Luke Johnson and Robert Kelsey discuss exciting opportunities to support new business leaders from both the younger and older generations
1. Old is the new young
For almost a quarter of a century I have been investing in and building companies, together with a series of partners. Much of that time I have spent observing entrepreneurs and trying to understand their personalities and motivations.
They are a diverse lot. They have certain common characteristics: a desire to be independent, discipline, a strong work ethic, a belief in the profit motive, ambition and resourcefulness. They are also from a whole range of backgrounds. A minority of entrepreneurs do well at school and university. Most rebel and get bored in classrooms. They tend not to enjoy the rigidity of organised learning, the hierarchy of educational establishments, and the theoretical nature of academia. They do not like rules, they enjoy independence, and they want action, not formulae.
Lots of entrepreneurs are dyslexic. Studies suggest over a third of US entrepreneurs show signs of the condition. But by overcoming difficulties with reading, dyslexics can learn coping skills and develop persistence in their formative years: both valuable characteristics for those building companies. John Chambers, the CEO of Cisco Systems, believes it is dyslexia that helps him see the big picture, so he gets less distracted by the detail. I have also been told that a disproportionate number of entrepreneurs stammer, a condition that again qualifies them for the rough and tumble of business.
Immigrants also make a disproportionate contribution to the enterprise economy. Often they cannot get good jobs, so choose to work for themselves; and many immigrants tend to be a self-selecting group of ambitious strivers who would probably succeed wherever they were.
Even inventors and technical experts who start firms tend not to be organisational types. They are often mavericks who want the freedom of self-employment. And although entrepreneurs have a reputation as wild risk-takers, in reality they judge the downsides carefully – because they have their own capital at stake, and they have learned about the dangers of the marketplace first hand.
As well as the go-getting ‘opportunity’ entrepreneurs at one end, early work by the RSA as part of our new project on ‘olderpreneurs’ suggests we should not neglect the host of much more modest ‘freelancers’ at the other end, particularly in a time of recession.
There is a myth that most entrepreneurs start young. In fact the typical age for someone to own their own business is between 30 and 45. Of course in some ways this is not an ideal point in life: many at that age have more responsibilities than at any other time, including young children, a mortgage and other commitments that make financial risks feel even more intimidating than normal. And today many more people in their 50s (especially women who are used to working) are finding themselves just released from the responsibilities of parenthood only to find increasing demands put on their time as carers for ageing parents (a perverse return to childhood).
Interestingly, the level of self-employment among the 50-plus age group is around one in five – one and a half times the level of entrepreneurialism across all ages. I see this trend growing because low interest rates and the death of final salary pensions means many of those retiring will not have enough to enjoy their sunset years. They will be forced to work to make ends meet. But sustainable self-employment can offer financial and social fulfilment. Not only can working for yourself bring material rewards, it is a great way to meet people and stay in touch with people from all generations – as customers, partners, suppliers, or perhaps staff.
And many of those aged 50-plus are starting to shake free of the family obligations I mentioned earlier. Their children are likely to have left home and be providing for themselves, and, as they themselves grow older, an increasing number of their own parents are likely to have passed away. They may well have savings or have inherited some money. So perhaps for the first time in decades, they are potentially free to work and take a degree of risk – possibly by starting a business.
Starting a business – or buying one – can also enable you to realise an ambition. One should never underestimate the creative stimulation provided by running an enterprise. There can be something almost spiritual about developing a product or service from nothing, and making it into a success. The effort and ingenuity required to make things work and please the public can make other pursuits seem dull. And keeping a business going through thick and thin is certainly no doddle – especially at times like these.
I find stories of those who have made it inspirational. And for the 50-plus generation of would-be entrepreneurs, my favourite manual on the subject is an out of print autobiography called After I Was Sixty, by Canadian Roy (later Lord) Thomson.
In 1953, when he was 60, he suffered two blows. First, his wife of many decades died; and then his business partner of 20 years, Jack Kent Cooke, departed to run another firm. So he left his modest radio company in Canada, arrived in Edinburgh and, almost on a whim, bought the struggling newspaper The Scotsman.
A year later, he founded Scottish Television, the first commercial broadcaster north of the border. It was an astounding success, making at least 1,000 per cent return for its original subscribers. It was he who described a television franchise as a ‘licence to print money’ – not quite such a valid statement today! He went on to become a pioneer backer of North Sea oil, and later launched Thomson Holidays, Britain’s first package tour operator. Subsequently he became owner of The Times and The Sunday Times, and ultimately his organisation merged with Reuters to become one of Canada’s largest corporations. All this, and a peerage too – post 60.
I was stimulated to think about mature entrepreneurs by a recent study from Standard Life, working with think-tank Reform. This revealed that one in six of those aged 46–65 hope to embark on a new business venture rather than retire. This is seven times the number of possible start-ups from their parents’ generation – and could amount to one million new businesses.
