Confidence NOT Caution
ILN CEO René Carayol was recently asked to write a guest column for the Financial Times giving a strong view on how entrepreneurs and small to medium enterprises (SME’s) are finding the current funding environment in the UK. Read below his thoughts.
Unfortunately (or perhaps fortuitously) it was limited to just 700 words.
See the article here.
After it appeared on October 4th in the Entrepreneur section of the Financial Times, the feedback has been both heartfelt and passionate.
At first reading, there was no obvious disagreement but on reflection, it was fascinating to read the different shades and colours of ‘sugar coated agreement’ – very quintessentially British.
On occasion, especially when the prize is so vitally important, an open and challenging argument can be the lifeblood of finding the way forward, so excuse me whilst I share the best of the politely put ‘agreements’.
So let’s start with the bankers:
- A strong consensus on ‘no run on liquidity’ but increasing difficulty with wholesale banking (high value banking services between banks and other financial institutions), consequently the cost of loans will be going up – and soon
- The banking high street is ultra-competitive but perhaps many of the banks’ central loan-sanctioning teams are still remembering the pain of the large number of recent ‘distressed’ loans. Therefore rejection is less personally damaging on their KPI’s (key performance indicators) than the inherent risk of approval
- They have witnessed the demise of customer loyalty, and now just focus on encouraging repeat behaviour through ‘de-personalised’ automated processes and systematised credit scoring systems
- The Government’s much heralded Enterprise Investment Scheme (EIS) looks attractive for both SME’s and banks, but when an SME defaults the civil servants start nit-picking at the far too complex process and endeavour to wriggle out of providing the agreed 75% of the defaulted loan
Views from Private Equity (PE):
- They are still a strong and viable part of the mix for funding SME’s
- There needs to be much better business management amongst SME’s
- The Government could assist in making it more attractive for PE to get involved, perhaps through ‘enterprise zones’ – Ireland has bounced back after near financial oblivion, by establishing compelling enterprise zones that encourage entrepreneurial activity and subsequent investor participation
- PE have not become more risk averse just a lot more ‘discerning’ in keeping with the challenging economic environment
Views from entrepreneurs:
- They totally agree with the article but point out that there was no mention of the desperately penalising tax situation in the UK
- The Government’s Enterprise Investment Scheme is rarely voluntarily offered by the banks, they will always try and sell you one of their far more expensive loan products, overdrafts or invoice finance instead
- They feel they are the only ones prepared to take a real risk, EVERY potential funding agent demands a ‘guarantee’ and behaves increasingly like a new age banker
- Directors of SME’s who have their homes on the line tend to make the wrong decisions for the business
What this tells me is that everyone has a (differing) point of view when it comes to moving out of the downturn and driving growth.
In my strong view, every interested party needs to better understand and accept that there is no risk free approach when it comes to driving growth – neither for them, or indeed, their prospective partners. Strong, transparent and trusting relationships where risk is shared and owned by all is still the only way forward
What is not needed is ill-informed and patronising advice about what is a good business or what is a bad business from those with limited exposure to the pressures and challenges of ‘backing themselves in the toughest of times’ to attempt to create prosperity and vital employment opportunities.
Ed Milliband’s simplistic ‘predator’ or ‘producer’ business approach is both banal and unhelpful.
What is very clear is that we’re living in an age of uncertainty that is crying out for strong, confident and decisive leadership.
It would be great if we got it from the Government but it’s probably not a good idea to wait for that to happen, despite the Prime Minister’s spot on messages from his recent conference speech of “can-do optimism” and “right now, we need to be energised not paralysed by gloom and fear”.
Therefore, it would be far more useful, if the SME’s and entrepreneurs along with the banks and the investment community realised they are in the business of unavoidable collective risk, and the current stance of caution, cynicism and austerity just doesn’t ever foster growth.
There is no ‘divine right’ for any business to survive, let alone thrive, but with the right trust based relationships and a better understanding of risk, the successful ones will always more than compensate for the unfortunate but necessary failures.
With a collective and more tempered but still risk ready approach, we might just drive the economy beyond recovery and back to growth.
This takes us back to confident and decisive leadership again, from all the necessary participants.
Nothing worth having was ever achieved without enthusiasm or overcoming inherent risk, just witness at Apple’s extraordinary rise and stellar profitability after nearly going out of business on more than one occasion.
Without accepting some failures along the way, success will no longer be so energising and sought after and what made the UK the natural historic epicentre for enterprise and economic growth will continue its sad and avoidable demise.