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The Young Entrepreneurs

A REPORT BY GERARD DARBY

RSA ONIANS
FELLOWSHIP

Acknowledgements
We would like to thank the following individuals: Dr Geoffrey Botting Sarah Dinsmore Penny Egan Matthew Fell Hugo Manassei David Millar the following organisations: Association of Independent Music Barclays Bank British Fashion Council Common Purpose Design Council Enterprise Insight The Entertainment and Leisure Software Publishers Association Ernst & Young Federation of Small Businesses Barbara Ormston Maria Stammers Catherine Swift Toni Wanklin Alison Wenham John Wilson

MORI The National Endowment Scheme for Science, Technology and the Arts The Onians Memorial Fund Portobello Business Centre Princes Trust Shell LiveWIRE UK Business Incubation Young Enterprise

the following entrepreneurs: Daryl Arnold, co-founder of Profero. www.profero.com Rebecca Battman, founder of On Brand. www.onbrand.eu.com Justin Cooke, founder of Fortune Cookie. www.fortune-cookie.com David Darling, co-founder of Codemasters. www.codemasters.com James Dyson, founder of Dyson International. www.dyson.com Toby Goodman, founder of Bannerman. www.bannermanuk.com Demis Hassabis, founder of Elixir Studios. www.elixir-studios.co.uk Brent Hoberman, co-founder of Lastminute.com www.lastminute.com Gary Lockton, co-founder of Seriously. www.seriously-digital.com Dominic McVey, entrepreneur. Charlie Osmond, co-founder of Fresh Minds. www.freshminds.co.uk Caroline Plumb, co-founder of Fresh Minds. www.freshminds.co.uk Richard Reed, co-founder of Innocent Drinks. www.innocentdrinks.co.uk Abi Williams, co-founder of Rude. www.rude-products.co.uk

Feedback on the report is welcome. You can contact the author, Gerard Darby, at: Gerard@mundo.demon.co.uk

Note Throughout the PDF versions of the report, interactive links are indicated by colour and a box surround Disclaimer Views expressed are not necessarily those held by businessdynamics, the RSA or its Council. Copyright. businessdynamics 2004. businessdynamics, Enterprise House, 59-65 Upper Ground, London SE1 9PQ RSA 2004. RSA, 8 John Adam Street, London WC2N 6EZ

Foreword
It is three years since the RSA, through its Onians Fellowship, published its first study on young entrepreneurs. In the intervening years significant changes have taken place not just in UK business and industry but also in the attitudes of young people to enterprise and venture creation. The three year mark is significant because whilst a high proportion of businesses are still operating a year after they start, this number falls by more than a third at three years. This study is sponsored jointly through the RSA Onians Fellowship and the enterprise education trust businessdynamics and reviews recent research on young entrepreneurs. It examines the business sectors which young people see as attractive for setting up a venture and profiles some young entrepreneurs who have emerged over the last few years with successful enterprises in less usual sectors. This study makes a number of recommendations for improving enterprise support, some of which have been put forward by entrepreneurs themselves. The most important one is that we need to find more enterprising ways to support young entrepreneurs beyond the start-up stage so that they can grow their existing businesses to generate the wealth that will support others. I am delighted that businessdynamics and the RSA have worked together so successfully on this project.

Sir Paul Judge Chairman, businessdynamics Chairman, RSA

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Executive Summary
Introduction
The focus of the first study on young entrepreneurs was essentially on the challenges a young entrepreneur faces in starting up a venture. This study examines the issues involved in sustaining or growing a business in the UK, as well as the personal characteristics required. Over the last three years there have been a number of new initiatives to help foster an entrepreneurial culture. The impact of some of these is examined in this study, as well as the extent to which they have been effective. The fortunes of some of the 44 entrepreneurs who were chosen for qualitative research in the original study are also reviewed as they face the challenge of sustaining their enterprise in an increasingly fast-changing environment. Within the business sectors that young entrepreneurs are most attracted to, the changes in just three years have been considerable. For example, the computer games industry has enjoyed record growth with sales on games outstripping expenditure on video rentals or the cinema. However, the development costs involved in creating a game have escalated, forcing many studios out of business. In the music industry, the take up of music downloads something that was miniscule three years ago - has grown rapidly to dramatically change the way the industry conducts its business. Some are already predicting, perhaps prematurely, the impending death of the CD. These sectors present specific challenges to the young entrepreneur who not only has to balance creative opportunities with commercial realities but to contend with high entry costs and a culture that fails to recognise the value that businesses in these sectors bring to the economy and wider society. The UK will need to rely more on the entrepreneurial talents and wealth creation abilities of its young people. The population of the UK is ageing and by 2051 it is estimated that one in four people will be over the age of 65.

Key Findings Current situation

Self employment in the UK is increasing. In the year ending 31 December 2003, Barclays Bank saw a 20% rise in new businesses started over the previous year. Young people are increasingly attracted to the idea of running their own enterprise. The number of young people who would like to run their own business has risen from 35% in 2000 to 45% in 2004. Young entrepreneurs are increasingly professional in their approach to their business and its success. More 18-24 year old entrepreneurs embarking on an enterprise prepare business plans than start-ups in general. Contrary to the stereotypes, their motivation in starting a business is mainly the challenge of running their own venture and bringing their ideas to fruition rather than financial gain. Successful young entrepreneurs seem to exhibit an almost uncommon sense of what will make an effective enterprise and they have a propensity to explore niches within a business sector that many others would have ignored or disregarded.

Barriers to entry

Rising levels of debt, together with other societal pressures, such as the need to get into the housing market, is seen by some as a deterrent for young people to opt for self-employment. A particular difficulty encountered by young entrepreneurs is not being taken seriously and this seems, in part, to be a legacy of the dot.com crash.

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Young peoples choices for careers and enterprise are strongly influenced by the media and popular culture. Consequently, business sectors such as fashion, music, computer games, design and e-commerce are ones that they are often attracted to. However, these sectors: have significant barriers to entry are not taken seriously enough by the Government or the investment community are perceived as high risk and have a poor image with investors need better links with higher education so that graduates are fully aware of the commercial realities of setting up an enterprise in them. The young entrepreneurs desire to challenge convention and break out of the mould of established business practice in order to innovate, makes their enterprises difficult to assess when using conventional investment criteria. Many are turned down for funding because investors have equated an unconventional approach to being unsuccessful.

Sustaining a business

Government-supported advisory services are generally not being utilised by young entrepreneurs, particularly after start-up stage. These services are not always visible enough nor tailored to the particular needs of young people. Young entrepreneurs require specific advice pertinent to their business and the sector it operates in. A surprisingly large number of young entrepreneurs are members of trade or business associations. They see them as an effective avenue for advice after start-up and believe they offer potential for other forms of enterprise support such as mentoring from people who have knowledge and experience of their sector. Corporate venturing could be an excellent way of combining the resources of a large company with the inventiveness and flexibility of a small enterprise but it is largely misunderstood in the UK. Business angels and young entrepreneurs could form very effective partnerships that combine the experience and investment of the business angel with the energy and creativity of the young entrepreneur. The potential for this is not being realised. Consumers are becoming more entrepreneurial. Young people are leading this change and are utilising technologies such as the internet to find the best prices for goods and services. They are swift to switch brands if it is in their interest to do so. Successful young entrepreneurs recognise this and develop a dialogue with their customers to understand their views and give them a sense that they are also a partner in their venture. Young entrepreneurs have to contend with increasing amounts of employment legislation that makes them anxious of their responsibilities as employers. This is the area where they most often seek advice. There is an overall lack of assistance for those young entrepreneurs who are seeking to grow their enterprises into larger concerns. More enterprising ways to support young entrepreneurs need to be explored and developed.

Intrapreneurship

Talented young people will be in ever greater demand and an enterprising company culture is crucial if a business wants to attract and retain them. Many young people working within companies are not performing to their full potential. Three quarters believe that their employers underestimate their abilities and as a result over half are planning to leave within two years. The enterprises created by young entrepreneurs are excellent training grounds for would-be young entrepreneurs who can develop entrepreneurial competencies in these dynamic environments.

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Recommendations
Recommendations to the Government
The Government should focus on creating an environment that allows their start-ups to flourish. . In particular it should:

support sources of industry specific advice and mentoring work with trade associations to develop their capacity to support young entrepreneurs reduce the quantity and complexity of employment legislation enable enterprise agencies to develop services that take into account the particular needs of young entrepreneurs provide incentives for friends and family to invest in ventures started up by young people.

Recommendations to Companies and Trade Associations


Companies need to recognise that young people are increasingly selective in their employment and seek much more entrepreneurial working environments that both utilise and develop their talents and skills and offer the opportunity of early success and advancement. In pursuit of this: .
Small and medium sized companies should capitalise on the opportunity that their more flexible and vibrant environment affords which makes them attractive to young people.

Large companies should look at corporate venturing and other methods of fostering a more entrepreneurial culture and giving young entrepreneurs an early opportunity to apply their skills and energy.

Trade Associations should recognise that success in their sector requires a constant flow of new entrants, new ideas and new businesses. In supporting this they could:

establish entrepreneurial units that can meet some of the advice and mentoring needs of young entrepreneurs lobby for appropriate deregulation and incentives for investment in their sectors promote start-ups from their sectors to the investment community recruit business angels from their own ranks and act as a brokerage between them and young entrepreneurs who are hungry for their support find champions who can promote their sectors, their value to the economy as a whole and the talent that they foster.

Recommendations to entrepreneurs
There are clear messages that emerge from the research for young people considering starting a business venture and for those already running one. entrepr epreneurs Would-be young entrepreneurs should explore a variety of sectors in which to develop enterprises, rather than just the popular ones promoted in the media. In order to succeed within these popular sectors, such as fashion and new media, any new business will need to exploit a particular niche and the young entrepreneur will need to be both tenacious and flexible.

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Existing young entrepreneurs could benefit from the valuable advice, based on experience, of their peers so that they can learn how they have dealt with the problems, anxieties and opportunities that enterprise brings. In particular, they should take heed of the fact that according to successful entrepreneurs:

mid-cycle, the vision for a business is as important, if not more so, than it is at start-up. a more operational mindset is needed by the business founder as the enterprise develops. Many entrepreneurs have recognised that this is not where their talents lie and so have brought in people with this particular expertise to instigate and manage the business systems required. investment in good people pays dividends in the long-term. An entrepreneur should seek the best people they can afford whilst nurturing the talents of their existing employees. the employees in companies created by young entrepreneurs have four things that enable them to contribute to the success of the venture: they are informed, engaged, empowered and rewarded. resilience and tenacity are personal traits often needed more by the entrepreneur as a business matures than at start-up.

The previous study can be found at: www.rsa.org.uk/onians/pastawards.htm

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Contents
Foreword, introduction and executive summary Methodology Context Three years on, a more enterprising culture? The influence of the Government The influence of the media The influence of larger companies The influence of consumers The influence of history Business sectors that young people are attracted to Computer games Design Fashion Music New media E-Commerce Page 18 Page 20 Page 21 Page 23 Page 24 Page 25 Page 26 Page 11 Page 13 Page 14 Page 14 Page 15 Page 3 Page 9 Page 9

Recommendations
Intrapreneurship and young people Corporate venturing and intrapreneurship How intrapreneurship is developed by the young entrepreneur Caveats to intrapreneurship

Page 28 Page 30 Page 32

Tips, ideas and insights from young entrepreneurs on sustaining a business Ideas to foster enterprise amongst young people The personal characteristics needed to sustain a business Tips from young entrepreneurs on sustaining a business Case studies Page 34 Page 37 Page 39

Emerging young entrepreneurs Dominic McVey Toby Goodman Caroline Plumb and Charlie Osmond Riding the new media wave Daryl Arnold Gary Lockton

Page 41 Page 43 Page 45 Page 47 Page 49

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Methodology
In 2001, face to face interviews took place with 44 UK entrepreneurs who were under the age of 28 when they started their ventures. This research, together with quantitative data, formed the basis of the first study. Three years on, ten of these entrepreneurs have been re-interviewed to examine how their businesses have fared over the intervening period and what challenges they have faced. The entrepreneurs chosen for re-interview were mainly those who were closer to start-up stage when interviewed originally. Four other entrepreneurs, who have started enterprises in more unusual sectors, were also interviewed for case studies. The qualitative research is complemented by desk research drawing on surveys and studies undertaken by academic institutions and agencies supporting youth business. The RSA, businessdynamics and Gerard Darby would like to thank all these individuals who contributed freely to this research as well as all those organisations that have provided information, surveys and data.

