Business Angel Blog

A friend of mine recently asked me for some career advice. I gave him some advice, which in my usual self congratulatory way, I thought was pretty good! I asked if I could write a blog on it – he agreed – so here it is!

If you are a recent graduate or have been working for less than five years and have found yourself without a job – the reality is, it will be tough out there for you. The allure of the city and a career in finance is still very strong – so what could you be doing for a role?

The first thing to do is to take a snapshot of the environment we are in and recognize the huge shifts that are taking place in the global economy. There are lots of people out there will skills and experience who may be better placed to take the few vacancies that do exist out there. In my opinion, if you are still on the starting out phase of your career, there may be better uses on your times than trying to get an entry level role.

You need to think ahead in terms of what the areas for growth are or what skills will be required for the area you have selected as your career three or four years from now.

If you look at the way emerging markets are performing and broad trends are going, I would say that the strong areas for growth are Brazil, China (despite the recent wobble) and India. From a sector point of view, the alternative energy sector will definitely be a rapidly growing sector in the future.

Finally, those of us in the west, have to recognize that in this global market, we are now competing with graduates from around the world. Graduates from India in particular (because of their English) represent the competition for skilled jobs.

So, where does all this analysis get?

1. Look at doing an MBA. It is a great qualification and it will help you develop your commercial skills and add value to any company you work for.
2. An MBA will also make you more rounded if you do want to start up your own business
3. Learn a language. There is something inherently lazy with the attitude that because we speak English – we do not need to learn another language. It is true that if you are fluent in English, you can get by commercially around the world. However, speaking another language gives you a huge advantage when working in a different country. In my opinion, from a business point of view, the languages to learn are

i. Portuguese (because of Brazil)
ii. Arabic (growing area of importance and one language can span many countries)
iii. Spanish (spoken in most of South America and Mexico – great growth potential)
iv. Italian – not for any commercial reasons but it is simply a great language!

4. Ideally, you could do an MBA in a foreign country and learn the language at the same time!
5. Start learning about future growth areas such as Green Energy, Online networking (have a look at how Obama used the internet to galvanise his campaign)
6. Think about linking your current work with another unrelated area. I do believe that innovation in the future will come about through linking apparently unrelated areas.

Most of all – pursue something you enjoy. The internet is the ultimate means of empowerment. Pursue your dreams – and the internet will find you the market for your fulfillment.

There is no point pretending anymore. It is really tough out there. The tell tale sign was that the TV adverts are all about what you can buy with just one pound (Bird’s Eye) and how to rustle up great meals from left overs. [Incidentally, did you know that the person who invented the technology behind frozen food was called Bird’s-Eye? I don’t know if he was a captain though.]

You can be as optimistic as you want, but the economy is not in a good way right now. The chairman of my Fund management business, Howard Flight, who knows a thing or two about banking crises and the effect on the general economy, has said that any new business which does not already have revenues can forget about getting funding from business angels.

To my enormous disappointment, many of the businesses I have invested in have really struggled and some have not survived. However, people with money do face a dilemma; what do they do with their money?

Interest rates are very low at the moment. Savers are typically getting just two to three percent return on their deposits. At those rates, it makes sense for investors to seek a better return from other sources. On an anecdotal basis, what I have noticed is an increase in the amount of companies obtaining funds from angels but as loan finance rather than straightforward equity.

The Fund Management business I am involved in actually makes loans available to distressed businesses. Because of the timing of when we are asked to make loans available, we are usually able to get very good terms from the business.

So, I think the paradox of low interests rates may be to make investing in companies via loan instruments more attractive. Certainly, I realize that investors still have an appetite for investing in companies, but they are now more concerned about managing their downside rather than only seeking an upside.

Companies looking to raise funds will have to be more creative about how they raise funds. Over the next few weeks, I will be writing about how these instruments typically work and how companies may structure these deals. I hope this is useful.

Related articles

• Angels are Slowing Down (killerblog.com)
• Does Stockmarket Crash = Startup Crash? (medirected.com)

Most of the world has recently moved from taxing income and wealth to taxing consumption and expenditure. Last week, the UK government temporarily (for the next 18 months) decided to bring the rate down from 17.5% to 15%. Many critics have attacked the move as not being bold enough and wanted direct tax cuts (on income) instead. I feel this criticism misses the point and in this business angel blog I want to defend the action taken by the UK treasury.

VAT (Value added tax) is a tax which countries within the European have to apply on a range of products. The standard band is between15% to 25%. Your standard VAT rate cannot go below or higher than those limits.

So, the most the UK government could do is reduce the VAT rate down to 15%. This point has been sorely missed from many of the commentators criticizing the move.

