Abstract
This article briefly reviews my role in delivering entrepreneurship training and support in north-east Scotland. I run an organisation dedicated to the support of new and existing entrepreneurs throughout the northeast of Scotland. This support sees the establishment of 1800 new businesses every year. The work is exciting and hugely rewarding as we recycle knowledge, understanding and experiences amongst those we work with. We have ‘seen it all’, as the saying goes. Our task is to assist fledging entrepreneurs around common mistakes and help them achieve success. We have formed opinions along the way as to what is needed to maximise the economic upside of firstly creating more entrepreneurs, and secondly supporting the growth of ones with ambition and potential. Key learning principles are identified that we have applied in our organisation to achieve three objectives: how to stimulate more entrepreneurial activity; how to minimise early stage entrepreneurial mortality; and how to identify the key barriers that prevent business growth.
Keywords
Introduction
My whole career has been that of an entrepreneur. From the moment I parted company with school while still 15 years of age, my working life has been centred on building businesses of my own and helping others to cross the threshold and become new entrepreneurs or entrepreneurs who are focused on growing their enterprises. Amongst my portfolio of activities, I am chief executive officer of Elevator, which has its headquarters based in Aberdeen in the north east of Scotland. This is a social enterprise that exists to improve the economic outlook of the north east. It is 100% commercial in its operation, bidding for work and then diligently delivering for our clients, having a turnover of circa £6 m and employing around 100 people. The key difference is that our surpluses are not distributed amongst shareholders but are spent on projects, programmes, events and training throughout the north east, all designed to help create the entrepreneurial leaders of tomorrow.
Elevator has two distinct parts. The property side of the business operates 18 ‘business centres’ containing around 300 tenants in locations across the north east. We are primarily, however, a business support organisation dedicated to the support of new and experienced entrepreneurs, assisting them to start and grow businesses. Our territory stretches from the area known as Perth and Kinross to northern towns such as Peterhead and Fraserburgh in the outer reaches of Aberdeenshire. Within this territory lie three cities, Perth (Scotland’s newest city), Dundee and Aberdeen. In addition, we have many rural communities in Perth and Kinross, Angus and Aberdeenshire.
We deliver business support under the banner of Business Gateway, a Scottish government programme, which is delivered with a high degree of standardisation across the country. We have a commercial contract with government to deliver business support using the Business Gateway brand to end users utilising the products and services available through this programme. The government sets targets for entrepreneurial activity in terms of numbers of new businesses started, the numbers of businesses that harbour aspirations to grow and for those established businesses who wish to further develop their business.
This contract allows us to interact with around 2000 businesses every year, and we have been doing this for over 15 years. In terms of start-up businesses, we interact with around 20% of all of the start-ups across Scotland who use the Business Gateway service to help them start and grow their business. During this time, we have developed a very sound basis of understanding in the field of entrepreneurship. Escorting entrepreneurs through the planning stages of business, then through start-up and finally into the growth phase gives us a privileged insight of what excites and inspires new entrepreneurs, the traps which catch them all too often, and what prevents them reaching their growth potential. This is a huge subject, but for the purposes of this paper, I would like to focus on what we consider to be the most important factors affecting these three areas, namely:
entrepreneurial inspiration/ignition the start-up phase the growth phase.
It is worth emphasising the diversity of the area we serve. We work in areas where there is significant deprivation, low entrepreneurial activity, high levels of dependency and high unemployment. At the other end of the scale, Aberdeen city and shire are amongst the most buoyant economies in the country, enjoying the highest GDP in the UK outside London. Aberdeen is a truly international city recognised as the European capital of the energy sector. Dundee is seeing a renaissance as it transforms itself into what feels like the most energetic and upwardly mobile city in the country while Perth is a hotbed of entrepreneurial activity with high levels of business engagement and interaction. By contrast, the smaller towns and hamlets in the Perth and Kinross periphery, throughout the rural Angus region and up into rural Aberdeenshire, present us with different contexts that are also remarkably entrepreneurial in the resourcefulness of their inhabitants.
