[ptg] SMALL BUSINESS SUSTAINABILITY REPORT
2014
PTG REPORT INTO START-UPS, INVESTMENTS AND THE SUSTAINABILITY OF SMALL BUSINESSES. As a serial entrepreneur, angel investor and co-founder of the private equity firm, PGF Group and founder of the PTG Group, I spend a lot of my time with start-up businesses, understanding their potential for growth, their access to finance and the impact they are likely to have on our economic future. I am a huge believer in doing things differently and this report is designed to demonstrate why my beliefs and bold approach to business are what we need for growth and economic survival.
Contents What is the value of start-ups?
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Why it isn’t working
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The impact on our future
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What we are doing to help
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About the PTG Group
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About The Pathways
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References
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‘My message is simple, if you have drive, determination and are prepared to work hard, we will back you.’ - David Cameron
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WHAT IS THE VALUE OF STARTUPS? Over 500,000 UK businesses were started in 2013 and we have seen over 100,000 started in the UK in the first two months of 2014 alone. At the end of last year, over 8,000 startup loans worth £45 million had been advanced. The Startup Loan scheme, which offers new businesses an unsecured, low interest loan for £6,000, on average has made a further £117.5 million available between now and the end of 2015. [1]
According to a recent study by RBS [2], 38% of people in the UK aspire to become entrepreneurs and although only 6% have done so, the statistics demonstrate the huge change in culture, skills and aspiration that is currently happening in the UK. Many entrepreneurs dream of founding disruptive tech startups, like the e-commerce giant Amazon who survived the bubble bursting in 2002 and now employ over 43,000 individuals around the world. [3] Along with raising the aspirations of UK entrepreneurs, it is often organisations like this that provide new businesses with inspiration, insights and learning to help them capture the mind-set, approach and skills needed to reach billion pound success.
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4.8 MILLION
Small businesses employ 24.3 million people in the UK
395,000
More people employed in the UK since February 2013
‘I see life almost like one long university education that I never had - everyday I am learning something new’ - Richard Branson
Many globally successful entrepreneurs like Richard Branson, Peter Jones and Lord Alan Sugar, have become celebrities in their own rights and while most continue to run their businesses and manage a portfolio of investments, some also support the next generation of entrepreneurs by sharing their stories, tips and strategies for starting up. It is challenging though, to move from being a leader to a teacher, or a deal maker to a coach and is often without personalisation.
For many startups, the aspirations will be driven largely by the multi-billion dollar valuations businesses like Facebook, WhatsApp, Instagram, Twitter and Groupon have seen recently, [4] It is not these types of organisations that deliver a return to the UK economy and the taxpayers who are now funding the investments in these high risk businesses. There are over 4.8 million small businesses that currently employ 24.3 million people in the UK. [5] According to the Department for Business, Innovations & Skills, it is these small and medium sized enterprises (SME’s) that create 59.3% of private sector employment opportunities and 48.1% of its turnover. [6]
‘It is as if we don’t need research when the opportunity to fail is so readily available.’ - Erin Hall, Wired
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Although in the UK, there are 395,000 more people employed than there were in February 2013, overall impact and the increasing amount of people that start-up is questionable. Given one in three startup businesses fail within their first three years and half fail to survive beyond their fifth year of trading [7] we would need to start over four million new businesses to repair the economy. A recent Bloomberg report states that 80% of entrepreneurs crash and burn in the first 18 months and suggests this is largely due to the encouragement of failure and unrealistic aspirations we are creating amongst new entrepreneurs and in particular, the young. [8]
Looking at these statistics objectively, the PTG Group conclude that it is the smaller businesses that are sustaining our economy and arguably, it is these business owners who should be raising aspirations, sharing learning and gaining support. Instead, we are trying to breed a generation of global, technology focused entrepreneurs who when they get it right, reap the rewards, but take huge risks and often make years worths of mistakes, spending huge amounts of investors’ money, before they can achieve success.
Research reports that the average cost of entrepreneurship is 20% of a nation’s income and the number of businesses started is not directly linked to economic growth. [9] Yet, if we were able to empower each SME in the UK to grow by just 20%, we would see an end to unemployment, poverty and economic debt. [10]
- Caterina Fake, Co-Founder, Flicks
‘So often, people are working hard on the wrong thing.’
