Time for a UK Sovereign Fund in new technologies

Investments going up

People have been talking about setting up a UK Sovereign Fund for years. However, there is still relatively little clamour to support this initiative and make it real.

Of course this is an old idea. Norway set up its Sovereign Wealth Fund back in 1969, with the aim of managing Norway’s oil resources over the long-term. Over the last ten years, the fund has delivered a return of 8.3%, or 36.5% in real terms after annual management charges and inflation. Source Forbes.

Much more recently in 2006, Australia set up a Future Fund which is performing well and is investing in a number of different areas including disability care, medical research and nation building.

The UK could very easily start a Sovereign Wealth Fund and it would be applauded by the majority of people in the country as long as its core principles were right and it was totally apolitical. It’s time we did. We are a small but highly inventive people. We shall become an increasingly small part of the future world and yet there is no reason for our creativity, originality and inspiration not to be captured, supported and indeed amplified through such a fund

We should set up our own “Future technology Fund”. It should invest in technologies that benefit large numbers of the future population. This should include the following:

  • Health
  • Energy
  • Agriculture, landscape and environment
  • Housing

Some of the amazing break throughs that are happening in health technology should be supported and ultimately be part of this Fund. There is too much incredible work that originates here in the UK but that is allowed to be commercialised elsewhere in the world. We need to ensure that the Fund can provide a commercially owned structure which ensures that value goes into future generations living in the UK.

The Fund should be controlled on the basis that no funds can be withdrawn for 10 years minimum and then only a maximum of 2.5% of the value of the fund in any one government as long as the total fund is still always higher than previously. It should be independently managed and separately monitored.

We should incentivise entrepreneurs to bequeath their companies and the assets of these companies to the state. We should do this by providing them with entrepreneurial tax relief on their output as long as at least 25% of the assets ultimately end up in the Fund. This would continue to build on the “innovation and entrepreneur friendly” tax structure that now exists in the UK and which is much envied across Europe.

We desperately need to rethink how we fund our future. This would be an important first step in that direction.

Why entrepreneurs should stop underestimating the importance of “people” in their startup

Most research on why startups fail highlights a variety of reasons other than people ones.

CB insights did some research on start-up post mortems which was summarised in this Fortune article. It suggested that the 2 biggest issues were “insufficient market need” and “cash problems”. The team came 3rd.

A different study by Quartz media found that “people” was only just in the top 10 reasons why startups fail!! Here is their list:

  1. the business model wasn’t viable
  2. ran out of cash
  3. not enough traction
  4. lacked financing
  5. technical / product issues
  6. no market need
  7. outcompeted
  8. customer development issues
  9. lack of focus
  10. disharmony on team / investors

I could share with you numerous other articles where the team / leadership and people issues were consistently not at the top of the list. And yet the No 1 determinant of success in start-ups is people. It’s what VC’s say and experienced entrepreneurs know, but it is consistently underestimated by everyone including VC’s. People and people problems kill more businesses than poor products or business models.

Here are 10 reasons why people matter more than anything else in a startup

  1. If the founding team don’t have a shared vision you won’t end up with a good product. You will have a lack of focus and that will slow down or break your business.
  2. If the founders and employees don’t share values, you won’t be fighting for the same things. If everyone is fighting for different things, you will be going too slowly to survive.
  3. If you don’t agree on who the boss is, then you won’t agree on what to do. Either someone has to leave or someone has to accept that they aren’t the leader.
  4. If you don’t ruthlessly get rid of mediocre people and people who don’t share the vision and values, your team will fall apart and your culture will wither and die.
  5. If you don’t deal with people issues, then they fester and cause conflict and that wastes time.
  6. If you don’t put much time into hiring and nurturing people, then they won’t nurture your company.
  7. If you don’t learn to delegate effectively then you won’t and can’t scale.
  8. If the founding team don’t prepare for conflict between each other, than they will run into a wall later, as it always happens.
  9. If the company doesn’t have clear and open communication channels, then it will struggle to scale.
  10. If the company can’t survive without a founder, then the people issues never got solved!

If you don’t care about the people, your startup won’t last

Why don’t Corporates value entrepreneurs?

Corporates talk about wanting to be innovative, agile and entrepreneurial. They use the latest start-up jargon. They run incubators, accelerators and competitions for entrepreneurs, but in the end they don’t value entrepreneurs. They want their reflected glory. but hate the idea of employing them.

Why is that?

Corporate leaders always claim that entrepreneurs don’t fit in. They don’t want a boss. They don’t want to worth within the constraints of a big company. It all moves too slowly for them. They will get frustrated.

But is their argument based on fact or just their own assumptions?

