Finance for small businesses – problems

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Better financial support for hi-growth ventures In identifying finance issues faced by hi-growth young businesses, new research has set a number of targets for the British Business Bank, for which it faces immense difficulties.

 The government’s British Business Bank, established in 2014, is focused on smaller businesses, and its main remit is by working with and through private sector delivery partners to increase the supply of finance available in areas where markets do not work effectively.

It reports that over 10,000 smaller businesses are now benefitting from finance supported by the bank compared with a year ago, and from a wide range of sources, but with no specific focus on hi-growth businesses, where there are evidently significant problems.

The recent Scale-up Report, sponsored by Barclays and the work of the Judge Institute in Cambridge and the Said Business School in Oxford has identified six major needs for smaller businesses with hi-growth potential:

*         increasing the number of large VC funds

*         growing the number of experienced investors with sector experience and         international networks

*         developing a venture debt market

*         establishing the LSE as the leading stock market for scale-ups

*        developing new approaches for creating liquidity in private company shares, and

*         collecting systematic data about financing scale-ups.

Many of these fall into the lap of the Bank.

Its CEO feels that London is now well supplied and the bank has recently started to focus on the less well supplied areas of the country such as the ‘Northern Powerhouse’. It is currently aiming to set up funds there for which it is seeking tenders for fund managers, who will bring with them their own local ecosystems of supporters (on the lines typically found in Cambridge.)

Secondly it has sought to bring together under a single head the dozen or so sources of financial information that growing businesses need (in a publication entitled the Business Finance Guide).

And it is now giving growing attention to the complementary need for mentors/advisers to give specific help and advice on finance to early-stage ventures. At present experienced finance mentors for hi-growth businesses are not easily found. The source booklet, just published, is very different to good advice being on tap just when it is needed; small businesses have neither time nor inclination for research.

The bank already seeks to ensure that its startup loans are also accompanied by the appointment of mentors (as it does loans made by the Angel Co-investment Fund – which it funded.) It is seeking to do this on a national basis and in an enduring way – with organisations like the UK Business Angels Association and the Institute of Chartered Accountants.

It has a challenging task in that while its aim is to enhance the more entrepreneurial part of the economy, it seeks to do so through other organisations, and through a number of them.

In working with small businesses the bank also faces a disconnect: it exhibits all the trappings of a major financial institution, while its direct links with small business are tenuous.

The Barclays Scale-up Report has identified some very specific targets for the British Business Bank. They depend very much on the influence it can bring to bear. As a brand new organisation, it has a mountainous challenge.

John Whatmore, July 2016

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Hi-growth ventures need close support

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Hi-growth ventures need close support

Backers, investors and partners are essential supporters for these businesses, says the Barclays Scale-up Report – and experienced new-business leaders, says another.

The Barclays Scale-up Report, just published, has focused on paths to success for early-stage hi-growth businesses. So what support will help them most to achieve successful growth?

A recent report conducted by Deloitte Denmark and Board Network – The Danish Professional Directors Association, called “Radical Innovation and Growth: Global Board Survey 2016 ” opens up concerns about the current boardroom and its great difficulty with managing more radical innovation.

It suggests that there is a need for greater insight into the area of innovative initiatives, grappling with organisational design, dealing with risk and failure, and for sheer experience in working in the huge discomfort zone driven by accelerating technology.

The Barclays Report portrays the problems of scaling up in terms of a series of challenges that businesses need to recognise and handle at the right moment – as they start up, take off, and accelerate into sustained growth, in particular:

  • aiming high – ambition
  • building a strong team
  • establishing partnerships
  • putting effective management systems into place
  • identifying core competences, and
  • articulating competitive strengths and new market opportunities.

While there may seem little new in these challenges, several of the recommendations emphasise the role of stakeholders in supporting scale-ups; and the research illustrates the importance of two factors: the timeliness and firmness with which the relevant issues are tackled; and the value of support in doing so.

The Report refers repeatedly to the functions of the Board, and implies a need for board members who are both involved and active, and for a board that meets frequently, with an eye more on the future than the past.

It underlines the importance of frequent and regular reviews of directions, resources and progress, including ‘strategic activities and partners’. (Telefonica’s Wayra Lab mandates a ‘board’ meeting once a month, as do many companies).

The Barclays Report emphasises the importance of including in this process backers, investors and partners (and the Deloitte Report would add: experienced new- business leaders) to bring to bear a range of perspectives on the issues under discussion – especially as regards technology and competition.

And a focus at board meetings on the future helps to underline the importance of ambition, progress, opportunity and the evolution of the business, but also on the imminence of change.

John Whatmore, May 2016

 

A board agenda (based on the recommendations in the Scale-up Report)

  • Are our current targets and plans based on ambitions that are high enough.
  • What do we now need to do to position the skills and abilities of our team for achieving the growth that we envisage.
  • Do we need to change our partners and suppliers so that they accord more closely with our strategic objectives.
  • Are we satisfied with the level of and plans for the standardisation of our systems and processes.
  • Have we identified and can we articulate our core competences – the unique knowledge that underlies our capability to compete.
  • Are our competitive strengths in the eyes of our customers related to our processes and knowledge; and are they the foundation of our strategy.