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WHY IT ISN’T WORKING ‘Many Small Businesses are doomed from day one, not from competition or the economy, but from the ignorance of their owners… their destiny is already decided because they have no idea how a business should be operated’ - William Manchee; Go Broke, Die Rich: Turning around troubled small businesses.
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‘A startup is a company that is confused about 1 - what its product is 2 - who its customers are and 3 - how to make money.’ - Dave McClure
The Oxford Dictionary defines an entrepreneur as a person who sets up a business or businesses taking on financial risks in hope of profit. A business owner, alternatively is defined as an individual who owns a business in an attempt to profit from successful operations of the company. The Oxford Dictionary also defines a business consultant as a person who is often self employed and provides professional, expert advice. From these definitions alone, PTG can see how confusing and challenging it can be for people to understand what we are expecting from them as individuals and what they need to be prepared for in terms of skill, learning and responsibilities. [11] When searching for a definition of a ‘startup’, we found even more confusion. Wikipedia defines a startup as a company that has a repeatable and scalable business model. The Economist state that a startup is based on intellectual property (IP), often in the form of technology. [12] Forbes reported that being defined as a startup is determined by the mind-set of the founders, a dynamic culture and a company focus on innovation and impact. The report goes on to say that startups scale rapidly, are not profitable and work to solve solutions where success in not guaranteed. [13] The Financial Times have predicted that 40% of the £150 million worth of startup loans will not be repaid [14] and Simon Culhone who is the CEO of the Chartered Institute of Securities & Investments claims that our investment into new businesses are without any management of risk and
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deliver a poor return to the taxpayers who fund a large majority of it. [15] Reasons for entrepreneurial failure range from the failure to be in touch with your customers, as claimed by Eric Wagner [16] through to poor marketing, planning and management which were found as the leading reasons for business failure in a recent report completed by The Times. [17] Many argue that we are breeding a future generation who seek to get money rather than make money, who think failure leads to learning and who believe they need to control everything rather than collaborate with other experts.
When we analyse the varied definitions of start-ups businesses and consider the various stereotypes and judgments which surround entrepreneurship, it is understandable that some people think entrepreneurship will save our economy whilst others think it will ruin it. PTG believe that we as a nation, are trying to use risk taking, innovative, impactful entrepreneurs to breed a nation of enterprising workers and business owners, whilst confusing messages around risk, reward and the effective use, and essential need for funding and profits. Sam Biddle believes we are creating a generation who will display symptoms of egotism and psychopathy, who
‘Successful entrepreneurs figure out when to drive their ideas forward and when to listen to constructive criticism’ - ZIadk Abdelnair
40%
Financial Times • The have predicted that 40% of the £150 million worth of startup loans will not be repaid.
will overestimate their importance and become self destructive when investment or success is secured. [18] It is difficult to make assumptions about the future of entrepreneurship and its impact on the economy. It is hard to know how to prepare ourselves for the future and what we currently need to help the transition of change. Dan Ardi, who writes for Fast Company believes that everyone will become an entrepreneur in the future but predicts specialisation will be essential. [19] PTG believe that in the future, we will live in a world of independence where people will become enterprising and will need to display expertise in specific business areas that will add value and impact the wider business community and our national economy. Our concern is that this is not what we are encouraging young people to do at the moment. We need to reevaluate our immediate focus and economic expectations while creating significant change in the way we prepare young people for their future.
‘You have to make profit - all start-up failures are financial in nature. When you run out of money, no matter how good of an idea you have, its over’ - Grant Cardone, Turnaround King.
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THE IMPACT ON OUR FUTURE ‘If you cannot do great things, do small things in a great way.’ - Napolean Hill
The dot com bubble, which existed between 1997 and 2000, was defined by the founding and failure of a large number of startups which was fuelled largely by venture capital (VC) funding and the emergence of technology. When the bubble burst in 2001, companies like Amazon saw their share prices drop from $107 to just $7 and many others faced bankruptcy and liquidation.
