrate the drought in the corporate mergers market? Research from PwC suggests legal M&A activity has instilled a renewed sense of optimism into the sector, where its Annual Law Firms Survey 2011 reported 7 out of 10 firms in the UK’s Top 11-25 tier expect to merge with other firms in the next two to three years. A Three-Part Strategy Research also suggests the merger activity is part of a considered strategy occurring in three parts. The M&As form the first piece. New research from Legal Week says almost three quarters of UK partners (72%) taking part in Legal Week’s latest Big Question survey said there needs to be significantly more consolidation in the sector, including 22% of respondents who stated that the legal market is far too fragmented. Part two involves slowly rising headcounts despite flat utilisation rates,
With alternative business structures (ABS) and unprecedented change on the horizon, the recent spate of Scottish firms seeking post-recession strategic alliances endorses the global trend. There are numerous heralds in Scotland including the merger of McGrigors and Pinsent Masons, Archibald Campbell & Harley joining with Shoosmiths (now ACH Shoosmiths), the cross-border tie up of MBM Commercial and Stuart Malcolm, Anderson Fyfe with TLT, Biggart Baillie with DWF, and the list goes on. And more seem likely. But legal author and Scottish regional director of Angels Den, Ray McLennan, says there is far more to long-term legal market success for firms than mergers, geographic considerations and consolidation to deliver better returns and market reach. He says: “During meetings with Law Firms, one of the phrases I’ve found myself using more and more is “The New Economy” (TNE) and more specifically, how things will be different in the New Economy (TNE). “This difference will require different thinking, a different approach and different tactics; but done properly, it can result in different profits. “I’m not just talking about the new “legal” economy, there is also that to consider, but the whole economy has changed and that has to be reflected in the way the firm of the future will do business.
Mr McLennan says that in order to do business in TNE a business has to be relevant and that old style law firms are increasingly becoming irrelevant to the needs of TNE consumers. “Most old style law firms are defined by their list of excuses as to why they don’t need an interactive website, real social media engagement, VOIP, legal docs, integrated cashrooms, cloud access, fixed price agreements and so on. He continuers: “In The New Economy, the internet, mobile devices, and a demand for instant gratification will cause more challenges, more disruption and more crises to occur more often and quicker than ever before.” Despite the large number of mergers taking place in the UK and internationally, leading industry sector tome Legal Week and its Big Question platform found fewer than 20% of respondents said that law firm mergers were effective. The majority (63%) said they offer at best a mixed track record. So beware the practical merger and expansion lessons of firms like US-based Howrey LLP, forced into bankruptcy by failing to keep pace with change and spreading itself too thin internationally, and the environmental and technological issues that contributed to the firm’s demise. The more important lesson is to keep the needs of current clients and keeping pace with their expectations at the forefront of your firm’s strategy. And don’t be enticed into trendfollowing, as the herd mentality almost always ends up choosing the wrong path.
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HNW HEAT
ACCOUNTANCY
HNW MAGAZINEMAY/JUNE 2012
Is S.E.I.S An Angel’s Delight The new Seed Enterprise Investment Scheme (SEIS) was trialled by the Chancellor George Osborne in November 2011 and came into being on the 6th of April 2012.
AND like the recently released Prometheus is a prequel to Alien years after the original film launched, so SEIS is a prequel to the original EIS or Enterprise Investment Scheme. In fact, it can only occur before EIS, not after, so if you have already claimed EIS on an investment you cant claim SEIS. That is only one of the restrictions on the attractive new tax relief scheme which, with the right set of circumstances in its first year of operation (2012 / 2013), could give rise to 103% tax relief. It’s complicated so ask a tax partner. So what are the restrictions, or to be charitable, what are the rules: • Income tax relief is at 50% of the investment made, irrespective of the investor’s marginal tax rate • SEIS creates a reduction in personal tax liability but does not create a tax repayment
• Be incorporated in the 2 years before the investment
• It must be claimed within 5 years of issuing shares
• Be a start up
• A compliance certificate has to be issued by the company as per EIS • Relief cannot be claimed until 70% of the money has been raised • Maximum SEIS investment scheme by an individual in any year is £100,000 • Maximum investment by an individual in a qualifying company is £150,000
• Have less than 25 employees • Have gross assets less than £200,000 • Not be a subsidiary or have subsidiaries
“The money must be spent within 3 years of issuing the shares, and the maximum funds raised by a company from SEIS is £150,000”
• Relief is withdrawn if the shares are sold within 3 year of date of issue, albeit SEIS shares can be transferred to spouses
This last restriction, yes that’s what it is, gets to the core of the SEIS issue. It’s a very attractive tax relief, but its maximum application is monetarily limited to £150k.
