• A lack of appropriate funding and tax arrangements
• The absence of a large homogeneous home market
• An inability to bring products rapidly to market
• A lack of entrepreneurial culture and spirit

Doug Richard.

The current UK scenario, however, is not all doom and doom as the Cambridge University technology cluster, famously known as Silicon Fen, starts to come of age after thirty years of development. According to Doug Richard, founder and chairman of Library House and former judge on Dragon’s Den:

“The Cambridge cluster has just tipped over and a period of explosive growth is ahead. It manages to attract a very large quantity of capital without variation”. 

Cambridge has already spawned a number of successful £1bn companies such as Arm, Autonomy and CSR radio. So do we have a Silicon Valley in the making or is this simply California dreaming? If Silicon Fen is to provide a lead role in nurturing the next generation of “gorillas” there are still a number of obstacles in its way. For example:

• There is a tendency for early stage entrepreneurs to exit their businesses through trade sales rather than undertaking a public flotation (this usually means selling-out to a larger US firm). According to Walter Herriot, head of St. John’s Innovation Centre in Cambridge: “If too many Cambridge companies are acquired by foreign companies the people and the intellectual property will disappear”.
• There is a tendency for European venture capital groups to invest smaller sums than their US rivals. The differential can  sometimes be as high as 50%.
• There is a failure of leading UK companies to invest in entrepreneurial start-ups. Cisco invests in start-up companies which benefit from the funding they receive whilst Cisco gains access to cutting-edge research.
• There has been a failure on the part of European stock exchanges to attract young companies. Neither the LSE nor AIM are considered to be as attractive as the Nasdaq where new listings are able to achieve higher valuations.

Another way of interpreting the superior growth trajectory of US start-up companies is the American business culture itself. Europeans do not lack technical expertise (and Silicon Fen is living proof of this) but does Europe have the same level of ambition and attitude to risk as the USA? According to David Wither, CEO and founder of UK technology company Sarantel:

“In the US, you know from the start you are on your own. Nobody is going to look after you – there is no healthcare or safety net. It breeds a competitiveness, which is part of the culture.” 

It might also be said that UK and European entrepreneurs are acting wisely by avoiding head-on competition with major organisations by adopting niche and complementary strategies, thereby avoiding conflict with larger rivals. This was a lesson that was learned by the pioneering UK personal computer companies such as Acorn, Sinclair and Apricot. Another interpretation is that by selling out early UK entrepreneurs are behaving in a totally rational manner. True serial entrepreneurs are good at starting and growing businesses but not well equipped to professionally manage them, so their early departure is not such a bad thing after all.

The problem is that they are not being acquired by other UK or European companies or as Walter Herriot, head of St. John’s Innovation Centre in Cambridge once commented: “I am slightly concerned that we are selling off the family silver”.

So should Europe be written off as a promising location for technology companies and is Silicon Fen really on hold until key obstacles are removed from the equation? 

Further reading

• 'Fen tries to be a valley' by Maija Pesola in the Financial Times on 16th Feb 2005
• 'The fertile soil of Silicon Fen' by Maija Pesola in the Financial Times on 9th Feb 2005
• 'Why progress requires ambition and risk' by Alan Cane in the Financial Times on 11th Feb 2005

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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1. Continuous technological developments
2. Shorter product life-cycles
3. Increasingly demanding consumers
4. Global competition

Small and medium-sized enterprises (SMEs) have always been considered to be more adept at innovation compared to larger bureaucratic enterprises owing to their flat structures, absence of functional barriers and the lack of bureaucratic procedures which facilitate the sharing of ideas, information and knowledge.

Innovation is even more important to small start-up firms that need to offer unique benefits in terms of their products and services so as to attract customers who would otherwise buy from their competitors.

Although SMEs may have an advantage over their larger rivals in terms of their ability to nurture innovation-friendly environments, they cannot emulate the large investment budgets of their bigger rivals when it comes to in-house idea-generation and research and development. However, recent developments in the field of ’open-source`, or user-centred, innovation has made it possible for SMEs to compete more aggressively with their larger rivals – sometimes leading to substitute products.

Instead of new product ideas being developed within the research laboratories of organisations (the in-house approach) new products and services are now being sourced from existing customers and clients of organisations. For example, practitioners of extreme sports, from windsurfing to ice climbing, play a significant role in the development of equipment which is subsequently mass-produced by manufacturers. Surgical equipment companies are often led towards new products by surgeons (i.e. keyhole surgery) whilst the Linux operating system was developed by members of the open-source software community. Finally, the toolkits approach has been used by companies including Flavors and Fragrances which supplies customers with the tools to design their own food flavours. Product development is left to users who are in the best position to know exactly what they want.

