Daily Mail Interview 3rd January 2020
Is 2020 an ideal time to start a business, if so why?
The general election result has given business and the economy the certainty it desperately needed. The negative doom mongers will say it’s the first phase of years of prolonged negotiations; but I disagree. With a clear mandate and majority Boris now has the support to get us out within weeks; the remoaners have lost the argument, the limbo uncertainty ship has finally sailed and getting Brexit done was clearly a winning theme of the recent election however you voted.
Wont it be lovely in 2020 for Brexit not to dominate the headlines. Markets have priced in an orderly Brexit, businesses have had nearly four years to prepare and deal with any planning, and more importantly the UK can start to hold its head high In negotiations with the EU, and around the world again; finding our post Brexit USP as the most attractive country worldwide, worthy of global investment underpinned by our fine and respected UK Legal system.
We have been a laughingstock for too long, and should never forget we are the 5th largest economy in the world, 2nd biggest economy in Europe. The pound will hopefully continue to rebound in 2020. There are 2.2 million more businesses in 2018 than in 2000, an increase of 63% You are unlikely to find that stat available anywhere else in mainland Europe. They are bought up and mostly think very differently, and would be practically impossible to start a large commercial entrepreneurial enterprise in France for example, due to oppressive tax burdens, especially in regards to employing staff.
I recently looked into starting a new venture in France, I would have had to pay nearly 1,470 euros a month, (42% in employers contributions) to employ just one manager on 3,500 euros per month, before even factoring in onerous contracts, obligations and laws if things didnt work out for whatever reason. This despite Macron’s attempts to reform and make them more business friendly and competitive.
The UK has always been a pro business economy in favour of markets, enterprise, wealth creation, innovation and investment underpinned by go getters and Entrepreneurs. I spend alot of time in Europe; they hate our weather, but envy our Branson’s and Dyson’s that we have produced, loving that we get shit done ! If you are considering starting a business, we should always remember, we are incredibly lucky and fortunate to live in the UK. Embrace your geographical opportunity and advantage.
Consumers have been putting big-ticket decisions and changes such as homes, cars, jobs on hold for a couple of years now. Equally whether to start a business, however I believe and hope everyone now has Brexit fatigue. Feeling the pinch has trickled down from house builders, everyone has been affected. Houses in our developments have not been selling quickly, or at all on some sites in 2019, so obviously starting new build projects has been put on hold. Many contractors have felt the pinch. 12% increase in construction insolvencies, with construction companies making up 17% of all insolvencies. There is great optimism that 2020 things will move again, on the back of improved sentiment and confidence.
My view much like the infamous ‘millennium bug’ which was thought to be an apocalyptic event is that Brexit will be viewed as a ‘storm in a teacup’ with very little changing long term, and people will wonder what all the fuss was about leaving. And if it is so bad, there will be re-join parties touting for our vote at the next election, who can be elected on a mandate to re-join; whilst I think highly unlikely, but once again will be democratic will and the people’s choice.
There has never been so many bedroom Entrepreneurs whether it be starting out selling on E bay, Instagram influencers, youtubers or vloggers, the ways in which you can generate money has changed beyond recognition. Another reason I find this is exciting is that bedroom Entrepreneurs can scale their business, reinvest profits whilst having no overhead, gainful employment or studying and they have control over when to make the leap of faith, jump to the dark side sacrificing a salary and work on their project full time. The moment you can pay yourself a salary, is surely one of the most rewarding and fulfilling moment of any new business or Entrepreneur’s career.
Despite the excitement with sexy new tech start-ups, anyone looking to start their own business should focus on a scale up rather than a start-up initially. You get to learn about the mechanics of running and owning a business, with all the boring bits like paying taxes, managing a team, paying bills and credit control that keep you afloat. It maybe dull but give me a tired old business to turnaround that has been going 20 years any day, over an excitable teenager with just an idea and no clue or experience on how to run a trading business day to day. Add a start up element to an existing business, and you can rocket growth with the assistance of cashflow to do it. Your experience may even generate a more worthwhile problem that needs solving and idea for your next start up.
What are the things, in your view, that typically hold people back and how can they overcome them to start their business?
Make money young if you can, you naturally become risk adverse as you get older, and more so with the safety and security of a regular monthly salary coming in, not to mention the responsibility of other mouths to feed when you breed and / or get married. The less you know, the less you really do worry about when you are young ! In recessionary times, you may have to go home and tell your other half you can’t pay the mortgage this month. which would surely weigh heavily on any sane human. Business is tough and unforgiving. You need to understand if you are cut out for the highs and lows of working for yourself, and what you are prepared to sacrifice.
We have so much information beamed to us via so many different platforms, its frankly suffocating. To start a business you need to be single minded and blinkered to filter, be selective and mostly shut out all this information, whether it be negative news headlines flashed on your screen by 24 hour news networks needing to fill content about the economy or negative friends usually jealous about anyone striving to get off their arse and improve their life, with their own issues and not being supportive. Feeling we are not good enough to succeed on social media platforms like Instagram is common place or that we have missed the boat. There is no shortage of reasons not to raise you head above the parapet and go for it.
In the USA they embrace both those who succeed and those who try and fail, in the UK we have a tall poppy syndrome to cut down anyone who rises, and more pathetic is those who are smug at others failure. You will need strength of character to deal with this sad mentality. I always say, most people are spectators in life, and then there are the few who are battling on the pitch. Work out if you are a player on the pitch or happy and content watching from the stands or sofa.