Context
Patterns of working life are changing drastically. Todays young people need to be more flexible, resourceful and resilient in their attitudes and outlook to thrive in a business environment where change and uncertainty are the norm. Young people are attracted to the idea of running their own enterprise and this is a trend that is increasing. Research undertaken on behalf of businessdynamics shows that the number of young people who believe they would eventually like to run their own business has risen from 35% in 2000 to 45% in 2004. Obviously the number of young people who actually go on to set up an enterprise may be considerably lower but self-employment in the UK is generally increasing. In the year ending 31 December 2003, Barclays Bank experienced a 20% rise in new businesses over the previous year. Whilst there has been a lot of effort to facilitate and encourage business start-ups, there is less emphasis on enabling these ventures to be sustained or to grow. The number of VAT registered businesses still operating after a year in the UK is just over 90%, but this falls quite significantly at three years to around 66% with one in three of these businesses having ceased trading. The failure rate is likely to be considerably higher amongst businesses started by young people but little effort has been made to understand the reasons for this. It is often cited that young people are suited to enterprise and self-employment because they have less to lose. However, is that still the case today? The levels of debt among young people are increasing with students in the UK expecting to leave university with an average debt of 10,205. Whilst most of these debts are student loans, bank overdrafts and personal loans are also common. 34% of students have an overdraft of, on average, 1,244, while 5% have personal loans of 3,313 on average. Students borrow from a wide range of sources - credit cards, store cards, catalogues as well as family and friends. One in ten (10%) owe their parents an average of just over 2,000 and 2% have borrowed around 800 from friends. The average start-up cost of the young businesses who participated in the Shell Livewire Awards in 2004 was 16,616. It is very possible that with such high start-up costs and levels of existing debts, young people may be discouraged from self-employment and seek a more stable means of earning an income, at least until their debts are reduced. We are going to be relying more on the entrepreneurial talents of our young people. The population of the UK is ageing. The 2001 census showed that for the first time there are more people in the UK over the age of 60 than under the age of 16. This trend is projected to continue, and by 2051 it is estimated that one in four people will be over the age of 65.

Student Attitudes to Business. NOP World 2004


Barclays Start-ups and closures report

Student Living Report 2004. MORI and UNITE

Shell LiveWIRE Regional Finalist Report 2004

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THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE THE YOUNG ENTREPRENEURS REVISITED URSTHEYOUNGEN TREPRENEURSTH Three years on, a more EYOUNGENTREPR ENEURSTHEYOUN enterprising culture? GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY The influence of the Government OUNGENTREPREN The influence of the media EURSTHEYOUNGE NTREPRENEURST The influence of larger companies HEYOUNGENTREP The influence of the consumer RENEURSTHEYOU The influence of history NGENTREPRENEU RSTHEYOUNGENT REPRENEURSTHE YOUNGENTREPRE NEURSTHEYOUNG ENTREPRENEURS THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR ENEURSTHEYOUN GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY

The influence of the Government


There have been a number of new Government initiatives over recent years to encourage enterprise. Many of these have been aimed at the education sector, following the publication in 2002 of the Davies Review into enterprise education. A significant new investment in enterprise education will provide all pupils from 2005/06 with the equivalent of five days of enterprise experience by the end of Key Stage 4. In addition, the Learning and Skills Council in 2004 made 16 million available over two years to fund Enterprise Advisers. These advisers will work alongside head teachers in around 1,000 secondary schools in the most disadvantaged areas, to help deliver enterprise education and encourage enterprise practice among teachers and pupils. It is too early to assess the impact of this investment but there is clearly a demand from students for such learning and it is has impact. For example, the enterprise education charity businessdynamics found that 72% of students who had experienced one of their events believed it had opened their eyes to a wider range of careers. There have also been other Government initiatives to develop the profile of entrepreneurship outside of education. The Chancellor of the Exchequer, Gordon Brown, has launched a competition to select a British capital of enterprise and the organisation Enterprise Insight, with backing from the DTI, has instigated an Enterprise Week to highlight the work being done by many agencies in the UK to foster enterprise amongst young people. Whilst these are encouraging initiatives, young entrepreneurs feel that some aspects of existing Government support and policy could be improved. In particular, the amount and complexity of employment legislation needs to be reduced and the accessibility and quality of business advice needs to be enhanced.

Student Attitudes to Business. NOP World 2003

Government-funded advisory services


Young entrepreneurs generally do not make much use of Government-funded advisory services, particularly after start-up, and there are a variety of reasons for this. Some of these are similar to the reasons businesses generally do not use these services. The biannual survey of small enterprises in the UK undertaken by Federation of Small Businesses found that only 17% of businesses had used Government-funded business support services in the past year with the major reasons for nonusage being a lack of awareness of the services and a perception that they were inappropriate to an individuals business. Reasons for non-usage of Government funded business support services: Not aware of these services 27.6% Inappropriate for my business 22.9% My business needs are excluded from targeted support 8.3% Better advice offered elsewhere 7.8% Past experience of using service 7.7% My business sector is excluded from targeted support 5.7% Unqualified advisors 5.3% None ticked 32.1% With so many entrepreneurs feeling that Government-funded advisory services are inappropriate to their business and with one in five businesses seeking advice from trade associations, it would be more effective to provide a greater amount of sector-specific advice channelled through these associations. There are a surprisingly high number of young entrepreneurs who are members of business associations. When Shell LiveWIRE surveyed entrepreneurs they had supported, they found that 43% are members of trade associations. Many of the young entrepreneurs interviewed for this

Federation of Small Businesses. Lifting the Barriers to Growth in UK Small Businesses. 2004.

Shell Livewire 21 Years On Survey Report

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research have advocated the provision of more sector-specific advice delivered by professionals who understand the particular needs and challenges of their sector. The Portobello Business Centre in London has established a number of sector-specific training courses as well as one-to-one advice sessions delivered by industry professionals for individuals who want to start fashion, music or restaurant enterprises. This has been directly in response to demand from clients and the courses and advisory sessions are all now heavily oversubscribed. Maria Stammers, an advisor at the centre, believes this sector-specific approach can complement the general business advice that is delivered:

You can find general advice out there. There are loads of websites, there are loads of books that will give you general business advice but when it is industry specific thats quite difficult. People know what they need and know specifically the information they want. Maria Stammers

One interesting view put forward by Alison Wenham, a former-entrepreneur and now Chief Executive of the Association of Independent Music, is that seeking out advice goes against the entrepreneurial character: Generally the young entrepreneur is counter cultural. That is a quality that is both a positive and a negative because it makes people brave, tenacious, stubborn and pushy but it also means that they wont seek help where help is offered because at that very basic level, that is not what entrepreneurs do. It is worth finding a mechanism to encourage young entrepreneurs to seek help, advice, mentoring and support because it is going to be good for them provided it doesnt tarnish that entrepreneurial gene. Alison Wenham

It does indeed seem to be part of the characteristic of the entrepreneur, not just to work things out for themselves, but also to challenge conventional wisdom. Some entrepreneurs have even found advantage in this.

People give you very good advice along the way and you mustnt accept it all, just listen and work it out for yourself. So work it out for yourself and dont be afraid to ignore people. In fact, the moment somebody gives a bit of advice explore the opposite and the potential of the opposite. James Dyson

Employment legislation
Many of the young entrepreneurs interviewed for this study felt that they now have to contend with increasing amounts of employment legislation, more of which is in the pipeline. This legislation is putting considerably more onus and responsibility on the employer. Young entrepreneurs identify personnel/staffing issues as the biggest challenge they face in setting up and running a business and the area that they particularly need advice on. 97% of the finalists in the 2004 Shell LiveWIRE awards sought help on recruitment and personnel issues which was considerably higher than other areas where advice was sometimes sought such as business planning, market research and finance.

Shell Livewire 21 Years On Survey Report

I do think employment law has gone slightly crazy. I absolutely believe you need it and absolutely want people to have their rights protected but there seems to be an ever increasing amount of legislation coming out . ...The Governments efforts, if it really wants to protect the people, should be to go out and nail the bad guys and not keep writing more legislation. It makes employers nervous and doubtful about what they should be doing this week. Richard Reed

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Its a nightmare. Why would you want to do it? It is so onerous as an employer to take on an employee now and it seems all the weight is in favour of the employee. Im all for employees having rights. Im all for them not being unfairly treated but the reality is that it can be extremely tough when youre running a business and you need to be able to scale up and scale down according to what is happening in the market place and with your particular customer base. I think the Government makes it almost impossible to do that. They certainly put me off wanting to run an organisation with a very significant number of people in it. Rebecca Battman

The Federation of Small Businesses has found with attitudes to legislation generally, there is a very strong association between the number of years in business and dissatisfaction with various items relating to legislation. Essentially, the longer ones experience of business ownership the more dissatisfied one becomes with legislative issues.

The influence of the media


Over the last few years there has been a much greater media interest in entrepreneurship with television programmes such as The Mind of a Millionaire as well as more newspaper stories and features on business success. These stories often focus on get-rich-quick schemes and people are often portrayed as overnight successes. This is painting an unreal picture of enterprise and whilst the rather long, hard slog of the entrepreneur isnt exciting for the media, surely their non-conformity, their resourcefulness and their struggle against the odds should be. The medias preoccupation with the financial rewards enjoyed by entrepreneurs runs counter to the prime motivations that entrepreneurs, and in particular young entrepreneurs, have for setting up their enterprises. A survey of 15 to 19 year old students by HSBC Bank and Young Enterprise found that very few young people were motivated to start their own business to become wealthy. Instead, they cited the challenge (28%), the desire to do something they enjoy (26%) and having control over their destiny (20%) as being the prime motivators for going into enterprise . The entrepreneur role models put forward by the media still tend to be white, male and middle-aged. In particular, there is not enough recognition of the enterprising talent from black and ethnic minority communities. Black people are more than twice as likely as white people to set up a business independently, or to be involved with a job related start-up and five times as likely to be Business Angels. Similarly Asians from the Indian sub-continent are twice as likely to be involved in start up activity, and three times as likely to be Business Angels. One of the most positive developments in the media in recent years has been their encouragement of young people to develop ideas for business. In 2001, BBC2s business programme, Working Lunch, in collaboration with the Design Council launched The Big Zipper Challenge to find the most innovative ideas Britains schools can produce and in 2004, Enterprise Insight launched Make Your Mark Start Talking Ideas to inspire young people to develop enterprising ideas. Also in 2004, Channel 4, independent production company Media 19 and NESTA (the National Endowment Scheme for Science, Technology and the Arts) teamed up to run Bedroom Britain, a campaign to encourage young people to put forward their ideas for social or business enterprises. In this scheme the participants received a valuable combination of guidance, mentoring and information to enable them to develop their idea further. Perhaps the most unexpected contribution of the media to encouraging entrepreneurial interest in the public has been the large number of programmes and features focussing on how people have radically changed career or lifestyle. Television programmes such as Faking It, Risking It All and No Going Back allow viewers to see people seizing the initiative and adopting new lives for themselves. It seems to have the general effect of imbuing a can do attitude leaving some viewers with the feeling well if they can do it, so can I!

HSBC Young Enterprise Student Survey 2004

Global Entrepreneurship Monitor UK Survey 2003

A lot of my friends have hit 30 and theyre setting up businesses and Ive seen quite a lot of that going on. I think there are so many TV programmes about DIY, changing your life and I think it has had a positive impact. I think people are pushing themselves more and thereby making it a more entrepreneurial society. Abi Williams

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The influence of larger companies


In the last Young Entrepreneurs report, it was bemoaned that corporate venturing, the term used to cover a range of initiatives whereby larger companies work in partnership with smaller ones to develop new business opportunities, had not taken off in the UK. There has been little progress on this front despite the fact that a number of initiatives have been introduced to try and spark greater awareness of the potential for corporate venturing. For example in June 2002, the DTI through the Small Business Service invested 1.4 million in Corporate Venturing UK. This aimed to stimulate take up of corporate venturing by educating businesses about its benefits and providing a market place and administrative resource for corporate venturing deals. Matthew Fell, head of enterprise at the CBI, believes that companies and their suppliers need to work together first to develop partnerships and that there still needs more information and education about corporate venturing:

On both sides, the small company and the large company, a lack of understanding still comes out what are we actually talking about here with corporate venturing? What does it mean in practice? What are the benefits that I can derive from it? On the small firms side the lack of trust and wondering what are the motivations of the larger companies is still an issue. Matthew Fell

The influence of the consumer


Over recent years there has been an increase in the number and accessibility of technologies which enable consumers not only to purchase goods relatively easily online but also sell them. Many individuals have experimented with trading on a small scale through websites such as e-bay and have done so with no business overheads or business knowledge. Some have been enthused by this and gone on to develop their micro-enterprises into larger concerns. At the same time consumers are now utilising the internet to seek out the best possible deals for goods and services. Technologically-savvy young people who are swift to switch brands if it is in their interest to do so are leading this development. As a consequence companies now have to continually re-examine their offering to the customer and develop new ways of keeping their brand alive. Some marketing organisations are now warning of growing brand apathy. One survey has revealed that within the space of a year the number of customers showing a genuine preference for or commitment to brands or companies has dropped from four in ten customers to just three in ten .

Carlson Marketing Group, Relationship Builder Survey

People are more entrepreneurial about things generally. Customers are more selective and they are using any means possible to get the best deal. Gary Lockton

Many companies are waking up to the fact that customers are becoming more enterprising and subsequently can offer them ideas on how they can innovate. Research from the Design Council has found that nearly all rapidly growing businesses get new ideas from their customers, compared to just over two thirds of businesses as a whole.

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Source of ideas Customers Internal discussion Suppliers Competitors actions Internal R&D

All companies
68% 41% 32% 20% 11%

Rapidly growing companies


95% 74% 32% 11% 21%

The Design Council

What seems to characterise those successful businesses founded by young entrepreneurs is an ongoing dialogue with customers, not only to make them feel that they are being listened to, but also to give them a sense that they too are a partner in the enterprise. For example, smoothie-manufacturer Innocent Drinks e-mails out a light-hearted weekly newsletter to all their customers that includes news on company developments as well as staff gossip. They encourage customers to visit their offices if they are in the area, they run regular competitions asking customers to create new recipes and they organise events that members of the public can go along to. In 2004, their free music festival, Fruitstock, was attended by 81,000 people. Their customerfocussed strategy certainly seems to work with sales of Innocent drinks having increased from 1.8 million in 2000 to 10.7 in 2003. Brent Hoberman, founder of lastminute.com, has taken steps to ensure that there is customer feedback in all parts of his website: I think listening to customer feedback is absolutely key and I make sure we ask on almost every page of the website what our customers think and I read through most of that. They rate our site, they rate our pages and they rate our product. We ask them before buying from us what they think and when theyve bought from us what they think. Brent Hoberman

The influence of history


It is interesting that whilst the dot.com crash occurred several years ago, many young entrepreneurs still complain today of the negative impact its legacy has on how seriously they and their ventures are taken. The majority believe the crash was a much-needed reality check but that it has made and continues to make business life for young entrepreneurs tough.

