VAT Chance

I wrote for The Spectator’s Coffee House blog this week on why Michael Gove’s plans to scrap VAT and bring in a US-style Sales Tax should be reject.

At first glance, a US-style sales tax is much simpler. The tax is only charged at the final point of sale. In theory, only the final consumer should pay and resellers are exempt. It is easy to see why the Environment Secretary might think swapping a VAT for a retail sales tax would reduce the burden on business.

But in practice, retail sales taxes aren’t so simple. Businesses have to pay the tax unless they can prove the item was bought to sell on to a customer. But resale exemptions are often limited; it’s not always clear whether someone is a consumer (and therefore should pay the tax), or a business (and therefore shouldn’t pay the tax). If a reseller is wrongly identified as a consumer, then the tax can build up over multiple stages of production. The final consumer ends up paying way more than they were meant to.

Rather than reducing the bureaucratic burden on small businesses, this would give bigger businesses, who have brought their suppliers in-house, an unfair advantage.

Read the whole thing.

In Principle

This week the Government announced some tweaks to way tech will be regulated.

As I've argued in the past, over half of businesses think the level of regulation in the UK is an obstacle to success; however, it’s not just a matter of cutting. There are tradeoffs – regulation doesn’t just protect consumers and the environment, at it’s best, it also helps promote competition and support economic growth.

To help guide entrepreneurs in emerging technologies, we should embed the Innovation Principle across government with regulators across all relevant industries creating break-out zones where entrepreneurs can test new technologies. The Financial Conduct Authority’s Sandbox is an exemplar of this. It’s a safe space in which fintech companies can innovate by testing products, services, business models and delivery mechanisms in a live environment, while ensuring that consumers are appropriately protected. 

Business Secretary Greg Clark has announced a new Regulatory Horizons Council to advise government on rules and regulations that may need to evolve and adapt to keep pace with technology. Also, a Regulation Navigator will be created – a new digital interface to help businesses ease their way through the regulatory landscape and bring their ideas to market quickly.

In addition, Clark announced a partnership with the World Economic Forum to share best practice on getting innovative products and services to market, and a review of the Regulators’ Pioneer Fund, which backs projects that are testing new technology in partnership with the regulators in a safe but innovative environment.

We aren't just a think tank for tech entrepreneurs, but it's impossible to ignore the importance of this sector. In fact, it's increasingly awkward describing tech as a 'sector', as it becomes is critical to the way nearly all businesses deliver their products and services. To an increasing extent: every business is a tech business.

Read the whole e-bulletin here, and sign up here.

A Thousand Fathers

Although every policy has a thousand fathers (and mothers), it's always heartening when ideas we've pushed are backed by politicians.

Back in 2015 we released Made in the UK with the NUS, revealing that 42 per cent of international students intended to start a business after graduation. However, in order to do this, international graduates wanted time to work in start-ups, building their ideas and networks. Instead, many of the best and brightest in the world are turfed out. That's why we made the case for reintroducing the Post-Study Work Visa, which prior to 2012 granted international students time the time they needed after graduating.

The Post-Study Work Visa was scrapped by Theresa May when she was Home Secretary. Today, Sajid Javid – the Home Office's Secretary of State and contender to be the next Prime Minister – has promised to support Jo Johnson's cross-party visa proposals, which includes the reintroduction of the Post-Study Work Visa.

Javid has also vowed to broaden the apprenticeship levy into a wider skills levy, giving employers the flexibility they need to train their workforce. Again, this is something that we called for in our recent Management Matters report – part of our ABE-sponsored Business Stay-Up campaign.

Meanwhile, fellow leadership hopeful Sam Gyimah announced some encouraging tax policies today. As part of a five-point plan to scrap the worst taxes in Britain, Gyimah has called for a couple of things we've proposed. He would replace business rates with a commercial land tax – paid by commercial landlords on the land value so that no business is worse off if it invests in its property. He also plans to make all business investments deductible immediately, by making the Annual Investment Allowance unlimited. We suggested both these things in our report on Tax Reform for the All-Party Parliamentary Group for Entrepreneurship.

No matter who becomes Prime Minister, many of the policies announced by the candidates over the coming days (both good and bad) will feed into the next Government's agenda. Today's announcements offer room for hope.
 
On your bike
The Resolution Foundation has released some important research. Moving Matters finds that the rate at which the British public take up a new opportunity and change residence has fallen – particularly for younger people. Among other things, the report finds the propensity of young private renters to move home and job fell by two-thirds between 1997 and 2018, largely driven by increased rental costs. This should concern us all. Individuals can't make the most of their talents if they're priced out of cities, and entrepreneurship is stymied if the pool of talent isn't deep for founders to build their companies.

Read the whole e-bulletin here, and sign up here.

Culture is King

According to the latest YouGov survey, the Lib Dems would win a General Election if it was held tomorrow. The Brexit Party are a close second. This lends more weight to the idea that politics is undergoing a realignment away from the familiar left/right divide – something I've written about previously.

In the UK, that dividing line is dominated by Brexit. As Professor Chris Grey writes on interpreting the UK's European Election results: "A few days before the elections Jeremy Corbyn tweeted that “the real divide in our country is not between those who voted Leave and Remain three years ago”. That is a profound misreading: it is precisely the divide. To ignore it is as mistaken as the claim from May (when calling the 2017 General Election) that the country was coming together about Brexit, even if politicians were not."

The divide goes beyond Brexit though. The way you voted in the Referendum is highly predictive of your views on things like the environment, immigration and feminism. Forget class warfare – we're now in a culture war.

Come What May 
So far there are twelve candidates to replace Theresa May. A few have a business background – all are vying to position themselves as the pro-business candidate. Here's a snapshot of what we know so far:

– Jeremy Hunt has vowed to cut Corporation Tax to Irish Levels (12.5%).
– Raise EIS relief to 50% and let entrepreneurs in accelerators like Entrepreneur First access maintenance loans, says Dominic Raab.
– Tory Leadership candidate Matt Hancock doesn’t beat around the bush: ”To the people who say ‘f**k business’, I say ‘f**k, f**k business”.
– Leadership longshot Kit Malthouse says: “We must revolutionise our economy, freeing a new generation of entrepreneurs to take risks and build businesses, creating jobs and wealth.”

