Tag Archives: Entrepreneur

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The Pitfalls of Peer-to-Peer Lending

According to Bloomberg, the Financial Times and a handful of other newspapers, peer-to-peer lending could be headed for a collapse. What began as a new, innovative way of lending capital may have become a ticking time bomb.

The Chief Executive of Bibby Financial Services, David Postings, notes that the signs are negative:  “We are seeing signs of overheating in the small and medium-sized business lending market. Credit terms are stretched and pricing is down. It has all the hallmarks of what happened to personal credit pre-2007. There will be a crash sooner or later. Peer-to-peer is unproven through a credit cycle. The platforms are not at risk but the people who put the cash in could lose everything. If you put your money in a bank the shareholders take the hit – they are the ones taking the risk.”

Peer-to-peer
At its core, this form of lending is a more individual form of finance. It allows interested investors to loan money to inventors, business owners and entrepreneurs, based on a pitch.  Interest on the loan is set by the investor, but an attractive project or opportunity will likely receive several different loan offers, forcing potential investors to compete with each other.

As Postings has argued, interest rates may already have become too low, hinting a crash may be imminent.

For several years, however, peer-to-peer lending has gone from strength to strength.  In 2015, the market peaked at $12 billion in loans. In the majority of cases, these were unsecured loans. Another problem is that investors in many instances knew little about the businesses they were loaning money to, and no understanding of the risks they were facing.  There is also the question of the time and knowledge it takes to read the information provided by a company, and the ability to exert shareholder control. Listed equities are governed by extensive disclosure rules and rights that protect minority investors.  Peer lending does not offer these kinds of controls.

It is common for banks to face criticism that they are reckless with their risks, or even abusive to customers. However, banks have the benefit of experience. They’ve seen many financial cycles, as well as weathered frauds and catastrophes. Although a big enough crash could bring them down, they’re generally diversified enough to prevent it. Peer to peer does not offer this kind of security.

There are several peer-to-peer lending platforms. The UK’s leading platform is Zopa, which has facilitated the lending of almost £3 billion since 2005. According to their website, 60,000 investors have lent an average of £13,000 to businesses and startups.

The Case of Rebus
Rebus was a company that primarily dealt with clients who had been mis-sold financial products. Through Crowdcube, a peer-to-peer lending platform, Rebus was able to raise over £800,000 from small investors. Over a hundred people had lent money to Rebus, with amounts ranging from £5,000 to £135,000, with the promise of gains between 6.4 and 10.6 times their investment.

The fall of Rebus would be the largest equity crowdfunding failure in the UK. Investors lost their money.

Julia Groves, of the UKCFA noted: “We should be in no doubt that there will be failures like Rebus [but]…the question is whether people understand the risks they are taking.”

The case of Rebus should be a reminder that all investments can fail, all investments can result in losses. The key difference between small-time lenders that use peer-to-peer platforms and larger scale investors is a diversity of portfolio. It is vitally important for prudent investors to manage risk by spreading investments – something that amateurs will not be aware of, or be able to afford. It has made peer-to-peer appear more and more like gambling, rather than as a needed source of finance to spur innovation and small businesses.

It’s likely that peer-to-peer lending in its current form does not have long left before a crash. However, the concept of lending to small businesses will continue. Large financial institutions are starting to see the benefit, and they can protect themselves much more effectively than small-time lenders.

Blogs & News, Initiatives

Can unicorn startups thrive whilst ignoring regulation?

a worker asks for a transition to a patch on a piggy bank, but receives only a tease

The world of tech startups is peppered with stories of overconfident, brilliant entrepreneurs who disrupt the way business is done in traditional sectors, transforming consumer behaviour and challenging current legislative frameworks, often with detrimental outcomes to their business as in the landmark Uber employment rights case.