I think there has been a massive counter-reaction to the dot.com stuff. I think that has made it a lot harder for anyone involved in any kind of technology venture to get investment..I think everyone has got a lot more cautious but I dont think that necessarily is such a bad thing. Im glad that world has gone because it was damaging. It was such a fantasy world and it went on for too long. We are still feeling the fall out from that ... It has made being an entrepreneur harder and there is more of a stigma attached to it than before. Demis Hassabis

I think the dot.com exercise dealt entrepreneurialism a huge blow. I think it was the unacceptable face of what enterprise is all about. It was about not really getting the heart of a business right. It was all about the money and the financing and to some extent the brand the gloss on the outside - without actually having the fundamental principles or dynamics of the business very robust. The reality is that to create, build and grow a good business takes a long time. It is not something that can be done overnight. Rebecca Battman

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Not being taken seriously is one of the biggest challenges in the course of running a business cited by young entrepreneurs; a difficulty perceived to be considerably greater than attracting funding: Problems experienced in the course of running a business Not being taken seriously by colleagues or business contacts Age discrimination by suppliers or customers Difficulties in attracting funding to the business Age discrimination by institutions or the Government Lack of support from family or friends None of these 44% 36% 30% 17% 10% 30%
Young Entrepreneurs. Tomorrows Business Leaders. Barclays Bank.

Although they may not be taken seriously, young entrepreneurs demonstrate considerable seriousness and commitment to their business and its success. More 18-24 year old entrepreneurs starting out prepare business plans than start-ups in general 43% have a business plan compared with the 39% of all start-up businesses. Just over half of these young entrepreneurs research what their competitors are doing and 80% seek advice before starting. The majority are motivated by the challenge of running their own venture and bringing their ideas to fruition rather than by purely financial gain . One of the particular attributes that characterises a young entrepreneur is the desire to challenge convention and break out of the mould of established business practice in order to innovate. However, a consequence of this is that they and their businesses are often difficult to assess when using conventional investment criteria. The crucial thing is that there needs to be a wider appreciation by investors that in business unconventional does not necessarily equal unsuccessful. Innocent Drinks, an enterprise co-founded by Richard Reed and two other college friends in 1999, was turned down on several occasions for a loan through the Governments Loan Guarantee Scheme when they applied at the start of their venture. They were also not viewed as an attractive proposition for venture capital investment. In 2003, their annual sales rose to 10.7 million.

Young Entrepreneurs. Tomorrows Business Leaders. Barclays Bank.

He said that we broke five out of five rules in the investors handbook. We were too young, had no experience of running a business, no experience of the sector, we were all friends and we hadnt appointed a leader. Richard Reed

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THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE THE YOUNG ENTREPRENEURS REVISITED URSTHEYOUNGEN TREPRENEURSTH Business sectors that EYOUNGENTREPR ENEURSTHEYOUN young people are GENTREPRENEUR STHEYOUNGENTR attracted to EPRENEURSTHEY OUNGENTREPREN EURSTHEYOUNGE Computer games NTREPRENEURST Design HEYOUNGENTREP Fashion RENEURSTHEYOU NGENTREPRENEU Music RSTHEYOUNGENT New media REPRENEURSTHE E-Commerce YOUNGENTREPRE NEURSTHEYOUNG Recommendations ENTREPRENEURS THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR ENEURSTHEYOUN GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY

Young peoples ideas for careers and enterprise seem to be strongly influenced by the media and popular culture. Consequently fashion, music, computer games, new media, e-commerce and design are increasingly popular avenues for a young person to explore for a potential enterprise. There are specific challenges to starting up and sustaining a business in these sectors: they are generally viewed as being high-risk, often have a poor image by those in the investment community and require the entrepreneur to balance creative opportunities with commercial realities. These sectors are also volatile and subject to rapid change both as a result of transformations in the business environment and the technologies that support them. As such, they are not easy sectors for a young entrepreneur to enter but offer young people the opportunity to combine their passions with the flexibility and energy that is needed to navigate businesses in such highly changeable territories.

Computer games
On the surface, the computer games industry seems an attractive avenue for a would-be young entrepreneur. The UK is renowned for having some of the best gaming design talent, the games market in this country continues to expand and sales of computer games are increasing. The statistics are certainly encouraging - the UK games market is worth more than 2 billion, it is the biggest in Europe and the third largest in the world, after the USA and Japan. In 2002 total UK leisure software sales were 1,081 million, the highest value ever reached . Despite the growth in sales of computer games, however, several small British game studios have gone bust or into receivership in the last few years and very few have started up. The main problem for smaller businesses in the sector is the escalating costs of creating a good game. For example, in terms of development costs an average game might now need in excess of 2 million, whereas ten years ago it was 200,000. Commensurate with the increased costs is an increase in the time needed to develop a game. Demis Hassabis, who founded his development company Elixir Studios at the age of 21, originally estimated the development time needed for his studios first game Republic to be three years; in fact four and a half were needed. Some of this delay he attributes to having to build a company at the same time as building a game and also from getting excited by the creative development of the game without enough regard for the time that such innovations would require.

Entertainment and Leisure Software Publishers Association. White Paper. 2003

We went for more ambitious decisions at every stage because it excited us. Rather than if wed had more experience, especially on the programming side, we might have realised that we were setting ourselves up for a lot of pain. Demis Hassabis

Given the costs and timescales involved in producing a game, publishers are now looking for pilots or working demonstrations before they make an investment decision. Such pilots can cost up to 250,000 to produce and entail a small independent taking a significant risk.

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It means that you have to leave even more time now to negotiate a deal because it takes usually a year now from first talking to a publisher to signing a deal. How many people can afford to keep it going when they havent got any money coming in? You also have to take your game a lot further before a publisher will buy it. So before I could just a take a piece of paper in and do a great presentation and that would get it signed. Now you have to have a full complete level with proper graphics, the whole thing. That costs a lot of money. Demis Hassabis

Whilst the production costs have increased, the retail price of games has not risen proportionately and royalty rates have remained static. As a result, the number of units which a game must sell before publishers recoup advances and developers start to earn royalties, is much higher. Consequently publishers are not likely to take risks with the titles they choose to invest in and so games tied in with a popular television show or sporting event are becoming increasingly attractive, although the licences for these are in turn becoming increasingly expensive. David Darling is the co-founder with his brother of the immensely successful computer games developer and publisher, Codemasters. His success has enabled him to have the funds to acquire expensive licences for a number of successful television programmes and sports events including Pop Idol, Who Wants To Be A Millionaire and World Championship Snooker. He believes having a very good or creative idea for a game is no longer enough:

The industry has developed. You have to have big marketing budgets and big development budgets. Its not just about having a good idea. Its about the infrastructure to support that all the way through development, marketing and distribution. David Darling

Some in the industry believe that developers need to scale up into larger concerns if they are to survive, although some developers believe that large teams can restrict the creativity that UK developers are noted for. Many in the games industry feel that it suffers from a lack of recognition, given its size and value, especially within the financial sector and Government bodies. This is especially important for developers, as the more a development can be funded by the developer themselves, the better the terms they can reach with a publisher for royalties and the retention of Intellectual Property. This in turn will allow it to self-fund growth or future development.

I dont think that the financial industries have taken the time to understand games. I think the financial industries in general are quite suspicious of anything creative anyway because it is harder to pigeon-hole and they also worry about things like what if your lead creative leaves? And how you replicate a success? I also think the fault lies on the games developers in that we werent professional enough. A lot of the developers that went under didnt have professional enough management structures and fiscal controls. Demis Hassabis

Whilst the setting up of a development studio may not today be a realistic option for a young entrepreneur given the investment required, the industry does need to find a way of engaging with young enterprising talent. There is considered to be a general shortage of business and management skills within the industry and this is holding it back in improving its level and image of professionalism. In part this is due to the fact that there are few university courses to develop the skills the industry needs.

There have been some very successful university courses set up for the (computer games) industry and if that was expanded that would be useful. ...There are loads of courses you can go on to be a dentist or a vet and its completely set up. But its only in its initial stages if you want to be a games designer or a games programmer or a games artist. Theres not much support at the moment to encourage the people and the industry is only as good as the people within it. David Darling

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Perhaps one route for new entrants into the industry is the still largely untapped mobile games market. With around 75% of the UK population now owning a mobile, it is potentially lucrative.

Design

I think there is plenty of room for creative and entrepreneurial people but its more in new business segments within the industry. So maybe mobile games. Gambling and games is also a segment that is expanding very rapidly and subscription-based PC games are expanding and browser games. There are areas where the markets havent developed and they are completely open to people being innovative and developing new business models. David Darling

Despite difficult economic conditions, many UK businesses now say design plays a key role in their operation. The feeling is strongest and becoming more widespread among small and medium-sized businesses. Hugo Manassei co-founded two very successful design agencies, one in London and the other in New York. He now runs the Creative Pioneer programme for NESTA (the National Endowment Scheme for Science, Technology and the Arts) which takes selected design graduates and those from other creative sectors on a programme to help them develop an enterprise with residential training, mentoring and start-up funding. He believes that design graduates often do not appreciate they have inherent skills for enterprise:

Generally designers who graduate and want to set up a business, they think okay, I dont know anything about business I have to learn about business and actually I disagree with that. I think it is not a question of looking at a text book and soaking up loads of information and then thinking oh I know about business now. It is much more about recognising that they know more about business than they think they do. Setting up an enterprise is a creative project, it is a design project in itself. Too many people when they start up in business go to see an accountant and say what do I need to do? rather than go to an accountant and say this is what I am doing and this is what I need you to do. Hugo Manassei

There has been an increase in the number of students taking undergraduate and postgraduate design courses in the UK over recent years, and this has had a knock-on effect on the number going on to set up their own agencies. Whilst the large number of individuals starting design businesses means that competition amongst agencies is intense, small agencies have the advantage that they can undercut larger companies.

It has been a tough few years for big companies and it has been a great few years for small companies because they dont have so many overheads and the service sector has been hiring smaller companies because they tend to be cheaper. I think it is a good time to set up a small business. Hugo Manassei

Rebecca Battman, founder of On Brand, which today is one of the largest brand agencies in the Midlands, agrees that there is opportunity for young entrepreneurs to start design businesses but believes that it is becoming more competitive:

There is still such an appetite for people who do good creative work who have interesting new ideas. So much of this world today relies upon people who have a great idea and have a way to communicate that. So I think there will always be a need for people in the design and marketing sphere. I think it is tougher today in many ways because youve got very design savvy and creatively intelligent clients out there. They know an awful lot more about what theyre buying and they can shop around. If the market is tough, they can get an extremely good deal. Rebecca Battman

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Design is still largely a cottage industry in the UK with many studios with around ten employees. Only seven of the private independent groups listed in Design Week magazines Top 100 league table in April 2004 have a fee income of more than 5 million. The small size of design agencies is a problem when they seek bigger professional investment as large financial investors tend to avoid deals which are seen to be too small to be worth investing their time and resources. As a result, private equity with its investments of usually 1 million or 2 million has not been a significant player in the field. Generally high street banks are happy to lend but not to invest. This effectively leaves a funding gap with the potential of business angels, a useful source of funding for young entrepreneurs, as an option to fill this. As with the other sectors identified in this report as being attractive to young entrepreneurs, the design industry is generally viewed by investors as high risk. This is often because design agencies tend to have to rely on a small number of clients for work and a small group of in-house talent to do it. For young design entrepreneurs seeking funding, the other problem is that investors want to see five years of profits and a good spread of clients. Whilst there are a large number of design courses available to students, Rebecca Battman does not believe that they have enough contact with commercial design agencies and that is to the detriment of their students:

I am running one of the Midlands premiere brand/design agencies. I have not had a single phone call from any of the colleges saying would I come and talk to their students. That applies to me, to my co-directors, to my creative director and the designers who work here. It seems absolutely amazing that nobody is asking for our help and we are desperate to give it. Rebecca Battman

Hugo Manassei is, however, concerned that design colleges stay focussed on developing the creative aptitude of their students and that development agencies or intermediaries are used to inculcate business skills.

What art schools and design schools do is develop the creative process. You are dealing with people who are exploring themselves, who go off in weird tangents and look at the world in strange and different ways. I think that really needs to be celebrated. When you see courses that produce people who are very commercial, there is not a lot of creativity in there. I think when people are learning about creativity, they dont want to be learning about business. I am concerned about the standard of creativity coming out of art schools in this country because I worry that with rising numbers, its diminishing. I think that is what we should be worrying about not worrying whether or not they come out with business skills because business skills are pretty easy to learn and also the best ways of learning business skills is on the job. Hugo Manassei

Fashion
The fashion industry is very popular with young entrepreneurs, although it too is becoming very competitive. Whilst the entry costs appear quite low, the reality is that an entrepreneur has to pay for production costs up front and there are trade shows where a presence can easily cost 5,000 as well as PR costs that are needed to establish a brand. Such entry costs means that many young people are trying to enter the fashion industry with bags, jewellery or T-shirt enterprises, but the market for these is becoming very crowded.