As customer expectations are increasing it is logical to use their input when designing and shaping new products and services. Not only are such inputs invariably free but they are a natural source of incremental innovation and therefore differentiation.

Since one of the strengths of being an SME is the closeness of the entrepreneur to the customer, an `open source` / user-generated approach is an ideal way of overcoming the obstacles of high R&D budgets and at the same time creating a differentiated unique selling proposition (USP). Knowledge is now so widely distributed via the Internet and travels so fast that great ideas can come from customers over a wide geographic area which is not confined purely to large organisations.

Moreover, as it becomes increasingly difficult to protect new ideas for any length of time, lead–time advantage and speed to market become key areas of competitive advantage. The agility and fast responsiveness of small entrepreneurial firms therefore places them in a very strong position when it comes to exploiting the advantages of pro-active consumers or prosumers.

3M, the industrial products group, has had programmes in place since 1996 to harness ideas generated by lead-users. Working out where great ideas come from is one of the big mysteries of modern management. Corporate research laboratories and in-house product development groups are only part of the answer. Breakthrough products and processes can come from start-ups, competitors, university campuses and rank-and-file employees. So open source innovation is  another route to innovation that doesn’t cost the earth as the likes of MySpace, Facebook, YouTube and Wikipedia will testify.

Further reading

• Open Innovation by Henry William Chesbrough, published byHarvard Business School Press
• Experimentation Matters: Unlocking the Potential of New Technologies for Innovation byStefan Thomke, published by Harvard Business School Press
• The Third Wave by Alvin Toffler, published byBantam
• Democratizing Innovation by Eric von Hippel, published by MIT Press

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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Despite these developments there still appears to be considerable doubt as to what the word actually means and what characteristics distinguish successful entrepreneurs from the more conventional and possibly less successful business figures. In the UK an entrepreneur is differentiated from an owner-manager of a small business (a lifestyler) on the basis of their ideas being highly innovative, the fact that they adopt a strategic approach to the running of their businesses and they are driven by motives of high growth. In the USA the definition is more generalised insofar as an entrepreneur is anyone who establishes a start up business  irrespective of whether it is based on a innovative idea or not.

Entrepreneur Duncan Bannatyne.
[image © copyright BBC]

Another important question is whether there is a typical person who becomes a successful entrepreneur, an archetype on which we can base our judgements about someone’s aptitude for entrepreneurship? Can anyone become an entrepreneur or does it require a certain type of person to make it really work? If it does require certain attributes are they innate or can we acquire them – in other words are successful entrepreneurs born or made?

The influence of the business founder or nascent entrepreneur  on a small business is crucial, particularly in the early days when enterprises are inseparable from their founders. They are conceived by them and survive (or not) because of their personal commitment and dedication. In later stages of growth, a management team may emerge which makes the enterprise more autonomous and capable of surviving without the founder.

Since this impact is so vital to small business survival it is important to identify and encourage the personality types who are most likely to succeed and to discourage those who are not. A number of traits or personality characteristics have been put forward such as the `Big Five` personality dimensions which include: the need for achievement, the need for autonomy (or independence), an internal locus of control (or self-determination), a risk-taking propensity and self-efficacy (or self-belief). Since these entrepreneurial traits are formed during childhood  and cannot be developed later there is and strong implication that entrepreneurs are born not made.

A further characteristic of the entrepreneur is their ability to innovate. According to the late Peter Drucker, entrepreneurship and innovation are tasks that can be and should be organised in a purposeful way and are part of any manager’s job whether he or she works in a small or large enterprise. The entrepreneurial manager is constantly looking for innovations through an organised and continuous search for new ideas. Drucker presented entrepreneurs not as people who are born with certain character traits but as managers who know where to look for innovation and how to develop it into useful products or services once they have identified the strategic space or market gap. Drucker therefore believed that these competencies could be learned and developed and involved a continuous purposeful search for new ideas and their practical application.

There are also other personality traits associated with entrepreneurs which include: a proactive approach, self-motivation, a tolerance of uncertainty and ambiguity, opportunistic behaviour, creativity, vision, impatience, energy and charisma.

It is therefore hardly surprising that successful entrepreneurs appear to be superficially so diverse. This may also have something to do with the socio-economic characteristics of their environment in terms of both the national and market conditions in which they operate and compete. These will also vary greatly from country-to-country and from sector-to-sector.

Finally, if Peter Drucker was right then perhaps the enterprise initiatives that have been launched across the UK have a high probability of success or is it more complicated than that?