Several advisors found themselves being sued for giving poor advice and, although the survivors have become idols of many new entrepreneurs, most private investors have grown more cautious in supporting organisations that fit the bill of ‘the bubble’. [20] Despite this, we are still using the same language as we did during the dotcom boom. We are still seeing similar stories and we are continuing to encourage big risks, seeking large funds and are accepting of failure as an understandable part
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of every entrepreneur’s success. We continue to use terms and concepts such as ‘burn rate’, we focus on
‘Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations’ Dave McClure
exits, we use freemium models, chase fame and fortune and we often risk everything in the hope of achieving a fast and sizeable outcome like those recently experienced by WhatsApp and Groupon. Despite the dot com bubble bringing us companies like Play and ebuyer, it also caused huge financial and personal challenges across the UK and was swiftly followed by financial crisis that saw the collapse of organisations like Lehman Brothers and RBS. [21]
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Besides the economic challenges business failure brings, research conducted by Warwick University in 2011 found that it is also causally linked to anxiety, panic attacks, depression and the onset of phobias. More, business failure often leads to social devaluation, increases the likelihood of divorce and the breakdown of close relationships. Independent research (Cape, 2011) found that entrepreneurs experience pain, remorse, shame, anger, guilt and blame. [22]
‘Mind-set and context are the 2 main ingredients needed for creating sustainable and real success’ Tony Dovale.
This research should make us consider our shared responsibility in encouraging, inspiring and teaching entrepreneurs of the future realities, the skills needed and the risks involved in starting a business, and we need to more carefully consider if we should be encouraging entrepreneurship, independent working or enterprising habits in the working world.
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WHAT WE ARE DOING TO HELP ‘Although we are all as unique as our fingerprints, it is the footsteps we take that will determine the impact of our lives and the memorability of our uniqueness.’ - Phil Taylor-Guck
PTG believe that everyone has the potential to succeed and have seen with the right support, guidance and knowledge, can create the business they have dreamed of. However, we believe each of these dreams, the road from potential to success and the needs, ambitions and value of each individual is as unique as their fingerprint.
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If you consider this for just a moment, you will realise that you already know this to be true, yet we are surrounded by books, courses, coaching programmes and solutions which take a ‘one fits all approach’. This generalised approach to business is, at best, confusing for the individual who is trying to create their own pathway to success and at worst, it can be entirely debilitating. I don’t want people to follow in my footsteps, I want people to create their own. I don’t want people to be
‘Knowledge is power only if man knows what facts not to bother with.’ - Robert Staughton Lynd inspired my journey, I want them to be empowered so they can create their own. There is certainly no one thing that I could say to every entrepreneur in the world that would help them on their journey other than - believe in you, dare to dream your very own dreams and create your own, unique journey to success. With the findings of this report and my personal beliefs in mind, the PTG Group, of which I am founder, has created ‘The New Education’ and as part of that education, I have made a personal commitment to improve the failure rates of start-ups, provide entrepreneurs with access to personalised, practical information, and to empower each and every
encourage the next generation, it is necessary that we create context, insight and learning that will empower new entrepreneurs to reach the same successes rather than simply inspiring them; leaving them without direction or tangible understanding.
the new education entrepreneur in the UK to reach their goals with knowledge, insight and understanding.
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CONTEXT: Many entrepreneurs expect to learn from the stories of others and it is apparent that to date, we have not created a fully effective formula for teaching entrepreneurship. The danger is that without context, many stories of other entrepreneur’s success can be misleading, confusing or detrimental. Personal stories must be given context to allow individuals to understand what to apply and when to apply it.
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CONTROL: When we consider the way we encourage and educate entrepreneurs, PTG believes it is important that we allow individuals to remain in control and engage with them through coaching and guiding, rather than telling or dictating.
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INCLUSION: To ensure the failure statistics of startups and growth figures for SME’s can change, we need to provide advice and information that is personal, that empowering, and contextual. This information needs to be available to every individual regardless of their age, their budget, their type of business or ambition.
The New Education is based on our Pathway tools - unique, interactive apps and ebooks that allow individuals to map their own journey to success in a variety of areas - from crafting an entrepreneurial mind-set to adhering to business law. The New Education and the unique Pathway tools will fuel our own success, that of our country’s and will ensure we get a return on our current entrepreneurial investment by delivering the following: •
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PERSONALISATION: Currently, we largely label every person who is working independently, starting a small business or launching a tech startup as ‘an entrepreneur’. The result is that thousands of individuals, many of whom are using government loans or private investments, are receiving generic and ambiguous advice which can be confusing and is often detrimental and damaging to their ability to achieve in business. EMPOWERMENT: It is important we recognise inspiration will not lead to directed, effective and efficient action. As successful entrepreneurs look to inspire and
For more information, to access the Pathway tools or to learn more about The New Education and my new approach to business, please visit www.ptg-group.co.uk
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ABOUT THE PTG GROUP ‘Diligence is the mother of Good Luck.’ - Benjamin Franklin
At the PTG group, we dream of a world that works. We dream of a world that embraces creativity, innovation and entrepreneurship and then uses it for good, for social change and to create significant positive impact in a world that is broken and surrounded by statistics, headlines, policies and people that show us this is so.