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John Wilson, Chief Executive of the British Fashion Council, believes that a lot of young designers entering the sector do not have a grasp on commercial realities and appreciate what can sell:

It is the commercial reality of turning what they believe is a wonderful idea that they have dreamed up in college into what actually can be made into a commercially sensible garment. For example, the type of fabric they might want to use because they believe it looks superb may be totally impractical from a commercial point of view, either to source or to justify the cost of. A lot of silk in a garment or some very expensive fabric that they might ideally want, actually from an overall costing of the end product would just not sustain itself. Understanding what in commercial reality out of the idea could actually sell in a commercial world is often lacking. If youre not careful you get into the position of producing something which may be absolutely beautiful but from a point of view of the selling price to cover all your costs and to produce a profit on it would be commercially unsustainable. John Wilson

Since the publication of the previous Young Entrepreneurs report there has been a significant decline in UK independent fashion retailers to whom independent fashion designers can supply to. The views and experiences of Abi Williams, who co-founded the fashion label Rude, are ones shared by many young fashion designers:

The biggest challenge is what has happened in the fashion high street in terms of people like Top Shop, Hennes, Mango. Theyre turning things round off the catwalk in six weeks and have up to date stuff, really cheap, constant turnover and really creative stuff in there. I think the fashion industry has definitely suffered as a result, especially in the last year. Ive seen a lot of shops, small independent shops, go out of business and thats mainly who we deal with. The little independents cant survive, its really difficult. They are buying in labels like ours and the price point is 30 or 40 a T-shirt and you can go into Hennes and get a really good T-shirt for 15. People like Top Shop bulk buy so they get ridiculously cheap T-shirts in their shops and theyve moved all their production over to the Far East. Abi Williams

Another problem for small independent designers is that they clearly do not have the financial sway of larger businesses and so can find themselves at the back of the queue when it comes to manufacturers completing their orders.

Manufacturers are always going to make stuff for larger clients first. We work with factories that make for Next, so they are always going to put their orders down first and then do ours at the end. Consequently we were two months late on delivery last season and half of the shops returned stuff. Abi Williams

Whilst managing cash-flow is a challenge for most small businesses, it is particularly an issue for those in the fashion industry as it is completely different to any other industry, in terms of when money comes into the business. Many fashion businesses only bring in money twice a year with each season and generally have to pay for the production costs of garments up front. At the same time quite a number of young people starting fashion businesses can become so preoccupied with their designs that they lose sight of the business and the cash-flow and then end up in trouble.

There is a very long pipeline here when a first sample is done for a collection and when it finally gets into a store and the designer gets paid. That is incredibly difficult for cash-flow. It can almost be as long as a year from when they have their original idea, they sample it, they put it into the collections at a particular fashion week, they get their orders, they then have to produce it. By the time it gets into the shops and gets sold, it is virtually a year. John Wilson

Cash flow has always been a nightmare..Youre sending stuff out and they are up to twelve months in paying sometimes because they literally cant pay. So weve been cash-flowing other people with money which we dont have. Abi Williams

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Abi Williams has found that flexibility has been important to sustain her business over recent years. She has also developed a consultancy side to the business that has provided a useful revenue stream when times have been difficult. John Wilson believes that fashion design colleges need to prepare their students more for the commercial world and that students need to be more responsive to this aspect of their studies:

There is a weakness in the course content that we have for fashion design. In terms of fashion design itself we are probably the best in the world but for the commercial part of life that everybody needs, were not very good. I dont think that is entirely down to the colleges, a lot of it is down to the fact that the students just dont want to know. ...I think we do have a problem that we produce wonderfully creative people who obviously want to go on and make their own collections and get out into the big wide world of fashion but really have got very little business strength behind them and very little finance. John Wilson

Music
The music industry is one of the UKs biggest and most culturally significant industries. In 2001, it generated over 130,000 jobs, contributed 3.2 billion to the value of the UK economy and earned around 1.3 billion through exports . The economic contribution of the music industry is one that is often overlooked but Alison Wenham, Chief Executive of the Association of Independent Music, feels that even the cultural contribution is not appreciated enough:

Banking On A Hit. Department for Culture, Media and Sport. 2001

Im not sure that the cultural contribution is recognised. The idea of culture equating with pop music or modern music is still a challenge for us to get across and that is as much a part of the cultural fabric of society albeit in a popular way as art and literature. I think we are turning the corner but I wouldnt assume that you can put culture and music in the same sentence and feel the political response would be comfortable. Alison Wenham

Over 90% of music businesses are SMEs and the sector is a popular route for young entrepreneurs. The entry costs appear to be quite low. A survey by the Department for Culture, Media and Sport (DCMS) found that 77% of music businesses used personal savings and well over half used less than 10,000 to start their enterprise . Although the entry costs are relatively low, entry into the sector is difficult for other reasons.

Banking On A Hit. Department for Culture, Media and Sport. 2001

Structurally the industry is not particularly well-endowed with market entry opportunities. We are very grown up in the off-line world which makes market entry extremely hard. Its difficult enough to get to market to even test whether your A&R is as good as you think it is. Alison Wenham

As well as at start-up stage, internal finance is also the main route for companies seeking to grow. The same DCMS survey found that 41% of music small businesses use only internal finance to fund their growth in comparison to 26% of small businesses generally. The most frequent reason given to those music businesses refused finance at start-up and development was that of being too high risk. 29% of music businesses refused finance at development stage were given this reason, compared to just 18% of small businesses generally.

I feel that the finance industry has not yet made massive change of mentality towards different types of financial mechanisms that accommodate the greater risk. So you could have mezzanine financing which is convertible equity, you could have higher interest rates. There surely should be more flexibility in the way in which investment is made available. Alison Wenham

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The difficulty is not just one of risk. Most SMEs in the sector require a level of investment that is below the threshold of most venture capital companies and so business angels, as in many of the business sectors that interest young people, are the most appropriate investors to meet this funding gap.

I think business angels need to have tax incentives. I would like to see the tax breaks which have been so successful in encouraging private investment into the film industry expanded to include other creative industries like music. It would remove some of the nervousness that traditional finance communities feel about investment in the music industry. Alison Wenham

The music sector has experienced rapid change over recent years, much of which has been prompted by technological changes, particularly by the significant growth in downloading music from the internet. In the first six months of 2004 more than 500,000 songs had been downloaded legally in the UK. The growth of virtual music superstores such as iTunes and Napster in the UK signal an uncertain future for record stores. At the same time sales of singles have been falling with the slide stifled in 2004 only by the introduction of the double single. Music itself is now competing for peoples leisure time with a much wider range of activities such as the internet, DVDs and computer games. Whilst the media has been preoccupied mainly with issues of piracy and illegal downloading of music from the internet, music industry experts expressing their views in a recent RSA report felt that the laws and business practices that have grown up around the industry are the main issues facing the industry. Views put forward by the industry experts were that:

Copyright laws motivate and reward corporations and lawyers rather than artists. . The global royalty collection system must be reconfigured for both an electronic and global music marketplace. With a European Union of 25 countries, an artist may need up to four licenses per country to deliver a commercial music service to all of Europe. Instead one-stop shops to facilitate trade are needed. Monopolies and near-monopolies control the global music market with adverse consequences for artists and innovators. These monopolies control the means to make or break artists including . access to the broadcast airwaves at a time when only the largest players can afford to pay the huge sums required to be included on many radio play lists.

Music and technology. Visions of the future. RSA. 2004.

New media
Of all sectors examined in this study, the new media industry has experienced some of the most turbulent of times with sudden growth and expansion followed by sudden downturn. One entrepreneur recalled how in one quarter of the year his business gained its greatest number of new clients and then in the following quarter not a single one of these spent any money. A combination of the advertising recession and the economic downturn generally hit the new media sector very severely and relatively suddenly. Many young businesses in new media failed to survive.

You came back from Christmas in January and half the work you thought you were doing had disappeared and then it got worse from there. Gary Lockton

The market was crazy and it would have been very hard to grow organically during that phase. There werent many companies that were growing through that phase that are still around. Justin Cooke

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The young entrepreneurs still working in the sector are understandably cautious about opportunities for new entrants.

I say nobody should try and start a digital agency at the present point in time because youve got all the big boys trying to squeeze you. You need to invest a lot of money and time to have the right infrastructure to service clients. Daryl Arnold

There is still huge potential, but people would have to be very niche. It would have to be a very niche idea and well defined. Youll have either found a specific product, a specific market or a specific service. Look for things that people havent done, look for things that people need. Look at services that can combine a number of different aspects and bundle them into one. Justin Cooke

Some believe that the corporate technology market has reached saturation and that it is the consumer home market that still has scope for exploitation. This potential is facilitated by consumer electronics converging across technologies and as a result manufacturers, computer software leaders and new media specialists are working to provide one-stop interactive entertainment solutions in the home. How two new media entrepreneurs fared over the last three years is examined in case studies later in this report.

E-commerce
The last few years have seen a substantial increase in e-retailing in the UK. Today 27% of UK consumers have shopped online, a figure that is higher than the European Union average of just 16%. The potential for e-commerce is still great and it is estimated that by 2009, a quarter of all UK shopping will be conducted via the internet or mobile devices in a market worth 80 billion . Although the market is there and it is clearly one that is growing, the cost of setting up an effective e-commerce site is significant. Consumers expectations have been set by the likes of Amazon.com which has invested hundreds of millions of dollars in its online offerings. It is also not simply the costs of the site but also of the marketing and supply base that are required.

IMRG Senate Annual Statement 2004

To launch lastminute.com you have to have technology, brand and supply and getting all three at once is really hard. The issue is could you get those three at once better than what everyone else has to compete in the various verticals. Can you capture peoples imagination cheaply to start with, thats the key thing, then you can do it. Brent Hoberman

At the same time, e-commerce does offer the young entrepreneur opportunity, particularly where a gap in the market can be exploited and the offering is relatively unique.

Ive met a few 18 year olds who have businesses making 100,000 a year on the web and I think thats fantastic. Its very hard to then take that to the next level. So its how do you find a business concept that you can take to the next level and one that is not being done by global players. Brent Hoberman

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Recommendations
There are three key recommendations that are relevant to all the sectors that have been examined in this report. These recommendations are supported by conclusions arising from research commissioned and published by trade associations in these sectors.

There is a need to provide industry-specific advice and support from people who understand and appreciate the specific challenges of the sector.

Almost half the owners/managers of music businesses surveyed had never sought external advice or information about financing their enterprise. This points to a potential gap in support, stemming from a combination of inadequate industry-specific support and music businesses mistrust of current advice. Banking On A Hit. Department for Culture, Media and Sport. 2001

We recommend that the best value for support to the designer sector and the UK clothing industry would be through centrally co-ordinated and regionally delivered schemes, administered by industry knowledgeable people. A Study of the UK Designer Fashion Sector. The Malcolm Newbery Consulting Company for the DTI and the British Fashion Council.

The profile of the business sectors that young people are attracted to or start businesses in needs to be improved and efforts need to be made to improve the financial communitys understanding of them.

The poor profile and understanding of the industry is seen as the root cause of many of the other challenges facing the industry. Improving the industrys reputation with the finance sector and Government is especially crucial to improving the industrys prospects. Exuberant youth to sustainable maturity. Spectrum Strategy Consultants for the DTI.

More effort should be spent in improving the level of understanding between the music industry and finance-providers. Banking On A Hit. Department for Culture, Media and Sport. 2001

Better links between the industry sectors and education need to be established so that the graduates entering the industry or creating enterprises in the sector are fully aware of the commercial realities.

There is conclusive evidence that gaps exist between what the clothing industry expects of design education and what education is actually delivering..To support and underpin the commercial future of the UK designer fashion industry and the broader clothing industry, fashion design education should be focussed on delivering design graduates who understand the industry. A Study of the UK Designer Fashion Sector. The Malcolm Newbery Consulting Company for the DTI and the British Fashion Council.

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THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE THE YOUNG ENTREPRENEURS REVISITED URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR Intrapreneurship and ENEURSTHEYOUN young people GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY Corporate venturing and OUNGENTREPREN intrapreneurship EURSTHEYOUNGE NTREPRENEURST How intrapreneurship is developed by HEYOUNGENTREP the young entrepreneur RENEURSTHEYOU Caveats to intrapreneurship NGENTREPRENEU RSTHEYOUNGENT REPRENEURSTHE YOUNGENTREPRE NEURSTHEYOUNG ENTREPRENEURS THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR ENEURSTHEYOUN GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY

Although increasingly young people are attracted to starting a business, it is clearly not an ideal path for everybody. However, most young people are now seeking entrepreneurial environments to work in even if they do not have the desire to create their own enterprise. An environment and culture in which an individual can learn, develop and contribute to the success of a business is crucial if a company wants to attract, foster and retain young talent. Most employers are failing in this respect. The development of an enterprise culture within an existing company, what is often referred to as intrapreneurship, is crucial if companies are to engage with todays young professionals.
The leadership development organisation, Common Purpose, surveyed a thousand young professionals employed in both large and small businesses. They found that many young people within companies are not performing to their full potential with three quarters believing that employers underestimate the abilities of their young employees. 43% of the young professionals surveyed felt that they do not get the chance to stretch themselves beyond their current roles, and a similar number claimed they have little opportunity to be creative or innovative at work. The warning to these businesses who do not engage with their young talent is obvious - they are likely to lose them. A quarter of the young professionals surveyed were planning to leave within the year, over half within two years and 68% had no intention of being with their current employer in four years time. Julia Middleton, the Chief Executive of Common Purpose, believes that employers must seek out new opportunities for young managers to be engaged:

Searching for Something. Common Purpose. 2004

They must work even harder to uncover the passion that fires their young managers vision of what is possible, and provide opportunities for them to develop it and nurture it. And employers must be proactive in this. It is no longer acceptable to expect young talent to put a whole part of themselves aside in the work place. Employers must address the needs of the whole person and recognise that the desire to make a difference will not go away. Instead the employee will. Julia Middleton

Another danger for larger companies is that as well as losing their existing young professionals, they may fail to attract emerging talent. Two thirds of students surveyed on behalf of businessdynamics felt that large companies are less creative than small businesses, and 64% believed they would be more highly valued by a small company. Half of these young people expressed a preference to work in a small business rather than a large one even though it was generally considered that a large company could offer better financial rewards and prospects.