High profile tech innovators are sometimes branded arrogant “jerks” who try to by-pass national regulations in order to achieve success. But is the fair? Is arrogance a prerequisite to achieving a major shift in consumer economic behaviour? The new Sainsbury Management Fellows Business Survey asked business leaders/entrepreneurs for their views on the behaviour of Unicorns (billion dollar valued start-ups), with some divergent views.

Arrogant or just determined? Divided opinion
Sixty-seven of the 150 opted-in panellists took part in the survey and 37.5% agreed that Unicorns in the sharing economy are arrogant in their compliance with regulation and interestingly, over 51% of all respondents said that a degree of arrogance is actually required for new technology startups in traditional markets to beat incumbents and grow.

Arrogance of Start ups Survey Question `1

Echoing similar views among the 51% of respondents, David Bell, an engineering graduate on Rolls-Royce’s development programme said, “In order to gain advantage in the sharing economy Unicorn startups had to exploit loopholes and gaps in existing rules to rapidly develop market share before regulators can act to prevent these unforeseen practices. While no specific company was put in the spotlight, Bell said that some of the tactics include ignoring regulator warnings, claiming new technology’s exemption from old rules, asking customers to lobby on their behalf, and asking for forgiveness and paying penalties after their market position has already been established.”

Arrogance of Start ups Survey Question 2

On the flip side, just over 42% of all panellists stated that arrogance is not a prerequisite for success and startups are misunderstood and the public should not “confuse arrogance with self-confidence.” In this group’s view, such startups are simply pushing boundaries, testing new models and finding new ways of competing with incumbents.”

No place for arrogance in business
Successful serial entrepreneur Chris Martin, CEO of ADC Therapeutics SA said, “There is no room for arrogance in business – startup or not. Some Unicorns I have worked with were best in class and so may have been perceived as arrogant when they were just very, very good.”

Sinead O’Sullivan, an MBA candidate at Harvard, an aerospace engineer and entrepreneur stated that it is vital that not all startups are painted “with the ‘arrogance’ brush.” Some tech startups are being led by millennials who can appear overconfident.”

While some startups can be arrogant, most aren’t. Some simply operate with supreme “self-confidence and dogged single-mindedness,” said Phil Strong, CEO at Zymbit.

The role of arrogance in business
Asked to name a company that behaves arrogantly, unprompted 18% of respondents named seven companies, with Uber taking pole position. The others were Prowler, Theranos, Avery Dennison, Airbnb, Tesla, and Dyson.

Led by CEO Travis Kalanick, Uber develops markets and operates the mobile app which provides on-demand taxi service, connecting passengers to cab drivers at much lower costs than other services. While many deem Kalanick to be a brilliant entrepreneur and legendary CEO, he is also generally perceived to operate in an arrogant way. While this arrogance is seen by some as negative, the trait is said to be rampant in Silicon Valley, with investors rewarding supposedly callous tactics with tons of capital. The view of the Uber leadership is that it consistently acts as if the company is above the law and the ethical norm.

Sinead O’Sullivan reinforced this point saying, “While misplaced confidence can be damaging to the reputation of a company, this behaviour is encouraged by “the way the whole venture capital game works.”

Demonstrating polarity of views, one entrepreneur, Nimesh Thakrar, CEO of Banneya gave Uber kudos for changing “the status quo of how we are currently operating in that [taxi] space”, and that policies and regulations “need to change and be reflective of the modern world we live in.” However, another young entrepreneur Farid Singh argued that the way Uber has gone about doing things has become “similar to dumping free inventory” and that while “regular taxi services run out of cash and have to shut down, they [Uber] start squeezing the drivers and raising their prices”. He believes that these practices have created an “unchecked monopoly”.

Airbnb, the world’s fourth largest startup is criticised for its supposed arrogance by the American Hotel and Lodging Association (AHLA). The AHLA launched several campaigns to counter Airbnb’s so-called hypocrisy and to fight for “the need to curb illegal hotels and ensure a level playing field”. As one panellist stated, startups are not always good just because they’re new, claiming that “Airbnb has damaged B&B markets.”