The shareholder cannot receive a salary from the company, but can receive expenses (and dividends. There are also restrictions, sorry rules, as the qualifying company must:
Anyone who has raised funds for a start up will tell you that £150k won’t get very far, particularly when one follows the golden rule of “everything takes longer and costs more than expected”.
The scheme is a classic clash between the Treasury acting on government policy to come up with schemes to positively influence investor behaviour, and HMRC finding a way to restrict such a scheme perceived by them as tax avoidance. A better effect would have been had if the Treasury had overruled HMRC and extended this scheme, particularly its monetary quantum. I am constantly surprised by the number of good ideas with commercial application spinning out of our research base in Scotland. Let’s not pussyfoot about with tax incentive schemes for investing in start ups. Let’s take this scheme and extend it to get more and bigger start ups funded now. Steve Paterson
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LEADERSHIP
HNW MAGAZINEMAY/JUNE 2012
The Maverick Leader vs The Morning Star Renowned management theorist Peter Drucker famously stated: “Management is doing things right; leadership is doing the right things.”
BUT in an age of decreasing senior post tenures, rising expectations of Board members with each appointment, and shrinking employee engagement, has ’leadership’ lost its grip?
• Provide a false sense of security for the executives
sharing the leadership ethos equally and avoiding hierarchy.
• Create work for the ‘bean counters’
The “L-word” is probably one of the most hyped in any recruiter’s brief or corporate job specification, comprising incredible social savvy, glittering achievements, an appetite for change, and the ability to see value and ruthlessly focus on its acquisition.
• Teach men to stone dinosaurs and start fire with sticks
This seeming work place utopia has not rid itself of traditional management but rather embedded it in everyone’s jobs.
I’m not sure who this ‘leader’ is but I’d like to hire him myself! Is this all terribly unrealistic? It seems even business schools and executive education providers no longer covet the expectations associated with the leadership, as advertising for programmes of this type lose impact. So, should we just give up on leadership and the whole industry and mythology that surrounds it? Maybe, but not yet. The litmus test with most things is in understanding how we fare if it was no longer there.
There are some interesting precedents, such as Ricardo Semler of Semco. In his bestselling book “Maverick”, he talks about his frustration with many traditional businesses and their fixation with rules, which he says are there only to: • Divert attention from the company’s objective 46
He also says “The desire for rules and the need for innovation are, I believe, incompatible. “So many of them (leaders) are better prepared to find error and to criticize than to add to the effort. To be the boss is what counts to most bosses. They confuse authority with authoritarianism. They don’t trust their subordinates.” Strong stuff, but his company is a major success and his methods are widely studied, if not so widely imitated.
No flash in the pan or freak experiment, Semco was founded in 1980 and Morning Star in 1970. So why are these models not widely mimicked? Likely it’s down to incompatible cultures, skepticism, or just plain old fear to take the risk – or even unwillingness amongst the few to lose the higher paid position, the perks and the power. Organisations in the majority are designed, inter alia, upon the principle of senior jobs adding the most value.
Is he a true maverick, acting alone and master of only his own company, or are there others like him?
But when we fail to explore business models that do not fit comfortably with senior role structures we lose out on the next Morning Stars and Semcos.
Take the example of Morning Star, from California’s San Joaquin Valley. If you eat pizza, ketchup, or cooking sauce for pasta, then you’ll probably have tasted their products.
And that leaves us behind the curve, susceptible to be overcome by innovation and advancements from other shores, and our nation the weaker for it.
Morning Star is the world’s largest tomato processor, turning over US$700 million in 2010 with 400 staff and no leaders. That’s right – no leaders. Employees negotiate responsibilities with their peers, everyone can spend the company’s money and each individual worker is responsible for procuring the tools needed to do their work. These organizations are successful by
Leadership should at its core echo Peter Drucker’s sentiments - despite fear, incompatibilities and self-interests – by avoiding structures that debilitate a business and being extraordinary through doing the right things.