Student Attitudes to Business. NOP 2003

Corporate venturing and intrapreneurship


Corporate venturing is an umbrella term that covers a range of mutually beneficial relationships between companies. Often it involves a larger company investing in a smaller, younger company in a partnership where strengths are traded and risks and rewards are shared. The smaller company retains its independence and the larger company gains a window on a new technology, product or niche area. It can also entail a larger company spinning out a small venture started within it. Corporate venturing is therefore an excellent means of developing intrapreneurship.

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The previous Young Entrepreneurs study asserted that few companies understand what corporate venturing involves and that it is a relatively rare activity in the UK. In contrast, in the United States it is well established as a growth strategy for larger companies and many have a venture capital fund or offer strategic alliances. It does not appear that awareness of corporate venturing in the UK has grown in the last three years, despite the Government supporting a brokering agency for corporate venturing activity and introducing tax breaks to act as an incentive. A survey undertaken by MORI of the board directors of the UKs leading companies found that when asked to explain the term few business leaders were able to do so. The problem for SMEs is that they have very few role models to emulate and little practical information has been published on the subject. Quite understandably therefore, they feel cautious about entering partnerships with large companies. Matthew Fell, head of enterprise at the CBI, believes that the problem is also that the supply chain has too much of a culture of seeking the lowest price rather than seeking a longer-term partnership approach:

MORI Captains of Industry Survey. 2003

If you look at our overall approach to productivity in the UK, the reality is that in many supply chains they are still operated and driven on a lowest price competition basis rather than on what provides the best solution to take the business forward. The partnership approach is not really embedded in our supply chain culture in the UK. You need to get that right before you make the next leap forward to a more formalised corporate venturing approach. Matthew Fell

In some of the sectors that young people are attracted to, the start-up costs today are too prohibitive for young entrants to set up their own enterprises. Yet at the same time these potential entrepreneurs can offer the industry sectors fresh talent, creativity and new ideas. Corporate venturing could be an effective way of engaging with these young people. It is something that Demis Hassabis, founder of the computer games development company Elixir Studios, feels could be a way forward for his company:

You could try and foster a company where talented people feel they have the latitude and can get rewarded financially with share options so that they are running a team and dont feel the need to set up a company to do what they want. Im hoping that I am going to do that with my R&D division. Another model which we might develop into eventually is a model which Lionhead uses and several other companies use which is a satellite model where you seed and help smaller companies form. They wouldnt be able to get off the ground on their own but with your help they do. You part own them but they have distinct offices, distinct corporate culture and so on. I could imagine either spinning companies out from within Elixir where we own a share of it or help nurture other people who come to us and say we dont want to work for you but wed like to work with you and we are a kind of holding pen for that. Demis Hassabis

Research shows that a business that operates from an incubator has a much greater chance of long term survival compared with start-ups generally with 86% of enterprises that are based in incubators still operating after three years . The incubator model is therefore one that large companies could emulate and spin out companies from within them. Toni Wanklin, development manager of UK Business Incubation, the main organisation responsible for the advancement of business incubation in the UK, believes it can also enable a company to develop intrapreneurship:

Mapping Survey Incubation Environments. UK Business Incubation 2002

Corporate entities are now seeing that corporate incubation is one of the ways ahead for not only commercialising their own technology but also giving their employees the opportunity and the chance to drive forward their own entrepreneurial ideas. Toni Wanklin

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How intrapreneurship is developed by the young entrepreneur


The working culture that the young entrepreneur seems to create is open, non-hierarchical and energetic. Far from being threatened by having entrepreneurial employees who will act on their own initiative, the young entrepreneur is seeking out such people to work for them. Ideas and resourcefulness are qualities that are not just encouraged but expected of those employed and, as a result, it is not always clear who is the entrepreneur because everyone in the organisation tends to be acting with the same dynamic. An entrepreneurial environment is crucial for inculcating an entrepreneurial mindset. This is demonstrated by the propensity of successful young entrepreneurs to have grown up in a household where at least one parent ran their own business. In a survey of young people who received business start-up support from the Princes Trust, it was found that nearly half of the individuals had a family background of self-employment and the businesses founded by these individuals were more likely to survive . In the same vein, the ventures created by young entrepreneurs are excellent breeding grounds for other young entrepreneurs who learn rapidly in this environment and, consciously or unconsciously, pick up elements of the culture. When Deepend, the new media agency co-founded by Gary Lockton, folded a whole host of enterprises were started up by former Deepend employees including agencies Dish, Recollective, Deconstruct, Airtight, Player 3 and Tonic. Individuals in the offices in Rome, New York, Prague and Sydney bought out the businesses from the liquidators and turned them around.

Business start-up support for young people delivered by The Princes Trust. Department for Work and Pensions 2003

I know that a lot of the businesses that have come from Deepend are taking many of the elements of the culture with them because they know it was one of the things that made them enjoy working there. If you enjoy working somewhere then youre more productive, youre more flexible and there is more team spirit. Gary Lockton

The young entrepreneur places a huge amount of emphasis on finding, investing in and coaching the right people to work with them. The greatest attribute that they seem to be seeking with prospective workers is the right attitude with specific skills, whilst still being seen as important, generally considered secondary to this.

Really people are the only determinant of the success of the company. Whether Innocent continues to be successful or not is only down to the collective efforts, initiatives and decisions taken by the people in the company. Richard Reed

They are the engine and the fuel. We entrepreneurs are just the bodywork. Gary Lockton

If you value and respect people they take on responsibility and they take ownership and they take pride and then theyll become inventive. Daryl Arnold

When interviewing the finalists in their Entrepreneur of the Year Awards, Ernst & Young found five main qualities that entrepreneurs sought to imbue within the culture of their working environments. Most of these characteristics are also reflected in the organisations that young entrepreneurs develop. Top five employment policy preferences of entrepreneurs: wants a distinctive company culture fosters creativity and empowerment distributes shares in the company to employees emphasises the importance of training wants an egalitarian, participative or a flat company structure

55% mentions 36% mentions 32% mentions 29% mentions 27% mentions

Hunting Heffalumps and Gazelles. Ernst & Young

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The employees in companies created by young entrepreneurs seem to have four things that enable them to contribute to the success of the venture: they are informed, engaged, empowered and rewarded.

Informed
The entrepreneurial environment is very open with individuals being able to readily access information and have a clear appreciation of the aims for the enterprise and their contribution to it.

Engaged

Its about access to information. Everyone here knows everything about the company so that they are empowered to understand the big picture. I believe the more you understand, the more you care. Richard Reed

People are given a sense of ownership in the company, their contribution is recognised and their opinions are canvassed. This can have a big impact on overall morale. In 2004, The Sunday Times included SMEs for the first time in their annual survey of the best companies to work for. The factor that seemed to make the biggest difference to employee satisfaction was the sense of ownership in the company that was inculcated through inspiring leadership, and this had the most impact on how a company was ranked within the survey:

Giving employees a sense of ownership is one of the key ingredients in creating the best companies to work for. More often, the lead for achieving this comes from the top, making quality of leadership and the ability of the boss to inspire the workforce the single biggest influence on a companys ranking. Nowhere is this more apparent than in small businesses, which are included in our survey for the first time this year. They record higher levels of staff satisfaction across the board and the regard in which their leaders are held is exceptional. The Sunday Times 100 Best Companies to Work For.

Interestingly the company chosen for the award of Best Company to Work For, WL Gore and Associates, an SME based in Livingstone, near Edinburgh, had no hierarchy with no directors, managers or secretaries. Instead all employees are called associates, who feel they have a share in the business.

Empowered
Individuals are encouraged to stretch themselves, develop new skills and competencies and put ideas into practice. They are also often given scope to develop their own projects if they are complementary to the companys objectives.

We try to keep our utilisation level below a certain amount, if you go over that amount that means that person doesnt have time to grow. We invest in training. The other thing that is really important is that you have initiatives running in the business. Weve just appointed one of our guys as an accessibility champion making the web accessible to everyone and his remit is whatever he says it is and we dont have the ability to overrule him unless there is a really, really sound financial reason. We basically said You tell us what your goals are, what your objectives are and well give you as much resource and assistance in achieving them. That is a passion that individual has and other people in the business have and it ensures that the enthusiasm and energy is carried through. Justin Cooke

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It is something that has paid off. Cookes company, Fortune Cookie, is now recognised as one of the leaders in designing accessible websites in the UK. Whilst empowerment is crucial to engaging employees, it appears that few companies strive to make this a part of their corporate culture. When the Chartered Management Institute researched the values and beliefs that shaped the working lives of 25 to 35 year old managers, they found that significantly more young managers wanted empowerment from their organisation (48%), than are experiencing it (only 18%). This gap of 30 percentage points indicates that they would prefer more freedom of action rather than the bureaucracy and authoritarianism that seems to prevail in many workplaces .

Great Expectations? What the future holds for young managers. Chartered Management Institute. 2002

Rewarded
Many of the entrepreneurs interviewed operate profit share schemes or other systems to reward the efforts of their workers. There are often initiatives in place to enable an individual who has an idea that can benefit the company to own this, implement it and share in its success.

I think that it is important to reward people for success. I dont think that is what drives people to make some successful but it is important to reward them. James Dyson

Caveats to intrapreneurship
There are some important factors to consider when aiming to develop intrapreneurship. First of all, an entrepreneur does not want to build a company full of entrepreneurs but instead needs a balance of skills, competencies and personalities. The motivations of employees and how motivated they are, will be different to those of the entrepreneur who founded the enterprise.

It doesnt mean that everyone in your business needs to become an entrepreneur. I think that what is important is that you have an open culture with very healthy communication going around it so that if anybody has an idea about how something could be improved then that idea is picked up and nurtured and turned into something really exciting. So an open culture, free lines of communication, people who are questioning and challenging on a regular basis thats what is essential for a business that is going to operate effectively. Turning everybody into an entrepreneur is absolutely not, because most people want to work, do a job in a nice environment, be rewarded and recognised for what theyve done and then they want to go home and get on with the rest of their lives. Rebecca Battman

Businesses starting out also need to focus on getting the core offering and strategy right before encouraging the generation of new ideas and initiatives.

There are different cycles that organisations go through. I remember two or three years ago, we were working so hard just fixing core issues that we just didnt want any more ideas. We knew that there was so much that we were doing was wrong and that we could do better.That made it probably an unentrepreneurial place so what we are working on more and more is ensuring that individuals can see their changes made. Brent Hoberman

Similarly, as well as fostering the creativity and enterprise of individuals, robust processes need to be in place that enable people in the company to manage and monitor progress.

On the one hand you need very talented, creative people but on the other hand, almost like the other side of the coin, you need a quite unemotional, very efficient, almost mechanical infrastructure to support them. If you dont have either one of these things, it doesnt work. David Darling

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THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE THE YOUNG ENTREPRENEURS REVISITED URSTHEYOUNGEN TREPRENEURSTH Tips, ideas and EYOUNGENTREPR ENEURSTHEYOUN insights from young GENTREPRENEUR STHEYOUNGENTR entrepreneurs on EPRENEURSTHEY OUNGENTREPREN sustaining a business EURSTHEYOUNGE NTREPRENEURST Ideas to foster enterprise amongst HEYOUNGENTREP young people RENEURSTHEYOU NGENTREPRENEU The personal characteristics needed to RSTHEYOUNGENT sustain a business REPRENEURSTHE Tips from young entrepreneurs on YOUNGENTREPRE sustaining a business NEURSTHEYOUNG ENTREPRENEURS THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR ENEURSTHEYOUN GENTREPRENEUR STHEYOUNGENTR EPRENEURSTHEY

Ideas to foster enterprise amongst young people


The young entrepreneurs interviewed were asked what initiatives or schemes they would like to see instigated that they believe would benefit other young entrepreneurs.
Greater investment in long term research with further tax incentives for investment in R&D

I think we do need to be investing in long term research and long term costly manufacturing projects. In order to do that we need to talk it up which is easy and what they (the Government) have done very successfully with entrepreneurship. Then I think, and they have already done this but I think they could go a bit further and give even greater tax incentives for investment in R&D expenditure. How would I pay for it? Well, I think you get the money back from increased manufacturing activity and increased exports. So in a sense the Government has to take the long-term view and take a risk. James Dyson

The Government has introduced some tax efficiencies for investment in R&D but James Dyson believes that these should be developed further to provide the incentive for more significant R&D investment by UK companies. Make skilled mentors available to young companies through relevant trade associations

What might be an interesting Government initiative is that through the relevant associations that support particular industries, the Government helps finance mentors. So the Government actually gives, for example, the Institute for Practitioners in Advertising money to train, help and advise mentors so that they can be non-execs or advisors to young companies for six months. They come in, maybe just half a day a month, and ask the questions, check if things are going okay and make a difference. If the company sees value in it, maybe therell continue with the arrangement on their own. Young people are pretty sensible. We realise that when somebody has been working for 30 years, theres some knowledge there and there are some mistakes that have been made. If its gone about correctly, were all ears, well lap it up. Daryl Arnold

I have a non-executive advisor to our board and he attends our monthly board meeting and works with the four of us on the management team to really help us deliver against our business plan. I have gone and paid for that expert advice because I feel we need it. That could be one way that the Government could help by enabling me to go and recruit someone like this person. Its only one day a month but that I believe is going to make the biggest difference to my business. Rebecca Battman

Young entrepreneurs generally find the support of a mentor valuable. A survey by the Princes Trust found that over 90% of the businesses they surveyed who had mentors, found the mentoring very or quite useful and the survival rates of businesses with a mentor were higher than that for businesses without a mentor. Mentoring is mainly aimed at start-up stage but many young entrepreneurs feel that mentoring is needed at other stages.