Grand Idea
As part of nationwide efforts to drive up small business productivity, our friends at Enterprise Nation are delivering free training to small businesses in Birmingham, London, Oxford and Lancashire. Heads Up is worth £1,000 and will be delivered at no cost to the business owner. The focus will be on accounting and finance, sales and marketing, collaboration, and time management. Find out more here.

At The Entrepreneurs Network we're broadly supportive of these sorts interventions as there is plenty of evidence of they work (and Heads Up will help provide more data on what works). This is detailed in our Management Matters report, which is part of our ongoing Business Stay-Up campaign we run with ABE. 

Think of the Children
Today our friends at the Coalition for a Digital Economy (Coadec) have sent a public letter with Allied for Startups to the Information Commissioner Elizabeth Denham. Coadec thinks the ICO’s proposed Age Appropriate Design Code poses a direct threat to the startup ecosystem in the UK.

"What started as a well-meaning attempt to treat children’s data more carefully has instead resulted in proposals that could cause age-verification to be enforced for vast swathes of the internet, lead to a huge increase in data collection, and create an internet for kids designed by tech giants." Find out more here.

Read the whole e-bulletin here, and sign up here.

In praise of a “contrarian book that ought not to be contrarian at all”.

I’m in today’s Daily Telegraph recommending Tyler Cowen’s new book, a contrarian defence of Big Business, to Conservative MPs who’ve recently taken a more negative line towards business.

Here’s a snippet:

Another common criticism of business leaders is that, unlike politicians and journalists, they are myopically focused on the short term. Yet, this criticism doesn’t stack up. Loss-making tech companies can attract billion dollar valuations. Take Twitter: it wasn’t profitable until 2018, 12 years after it was founded. Is there any better evidence against the short-termism hypothesis than Amazon’s stratospheric share price despite regularly reporting losses or (relatively) low profits?

I’m more sympathetic to the charge of crony capitalism. Some businesses do gain unfair advantages by lobbying for regulations that smaller firms can’t bear. We should be sceptical of Facebook’s recent support for greater regulation of social media for that exact reason. Yet, business seems to have had little sway over legislation in recent years. Take the issue of immigration: business groups have consistently argued against Theresa May’s decision to cap high-skilled migration from outside the EU.

There are cases of blatant cronyism, but it’s not clear that it’s as widespread as some ministers suggest. The most harmful regulations tend to be those demanded by the general public and opposed by big business. The absurd rules preventing 8 new flats being built at the end of my road were not written in response to special pleading from FTSE 100 companies.

Read the full article here.

Philip Salter on Sajid Javid's asking the MAC to review the £30,000 minimum salary threshold

“Savid Javid’s decision to ask the Migration Advisory Committee’s (MAC) to reconsider a £30,000 minimum salary threshold for EU migrants is welcome news for Britain’s ambitious business owners.

A hard cap of £30,000 would stymie Britain’s start-ups, damaging entrepreneurship in the UK. Lower, differentiated thresholds based on location or age would make ending free movement with the EU less harmful for British businesses.

Many start-ups rely on foreign-born workers with specific skills necessary to grow the business. Start-ups often have limited funds so offer employees a lower salary in exchange for equity and the opportunity of being an early employee in a potential scale-up.

Access to the best people for the job helps companies scale, leading to more employment of native workers and better products and services for us all. Everyone's a winner.”

Raise a Glass

new report from Tech Nation shows that despite recent political turmoil, the UK’s tech sector still punches above its weight.

Based on the relative size of our economy, last year’s scale-up tech investment was 2.5 times higher than would be expected. We can rightly brand ourselves a ‘tech nation’, having created 35 per cent of tech unicorns – that is $1bn+ valued businesses – across Europe and Israel. Britain's fintech firms lead the world. It's our number one sub-sector, with high-growth fintech firms receiving around £4.5bn in investment between 2015 and 2018.

From time to time, founders, companies and even nations should take time to reflect on the positives. For the tech sector, that time is now. But not for too long though. For anyone who prefer their glasses overflowing, check out my thoughts in CapX on how we can do even better (tl;dr we need more international talent, less Nimbyism and better infrastructure). 

Pinocchi-omics

Cutting off one's nose to spite the face doesn't come highly recommended. In related news, Tesco's boss has called for the introduction of an online tax to "save" the high street. Our Research Director Sam Dumitru debated the issue in City AM:

"The high street is undergoing massive changes. Adapting to creative destruction is always painful, but the solution isn’t to tax new industries to subsidise the old ones.

"Policymakers should instead focus on eliminating the barriers faced by businesses adapting to the changing retail environment. It should, for instance, be easier to get planning permission to turn failing shops into cafes or restaurants.

"Online sellers shouldn’t be punished for responding to changing consumer demand by offering goods at a lower price in a more convenient manner. E-commerce platforms such as Amazon have lowered barriers to entry and enabled small and micro-businesses to cater to every obscure taste out there.

"Worst of all, the reforms will do little to help struggling bricks and mortar retailers. The evidence suggests that commercial landlords respond to cuts by raising rents, leaving shopkeepers no better off. The only retailers that will benefit are those which own large property portfolios like, er, Tesco."

We appreciate there is an issue with multinational companies paying less tax less in the UK through creative accountancy than some traditional businesses. But the Tesco CEO’s proposal wouldn’t do anything to solve this (admittedly tricky) problem.

One nifty idea that has potential is moving to a destination-base for corporation tax: it is far harder to obscure where something is bought than where it is made. Martin Wolf has a useful explainer article in the FT.

The 78%

It's Mental Health Awareness Week. Mental health is an issue pertinent to many entrepreneurs and something that the Officers of the APPG for Entrepreneurship have asked us to investigate.

Christina Richardson – founder of 3sixty – recently found that 78% of founders say that running a business has negatively impacted their mental health. And one of our Advisers – Guy Tolhurst, founder of Intelligent Partners – has taken it upon himself to drive awareness around the issues of mental health and entrepreneurship (read more about his story here and check out some of his videos to hear from other entrepreneurs talking about their mental health challenges).

Read the whole thing here, sign up here and join us here.

What the Spring Statement means for entrepreneurs and the tech industry

Given the Spring Statement has – since its introduction by the Chancellor in 2018 – been a fiscal non-event to make it easier for businesses to manage changes, this year's was always going to be a damp squib. But compared to the enormity of the Brexit, today’s announcements are largely insignificant. Nevertheless, they are relevant to entrepreneurs and the tech sector, and the Statement was a welcome distraction from the daily humiliation of watching our politicians try to leave the European Union.