In the final analysis…
While some of the SMF panellists deemed Unicorn startups as arrogant, others see this arrogance as merely a change in the way business and business owners are pacing themselves. Startup owners and operators are seen as bold movers and shakers who “challenge incumbents” and are in the business of “exploring new ways of solving old problems” said one panellist. The leaders of Unicorn startups are seen as new types of entrepreneurs who emphasise the need “to strive for survival and reproduction.”

Some respondents felt that the term “arrogance” is “emotionally charged” and has “strong negative overtones” and that society should be acknowledging their achievements; focusing on how these companies are pushing boundaries, testing new models, creating change and improving services for consumers.

Sainsbury Management Fellow and venture capitalist, James Raby argued that subverting regulation can be catastrophic for long term success. “Some startups regard regulation as the enemy. Because entrepreneurs are bringing new technology to the market, they think it is a protective shield from regulation. The standard response is to disavow regulation, yet everything that’s old is not necessarily bad. Startups should embrace regulation if they are serious about long-term success. They need to recognise that to work in real markets they must cooperate in a regulated market, as I’m sure the manufacturers of driverless cars will realise.

This means startups need to employ people who understand regulatory frameworks and the detail of how they apply in different markets and cultures. Without this depth of understanding, companies side-stepping regulation will be challenged and regulation will catch up with them.”

As SMF implores startups to re-think their approach to regulation, perhaps there is also a need for the regulators to improve their understanding of technology and be quicker at managing technology shifts.

photo (c) nuvolanevicata

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The Interrogative Entrepreneur?

David-Falzani-President-SMF-MCP_3834-(landscape)
David Falzani
President of Sainsbury Management Fellows
Visiting Professor at Nottingham Business School

I recently gifted someone a copy of The Interrogative Mood by Padgett Powell. This book, purportedly a novel, weaves a subtle web of questions that when read together somehow seem to make sense in interrelated and sometimes unexpected ways. It’s probably not for everyone, but I find it ‘lights up’ parts of the brain other texts cannot reach. I thought it might be fun to have a go myself, loosely directed at entrepreneurship:

Do you ever get an itch you can’t quite reach? Do you get upset by problems you think easy to have been solved?

Are new products easier or harder than old products? How important is vision to your motivation? Do you get excited by ‘the possibility’? Does getting the mortgage and school fees paid make you old?

Would you rather be broke at 20 and rich at 70, or the opposite way round?

Is stress the complexity or the enormity of the task? Are you motivated more by anger or by aspiration?

What portion of salary should a car cost? Are taxes optional? Does ‘doing sales’ excite you?

Do you genuinely like other people? Do you actually spend £3 on a cup of coffee? Would you genuinely prefer 1 in the hand or 2 in the bush?

Do you prefer ice cream or milk shake? Do you realise that you will one day die? Do you spend more time typing on a keyboard or speaking into a phone?

Is stress the things you can’t control, or the impossibility of the task?

Did you ever miss key events of your children’s lives? Would you rather pay taxes or recycle? Are you willing to wait 2 years to get paid? If you were paying, would you travel club class? Do you do what you believe in or do you believe in what you do?

Do you prefer to lead or be led? Do you do the best work in the morning or the evening? Is your preference poker or chess? Have you paid £1m for a 2 bedroom flat next to Waterloo Station rather than commute?

Would you rather create a chain of doughnut shops or work for Google?

Can you walk away from a guaranteed job and lifestyle? Have you ever been stood at the top of a cliff and been terrified you might jump?

Does failure scare you? And if so, do you know why? Should the maximum salary in any publicly funded body ever be higher than the Prime Minister’s?

Is the boss’s job to be tough or to be kind?

How much money is enough? For you? Do you have an Amex card? Would you mortgage your house to back your business?