A point I have made in my previous blogs is that what we really need to see is consumers spending again. During a recession or any period of economic uncertainty, the savings ratio tends to rise. In the UK and the US, the ratio has recently been as low as 2% to 3% (By contrast in Germany it has been around the 10% mark). If consumers were given direct tax cuts, the likelihood is that they will use this extra cash to pay off debt. Again, as I mentioned in a previous blog, whilst that may be good for an individual (managing my debt down is certainly my priority for next year!), for the economy it is a bad thing.

Therefore the only thing the government can do is cut the main tax on expenditure which will result immediately and directly in lower prices. That is what they have done.

The flip side to this is though that of course it brings down inflation. That is an undesirable side effect. To play devils advocate for a bit, what if rather than reducing VAT the government announced that it was going to increase it to 20% from the 1st of March 2009?

I would have thought that this would not only help balance the government books, which look simply awful (Government debt will be 57% of GDP – up from around 40%) and it might actually induce people to spend a lot ahead of the VAT increase. Assuming people are rational, if you know that prices will be going up in a couple of months, you will no doubt try to save money by bringing forward your planned purchases. This is the exact opposite to where I fear we are heading which is the built in expectation of lower prices.

As I have argued over many blogs in the past, what we really need in the UK is a good dose of inflation!

Given the massive turmoil in the markets over the last few weeks (and days), I have been amazed at how many people have recently asked me what if any, impact the event of the last few weeks will have on entrepreneurs. Here is my humble opinion.

One of the options I studied when I was reading Economics at the University of Leeds was The British Economy in the 1930s. At the time, it simply felt like one of the easiest subjects to read, but I remember some lessons from that course which is sharply relevant to today’s economic circumstances.

The 1930s started with a bang after the Wall Street Crash of 1929. The world was thrown into economic chaos and this gave birth to the scourge of Fascism and Nazism across Europe. What was interesting about Britain in the 1930s was how there were two economies in operation; the real economy and the financial economy. The real economy actually performed very well during the 1930s and we are at the moment witnessing what I would call a decoupling of the real and financial economy again.

I am bullish about the future. I believe that this current crisis has been more severe and quicker than any of us could have anticipated. However, unlike other economic downturns in the past, I think that we will come out of this one quickly and robustly. This is a great time to start a business, but you have to be careful (as always).

The price of oil has come down sharply in the last two months from $147 a barrel to around $92. The Olympics are over and Chinese factories are producing output at full capacity again. House Prices around the world are coming down sharply and as a result people feel ‘poorer’ and less inclined to spend money on discretionary items. These three factors combined will have a big deflationary effect, which will mean that Central Banks around the world will soon be able to cut interest rates. This will help businesses and consumers alike and I think will help get the economy moving again.

There is also ample evidence that people are spending money on well placed products. Retailers such as Greggs (a mass-market fresh bakery chain) and Thorntons (a middle-market chocolate retailer) are doing very well at the moment. Surprisingly, holiday bookings in the UK are also doing very well at the moment, especially holidays which cost more than £800 ($1500). So the lesson here is that if you have a differentiated offering, you will get the consumers. Know your market and speak to them clearly.

Now is a great time to start a business if you are realistic and start small. If you look at any business cycle, most of the great businesses to emerge have always started when the conditions appear to be adverse! In tomorrow’s  business angel blog, I will give some tips on managing a business through the current turmoil.

 

 

 

 

I was having a coffee last week with one of my former managers at PwC and I reflected on why he was one of the best managers I had ever had. It came down to clarity.

These days it seems everything is being averaged. We are reluctant to say that a piece of work or a person’s skill set (we can’t call it ability) is not up to standard. I am a defender of political correctness (see in defence of political correctness) but this to me has nothing to do with the issue of respect. It is disrespectful to allow someone to carry on in a role with no knowledge of how they are doing. This lack of clarity is stifling for members of a team.

In the gulags during the Stalin era, the soviets used to break the spirit of their prisoners by making them dig a hole in the snow in the mornings and then fill it back up after a 5 minute lunch. They had worked out that nothing destroyed the soul quicker than being asked to break your back on work that was meaningless.

People often obtain their identity from work. One of the first questions we ask strangers is what they do for a living. You need to feel pretty good about your work to answer that question positively.

Many managers though fail in their duty to provide a sense of direction to staff that report to them. I am a big admirer of Gordon Ramsey. (He is a celebrity chef famous for his aggressive style in the kitchen and his demand for exacting standards as well as foul language). This may surprise you but why I see from his style of management is that his team is never under any doubt as to what is expected of them.

The manager I had at PwC was the same. He was seen as tough but you always knew exactly where you stood with him. He set clear targets which you knew you either had to meet or tell him why they could not be met (and hope that he accepted that). When he said “good job” to you it actually meant something. You knew that you had earned it.

