Steve Parks - on Entrepreneurship

Happy New Year!

Steve Parks — Wed, 31 Dec 2008 06:36:28 +0000

Wishing you all the best for 2009.

It'll be a challenging year for entrepreneurs - but remember that the best entrepreneurs spot the best opportunities and create the best businesses in even the worst of times.

While everyone else is running one way, you should run the other - make that your motto for the year! :)

That's what I'm doing. I'm travelling in Asia at the moment, so this message comes to you from a very warm Malacca in Malaysia, where I'm en-route to Kuala Lumpur to celebrate the new year. So far I've explored Thailand and Singapore. Next I'm off to Vietnam. The magic of the internet means I can still do enough of my work from here.

I recommend reading the inspiring book 'The Four Hour Work Week' by Tim Ferris to find out more. I made a few pledges to change my way of working and to travel more after reading it - and I'm now enacting those promises to myself. 2009 will be interesting!

The Mr Creosote Approach to Growing a Business

Steve Parks — Tue, 30 Dec 2008 14:10:44 +0000

As we round off the year I think it's good to take stock for a moment, and try to learn from all that has happened.

One big issue I think we should consider is the obsession we have with creating the biggest companies possible. This is a particular pressure on listed companies, PLCs, who are expected to turn in higher and higher turnover and profits every quarter.

The expectations of the city-boy institutional investors simply can't be met through organic growth of established companies - so in recent times our largest and most solid institions have been pushed into a constant stream of mergers and acquistions - creating the illusion of growth by simply bolting on turnover from other companies.

This has led to a whole list of problems - just look at the HSBC acquisitions in the US, the RBS acquistion of ABN Amro, and so on.

Different companies have different cultures, different IT systems, different processes, different target customers and much more - and yet they have to somehow integrate. Added to this is the City's expectation of cost savings after the acquistion - so a round of damaging redundancies and cutbacks follows.

The result is a short term boost to the figures - but a string of long term problems are stored up. A number of studies have shown that little long term value is delivered to shareholders by these transactions (and actually you often find that 5 years later there is pressure on a new CEO to split up the company again!).

But now we have seen that the problem is worse than this. It doesn't just affect the company and it's shareholders. If the companies get big enough it affects the population as a whole. No CEO can keep control on a company so big, no regulator can effectively monitor it, no political party dare challenge them. We saw it in the collapse of Enron, and now in the global econimic crisis we've seen one PLC after another uncover some uncomfortable truths.

So what do we do about this? It clearly doesn't work for companies to get so big, but we can't restrict growth can we? Should there be some kind of limit on M&A activity - but that removes lucrative exit routes for savvy entrepreneurs? Should there be taxes on M&A - funding better oversight and regulation?

One commentator floated the idea that when a company reaches a certain size the management team should all get medals and some kind of recognition, but then the company gets split up into smaller companies.

This is a very interesting idea - as it backs up lots of expert research that found teams are hard to manage beyond 50 people, and companies should divide teams up if they get bigger than this - so why not do it for companies as a whole? It also reflects the way nature manages growth.

But at the moment we have a Mr Creosote (see Monty Python) approach to growing big public companies. They sit at the table and their waiter (professional adviser) just keeps bringing them more and more to eat. Finally they are so full they are struggling to keep it all down - but the waiter insists they finish off with just a 'wafer thin mint' - and they explode, leaving a mess for us all to clean up.

As we all make our own New Year's resoultions to eat more healthily, let's demand the same from our PLCs.

The Reality for Entrepreneurs

Steve Parks — Thu, 11 Dec 2008 20:41:25 +0000

Ryan Carson has written a great blog post about his decision to make some of his staff redundant. He has a history of writing really open and honest blog posts about his company - which is a highly successful event company, behind some of the world's biggest web conferences.

But times are tough and he's been smart. He's cutting costs way back - swapping his company car for a bike, making staff redundant and more.

He also gives tips to staff everywhere about how to avoid being made redundant. Really solid advice.