Accepting our weaknesses is one of the most important things in managing a business, which is why partnering especially for your first business could be a great move. That comes with its challenges like ensuing you are getting into bed with the right partner financially, my advice is firstly make sure they don’t annoy you, they are laid back, mentally stable, chilled and their skills compliment yours. Spending 40+ hours a week with someone you want to murder or fall out with, will not only lose you money but make you crave the comfort of that £ 30 or 50k a year salary with very little risk!
Do you need lots of money to start a business or can it be done on a shoestring – if so how?
In the UK we love to do a home up, buying a run down property, putting our own stamp on it, spending time, investing money recognising there is usually a valuable asset at the end, and few of us have the inclination or drive to do the same to a business that is run down, perceiving or fearing its dead if struggling or stagnant. One of the best ways to make money and add value is to turnaround a struggling, tired or failing business, and this can be done on a very small scale to start with. I often say. ‘Businesses don’t fail, people do’, there are always human stories why businesses fail or don’t evolve.
For instance, If you discover your local café is struggling, owner wants out or to retire. Firstly dont stop asking questions of the seller, and listen, there is a reason we have two ears and one mouth. Use them in that order. Work out what the seller wants to achieve, get advice on the sales figures / numbers. If you are very clear on what you need to breakeven and turn a profit, prepared to put the hours in, always ask yourself. What’s the worst possible outcome ? Is my downside covered, or am I prepared to lose my initial investment. If your worst case won’t dramatically affect your life, then why not go for it if your downside is covered ? You really have very little to lose and everything to gain.
Remember to think from early on, what’s my exit plan. Most people consider starting a business, but very rarely the middle and end part. Businesses are sold off a multiple of blended profits plus net asset value, so you may have to accept that you will have to hold a struggling business for 2-3 year minimum to stabilise income and sell at a profit, or can it survive if you put in a managers salary.
Buying a business is more flexible than buying your house. If you buy 100% shares in a company, a buyer is usually going to pay a proportion up front and the remainder over 2-3 years in reliance of the warranties the seller will give to confirm the company is ‘as advertised’ and no nasties in the closet on their watch. As an example if a business makes £ 100k pa, you could safely pay 50k per year deferred consideration to the seller over 3 years ( 50% of annual profits is usually safe ) .
The reason for noting the difference between a property is, if you have a deposit or can borrow it from a lender, the business can potentially pay for itself effectively, depending on what deal you can negotiate. if a buyer would pay 3 x earnings max for a business that has consistently made £ 100k pa after all salaries.( £ 300k ) and had or borrowed £ 150k deposit, you’ve effectively bought a business making £ 100k for your initial £ 150k which could also be repaid in 3 years if you leave all the profits in, and replace the sellers salary with your own.
You talk a lot about the importance of getting a mentor – how can someone go about finding a mentor to help them out?
A great combination of finding a mentor, having your own business is looking for a retirement sale. You can often extract 30-40 years of experience and knowledge from someone, gaining a one to one mentor for free who wants to see their business legacy continue and their baby go to a good home, by agreeing a sale where the seller stays on for a year or two. You do need a clearly agreed and defined exit plan, as often very tempting for retirement sellers to not want to let go, especially if they see a young apprentice can run their business whilst they sit on the beach ! Often you can pay for retirement sales over 2-3 years also with little upfront investment; as they are more relaxed as remaining in control of the business, you can inject fresh ideas, such as tech input or your start up idea in that sector to an established business which often could give it a new lease of life. Only 4% of businesses make it to their 10th birthday. There is a reason they have lasted so long, and clearly doing something right.
Alternatively if just starting out, and appreciate its not an option for everyone financially but if you are bright, entrepreneurial and want to learn, approach companies you admire, and offer your services free or as cheap as you can afford to live, in exchange for working for them in different departments and learning. Bosses often recognise the sacrifice you have made, and in return for your grafting, this may lead to a full time job where you can climb the ladder and learn from someone who has made their mistakes, saving you years from doing the same.
What tips do you have for someone who’s currently a ‘one-man band’ but could benefit from hiring more people and scaling.
I think an initial understanding that employing 2 or 3 new people doesn’t mean you are going to make twice or three times more money, so come back to your bigger picture business plan, even if not written down. What’s your exit plan, what do you want to achieve and when. Many businesses are worthless as without the founder, there is no business, so if you do have aspirations to sell your company or do something different, then you need to work out a way to take yourself out of the equation, which many people, especially control freaks struggle with. When I go to buy a smaller business, we look at the profit multiplier then deduct the cost of a replacement management team, if there is not a strong second tier management team in place. If your business makes £ 50k pa but I need to pay someone £ 50k to replace you, your business is worthless ! Unless someone is willing to take it on for nothing, you will have to close it down when you retire or choose to do something else. This is a good reason to scale up as soon as you can. Look to find ways to make yourself redundant as quick as possible.
Remember hiring staff is an investment, and you shouldn’t expect an immediate return on that investment. You need to be able to service the cash burn of paying salaries whilst they find their feet and cover their salary. Sales jobs in particular, you not only have to factor the 3-6 months of not billing, you also have to factor the loss of your own billing and own income whilst training new team members.
Bad appointments can waste a year’s profits or work, plus more importantly make you doubt yourself and faith in humanity. With record employment of 40 years, I am happy there is no hierarchy in the workplace anymore. Despite being an employer now of 400 people + now, I often feel I am being interviewed when meet new talent, they are trusting their career or certainly the next 3- 5 years of their work life in your hands. Remember that the best talent has lots of choices, and think what you can offer them, not the other way around.