Business start-up support for young people delivered by The Princes Trust: a comparative study of labour market outcomes. Department for Work and Pensions

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A survey undertaken by the Federation of Small Businesses found that small businesses were more likely to seek advice from a trade association than from a Government funded business support service, with one in five small businesses seeking advice from their respective trade association. In 2002, the Association of Independent Music (AIM) piloted an extremely successful music industry mentoring scheme matching entrepreneurs in music SMEs with successful industry professionals who received training in mentoring. AIMs Chief Executive, Alison Wenham, believes that such industry-specific mentoring is invaluable: Mentors provide confidence building, boosts to selfesteem, checks, balances and cautionary notes. The music industry is a complex industry and that means that we tend to overspecialise and so people, if they are trained at all, are trained in one discipline. What we try to do is to get people to think about other areas and that thinking can be introduced through a mentor. Set up an ISA style scheme for friends and families who invest in young start-ups

Lifting the Barriers to Growth in UK Small Businesses. Federation of Small Businesses. 2004

Give tax benefits to friends and families who invest in start-up businesses. It would be like an ISA, you put in 5,000 or 10,000 into a business start-up and there are some tax breaks and efficiencies for you. Individuals who are starting out can then benefit from securing the seed funding thats needed to kick something off. Justin Cooke

Friends and family is a common funding route for young entrepreneurs. The previous RSA study on young entrepreneurs and the most recent survey of finalists in the Shell LiveWIRE awards found that friends and family were the third most popular source of start-up funding for a young entrepreneur and were a more popular financing source than banks. Develop challenging games for young people to learn about business

Shell LiveWIRE Regional Finalists Survey 2004

Invent business games and business case games. Most people who are likely to be entrepreneurs will find the strategic thinking behind business games interesting and will get excited by them. Brent Hoberman

The enterprise education trust, businessdynamics, has found that students respond very positively to business games and other participatory activities that provide an insight into enterprise. Champion the computer games industry in the same way that the film industry is promoted with similar tax breaks for those who invest in games

I think a bit more Government recognition of how much we (the computer games industry) bring to the UK economy. They talk about films being good for the balance of trade and so on and I am sure computer games are just as good. I would like to see Tony Blair talking about it in the same breath if not a different breath from the film industry. They often say hasnt the film industry done well this year and it has contributed so much to the economy. I think there should be more headline things like that for games as that way it would give more credibility to the whole area. Following on from that I would like to see tax breaks, along the lines of films, where investors if they invest in a particular game can claim tax relief from it. Demis Hassabis

According to the Entertainment and Leisure Software Publishers Association (ELSPA), the spending on the leisure software market in 2002 in the UK was double the size of the British video rental market and 1.4 times more than cinema box office spending. The ELSPA believes that raising the profile and improving the perception of the games industry is crucial to its long term success: The games industry in the UK suffers from a poor profile resulting in a lack of awareness and understanding. The size, value and significance of the industry are poorly recognised by both the financial community and the Government.

Competitive Analysis of the UK games software sector. ELSPA.

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Create a virtual meeting place for entrepreneurs

I think the internet is going to have a fundamental difference on how the world evolves and entrepreneurs are free thinking, modern thinking people. Put the two things together. If there was a forum set up so that they could communicate or if there were ways on MSN Messenger that there was an entrepreneurs network. Some way to bring entrepreneurs together so that they could exchange ideas. People try to set up networks where you meet at dinner but those physical things are quite limited as to how often you can do them. However, if there was a virtual meeting place for entrepreneurs to exchange business ideas then that is something that could flourish. David Darling

A survey undertaken by the Federation of Small Businesses found that more than four out of five small businesses are connected to the internet. The number of businesses operated by young entrepreneurs with such connection is likely to be even greater. Provide a reality check for businesses

When youre at college you constantly get advice about your work and the direction you should be going in. I think that something like that could be helpful, where you could go and get a bit of a reality check with your business and put it in front of someone and say these are my fears and these are my ambitions; how would you go about achieving these? Abi Williams

Advice for small businesses tends to be focussed on start-up stage, yet a number of the young entrepreneurs interviewed for this research indicated the need for advice at other stages. Around a third of VAT registered businesses cease trading after three years. Perhaps such a reality check might have a positive impact on this statistic.

Make an advisory service available for companies going through difficult times

It would be worth having a restructuring unit that would be freely available to businesses. You can get advice and support when you start a business, maybe you should also be able to get that when it is going a bit pear-shaped. Gary Lockton

Richard Coates, restructuring partner at Ernst & Young, commented on Locktons suggestion: Its an interesting idea. If the Government subsidises entrepreneurial companies during the growth phase, then why not when times get tough and they most need help and support? I think the challenge would be to distinguish the deserving causes, but then that is a challenge for any system of state support.

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The personal characteristics needed to sustain an business


In the previous study, the characteristics needed by a young entrepreneur to start an enterprise were examined and they included self-belief, resourcefulness and an insightful uncommon sense to appreciate what innovations would make a good enterprise. Whilst many of these continue to be required to sustain an enterprise, other characteristics are often needed as well. Some people even question whether the entrepreneur is the right person to remain with the business through its future development.

Keeping the vision


There are many distractions for a young entrepreneur and these can easily guide them in a different direction away from their original goal. Maria Stammers, an advisor to young entrepreneurs, believes that holding on to the original vision is crucial if a young entrepreneur is to sustain their enterprise.

I think it is the vision. It is really having that vision of where you want to be in five or ten years time and pushing towards that. You need to keep that in mind - the reason why you actually wanted to go into business in the first place. Maria Stammers

Youve still got to make sure that you are being an inspiration and that you maintain the core values that attracted people to your company in the first place. If anything, vision is more important mid cycle through a company than it is at the beginning. Demis Hassabis

The vision that young entrepreneurs often have for their ventures is to be in a position where they can take control over their own destiny, experience the challenge of enterprise and purse their own ideas. Motivations for becoming self-employed Responsibility for own future 53% Challenge it holds 52% Being own boss 48% Unique idea 43% Make more money 28% Unhappy in my job 19% Flexible working hours 8% Being unemployed 6% Research from the Princes Trust has found that individuals who started a business motivated by a desire for independence and lifestyle rather than just growth or income were more likely to survive. It also found that those individuals who have a parent who was an entrepreneur are much more likely to remain in business.
Shell LiveWIRE Young Entrepreneur of the Year Awards Finalists Report. 2004.

An operational eye
There was a definite informality about some of the young businesses that were interviewed in the first report. For those re-interviewed for this report, whilst their entrepreneurial spirit still pervaded, they placed more emphasis on processes and systems that they felt were now crucial to manage the enterprise. Whilst the entrepreneur believes such systems are necessary, they recognise that they are not always the best people to instigate and manage these.

Business start-up support delivered by The Princes Trust. Department for Work and Pensions. 2003

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Without a doubt to sustain a business you need to have more of an operational head on. To have the ability to establish processes takes a different type of brain to an entrepreneurial brain that can find that side of business really boring. Those that cant do it and are pure entrepreneurs, thats great. Stay being an entrepreneur and get people in to be your executors or operators. Justin Cooke

Some of the young entrepreneurs re-interviewed have found that they have become engulfed in the day-to-day business operations and consequently become distant from the creative side of the business which was the part they excelled in the most. This prompted fashion designer Abi Williams and her partner to refocus their enterprise from twelve people back to just themselves. Similarly Daryl Arnold, founder of the new media agency Profero, appointed a UK director and operations director and went out to Singapore to start a division of the company there:

I recognised as an individual what I am happy doing is starting things, creating things. I went back to doing what I was really good at basically creating stuff from nothing.I basically put my stuff in a bag, turned up in Singapore and the next day I was at my desk thinking how do I start a business here. Daryl Arnold

Two of the entrepreneurs re-interviewed had changed their roles in the company from Chief Executive to Chairman thereby leaving the day-to-day operational management to people with that expertise, and instead focussing on where their strengths lay on strategic issues and company development.

Resilience and tenacity


The last few years have been a testing time for the young entrepreneurs surveyed. The focus for many has been on survival rather than growth and, often as a result of economic conditions, most have experienced the downside of enterprise, where resilience and tenacity are needed to stay in business and difficult decisions have to be taken.

Entrepreneurship

When you start a business you go through a start-up phase where everything is exciting, new and the whole focus is on growth and what you arent thinking about is the opposite to that. Survival meant laying off people who helped build the business, friends, and doing that three times and each time thinking that will be the last time. Justin Cooke

An enterprising character is not only needed at start-up stage but, in todays fast-changing marketplace with customers becoming ever-more demanding, it is crucial for a business to survive. In order to stretch ahead from the competition, young entrepreneurs have to anticipate future consumer demands and identify areas for potential growth in the future. At Innocent Drinks, for example, there is one person on the team who is their NBT (the Next Big Thing) Manager and that person works full-time on seeking out potential new opportunities for their brand and company. James Dyson believes that, despite enormous growth, his company still exhibits its enterprising character: I dont think weve ever particularly thought that were sustaining something here in the sense that every day we come in is an entrepreneurial day because were investing more and more in new projects and taking bigger and bigger risks. When we come in, its just as we came in right at the beginning. Weve still got huge problems to solve, weve still got big risks to take, deadlines to meet, launches to get right and so it feels exactly the same as it did ten years ago. James Dyson

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Tips from young entrepreneurs on sustaining a business


In the previous report (http://www.rsa.org.uk/onians/pastawards.htm) the young entrepreneurs were asked what tip they would give to would-be young entrepreneurs just embarking on an enterprise. This time, the entrepreneurs were asked for their advice on sustaining and developing an enterprise. Here are some of the responses:

Keep assessing your situation. Work out if that is where you are still making your money and that logistically everything is up to scratch. Constantly look for the new thing as well as doing what youre doing. Keep on your toes. Abi Williams Co-founder of the fashion design business Rude.

There is nothing wrong with organic growth. Dont get caught up in greed. Dont gun for growth. Gun for profitability and sustainability. Dont get caught up in I want to be the biggest. Instead, focus on I want to be the best. Justin Cooke Founder of the new media agency Fortune Cookie.

Reflect quite hard about your allocation of time. Your time allocation should be different as the business matures. You probably need to spend less time on the stuff you really enjoy. Brent Hoberman Co-founder of lastminute.com

Always treat engineering and development of new technology as the most important area for business and invest in it as much as you dare and always continue to take risks and do not be tempted to sell out. Keep the business wholly in your own control. Invest hugely in R&D and keep ahead of everybody else stretch away rather than allow them to catch up. James Dyson Founder of Dyson International.

If youve lost the passion, get out. To sustain a business, you must always have the passion. Daryl Arnold Co-founder of new media agency Profero.

Keep the main thing, the main thing. Find out what youre about and have it as central, single-minded, pretty simple thought and get everyone in the company to understand that and make every decision against it. Richard Reed Co-founder of smoothie manufacturer Innocent Drinks.

Youve got to look around you, youve got to talk to people who are older and wiser. You dont have to agree with them but you have to take it on board. Dont lose the ambition, attenuate it with a bit of the knowledge that is knocking around you and go out and do your business with passion. Gary Lockton Co-founder of Seriously Digital.

Surround yourself with good people. Richard Branson said that once. What he has been very smart at doing is surrounding himself with good people. He might be the man with all the profile but in fact Virgin is the product of a very strong management team. Rebecca Battman Founder of design agency On Brand.

Get in the best people you could possibly afford, you wont regret it. I mean experienced people. They cost more but every time Ive done that it has turned out to be the best thing Ive done. Im not saying you shouldnt be nurturing talent because youve always got to do that as well but I think you need the blend. I think those people who have experience and who are the top of their game, youre going to pay a premium for them but if you can afford them, they are worth their weight in gold. Demis Hassabis Founder of computer games company Elixir Studios.

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THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE THE YOUNG ENTREPRENEURS REVISITED URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR Case studies ENEURSTHEYOUN Emerging young entrepreneurs GENTREPRENEUR Dominic McVey STHEYOUNGENTR EPRENEURSTHEY Toby Goodman OUNGENTREPREN Caroline Plumb and Charlie Osmond EURSTHEYOUNGE Riding the new media wave NTREPRENEURST HEYOUNGENTREP Daryl Arnold RENEURSTHEYOU Gary Lockton NGENTREPRENEU RSTHEYOUNGENT REPRENEURSTHE YOUNGENTREPRE NEURSTHEYOUNG ENTREPRENEURS THEYOUNGENTRE PRENEURSTHEYO UNGENTREPRENE URSTHEYOUNGEN TREPRENEURSTH EYOUNGENTREPR ENEURSTHEYOUN GENTREPRENEUR STHEYOUNGENTR 40 EPRENEURSTHEY
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Emerging young entrepreneurs


Young people continue to develop enterprises and four young entrepreneurs, two of whom are still in their teens, are profiled here. These young people have developed successful ventures in sectors outside of the usual ones favoured by young entrepreneurs such as music, fashion and new media.