Business start-up activity: Entrepreneurial inspiration/ignition
The Business Gateway programme aims to create 10,000 new start-up businesses across Scotland each year. The actual number of business start-ups each year exceeds this number, since not all start-up businesses utilise the Business Gateway service. While it is over-simplistic to suggest that 10,000 new businesses starting each year guarantees economic prosperity, this quantum is recognised as a key indicator of entrepreneurial behaviour. The idea is that from this larger pool of emerging businesses, enough will grow and enough of those will grow significantly to give the country a firm base of commerce.
The question we have been exploring is how a step-change can be effected in terms of increasing the levels of start-up activity. What needs to occur to entice someone to become an entrepreneur, who otherwise would not? Naturally, the way entrepreneurship is delivered through education is a critical point but not one that I plan to discuss here. Looking at those in the most entrepreneurial age range, their typical circumstances and the obstacles they must overcome, what can we do to influence in a positive way those who choose the entrepreneurial path, in order to increase start-up creation, for example, to 1200 start-up businesses in Aberdeen instead of 1000 or 900 in Dundee rather than 760? How do we push more of them across the risk threshold and give them the confidence they need to establish a new business?
Our research has taken us across the UK, to Spain and to the United States to find out how entrepreneurial activity is stimulated. We have identified a number of factors, as follows.
Infrastructure
The creation of an entrepreneurial ‘place’ is very important to cities and universities when it comes to the provision of a recognisable ‘beacon’ for their inhabitants. Most successful ecosystems have a heart or a nerve centre, around which everything revolves. This brings a sense of place to an area, a place where entrepreneurs can feel they are comfortable and amongst their own. For the fledgling entrepreneur, loneliness is a big factor. They may be surrounded by people who care about them but who often do not understand the entrepreneurial mindset and can therefore offer little or no encouragement, motivation, information or advice. Feeling that you are part of something, mixing with others who are going through exactly the same experiences and being able to tap into sources of great advice and support makes it much easier for a risk aware entrepreneur to get through the difficult early stages. In the north east, we are now developing two facilities in Aberdeen and Dundee. These ‘Centres for Entrepreneurship’ will provide a physical place where we will take the best that we have witnessed globally and create something quite special for these cities.
Spirit/energy
These ‘beacons of entrepreneurship’ thrive on the spirit and energy created there by everyone involved (staff, professional supporters, mentors and emerging entrepreneurs). We have come to realise and appreciate that the ignition of entrepreneurship comes from the creation of a place that has spirit and energy. This is something we might categorise as ‘super-important’. We are getting better results through the cultivation of ‘creative irreverence’, of flying in the face of convention. Many new entrepreneurs, especially the ones coming through the current renaissance of entrepreneurship, see themselves as radical free thinkers who work unconventionally and seem to go out of their way to differentiate themselves from the career driven norms. Entrepreneurial students in particular will see themselves as ‘star-shaped’ in a world of squares and circles. Again with students in mind, they often seem to adhere to the rule that there are little or no rules. They respond better to seminars and workshops, which start at 8 p.m. and finish… whenever they finish, often into the small hours. Once they get going on a train of thought, they see it through regardless of the time.
Advisers
This is the term we use to describe the staff who provide the advice and support to the new entrepreneurs we work with. The quality of these relationships is a critical factor in assisting the start-up journey to be as smooth and successful as possible. Fledgling entrepreneurs need the right information delivered in the right way at the right time, and this is the role of the skilled adviser. We have created our own business adviser development programmes to ensure the advisers are providing ‘high impact’ guidance. Throughout my travels, I note a very strong link between the reputation of the supporting cast and the success of the programmes in both starting and growing the businesses being advised.