Willie Maltman Director, Eglinton
GEM
HNW MAGAZINEMAY/JUNE 2012
GEM 2012 Reveals Rough Entrepreneurial Diamonds Some call it the world’s largest study on entrepreneurship. Others reckon it’s an economic call to arms.
HNW sees this year’s annual Global Entrepreneurship Monitor or GEM as a report card with a cathartic twist; despite the doomsday messages from the deadtree-press, it’s just not as bad out there as they would have you believe. Though, in the pursuit of new business creation and finance, the misunderstandings and misconceptions, it’s often hard to see the diamonds in the rough. The news presents a rocky road: • Roller coaster stockmarkets drive ‘red ink’ (negative) reporting, which in turn herds negative investor sentiment in exactly the wrong direction. High frequency traders lurk amongst lethargic summer months and then pounce, as in August 2011, to deliver a shock waterfall decline….and fear. • Fear drives ignorant investors to plunge their money into low yield bonds and deposit accounts, in some odd assumption that there is safe harbour there. But when the bond market changes, the bow will break and that cradle will fall…soon. • Meanwhile the IMF has for years now directed a docu-drama called “The Eurozone’s 5 Little PIIGS” (not for children). The sequel to which entitled: “ChIndia: Crouching Tiger, Hidden Slumdog” is already at a newsdesk near you, retelling two nation’s slow descent from financial grace. • And for you “red top” readers, the Mayan calendar apocalypse approacheth. It reminds me of the homeless fella who used to pull a rusty
red wagon up and down Manhattan’s Broadway Avenue every Autumn. In it stood a placard that read “The end of the world will be on 26th November”. That was back in the early 90’s. He just kept crossing out the year!
entrepreneurs creating problems before they actually exist?
But the rebound from GEM 2011 is positive, on all counts.
Sir Tom Hunter, whose eponymously named Centre has been a key driver in entrepreneurial thought and vision for almost ten years, said: “We seem in Scotland to have an ingrained mentality of expecting others to do things for us.
No rampant discussions about lost generations of entrepreneurs, a slight gain in proposed start-up activity and, though behind the UK average, an entrepreneurial spark becoming a glow.
“We need ambition that avoids or jumps the hurdles, innovation that doesn’t expect government to provide for you and me (in order) to solve problems. We need entrepreneurs that get on with it.”
TEA & GEM
The Barriers to Wealth
The Strathclyde University publication claims plans for new starts are at their highest level in a decade, and up 6% on 2010.
Like the mass misconceptions about the direction of the global economy and financial markets above, so to are the misunderstandings surrounding the actual problems in getting a business going, versus those they believe to be legitimate barriers.
Then there’s the TEA measure, or Total Early stage entrepreneurial Activity (more like TESEA, but TEA sounds better), which rose slightly year-on-year. Jonathan Levie, GEM author and knowledge exchange director at the University’s Hunter Centre for Entrepreneurship, said: “We have to wait and see whether the increase in people expecting to start a business gets translated into real businesses on the ground. This is what you would expect to see at this stage in the economic cycle.” And, as expected, access to finance remains a pillar issue amongst would-be, newbie and next-stage entrepreneurs. But, as in the news examples, are future
That chasm between reality and the public’s view about what it really takes to run a business is large and requires filling in. Martin Stepek, Chairman of the Scottish Family Business Association, said: “I think our level of entrepreneurship is not really a big deal. I think what matters is whether we can deal with some of our stubborn, harmful social and health problems, and how we can become happier and more content within ourselves and with each other. “But another little cracker that came from the GEM report…I read that social entrepreneurs and the self-employed
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The High-Growth Entrepreneurial Action Team
See page 52
GEM
are much happier, find their work more meaningful, and are more satisfied with their level of income than other forms of entrepreneurs. “Now that’s a triple bonus we should hope everyone in Scotland can one day attain.” GEM of Yore Last year’s GEM, which reported a continued decline in early-stage Scottish entrepreneurial activity, stoked a bonfire of responses. John Anderson delivered a postreport firebrand speech at the annual Entrepreneurial Exchange gathering at Gleneagles, leading to a fiveorganisation petition sent to the office of the First Minister to drive change. This year we’ve apparently stemmed the bleeding as almost 10% of the workingage population plan to launch a new business. Professor Levie said: “While there is room for optimism, more needs to be done to turn the intention to start a business into reality.” This will mean clarifying what the real problems actually are. The Bottom Line Sir Tom Hunter said: “Perhaps some of our initiatives in education are now starting to bear fruit.” Will initiatives like the first minister’s recently announced £1m investment into the Prince’s Trust Youth Business Scotland loan fund for young people do just that? Will the rise of incubators like Entrepreneurial Spark in Glasgow, HNW’s own High-growth Entrepreneurial Action Team (HEAT) programme, Heriot-Watt’s Converge Challenge and whispers of a “New Enlightenment” movement in Scotland drive further change? At this point we know there are positives in the entrepreneurial sector, that support and education structures are growing and that there are diamonds in this, “the roughest of all possible” economies.