Dominic McVey
A future Prime Minister?
Love them or hate them, three years ago you couldnt go down a street in the UK without encountering a collapsible scooter that was all the rage at the time. They started off being the must have item for children, then teenagers started seeing them as being fairly cool followed by quite a few adults who bought them as the latest executive toy. One company, for example, gave them to all their employees to help them navigate around their headquarters. What many people did not realise was that the person responsible for importing the scooters and fuelling the craze was a fourteen year-old entrepreneur, Dominic McVey, who ran the operation from his bedroom whilst still studying at school. Dominic was one day searching the internet for the website of the Visa credit card and misspelt it Viza and came across a website manufacturing scooters. He liked the look of the scooters and wanted one but couldnt afford it and so e-mailed the manufacturers in the United States saying that they should send him a free one as he could show it to people in the UK and they would be sure to want one also. The manufacturers said no, but if he bought five they would give him one for free. Dominic saved up money he was making from mini-enterprises he was already running at school at the time, including organising under-18s discos and selling gadgets to his mates, and bought the five scooters. Within a week he had sold them and was importing more. Soon after he created a website to promote and sell them with, at one stage, around 30,000 people a day visiting the site. Within months a craze had started and he was shifting hundreds of thousands of collapsible scooters. He estimates that he managed to sell eleven million scooters through his website but other people had also seen the opportunity and were making fakes that were unsafe. There were huge numbers of fakes and cheap products flooding the country without any kind of kitemark or classification of their safety claims Dominic. Over 10,000 injuries occurred. Kids lost fingers. I think three or four kids actually died with handlebars coming apart from the products. You could blame the person selling the products but actually its the Governments responsibility to make sure those products arent sold in the first place. Dominic attributes the key to his success as simply having a product that people wanted. I think any level of business, at any age, you have to have something that someone wants. If you do, then youll get the right response and the right people listening. If you dont, then its going to be hard. He is disparaging of the support available to young entrepreneurs. His own experience was that, despite his tenacity, he was unsuccessful at securing a loan for his business from the Princes Trust. Most people would have given up after the first phone call. I spent weeks trying to see if I was eligible for a loan, to see if theyd support what I was doing. I got right to the top and in the end they told me we really dont believe youre going to be able to do this.

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Despite the Governments attempts to encourage enterprise education, he doesnt believe that enterprise can be taught. I do not think teachers can teach you to be enterprising. I also feel that no one can teach you to be enterprising. Youve either got it or they havent but what you can teach people is the skills for life. Thats what entrepreneurs do. They take on every possible skill. When I started the business, I had to design a website, know how to use a computer, I had to do PR, I had to set up bank accounts. I had to do it all. Dominic believes that many would-be entrepreneurs are going about things the wrong way. Too many focus on the money. They want the money before theyve started the business. They want 100,000 in the bank account to spend really because theyre sitting in bed dreaming of big offices, a car, a PA and so on. They want that now and then theyll run the business. Its the wrong way round. Youve got to work for it first, then you get the offices and car but in most cases you dont need them. Its a waste of money. If it is really going to happen, itll happen without a penny. At the same time, Dominic feels that many have not understood how to use the internet for their business and that is, in part, how many dot.coms went awry. The internet is a tool, it is not an answer. It is something that we can utilise to enhance our business. It is not something that we can use to be our business, or very few people can. It took a lot of lost money for people to realise this. His tip to would-be young entrepreneurs is if they believe that they have something people genuinely want to go out and do it.

You have to go through every brick wall in the sense that it is not even there because if you stop to listen to anyones criticism, youre going to start criticising yourself. Without the self-belief thats going to make you cringe, you wont do it.

Dominic is now spinning quite a few different plates. He is working on an enterprise manufacturing and distributing pharmaceuticals overseas. He is trying to establish a business in the Chinese market although is coy at this stage of going into much detail about it. He provides quite a bit of consultancy to companies that are looking to tap into the youth market. He is also rumoured to be trying to purchase the rights to the download music charts. A hotel in France is even being looked at as a possible venture. I also do the odd deal here and there which keeps the buzz alive he adds. Some of Dominics deals have not always been successful. He lost some money on a few ventures he got involved in after he saturated the scooter market. I think the mistake I made, which you can when youve had a bit of success, is to think youre invincible and you have to sit back and work out what is realistic for you to actually achieve. Most successful entrepreneurs are quite modest about what theyre trying to achieve but because theyre doing it so well, they achieve so much. Dominic now also has his eye on politics. He is considering running for Mayor of London in the next mayoral elections but his longer term ambition is Prime Minister. At only 19 years old, such ambition may seem unattainable but dont forget this is the teenager who sold 11 million scooters to people from his bedroom, so 10 million votes shouldnt be that much of a problem.

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Toby Goodman
Is it a bird? Is it a plane? No, its Bannerman
It may not sound the most exciting enterprise, having people walking along streets in Merseyside holding placards to promote local shops or services, but for Toby Goodman it is a highly effective one. In just two years he has developed his enterprise from just himself, an investment into the business of 40 of his own money and one advertising banner to today, where he has a city centre office, a team of eighty banner holders and more than fifty clients including companies such as Pizza Hut, McDonalds and Unite Group plc. Toby recognised he had an entrepreneurial streak from an early age. At ten years old he baked Mars bar cakes and sold them to friends for 50 pence each; at 12 he saw an opportunity in the fact that children were not allowed to eat sweets at school and so, against the school rules, he bulk bought confectionary and sold it to other children for double the price; at 17 he left school and started putting on nightclub events in Liverpool. They werent a great success and so to help promote them he made a banner advertising the events and walked through the city centre with it. The amount of attention that the banner got was immense recalls Toby, everyone was just looking at it. The night clubs were dropped but the banner was retained and soon he had several businesses asking him to promote them. The demand continued and so Toby had to take on students to do some of the work.

Then it came to the stage where I thought there is only so far it can go if I am doing it like this. I really want to make a go of it. The potential is there and I am the only person doing this. So I decided to get an office, get more professional, which meant that I couldnt be on the streets managing the people any more.

Toby took on a part-time manager and it snowballed from there. As part of the drive to professionalism, Toby commissioned a friend to develop a brand and promotional items for the company and he came up with a take on superman with the same distinct red, yellow and blue colours. His sales literature is produced as a comic and his banner holders wear baseball caps in the superman colours but with a large B in place of the superman S. It is easy to assume that the business just involves a student wondering round holding a banner but Toby has developed an almost military-style operation whereby banner holders are trained, have branded uniforms and are in contact by mobile. They are also monitored to ensure that they are walking the correct routes, holding the banner in the correct position and are punctual so that the client receives the most professional service. When these people are holding a banner it is a reflection of the client, it is basically putting their shop window on the high street Toby reflects. Despite such professionalism, Toby concedes that it is not always easy to prove to clients the direct impact of the banner advertising: It is one of the problems with adverting in general. It is very difficult to monitor. The big guys like Pizza Hut will compare sales figures from when they used us to when they didnt use us. The branch in Liverpool believes that we have increased his sales by 15%. Toby provides his clients with a full marketing consultation so that they get the best value from their investment. I had a meeting today with a caf that has now got a licence to sell alcohol and they have breakfast and lunch menus. He is saying I have got 500 to spend what should I do with it? I said we can put a banner out 8am 9am on the busy traffic intersections near traffic lights so that as people are stopping on the way into work theyre seeing the breakfast menu. 5pm 6.30pm they are seeing the alcohol menu and well do this every day for a week and next week well hit the lunch hour times round the business end of town where the businessmen are going on their lunch hours. Not only that, well do the design for the banners and give the clients different options.

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The development of the business has been funded internally but at one point he did need to borrow some funds from family and friends and also make use of an overdraft facility. One of the problems he has encountered has been managing cash-flow, I didnt have the time to be chasing people for payment. There are seventeen different business departments in one nineteen year old individual and so it is difficult going out selling, managing your sales team whilst keeping on top of people who owe you money. Toby did not do any formal business courses but learnt by trial and error and from other people, At first I didnt really know that I was supposed to invoice people. To overcome it, I had been lucky I had been surrounded by a lot of business people growing up, so Id speak to a lot of people, Id ask a lot of questions. I find the best thing is speaking to people who have been there and done it and just learning from other people and listening to your clients. His advice to other young people with business ideas is not to be worried about being young. A lot of my friends have ideas but none of them do anything about it because somewhere inside them theyre saying: Im only eighteen, Im only nineteen, Im not quite ready to do this. Its just not possible. I genuinely believe being young is an advantage in many ways. Start with I can achieve this and get that in your head. Then go out and research the idea. Around a tenth of the profits from Bannerman is donated to charities but, to ensure that it is done on a purely altruistic basis, a trusted person in the community is responsible for determining which charities receive the money and the donations are made anonymously. Tobys ambition is to develop Bannerman as a national company, The potential is there, our branding is strong, the systems are good. Once I have got one solid model of the business that works, there is no reason why I cant duplicate that into other cities. He also wants Richard Branson to hire Bannerman: It would be nice from my ego point of view that he acknowledges that it works and for someone in that position to be using my company. I would also be able to milk the publicity. Toby believes that there is advice available for young people but that it is not visible enough and naturally he sees a business opportunity in this: There are a lot of things like Business Link that are available to people starting a business. The problem is that it is not advertised properly. So my advice would be for the Government to do a big contract with Bannerman and we would get it out on every corner telling people where to get the information.

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Caroline Plumb and Charlie Osmond


A breath of fresh thinking
College friends Caroline Plumb and Charlie Osmond always knew that they wanted to run their own business but werent quite sure what it should be. Inspired by the initial success of First Tuesday, they with four other students ran Upstart, a networking club for students. We found the business model was not very robust, perhaps like First Tuesday. Caroline concedes. There were also six of us doing it and I think six is a bit of an unwieldy number to start a business. Although Upstart ran for only six months, they were both caught by the enterprise bug. They hit on the idea of a business to launch young fashion designers and decided after their graduation to run this together. However, mindful of the fact that they knew very little about fashion but knew quite a bit about business and student life, when they sat down to flesh the idea out, they ended up developing an agency that utilises fresh, young university students to provide companies with solutions. In September 2000, Caroline at 22 and Charlie at 23 launched Fresh Minds. It was built around the concept that there are all these talented young people around and business wasnt connecting to them very effectively Caroline recalls. We felt if we could somehow add in an intermediate layer between young talent and business then we could deliver very valuable services. Initially those services were quite diverse from web designing to translation services but soon this was honed down to research. They have also since broadened the age range for their Minds - the young talent they utilise for specific projects from just being undergraduate students to any graduates who have left university in the last eight years. In retrospect, they feel that the timing for the launch of their business was right, despite the fact that it was directly after the dot.com bubble burst. It made them adopt very robust financial monitoring processes from the onset to make sure that any money spent was absolutely necessary. They also had to battle against being taken seriously and so went about enticing large corporations as clients as they knew they would give them credibility. The start-up costs for Fresh Minds were low just 500 of their own money with which they purchased a web address, a telephone line in a spare room in Charlies parents home and some business cards. In 2001, they were able to secure some investment from a business angel and private investors. For these investors Fresh Minds has proved a success. Turnover has increased from 400,000 in their first year to an expected 3 million in their fourth. In just four years they have expanded to 30 staff and around 100 minds on their books. Charlie believes that a combination of keeping people informed and engaged has enabled the company to retain its entrepreneurial culture:

We give people a lot of information - how the business is growing, whether we are doing well. We also allow them quite a bit of freedom to try things, to come up with new ideas and see what happens. As a company we have more ideas than time to put them into place which feels like the right way to be. Generally we say if you think thats a good idea, then have a go and lets see what happens.

They also feel that being careful on recruitment has been a good investment of time We make sure that people are a good fit who are coming into the business claims Charlie. This has often meant going without someone in a key position, rather than filling it with an individual they are a bit doubtful of. One of the off-shoots of the main business offering has been a recruitment service for corporations. Clients kept saying to us youve got really fantastic people doing this research for me, is there any chance I could hold onto any of them? So, seeing a business opportunity, Caroline and Charlie developed a recruitment service as part of the package they offer to companies.

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Employment of the Minds is not easy given that they are promising clients some of the best, fresh talent. One method they utilise is their One To Watch Roadshow. We go to universities and say to penultimate final year students: Who in your year is one to watch? Who is the future Bill Gates or Richard Branson? We get thousands of names back and we pick out the ones that come out the most and select those as our ones to watch says Caroline. Fresh Minds have not made use of any Government initiatives for supporting entrepreneurs, We considered the small firms loan guarantee scheme and we looked into it but we were either not eligible or it was too much of a hassle recalls Caroline. Charlie feels that it would be more productive for the Government to focus on the wider picture of the overall enterprise culture: There are all these different schemes and initiatives and I dont think they work that much. Generally the trick is to get more people into enterprise and believe they can do it and have a go. I dont think all the money and effort spent on little initiatives here and there makes all that much difference. I think it is more about encouraging an atmosphere and culture of enterprise. However, Caroline believes there is scope for a mentor network between older, wiser entrepreneurs and young start-ups: I think so much of the information you need and the support networks you need to build are with other entrepreneurs. You need a forum to share ideas and when you initially start you need advice but practical advice. Advice from large corporates or Business Link can be very black and white. It is a bit like going to the doctor and saying Im feeling ill and these are my symptoms and being told well you might have this, you could have this or it might be this. That is not particularly helpful if you are the patient. You just need someone to tell you here are the possible options open to you and you should go and do that. Someone that understands the pragmatic side of the business. Advice for Fresh Minds has come from anybody and everybody they knew and, as a consequence, their skill has been in determining which advice to take:

For us it is not about who do we seek advice from but having a good filtration system for that advice. We pretty much seek advice from everybody. We always seek peoples views but the challenge is working out which advice is good advice and which advice is not very helpful.