The reputation of the supporting advisers is crucial. As mentioned in the previous point, the energy and the spirit has to be created, this is what draws people in. It is the skills they will then encounter, which will keep them there. We have built a solid team of qualified and energised business advisers, which is augmented by a wider pool of very credible people who assist through supporting creative ventures as they arise. They may be likened to more active super coaches. The creation of a place is in some way the easy part. There has to be substance to the experience, and there has to be access to high-quality information, individuals and resources if the ‘place’ is to develop a reputation. This may not involve a lot of people in terms of numbers, but the people who are involved need to be of high calibre. We often use the analogy that if you had to go into battle, who would you want by your side? Surely someone who has been in battle before has the experience and the scars to evidence it and who can keep you out of danger. These ‘high impact’ business advisers have a limited amount of time to spend with each client, and so it is critical that they are able to focus on the things that make a significant difference to the business, those high-impact areas that are fundamental to success rather than superficial, operational difficulties. Our aim as business advisers is for a client to return to us five years hence and say ‘you know, you said something at a meeting once and it changed the direction of my business for the better’.
Values
This is another crucial element. The provision of support must come without self-interest and be focused entirely on what is best for the development of the entrepreneurs and their businesses. The best examples I have encountered have values, reputation and ethics at the centre of what they do. Self-interest has no place within a business development environment. Conflicts of interest are a constant hazard and the best organisations adhere to very strict codes of conduct designed to keep a high degree of involvement and a high degree of separation between the businesses being supported and those who are providing the support.
Acceleration versus incubation
We have explored both models in great depth, and indeed, we have been operating incubator units for many years, but the new concept of acceleration is creating much discussion. We initially talked about creating a space where entrepreneurs would be ‘comfortable’ and feel as though they were ‘home’ whilst in that environment. While this sounded admirable, we had to further define what we meant by the words ‘home’ and ‘comfortable’. Business accelerators in fact set out to make the environment relatively uncomfortable. They set the clock and expect their cohort of accelerating businesses to get from point A, which we might refer to as the ‘idea’, to point B, which we might refer to as the articulation of a clear ‘opportunity’. This forces the issue, forces the journey to be undertaken quickly and aggressively.
It is fully facilitated with a mentor team working through the logical steps of start up in a defined period of time, notional 90 days in order to get to the end of the process. This encourages a ‘fail fast and fail cheap’ attitude. It encourages the exploration of things and deems a journey that goes ‘splat’ as a positive step, having uncovered a dog of a business before any more time or money is wasted. The new acceleration modelling brings a refreshingly new attitude to the entire process typified by our current methodology for undertaking market research. Market research can turn into an elongated, elaborate and academic exercise, which may still reach all the wrong conclusions. Bringing two purchase orders (clearly not always possible but used figuratively) is the best type of market research, as it delivers something tangible and shows the customer is willing to pay. I use this example as it is typical of the current philosophy that drives entrepreneurs away from conventional ‘business planning’ down an avenue of ‘action planning’. Too many new entrepreneurs embark upon the planning phase predisposed to a positive outcome leading them to believe all positive feedback and ignore anything negative lest is dampen the enthusiasm. A facilitated acceleration programme takes damaging excess enthusiasm out of the equation, replacing it with a structured, methodical exploration of the idea such that the ‘opportunity’ can be found, should it exist at all. Business is not an academic exercise, it is a deeply experiential one, and we do our utmost to deliver it in this way. We simply accelerate the process. I would agree that acceleration is different from incubation but think that one does not replace the other. I see the process evolving into incubation once the core business model has been accelerated and validated.
The start-up phase
Start-up entrepreneurs have a multitude of issues to overcome. The ignorance they have of the journey they are faced with in some ways is a blessing. Perhaps if they appreciated the volume and intensity of the obstacles that would be put in their way, they would think very much more carefully about the step. Here I would like to focus on the issue that is most prevalent and destructive amongst new entrepreneurs. If we could correct just one thing in the behaviour patterns of entrepreneurs, it would be this: the ability to identify the difference between an idea and an opportunity.