HNW MAGAZINEMAY/JUNE 2012
About GEM The Global Entrepreneurship Monitor (GEM) research program is an annual assessment of the national level of entrepreneurial activity. Initiated in 1999 with 10 countries, it has progressively expanded its coverage and by 2010 had conducted comparative assessments of entrepreneurial activity rates in over 80 countries, researching the role of entrepreneurship in national economic growth.
GEM focuses on three main objectives: • To measure differences in entrepreneurial attitudes, activity and aspirations among economies. • To uncover factors determining the nature and level of national entrepreneurial activity. • To identify policy implications for enhancing entrepreneurship in an economy. The Hunter Centre has played a significant role in the international organisation of GEM since 2000 and is responsible for the Country Report for Scotland and, jointly with Aston Business School, the UK Report. During that time, GEM Scotland Reports have covered special topics including: • Financing of Entrepreneurship • Entrepreneurship, Gender and Age • Ethnic & Immigrant Entrepreneurship in Scotland • University Spinouts and Finance for Start-ups • Home-based Entrepreneurship • Education and Training for Entrepreneurship • Social Entrepreneurship • Intrapreneurship
Now we just need to harvest them.
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DIATRIBE
HNW MAGAZINEMAY/JUNE 2012
Diatribe: The VC Sector’s CV
“We Have Met The Enemy and He is Us”, or so sayeth a recent report by the Ewing Marion Kauffman Foundation – the world’s largest foundation devoted to entrepreneurship - about venture capital returns. BIG words from a big institution, and supported by the type of quantitative research that almost makes you forget that VC money helped create Groupon, Zynga, LinkedIn, Facebook, Cisco, Google, Microsoft and countless other global tech megaliths. Almost, but not quite. The findings are a concern, particularly for those Limited Partnerships, foundations, endowments, and state pension investors whose underperforming VC fund investments – often on misaligned terms – have for decades delivered less than spectacular results. In fact, they were downright unimpressive, and Kauffman’s assessment is a 20-year view. As an aspiring plutocrat and keeper of the “caveat emptor” mantra I have few sympathies for the plight of the herd investor mentality, wins or losses in hand, and a great deal more so for the E-sector’s financial support mechanisms be they friends-and-family, angels or VCs. It Works / It Doesn’t Work But with iconic global business successes in their respective investment back pockets, suggesting VC doesn’t work would be as welcome as shouting out “Yaoch_” (match-fixing) at a Japan Sumo Wrestling Association board meeting.
You just don’t do it – in fact in the latter instance they just might kill you - see Steven Levitt’s insightful allegorical study of human incentives, Freakonomics. Sumo in the room be damned, Kauffman’s research tells a statistical story of venture capital delivering poor returns, having failed to significantly outperform the public market since the late 1990s. In short, since 1997 less cash has been returned to investors than has been invested in venture capital trusts. And that type of result leads to speculation that the VC model is at best flawed, and at worst, entirely broken. Alan Steel, Chairman of Alan Steel Asset Management agrees, saying: “It’s true most VCTs ( Venture Capital Trusts ) in the UK have been bitterly disappointing to retail investors , though they have had tax relief, tax free dividends, and where profits have come along, they are free of capital gains tax (CGT) too. “So something has to give somewhere. If you accept backing new businesses is high risk, and you are compensated with big tax breaks, I don’t suppose you can complain too much.” Yet the occasional global success story can provide scribblers and analysts a decade’s fodder for editorial diatribes and opinion pieces, the likes of which so often impact and direct the strut and fret of market sentiment and its petty day-today pace.