There was some good news. Tax receipts from Income and Corporation Tax were higher than expected, helping reduce the deficit. But economic growth remains weak. Chancellor Philip Hammond expects business investment to start growing again from next year, although all the forecasts are based on May’s deal passing – which is looking increasingly unlikely.

Wages are increasing at their fastest pace in over a decade, outstripping inflation. But The Government remains concerned about low wages, and has appointed Professor Arindajit Dube to undertake a review of the latest international evidence on minimum wages to inform future National Living Wage policy after 2020. This could ultimately impact any employers of low-wage employees and increase demand for technology to replace their tasks.

It’s widely acknowledged that apprenticeships aren’t working as intended. That’s why the government is reducing the percentage that employers will need to pay towards training from 10% to 5% and increasing the amount that levy-paying firms can pass on to their supply chain from 10% to 25%. This is a step in the right direction, but as we called for in our Business Stay-Up report, this should be increased to 50% as many businesses can’t find relevant training courses for their business needs.

The Chancellor has called for a CMA Market Review of digital advertising. This follows the release today of the Furman Review on competition rules for the digital age. It calls for closer examination of acquisitions by large tech companies, more data portability between social networks, and a new digital markets regulator to work with industry to develop a code of conduct for big digital platforms. This is all sensible stuff, with Furman’s report prioritising competition and consumers without resorting to potentially destructive suggestions such as breaking up tech firms or regulating them like utilities.

Hammond did manage to sneak in a couple of relatively minor funding announcements, including committing to fund the Joint European Torus (JET) programme in Oxfordshire as a wholly UK asset if the European Commission doesn't renew the contract. JET’s raison d'etre is to pave the way for nuclear fusion grid energy. There’s also £81m in Extreme Photonics (state-of-the-art laser technology) at the UK’s cutting-edge facility in Oxfordshire, £79m for a national supercomputer in Edinburgh, five times quicker than the UK’s current capabilities, and £45m for Bioinformatics research in Cambridge.

Research institutes and innovating businesses will benefit from an exemption for PhD-level occupations from the cap on high-skilled visas, and overseas research activity will now count as residence in the UK when applying for settlement. As such, researchers will no longer be penalised for research time spent overseas. Alongside scrapping landing cards and allowing some foreign nationals to use e-gates, the Government clearly wants to show that we are open for business. All this can’t and won’t offset the talent we will lose from ending free movement with the EU though – assuming, that is, we actually leave the EU.

Business is all the better for owners not having to keep up with the machinations of 650 politicians in Westminster. That’s why Hammond downgraded the Spring Statement three years ago. In these exceptional times politics will have an undue influence, with sharp changes in access to talent, tariffs and investment directly and indirectly impacting every business in the country. This statement isn’t enough to put a spring in anyone’s step, but Hammond can’t work miracles.

The Rose Review of Female Entrepreneurship

Good morning and thank you all for joining us at the launch of the Rose Review into female entrepreneurship. I’m Annabel Denham, I work at The Entrepreneurs Network, a think tank for entrepreneurs. We bridge the gap between entrepreneurs and politicians, and try to change policy to make it more favourable Britain’s start-ups and scale-ups.

In my role there, I do a lot of writing and research around female entrepreneurship and women in leadership more broadly, and as a result am thrilled to have been invited here to this great city and speak in front of not only a very distinguished panel but also an audience filled with inspirational female founders. 

The launch couldn’t have come at a more apt time, for today is International Women’s Day. For those of you who don’t know, this day has been marked for around 100 years now, though many would lament that it has yet to achieve its original goal of equality for women around the world.

Here in Britain, we have come leaps and bounds since the Sex Disqualification (Removal) Act of 1919. It is not uncommon for women today to have careers after children. The gender pay gap is narrowing. Women represent over half the workforce in many spheres – from medicine to marketing.

But one area that hasn’t kept up with the pace of change is entrepreneurship. The Rose Review has highlighted some alarming statistics: that just a third of businesses are run by women, that companies with male teams are five times more like to reach 1m turnover and will attract around 90% of VC investment.

To many of you here, this will sound all too familiar. Perhaps you’ve gone along to an investment meeting and not only been the sole woman at that meeting, you’ve been the first female entrepreneur that the investment committee has ever come across. Perhaps you’ve struggled to access networks because you don’t play golf or use the men’s room. Perhaps being told to lean-in sounds good, but goes against your gut instincts.

The Rose Review is important for three reasons. First, it is a joint report between the private sector and government, and draws on first-hand experiences from entrepreneurs across the nation. Second, it offers tangible recommendations not just to policymakers but also schools, the investment sphere and other private sector actors. These calls to action do more than pay lip service. Third, while it brings to light some worrying statistics, it is also hugely inspirational.

Policy change doesn’t happen overnight, and societal changes take far longer. But thanks to reports like the Rose Review raising awareness, and with countless women up and down the country already running exciting, fast-growth businesses and inspiring the next generation of girls, we’re well on the way.

Annabel Denham’s opening remarks at the launch of The Rose Review of Female Entrepreneurship.

Blurred Lines

Why are MPs quitting the two main parties? The immediate causes are obvious: Brexit and anti-Semitism. But the formation of The Independent Group (TIG)may be part of something much more significant: the realignment of modern politics.

As historian Stephen Davies has been saying for years (but perhaps most succinctly here), changing interests, sentiments and power are leading to a new alignment. Currently the split in most developed countries is between social democrats and free market conservatives (or the US equivalent of liberals and conservatives) – in other words, the crude but important pro-market/anti-socialism vs. anti-market/pro-government divide between the Conservatives and Labour. According to Davies, the new alignment is between "globalism and cosmopolitanism on the one hand and nationalism and ethnic or cultural particularism on the other". 

A common criticism of TIG is that they don't agree on enough and haven't set out a clear set of policies. This might be missing the point – and not only because they aren't (yet) a Party. They don't need to agree on everything. Over the years, the Conservative Party, for example, has coalesced around issues such as economic liberalism, a strong national defence and a conservative social order. There are no strong logical reasons why people in favour of free markets and the defence of traditional family values should necessarily be in the same party (in some countries they aren't).