The PTG Group work to make the world of business better and improve the way each of us live, work and play. We endeavour to create positive change in the charity sector and to reimagine the world for you so that you can dare to dream, achieve and live the life you have always wanted to. We have fun. We make money, then we do good with it to make our dreams of a better world come true. To do this, we need to re-educate the world a New Education and at The PTG Group we deliver The New Education to entrepreneurs, investors, employers, charities, public institutions and social innovators. We believe there is a better life waiting for everyone, a better world for us to live, work and play in and a better solution to the multitude of problems we face as a nation.
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ABOUT THE PATHWAYS Our Pathway tools guide you through your journey of change, development, improvement and innovation so that whatever your dreams may be, you are able to achieve them. Our Pathway tools are interactive frameworks that distil huge amounts of information and use sophisticated profiling techniques, which combine psychology, business experience and topic specific expertise. The Pathways
tools ensure each reader, user or client receives only the most specific, relevant and useful information, which clearly defines their direction and priorities, flags challenges and allows for continual review, measurement and progression.
coaching framework and form the basis of the consultancy services that deliver The New Education.
Our Pathway tools are used across the PTG Group; they are available in free e-books and are explained and brought to life in workshops, they create the
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REFERENCES: 1. Startup Loans - http://www.simplybusiness.co.uk/knowledge/news/2013/10/startup-loans-age-limit/ 2. RBS - http://elitebusinessmagazine.co.uk/analysis/item/priming-the-pipeline 3. Wikipedia - http://wikipedia.com/wiki/amazon 4. Inside Startups - http://www.insidestartups.co.uk/blog/the-uk-startup-economy-in-numbers-nov-2012/ 5. Telegraph - http://www.telegraph.co.uk/finance/1067830/Government-has-acknowledged-entrepreneurs-are-societys-wealth 6. BIS - https://www.gov.uk/government/news/69-million-more-for-start-up-loans-and-new-enterprise-allowance 7. BIS - https://www.gov.uk/government/organisations/department-for-business-innovation-skills 8. Bloomberg - http://www.reuters.com/article/2014/01/21/britain-lending-criticism-idUSL5N0KU31X20140121 9. BBC - http://www.bbc.co.uk/news/technology-18650145 10. BIS - https://www.gov.uk/government/organisations/department-for-business-innovation-skills 11. Oxford Dictionary - www.oxforddictionairies.com 12. The Economist - http://www.businessinsider.com/33-startups-that-died-reveal-why-they-failed-2013-6?op=1 13. Forbes - http://www.forbes.com/sites/georgedeeb/2013/09/18/the-unlucky-13-reasons-startups-fail/ 14. The Financial Times - http://www.ft.com/cms/s/0/e90c1042-2e6d-11e3-be22-00144feab7de.html#axzz2vJb6XnP5 15. CISI - http://www.contractoruk.com/news/0011375start_loans_criticised_offering_poor_return.html 16. Forbes - http://www.forbes.com/sites/natalierobehmed/2013/12/16/what-is-a-startup/ 17. The Times - http://www.businessinsider.com/33-startups-that-died-reveal-why-they-failed-2013-6?op=1 18. Sam Biddle - http://www.fastcompany.com/3026345/leadership-now/7-predictions-for-the-future-of-work 19. Fast Company - http://www.fastcompany.com/3026345/leadership-now/7-predictions-for-the-future-of-work 20. Wikipedia - http://en.wikipedia.org/wiki/Dot-com_bubble 21. Wikipedia - http://en.wikipedia.org/wiki/Dot-com_bubble 22. Warwick - http://www2.warwick.ac.uk/fac/soc/wbs/research/ei/research/working_papers/working_paper_no__117.pdf
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[ptg] WHAT NEXT? You can learn more about us by visiting www.ptg-group.co.uk You could visit us here: 5 Fryers Way Silkwood Park Wakefield WF5 9TJ Or say hello here: Email: info@ptg-group.co.uk Twitter: @PTG_Group Phone: 0333 358 3303