Ideas, even good ideas, do not generally make money. It is opportunities that tend to lead to revenue and profit. The differences can be very subtle to new entrepreneurs, and we see the same mistakes being made time and time again. To start a business takes a huge amount of energy, drive and enthusiasm, but these traits, while generally welcome, have a destructive side. Unbridled enthusiasm for the joy and exhilaration of setting up a business can provide a very effective camouflage to a flawed business proposition.
The following real examples show how an adviser can draw upon his or her own experiences to make a point. Drawing upon past experiences is one of the most powerful tools used by high-impact advisers in the quest to impart wisdom to a client. This case identifies a client who presented a board game innovation to the business adviser. In full prototype, the board game looked typical of most board games. The owner was completely fused and wedded to this game, such was his conviction in its ultimate success. As the adviser to this client and a keen board game player, I asked if I could borrow the prototype so that I could test this out with my own family. The game was deathly dull to play. It involved rotating around the board landing on squares that resulted in a card being turned revealing the flag of a country, which then required to be identified or alternatively the currency of a country, which had to be identified. This game was a complete flop with my family on just about every level, it was boring, did not work as it should and had no real point, no real end game, no twists and turns of fortune, simply a flag and currency identification game.
With the utmost respect for the feelings of my client, I presented a diluted and slightly more palatable version of the feedback than it might otherwise have deserved. The entrepreneur simply could not understand it. All of his friends and family apparently thought it was a fantastic game. In his family and friends, he found refuge from those keen to encourage him, not burst his bubble, not criticise his game. It goes against all good human nature to tell someone that they have an ugly child. His family and friends were shielding him from the truth and doing him a disservice in the process.
I suggested that an independent group be set up to play the game while being facilitated by someone who could harness the feedback. This did not meet with the approval of the client who insisted the way forward was to invest the required £20,000 to have a thousand games made for sale. With no further thought, a thousand games were ordered and remain in a lock-up somewhere, unsold. The client was so wedded to this concept, he refused to hear clear and honest feedback choosing as a preference to listen to family and friends who were never going to be entirely truthful or open with him. It was a costly error. Being committed to a concept is a necessity for a healthy growing business, but allowing blind commitment to go unchallenged is very unhealthy.
The second example involves two gentlemen who came to see me with their business idea. Their background was impressive, working for a global organisation as senior product designers. Their area of specialism was innovation and product design. They also shared a hobby, which was drumming. They then explained that they wanted to revolutionise the humble drumstick. They showed me a typical drumstick outlining the fact that the product had looked the same for countless decades and was riddled with imperfections. I asked them to expand on these imperfections, and they began to list them. (1) The handle; the handle part of the stick is not ideal as some drummers prefer a thick handle, while others prefer thin. (2) The weight; drummers may have a preference for heavy or light sticks. (3) Reverb characteristics; the shaft of the stick will give varying bounce effects off the drum and again this is down to user preference. (4) Tip: the tip of the stick can be in many shapes and sizes and is once again the preference of the user.
The problem they wanted to solve was to create a drumstick where drummers would be able to identify all of their preferences and ‘build’ their perfect drumstick. This would mean making the drumstick modular, able to be assembled through a choice of handles, shafts, tips and weights fore and aft that could added to balance the stick. This would require new, cutting edge carbon materials, selling the key parts to end users for easy screw together assembly.
The product was extremely well designed and in fact looked fantastic. Built in black graphite, it looked sleek and could be printed on to personalise. Market acceptance was a given, what was not to like? With a reasonable price point around £25 per set, this was around double that of the wooden ancestor, but the new materials would last forever, look great, feel great and sound great. Not only this but their market was clearly defined and accessible through just two key magazines published in the UK, magazines read by just about all of the drumming community. A business devised by two very credible people, experienced drummers.