For as long as the primary dividing lines matter to them, party supporters' views align with others in their camp through herd effects, or they live with the tensions – perhaps most acutely in the numerous privately gay Conservative MPs speaking and voting publicly against legislation supporting LGBT rights (before the Party changed tack on these issues).

If Davies is correct, the new polarity will be between what is often awkwardly termed “openness” and “closedness”. The Labour and Conservative Parties may survive and change their views to become the parties of these movements, though they're both increasingly vying for the closedness side of the realignment. Hence TIG.

So which side should entrepreneurs be on? The Entrepreneurs Network doesn't back political horses, but we know that entrepreneurship flourishes when goods, capital and people are freest. When the dust settles, whoever most represents openness will be the political party for Britain's entrepreneurs.

You can read full e-bulletin here, and sign up here.

Britain Needs Talent

This week we're doing something a little different. Whenever we speak with entrepreneurs, one of the main issues impacting their ability to grow their business is access to talent. That's why we are surveying entrepreneurs on their approach to recruitment, which will feed into our policy work and a Barclays report on the project.

If you're an entrepreneur, it would be great if you could take 5 minutes to complete this survey. If you're not an entrepreneur, we would be immensely grateful if you could forward this on to any entrepreneurs who might be keen to support our work.

All responses will be anonymised, and we're offering a year's free membership to The Entrepreneurs Network to anyone who responds.

The key benefits of membership are:

  • priority invitations to our popular events

  • monthly Policy Updates which explain how changes to legislation will impact your business, and how your business can benefit from schemes designed to support entrepreneurs

  • occasional press opportunities from journalists to help promote you, your expertise and your business.

In the News

Welcome to my entrepreneurs’ playground

The sooner you go home the better” 2 Vice-Chancellor’s ask is this the UK's message to international students?

Early stage funding for UK startups drops 15pc to four year low

Women can break mould of venture capitalists

Venture capitalists lose out by ignoring female entrepreneurs

The businesses demanding the 'free' from freelancers

Women need to be less 'squeamish' about making money, Liz Truss says

£700k boost for university entrepreneurship competitions

How Tink raised capital from banks but kept its independence

Friends of the network

British Library: Innovating for Growth: Scale-ups

Register your interest by Thursday 14 March, Free

Innovating for Growth is a European Regional Development Fund programme designed to help small businesses scale-up and grow. 18 high-growth businesses are selected each three months to give £10,000 worth of specialist support and tailored one-to-one advice on areas including: developing a growth strategy, refining your business model, product and service innovation, creating a market strategy and building your brand, maximising your Intellectual Property, business and market intelligence and more.

Find out more

IESE Business School: Valuable Lessons from an Overlooked Asset Class

12 February 2019, 7pm to 9pm, Nomura International, London

IESE Business School professor Jan Simon will provide insight into the world of search funds and deliver valuable lessons on entrepreneurial acquisitions (acquisitions by entrepreneurial managers), including sourcing, acquiring and growing a company.

Find out more

Supper Club: How to be a Top Communicator

14 February 2019, 9am-1pm, The Office Group, 2 Stephen Street, London, £195 Non-members

This session is designed to give you a detailed awareness of the importance of your personal impact and the way you communicate to those you wish to influence.

Find out more

IoD Lancashire: Diversity in the Boardroom

21 February 2019; 8.30am to 11.30am, Free

Burnley College, Themis, Burnley

This event will explore why it is essential to encourage diversity in the business environment.

Find out more

The Journey: Recruitment

The Entrepreneurs Network is a think tank for the ambitious owners of Britain’s fastest growing businesses and aspirational entrepreneurs. We are also the Secretariat of the prestigious All Party Parliamentary Group (APPG) for Entrepreneurship, which sits across the House of Commons and House of Lords.

The Entrepreneurs Network also supports the ambitions of our fast-growing network of 10,000+ members, through practical projects like The Leap, Business Stay-Up and Female Founders Forum.

Respondents will be given a year’s free Membership. The key benefits of membership are:

  • Priority invitations to our popular events;

  • Monthly Policy Updates which explain how changes to legislation will impact your business, and how your business can benefit from schemes designed to support entrepreneurs;

  • Press opportunities from journalists to help promote you, your expertise and your business.

Create your own user feedback survey

Management Matters

The following is an edited version of a speech I gave at the launch of our new report Management Matters in the House of Commons on Wednesday 23rd January. To read the report, click here.

Thanks to everyone for coming. Thanks in particular to Dr Lisa Cameron MP for hosting us, to Rob May and everyone at the Association for Business Executives for helping making this possible, and for the Minister for Small Business for a great speech.

Now, before we jump into the key findings and recommendations of the report, I think it’s worth thinking about why we should and shouldn’t care about business failure.

We shouldn’t want to save every business. Creative Destruction is key to economic progress. Shielding firms from competition traps labour and capital in unproductive firms limiting the ability of new entrepreneurs to create wealth and raise living standards.

There’s interesting paradox too. Failure rates are highest in the best places to start a business. It shouldn’t really be a surprise. In places like London or Silicon Valley, investors are willing to take risks and back companies that have a high chance of failure (provided the pay-off from success is good enough).

It’s also true that we shouldn’t write-off entrepreneurs who fail. There are many great businesses founded by entrepreneurs whose first venture failed.

Still that doesn’t mean failure is good or something to be celebrated. As Paypal founder Peter Thiel once said “Failure is massively overrated”.

It can sap ambition and while it is a learning experience, it’s highly possible you might not learn the right lesson. Businesses rarely fail for a single reason.

That’s why we’re campaigning to prevent unnecessary business failure. While some business ideas are simply bad, there are many cases where an entrepreneur isn’t equipped with the right experience and training to take a good idea further.

It’s the idea behind many of our reality TV guilty pleasures from Ramsay’s Kitchen Nightmares to Troubleshooter.

The report we’re launching today takes that idea and looks at the hard evidence on management.

First, good management isn’t some fluffy vague concept. It’s something that we can measure and something that explains why some businesses are more productive than others.

The World Management Survey finds whether or not firms consistently monitor and improve their processes, set and revise targets, and incentivise employees through merit-based hiring, firing and promotion procedures explains almost a third of the differences in productivity between and within countries.