Did you always attend your child’s sports days?
Are you tidy, or an unmade bed?
Do you play the lottery and if so, what’s your strategy?
Would you rather own 1% of GE or 100% of Krispy Kreme?
Does the freedom to risk total failure terrify or comfort you? Have you seen a baby pigeon?
If you suddenly became wealthy, what would you do? – what would your new job be?
Do you play video games without children present? Do you like Tabasco?

Do you prefer coffee or sleep? Do you know the expression ‘through the meat grinder’? Are new problems easier than old ones?
Do you prefer finding out what the pain is or what the solution should be?
Have you been ‘through the meat grinder’?
Are you able to explain why all the better mousetraps failed?
Do you understand Zappos?

Would you rather meet Jack Welch, Gordon Gekko, or Mark Zuckerberg? Would you rather sit in the shade under a tree sipping red wine, or work hard to build a business and get rich so that you can sit in the shade under a tree sipping red wine? Are you a cat or a dog person?
Are all problems in the world ultimately political? Is it important to know why things happen?
Do you have a favourite cocktail?
Would you like to celebrate the civil service?
What would it take for you to give it all away?
If you almost ‘made it’ but lost everything, would you start again or settle?
Do you think CEOs should be on minimum wage?
Is it OK to make money that someone else has lost?
Are you glass half empty or half full?
Is war an opportunity, or a travesty, or both?
Is coffee a drug for you?

Does your brain ever hurt?

Did this ‘work’ for you?

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Entrepreneur Blog – Getting Funding

Chirag Shah Family Photo Sept 2013 Edited
SMF Chirag Shah, a successful serial entrepreneur

In my previous blog I discussed the importance of ‘knowing your numbers’ – the key business metric of knowing how much you need to sell of something and at what price to NOT LOSE money. Of course in reality you wish to make money (lots of it hopefully) and this almost always results in the need to spend money upfront in order to make more money afterwards. For this, you need a business plan.

There are so many How To Guides on writing a business plan that I won’t go into the details here. Rather, I will focus this post on a few tips to assist you when preparing your business plan.

Do it Yourself
As entrepreneurs we are itching to dive into the lab and perfect our mousetrap, or get out on the street and talk to customers. But you need to have a deep understanding of what all the costs are and how much money you will need – not just now – but for the foreseeable future to ensure your business can prosper. There’s plenty of ‘advisors’ out there who will prepare a business plan for you, but you really must avoid this. However painful it might be for you to sit in front of a PC, if you don’t understand what went into your plan then you don’t really understand how you are going to make money from your business.

Understand the Dependencies
Most folks tend to lean on Microsoft Excel for the production of their business plan. And I have no issue with that but there is an issue with Excel that one has to watch out for or be an extremely sophisticated XL wizard. When you put all your costs and all your revenues into your model be careful to link them as much as you can. For example, you may have assumed that you will acquire four customers from each Marketing Conference that you sponsor.

If you then find that you are only acquiring two customers you need to rethink your approach to Marketing Conferences and change the business plan accordingly. Most people get that. But did you also modify all your costs to reflect the slowdown in customer acquisition? Maybe you assigned some part of executing the plan to a colleague who is innocently plodding along acquiring all these staff/supplies/premises as per the requirements in the business plan. Sounds trivial? Believe me, you will never stop having to adjust and re-adjust your plan and the successful entrepreneur is the one that a) intuitively understands the inter-dependencies and b) has the strength to swallow their pride and modify the plan in the face of adversity.

Shah’s Law
This brings me to the final point in this blog – which I have coined Shah’s Law – because I’m not aware of anyone else coming up with a similar heuristic before.  So you are proudly looking at your shiny new business plan with all your costs and revenues and it all adds up neatly and shows lovely profits at some point in the future, right? At this point you need to apply Shah’s Law which states: “Your sales forecast is over-optimistic by a factor of 4 divided by the number of start-ups in your experience including this one”.

For example, if this is your first venture, and you estimate you will be selling 2000 units a month by the end of six months, then Shah’s Law predicts that you will be selling that number by the end of 24 months. But if this is your second venture then you’ll probably be hitting that number by month 12 and if you are on your fourth business – happy days – you are probably staring at a business plan that is actually quite accurate!

