Saturday, January 14, 2012

Britain's entrepreneurs need some X Factor to escape the Dragon's Den

Napoleon is said to have disparaged Britain's fitness for war by describing the country as a "nation of shopkeepers…". The phrase is attributed to the economist Adam Smith as Britain began to boom at the start of the industrial revolution.
But as the UK's manufacturing economy has withered over the past 30 years, the populist assertion that Britain is a nation of people that likes to shop (consume) rather than make products that are of use in attempting to assert economic dominance rings more true than ever.
Good news for UK manufacturing results in headlines like: UK manufacturing output increases more than expected.
But is it all bad news? A report from PwC in 2008 claimed that although manufacturing had declined in the UK, the sector had created high levels of productivity.
In 2008, the UK was still the 6th-largest manufacturer in the world by value of output, as ranked by the UN Council for Trade and Development. 2006 was a record year for UK exports, and according to a 2008 report by BERR (the UK Department for Business Enterprise and Regulatory Reform) 25% of UK exports in 2006 were high-tech goods, compared with 22% in the USA, 15% in France and 11% in Germany. And perhaps most strikingly, over the past two decades Britain’s Manufacturing sector has delivered greater productivity gains than Britain’s Services sector.
But that report came out in 2008 - and that is ancient history since the financial crisis has changed the economic rules of engagement for good. 

Napoleon, however, is said to have had great admiration for America.

Today, Americans are proud to declare themselves a nation of entrepreneurs, and that this spirit is what has made the country the greatest economy in the world since the second world war. The respected Kaufmann Foundation supports this position by claiming that entrepreneurs are the real drivers of the economy.
So what can the UK learn? Tech City aims to become the "digital capital of Europe" and has attracted Cisco, Vodafone, Intel and Google, which has committed to funding an innovation incubator. But news that Facebook would prefer to expand its offices in the West End of London than be sitting next to its rivals on Silicon Roundabout should not have come as a surprise.
Companies are clustered in Silicon Valley, but rivals do not make good neighbours: Google has separate campus in Mountain View and Facebook is in Palo Alto. When was the last time you saw a Sainsbury's right next to Tesco's in the UK? Or for those listening in American, when was the last time you saw a CVS next to a Walgreens?
The reason why tech companies have coalesced in Silicon Valley is because of capital and intellectual resources. The VC capital that doesn't come out of Sandhill Road is negligible on a global scale, while Stanford University continues to generate world-changing heroes of the startup world.
Californian gold fever has struck even further afield. The Skolkovo Innovation hub in Moscow which aims to foment the same kind entrepreneurial spirit in Russia.
But Silicon Valley has a real X-factor that's impossible to replicate: it is a complex ecosystem which turns so many Silicon Valley startups into global household names.
Tech City has one ingredient right - its location in Tower Hamlets puts it in a position for cheap rents for startups, but within walking distance of access to the UK's greatest concentration of capital in the City. Although Wellington, the largest VC firm in the UK is located in Mayfair, close to many other PE companies and hedge funds.
But the brain power factor is missing. The UK's centres of clean tech academic excellence are at least a tube or train ride away at Imperial College London or the Cavendish Laboratory at the University of Cambridge. Another downside of Tech City is that it will be focused on trying to find the next Google or Facebook.
James Caan, formerly the nice guy on Dragon's Den, has started a column in the Evening Standard to offering advice to budding entrepreneurs. But in the UK in general, there seems to be a focus more on services, than actually making things or even designing widgets that the world wants but are made elsewhere. And Dragon's Den investors lack the vision (and capital) of their US VC counterparts.
Sir Richard Branson is probably the most successful British visionary entrepreneur of our time. But he hasn't really started companies that make things - most of his companies sell services - with the possible exception of support for algal biofuels which could potentially have a huge impact on the world.
James Dyson is the only other household name who springs to mind who does actually design products, not just sells services. In this list of Britain's top 100 entrepreneurs, how many of them are in the manufacturing sector? As the Economist points out, successful economies of the future should be making products and creating services with global market value, ie we must start making things China wants, and fast.
The UK's coalition government makes a hue and cry about how to Get Britain Working again. Cutting benefits is a short cut to the streets, however. It's not a fast track to entrepreneurial wealth.
Coalition policies are loaded in the wrong direction and someone with a grain of good sense - Vince Cable? - needs to force the Chancellor into decisive action to encourage SMEs. Cutting corporate tax isn't enough… how about tax benefits for investments rather than cutting upfront costs. George Osborne's policies take with one hand, but don't give those savings back to society in the most useful way. Where is his evidence that straight cuts in corporation tax lead to direct investment?
Germany, on the other hand has weathered the economic crisis precisely because of the policies it legislated (and values it espoused in avoiding debt).
Instead of mocking poor ideas on Dragon's Den and lionising forgettable X-Factor stars, why not introduce some real competition into the UK?
The CleanTech Open in the US showcases some of the best energy industry innovations in the world and although its competitors are not household names, it gives entrepreneurs something to aim for - with access to mentoring, networks and potential capital.
How about also looking at the better elements of the US tax code, such as the 48c manufacturing tax credit, which stimulated investment in new factories to make equipment for the solar and wind industries?
One simple way to emulate the US is by changing the laws on bankruptcy. Once a company has gone bust in the UK, it's very hard for that entrepreneur to start over again. We need to eliminate some of the downsides to taking risks and remove the stigma of failure.
Thomas Alva Edison, still America's most beloved inventor, famously said of failure: I didn’t fail 1,000 times. The light bulb was an invention with 1,000 steps.
But he wouldn't have been allowed to fail his way to success without the financial support of John Pierpont Morgan.
The UK shouldn't need a war to force the issue as Germany did. But shouldn't the summer's riots be a warning shot that if left unattended, even Britain's shopkeepers might have to bring down the shutters on their failing businesses.

No comments:

Post a Comment