After all in today’s world, many entrepreneurs are highly flexible and adept at working with different types of people. And entrepreneurs always have a boss. This could be an investor, the bank, the Chairman or even their critical customers.

Earlier in 2016 I was at an London Business School event, where the Chairman of Diageo, Franz Hamer, was being interviewed. He said that Corporates needed to become more entrepreneurial, but when i asked him, why then, Corporates didn’t hire entrepreneurs, he was unable to give a convincing answer. He said that they don’t fit in. They want to be elsewhere. But he also admitted that they didn’t actually hire entrepreneurs, so it was an unsubstantiated assumption.

If Corporates really want to innovate, they need to use the classic innovation technique of breaking assumptions. They need to challenge themselves to think differently about who they hire and how to create an environment where entrepreneurs are welcome.

Why?

There are 3 reasons why the Corporate could benefit from a change of heart:

  1. Organic growth is often the best way to drive long-term shareholder value. Corporates know this and run innovation pipelines to deliver these. But they use the same employees to do this. Even the supposed “Intrapreneurs” are generally standard Corporate employees. They often lack the brutal and necessary pragmatism, energy and lateral thinking of the entrepreneur. If Corporates want better percentages for their innovation, they have to change the people they use to drive their growth.
  2. Start-ups within Corporates and small and medium sized acquisitions by Corporates tend not to add the value that they were supposed to or merely allow the value to dissipate externally. Unless Corporates are prepared to parallel track younger businesses with entrepreneurs, over a longer period of time, they will miss out on this classic route to value creation.
  3. Corporates spend a fortune on hiring expensive external consultants to solve problems that entrepreneurs could solve for them at a fraction of the cost.

Corporates need to re-examine their outdated assumptions about entrepreneurs.

Why are entrepreneurs failing to disrupt the Professional Services industries?

There is continuous disruption in almost every industry today. So it’s amazing that the professions (lawyers, accountants, auditors, architects etc.) have escaped so unscathed.

Ok so every week we hear about attempts to disrupt one or other professional service. And yes the names on the top of the doors have changed around a bit, yes it’s much more competitive, and yes there have been some tweaks to the operating model, but relatively speaking they march on relentlessly, without any worries. Certainly for most customers, whether consumers, small businesses or Corporates, little has improved.

So what has changed?
The legal industry has seen some important changes, even if most of the effects haven’t been felt widely. These include the following:

1.      The legal industry has deregulated. By 2014, 3 years after this event, there were over 300 applications for Alternative Business structures to run legal services, Including Saga, DLG and PWC.

2.      There are new companies trying out different business models like Riverview Law, which offers a fixed-rate contract, rather than billing by the hour. Riverview Law charges clients an annual fee for all their legal needs up to the point of litigation.

3.      Technology is being used to reduce costs whether this be legal templates like Rocket lawyer, Epoq, or simply-docs or paid Q&A like Just Answer or online compliance checking like Cerico set up by Pinsent Masons. But legal comparison services remain in their infancy and the consumer has yet to engage fully

4.      Private equity has moved in to try to aggregate high street firms into consumer brands like Quality Solicitors.

The truth is that in spite of all of this activity, for most individuals or businesses outside of Legal Aid, access to legal services remains remarkably expensive. Even fairly average solicitors demand a minimum day rate of £1600. It is far easier to get a high quality engineer for less money than a relatively junior solicitor. Frankly it’s a scandal that entrepreneurs haven’t had a greater impact on the professional services. And I can say this as an entrepreneur who raised external investment to disrupt the legal industry, but hasn’t cracked it yet.

Why is this?

Well the main topics of discussion in the legal industry are whether the Partnership structure should survive and whether law firm profitability should be calculated before partner costs as they are currently or whether they should be treated as a cost of sales as in a traditional P&L. This was a core part of the discussion at the Business Leadership Summit organised by The Lawyer in London in September 2015. This is as good as it gets!

The conversation isn’t about what the customer wants and why trust in the profession is in rapid decline. The Legal Services Consumer Panel and YouGov found that only 42% of consumers trust lawyers to tell the truth in 2014, down from 47% in 2011. The decline is mirrored in other professions, the research acknowledges. Lawyers remain more trusted than accountants, bankers and estate agents, but less trusted than teachers and doctors. This is an industry unlike many others, that continues to get away with ignoring the voice of the customer.

In Management consulting, some things have changed in a similar way. There is pressure to reduce costs, there is much more competition and some of the names on the doors are different, but the core principles wouldn’t look out of place in 1980.  So what has changed?

1.      The classic strategy consulting giants have all moved downstream into more executional or implementation work. For example in 2007 Mckinsey launched Mckinsey solutions. This was based on software and technology-based analytics and tools rather than the traditional human capital business model.