Their experience and wisdom will be their secret weapon. Ageing baby boomers – and I’m one – realise that, thanks to collapsing pension provision and rising longevity, many of us will have to work until we’re well past 60. I am inspired by the example of my dad, still hugely productive at 80 – with two books due to be published in the next year, on top of the 50 he’s already written. I believe interesting work gives one a feeling of purpose at any age.
Not every venture started by a silver entrepreneur need be a new for-profit undertaking. It might be a charity, a social enterprise, a civic endeavour, a new neighbourhood organisation or a recreational club. We do not, after all, face a shortage of challenges or opportunities – across industry, politics or in communities. There are endless things that could be done more efficiently, or problems to be solved. And while capital might be in short supply, human ingenuity and energy are an infinite resource.
Yet there is a darker potential reason for 50-plus start ups. A recent Channel 4 Dispatches documentary detailed the level of ageism in the workplace, with those over 45 more likely to both lose their jobs and find it harder to find replacement employment. In many cases the veteran generation are taking their revenge by going freelance and doing well in the self-employed world.
Many are also volunteering or acting as a mentor to younger people. It’s a tremendous way to keep in touch with other generations, and contribute knowledge. I occasionally teach a case study at the London Business School, or give talks to groups of students. I find it hugely invigorating to interact with ambitious 20-somethings – keen to learn and with a different perspective on work and life.
America has impressive initiatives like Encore - a campaign to encourage citizens to have a second career in later life. They award The Purpose Prize to those aged over 60 who are taking on society’s biggest challenges. It’s based on the realisation that, for most, a dream of golden years of endless leisure is neither fulfilling nor practical – moreover allowing millions of retirees to do nothing is a vast waste of human talent. Again, my mum reinvented herself as a therapist post-60 – giving her a genuine sense of renewal.
The RSA has seized this cause and wants to work with Fellows to support a new breed of ‘olderpreneurs’ who are willing to take the plunge. We have already commissioned research into possible ways we can help – through advice, perhaps, or networks of support.
I predict many great companies will be started in the next few years, by those brave enough to believe in the future, energetic enough to seize the day, and optimistic enough to deny the possibility of defeat. There is never a perfect time to commence the journey – whether you’re 18 or 60. But the wisdom and connections of the 50-plus generation are a great resource that could help kick-start the recovery from the downturn, and I hope the RSA can contribute to this movement.
The RSA is developing a new project examining the role of older enterpreneurs and the particular characteristics and support needs they may have. At a time when unemployment is rising and the population ageing, this is a timely project and the RSA aims to work in partnership with organisations like Prime Business Club to develop practical ways of working with ‘olderpreneurs’ and the RSA Fellowship.
Luke Johnson is chairman of the RSA and of Channel 4. He is also principal of private equity fund Risk Capital Partners.
2. Young, gifted and hanging out in Shoreditch
In 1999, at the height of the dotcom boom, I co-founded and became CEO of Metrocube Ltd. The goal of the company was to provide a space for young dotcom entrepreneurs; aimed at getting them out of their bedrooms and into an environment where they could incubate their enterprises.
It was a no-frills office – in fact two: one in London’s Shoreditch and another on the Thames across from Tate Modern. But the tech was state-of-the-art and, most importantly, it was stuffed full of young entrepreneurs – all trying to bootstrap ideas that were mostly just beyond their ‘three Fs’ round of funding (friends, family and fools).
Ultimately the bubble burst and most of the young enterprises were carried out in a box. Minus the dotcommers, we were forced to open our doors to all and we eventually sold the company to a serviced-office provider that was more interested in rent deposits and meeting room hire rates than in whizzy kids in baggy jeans.
Crash aside, the idea was a good one because it fulfilled the most fundamental need of a young entrepreneur – other people in the same boat. Sure, young entrepreneurs need funding and mentoring (although most of the successful entrepreneurs I met were better at talking than listening) but their primary need is a network of encouraging people. And Metrocube instantly plugged them into the exciting ‘can do’ world of entrepreneurship.
Yet one or two buildings were never going to make a huge difference. We really need whole urban districts to become magnets for young entrepreneurs – as in the United States. It is no coincidence that 33 per cent of venture capital in the US flows to just two places: Silicon Valley and Boston. Of the rest, another third goes to Los Angeles, San Diego, New York and Austin, Texas.
These are the cities where young graduates and undergraduates congregate. Particularly in Boston and Silicon Valley, entrepreneurship is a way of life. Angel and VC investors float around the coffee shops near the Massachusetts Institute of Technology (MIT) almost as openly as the brash youngsters with their open laptops. Sure the febrile atmosphere can sometimes seem overdone but the angel investors scouring those districts for investments, like a city-wide version of the BBC’s Dragon’s Den, testify to the fact that some serious business is being executed beyond the preppy posturing.