Furthermore, one study finds that innovations in management like Taylor’s Scientific Management and Six Sigma Manufacturing have as big an impact on economic growth as the technological innovations we rightly celebrate.

Second, the UK is behind when it comes to management. German, Japanese, and American firms score higher on the World Management Survey.

Screenshot 2019-01-25 at 13.23.07.png

The problem isn’t with Rolls Royce, GSK or, I originally put Dyson here but perhaps I need a better example given current news. It’s our long-tail of underperforming SMEs.

Screenshot 2019-01-25 at 13.28.17.png

Third, not enough British firms are engaging with adult education and management and leadership training.

We’re behind 17 OECD nations when it comes to business owners engaging with adult education. While under a third of SMEs offer training for their managers.

That’s despite the fact that management and business training programmes like Goldman Sachs’ 10,000 Small Businesses have delivered impressive results boosting revenue growth and productivity.

So what should we do?

First, we need to know what works. The Government should sponsor randomised controlled trials of the most promising interventions. They should consider setting up a What Works Centre for management capability.

Second, We should remove the barriers preventing people from funding their own training. Employer-funded work-related training is tax-deductible, but if a self-employed graphic designer wanted to expand her skill set by taking a digital marketing course, she wouldn’t benefit from a similar tax break. She should. And in 21 out of 30 OECD countries she would.

Third, we need to reform the apprenticeship levy to give levy payers more freedom to use their funds to support the management capability of firms in their supply chain. There are management apprenticeships available but there needs to be more flexibility to allow levy funds to be spent on cheaper or shorter courses.

Finally, entrepreneurs are most likely to trust information from other entrepreneurs. Evidence from China found that when business owners in different industries were required to meet up and share their experiences they adopted better management practices. In the long-run, creating an environment where organically grown peer-to-peer networks can flourish could be key to upgrading our management capability.

Most entrepreneurs will never get visited by a TV crew and a celebrity troubleshooter, but enabling them to get the management training they need might be the next best thing.

Is Silicon Valley merely “reinventing the wheel”?

In the Guardian, Amelia Tait asks “Why do we keep praising Silicon Valley for reinventing the wheel?” This was sparked by a recent New York Times profile on Lambda School, a coding school that doesn’t charge tuition fees upfront and instead charges graduates proportionally based on their salary. Tait’s objection can be summarised as: “That’s the English tuition fee system. You’ve invented the English tuition fee system.” She’s not the only one to make this observation.

Lambda School isn’t her only example. She also objects to Lyft Shuttle: “For a small fee, passengers share a single car that follows a predesignated route — instead of being picked up and dropped off at their chosen location, they must walk to or from one of the determined stops. It’s convenient! It’s affordable! It’s a bus.”

Her objection to Lyft is stronger. It’s not just unoriginal, it’s also classist (“online, people have praised Lyft Shuttle for allowing them to get around without sitting next to common riff-raff”), and it hurts poorer people by undermining investment in public transport.

Somewhat ironically, Tait’s article about how Silicon Valley is reheating old ideas is itself not particularly original. It’s a common complaint on Twitter.

Back in 2017, Gizmodo posted a list of “Silicon Valley’s Dumbest ‘Inventions”. Lyft’s ‘bus’ featured, as did bizarrely Uber Elevate (which was dismissed as just helicopters).

So is Silicon Valley just reinventing the wheel? I don’t think so.

I think the ‘That’s X. You’ve invented X’ crowd make two big mistakes.

First, taking ideas that work relatively well but have some shortcomings and using technology, or even better incentive structures, to correct those shortcomings is a fundamentally good thing. Uber is a good example. It’s very easy to dismiss the idea as “Taxis. You’ve invented taxis”. But, Uber uses technology to solve a number of problems with the existing minicab and taxi markets. Take surge pricing, it solves a problem known by economists as ‘the Wild Goose Chase’. When demand spikes, it means there aren’t enough idle drivers and cars must be sent on trips to pick up distant customers. The longer drivers have to spend picking up customers, the less they earn. As a result some drivers choose to stay at home making the problem even worse. Surge pricing solves that problem by bringing more drivers online at periods of high demand.

Lyft Shuttle is innovative for similar reasons. Buses in San Francisco are overcrowded on commuter routes at peak time but it’d be expensive to buy new buses and hire new drivers just to meet demand at peak times. Lyft Shuttle doesn’t require drivers to purchase new vehicles. As a result they can meet demand at peak times without purchasing assets that would sit idle 95% of the time. And as Byrne Hobart points out in an article that touches on similar themes Lyft Shuttle is almost certainly safer than riding the bus in San Francisco.

Second, they ignore the importance of funding. Public services, while in many cases necessary, face a number of unique problems. Their funding is set through a political process. As a result, they lack the same pressure to find savings and efficiencies than businesses. Arguably, a bigger problem is that they’re constrained from taking risks. In the private sector, firms who find new markets or launch radically different services are rewarded with profits for their entrepreneurial initiative. There’s no corresponding reward for innovation and risk-taking in the public sector.

Lambda School is a good example. The comparison between Lambda’s income share agreements and the UK’s system of contingent student loans isn’t far-fetched. They’re based on relatively similar principles — the idea that human capital investments should be funded through equity not debt because the investment is risky and lenders can’t claw back the investment if a student defaults on their loan.

But there are big differences too. The UK’s universities get paid the same whether or not the student gets a good job at the end. Well-run universities who produce highly employable graduates effectively subsidise underperforming universities who produce graduates incapable of paying back their loans. But even with this cross-subsidy, the system still requires significant taxpayer subsidy with 83% of graduates forecast to have some debt written off. Worse still, universities in the UK are incentivised to expand courses that don’t cost much to run, even if they don’t expect the loan to be repaid.

Lambda School is different. If Lambda School graduates don’t get well-paying jobs then Lambda School doesn’t get paid. There’s no cross-subsidy between institutions or government guarantee to rely on. As a result Lambda School’s incentives are closely aligned with its students. They are forced to only offer courses that promise a real return on investment for students.

Why then do journalists frequently attack the efforts and inventions of entrepreneurs as unoriginal? It might simply be the case they fail to see why an idea is innovative and useful. Possibly, but I think there’s something else at play. There’s been a shift in cultural power from the media and politics to business and tech. If Silicon Valley isn’t actually as innovative as they claim to be, then pointing this out is a way of reclaiming some of that lost status.