Why Shah’s Law? Well, two factors feed into this; firstly sales forecasting is a delicate skill that can only be honed through experience (school of hard knocks) and secondly, as you conduct more ventures your business credentials – reputation, risk, contact network – all improve which in turn contributes to reducing the sales cycle in subsequent ventures.

So, go back and take a knife to that hockey stick forecast, but don’t despair, if you’ve got your inter-dependencies connected then your costs will go down too!

The cash shortfall in your business plan is then the amount of money that you need to get your business funded. We’ll look at how to fund this in the next blog instalment.

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Intrapreneurship and Smarter Impact

085
SMF Phil Westcott

Inspired by recent entrepreneurial articles from the hugely impressive SMF community, I thought I’d chip in with a story of my own.  I consider the courageousness of the classic entrepreneurs in some awe… but as a man of less iron resolve, I prefer my entrepreneurship from the vantage point of a large corporate, in my case IBM.

So my story is one of “Intrapreneurship”… applying entrepreneurial skills to pursue new opportunities for your company and in doing so, create new exciting career opportunities for yourself.  If your career ambition is driven by a desire for personal impact on society at large, then leveraging corporate scale might be as effective as going it alone.

In summer 2011, I joined IBM in the midst of it centenary year, celebrating its role in technology leadership from the personal computer to the moon landing.  And as I looked at the vast portfolio of solutions, I bought into the IBM Smarter Planet vision, aligning good business by tackling global and societal problems.

However, there seemed a gap in the solution set.  It appeared that our planets greatest challenge of our time – the challenge of global inequality – was not being directly addressed by an IBM business unit or solution set.  And this is hardly surprising. Despite the popular support for Prahalad’s Fortune at the Bottom of the Pyramid, few companies have found business models that effectively serve this market at scale.

So coming into IBM fresh from my Sainsbury Management Fellows-sponsored MBA, and full of the naïve optimism of a newbie, I set about finding the business models that might harness the collective power of such a great institution – 430,000 employees, and $6bn a year in R&D – to address this challenge: and not by way of philanthropy or traditional CSR; but with the conviction with which business pursues attractive growth opportunities.

And so outside my day job as a strategy consultant, I launched IBM Smarter Impact. Through a certain amount of belligerence and networking, the concept has evolved over the past year and a half into a global initiative with global resources. So I’d like to use this blog to air some thoughts on intrapreneurship before concluding with a brief word on where the Smarter Impact journey has led…

Encouraging intrapreneurship in large organisations…
Large corporations typically require a disciplined structure of business unit, product and industry alignment, a discipline that enables predictable business performance on a quarterly basis.  My view is that there is a temptation to leave innovation to the R&D department, however successful a company might be at churning out patents.

However, many game-changing business innovations originate from employees who spot a business opportunity that cuts across traditional organisational silos.   For a systematic solution, companies must encourage the behaviours that are required to drive these ideas in their early gestation.  This requires the right recruitment, incentive and promotion policies, so that the middle and senior leadership are populated with leaders who at least recognise, if not exhibit, true entrepreneurial behaviours.  The organisation must then have the platforms to accept or reject the new ideas once they have reached a period of maturity.

  • Recruit the right blend of employee, and look out for those with an entrepreneurial spark
  • Ensure there is an entrepreneurial element within formal training programs
  • Use the formal mentoring structure to encourage pursuit of ideas in their early stages
  • Allow employees some leeway to work on their pet projects on the side of the day jobs, and recognise these activities in their remuneration review
  • Find a platform for sponsorship of new business opportunities.
  • But not too early in the life of the idea, perhaps once a first sale has been achieved or the model proven as commercially viable This ensures that the employee has the tenacity to stick with their idea, and the conviction to see it through

What makes a good intrapreneur?
Like the entrepreneur, the intrepreneur has the benefit of being able to create and lead new ventures at any stage of their career and not just once a senior position has been attained. Also like the entrepreneur, they work with limited resources – even including their own time.  Therefore similar skills are required to improvise, acquire resources and build momentum.