2.      As Clayton Christiansen stated in Harvard Business Review in 2013; “the share of work that is classic strategy is now about 20%—down from 60% to 70% some 30 years ago.”

3.      There are more agile competitors like Eden McCallum and Business Talent Group

But in some ways there has been more consolidation and less choice amongst the big consulting groups. The old “Big 8” has been reduced to the Big 4 including PWC, Deloitte, EY and KPMG. This means that an increasing number of companies are having to use these giants for services from audit, assurance, tax, consulting, advisory, actuarial, and corporate finance to legal services.

Fundamentally it remains extremely hard to buy any form of consulting that is based on value generated or results achieved. The industry remains stuck on outdated day rates and continuous selling cycles that actually reduce value for clients.

 

What hasn’t changed?
In spite of all the razzmatazz, the key principles are undisturbed:

  • Most professional services remain as partnerships
  • Most believe that the day rate model should not be changed and have no intention of changing
  • A majority of lawyers and accountants believe that they should charge for every minute from the time they pick up the phone to a customer.
  • There is no sense of customer service.
  • Many of these professional services are so bound up with the establishment that they believe it is their divine right to be paid a high salary. This is particularly true of organisations like the Law Society.

 

Why hasn’t more changed?
Professional services are critical to the success of the UK economy, representing 15% of UK GDP, 14% of employment and 14% of exports source PWC. So it is no surprise and indeed in many ways a good thing, that it is highly respected and that much effort is expended in defending all aspects of the sector. Since 1979 Nuffield election studies show that no less than one in ten MPs from the three main parties have been barristers or solicitors. So although legal services only account for 1.7% of the UK GDP, it has considerable support at the heart of government. This ensures that the industry is well protected.

In the same way that business people used to say “you don’t get fired for choosing IBM”, you now don’t get criticised for selecting Clifford Chance, PWC, Spencer Stuart or McKinsey. And no Non-Executive Director will argue with you on that. This in turn creates a guaranteed market for the traditional professional service firms and little impetus to innovate more than is required.

The Professional services continue to claim that every argument, every problem, is different and requires an unique answer. The reality is that this is no longer true, if it ever was. Technology, outsourcing and business model change can transform the way that challenges are met and answers are given.

 

What should change?
As You Gov polled in 2014, “British people want fewer lawyers and more doctors, scientists and factory workers in Parliament. The professional services are over-represented in all aspects of government. And in spite of the well intentioned deregulation in legal services and other area of professional services, the end customer has not reaped any rewards yet, either in better service or lower costs.

The professional services will only change fundamentally when the following principles are ripped apart:

  • A dependence on hourly and daily rates. This should be replaced by value-based pricing
  • A belief that partnership structures benefit the customer. Firms should become proper corporate structures with standard financial accounting.
  • Traditional Corporate dependence on the big audit firms. This should be opened up to the wider market.
  • An unpreparedness to be judged on results.

The artificially high costs of most professional services keep them out of reach for most SME’s and consumers. This remains an incredible business opportunity for an entrepreneur. In addition very few professional services firms understand the power of the brand to engage the customer and disrupt an industry. It’s only a matter of time before someone builds a professional services brand that rapidly gains trust and takes market share, by improving the service it provides and changing the business model that drives it. Let’s hope that more entrepreneurs take up the challenge

 

The Uber of something…

In the last week, three different people have pitched me the line, “we are going to be the Uber of x,y or z..”

In each case they have waited expectantly for me to respond enthusiastically about their elevator pitch.

I don’t want to be a killjoy, but please spare me this “boil in a bag” entrepreneurship. As someone who has made their fair share of elevator pitches, I do really understand the need for clarity and brevity. I recognise how powerful an analogy from another market sector can be, particularly when it is a multi-billion dollar success story. But if everyone is using the same unicorn references to bolster their own story then it becomes meaningless.

The problem is that the media is feeding everyone the hype that one can become a billionaire overnight by reading the right textbooks and going to the right “tech meet ups” and saying the right things, but the reality is that this happens to a tiny percentage of people. For the rest there is no shortcut. As an entrepreneur or any business person today, you have to work harder than ever to create an individual story for your brand. The story needs to be authentic and passionate, a beacon of light for customers who have the problem or the need that you are solving.

I know personally how difficult it is to find, synthesize and articulate that simple powerful story. I have done it for some businesses but not every time. Equally i know how valuable it is when you get it right. And that is never the result of short-handing or plagiarising other brands’s stories.

So let’s avoid being the “AirBNB of a,b or c”!

flock, crowd