I suspect this is the real motivation when people jump to criticise Silicon Valley’s ‘inventions’.

A Hard Place

"If I was told I would be stewing grass to feed my family in five years time if we left the EU, I would still do it." Thus spoke Simon Heffer in the pro-Brexit film: Brexit the Movie.

Luckily for Heffer's children (and us), it won't come to that. No matter how bad things get, comparisons with wars and depressions are overblown. That doesn't mean entrepreneurs should be blasé about a no-deal Brexit though – quite the opposite.

No-deal will mean tariffs, as the UK would be treated like any other third-party country. Even those backing a no-deal Brexit acknowledge there will be some negative economic impacts. After all, it's hard to rebut the world's leading economists, who all agree that tariffs are harmful (see herehere & here).

When it comes to trade, the EU is particularly important to us because it's on our doorstep. The gravity model of international trade – which is that that bilateral trade between two countries is proportional to size, measured by GDP, and inversely proportional to the geographic distance between them (in plain English, we tend to trade with people that are physically close to us) – shows why putting barriers between you and your closest neighbour is a bad thing.

You don't need to be an economist to get this though. Just check out the advice the Department of Business, Energy and Industrial Strategy (BEIS) has asked me to share with you. (This isn't 'project fear', it's 'project stuff you really need to know if you trade with or in the EU'). Business Element is part of its EU Exit Public Information Campaign and it's not light bedtime reading:

Some or all of this might not impact your business directly. But few of us are immune from the fallout of a no-deal scenario. Businesses in your supply chain doing slightly worse will be bad for your business. Some might think there's a niche reason that their business will benefit, and they might be right. An export-focused company that sells only to non-EU countries may well benefit from the recent fall in the pound. These are the exception; not the rule.

According to betting markets, a no-deal Brexit is still not likely, but well worth businesses scenario planning for. Whatever happens, we won't be eating grass. But that's hardly a ringing endorsement.

Uncanny Valley?
Our Research Director Sam Dumitriu analyses the growing tension between journalists and Silicon Valley in his latest Medium article. He sides with the entrepreneurs: "Why then do journalists frequently attack the efforts and inventions of entrepreneurs as unoriginal? It might simply be the case they fail to see why an idea is innovative and useful. Possibly, but I think there’s something else at play. There’s been a shift in cultural power from the media and politics to business and tech. If Silicon Valley isn’t actually as innovative as they claim to be, then pointing this out is a way of reclaiming some of that lost status."

Post Brexit
From Monday,EU citizens will be able to apply for status under the EU Settlement Scheme.However, you'll need an Android phone or tablet if you want to scan your identity document – otherwise you'll have to send it by post. It's all veryLean Startup. Hopefully the minimum viable product is a little more viablethan was during its trial.

News and Views
 

Why high street planning policies need reform

On the impact of the EIS seven-year rule

How thousands of foreign students – including entrepreneurs – were failed by the Home Office (£ FT)

Our research on the equity funding gap is cited in Boss magazine

Working into your 70s or 80s needn't be a bad thing

In the US there is a big debate about raising top tax rates to 70% – here's what the experts think... and Bloomberg View has a debate on it

Tech whizz Birdie aiming to revolutionise care for the elderly

The Indian entrepreneur who brought the curry house to Britain

David Warsh on David Autor on Automation

App connected salt-dispensers!  (£ FT)

new study on the effect of digital technology use and adolescent well-being finds the association “between digital technology use and adolescent well-being is negative but small, explaining at most 0.4% of the variation in well-being. Taking the broader context of the data into account suggests that these effects are too small to warrant policy change”

File under important: Declining labor force growth explains declining dynamism in US

Vanguard founder Jack Bogle has died – he made millions of Americans richer by offering them a free lunch

Tyler Cowen debates Joshua Kim, Agnes Callard, and Eli Dourado on the ethics of economic growth

Read the whole e-bulletin here, and sign up here.

A New Medium

The Entrepreneurs Network has joined Medium. We'll be using it regularly to write about the policies affecting entrepreneurs and how to make them work better.  Here are our first two posts.

Here's our Research Director Sam Dumitriu on why entrepreneurs need planning reform:

"Though a third of young people want to start a business, there are massive barriers to risk-taking activity. Quitting your job to found a company will always be a big step, but it’s an even bigger step when you live from paycheck to paycheck spending up to half your post-tax income on rent. (And that’s before you’ve even looked at the cost of office space.)"
Keep reading.

And here are my thoughts on how to fix the UK’s visa system:

"Rolling the Entrepreneur Visa into the Start-Up Visa would cut out unsuitable applications and unwieldy bureaucracy. Immigrant entrepreneurs will then gain endorsement from government-approved third parties — whether accelerators, venture capital firms or other respected organisations. These sorts of organisations would be regulated by the Home Office to avoid fraud, but they will have skin in the game and the expertise and incentives to evaluate entrepreneurs’ potential. They will also invest in marketing the scheme abroad so people better understand our visa regime."
Read the rest of it here.
 

News and Views
 

The UK needs a bold strategy to survive Brexit, according to the Harvard Business Review

London has retained its spot at the top of the tech charts for another year, securing almost double the amount of investment in 2018 than its closest European competitor

The Cabinet Office fails to meet its own late payment targets despite private sector crackdown, while MPs back calls to fine firms for late payments to suppliers

Gove argues that the 'fourth agricultural revolution' can help slash environmental impacts, and praises a new generation of entrepreneurs in the food industry

Automation expert David Autor’s lecture on “Work of the past, Work of the Future”

Why is the US economy becoming less dynamic? It’s down to demographics

Science historian George Dyson’s New Year’s Essay for Edge

Silicon Valley is backing a novel idea: Instead of charging students tuition, students go to school for free and are required to pay back a percentage of their income after graduation, but only if they get a job with a good salary (Sound similar to the UK system? Remember this is a private company with no government guarantees or subsidy)... And they’re coming to the UK

Understanding the enterprise ecosystem can increase the number of women-owned businesses

The British entrepreneur helping solve Germany's migrant language problem

Bosses matter: The effects of managers on workers’ performance

Read the whole email here, and sign up for the e-bulletin here.

Why Britain’s entrepreneurs need planning reform

It is easy to see the immediate consequences of Britain’s inability to build enough homes, offices, or infrastructure. Rents are too steep, retailers are closing, and the high cost of office space is preventing firms from expanding.