In terms of their tips for would-be entrepreneurs, Charlies is to ask for advice because you find out those things that you didnt know you needed to know. Carolines is to create networks: networks of customers, suppliers, employees and work at that network. It doesnt magically appear. Youve got to spend time going to events and e-mailing people. Despite all the advice and networking, they both believe you ultimately need the courage to go for it. As Caroline says, Youve got to make things happen. A lot of people when they are starting a business can plan and plan and plan. They enjoy the planning and intellectual exercise. You just think well actually if youd have got on with it, you would have finished it by now. Their future ambition for the company is to continue to build up the reputation and client base of the company. Selling out is not on the cards. What I would like to be saying in three years reflects Charlie, is that we have just turned down a massive offer to buy the business. That would demonstrate that we are carrying on loving it and still enjoying it and we are getting a lot more out of it than a financial reward which isnt what we went into it for and isnt what we get out of it at the moment. It is just a challenge and were learning and the best thing would be in three years time to say I just want to keep on going.

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Riding the new media wave


Since the publication of the previous Young Entrepreneurs report, the new media sector has experienced an extremely turbulent time. Here, two of the young entrepreneurs that were interviewed for the previous report, reflect on how they have ridden the new media wave.

Daryl Arnold, co-founder of Profero


Profero is a new media agency started in 1998 by Daryl Arnold then 25 with his brother Wayne. In just a few years it has grown to become an award-winning agency with offices in the UK, France, Spain, Italy, Germany and Australia. Its diverse range of clients includes Lufthansa, AstraZeneca, Disney Europe, Tesco, Intercontinental and Merrill Lynch. Like other agencies in his sector, Profero was hit by the downturn in the new media sector. Over a two year period, we probably had three mini recessions. In the first quarter of 2002 we won 15 clients; in the next quarter none of them spent a penny, recalls Daryl. What actually happened was the tough times werent necessarily when the recessions hit, it caught up with you. The worst period for us was when the industry was turning and starting to look positive again because all those minirecessions suddenly caught up with us. To get through this period, Daryl refocused the agency on its core strengths, We said right, for the next two years we are going to do the basics. It didnt mean that we were going to stop looking at new geographies to move in. We were never flamboyant but we just did the basics. It was a strategy that worked in that, unlike other agencies in the sector, Profero was able to survive the downturn and only had to make a few redundancies. He was also able to keep his team together. Because we had that openness and honesty, I think that made a difference says Daryl. We showed people the revenue figures, we shared with people how much we were making and still do to this day. When Daryl was first interviewed for this research in 2001, Profero was still quite a young company being only three years old. As it has moved beyond start-up stage Daryl has recognised that his strengths as an entrepreneur lie in setting things up and less on the day to day operations. What I realised was that I wasnt actually adding that much value being based in the UK doing a Chief Executive role. So what I did was think I can either stay Chief Executive and do an okay job or I can be a Chief Executive that leads from the front and basically gets on and creates new businesses. Once he felt that they had ridden out the worst of the recession Daryl went off to set up an office in Singapore.

I basically put my stuff in a bag, turned up in Singapore and the next day I was at a desk thinking how do I start a business here? It was like starting again, working 24 hours a day, not sleeping and doing the whole salesmanship thing.

Although Profero has grown rapidly into other geographic markets, Daryl believes a business needs to be very clear on its objectives for such expansion. Be 100% confident about the rationale. From my perspective, just going and saying we want to move into Spain because we think Spain is a great market opportunity is not enough. What happens is that you replicate your UK agency in Spain and it looks and feels the same as your UK business. My challenge to that is: Are you going to be better than somebody in Spain that believes the same as you do and has the energy and is Spanish? Why are you going to be any better? What is it that youre bringing?

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Profero now has four offices serving the Asian market (Beijing, Hong Kong, Shanghai and Singapore). Daryl almost lives on a plane working between them. In Singapore, where he is mainly based, his small team consists of an Indian, a Chinese, an Australian, a Singaporean, a Malaysian and an Indonesian something that occasionally presents cultural communication difficulties. What an Australian thinks okay means is very different to a Singaporean reflects Daryl. If you have a conversation with a Singaporean and they say okay, okay, okay. What that actually means is: I have received that information but Im neither agreeing nor disagreeing with what youve said, nor am I confirming that I understood. If youre Australian that means: yes Ive got that, cool, lets move on. So weve become very basic in our language - yes or no. Each country office has become a centre of excellence within Profero. So, for example, Australias focus is on web development; Hong Kongs is on search engine marketing and Singapores is media buying and advertising. The result is that a client will have their work split between these centres of excellence so that they get the best results.

What it also means is that weve grown geographically and can tap into local market potential but at the same time weve got massive cost and resource benefits.

Around 60% of Profero Australias income is from outside Australia. Despite employees being spread over different continents and time zones, Daryl is keen to develop a feeling of one team. This was recognised recently with Profero gaining the Excellence in Continuous Professional Development award. Daryls advice has mainly come from older entrepreneurs. He has identified people that built excellent businesses, not necessarily in his sector, and that have either retired or moved on to different careers and he has met with them to talk about their experiences. I had a gentleman here this morning, the founder of one of the most successful agencies in the last 20 years. He asked me, Why are we having this chat? and I replied, Youve had a successful business, youve grown your business, youve sold your business and the reason why were having a chat is because what you experienced 10 or 20 years ago, cant be any different to what Im going to experience in 5 or 10 years time myself, so just tell me. My observation to him was that it doesnt matter if it is new technology. Things seem to happen the same. Certain companies are successful because they do certain things irrespective of what decade or what century they operate. Pitfalls seem to be the same. Mistakes seem to be the same. How businesses grow and develop seem to be the same. His advice to would-be young entrepreneurs is Dont do it and he qualifies this reflecting, Its not worth the grief, its not worth the hassle and the destruction to ones lifestyle. Thats coming from someone who should be able to give good advice on the subject. The fact is if they do go on and do it, then you know theyre really passionate about it and up for it. So if they say blow your advice, who are you to tell me not to do it, theyre going to do it for the right reasons because theyre passionate about the business. Its not about making money; its about making big changes. The last three years have been an extraordinary ride of losses and profits, business won and lost, growth and recession for Profero. Yet ultimately Daryl has been able to expand and develop the company both in Asia and in the UK. But what if like many of his counterparts he had not ridden out the recessions in his sector? It was never going to go wrong he asserts and even if it did, Id just pick up that computer, plug a cable in there and start again.

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Gary Lockton, co-founder of Deepend and Seriously Digital


One minute it was worth 25 million and nine months later it was gone reflects Gary Lockton on how Deepend, a new media agency which he started in 1994 with two college friends, went from creative agency of the year to going into voluntary liquidation. The fate of Deepend exemplifies the fortunes of many new media agencies that grew up in the mid 1990s. Deepend started as a small outfit operating from his house in Fulham, London. We started in the back of dining room. We used to kit it out for business day-to-day, but when a client came over we would get a few mates in to make it look a bit bigger recalls Gary. In very little time they had acquired a fuller team and moved into warehouse-style accommodation in Hackney, an area where many new media enterprises were locating. The demand for the companys web design and new media services was phenomenal. You think digital is going to be a bit important, you quite like computers, youre a bit of a geek, you start something up and you found yourself on a wave that is massive Gary recalls. To meet the demand Deepend grew rapidly, expanding to include offices in eight cities including New York, Rome, Prague and Sydney. Young people who wanted to get involved in new media as a career gravitated towards Deepend which had built a reputation as a fast growing agency that gave enterprising young people the opportunity to grow with it if they had the resourcefulness. In the interview for the previous Young Entrepreneurs report, Gary recalled how one individual he interviewed for a position in the company seemed to know almost as much about the company as he did. The company operated a flat, open and entrepreneurial culture that encouraged individuals to take initiative:

Its not back to the floor, its always on the floor and be prepared to do whats done on the floor. That was the deal as far as I was concerned.

Only 25 people left the company in seven years from a staff team of more than 300. At the height of the new media explosion Deepgroup, the holding company for Deepend and its associated businesses, had annual revenue of 9 million and staff in eight cities. In one year it picked up 26 creative awards including Creative Agency of the Year and in 1999, Gary was shortlisted as Young Entrepreneur of The Year in the Ernst & Young Awards. With relatively little warning, the market turned and the massive wave that had lifted Deepend came crashing down. The team returned from their Christmas break to find that half of their clients had disappeared. It got worse from there. It was like someone turning the business tap off and you cant scale the business down that quickly says Gary. You might be able to get rid of people, which is the most horrible thing in the world, but even if you can do that you cant scale down your business offering that easily. On top of that youve got a building that has room for 150 people and suddenly youve only got 50 and its a bad time for the market so no one else wants to lease it. With the benefit of hindsight Gary feels that they should have made difficult decisions earlier. We should have made some tougher decisions earlier before the real crash. There were certain offices that werent right and we all knew probably in our hearts that they werent sustainable. But the trouble is that our culture completely clashed with it. In September 2001, the founders placed the company into voluntary liquidation. Gary believes that the liquidation process was slow but reasonable: I think the UK has got it fairly balanced. I dont like the way that in the US people are celebrated for failing and it is experience and whatever. I think that is a bit flippant in a way and that the US has it a bit too far the wrong way. In the UK liquidating a business is quite bureaucratic but as long as you make the decision to do it and you dont go bankrupt and its voluntary, then it is slow but fair.

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The entrepreneurial culture that pervaded Deepend is evidenced by the number of former employees who went on to develop their own agencies. Gary reels off a string of agencies that were founded by former Deepend employees including Dish, Recollective, Lucid, Tonic, Fondue, Player 3, Last Exit, AirTight and Glue London. At the same time, many of the branches of Deepend around the world were bought out by their respective management teams. A friend of Garys was by chance dining in a London restaurant and was served by a waiter, Matt Griffin, who by his manner clearly didnt want to be there. When asked what he would rather be doing for a living, he replied that he wanted to work in new media agency and in particular for Deepend. Matt was introduced to Gary who gave him a break and he rose up rapidly in the company and went on to start the branch of the agency in Sydney. Matt bought it from the liquidators when Deepend folded and still operates it today. It was the founders original mentors that they turned to for advice when things turned sour. Mentors are just a fantastic asset considers Lockton. If you are honourable with them, they are very happy to help. It is just fantastic to go to someone when youre young. I was 27 and running a business with well over 250 people and a salary bill of 4 million a year. Locktons advice to any young entrepreneur experiencing difficulty is to seek such external help. Look outside - that could be anyone youre close to and respect - so that you can put together a patchwork quilt of opinion. At the same time he encourages people to listen to their gut instincts:

If youve gone about your business well and it has been successful and then things occur to you that you ought to do when it is going a bit wrong, you ought to do them now because youre probably right. Im not saying make rash decisions but if youve got an inkling, then its probably right and do it quickly.

When Deepend folded Lockton took up a director position with the agency North Creative and for the first time in his life was an employee. I didnt mind having a boss. In a way, I had 300 bosses at Deepend. The way we ran that place the team was the boss and you used to do what you could to make it work. It was more seeing things done wrong and not being able to do anything about it. Garys major task at North Creative was to merge the company with another agency, Beetwax, and in doing so he had made his own position more or less redundant. With his entrepreneurial spirit still burning, Gary teamed up with Joanna Baldwin in 2002 to work out if there was a niche in the digital market for a new agency. Joanna, a former director at Publicis, gave Deepend its first break with a project to design a website for one of their clients and they remained friends over the years. On April Fools day 2003, with the pun absolutely intended, they launched their agency called Seriously. It is aimed at blue chip companies and already has built up a client base that includes Microsoft, Abbey, Royal Bank of Scotland, the AA and BUPA. The focus is also different in that they aim to provide more strategic consultancy on the integration of digital technology to add value to a company but the doing bit of putting the strategy into practice will be outsourced to other companies. In this way Seriously can remain lean and mean. Locktons ambition is for Seriously to be recognised for the difference it makes to clients. Deepend did some of the most fantastic work in the world, critically acclaimed work in the world. We won 26 awards in one year but they were all for creative work. We never won an effectiveness award. If in three years time you could talk to me again and what we were doing was not only creatively acclaimed but also making a significant business difference to whoever we were working with, I would be a happy man.

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businessdynamics is a business education and enterprise charity that aims to bring business to life for young people. Volunteers from companies introduce students, aged 14-19 years, to the opportunities and challenges of business as well as improving their key skills in preparation for the world of work. This is done through a variety of programmes. businessdynamics is supported by most of the top companies in the UK as well as Government. www.businessdynamics.org.uk

RSA
The Royal Society for the encouragement of Arts, Manufactures & Commerce was founded in 1754 to encourage the development of a principled and prosperous society. Today the RSA runs a programme of projects and lectures based around five manifesto challenges: encouraging enterprise; moving towards a zero waste society; fostering resilient communities; developing a capable population; and advancing global citizenship. www.rsa.org.uk