The UK’s version is inevitably more muted, and may need more external encouragement, but it is developing nonetheless. London’s Shoreditch is the most advanced example, with sites such as the Tea Building providing the studio space and connectivity we previously provided at Metrocube. Yet Shoreditch is just the centre of an arc of entrepreneurialism that encompasses Hoxton, Clerkenwell and Spitalfields and is spreading up to Dalston and out to Bethnal Green in search of cheap loftspace and edgy coffee shops.
This is an area that planners dub the City Fringe. It encompasses five London boroughs, which, seeing the potential, got together and created the City Fringe Partnership to encourage entrepreneurialism across a range of, mostly youthful, entrepreneurial sectors.
An interesting aspect of the City Fringe is the enterprises being supported there. While Boston and Silicon Valley have a strictly IT focus, those in the City Fringe are far more likely to involve fashion (clustered around Spitalfields), digital media (Shoreditch/Hoxton), jewellery (Clerkenwell) and furniture (Dalston and Bethnal Green). The purpose is a long way from arts and crafts – the aim is to create scaleable businesses with design at their heart.
The City Fringe Partnership is a great success - having helped nearly 5,000 companies since 1996 - and a strong example of the public sector fostering private sector activity. Sadly, the Partnership is due to close this summer following priority changes at its largest funder, the London Development Agency. Given this, is there a role for the public sector - or even organisations such as the RSA - with respect to being a catalyst for young entrepreneurialism?
Certainly, those trying to encourage entrepreneurial clusters think so. Guy Nicholson is chair of the board for the City Fringe Partnership and Cabinet Member for Regeneration and the Olympics at the London Borough of Hackney: ‘What’s going on in places like Hoxton takes you back to the founding principles of the RSA,’ he says. ‘The arts are being combined with technology and manufacturing for a commercial result. Yet this is being undertaken by the myspace generation. They are creatives – very aware of the value of design – but they are also very commercial.’
So excited are people like Nicholson (a Labour politician in a Labour borough) about the potential of young enterprise in East London, they even see it as a fruitful legacy for the Olympics. Europe’s largest arts college, the University of the Arts London, will open a research and development faculty on the site – an innovation centre aimed at connecting business and design.
Indeed, universities play a pivotal role for young entrepreneurs. MIT is the most obvious example but the Austin cluster is explained by the fact that the city hosts the main campus for the University of Texas.
Meanwhile, Oxford Entrepreneurs is the university’s second most popular society with 3,600 student members. And Cambridge has perhaps the UK’s closest high-tech atmosphere to MIT in Boston. University vice chancellor Professor Alison Richard estimates there are ‘some 250 ventures based on intellectual property or knowledge from the University, 120 of them in the last five years’. These new ventures have combined annual revenue of more than £880m and employ around 9,000 people. And, of course, a smart university faculty in a shiny Olympic Park may encourage VCs and angel investors to travel further east than Mayfair to find talent to back.
‘We admit that clusters in East London are currently more about human capital and energy than connecting ideas with capital,’ says Hackney’s Nicholson. ‘Yet you can find VC investors in Shoreditch and Clerkenwell – perhaps indicating that those areas are maturing after 20 years as young enterprise zones. We expect Dalston to do that in half the time.’
Is there a more direct role for the RSA? Certainly – it can champion the cause of young entrepreneurialism by lobbying central government on their behalf. A recent survey by Middlesex University regarding perceived problems facing young entrepreneurs cited regulatory requirements as the single greatest barrier for a start up, even ahead of start-up finance. Indeed, anyone hoping to employ people immediately faces the Herculean task of complying with a bewildering array of rules and regulations.
Funding is another key area where the RSA can encourage action, from both the public and private sector. Young entrepreneurs need cash, obviously, but the choices are appalling. The ‘lucky’ ones win seed funding from angel investors, but have to give up large chunks of equity in return. Yet bank debt is no better, with few if any bankers ever judging the merits of the proposition and instead looking through to the security on offer from personal guarantees. And even grants from the public sector are no panacea; they tend to be little more than seed corn incentives to buy a laptop or two.
If the government wants to meaningfully contribute perhaps the best idea would be to sponsor a young version of ‘Investors in Industry’. 3i’s antecedents hark back to the creation of the Industrial & Commercial Finance Corporation in 1945 by the Bank of England and the big commercial banks. The goal was to provide long-term investment funding for small businesses in a time of severe economic dislocation.
Yet should any government-sponsored VC offer debt or equity – or both? Further up the ladder in the private equity space there is an alternative – high-priced but high risk ’mezzanine‘ debt that can be triggered to convert to stock under certain scenarios. With mezzanine finance, lenders are taking actual risks on the business plan, for justifiably higher returns, while borrowers are incentivised to stay well within the loan covenants. And it would do the public sector financiers no harm to also adopt the discipline of requiring a return on their outlay.
Certainly, the time seems ripe for the rebirth of such an organisation to generate opportunities for young entrepreneurs – perhaps bringing in entities such as the RSA to ‘encourage the arts, manufactures and commerce’.
Robert Kelsey is CEO of Moorgate Communications and a board member of the City Fringe Partnership