Further reading

• Organisations Evolving by H Aldrich, published by Sage
• `The Entrepreneurial Personality; Past, Present and Future` by E Chell, in Occupational Psychologist number 38
• Innovation and Entrepreneurship by P Drucker, published by Heinemann.
• The Achieving Society by D McClelland, published by Van Nostrand
• `The Dark Side of Entrepreneurship` by M Kets de Vries, in Harvard Business Review November-December 1985  

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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Both the UK economy and Sir Alan Sugar have done well for themselves since those early days but what about the original philosophy of the enterprise culture. As unemployment rose to record levels during the1980s the government was desperate to find new ways of redeploying employees who were too young to retire but unable to find work and were 'pushed' (GEM 2003 Executive Report) into setting up their own businesses. Today, with comparatively high employment levels, the story is different. Enterprise is now taught in schools and universities and the emphasis has changed towards creating a 'pull' mechanism (GEM 2003 Executive Report) for attracting young people to become entrepreneurs. Part of the pull mechanism is the media’s attempts to make entrepreneurship sexy with programmes such Sir Alan Sugar’s Apprentice.

The boardroom.
[Photo © copyright Photos.com]

The key debate, however, is how much of a contribution does such a programme make to the development of entrepreneurs and what skills are nurtured by such programmes? As everyone already knows the candidates are all forced to work in project teams in order to perform pre-selected tasks before being hauled into the board room for a ritual grilling. The drawbacks of this process is that any entrepreneur setting up their own business would be selecting their own team and would not under any circumstances allow themselves to be answerable to an autocratic bully such as Sir Alan Sugar. Research (Ettinger 1983) has revealed that one of the main motives entrepreneurs had for setting up their businesses was to be their own boss and to have independence and freedom from the corporate hierarchical structures that stifle innovation.

When managing a small team empathy and emotional intelligence are critical and learning from ones mistakes are a key part of this iterative process (Kolb 1996). However, the nature of the programme structure makes this impossible since the team members end up covering their backs and ultimately being fired. In terms of higher level marketing skills, the teams very rarely have any opportunity to research customers but have to make assumptions based on gut feelings and hunches which invariably prove wrong. The only skills that do seem to emerge are the ability to produce a sales pitch and to negotiate. These are skills which Sir Alan Sugar excels at and since Amstrad (and its subsidiaries) are basically trading companies driven by a power culture (Handy 1997) this is hardly surprising.

The Apprentice is unquestionably a popular business-themed reality show but is it sending out the right messages to budding entrepreneurs who may want to leave school or university to set-up their own businesses.

According to Sir Digby Jones:

“Alan Sugar does everyone a great disservice by doing it. Young people will be turned off because they think they will be shouted at by a horrible, fat, rich, old bloke”. (Financial Times 2007)

On the other hand, David Frost of the British Chambers of Commerce says:

“What it has done for a lot of young people and their parents is put before them the idea of starting a business. It shows enterprise, competition and working for your self as a good thing. I’m a huge fan”. (Financial Times 2007)

Perhaps the most sensible comments were made by another British entrepreneur, James Dyson who said:

“ ………The Apprentice can be entertaining but in my experience, business is far more complicated and involved than the simplified win or lose situation we see on screen. Good ideas aren’t enough; success takes dedication, perseverance, thick skin and usually many, many mistakes”. (Financial Times 2007)

References

Reynolds, P.D., Bygrave, W.D., Autio, E., and others, GEM 2003 Executive Report, Babson College and London Business School.

Ettinger, J.C. (1983) Some Belgian evidence on entrepreneurial personality, International Small Business Journal, 1983; 1: 48-56.

Kolb, D.A. (1996) Management and the Learning Process in pp. 270-87, K. Starkey, How Organisations Learn, London: Thomson Publications, p.271.

Handy, C. (1997) Understanding Organisations, Penguin.

John Willman and William MacNamara, Financial Times article: `Dangers of sexy profile for business in Apprentice`, Thursday March 29, 2007, p. 3.

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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• Continuous technological developments
• Shorter product life-cycles
• Increasingly demanding consumers
• Global competition

Research in 2006 by the Institute of Chartered Accountants of England and Wales (ICAEW) (based on a survey of 1,000 companies) revealed that 60% of companies with 49 or fewer staff bought goods or services from abroad or had customers or operations there.

“Increasingly, small businesses do not start off trading locally as they did in the past,” said Clive Lewis, ICAEW head of enterprise. “If you have a website you can think globally from the beginning”.

[from Small companies look beyond local to go global in the Financial Times, Thursday October 12, 2006, page 4]

The drivers of this trend according to the ICAEW have been globalisation together with the spiralling cost associated with red tape. Increased staffing costs were also becoming a problem for UK SMEs and was a primary reason for the outsourcing of back office jobs to the low cost economies in Eastern Europe and Asia . This is a trend that is likely to double over the next five years.