These were manufactured in China. This was the first mistake and led to production flaws, which led to initial product failure. Sticks were being returned broken at the joints. What followed was a concerted six months of getting the product to actually work. Even when this was achieved, sales seemed impossible. Why? The market was perfectly happy with wooden drumsticks; it was as simple as that. All of these ‘problems’ associated with traditional sticks and outlined by the founders were devised, not through the experience of them actually being a problem but in fact to shore up their desire to create what in their view was the ‘perfect drumstick’. The market wanted good old fashioned wooden sticks. This feedback came too late for the business. It came after the investment of time and money. It was one of the best examples of this problem. At face value, everything they said made sense and was believable. It sounded completely logical and delivered by two people who were very credible. They missed one important step and that was the proper exploration as to whether they had an idea or a genuine opportunity to build a business and make money.
All too often, entrepreneurs are blindly forging ahead with ideas that have no clear direction of travel, no concept of customer need, let alone how to satisfy customer need. The media messages that suggest new entrepreneurs ‘block out’ negativity and ‘go for it’ can be counterproductive, as it makes it difficult for the entrepreneur to filter out negativity but listen to sound advice. As business advisers, we constantly battle to get clients to see the business as a separate entity from themselves. Separation allows the entrepreneur to objectively look at their business from every angle, not just at start up but throughout its life. Gaining an insight from every angle allows changes and modifications to be made to refine the business offering. Not only this but being separate also allows the business to be seen in context of the wider market, and how the business interacts with the outside world.
Starting and growing a successful business is dependent upon a continual feedback loop and the ability of the entrepreneur to take time outside the business looking in. Looking at and analysing everything in the business is a key skill, and one the business adviser is well placed to support: ideas mean very little when it is opportunities that hold the key to business success.
Our role as an organisation is to help clients review and plan how to develop their business. Clients often fall into the category of not knowing what they don’t know. Successfully launching and growing a business is not about the art of invention as illustrated by the board game example, it is about creating a business model that is then refined through a process of continual testing and evaluation and sets the direction of travel. This requires the skill of creating a meaningful feedback loop, which constantly appraises and reviews information, evaluates it and leads to actions being taken to optimise performance.
Business growth
Our statistics indicate that approximately 7% of business start-ups ever grow to any degree. Our measurement for this is rather crude as it is not something we measure in fine detail, but in general terms, we classify ‘to any degree’ as a business that will go beyond having the founder and perhaps two additional employees. Around one-in-twelve businesses manage to break through the barriers to growth. This is a rather depressing figure but one that shows the difficulty of creating a scalable businesses.
I believe, from the many years we have studied this, that every business has the potential to grow but not every fledgling entrepreneur has the potential to grow with it. If we as an organisation wish to make maximum impact on the economy, we have to make a difference to the number of entrepreneurs equipped to grow their businesses. New entrepreneurs require a skill set. Conventional wisdom suggests that they must be committed, enthusiastic, driven, focused, single minded, courageous and lucky. This is correct, the energy needed to get something off the ground is significant and certainly not for everyone. Yet, these skills, however, admirable, are simply not enough to sustain or grow a business. Becoming established, setting down roots, gaining a reputation, building customer relationships, selling, adapting and a host of other activities follow that initial push. The business changes shape as it matures, it demands more, it requires different approaches and eventually year after year, the growth business becomes unrecognisable from the year before. Systems must be introduced, replication of good practice must be embedded, the list goes on and on. This places a huge responsibility on the entrepreneur who may just have thought the initial effort was all that was needed to push towards a high value end-game.
There is a real lack of appreciation amongst entrepreneurs about the absolute requirement to develop themselves at a pace that is ahead of the needs of the business. The largest barrier to business growth in my view is the limitations of entrepreneurs to understand how they develop their business. It is not 7% of businesses that find the path to success but rather 7% of entrepreneurs who are able to develop a skill set that keeps the momentum moving forward.
