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Challenges of a business startup: Part I

Starting a business has never been so difficult – nor more important… SMEs are the lifeblood of the UK’s economy: in 2012 99.9% of all private sector businesses were SMEs and they provide almost 60% of private sector jobs. So ensuring there is a strong pipeline of start ups is critical to the medium and long term health of the economy. But everyone knows that. And economists up and down the country will have a view for Government on the optimal economic conditions and options for achieving these to encourage the much needed business growth that will get the UKs GDP up (and stay up). What’s perhaps not so well understood (and I speak as an ex policy maker turned entrepreneur myself) are the practical day to day challenges that make it so tough to succeed in starting a business in today’s climate and what can be done to help. Because in my experience, if you’re determined to start a business you’ll do it… it’s how hard that journey is that could make all the difference to the extent and pace of your success. This is my journey.

I have the advantage of coming from a family of entrepreneurs - my Dad a 1950s immigrant from Cyprus set up his own clothing factory in the UK by the time he was 21 and my husband ran his own property consultancy business up until last year, so the main men in my life have inspired me to some extent and it has always seemed to me to be an obvious path to follow. Having said that, like lots of graduates, I was temporarily reprogrammed to seek out a corporate career where opportunities would be plentiful and started life as a drug rep for a well known global pharmaceutical company, eventually climbing the ladder to the point where I could jump ship into a relatively senior policy making role within what is now the Department for Business Innovation and Skills. From there a director at the London Development Agency under Ken Livingstone’s administration – helping London’s businesses to grow and start ups to start – until eventually I ended up at City Hall a year after Boris Johnson took over the best job in London.

So it wasn’t until I had a family and gave up work that I finally decided to scratch the itch of some 20 years and set up my own little enterprise. Now, I am well known for being focused, driven and some might say bloody minded and it’s a good job as well because I found obstacles and negativity at (almost) every turn. There are of course the obvious issues and let’s get the big one out of the way… finance. Historically, policy and programme makers like me have – to a large extent - focused on the market failure of access to early stage finance. Which basically means prototyping and proof of concept funding being scarce due to the high risk nature of the product not ever materialising/ succeeding. Yes, there are programmes for funding e.g.: green energy infrastructure, but these are not the domain of your average start up looking to bring a new product or service to market. Most of us do not have millions invested in us from day one and will need some degree of external funding if only to provide a contingency. I naively thought that – whilst the financial markets were of course tricky – banks were doing as the Government has asked and were lending (a bit) to small business. This rose tinted view was encouraged by my banking business manager (from a well known high street bank) whom I had courted for some 6 months writing business plans, cash flows and a rather fancy P&L with the help of my PWC trained accountant sister. So it came as a shock to find out that my application for a mere £5,000 overdraft (to ensure I wasn’t a victim of death by cashflow) had been almost instantly dismissed because my newly incorporated company had no credit history – there is a clue in there somewhere.

Of course it had no history, it was a new entity and I could have been advised that this would be the case at the first meeting with the bank so that I could have taken steps to build up a credit history whilst I was preparing my plans etc. [Lesson number 1. Start building your credit history as soon as possible (e.g.: mobile phone contract).] So undeterred I resubmitted the application on the advice of my business manager, using my personal credit history rather than the company’s, and again was rejected on the grounds that it was a start up business with no contracts in place. By this point I was getting quite frustrated… It was utterly ridiculous but apparently absolutely common place – so my second lesson is to not believe the marketing blurb from banks and assume that you will need a plan B for any external funding you might need.

There is a small but serious point in all of this… not only are start ups having to waste time filling in forms, business plans and financial data sheets when there are hundreds of other things you need to be doing in your early days. but banks behaving in this way are being actively unhelpful in creating for you a credit track record of declined applications. Not good at all.

When it comes to financing new/ small business it seems to me that the nature of the market failure has changed or rather simply expanded. The private sector is not providing the financial services they traditionally have done, but are not willing to admit that so we on the receiving end have to engage in this perfunctory dance until they eventually prove that you are a bad risk and they should not lend. This coupled with the need to pay VAT upfront (and wait at least 3 months to get it back), suppliers upfront, and - if you make it to year 2 – corporation tax upfront , means that unless you have a plentiful supply of cash it is still access to all forms of finance that seems to me to be the biggest barrier. But of course there are things that can be done to help - starting with HMRC and I would love to sit down with David Cameron and offer my thoughts.

This was posted in Bdaily's Members' News section by Helen Keenan .