Mediocrity The success stories keep the dream alive, pumps blood through the sector, and masks what Kauffman has concluded as rank investment mediocrity. And by the looks of things investors may have been better with an Index Tracker Fund…I take that back, don’t invest in a Tracker. No, really! The Foundation’s investment team analysed two decades of venture investing across nearly 100 VC funds. A summary of some of the research document’s findings are below: • Only twenty of 100 venture funds generated returns that beat a publicmarket equivalent by more than 3% annually, and half of those began investing prior to 1995. • The majority of funds—sixty-two out of 100—failed to exceed returns available from the public markets, after fees and carry were paid. • Only four of thirty venture capital funds with committed capital of more than $400 million delivered returns better than those available from a publicly traded small cap common stock index. • Of eighty-eight venture funds in their sample, sixty-six failed to deliver expected venture rates of return in the first twenty-seven months (prior to serial fundraises).
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HNW EVENTS
HNW MAGAZINEMAY/JUNE 2012
HNW EVENT: 19TH SEPTEMBER H.E.A.T. High-growth Entrepreneurial Action Team
THE High-growth Entrepreneurial Action Team or H.E.A.T concept originated in the mid-1990’s at the Harvard Business School to advise established entrepreneurs on the ‘next stage’ of their journey. In September, HNW will launch H.E.A.T. in Edinburgh with the same objective and a select group of 20 entrepreneurs and advisers who: • have at least two years in business • have existing revenue streams • have a product/service with true UK-wide and/or international potential • have committed to seeking H.E.A.T commercial partner advice to drive growth • have been individually selected for the initiative by HNW Magazine. H.E.A.T. will provide the core editorial and event programme for HNW’s 30,000 UK-wide readers. H.E.A.T. Scotland H.E.A.T Scotland will launch as a one-day event with up to 20 established entrepreneurs who meet the above listed criteria, along with two senior entrepreneurs serving as Programme Ambassadors. HNW is offering commercial sponsorship to companies and organisations with expertise in advising, guiding and funding established entrepreneurs on next-stage growth. We expect to launch and operate H.E.A.T. in up to 8 cities throughout the UK over the next 24 months. The benefits of H.E.A.T. Scotland commercial co-sponsorship include: • Direct engagement with an established pre-qualified group of entrepreneurs who have committed to seeking next-stage advice, guidance and funding • Involvement in pre- and post-event editorial coverage within HNW Magazine’s July/ August and September/October 2012 bi-monthly issues • Commercial co-sponsorship branding at the H.E.A.T. Scotland event in September, and in the associated editorial platforms in each issue, online & offline • A full page advert in both the pre- and post-event online & offline editions of HNW Magazine • Inclusion in all H.E.A.T. Scotland social media messaging pre- and post-event across LinkedIn, Twitter and Kiltr.
THE PAR EQUITY: 1ST THURSDAY EVENT – 5TH JULY Alan Steel: “Economic Tricks, the Ibiza Mix”
ALAN Steel, renowned market contrarian and Chairman of multi-award winning investment firm Alan Steel Asset Management, conceived Economic Tricks: The Ibiza Mix for The International Conference of The Mail On Sunday held in the Hotel Des Artes in Barcelona in October 2002. Alan said: “They asked me along, would you believe to talk to them about Economics? I told them I didn’t know anything about the subject, like Gordon Brown, but they said I was cheerier than him … not hard I know! “I was on holiday for 2 weeks in Ibiza around then so agreed to be flown over to Barcelona to do it. At the time everybody believed the World was ending thanks to the Dotcom having burst and what happened after 9/11 … war, recession etc. “I decided to link Economics to Ibiza on the basis that everybody is told by the media (and their chosen miseries) that both are crap. Ibiza is one of the most beautiful and electric places on the planet. But if you believe the media, it’s a sort of Blackpool with sun and drugs … and worse. “Thus, Economic Tricks: The Ibiza Mix. And have you noticed the world was also ending in 2003, 2008, 2009 and last Autumn? Probably in a couple of months time as well! “So, I address things that are truth, not the media’s spoon fed doomsday scenarios, and dispel myths using non-jargon and my 39 years experience, with fun, a great soundtrack and hopefully change some belief systems.”
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