The Police Are Standing By To Collect Your Debts

Steve Parks — Fri, 28 Nov 2008 19:49:01 +0000

Interesting.

As mentioned in the previous post I'm on the train home from london. The train staff found that one young lad didn't have a valid ticket, and didn't have any way of paying them 94 quid... so when we arrived at the next station the police were waiting and took him off the train.

So it seems that if a private business is having difficulty collecting payment from its customers, then the police are only too keen to help. Perhaps you'd like to give them a ring with your list of overdue invoices and see what response you get?!

Hopefully the guy who was sat behind me on the train (see previous post) will be able to draft them in to help him collect that 290k his company was owed by a major bank.

Or is it different when a small business isn't paid by a big business, to when a big business isn't paid by a poor black teenager?

Here Comes 2009 - The Year Of...?

Steve Parks — Fri, 28 Nov 2008 18:49:02 +0000

I'm on the train back from London and as my laptop battery is flat (and the train's onboard sockets aren't working) I have a rare opportunity to sit back and just think.

As with many people at the moment my mind is turning to the economy and in my case what it means for entrepreneurs. (Yet again i'm overhearing business mobile conversations about late payments from clients etc - 'how much is outstanding?' the bloke behind me has just asked his colleague on the phone)

So, putting my neck on the block, here's my forecast for 2009:

(disclaimer: I don't know anything, I have no expertise, I'm just guessing and giving my gut feel, and none of this is revolutionary)

1. There will be no upturn in the UK in 2009, I believe that will start slowly in 2010 and take build very slowly and cautiously from there.

2. America may start some recovery next year because of the Obama effect - if his luck/judgment/steadiness holds.

3. I believe there will be an unprecedented number of business startups in the second half of 2009 and throughout 2010. It will be this activity that leads us out of recession. The entrepreneurs can save the day.

4. I think China will begin to subtly increase it's political and economic influence - it is the largest creditor to the USA, holding over 10% of the US government's debt. It has huge reserves of dollars. America needs to keep China very happy, but doesn't like being in that position and may react badly. This will lead to increasing tensions and possibly some trade standoffs that could affect us all, or prolong the US recession, which would also affect us all.

5. China will use the situation in the next couple of years to make some significant corporate acquisitions. This will accelerate the fact that this is going to be their century.

6. Saving money will be the number one hotbutton for customers. If your marketing isn't yet geared around that, think how you can move that way. It will become a strange kind of cool to be the smartest at cutting back and boast about bargains.

7. Lots of small businesses will fold, those that survive will be forced to cut jobs.

8. In the long run small businesess will benefit from the reduced competition as their competitors fold, and their growth will restart the job market.

(interlude...apparently the company the bloke behind me works for is owed 290k by a bank he named, but I won't. Ouch!)

9. UK interest rates will reach 1.5%, and the banks will still hog most of the reduction, slowing the recovery with their greed (but ironically they would actually do better by passing it on and benefiting from the recovery)

10. There will be an awful lot of redundancies in the first quarter of 2009. If I had to make a guess i'd say 400,000 in that quarter. A lot of them will come from retailers that had a bad christmas. Most will come from financial services - especially once Lloyds completes its takeover of HBOS.

Anyone fancy escaping to a remote island for the next 5 years?

That said, I've mainly been setting out the bad stuff here - there are actually lots of good opportunities that will emerge, and you can still build a good business in this climate, it might just have to be quite different from the way it is now. I'll be talking more about that in other blog posts.

Three Wise Leaders

Steve Parks — Thu, 27 Nov 2008 23:49:02 +0000

I'm at the Intercontinental hotel on Park Lane in London for a dinner hosted by Allan Leighton, chairman of Royal Mail and Selfridges, and formerly chairman of Lastminute.com and CEO of ASDA.