But there are additional skills required by the intrapreneur. At a recent meeting with a large UK city council, it was proposed that there are three types of city leaders: Political leaders, Thought-leaders and Managerial leaders. The rational was that an effective city leader will be one of the three.  Which got me thinking about intrapreneurs… It seems to me that the most effective intrapreneurs need to be pretty good at all three.  In the context of driving change and innovation in a large company, this means:

Political leadership – managing up, don’t always ask for permission, ask for advice to unlock resources and help. Identify some senior sponsors, and in doing so, choose the most appropriate ‘home’ within the organisation.  For example, the momentum behind Smarter Impact has benefited greatly from positioning as a surrogate of IBM’s Smarter Cities business.

Thought-leadership – taking ownership of the idea, find other global thought-leaders through blogs and networks, participate in the debate and help move the conversation on.

Managerial leadership – an ability to manage sideways and downwards to galvanise support and herd existing disparate efforts/initiatives into a critical mass of success stories. An ability to secure additional resources on limited budgets: for example, leveraging university relations as a source of bandwidth and innovation*.

Take my IBM colleague Rick Robinson, a global thought-leader on smarter cities.  Rick may be famous for his thought and technical leadership around data solutions for cities, but he also displays the other traits of a highly effective intrapreneur.

(*As a side note, Universities are always looking for interesting commercial, explorative projects, but having witnessed from both sides, too often these are badly conceived, poorly supported and then stray off the desired outcome. The academic teams need leading and motivating and then the output can be fantastic. For example check out this video delivered by LSE for Smarter Impact and the city of Rio de Janeiro after just 3 weeks of work.)

So where is Smarter Impact today?
Smarter Impact was publicly launched at a London conference in September 2012, an event I actually missed as it coincided with the birth of my first child!

This event engaged participants from across private, public and third sector, and really moved on the discussion.  Smarter Impact has now crystallized into a mechanism for new partnerships between private, public and third sector to drive inclusive economic development.  It has evolved a suite of data-driven solutions, which capitalise on exciting new sources of data and connectivity, such as the proliferation of mobile data and crowd sourcing.  While originally pitched at the international development sector, the principles are now being applied to drive social inclusion agendas in our UK city partnerships.  Crucially for its future in IBM, Smarter Impact is now bringing in revenue and opening up new lines of dialogue between global leaders from the World Economic Forum to Sunderland City Council.

Phil is Business Development Executive for IBM’s Smarter Cities business in SE Asia, and global leader of IBM Smarter Impact. For more information contact Phil (phil.westcott@uk.ibm.com).

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Entrepreneurship – My Experience of Getting Started

Jonathan Selbie
SMF Jonathan Selbie is a Director of Swarm Systems which develops unmanned aerial systems (UAS) and autonomous systems technology for the Aerospace and Defence Industry. Jonathan’s early career was in motorsport, working in the Research and Development Departments of two Formula One team, leading development projects from concept through to end use at races. After his MBA, Jonathan helped build Swarm Systems from scratch into an established supplier to the UK Government. He has developed relationships and carried out successful collaborations with key suppliers, partners and academic institutions in the UK, Singapore and China. More recently, Jonathan is leading Swarm System’s projects to develop nano-UAS technology.

In the final year of my undergraduate Engineering studies, as part of an entrepreneurship module, I attended a lecture given by two recent engineering graduates. They had started a company after university and were now running a three year old, multi-million pound business. The stories they told of starting the company in desperate surroundings sounded almost romantic. Their do-or-die attitude allowed them to survive the early days – but only by the skin of their teeth; they relied on paying their first employees with sandwiches and finding their first customer only thanks to a serendipitous misunderstanding.