Additionally, it is difficult for a business to grow if it does not recognise the need to bring the right people alongside. Single operators will become so wrapped up in the fulfilment of the work leaving them with no time to plan and build a strategy for growth, before we even consider the development needs they have. New entrepreneurs take time to realise (while other fail to ever realise) that they need good people to broaden the skills base available to the business to assist it to grow. Interview Stewart Milne, Bob Keillor, Sir Tom Hunter and what comes through loud and clear in their recital of the early stages of their business was a recognition of the people they brought into the business early who had the skills they were missing. They will go as far as to say that without the complimentary skills of others, their business growth would not have occurred at all.
Not all entrepreneurs see it this way. Naivety will give them the sense that these business icons were able to do it all by themselves as they are the ‘face’ of their business. They fail to understand that the greatest entrepreneurs hold the secret to business growth and that is the ability to develop and adapt themselves and build a good team. New entrepreneurs must recognise that as their businesses grows, they need to grow too and this takes time, effort and focus to seek out development opportunities on top of the ‘day job’ to improve themselves. Whether that be through study or peer-to-peer learning, the best entrepreneurs do this very well. In addition, they will identify the missing pieces of the business skill set and seek to put this right by the inclusion of a team who can deliver a great business.
This also calls into question the development opportunities afforded to entrepreneurs. The question must be asked about the role we as entrepreneurial supporters take in the ongoing and advanced development of our entrepreneurs. The focus of government favours increasing the numbers of new start-ups. My question back to government would be ‘would there not be more benefit in increasing the focus on the identification of the highest potential, entrepreneurially led businesses and investing heavily in the people leading these businesses to equip them with the advanced skills required to deliver growth?’ This happens to some degree in Scotland but has little or no structure or process.
Ask some leading entrepreneurial academics in the United States what they think about entrepreneurship in Scotland, and they will speak enthusiastically about our heritage, innovation and creativity, but they will also tell you that we are poor at selling and strategising. Selling skills in particular is something taken very much more seriously in other developed entrepreneurial ecosystems. Selling is such a complex and specialist area, yet many of our businesses coming through take little or no steps to equip themselves properly to be effective at it.
Conclusions
I have tried to encapsulate in very simplistic terms some of the thoughts and observations we have made through many years of practical interaction with a huge cross section of entrepreneurs. Creating a physical environment that will foster the germ of an idea and provide a safe haven for those who need content rich, intensive support and guidance seems key to creating a successful ecosystem. Entrepreneurs are often ‘star shaped’, ‘unconventional’, and they need to be understood and channeled. They need to be guided through the formation period of planning to ensure the foundation stones that are first laid down are capable of withstanding he pressure the business world will put upon them. Ideas don’t always work, in themselves they rarely ever make money, but the pursuit of an opportunity or a viable business model is what will make money.
This to us is the single biggest challenge with new start-up entrepreneurs. Ideas backed by boundless enthusiasm can masquerade as viable opportunities. Yet for an idea to become an opportunity, founders must travel that road, they must test their assumptions to destruction and they must without fear of rejection stay open minded to what they hear so that they can modify, rework and create something that is fit for purpose. There are many other factors that are crucial, but I have focused on the one I deem to be most critically wrong most often.
Not enough of our businesses ever grow to anywhere close to their potential. We take the view that it is the entrepreneur driving the business that is most often the limiting factor for growth. Our businesses are being held back for many reasons, but the one we can make an impact on should we so choose is entrepreneurial development. Some entrepreneurs are born, I have little doubt, but entrepreneurs can also be made. You can’t make the initial fire that ignites an entrepreneur, that must come from inside. But once lit, the rest can be taught through peer-to-peer learning, through trusted mentoring relationships and even in a formal learning environment. This requires investment from everyone but mostly from the entrepreneur themselves, to be conscious of where they are on the journey, and the skills they need for the next leg of the journey: the willingness to develop themselves at a pace that stays in front of their business allowing them to lead the development. If we can work out how to do this more effectively, the 7% previously mentioned would increase, and the economic effect would be hugely significant.