But look deeper and the situation is even worse. High rents are sapping dynamism from the UK economy. Though a third of young people want to start a business, there are massive barriers to risk-taking activity. Quitting your job to found a company will always be a big step, but it’s an even bigger step when you live from paycheck to paycheck spending up to half your post-tax income on rent. (And that’s before you’ve even looked at the cost of office space.)

Productivity is unevenly distributed throughout the UK. Cities in the South East are 44% more productive than they are in the rest of the country, but workers still don’t move to them because they typically barely earn more once rent is taken into account. No wonder almost every entrepreneur we talk to brings up talent shortages.

Workers in cities become more productive due to the benefits of agglomeration. Firms move to large cities knowing that they have a large skilled workforce to choose from, and workers move to cities knowing large employers will be there too. By creating larger markets cities allow for greater specialisation and workers end up matched to the jobs they are best suited to.

The sheer scale of untapped potential is staggering. One study analysed 220 US metropolitan areas from 1964–2009 and found that if restrictions on new housing supply cut aggregate US economic growth by more than 50 per cent between 1964 and 2009. As John Myers of the Yimby Alliance points out the situation is likely much worse in Britain.

Agglomeration also spurs on entrepreneurship. Companies typically aren’t founded alone and it’s much easier to meet someone with a similar mindset and vision in places like London, Oxford, Cambridge, or Manchester than it is elsewhere.

What’s the underlying cause of the problem? An uncertain planning system that releases too little land for development and empowers Nimbys to block new development. Research from the London School of Economics found that house prices would be 25% lower in the South East if planning restrictions were merely as restrictive as they were in the relatively less North East.

Cities with predictable and permissive development rules are able to meet housing need and keep rents low. Take Tokyo, in 2014 it built more new homes than the whole of England thanks to liberal rules on housing development. The result? As the FT’s Robin Harding puts it “In Tokyo there are no boring conversations about house prices because they have not changed much.” The UK should aspire to achieve the same to ensure that entrepreneurs aren’t priced out.

Our complex planning system also hurts business directly by pushing up office rents and disadvantaging retailers. Cheshire and Hilber find that “planning restrictions in England impose a ‘tax’ on office developments that varies from around 250% (of development costs) in Birmingham, to 400–800% in London. In contrast, New York imposes a ‘tax’ of around 0–50%, Amsterdam around 200% and central Paris around 300%.” Small shops suffer too. Raffaella Sadun found that planning restrictions designed to block out-of-town supermarket developments lead to a 15% decline in employment for independent retailers as extra demand for scarce high street space pushed up business rents.

The UK’s planning system is uniquely complex. Developers lack certainty, planning obligations are often not known till late in the process. Complexity functions as a fixed cost. As a recent Create Streets/Legatum Institute report states “regardless of the cost of actually complying with any regulations,discovering how to comply with regulations will cost a similar amount for

all firms. Why does this matter? Well, larger developers are able to spread that cost over a large number of projects. Smaller developers can’t.

Risk too is an issue. If permission can be withdrawn unexpectedly or planning obligations can be added suddenly, as often is the case, then the processes becomes risky. This creates a barrier to entry as larger developers can survive the odd setback, while smaller developers can’t.

At The Entrepreneurs Network our ambition is to make Britain the best place in the world to start and grow a business. To make that a reality, we will work with like-minded organisations and produce research focusing on three key areas.

  1. What is the impact of high housing costs on startup formation?

  2. What impact does complexity and uncertainty have on competition within the house-building market? And how can we simplify the rules?

  3. What impact do high office rents have on entrepreneurship in the UK? And how can we bring them down?

The bad news is that under the status quo planning policy is making Britain a worse place to start and run a business. But the good news is that we know the solutions and if we can develop politically viable solutions then the prize is massive.

Here’s how to fix the UK’s visa system

A successful, globally outward-facing Britain is the best way to mitigate the disruption of Brexit. Though there are limits to reforms as they are unlikely to offset the damage of ending free movement with the European Union, this only makes liberalising reforms more vital.

On asylum seekers The Entrepreneurs Network has backed the #LiftTheBan campaign, which focuses on the politically feasible goal of restoring the right to work for people seeking asylum six months after arriving in the UK. There are strong economic reasons to support this. Recently published research suggests that taxpayers would be £42.4m a year better off under this policy due to lower benefit costs and higher income tax receipts. Many entrepreneurs — including Google’s Sergey Brin and WhatsApp’s Jan Koum — were refugees. The UK wouldn’t have Marks & Spencer, had Michael Marks not fled Russia. If the economic case is strong, the moral case is stronger. We all want to feel useful and appreciated. Of course, this doesn’t just come through work, but most of us get a great deal of meaning from what we do for a living. Those seeking asylum are denied this dignity.

In 2015, we undertook a report with the NUS on the aspirations of international graduates towards entrepreneurship. Made in the UK was based on a unique survey of international students and found that the Tier 1 (Graduate Entrepreneur) Visa wasn’t fit for purpose. In short, despite strong entrepreneurial ambitions, international students were being underserved by their universities. Higher education institutions aren’t to blame, as they are rarely the ideal institutions to judge and support entrepreneurial ambitions and they fear losing their Tier 4 licence (which allows them to accept and make a lot of money from international students) if turns out endorsed graduates aren’t actually running their business. We concluded that other organisations besides universities should be able to endorse graduates who want to build their business in the UK.

This led to us hosting roundables with and responding to the Migration Advisory Committee’s (MAC) consultation in which we recommended that the Graduate Entrepreneur Visa be converted into a Start-Up Visa, and that the power to endorse graduates should be extended from universities to accelerators, venture capital firms and other respected organisations, which have better knowledge and stronger incentives to ensure that we are giving visas to graduates with the highest potential to succeed. Our recommendations are exactly what the Home Secretary announced.

When the Start-Up Visa visa is up and functioning the government should roll the Tier 1 (Entrepreneur) Visa into it, which doesn’t work as intended. The Entrepreneur Visa requires £50,000 from a venture capital firm registered with the Financial Conduct Authority (FCA) or £200,000 of other funds. This doesn’t work well as a proxy for assessing the entrepreneurial skills of a migrant and creates an unnecessary hurdle for bootstrapping entrepreneurs. It is also seen by migrants as a “cheap” investor visa and therefore receives many unsuitable applications. The introduction of a Genuine Entrepreneur Test was an attempt to try to cut down on bogus applications, but this has made the system overly bureaucratic and many genuine entrepreneurs are put off or wrongly rejected, necessitating costly legal advice.