The tale of their struggles, from a worthless, bedroom-based entity to a company with plans for international expansion, filled me with excitement. Even more exciting was their plan to sell the business only four years after graduating. In talking about the sale, the numbers they bandied around suggested they could not have retired – but a first (and probably a second) home wasn’t out of the question.

As I left the lecture hall, my mind was filled with possibilities. The notion that one could earn a living, and more, by pursuing one’s own dream held some ideals and inspired me. So I decided I was going to do it. Job offers would be ignored (they weren’t that interesting anyway), caution would be hurled to the wind and I would go and work for myself. 12 years later, I finally got started.

I have often wondered why it took me so long.

The problem is that getting started is not romantic. It involves hard work and uncertainty.   When you get started working for yourself, there is no structure or framework to guide you. There is no boss to check you are on time or that your work is on target; and nobody senior to whom you can defer when things go awry. Instead, you must develop the discipline and skill to do these sorts of things for yourself. This requires commitment and sacrifice and is a marked transition from what I had been used to at school or in previous employment. Getting started also tends to be all-encompassing.  Success is often only achieved through delayed gratification; putting off holidays and buying a home or even having a family later on.

This is hard; I found it much easier to convince myself that the reason I hadn’t got started yet was because of funding problems or the idea wasn’t quite right (or even very good).  I was often able to build up the enthusiasm about a particular new piece of technology or business model – only to find that enthusiasm dampened a few weeks or months later thanks to some further analysis and a natural inclination to be sceptical (I am an engineer after all!).

I suppose the point is that getting started is, ultimately, a leap of faith that requires courage and confidence to undertake.  The popular media suggests starting a company is glamorous, highlighting personalities like Larry Page, Mark Zuckerberg and those guys who sold Instagram for a billion. But the reality of giving up the structure and relative normality of employment can be quite unglamorous.

In my case, there were two key elements to helping me take the plunge and get started launching a new venture.  The first was confidence. This was thanks in no small part to my studies for an MBA whilst at INSEAD in France. Not necessarily for the technical skills but for the opportunity to immerse myself in an entrepreneurial community. To understand on a very practical level the steps that could be taken to get started. Developing plans and ideas in this environment felt natural; help was never far away if I had problems.  As much as anything, it showed me that getting started was not rocket science.  The idea did not have to be perfect. Raising capital was possible. It was extremely reassuring to see how it was done first hand.

The second element was realising the necessity of working on a venture in a team.  Whilst operating alone enables complete autonomy, in my experience exchanging this for the opportunity to share and discuss issues and problems is a trade well worth making.  Since getting started myself, I am always amazed at how often problems that seem insurmountable can be chewed on, processed and solved by discussing with a partner or team of like-minded passionate individuals. And, for me, winning as part of a team has always been better than winning alone.

Getting started and being successful in a new venture requires confidence and tenacity as well as good fortune and stamina.  For me, it has been both stimulating and exciting. There have been setbacks and it has been important to remember to stay optimistic no matter what has gone wrong. However, I have learnt a great deal and been exposed to wild and varied situations which have been fascinating and will, I feel, be invaluable in my career going forward.

I believe the venture in which I am involved will be successful. But if it is not, I doubt I will regret much. For in the end, it is the exposure to those wild situations and the experience of those setbacks that creates the romance and glamour of getting started – and this is really what I was after in the first place.

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Guide to Entrepreneurship – The Idea!

Chirag Shah (1)
Sainsbury Management Fellow, Chirag Shah, is a serial entrepreneur.  A Londoner born and bred from a family of medical doctors, he studied Engineering at the University of Cambridge. He completed his Engineering apprenticeship at Rover Cars where he worked as a Production Manager before gaining a scholarship through the Sainsbury’s Management Fellows to pursue an MBA at INSEAD Business School in France. Following a short spell in management consulting, he started his first business at the age of 28. His entrepreneurial ventures include Trading Partners (a business services company), écurie25 (the largest chain of Supercar Clubs in the world), MarketMaker4 (an internet software company), and Assassin Live (an iPhone application game). He is also active as an angel investor.