Robert Peston of the BBC has spoken about the emerging economic crisis, and how he realised we were in trouble when he interviewed the head of a banking divison specialising in credit derivatives. t became clear as Robert tried to get him to explain these products in language a granny could understand that he himself didn'lt really understand them - or their risk profile. It all went downhill from there.

Then Allan Leighton, Sir Stuart Rose (CEO M&S), and Val Gooding (former CEO of BUPA, now on the boards of the BBC, Sainsbury's, and Standard Chartered bank) took to the stage. The discussion was chaired by Jon Snow of Channel 4 News.

It was a very interesting discussion, including the plight of Woolworths and the wider economy - but what became clear was that the essence of good leadership is even more important in bad times.

As Stuart Rose said: "People are looking for leadership, someone to give them a direction, a purpose - and if you stand up and give them that they, on the whole, will loyally follow you anywhere."

More Motivation for Mavericks in the Money Meltdown

Steve Parks — Tue, 25 Nov 2008 22:51:28 +0000

Paul Graham is the guy behind the brilliant YCombinator incubator for tech startups in the USA.

He's written a great essay on why entrepreneurs can still build their dream businesses in a recession. Here's an excerpt:

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.

When Microsoft and Apple were founded.

As those examples suggest, a recession may not be such a bad time to start a startup. I'm not claiming it's a particularly good time either. The truth is more boring: the state of the economy doesn't matter much either way.

If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it's rounding error compared to the founders.

Inspiration for Success in a Slump

Steve Parks — Tue, 25 Nov 2008 21:52:10 +0000

Here's the next in my continuing occaisional series on what it takes to survive and even thrive in a recession.

It's an article from Wired about how Tom Siebel built his eponymous software company off the back of the early 90's recession.

The tech veteran picked up some inexpensive, underworked software engineers, secured office space in run-down East Palo Alto—at 11 cents a square foot—and bought office equipment at auctions held by the companies failing all around him. His own desk was a folding table. By the time he had his first release ready in 1995, he had spent less than $1 million on overhead and had an offering that none of the other major software companies could challenge. Investors made Siebel's June 1996 IPO—debuting just as the stock market was picking up steam—one of the year's top performers. Tom Siebel soon became one of the richest people in the US. "It was a great way to start a company," he says.

He became a multi-multi-millionaire when he sold it and has had a couple of years of fun. But now he's decided that the time is ripe for another startup. He's rented office space and started recruiting. It'll be fascinating to see what he comes up with.

Pre-Budget Report Reaction

Steve Parks — Tue, 25 Nov 2008 20:53:40 +0000

Well I have to admit to being a little underwhelmed by the Pre-Budget Report (PBR) that the Chancellor unveiled yesterday. I think it'll have little effect to be honest.

Most of it had been leaked in advance of course (why bother with the actual announcement when you spin every single element so much in advance?) so there were no surprises. And unfortunately I think the economy needed some positive surprises. The VAT announcement would have had more impact if pulled like a rabbit from a hat rather than slowly built up in advance.

But leaving the style of the announcement aside let's look at the details announced, and there are a lot of small bits of good news, even if there isn't one big great thing:

Struggling businesses will be able to spread their VAT, corporation tax and NI contribution payments over a longer timetable. This extra leniancy will help - but they're still going to charge interest, it's just the penalty fees that will be waived. If you are having cash flow issues and would like to defer paying your tax, contact the Business Payment Support Line on 0845 302 1435
The rise in corporation tax for small firms from 21p to 22p - planned for April 2009 - will be deferred. This was a daft idea in the first place, especially when combined with a tax cut for larger firms. But note that they've only deferred it.
Tax repayment scheme for previously profitable businesses will be extended so up to £50,000 of losses can be offset against profits made over last three years. So if you have been making a £10k profit for the last 3 years, but have made a £30k loss this year, you can claim back the tax you paid - ideal to help your cashflow now. A good move to help small businesses that are fundamentally healthy but have been affected by the recession.
£3bn capital spending is to be brought forward from 2010/11. This is a good move, but is mainly focused on the construction sector that has been hit particularly hard.
A new 45% higher income tax rate is proposed for earnings above £150,000 from April 2011. I'll put my head above the parapet here and say I support this. There'll be a lot of carping about it, but I think it's fair and a model like this has worked well in Scandinavian countries. Plus I don't think it will impact entrepreneurs, who mainly take their rewards as dividends rather than salary - so genuinely get rewarded for the profits of their successful businesses. This'll mainly affect just the kind of people that caused this bloomin' financial crisis in the first place!
The threshold for the Bespoke Retail VAT Scheme has been increased. Retailers with a turnover over a given threshold are no longer allowed to use one of the five published schemes, and are required to enter into a Bespoke Retail Scheme with HMRC. The measure increases the threshold from £100 million to £130 million - saving mid-size retailers a lot of time and money negotiating a bespoke scheme.
The rules for the flat rate VAT scheme for low turnover businesses have been simplified. The flat rate scheme is a simplification for small businesses to account for VAT on a flat rate percentage based on a benchmark for their sector. There are currently two tests to determine whether a business may use the scheme. The measure removes a second test meaning that eligibility to join the scheme will solely be governed by the taxable turnover of the business - which must be below £150,000. This makes the scheme more accessible and easier to join for small businesses, and can save admin time and money.

Then there are some moves that I'm not sure about yet:

A £4bn deal has been agreed with the European Investment Bank to provide money to UK banks to pass onto small and medium-sized businesses. I have to admit to being cynical about the banks passing the benefit of this onto clients without pocketing most of the advantages themselves.
VAT to be cut from 17.5% to 15% from 1 December 2008 until 31 December 2009. As mentioned in my post responding to the leaks, I'm doubtful about this getting passed down the chain properly, doubtful about whether it will lead to more sales, and doubtful about the actual benefit to VAT registered busineses (especially lossmaking ones!). However it may help the small non VAT registered companies if the reduction is passed down the chain by their suppliers.

And then there's the bad news:

From April 2011 all rates of National Insurance contributions are to be increased by 0.5% for all employees and employers. This is very unwelcome. Of course there had to be some way to claw back what he's spending now, but I think this will just penalise companies that are hiring more staff - which is just what the economy needs (and will still need in 2011!)

So, overall it's mostly good stuff, but it lacks that wow factor that I think was needed to give the economy a boost.

What do you think? Will this PBR save the economy? Will it affect you and your business? Click the title of this blog post to be taken to the full page for this post where you can submit your comment.

Massive Sale: 2.5% off for the next 6 months or so!!

Steve Parks — Mon, 24 Nov 2008 07:50:21 +0000

Okay, be honest with yourself. If you saw that slogan: "MASSIVE SALE: 2.5% off for the next 6 months or so!", would you cross the road immediately to go and shop your heart out?

No. That's one of the reasons why I think the expected cut in VAT in today's Pre-Budget Report (PBR) won't have the effect that Mr Darling desires.

The others are:

1. Many businesses will just absorb some or all of it, rather than pass the benefit down the chain. Apart from general tight-fistedness, catalogues and price lists are already printed.

2. Those businesses that do play by the spirit of Mr Darling's discount will face a big cost in repricing their stock, updating websites, reprinting catalogues and price lists, updating accounts systems and so on.

3. And the irony is that Mr Darling has duped the CBI, IOD, FSB and Chambers - because for year's they've been complaining about VAT as just more red tape, an admin cost to their business, blah blah blah. And yet, secretly, they're well aware that it actually provides a cash flow boost to their businesses. When their customer pays them it includes a 17.5% tax. They hold onto this money for up to 3 months before they then have to pay it to HMRC - giving them extra cash in the business than they'd otherwise have. This will reduce that benefit for businesses. Unless, and this brings me back to point 1, they don't pass on the benefit.

So, don't look out for a miracle on the high street in the coming months - and hope for something else, something better, in the PBR today.