It is not just in the area of back office support services that SMEs (Small and medium enterprises) and small business start-ups are seeking overseas resources. If a business’ core product or service is information-based then virtual structures, using the Internet as a conduit, may have spawned new form of mini-multinational. For example, GNI is a biotechnology start-up that carries out research in Cambridge UK, data analysis in Japan, clinical trials in China and sells its outputs in the USA to large pharmaceutical companies.

“We take the best of what is available in each country and put them together,” says Mr Savoie GNI’s founder

[from March of the mini-multinational in the Financial Times onThursday May 4, 2006, page 12]

Video conferencing is used to link up personnel and the organisation is able to exploit national differences, cost and expertise to operate as a mini-multinational. Carol Cherkis, Vice President of GNI says that GNI is not a virtual company but a real company “It’s just that we are not all in the same place” [from March of the mini-multinational in the Financial Times on Thursday May 4, 2006, page 12].

Another example of a virtual mini-multinational is Lingo 24 which is a translation company  employing 40 staff in China, New Zealand and Romania with a turnover of £1.5 million and profits of £120,00 (as in 2004). The company’s headquarters are a two bedroom house in Deptford where clients ranging from BP, Honda, Ikea Orange and Travelex are served. Instead of having to physically travel to expensive offices employees can simply log on to a Lingo 24’s central database to obtain all the necessary information relating to translation projects. Homeworking and using international staff reduces overhead costs by 30% and permits a 24/7 service to be offered. Lingo 24 communicate on a daily basis using Skype and e-mail whilst the company intranet is used to monitor quality and provide an editorial oversight.

Richard Portes, an expert on globalisation at London Business School, said: “Small businesses are now operating on a global scale. They could not have done [this] 15 years ago.” Professor Portes added: “The advantage small businesses have is that they are not burdened with long lines of command, where important pieces of information come from operations in one country [back to the centre] then travel up and down chains of command”.

[from Small companies look beyond local to go global in the Financial Times, Thursday October 12, 2006, page 4]

So has the Internet spawned a new form of organisational structure and a new source of competitive advantage for agile and responsive entrepreneurial companies? Are the “big boys” shaking in their boots and would it be premature to start throwing out the textbooks on downsizing, delayering and business process re-engineering…….. or is this just a passing fad?

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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Under New Labour the enterprise culture was developed further with enterprise now appearing in the curricula of British schools (Young Enterprise) and universities. Popular TV programmes such as Dragons Den and the Apprentice have portrayed enterprise as being sexy and kids leaving school can now choose to be entrepreneurs instead of climbing the traditional corporate ladder.

Gordon Brown, the current Prime Minister, recently endorsed the launch of a national enterprise academy plus the unveiling of an enterprise white paper designed to encourage more women entrepreneurs, cut red tape and allow easier access to finance. In January 2001, Chancellor Brown also announced:

In the budget, our aim is to create the stronger enterprise culture that America enjoys.

Over the years, Britain has shown that it is good at fostering start-up companies in high technology but none of them have grown to become an Apple, Microsoft, Intel, Amazon, Google or Cisco (to name just a few). In fact, few British companies that have been started since 1945 have matched the growth rates of their US counterparts. For example, after the birth of the PC industry in the mid 1970s several British companies entered the market (Acorn, Sinclair and Apricot) before being outmanoeuvred by their US rivals. The painful lesson that these British entrepreneurs learnt from their failures was that competing head-on against powerful competitors was an unwise strategy. The need to provide complementary products or services has since been the recommended approach.

ARM executed this complementary strategy very successfully by entering the microprocessor market for mobile phones but despite the explosive growth of this market ARM has still remained a relatively small operator. Racal, however, were an exception to the rule. Not only was Racal a major player in its own field, it also demerged a world-beating company called Vodafone in 1991 – a truly British-owned “big-gorilla”.

So taking stock of the enterprise culture which spans four prime ministers and nearly four decades of economic growth, why can’t other entrepreneurs repeat the success of Racal/Vodafone (or SAP and Nokia in mainland Europe)? Is British management flawed; do British entrepreneurs lack the capability to run large businesses; is the short-termism of investors to blame; is it a problem of serial entrepreneurialism where the owner-manager “cashes-out” early or are we too soft and risk-averse or do we simply lack ambition?  

SMEs and entrepreneurs have plugged the gap in terms of providing employment to large numbers of displaced employees during the downsizing era of the 1980s and early 1990s. However, their inability to grow into “big-gorillas” is something that should not be taken lightly. Big companies (despite their bad press) are important to an economy because they enhance national productivity and standards of living. The also play a vital role in terms of investment, training and R&D.

In November 2006, Gordon Brown claimed:

Across the country, we are seeing the beginning of an enterprise renaissance.

This statement is undoubtedly true and UK Plc has significantly narrowed the enterprise gap with the US. However, if this is the case how long will we need to wait before we see some UK “big gorillas” competing in global business markets and are these really necessary?

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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