Most people think the biggest obstacle to getting started with a new business is coming up with a really great idea. But this generally isn’t the case. Ideas are all around us and mostly come from finding solutions to our problems.
Unless your name is Jesus and you can simply perform miracles whenever you hit a problem, we generally tend to address problems by tolerating them or avoiding them. The key to successful entrepreneurship lies here. Instead of living with your frustrations, take the extra few seconds to challenge the issue and explore how you might solve the problem. The answer could be your business idea!

In my experience, the much more challenging aspect to getting started is turning the idea into a viable business proposition. To illustrate, I’m going to use as an example my 19 year-old cousin – who has half a dozen more new ideas every time I see him. He’ll be a great entrepreneur one day but first he needs to overcome what I call the “CARD-test”. In order for an idea to become a successful business it needs to be Commercial, Aligned with resources, Relevant (to you) and Defensible.

An idea my cousin had when we were 15 was the concept of having a rotating sunlounger. Just like a sunflower, the lounger would turn slowly during the day saving the users from having to get up and move the lounger themselves.

Commercial
Applying the “Commercial” test, the key question is: “can you make money from the idea?” If one manufactured the product, would there be enough sales to offset the manufacturing and distribution costs and still leave some profit leftover? In the case of the rotating sunbed, I’m not sure ‘enough’ users would pay the necessary sum to avoid getting up and turning the lounger themselves.

Aligned with resources
Another idea he had was to build a field of solar panels and sell the electricity, whilst growing some vegetables in the shade. In the right circumstances this idea can meet the Commerciality clause, and indeed there are such implementations around the world.

Alas, for my poor cousin, he does not have enough money to implement this idea nor could he hope to raise sufficient funds from other people given his lack of previous experience as a farmer or energy consultant or similar. So for my cousin, this idea falls down because it is not ‘aligned’ with his level of resources. [A particular frustration of mine, and a reason why I think the green energy movement fails to reach breakthrough levels of adoption is that so many innovative projects very quickly require significant levels of capital to bring them to market and hence remain the remit of larger institutional sources which are inherently more risk averse than your average entrepreneur. Compare this with the Internet revolution where the cost of starting a business is very small and new business concepts dominate.]

Relevant (to you)
As a general rule of thumb I tend to advise budding entrepreneurs to focus on businesses that they actually know something about – by way of their prior work experience, or background, or specialist product knowledge, etc. From the businesses I have seen people starting up around me, I would say your chances of success are less than 20% if you know nothing about a particular product or market, and probably closer to 80% if you have worked in that sector, already have relationships with potential customers, and are familiar with your competition. If you have a great idea in a sector you know nothing about, then getting a job in that sector is a great way to start.

Defensible
Defensibility, or Barriers to Entry as the academics would call it, refers to how difficult or easy it is for others to copy what you are doing. Patenting or copyrighting an idea is an important consideration but don’t assume that just because an idea is patented it cannot be replicated or if an idea cannot be protected that others will definitely copy it. In any case I mention this criterion with lower priority than the others because a business lacking defensibility is not necessarily doomed to fail.

As you will see in later posts, how well and how quickly you execute your idea can play a much larger part towards its success and having imitators can even be a good thing. There are benefits to competition in terms of growing the size of a market that can outweigh the downsides of competing for business. For example, one of my own companies, écurie25 Supercar Clubs, is the global market leader for enthusiasts wishing to share the costs of owning a Ferrari but I actually wish we had more competitors because the sector would grow from the resulting greater awareness of such clubs. And I would rather have a smaller market share of a larger sector than a large share of a niche market.
Now that you have your idea in-hand and you’ve vetted it with the CARD Test, it is time to get started. In my next post, I’ll give you some tips for making sure you de-risk your venture as much as possible before you commit too much.