Rolling the Entrepreneur Visa into the Start-Up Visa would cut out unsuitable applications and unwieldy bureaucracy. Immigrant entrepreneurs will then gain endorsement from government-approved third parties — whether accelerators, venture capital firms or other respected organisations. These sorts of organisations would be regulated by the Home Office to avoid fraud, but they will have skin in the game and the expertise and incentives to evaluate entrepreneurs’ potential. They will also invest in marketing the scheme abroad so people better understand our visa regime.

The Investor Visa is for immigrants who invest £2 million in the UK in exchange for the right to live and work here, and the ability to apply for permanent residency after five years (or sooner if they invest more). In the past, a lot of this so-called investment went into government bonds, but this wasn’t doing the UK much good. As Sir David Metcalf noted in 2014: “the annual aggregate loan via the investor route is equivalent to less than two days of our budget deficit”.

Alongside many others, The Entrepreneurs Network pushed for the government to ensure that the Investment Visa funds don’t just go into gilts. As my colleague Sam Dumitriu has written: “If the aim of the investor visa is to promote job and wage growth in the UK then a better system would target investment towards the UK start-ups and scale-ups that need capital the most. SMEs often struggle to prove their viability to investors as they lack collateral or a track record. While fintech innovations such as crowdfunding are helping to solve this problem, there is still an equity gap affecting firms seeking equity investments of between £250,000 and £5 million.” We suggest restricting access to the Tier 1 Investor Visa to EIS or VCT qualifying investments so that cash flows to the firms best able to create new jobs and grow the economy.

Of course, increased investment risk will make the Investor Visa less attractive. As such, we should lower the threshold. Individuals with £500,000 or even £100,000 to tie up in investments will have high disposable incomes. They aren’t going to claim welfare, will on average be limited users of public services and will stimulate demand and create jobs through high spending. The threshold should reflect the direct and indirect benefits these people bring to the country rather than a random number plucked from the air.

Britain’s FTSE 100 has dozens of businesses set up by first and second immigrants, and our flourishing tech scene is run and staffed by foreign talent. We have some of the best universities in the world and investors want to build a life here. Britain is one the best places in the world to start and grow a business. Brexit is a challenge to that. Now is the time to fix our immigration system to attract entrepreneurial talent to Britain.

Cup O' Kindness

Happy New Year! This time of year is a good time to reflect on things.

Everyone wants to be appreciated – it's one of the few universals. Whether this comes from our family, friends or strangers, we want our lives to matter. As such, it's important that we think about what to prioritise in praising, as that's what we'll get more of.

If we think that having a six pack is the pinnacle of human achievement then resources will be diverted from other things to meeting this end. Personal vanity is not inherently bad and can lead to wider positive consequences beyond self-satisfaction, but all things being equal we should glorify things that obviously do more good for more people.

Making commerce a respected thing to do was a catalyst for the British Industrial Revolution and the modern world of higher living standards. And more progress is being made as a fashion favouring tech and start-up culture takes hold.

Anything we can do to reinforce this should be welcomed, which is why we should be encouraged to see so many great entrepreneurs on this year’s New Year’s Honours list, including OBEs for Tom Blomfield, the founder and CEO of Monzo, Paul Lindley, Founder of Ella’s kitchen and an MBE for Amali De Alwis, CEO of Code First Girls. 

The more entrepreneurs are celebrated, the more they become an inspiration for the next generation. It's a virtuous circle. If you know an entrepreneur deserving of an honour: nominate them.

Get the Gates?
Successful entrepreneurs often support society beyond their business activities. Bill Gates has gone further than most with the Bill & Melinda Gates Foundation. To wrap up the year he has written about what he learned, including his changing priorities as a 63-year-old: "Did I devote enough time to my family? Did I learn enough new things? Did I develop new friendships and deepen old ones? These would have been laughable to me when I was 25, but as I get older, they are much more meaningful. Melinda has helped broaden my thinking on this point. So has Warren Buffett, who says his measure of success is, 'Do the people you care about love you back?' I think that is about as good a metric as you will find.”

Gates also has updates on his work and thoughts on Alzheimer’s, polio, energy, gene editing, and the potential next epidemic. It’s not all positive, but a valuable lesson in what's on the mind of one of the world’s most successful entrepreneurs, as well as a useful template for entrepreneurs looking to take stock of their own work and personal life.

Marshall the Facts
Now back to policy. More companies than ever before are finding it hard to recruit staff. As Adam Marshall, British Chamber of Commerce Director General, says: “Business concerns about the government's recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy.” As I wrote at the end of last year, access to talent is the number one issue for entrepreneurs and the immigration white paper is a case study in self sabotage. We will be responding to the consultation and asking for your input.

Read the whole e-bulletin here, and sign up here.

Post-Brexit Immigration Plan Will Hurt UK Startups, say The Entrepreneurs Network

In response to today’s immigration white paper, Philip Salter, Founder of The Entrepreneurs Network, says:

“Entrepreneurs will be disappointed by today’s immigration announcement. In survey after survey, entrepreneurs rank access to talent as the number one obstacle to growth. Yet under the proposed system, startups will face more red tape and will struggle to meet the suggested £30,000 salary threshold to hire the workers they need.

”Entrepreneurs will welcome the abolition of the cap on high-skilled workers and the resident labour market test, but this is offset by the decision to pull up the drawbridge to EU workers. This will make Britain a worse place to start and grow a business and will lead to venture capitalists looking elsewhere.

“Requiring a job in advance of moving will put off prospective European entrepreneurs who up until now have been able to experiment by working for UK startups before building their own business.

“If the Government goes ahead with these plans, it will put the UK at a significant competitive disadvantage to EU countries and result in less investment into the high-growth businesses that drive prosperity and ultimately increase the wages of all workers.”

For further comments or to arrange an interview, contact Philip Salter, philip@tenentrepreneurs.org, (07919 355 290) or Sam Dumitriu, sam@tenentrepreneurs.org, (077 8060 7647)