The quantity theory of money holds that if there is too much money in an economy, you will get inflation. Money simply fails to hold its value if there is too much of it. I have the same belief about praise. You do get managers who get trapped in a praise inflation cycle. Because everyone in their team is great, when someone really does do very well, the praise that is heaped upon them becomes meaningless. These managers are responsible for creating a new industry called the ‘employee recognition industry’. If each manager did their job properly this industry would not need to exist.

What I like to do is manage people using just one overriding principle; clarity. Are members of your team clear about what is expected of them and why it is important? Are they aware of what will happen to the team if their role is not performed well? (if the answer is nothing – why are they being asked to do the job?) And avoid saying well done to people who I assume are adults simply for doing the job they are paid to do. Leave the praise to when they have done something noteworthy.

Well done for reading this!

Please indulge me and allow me to write about a subject which is simply fascinating me at the moment; The US election. I will try (and probably fail!) to make a connection with business angel blog.

I am a massive fan of the USA. I recognize that George W Bush does not represent the entire nation. My own experience of having traveled and worked in that country is that the people are amongst the most generous and warm people on earth. (Statistically, they give a lot more to charity per head than we Britons do). Just as Jeremy Kyle (horrible little sh*t that he is) does not represent England, Jerry Springer (very funny man that he is) does not represent the USA.

I think an Obama victory would be brilliant for the USA and for that nation’s standing with other countries but may I add a few words of caution as we are getting terribly excited on this side of the pond

1)     I read a very funny Blog in the US which basically said it would be a disaster for the US to elect a black president. The blog urges us to look at what has happened in the past when they elected a black president. Under President Palmer (24!) California suffered a nuclear attack. When Morgan Freeman was President in Deep Impact most of the world was destroyed by a giant comet. And in the Fifth Element – a Black President led us to the point of being subsumed by an evil alien.

2)     On a point related to Business Angel Blog, Obama is an old fashioned protectionist who is not fully behind NAFTA and who worries about the consequences of Globalisation.

3)     If he does win the election, non Americans will be in for a huge disappointment. We have built him up to somehow be our Presidential candidate. He will, quite rightly, be only concerned with what is in the best interests of the United States.

The second point does worry me. I am torn between personal feelings (I really want him to win!) and recognizing what is best for the UK. With the world economy slowing down, the US is under pressure to protect its own domestic industries by erecting trade barriers and tariffs. (As disgracefully George W Bush did with Steel).

My point here is that we have to always be careful what we wish for!

When I was at Leeds University (yes please note there is nothing between the word Leeds and the word University) I ran for the post of Financial Affairs Secretary which was a sabbatical post. I won the election and ran the commercial activities of the Student Union (brilliant experience) for a year. But the best bit of the year was meeting the University Bursar. He was a gentleman called Ray Head. At our first meeting he gave me some of the best advice ever.

“To be successful in life you have to be very ambitious and you have to be lazy”

The first bit made sense but I struggled with the second bit. He never did fully explain what he meant. Since I have started working, I have realised the significance of being lazy. What Ray meant was that you have to learn to achieve results through other people. Otherwise known as delegating!

It is so true. I have seen really hardworking people not get much done – whereas I have seen people who are focused get more done by using charm and respect to get others to achieve great things for them. They recognise that there is only so much they can do themselves. The worst possible combination is hard workers who are perfectionists as well – forget it!

The 3 R’s

In Economics we are taught about the importance of the 3 E’s; [tag]Efficiency[/tag],[tag]Economy[/tag] and [tag]Effectiveness[/tag]. The three of them are given equal status and much focus is being efficient and economical. If you are running a business – my advice is to just focus on one of them – [tag]being Effective[/tag]. Being Effective is about making sure you are doing the right thing.

To illustrate the point, we can all think of many times where we have spent ages doing stuff really brilliantly and on the cheap or we are quick to get something done urgently. We therefore demonstrate that we are economical and efficient. But we realise afterwards that we did not need to do the work – hence we were not effective at all. To be effective you need to step back from a situation or a project and say “Is this important?” Or “what am I trying to achieve?” Next time you see an episode of The Apprentice, look at the team leaders and ask yourself ‘are they being effective?’ I have yet to see a team leader ask themselves “what is this task really about?” Sir Alan does test different skill sets in each task – not just sales, but it is very rare that the teams find out what is being tested.

To sum this entry up, as a very good friend of mine – [tag]Rami Ranger MBE [/tag]says

“The problem with common sense is that it is not that common”

Enjoy being effective.

(thanks to http://packphour.wordpress.com/2007/12/08/common-sense/ for image)